Sector of Indian Economy Notes for UPSC CSE

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Sector of Indian Economy Notes UPSC

Agriculture Sector of Indian Economy

Doubling Farmers income

Current Situation 

  1. The existing yield levels of a majority of crops remains much lower than the world average. The predominant causes are low irrigation, use of low quality seeds, low adoption of improved technology, and knowledge deficit about improved agricultural practices.
  2. Close to 53 per cent of cropped area is water stressed.
  3. Staple crops (cereals, pulses and oilseeds) occupy 77 per cent of the total gross cropped area (GCA) but contribute only 41 per cent to the output of the crop sector
  4. Area under micro irrigation has grown 2.5 times in the last four years.
  5. Given the pre-dominance of small and marginal farmers in Indian agriculture, affordability becomes a significant constraint on technology adoption by farmers.
  6. Both production and marketing suffer due to the absence of adequate capital.
  7. Low scale is a serious constraint on the adoption of improved practices and in the input and output market.
  8. SAMPADA scheme targets creation of food processing infrastructure.
  9. Access to institutional credit remains a constraint, especially in the case of tenant farmers.
  10. Indian farmer uses 10 time more water than the Chinese
  11. Soil health card once in three years

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Way Forward for Agriculture Sector of Indian Economy

  1. 10% growth rate required
  2. Irrigation coverage needs to be increased to 53 per cent of gross cropped area (GCA) by 2022-23
  3. States should aim to increase the seed replacement rate (SRR) to 33 per cent for self-pollinated crops and 50 per cent for cross-pollinated crops in alternative years.  [SRR – total cropped area was sown with certified seeds in comparison to farm saved seeds]
  4. Strengthen SHC scheme to ensure SHC based fertilizer distribution at the ground level.  Make SHCs mandatory for subsidies
  5. Prioritise value added extension services to enable a reduction in postharvest losses by converting raw agricultural produce to processed products.
  6. Recycling and utilizing agricultural waste would give a further filip to farmers’ income.
  7. Ponds created through MGNREGA should be used to promote aquaculture (Integration of MGNREGA with blue revolution)
  8. The private sector should be incentivized to create a value chain for dairy product
  9. Encourage the participation of the private sector in agricultural development to transition from agriculture to robust agri-business systems.
  10. Promote through government policies the emergence of ‘agripreneurs’ so that even small and marginal farmers can capture a higher share of value addition from ‘farmgate to fork’.
  11. The Essential Commodities Act, which has proven a disincentive to large investment in agricultural technology and infrastructure, should be replaced with a modern statute that balances the interests of farmers and consumers.
  12. Replacing the minimum support price (MSP) by a minimum reserve price (MRP), which could be the starting point for auctions at mandis.
  13. A long-term solution lies in the creation of a competitive, stable and unified national market to enable better price discovery, and a long-term trade regime favourable to exports.
  14. Encourage states to adopt the Model Contract Farming Act, 2018
  15. Encourage states to adopt the Model Agriculture Land Leasing Act, 2016
  16. Complete digitization of land records is a must for effective implementation of land leasing.
  17. Moving labour out of agriculture into manufacturing will go a long way towards the goal of doubling farmers’ income. [ Chand, Srivastava & Singh (2017), nearly two thirds of rural income is generated in non agricultural activities]
  18. Agriculture infrastructure, such as rural markets, road, railways, warehouses, cold chain, farm machinery hubs and public irrigation need upgradation.
  19. Based on the recommendations of the Dalwai Committee on Doubling Farmers’ Income, the number of additional markets required comes to 3,548.
  20. Village level collection centres for fruits and vegetables should be linked to larger processing units.
  21. A greater focus should be placed on the food processing industry for enhancing value addition in vegetable and fruit crops
  22. PM krishi Sichai Yojana
  23. Ideal N:P:K ratio 4:2:1 (In India 8:3:1)
  24. Forward market

Status of digitisation of land records

  1.  National Land Records Modernization Programme
  2. Dharani Portal – Telangana
  3. Maharashtra – 7/12 available online

Seed replacement rate

Why it is low?

  1. High cost of seed
  2. Non availability in remote area

What to do?

  1. Seed village – Group of people from a village trained to fulfill demand of their and their neighbouring villages
  2. R&D in seed development to reduce cost

GM crops challenges

  1. Concerns raised by experts
  2. May harm biodiversity
  3. Forced farmer to buy from same company

Conclusion

Use judiciously

Organic Farming

  1. Avoid use of synthetic fertilisers
  2. Relies on crop rotation, bio fertilisers, bio pesticides
  3. Higher prices to farmers with less cost
  4. Sikkim first organic state

Problems in organic farming

  1. Yield is lower
  2. Shelf life is lesser

ZBNF vs Organic farming

Four pillars of zero budget natural farming
  1.  Main difference that ZBNF is farmer oriented A desi Cow based method ,while organic farming is a similar to chemical farming where some big componies evolved.

APMC Issue

  1. Origin – To avoid farmers exploitations from middle man

Problems

  1. Cartel formation
  2. Multiple entry and other fees

Model AMPC Act

  1. Traders can sell Perishables outside the APMC markets
  2. Cap on
  3. Commission paid by a Farmer
    • 4% for perishables, 2% for non-perishables
  4. Market Fees
    • 2% for fruits and vegetables
    • 1% for food grains
  5. Single license for agriculture trade
  6. Covers both Agriculture as well as Livestock trade
  7. Farmers can directly sell to bulk markets
  8. All regulatory power will lie with the office of Director of Agriculture Marketing
  9. Currently the APMC board decides
  10. Promotion of
  11. Inter state Trade
  12. E – Market

E Nam

  1. Connect APMC mandis across India
  2. Real time price discovery

Other initiatives

  1. Coffee board has launched blockchain based e marketplace
  2. Gram – Owned by local bodies

Agri Export Policy

  1. Double agri export by 22 ($30 billion to $60 billion)
  2. Diversify export basket – Frozen vegetables, aromatic oils, processed food
  3. Diversify destinations – Uganda, Nigeria, Kenia
  4. Branding and packaging

MSP

A2 + FL & C2+FL * 1.5

Benefits

  1. Prevents distress sell
  2. Informed decision making
  3. MSP sends price signal to the market

MSP limitations

  1. Confined to big towns, difficulties for remote areas
  2. Not done for pulses and oil seeds and also confined to rice and wheat (Remain on paper)

Controlling food inflation

  1. Minimum export price – Price below which commodity can not be exported from India
  2. During inflation raise MEP -> Frequent revision creates uncertainty
  3. ECA
  4. FCI would sell grains in open market sales
  5. Price stabilisation fund
  6. Operation green -> For TOP crops

Farmer producer company

  1. Enable small farmers to setup company and combine their land holdings
  2. Minimum 10 farmers

R&D challenges

  1. Least preferred field
  2. less than 1% spending
  3. Salary structure -> Prefer foreign
  4. Cereal centric
  5. Lab to farm and farm to fork
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Manufacturing Sector of Indian Economy

Industrial Revolutions

  1. 1.0 – Steam engine
  2. 2.0 – Electricity
  3. 3.0 – Computer technology
  4. 4.0 – Cyber physical system

4th IR

  1. A cyber-mental (also styled cyberphysical) system (CPS) is a system in which a mechanism is controlled or monitored by computer-based algorithms.
  2. It brings revolution in the economy using advances in artificial intelligence (AI), robotics, the Internet of Things (IoT), 3D printing, genetic engineering, quantum computing, and other technologies
  3. Minimizes wastages using AI

Isn’t it is extension of third revolution?

  1. it is where humans meet the cyber world – Devices are becoming integral parts of us
  2. Scale of production increase is much more than a continuous increase

Circular Economy

  1. In a circular economy resources are kept in use as long as possible using methods like reusing, recycling, repairing, renting
  2. Aim at reducing wastages and resource use

Ways in which countries grow?

  1. Minerals and energy resources
  2. Tourism
  3. Technological advancement
  4. Manufacturing

Demographic dividend

  1. Economic growth potential in which share of working age population is more than dependent population

Why there is need to shift from agriculture?

  1. Small farmers -> Land consolidation
  2. Lewis model
  3. Disguised unemployment

Make in India

Objectives

  1. Promote India as global hub for manufacturing of goods and services
  2. 25% share of Manu in GDP

How ?

  1. Relaxing FDI norms
  2. Tax incentives
  3. Infra creation
  4. EODB
  5. Relaxing labor laws
  6. Innovation
  7. R&D

Progress made so far

  1. 63 Rank in EODB
  2. Nokia, Samsung, Xiomi factories

Challenges

  1. Global slowdown
  2. Labor laws
  3. Unskilled population
  4. Land acquisition
  5. Contract enforcement
  6. Infrastructure (Ports have less capacity)

Start up India

Start up

  1. Not older than 7 years (10 biotech)
  2. Annual turn over < 25cr

Incentives

  1. 3 years exemption in corporate taxes
  2. Relaxed norms for public procurement
  3. Start up incubation centre

Terms related to startups

  1. Unicorn – 1 billion $
  2. Maharashtra Highest start up registration
  3. Top sectors – IT>Health care>Education>Professional services>Food

Start up problems

  1. Valuation game – Increasing sale to increase valuation
  2. Merger game

Ease of doing business

  1. 63 rank
1Resolving Insolvency10852+56
2Construction Permits5227+25
3Trading Across Borders8068+12
4Registering Property166154+12
5Paying Taxes121115+6
6Getting Electricity2422+2
7Starting a Business137136+1

How to improve it ?

A) Labor reforms

Current laws

  1. Minimum wages act 1948
  2. Payment of wages act 1936
  3. Payment of bonus act 1965
  4. Equal remuneration act 1976
  5. Idustries (Regulation and Development) Act of 1951.
  6. Industrial Disputes Act, 1947.
  7. Factories Act of 1948.
  8. Contract labour Act 1970.
  9. Trade Unions Act 1926


Current situation

  1. More than 200 labor laws
  2. 92% informal
  3. Industrial dispute act – Employing more than 100 workers to seek permission from their respective state governments to retrench or lay off workers
  4. The Trade Union Act allows formation of trade union in firms having more than any seven workers provide right to strike. The multiplicity of unions becomes a potentially difficult situation for employers to manage.
  5. Contract Labour Act regulates and restricts the use of contract labour.
  6. These laws discourage firms from employing a large number of permanent workers and steer them towards employing more casual or contract workers

Proposed labor codes

  1. Labour Code on Wages
    1. National floor rate of Wage for different geographical areas
    2. No discrimination on the basis of gender
    3. Inspector cum facilitator to remove malpractices
  2. Labour Code on Social security
    1. percentage-based structure for social contribution
    2. Gig based economy under social security
  3. Labour Code on Industrial relations
    1. 300 for retrenchment
    2. union will be recognised only if it has support of 75 per cent or more workers. [Rajasthan example]
    3. Amended the definition of “strike” to bring “mass casual leave” within its ambit
  4. Labour Code on Occupational safety, health and working condition
    1. Annual health check up,
    2. At least 50% of penalty levied on employers could go towards providing some relief to families of workers who die or are seriously injured while working

B) Fixed term employment

  1. Entitled to all benefits
  2. 2018 – Permitted in all sectors
  3. Based on order industries can hire
  4. Loss of Job security
  5. Creates competitiveness

C) National Minimum wages

Issues

  1. Large parity among states thus migration
  2. Does not cover all workers
  3. Gender discrimination – Guard vs Domestic workers

Suggestions

  1. National Common wages (Anup Sathpathy Committee)
  2. Periodic update based on CPI
  3. UAE – Pay all worker in banks
  4. US – Apps to notify minimum wages

D) RERA

  1. Register project on RERA site
  2. If defects found in 5 years repair it
  3. Escrow account

E) Land acquisition

Paradigm shifts from land Acquisition Act, 1894 to the LARR Act, 2013
Land Acquisition Act UPSC

Issues

  1. Emotional attachment
  2. Rehabilitation issues
  3. Opportunitism by NGO and political leaders

Solution

  1. Land pooling – Land Pooling is a concept that where small chunks of land are owned by group of owners who assemble for the development of infrastructure as per the provisions of the Delhi Development Act 1957. After the development of the land, the Land Pooling agency redistributed the land after deducting some portion as compensation towards infrastructure costs.
  2. Rehabilitation – In time bound manner
  3. Priority for jobs

F) Contract enforcement

  1. biggest constraint to ease of doing business in India is now the ability to enforce contracts and resolve disputes.
  2. 3.5 crore cases pending in the judicial system

How to clear jam ?

  1. Zero accumulation on existing cases
  2. A case clearance rate of 100 per cent (i.e. zero accumulation) can be achieved with the addition of merely 2,279 judges in the lower courts and 93 in High Courts even without efficiency gains.
  3. In order to clear all the backlog in the next five years, further 8,152 judges are needed.
  4. To clear all backlogs in the next five years, the High Courts need a further 361 additional judges.
  5. Increase number of working days
  6. National Institute of Public Finance and Policy put it, “For effective functioning, courts require competent administration – Establishment of Indian Courts and Tribunal Services
  7. Technology – Digitisation of cases

G) Skilling of workforce

H) Infrastructure development

Textile Sector

Challenges

  1. Steep competition from Bangladesh and Ethiopia
  2. Export potential is limited due to infrastructure bottleneck

Solution

  1. Moving sector to the rural area
  2. Focus on the technical textile and fashion

MSME

Definition

  1. Based on Investment (2018 bill turnover)
  2. Micro – 5 crore
  3. Small – 75 crore
  4. Medium – 250 crore

Contribution

  1. 40% of manufacturing
  2. 40% export

What Survey Says

  1. Small firms with less than 100 employees – 14% employment & 8% productivity
  2. Large firms – three quarter employment & 90% productivity
  3. Large firms create permanent jobs in larger numbers
  4. 55-60 lakh jobs will have to be created annually over the next decade
  5. Higher levels of job creation in small firms co-exist with job destruction, thereby leading to lower levels of net job creation (Li and Rama, 2015)

THE ROLE OF POLICY IN FOSTERING DWARFISM

  1. India has plethora of labor laws. It exempts smaller firms from complying with these legislations.
  2. Flexibility in labour laws creates a more conducive environment for growth of industry and employment generation. [Number of firms with 100 employees or more have increased at a significantly higher rate in Rajasthan than in the Rest of India.]
  3. benefits provided to small scale firms irrespective of their age create perverse incentives for firms to remain dwarfs [PSL, purchase preference, credit guarantee]
  4. effect of de-reservation on net job creation (negative in the case of job destruction and positive in the case of job creation) [Martin, Nataraj & Harrison]
  5. SSI reservation have resulted in substantial misallocation of resources and productivity losses to the Indian economy [Santana et al]
    1. lower the average capital to labour ratio
    2. the lower capital accumulation, the overall demand for labour and the market wage rate are much lower
    3. inefficient allocation of managerial talent, which in turn affects productivity.
    4. Hence high price -> Uncompetitive

Way Forward

  1. Incentives should have sunset clause
  2. Incentivizing ‘infant’ firms rather than ‘small’ firms
  3. Incentive to only one owner at a time – Adhar based system
  4. Focus on High Employment Elastic Sector
  5. Re-orienting the policy stance to foster the growth of MSMEs and thereby greater job creation and productivity in the economy.
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Challenges to MSME

  1. Self funded
  2. Lack of professionality
  3. Poor connectivity to market
  4. Marketing
  5. GST compliance

Solution

  1. With Mudra loan professional support
  2. Backward forward linkages
  3. Linking MGNREGA to the MSME
Indicative planning vs Imperative Planning UPSC

Unemployment

Voluntary unemployment

  1. A person is out of job on his own choice

Involuntary unemployment

  1. It is a situation where a person is willing to work at the prevailing wage rates but unable to find a work due to factors beyond his control

Types

  1. Cyclical – Economy goes through boom and recession cycle. This unemployment mainly occurs during recession
  2. Frictional – Searching for another job. In transition time he is unemployed
  3. Disguised – His marginal productivity is 0
  4. Seasonal – In summer
  5. Underemployment – Person is employed but bot corresponding to his qualification
  6. Technological – Men are replaced with machines (Reskilling is required ) [WEF – 75 million jobs will lost but 133 million jobs will be created in the robotics field]
  7. Open/Structural – Jobs are available, but there is a serious mismatch between what companies need and what workers can offer.

Some definitions

Labor force – Working + who is seeking to available for work

Unemployment rate – Involuntary unemployed / Total labor force

LFPR – Labor force/total population

Worker population ratio – No of workers per thousand population
Proportion Unemployed (PU) – It is defined as the percentage of persons unemployed in the population.

PLFS (Based on usual status)

data

  1. work force participation rate (WPR) 35% (In 2011 39%)
  2. 2011-12 to 2017-18 witnessed an increase in unemployment rate in India, reaching a 45-year high (6.1%)
  3. Rural – 5.3% (3.5%)
  4. Urban – 7.8% (10%)
  5. The Labour Force Participation Rate (LFPR) in India has declined to 36.9%
  6. LFPR – Female – 24% ; Male – 71%
  7. Meghalaya – 50% Bihar 4% Female LFPR
  8. Agri sector – 44%; Industry – 24%; Service – 32%
  9. Rise in formal employment
Percentage share of usually unemployed in selected age group UPSC

Why we can’t compare PLFS & EUS data on unemployment ?

In a June research paper, Soumya Kanti Ghosh, group chief economic adviser of State Bank of India (SBI), has argued that the weights used in PLFS and EUS are different

The PLFS weights are based on the education level of households and give a larger weight to households with more 10th grade pass members aged 15 or above. The weights of EUS, on the other hand, are based on expenditure/livelihood of households.

Reasons for unemployment

  1. Slowdown
  2. Pay scale
  3. Lack of industry and academic cohesion
  4. Lack of vocational training
  5. Mindset

Way forward for job creations

  1. Labor intensive sector – food processing, leather and footwear, wood manufacturers and furniture, textiles and apparel and garments.
  2. MSME growth
  3. Formalisation of workforce to increase social security
  4. Expansion in export market by developing Coastal Employment Zone
  5. Infrastructure
  6. public investments in health, education, police and judiciary for capability development
  7. shed its service-led structure and transform into an innovation-driven economy

Women labor force participation

  1. Currently 24%
  2. Suggest that India’s GDP could expand 27 percent if the number of female workers increases to the same level as that of men

Reasons

  1. Lodging, safe and convenient travel, migration support and childcare
  2. greater enrolment into higher education
  3. Global Wage Report 2018-19, India has one of the highest Gender Pay Gap of 34%.
  4. Husband Income effect
  5. After maternity difficulties in getting jobs
  6. Gendering of occupations often leads to women having little choice in their employment and work decisions

Solutions

  1. Incentives for the companies to hire women
  2. Pubic transport
  3. Behavioural changes – as redefining the role of men in household
  4. forums for informal and formal mentorship and connections to female role models

Inflation

  1. It is rise in general level of prices of goods and services in an economy over a period of time

Inflationary spiral / Built in inflation

When inflation increases workers demand higher wages to keep up with the cost of living. It increases cost of production further fuelling inflation.

Repressed inflation

Govt imposes price control and rationing to keep prices under check however the moment such controls are withdrawn prices will go up (To recover losses)

Stagflation – High unemployment + High inflation

Skewflation – Rise in price of small group of commodities

Headline inflation – Measure of total inflation

Core Inflation – Headline inflation – Inflation in food and energy

Reflation – Fiscal and monetary measures that puts economy from deflation to the inflation

Structural Inflation – caused by structural bottlenecks and policies of the government

Creeping inflation – 4% per annum. Its regarded as safe and essential for job creation and economic growth

Walking/Trotting inflation – >4%

Galloping/Hyper inflation – Very high level of inflation

Inflation & Forex

Since rupee’s purchasing power declines currency will depreciate

Laspeyre Index – change in the price of the basket of goods to the base year (CPI)

Paasche index Todays basket (GDP deflator )

Fisher index – GM of both

CPI

  1. Food & Beverages – 45%
  2. Service – 20%
  3. Housing – 10%
  4. Fuel & light – 6.8%

IIP

Classifies industries in manufacturing(77.6%), Mining(14.73%) and electricity sector  (7.99%), published by CSO on monthly basis. It is simple weighted arithmetic mean of production relatives by using Laspeyre‘s formula.

Is Indian economy is in stagflation ?

Stagflation occurs when the government or central banks expand the money supply at the same time they constrain supply.

  1. January Headline CPI – 7.59
  2. Core – 4%
  3. WPI – 3.1%

Lets wait

GDP

Market value of all goods and services produced within the domestic territory of the country.

GDP Calculation Methods

Expenditure Methods

  1. C+I+G+X-M
  2. GDP at market price is arrived

Production method/GVA method

  1. GVA = Value of final – Intermediate
  2. GDP at MP – GDP at FC – subsidies + indirect taxes

Net GDP =  GDP – Depreciation (Depreciation is accounting concept)

GDP deflector is price index (Not much use as currently lag is of one year)

Foreign aid is remittances from abroad and hence counted in GNP

NNP = GNP – Depreciation

NI = NNP at factor cost

GVA = GDP + Subsidies – Taxes  (at basic prices)

GVA @ Basic price = GDP @ Factor cost + production tax – production subsidies

GDP at market prices = GVA at basic prices + Product taxes- Product subsidies

Market price = Factor Cost + Indirect Tax – Subsidies

National disposable income = NNP at MP + Other current transfer from rest of the world

  1. It is considered more accurate thus used to calculate discrepancies. (official GDP figures presented in production method but calculated using all three methods)
  2. India GDP 2.6 lakh crore US dollars

Income Method

  1. W + R + P +I

Back series debate

  1. Sir base year changed to 2011-12 from 2004 -05. Thus new GDP data was reproduced for the 2005-2011 it is called back series data.

Indian Economy at 5 trillion $

  • Nagraj – 9% growth
  • Economic survey – 8% growth required (Given 4% inflation)
  • Is it possible? -> Yes look at China and Japan and East Asian countries
  • Private investment is key driver
  • A virtuous cycle of savings, investment, exports and growth with investment as the “central driver”
  • Strong correlation between investment as measured by the Gross Capital Formation and GDP growth in China and East Asian countries
  • A high investment effort must be backed by domestic savings (Needed good paying job)
  • Debate over labor intensive vs capital intensive – China example how high investment led to job creation
  • Computer replaced blue collar job with white collar job
  • As share of consumption will be constrained by high level of saving hence demand for created capacity should came from export
  • capital investment enhances total factor productivity, which in turn enhances export performance. Therefore, investment becomes crucial to enhancing export performance
  • Use of data for recalibration of economy in constant disequilibrium
  • Growth in the new economy cannot be fostered without an ecosystem that rewards innovation and entrepreneurship

Issues

  • Legal sector
  • Trade war -> Dr Surjit Bhalla, submitted its report in June 2019 on how India can enhance its exports. Its recommendations need to be studied and implemented where possible
  • ensuring policy consistency
  • Corona virus
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Indian Statistics

Prof PC Mahalanobis who was known as ‘father of Indian Statistical System’

General Issues with Indian Statistics

  1. Data sources are not available readily
  2. Divergence in definitions and criteria- of different indicators, which are used by various agencies.
  3. 93% Unorganised sector
  4. Time lag

Problems with faulty data

  1. Act as signalling for investment
  2. Faulty policy response

Changes made with the GDP data

  1. Change of base year to 2011-12
  2. Considering GDP at market prices as headline GDP instead of GDP at factor cost, to make the new calculation more consumer-centric.
  3. Incorporation of MCA21 database: Ensuring comprehensive coverage of corporate sector in mining, manufacturing & services. (Index of industrial production was earlier used) [Distorted state level GDP estimation]
  4. Broader coverage of financial sector by including data from various bodies
  5. Informal sector grew same as formal sector

Solution

  1. As recommended by the Rangarajan Committee, the NSO should work as the nodal body for all core statistical activities, but it should work under a separate body, which is directly answerable to the Parliament, not the government.

Subramaniam GDP Debate

  1. He argued GDP figures over estimated by 2.5% (Period 2011-2016)
  2.  looked at 17 such indicators and found that “the correlations between most indicators and GDP growth broke down in the post-2011 period
  3. Analysis of tax data not included because change in law have render their relationship unstable with GDP data

Counter

  1. Dr. Sen – Arvind focused on volume indicators. Post 2011 we moved from volume indicators to value indicators
    • Arvind reply – Under old system price changes matter less because of volume, under new system price has greater role to play
    • Dr Sen – Acknowledge this problem. However prices has impact but direction is unknown. Hence there is only overestimated growth is not correct
  2. 17 Indicators look at industry only, however 80% GDP comes from service and agriculture
  3. Law changed after assessment period
  4. Methodology in line with global standard

Conclusion

Creation of a taskforce to revisit the entire methodology and implementation of GDP estimation.

Recession Vs Slowdown

Recession is negative growth in two successive quarters (Fall in GDP)

An economic slowdown occurs when the rate of economic growth slows in an economy.

Is there any recession ?

Yes

  1. Below 5% growth rate (Global 3%)
  2. Textile export down by 30%
  3. FMCG demand slowing down
  4. Automobile sector slow down – Maruti 3000 employee lay off; Hero – Shut down of plant for a week
  5. Volatility in sensex
  6. Unemployment 6.1% (PLFS)

No

  1. Soumya Kanti Ghosh (SBI economist) – It is behavioural change as taste of people changing
  2. Amazon India had – We are not seeing sign of recession, Mass hiring
  3. IT sector is not showing signs of slow down

Reason

  1. Pessimism among investor (Animal Spirit)
  2. Escalation in trade tension between the two largest economies — US and China
  3. Corona Virus
  4. Iran USA and Oil
  5. On the supply side, the deceleration in GDP growth has been contributed generally by all sectors save ‘Agriculture and allied activities’ and ‘Public administration, defence, and other services’.
  6. On the demand side, the deceleration in GDP growth was caused by a decline in the growth of real fixed investment induced in part by a sluggish growth of real consumption.
  7. In case of India, the lag between rate of fixed investment and its impact on GDP growth is seen to be of three to four years and the impact of GDP growth on consumption growth gets reflected in one to two years.
  8. The fixed investment rate has started declining sharply since 2011- 12 and subsequently plateaued from 2016- 17 onwards which led to the deceleration in growth since 2017-18.
  9. Liquidity crunch – Demonetisation, Late GST refund, Structural lag
  10. Dual balance sheet problem of bank
  11. IBC -> Immediate effect closing of companies -> Job loss -> Fall in demand

Structural vs Cyclical

Structural Slowdown

  1. The changes, which last over a long-term, are driven by disruptive technologies, changing demographics, and/or change in consumer behaviour.
  2. Soumya Kanti Ghosh arguments

A cyclical slowdown

  1. period of lean economic activity that occurs at regular intervals.
  2. Fiscal + Monetary measures

Indian Scenario

Arvind Subramanium

In a nutshell, they argue that Indian economy is facing both structural (that is, more long-term issues related to the overall framework of the economy such as the flexibility or inflexibility of labour laws etc.) and cyclical (that is, more short-term issues such as a bad monsoon that disrupts production of food articles etc.) challenges.

Cyclical (Till 7%)

  1. Investment – 34.3 per cent in 2011 to 28.8 per cent in 2018
  2. Consumption – Changing pattern, automobile, FMCG
  3. Tight monetary and fiscal policy
  4. Demonetisation GST -> Hoarding of black money

Structural (Above 7%)

  1. EoDB

Automobile Slowdown

Reasons

  1. NBFC crisis: Nearly half the vehicles sold in rural markets are financed by non-banking financial companies (NBFCs)
  2. Policy reset – Meddling by multiple ministries and policy flip-flops like leapfrogging from BS IV to BS VI, sudden diesel ban, New axle load norms and EV thrust have hurt sales
    • The lack of a clear migration policy towards Electric Vehicles (EV) creates confusion among buyers, contributing towards a reduction in auto sales
    • Delaying purchases to buy BS IV compliant engines
  3. Multiple shocks: Starting with demonetization, many decisions like GST roll-out and multi-year insurance have weighed heavy on consumers.
  4. Tech-led shared mobility from firms such as Ola and Uber have dented demand in urban market
  5. Growing organised pre-owned vehicle market

Business cycle

  1. Business cycles are the rise and fall in production output of goods and services in an economy. The stages in the business cycle include expansion, peak, recession
  2. How it occur? – Monetary policy, fiscal policy, interest rate & inflation

What is Animal Spirit ?

This is a term that refers to the emotions and instincts that guide the behaviour of investors and consumers in a market economy. It was coined by British economist John Maynard Keynes in his 1936 book The General Theory of Employment, Interest, and Money, to explain the persistence of economic fluctuations under capitalism. Keynes argued that investment and consumption are often based on how people feel about the overall economy rather than on unbiased, rational analysis of facts. Critics have argued that while people are not perfectly rational, they are not completely guided by emotions either; hence, animal spirits cannot sufficiently explain economic cycles

Deleveraging is the process or practice of reducing the level of one’s debt by rapidly selling one’s assets.

CCI Reforms (Draft Bill)

  1. Imprisonment for non-compliance with directions of the Director General
  2. Commitment and settlement procedure in non-cartel cases
  3. Buyer side cartelisation now also included
  4. More expeditious combination review process
  5. Constitution of a Governing Board for non-adjudicatory functions.

Circular Economy

  1. NITI Aayog CEO said that Circular Economy has the potential to generate 1.4 crore jobs in next 5- 7 years.
  2. Model of production and consumption, which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials

Need

  1. Rise in consumerism
  2. Less resources
  3. Problems in waste management

Benefit

  1. Employment growth
  2. Reduce GHG emission

Blue Economy

  1. Blue Economy is the sustainable use of ocean resources for economic growth,
  2. covers several sectors linked directly or indirectly to the oceans
  3. 1% of GDP & 5% of Agri GDP

Middle income trap

  1. Countries that have experienced rapid growth and thus quickly reached middle-income status but then failed to overcome that income range to further catch up to the developed countries and achieve high-income status.

Why it occurred ?

  1. Backlash against globalization
  2. Lack of development in human capital
  3. Lack of structural reform
  4. High base

Give solution on this

NATIONAL FINANCIAL REPORTING AUTHORITY

It is established as an independent regulator to oversee the auditing profession and accounting standards.

Digital Economy

  1. 8 per cent of India’s GVA in 2017–18

National mineral policy

Need

  1. just 1-2 per cent contribution to GDP over the last decade
  2. Lack of focus on exploration
  3. Need to address illegality in mining and environmental concerns
  4. Need to address concerns of intergeneratiolabornal rights

Feature

  1. Creation of dedicated mineral corridors to boost private sector mining areas.
  2. Granting status of industry to mining activity
  3. Introduces the concept of InterGenerational Equity that deals with the well-being not only of the present generation but also of the generations to come.

National Policy on Electronics 2019

Need

  1. Spillover effects of Electronics Industry
  2. Creating India as a global hub for Electronics System Design and Manufacturing

Strategy

  1. stablishing Electronic Manufacturing Clusters
  2. Encourage Industry-led R&D and Innovation
  3. Leveraging the Government e-Market Place (GeM) in the procurement of electronic products

NATIONAL DIGITAL COMMUNICATIONS POLICY 2018

  1. Connect India
  2. Propel India
  3. Secure India

GIG Economy

  1. A gig economy is a free market system in which temporary positions are common and organizations contract with independent workers for short-term engagements
  2. This is done to achieve advantage of cost, quality, and flexibility.
  3. Once the task is complete, the worker is free to move on.
Home » Sector of Indian Economy Notes for UPSC CSE
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