Monday, March 2, 2020

Service Sector

Economy - Service Sector

  • India’s services sector has not only outperformed other sectors of the Indian economy, but has also played an important role in India’s integration with world trade and capital markets.
  • There is, however, a concern about the sustainability of a services-led growth process which largely stems from exports of skill-based services.
  • The prevailing view is that for services growth to be sustained, the sector cannot remain dependent on external demand. It must also be driven by internal demand.
  • More broad-based growth within the services is also required to ensure balanced, equitable and employment oriented growth, with backward and forward linkages to the rest of the economy.
  • In this regard further infrastructural and regulatory reforms and FDI liberalization in services can help diversify the sources of growth within India’s services sector and provide the required momentum.
  • In recent years, there has been a debate in the country regarding the selection of the sector which can lead the growth process in the country. This debate originated from the fact that the services sector contributed over 62 per cent in the GDP during the decade 2001–12.
India and Global Services
Services sector have been hit hard after the Great Recession among the western developed economies. Rather during 2017 there was a strong signal of recovery reported from this part of the world which had a positive impact on the services-oriented countries. Latest features about the services sector at global and India levels are as given below:
  • As per the latest data4, India’s ranking improved from 14th position in 2006 to 7th position in 2016, among the world’s 15 largest economies in terms of overall GDP.
  • In 2016, services GVA growth rate (at constant prices), was highest in India at 7.8 per cent followed by China at 7.4 per cent. As per the ILO’s estimates, among the top 15 economies, the services sector accounted for more than two thirds of total employment in 2016 in most of them except India and China, with India’s share of 30.6 per cent being the lowest.
  • Services export growth, both for World and India, which had dipped to negative territory in 2015 after an interregnum of six years from 2009, returned to positive territory in 2016.
  • As per the latest WTO data for 2017 (first half) world’s services export growth was 4.3 per cent while it was 9.9 per cent for India (0.2 per cent for China and the highest 18.4 per cent for Russia).
Services Performance of India
Major feature of India’s services performance are as given below:
  • Out of the 32 States and UTs, it is the dominant sector, contributing over 50 per cent of the gross state value added (GSVA) in 15 states and UTs. The major services in most of the states are trade, hotels and restaurants, followed by real estate, ownership of dwellings and business services.
  • The GVSAs show wide variation in terms of share and growth of services—Delhi and Chandigarh are at the top with over 80 per cent share, while Sikkim is at the bottom with 31.7 per cent share.
  • In terms of services GSVA growth, Bihar is at the top and Uttar Pradesh at the bottom with 14.5 per cent and 7.0 per cent growth respectively in 2016-17.
FDI Inflows into Services Sector
  • FDI data from the Department for Promotion of Industry and Internal Trade shows that gross FDI equity inflows (excluding re-invested earnings) into the services sector witnessed a strong recovery during April-September 2019 following a decline in 2018-19.
  • Gross FDI equity inflows jumped by 33 per cent YoY during AprilSeptember 2019 to reach US$ 17.58 billion, accounting for about two-thirds of the total gross FDI equity inflows into India during this period.
  • The jump in FDI equity inflows was driven by strong inflows into subsectors such as ‘Information & Broadcasting’, ‘Air Transport’, ‘Telecommunications’, ‘Consultancy Services’ and ‘Hotel & Tourism’.
Trade in Services Sector
  • RBI’s Balance of Payments data suggests that services exports during April-September 2019 maintained their momentum from 2018-19, with a growth (YoY) of 6.4 per cent.
  • The jump in export growth of travel, software, business and financial services offset the contraction in export growth of insurance and other services (including construction, etc.)
  • The robust growth in business services exports was driven by higher receipts for R&D services, professional and management consultancy services, and technical and trade related services.
  • Trends in the composition of services exports over the past decade show that the shares of traditional services, such as transport, and value-added services, such as software, financial services and communications, have witnessed a decline.
  • Meanwhile, the share of travel services has increased over the past decade and that of business services has risen slightly.
  • The share of software services has declined by 4 percentage points over the past decade to reach 40 per cent of total services exports in 2018-19.
  • Yet, India’s services exports remain concentrated in software services, accounting for twice the share of the second-largest component, business services.
  • This has made the software sector, and therefore overall services exports, susceptible to changes in exchange rate, global IT spending, stringent USA visa norms, and rising cost pressures due to increased local hiring in export destinations.
  • Even though global IT spending, as projected by Gartner in October 2019, is expected to accelerate in 2020, rising production costs and uncertainty related to Brexit and USA’s visa norms pose downward risks to India’s software exports.
  • Services import growth (YoY) during April-September 2019 was 7.9 per cent.
  • An increase in import growth for transport, software, communication and business services offset the contraction in imports of financial and insurance services and the slowdown in imports of travel services.
  • Increased business services payments were primarily driven by professional, management and consultancy services and technical and trade related services.
  • Besides software services, India runs a small trade surplus in travel, insurance and financial services.
  • However, within travel services, India persistently runs a trade deficit in education services with education imports, i.e., expenditure incurred by Indian students traveling abroad for education purposes on tuition, room and boarding, reaching about US$ 3 billion in 2018-19.
  • Adding to this other payments for education purposes such as fees paid for correspondence courses abroad, which constitute as payments for receiving education services abroad, there has been a marked increase in India’s education services imports in the recent years amounting to US$ 5.0 billion in 2018-19.
  • From a long-run perspective, India’s focus on boosting services exports during bilateral trade negotiations augurs well for mitigating bilateral trade deficits with trading partners.
  • Looking ahead, world trade volume for goods and services are projected to recover in 2020 following a deceleration in 2019.
  • Global uncertainty, protectionism and stricter migration rules would be key factors in shaping India’s services trade ahead.
Manufacturing vs. Services
  • All the focus being on the manufacturing exports in India has distracted attention from what might be a no less noteworthy development.
  • In past few years, it is India’s exports of services that has changed in the most significant, and perhaps alarming, way.
  • What makes this development puzzling is that in recent years the composition of Indian exports of services is more favourable than that of Indian exports of manufactured goods. More of the former goes to the United States, and more of the latter to Asia.
  • Realising India’s medium-term growth potential of 8-10 per cent will require rapid growth of exports.
  • How rapid this should be is suggested by comparing India’s export performance in services with China’s performance in manufacturing at a comparable stage of the growth surge.
  • India’s competitiveness will have to improve so that its services exports, currently about 3 per cent of world exports, capture nearly 15 per cent of world market share. That is a sizeable challenge, and recent trends suggest that a major effort at improving competitiveness will be necessary to meet it.
Global negotiations
India aims to position itself as a key player in world services trade. To promote services exports, the government has taken a number of policy initiatives – SEIS (Service Exports from India Scheme) for increasing exports of notified services from India; organising GES (Global Exhibitions on Services); and SCs (Services Conclaves). Besides, some initiatives in sectors like tourism and shipping have also been taken in this regard. Given the potential of India’s services exports, services-sector negotiations both at multilateral and bilateral and regional levels are of vital importance to India. Some of the recent negotiations are as given below.
WTO negotiations
Though, the 11th Ministerial Conference (MC) of the WTO ended without a Ministerial Declaration or any substantive outcome, India saw certain favourable outcome from the 10th MC of the multi-lateral trade body
  1. Implementation of preferential treatment in favour of services and service suppliers of least developed countries (LDC) and increasing LDC participation in services trade;
  2. To maintain the current practice of not imposing customs duties on electronic transmissions (e-Commerce) until the next Ministerial Conference to be held in 2017.
  3. India, together with 20 other members have notified preferential treatment to LDCs in services trade. India has offered this in respect of:
    1. Market access
    2. Technical assistance and capacity building; and
    3. Waiver of visa fees for LDC applicants for business and employment.
    Bilateral Agreements
    The bilateral agreements signed by India in recent times are:
    1. Comprehensive bilateral trade agreements signed, including trade in services, with the governments of Singapore, South Korea, Japan and Malaysia. An FTA in services and investment was signed with the Association of South East Asian Nations (ASEAN) effective since mid2015.
    2. India has joined the RCEP (Regional Comprehensive Economic Partnership) pluri- lateral negotiations. The proposed FTA includes the 10 ASEAN countries and its six FTA partners, viz. Australia, China, India, Japan, South Korea and New Zealand. The RCEP is the only mega-regional FTA of which India is a part.
    3. India is also engaged in bilateral FTA negotiations including trade in services with Canada, Israel, Thailand, the EU, the EFTA (European Free Trade Association), Australia and New Zealand. Dialogue is under way with the US under the India-US Trade Policy Forum (TPF), with Australia under the India-Australia JMC (Joint Ministerial Commission), with China under the India-China Working-Group on Services, and with Brazil under the India-Brazil Trade Monitoring Mechanism (TMM).
    Restrictions and Regulations
    • One major issue in services is the domestic barriers and regulations.
    • Domestic regulations, in strict WTO terms, include licensing requirements, licensing procedures, qualification requirements, qualification procedures, and technical standards but here other restrictions and barriers are also considered.
    • While there are many domestic regulations in our major markets, which deny market access to us and therefore need to be negotiated at multilateral and bilateral levels, there are also many domestic regulations in India which hinder the growth of this sector.
    • Since domestic regulations perform the role of tariffs in regulating services, there is need to list the domestic regulations in India which need to be curbed to help growth of the sector and its exports, while retaining those which are necessary for regulating the sector at this stage.
    • An indicative list of some important domestic regulations in India which need to be examined for suitable policy reforms9 in the services sector is as follows:
      • trade and transport services
      • construction development
      • Accountancy services
      • legal services
      • education services
    The need for reforms
    • Indian services sector have the potential to garner higher economic benefits to the country.
    • But there are many issue both general and sector specific including domestic regulations hinder the growth prospects of the services sector.
    • If these issues are addressed deftly the sector could lead to exponential gains for the economy.
    • The need of policy reforms in this regards are outlined in the following way:
    General Issues
    There are some general issues related to the policy framework which hamper the healthy growth and expansion of the services sector in the country. They are broadly related to the following areas:
    Nodal agency and marketing:
    Despite having strong growth potential in various services sub-sectors, there is no single nodal department or agency for services. An inter-ministerial committee for services has been set up to look into this. But services activities cover issues beyond trade and a more proactive approach and proper institutional mechanism is needed to weed out unwanted regulations and tap the opportunities in the services sector in a coordinated way.
    Disinvestment:
    There is plenty of scope for disinvestment in services PSUs under both central and state governments. Speeding up disinvestment in some services-sector PSUs could not only provide revenue for the government but also speed up the growth of these services.
    Credit related:
    The issues here include ‘collateral free’ soft loans to support the sector’s cash needs and possibility of considering even export or business orders as collateral for credit-worthy service firms.
    Tax and Trade Policy related:
    These include use of ‘net’ instead of ‘gross’ foreign exchange criteria for export benefit schemes, the issue of retrospective amendments of tax laws like, 
    1. Amendment to the definition of royalty to include payment of any rights via any medium for use of computer software,
    2. Tax administrative measures to tackle delay in refunds,
    3. Introducing VAT (value added tax) refund for foreign tourists, and
    4. Addressing the issue of bank guarantees based on past performance to avail of export promotion benefits in services.
    Outlining future
    With plenty of opportunities, the services sector is like an uncharted sea. As yet, its potential has not been tapped fully by India. A targeted policy of removing bottlenecks in major and potential services can result in large dividends in the form of higher services growth and services exports, which in turn can help in pulling up the economy to higher growth levels. The future actions in the sector can be outlined as given below:
    1. India’s services sector, which showed resilient growth after the recovery of the global economy following the global financial crisis, has been showing subdued performance in recent times. Despite the slowdown, the prospects continue to be bright for many segments of the sector.
    2. In future, government’s focus on the following are expected to provide impetus to logistics services—
      1. infrastructure development,
      2. favourable regulatory policies like liberalisation of FDI norms,
      3. increasing number of multimodal logistics service providers,
      4. growing trend of outsourcing logistics to third party service providers, and
      5. entry of global players.
    3. Though shipping services are at a low key at present, with increased imports of POL (petroleum, oil and lubricants) for stocks build up to take advantage of low crude oil prices, containerisation of export and import cargo and modernisation of ports with private sector participation, recovery of the shipping and port services sector can be expected.
    4. The prospects for Indian aviation services have improved following—
      1. the fall in prices of aviation fuel, which accounts for nearly 40 per cent of the operating expenses of airlines in India;
      2. liberalisation of FDI policies in civil aviation; and
      3. strong growth in passenger traffic – expected to continue in the near future.
    5. The outlook for the retail industry remains positive as India continues to remain an attractive long-term retail destination despite the various challenges faced by the sector. Following initiatives are expected to give a fillip to the sector—
      1. allocation of Rs. 1000 crore to technology and start-up sectors,
      2. promotion of cashless transactions via RUPay debit cards, and
      3. growth of e-commerce.
    6. Government’s focus on the tourism sector including easing visas by eTV and building tourism infrastructure could help in the recovery of the tourism sector.
    7. Despite challenges in the global market, the Indian IT industry is expected to maintain double or near-double- digit growth as India offers depth and breadth across different segments of this industry, such as, IT services, BPM, ER&D, internet and mobility and software products.
    8. In the telecom sector, the introduction of 4G which could be a game changer and inclusion of fibre optic connectivity which will tremendously increase the reach and bandwidth along with greater use of mobiles in government’s social sector programmes could give a further boost to this fast growing sector.
    Several relevant and contemporary suggestions have been articulated by a Working Paper of the Ministry of Finance by late February 2016. Dealing with the sectors like tourism, shipping and port, IT and software the advices are deeper and effective

    Agriculture

    Economy - Agriculture

    Agriculture + Food Management
    • Agriculture remains the most important sector of the Indian economy, whether it be the pre independence or the post-independence periods.
    • This fact is emphatically proved by the large number of people who depend on it for their livelihood.
    Some of the special features of Indian Agriculture are mentioned below:
      • From the monetary point of view the share of the agriculture sector in the economy remains at 17.4 per cent of the GDP.
      • From the livelihood point of view still 49 per cent of the people of India depend on the agriculture sector.
      • Agriculture is not only the biggest sector of the economy, but also the biggest private sector too. It is the only profession which still carries no burden of individual income tax.
      • This is the biggest unorganized sector of the economy accounting for more than 90 per cent share in the total unorganized labor-force.
      • India has emerged as a significant agri-exporter in few crops, namely—cotton, rice, meat, oil meals, spice, guar gum meal and sugar.
      • According to the export figures, agriculture is deeply related to industrial growth and the national income in India—1 per cent increase in the agricultural growth leads to 0.5 per cent increase in industrial output (growth) and 0.7 per cent increase in the national income of India.
      • Productivity of major crops are lower in case of India in comparison to the world’s best practice.
    Land-tenure systems
    Three types of land-tenure systems existed in pre-independent India:
    The Zamindari system 
    • Zamindari System (also known as Permanent Settlement System) was introduced by Cornwallis in 1793 through Permanent Settlement Act.
    • It was introduced in provinces of Bengal, Bihar, Orissa and Varanasi. Zamindars were recognized as owner of the lands.
    • Zamindars were given the rights to collect the rent from the peasants.
    • The realized amount would be divided into 11 parts. 1/11th of the share belonged to Zamindars and 10/11th of the share belonged to East India Company
    The Mahalwari system 
    • Mahalwari system was introduced in 1833 during the period of William Bentick.
    • It was introduced in Central Province, North-West Frontier, Agra, Punjab, Gangetic Valley, etc of British India.
    • The Mahalwari system included many provisions of both the Zamindari System and Ryotwari System.
    • In this system, the land was divided into Mahals. Each Mahal comprises one or more villages.
    • Ownership rights were vested with the peasants.
    • The villages committee was held responsible for collection of the taxes.
    The Ryotwari system 
    • Here, individual cultivator was supposed to pay the rent directly to the government without any intermediary. It was prevalent in parts of Madras, Bombay province and Assam.
    • In practice, however, all three types of system had taken the features of each other. The picture that emerged at independence was that of exploitation of agricultural labourers at the hands of landlords, exorbitant rents, lack of incentive for technological progress and rigid system of land transfer across the country.
    Land reforms
    • Land reform involves the changing of laws, regulations or customs regarding land ownership. Land reform may consist of government-initiated or government-backed property redistribution, generally of agricultural land.
    • Land reform can, therefore, refer to transfer of ownership from the more powerful to the less powerful, such as from a relatively small number of wealthy (or noble) owners with extensive land holdings (e.g., plantations, large ranches, or agribusiness plots) to individual ownership by those who work the land. Such transfers of ownership may be with or without compensation; compensation may vary from token amounts to the full value of the land.
    • The common characteristic of all land reforms, however, is modification or replacement of existing institutional arrangements governing possession and use of land.
    • Land distribution has been part of India’s state policy from the very beginning. Independent India’s most revolutionary land policy was perhaps the abolition of the Zamindari system (feudal land holding practices). Land-reform policy in India had two specific objectives:
      • To remove such impediments to increase in agricultural production as arise from the agrarian structure inherited from the past.
      • To eliminate all elements of exploitation and social injustice within the agrarian system, to provide security for the tiller of soil and assure equality of status and opportunity to all sections of the rural population.
    Three major types of land-reforms were undertaken after independence:
    • Abolition of Intermediaries like Zamindars or jagirdars so that ownership of land could be clearly identified with management and control. Many states promulgated laws to put an end to absentee landlordism and as a result about 30 lakh tenants acquired land ownership over an area of 62 lakh acres throughout the country.
    • Tenancy reforms to confirm the rights of occupancy of tenants and to regulate rent of leased land. These reforms could not be implemented due to two main reasons. Many small tenants were forced to surrender their land under the so called “voluntary surrender” rule in the legislation. Secondly, the unavailability of accurate and up-to-date land record also constrained its implementation.
    • Reorganization of land holdings to offset extremely uneven distribution of agricultural land. Under this, ceiling laws were imposed which laid down the maximum land that can be owned by a land holder (which was subsequently amended to holding by a family with effect from 1972). The excess land was to be surrendered to the government. But its performance remained dismal as it lead to redistribution of less than 2% of operated area by 1992. Thus, with the exception of abolition of intermediaries, other reforms could not be implemented mainly due to lack of political will.
    • Consolidation of holding was introduced as a measure of improving farming efficiency. It made considerable progress in Punjab, Haryana and western U.P. but did not took off in southern and eastern states.
    • Cooperative joint farming, recommended by the Congress Agrarian Reforms Committee under Mr. J. C. Kumarappa was also encouraged in the five year plans initially. Under this, farmers pool their land and reap the economies of scale, although the ownership continues to remain with the individual farmer. But this could not be implemented mainly because of farmers’ reluctance to alienate their land. Many landlords also tried to misuse this concept to circumvent land ceiling.
    • The National Land Records Modernization Programme (NLRMP) was launched by the Government of India in August 2008, aimed to modernize management of land records, minimize scope of land/ property disputes, enhance transparency in the land records maintenance system, and facilitate moving eventually towards guaranteed conclusive titles to immovable properties in the country.
    Reasons for Failure of Land Reforms:
    Out of the many reasons forwarded by the experts responsible for the failure of the land reforms in India, the following three could be considered the most important ones:
    1. Land in India is considered a symbol of social prestige, status and identity unlike the other economies which succeeded in their land reform programmes, where it is seen as just an economic asset for income earning.
    2. Lack of political wills which was required to affect land reforms and make it a successful programme.
    3. Rampant corruption in public life, political hypocricy and leadership failure in the Indian democratic system.

    Green Revolution

    It is the introduction of new techniques of agriculture, which became popular by the name of Green Revolution (GR) in early 1960s—at first for wheat and by the next decade for rice, too. It revolutionized the very traditional idea of food production by giving a boost by more than 250 per cent to the productivity level. The Green Revolution was centred around the use of the High Yielding Variety (HYV) of seeds developed by the US agro-scientist Norman Borlaug doing research on a British Rockfellor Foundation Scholarship in Mexico by the early 1960s.
    Components of the Green Revolution
    The Green Revolution was based on the timely and adequate supply of many inputs/components.
    1. The HYV Seeds
    • These seeds were popularly called the ‘dwarf’ variety of seeds.
    • This made the plant dwarf and the grain heavier— resulting in high yield.
    • These seeds were non-photosynthetic, hence non-dependent on sun rays for targeted yields.
    1. The Chemical Fertilizers
    • The seeds were to increase productivity provided they got sufficient level of nutrients from the land.
    • The level of nutrients they required could not be supplied with the traditional compostes because they have low concentration of nutrients content and required bigger area while sowing—it meant it will be shared by more than one seed.
    • That is why a high concentration fertilisers, were required, which could be given to the targeted seed only— the only option was the chemical fertilisers—urea (N), phosphate (P) and potash (K).
    1. The Irrigation
    • For controlled growth of crops and adequate dilution of fertilizers, a controlled means of water supply was required.
    • It made two important compulsions—firstly, the area of such crops should be at least free of flooding and secondly, artificial water supply should be developed.
    1. Chemical Pesticides and Germicides
    • As the new seeds were new and non-acclimatised to local pests, germs and diseases than the established indigenous varieties, use of pesticides and germicides became compulsory for result oriented and secured yields.
    1. Chemical Herbicides and Weedicides
    • To prevent costlier inputs of fertilisers not being consumed by the herbs and the weeds in the farmlands, herbicides and weedicides were used while sowing the HYV seeds.
    1. Credit, Storage, Marketing/Distribution
    • For farmers to be capable of using the new and the costlier inputs of the Green Revolution, availability of easy and cheaper credit was a must.
    • As the farmlands suitable for this new kind of farming was region-specific (as it was only Haryana, Punjab and western Uttar Pradesh in India) storage of the harvested crops was to be done in the region itself till they were distributed throughout the country.
    Recent Development
    • Green Revolution made the country self-reliant in foodgrain production.
    • Post Green Revolution, there is increase in the use of chemical fertilizers and irrigation water to meet the nutrients and water demand respectively, of high yielding varieties (HYVs) of crops.
    • However, due to imbalanced use of fertilizers coupled with decrease in use of organic manure and over exploitation of ground water, there is deterioration of natural resources.
    • In order to meet the foodgrains requirement of the growing population of the country, the Government of India is laying emphasis on development of resource rich eastern region of the country for enhancing agricultural production.
    • This would also help in reducing the over exploitation of natural resources in north western region, the traditional food bowl of the country.
    • Considering potentiality of increasing production and productivity of foodgrains in eastern states, “Bringing Green Revolution to Eastern India (BGREI)”- a sub scheme of Rashtriya Krishi Vikas Yojana (RKVY) is being implemented since 2010-11 in seven (7) eastern states of the country namely Assam, Bihar, Chhatisgarh, Jharkhand, Odisha, Eastern Uttar Pradesh and West Bengal.
    • After implementation of the programme, the production of rice has increased in seven eastern states from 45.65 million tonnes during 2009-10 to 57.18 million tonnes during 2017-18.
    • Besides, the Schemes/Missions namely, National Food Security Mission (NFSM), Mission for Integrated Development of Horticulture (MIDH), National Mission for Sustainable Agriculture (NMSA), Sub-Mission on Seeds and Planting Material (SMSP), Sub-Mission on Agricultural Mechanisation (SMAM) etc. under the Umbrella scheme, “Green Revolution– Krishonnati Yojana” are also continued beyond 12th Five Year Plan for the periods from 2017-18 to 2019-20.
    • These schemes are for the development of the agriculture and allied sector in a holistic and scientific manner to increase the income of farmers by enhancing production, productivity and better returns on produce.
    Food Management
    Managing enough food in the domestic market has been the prime focus of the government since Independence. Meeting the physical target of food together with the challenge of enabling Indians to procure food for their consumption was also there. Once, the country joined the WTO, a new need was felt for producing surplus and competing with the world, so that the benefits of globalization could also be reaped by the agriculture sector.
    Minimum Support Price
    • Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices —a guarantee price to save farmers from distress sale.
    • The MSPs are announced at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP, 1985).
    • The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.
    • In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price.
    • Commencing with ‘wheat’ for the 1966–67, currently the MSPs are announced for 24 commodities including seven cereals (paddy, wheat, barley, jowar, bajra, maize and ragi); five pulses (gram, arhar/tur, moong, urad and lentil); eight oilseeds (groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed); copra, raw cotton, raw jute and virginia flu cured (VFC) tobacco.
    Market Intervention Scheme
    • The Market Intervention Scheme (MIS) is similar to MSP, which is implemented on the request of state governments for procurement of perishable and horticultural commodities in the event of fall in market prices.
    • The scheme is implemented when there is at least 10 per cent increase in production or 10 per cent decrease in the ruling rates over the previous normal year.
    • Proposal of MIS is approved on the specific request of the state/UT governments, if the states/UTs are ready to bear 50 per cent loss (25 per cent in case of North Eastern states) incurred on its implementation.
    Procurement Prices
    • In 1966–67, the Government of India announced a ‘procurement price’ for wheat, a bit higher than its MSP (the purpose being security of food procurement for requirement of the PDS).
    • The MSP was announced before sowing, while the procurement price was announced before harvesting—the purpose was to encourage farmers to sell a bit more and get encouraged to produce more.
    • But this increased price hardly served the purpose as a suitable incentive to farmers.
    • It would have been better had it been announced before sowing and not after harvesting.
    • That is why since the fiscal 1968–69 the government announced only the MSP, which is also considered the effective procurement price.
    Buffer Stock
    • India has a policy of maintaining a minimum reserve of foodgrains (only for wheat and rice) so that food is available throughout the country at affordable prices round the year.
    • The main supply from here goes to the PDS and at times goes for Open Market Sale to check the rising prices, if needed.
    • The Buffer stocking norms (of 2005) was revised by the government (by mid-2014) in the backdrop of increased requirement of foodgrains.
    Open Market Sale Scheme
    • The FCI has been undertaking sale of wheat at pre-determined prices (reserve prices) in the open market from time to time, known as the Open Market Sale Scheme (OMSS).
    • This is aimed at serving the following objectives:
    1. To enhance market supply of foodgrains;
    2. To exercise a moderating influence on open market prices; and
    3. To offload surplus stocks.
    • Under the Open Market Sale Scheme (Domestic), the government now adopts a policy of differential prices to encourage sale of older stock first.
    Price Stabilization Fund
    • The Government of India, by late March 2015, launched the Price Stabilisation Fund (PSF) as a Central Sector Scheme to support market interventions for price control of perishable agri horticultural commodities.
    • The cost to be borne between the centre and the states in equal ratio (in case of the North Eastern-states, the respective share will be 75:25).
    • The scheme will commence with only two crops, viz., onion and potato.
    Farm Subsidies
    • Farm subsidies form an integral part of the government’s budget.
    • In the case of developed countries, the agricultural or farm subsidies compose nearly 40 per cent of the total budgetary outlay, while in India’s case it is much lower (around 7.8 per cent of GDP) and of different nature.
    • Direct farm subsidies: These are the kinds of subsidies in which direct cash incentives are paid to the farmers in order to make their products more competitive in the global markets
    • Indirect farm subsidies: These are the farm subsidies which are provided in the form of cheaper credit facilities, farm loan waivers, reduction in irrigation and electricity bills, fertilizers, seeds and pesticides subsidy as well as the investments in agricultural research, environmental assistance, farmer training, etc. These subsidies are also provided to make farm products more competitive in the global market.
    Food Security
    • Food security means making food available at affordable prices at all times, to all, without interruptions.
    • India attained self-sufficiency in food by late 1980s, though food security still evades the country.
    • Lack of food security hampers the nutritional profile of the vulnerable section of the population.
    • As per the State of Food Insecurity in the World, 2015 (FAO), India has the second highest number of undernourished people at 194.6 million which is around 15.2 per cent of the world’s total undernourished population.
    • Two important things need attention regarding India’s food security –
    • Around 27 per cent of India’s population is BPL and a greater portion (one conservative estimate puts it at 75 per cent) of their household income is spent on food.
    • There is a strong correlation between stability in agricultural production and food security. Volatility in agricultural production impacts food supplies and can result in spikes in food prices, which adversely affect the lowest income groups of the population.
    • Therefore, along with provision of food subsidy, stability in agricultural commodity prices is essential for making the poorer sections food secure.
    • Due to high level of undernourishment and volatility in agricultural prices, India has one of the largest number of food schemes in the World to ensure food security –
    1. There is entitlement feeding programmes like the Integrated Child Development Scheme (ICDS – covers all Children under six, pregnant and lactating mothers)
    2. Mid-Day Meal Schemes (MDMS),
    3. Food subsidy programmes like the Targeted Public Distribution System (through which the National Food Security Act is being implemented)
    4. Annapurna (10 kgs of free food grain for destitute poor) and the
    5. Employment Programmes like Mahatma Gandhi National Rural Employment Guarantee Scheme (100 days of employment at minimum wages) to ensure food security.
    PDS & Food subsidy
    • The Public Distribution System (PDS was changed to Targeted PDS in 1997) strives to ensure food security through timely and affordable distribution of food grains to the BPL population as this section cannot afford to pay market prices for their food.
    • This involves procurement of food grain at MSP by the Government, building up and maintenance of food stocks, their storage, and timely distribution, making food grains accessible at reasonable prices to the vulnerable sections of the population.
    Institutions/Schemes related to Agricultural Marketing
    Agricultural Produce Market Committee (APMC)
    • Agricultural Produce Market Committee (APMC) is a statutory market committee constituted by a State Government under the Agricultural Produce Market Committee Act in respect of trade in certain notified agricultural or horticultural or livestock products.
    • APMCs are intended to be responsible for: Ensuring transparency in pricing system and transactions taking place in market area;
      • Providing market-led extension services to farmers;
      • Ensuring payment for agricultural produce sold by farmers on the same day;
      • Promoting agricultural processing including activities for value addition in agricultural produce;
      • Publicizing data on arrivals and rates of agricultural produce brought into the market area for sale; and Setup and promote public private partnership in the management of agricultural markets
      • There are about 2477 principal regulated markets based on geography (the APMCs) and 4843 sub-market yards regulated by the respective APMCs in India.
    Model APMC Act 2003
    • The monopoly of Government regulated wholesale markets has prevented development of a competitive marketing system in the country. An efficient agricultural marketing is essential for the development of the agriculture sector as it provides outlets and incentives for increased production, the marketing system contribute greatly to the commercialization of subsistence farmers. Worldwide Governments have recognized the importance of liberalized agriculture markets. In accordance with above objectives, Model APMC act was drafted by ministry of agriculture in 2003.
    Major Features:
      • It provides for direct sale of farm produce to contract farming sponsors.
      • It provides a provision for setting up “Special markets” for “specified agricultural commodities”
      • It permits private persons, farmers and consumers to establish new markets for agricultural produce in any area.
      • Every market shall levy market fee on sale or purchase of agriculture commodities which brought from within or outside state.
      • Replaces licensing with registrations of market functionaries and trade at any market area within state.
      • Market Committees permitted to use its funds to create facilities like grading, standardization and quality certification; to create infrastructure for post-harvest handling of agricultural produce and development of modern marketing system.
      • State Governments conferred power to exempt any agricultural produce brought for sale in market area, from payment of market fee.
      • State Agricultural Marketing Board made responsible for grading and standardization.
    National Agriculture Market (eNAM) 
    • eNAM is an online trading platform for agricultural commodities in India.
    • It seeks to network the existing Agricultural Produce Market Committees (APMCs) and other market yards to create a unified national market for agricultural commodities.
    • NAM is a “virtual” market but it has a physical market (mandi) at the back end.
    • Following are the benefits of eNAM:
      • The market facilitates farmers, traders and buyers with online trading in commodities.
      • The market is helping in better price discovery and provides facilities for smooth marketing of their produce.
      • Over 90 commodities including staple food grains, vegetables and fruits are currently listed in its list of commodities available for trade.
      • The eNAM markets are proving popular as the crops are weighed immediately and the stock is lifted on the same day and the payments are cleared online.
    Tribal Cooperative Marketing Development Federation of India (TRIFED)
    • The Tribal Cooperative Marketing Development Federation of India (TRIFED) came into existence in 1987.
    • It is a national-level apex organization functioning under the administrative control of Ministry of Tribal Affairs, Government of India. TRIFED organizes National Tribal Craft Expo called “AADISHILP”, painting exhibition called “Aadi Chitra”, “OCTAVE” for North Eastern Artisans and Tribal Artisan Melas to facilitate the sale of their products.
    • Promote sustainable livelihood systems for tribal people by marketing development and ensuring remunerative price for their products, provide minimum support price and value addition of Non-Timber Forest Produce (Minor Forest Produce), empower them through meticulous capacity building, augment their resources substantially, Develop marketing partnership with Central/State Government agencies and other development partners through establishing convergence and coherence in activities.
    National Agricultural Cooperative Marketing Federation of India Ltd (NAFED) 
    • NAFED is an apex organization of marketing cooperatives for agricultural produce in India, under Ministry of Agriculture, Government of India.
    • It was founded in October 1958 to promote the trade of agricultural produce and forest resources across the nation.
    • NAFED is now one of the largest procurement as well as marketing agencies for agricultural products in India.
    • With its headquarters in New Delhi, NAFED has four regional offices at Delhi, Mumbai, Chennai and Kolkata, apart from 28 zonal offices in capitals of states and important cities.
    • In 2008, it established, National Spot Exchange, a Commodities exchange as a joint venture of Financial Technologies (India) Ltd. (FTIL).
    Promotion of National Market through Agri Tech Infrastructure Fund (ATIF) 
    • The Scheme envisages initiation of e-marketing platform at the national level and will support creation of infrastructure to enable e-marketing in 642 regulated markets across the country.
    • For creation of a National Market, a common platform across all States is necessary.
    • It is, therefore, proposed that a Service Provider be engaged centrally who would build, operate and maintain the e-platform on BOOT Project model (Build, Own, Operate, Transfer - BOOT) it is a PPP project model.
    • This platform would be customized/ configured to address the variations in different states.
    • As an initiative of deregulation, states have been advised by the Government of India to bring fruits and vegetables out of the ambit of APMC Act. In pursuance of this advisory, 12 States have, so far, either de-regulated the marketing of fruits and vegetables or have exempted from levying of market fee.

    Economic Reforms

    Economy - Economic Reforms

    • The economic reforms were initiated in 1991.
    • Economic reforms denote the process in which a government prescribes declining role for the state and expanding role for the private sector in an economy.
    • It is safer to see economic reform as a policy shift in an economy from one to another or ‘alternative development strategies’.
    Economic reforms In India
    • On July 23, 1991, India launched a process of economic reforms in response to a fiscal and balance-of-payment (BoP) crisis.
    • The reforms were historic and were going to change the very face and the nature of the economy in the coming times.
    • The reforms and the related programmes are still going on with changing emphasis and dimensions.
    • Back in the mid-1980s, the governments had taken its first steps to economic reforms.
    • While the reforms of the 1980s witnessed rather limited deregulation and ‘partial liberalization of only a few aspects of the existing control regime, the reforms started in early 1990s in the fields of industries, trade, investment and later to include agriculture, were much ‘wider and deeper’.
    • Though liberal policies were announced by the governments during the reforms of the 1980s itself, with the slogan of ‘economic reforms’, it was only launched with full conviction in the early 1990s.
    • But the reforms of the 1980s, which were under the influence of the famous ‘Washington Consensus’ ideology had a crippling impact on the economy.
    • The whole Seventh Plan (1985–90) promoted further relaxation of market regulations with heavy external borrowings to increase exports (as the thrust of the policy reform).
    • By now as the benefits of the reforms have accrued to many, the criticism has somewhat calmed down, but still the reform process is considered as ‘anti-poor’ and ‘pro-rich’.
    • The need of the hour is to go for ‘distributive growth’, though the reform has led the economy to a higher growth path.
    Reform measures
    The economic reform programme, that India launched, consisted of two categories of measures:
    1. Macroeconomic Stabilization Measures
    • It includes all those economic policies which intend to boost the aggregate demand in the economy—be it domestic or external.
    • For the enhanced domestic demand, the focus has to be on increasing the purchasing power of the masses, which entails an emphasis on the creation of gainful and quality employment opportunities.
    2. Structural Reform Measures
    • It includes all the policy reforms which have been initiated by the government to boost the aggregate supply of goods and services in the economy.
    • It naturally entails unshackling the economy so that it may search for its own potential of enhanced productivity.
    • For the purchasing capacity of the people to be increased, the economy needs increased income, which comes from increased levels of activities.
    • Income so increased is later distributed among the people whose purchasing power has to be increased
    • This will take place by properly initiating a suitable set of macroeconomic policies.
    The LPG
    • The process of reforms in India has to be completed via three other processes namely, liberalization, privatization and globalization, known popularly by their short-form, the LPG.
    • These three processes specify the characteristics of the reform process India initiated.
    • Precisely seen, liberalization shows the direction of reform,
    • Privatization shows the path of reform and globalization shows the ultimate goal of the reform.
    Liberalization
    • The ideology was the product of the breakdown of feudalism and the growth of a market or capitalist society in its place, which became popular in economics via the writings of Adam Smith and got identified as a principle of laissez-faire.
    • Pro-market or pro-capitalistic inclination in the economic policies of an economy is the process of liberalization.
    • The most suitable example of this process could be China of the mid-1980s when it announced its ‘open door policy’.
    • The process of decreasing traits of a state economy and increasing traits of a market economy is liberalization.
    • In the Indian case the term liberalisation is used to show the direction of the economic reforms—with decreasing influence of the state or the planned or the command economy and increasing influence of free market or the capitalistic economy.
    • It is a move towards capitalism. India is attempting to strike its own balance of the ‘state-market mix’.
    • It means, even if the economic reforms have the direction towards market economy it can never be branded a blind run to capitalism.
    Privatization
    • The policies through which the ‘roll back’ of the state was done included deregulation, privatization and introduction of market reforms in public services.
    • Privatization was used as a process under which the state assets were transferred to the private sector.
    • The root of the term privatization goes to this period which got more and more currency around the world once the East European nations and later the developing democratic nations went for it.
    • But during the period several connotations and meanings of the term ‘privatization’ have developed. Some of them are described below:
      • Privatization in its purest sense and lexically means de-nationalization, i.e., transfer of the state ownership of the assets to the private sector to the tune of 100 per cent. This route of privatization has been avoided by almost all democratic systems.
      • The sense in which privatization has been used is the process of disinvestment all over the world. This process includes selling of the shares of the state owned enterprises to the private sector. Disinvestment is de-nationalization of less than 100 per cent ownership transfer from the state to the private sector. If an asset has been sold out by the government to the tune of only 49 per cent the ownership remains with the state though it is considered privatization. If the sale of shares of the state-owned assets has been to the tune of 51 per cent, the ownership is really transferred to the private sector even then it is termed as privatization.
      • The third and the last sense in which the term privatization has been used around the world, is very wide. Basically, all the economic policies which directly or indirectly seem to promote the expansion of the private sector or the market (economy) have been termed by experts and the governments as the process of privatization.
    Globalization
    • The process of Globalization has always been used in economic terms though it has always taken the political and cultural dimensions.
    • Globalization is generally termed as ‘an increase in economic integration among nations’.
    • The concept was popularised by the Organisation of Economic Cooperation and Development (OECD) in the mid-1980s.
    • In its earlier deliberalization, the organisation had defined globalisation in a very narrow and business-like sense—‘any crossborder investment by an OECD company outside its country of origin for its benefit is globalisation’.
    • The official meaning of globalisation for the WTO is movement of the economies of the world towards “unrestricted cross border movements of goods and services, capital and the labour force”.
    • It simply means that the economies who are signatories to the process of globalization (i.e., signatories to the WTO) for them there will be nothing like foreign or indigenous goods and services, capital and labour. The world becoming a flat and level-playing field emerging in the due process of time
    • For many political scientists, globalization is the emergence of a situation when our lives are increasingly shaped by the events that occur at a great distance from us about which the decisions are not taken by our conscious self.
    • India became one of the founding members of the WTO and was obliged to promote the process of globalization, though its economic reforms started with no such obligations.
    • It is a different thing that India started the process of globalization right after the reforms 1991.
    • It should be noted here that the Indian idea of globalization is deeply and frequently inclined towards the concept of welfare state, which keeps coming in the day to day public policy as an emphatic reference.
    Generations of Economic Reforms
    Though there were no such announcements or proposals while India launched its reforms in 1991, in the coming times, many ‘generations’ of reforms were announced by the governments.A total of three generations of reforms have been announced till date, while experts have gone to suggest the fourth generation, too.
    First Generation reforms (1991–2000)
    The reforms initiated during 1991 to 2000 were termed as First Generation Reforms. The broad coordinates of the First Generation of reforms may be seen as under:
    (i)  Promotion to Private Sector
    • This included various important and liberalising policy decisions, i.e., ‘de-reservation’ and ‘delicencing’ of the industries, abolition of the MRTP limit, abolition of the compulsion of the phased-production and conversion of loans into shares, simplifying environmental laws for the establishment of industries, etc.
    (ii)  Public Sector Reforms
    • The steps taken to make the public sector undertakings profitable and efficient, their disinvestment (token), their corporatization, etc., were the major parts of it.
    (iii) External Sector Reforms
    • They consisted of policies like, abolishing quantitative restrictions on import, switching to the floating exchange rate, full current account convertibility, reforms in the capital account, permission to foreign investment (direct as well as indirect), promulgation of a liberal Foreign Exchange Management Act (the FEMA replacing the FERA), etc.
    (iv) Financial Sector Reforms
    • Several reform initiatives were taken up in areas such as banking, capital market, insurance, mutual funds, etc.
    (v)  Tax Reforms
    • This consisted of all the policy initiatives directed towards simplifying, broadbasing, modernising, checking evasion,etc.
    • A major re-direction was ensued by this generation of reforms in the economy—the ‘command’ type of the economy moved strongly towards a market-driven economy, private sector (domestic as well as foreign) to have greater participation in the future.
    Second Generation reforms (2000–01 onwards)
    The government launched the second generation of reforms in 2000-01. Basically, the reforms India launched in the early 1990s were not taking place as desired and a need for another set of reforms was felt by the governments, which were initiated with the title of the Second Generation of economic reforms. These reforms were not only deeper and delicate, but required a higher political will power from the governments. The major components of the reform are as given below:
    (i) Factor Market Reforms
    • Considered as the ‘backbone’ for the success of the reform process in India, it consists of dismantling of the Administered Price Mechanism (APM).
    • There were many products in the economy whose prices were fixed /regulated by the government, viz., petroleum, sugar, fertilizers, drugs, etc.
    • Though a major section of the products under the APM were produced by the private sector, they were not sold on market principles which hindered the profitability of the manufacturers as well as the sellers and ultimately the expansion of the concerned industries leading to a demand supply gap.
    • Under market reforms these products were to be brought into the market fold.
    • But we cannot say that the Factor Market Reforms (FMRs) are complete in India. It is still going on.
    • Cutting down subsidies on essential goods is a socio-political question in India.
    • Till market-based purchasing power is not delivered to all the consumers, it would not be possible to complete the FMRs.
    (ii)  Public Sector Reforms
    • The second generation of reforms in the public sector especially emphasizes on areas like greater functional autonomy, freer leverage to the capital market, international tie-ups and Greenfield ventures, disinvestment.
    (iii)  Reforms in Government and Public Institutions
    • This involves all those moves which really go to convert the role of the government from the ‘controller’ to the ‘facilitator’ or the administrative reform, as it may be called.
    (iv) Legal Sector Reforms
    • Though reforms in the legal sector were started in the first generation itself, now it was to be deepened and newer areas were to be included, such as, abolishing outdated and contradictory laws, reforms in the Indian Penal Code (IPC) and Code of Criminal Procedure (CrPC), Labour Laws, Company Laws and enacting suitable legal provisions for new areas like Cyber Law, etc.
    (v) Reforms in Critical Areas
    • The second generation reforms also commit to suitable reforms in the infrastructure sector (i.e., power, roads, especially as the telecom sector has been encouraging), agriculture, agricultural extension, education and healthcare, etc. These areas have been called by the government as ‘critical areas’.
    Third Generation reforms
    • Announcement of the third generation of reforms were made on the margins of the launching of the Tenth Plan (2002–07).
    • This generation of reforms commits to the cause of a fully functional Panchayati Raj Institution (PRIs), so that the benefits of economic reforms, in general, can reach to the grassroots.
    • Though the constitutional arrangements for a decentralized developmental process were already effected in the early 1990s, it was in the early 2000s that the government gets convinced of the need of ‘inclusive growth and development’.
    • Till the masses are not involved in the process of development, the development will lack the ‘inclusion’ factor; it was concluded by the government of the time.
    Fourth Generation reforms
    • This is not an official ‘generation’ of reform in India. Basically, in early 2002, some experts coined this generation of reforms which entail a fully ‘information technology-enabled’
    • They hypothesized a ‘two-way’ connection between the economic reforms and the information technology (IT), with each one reinforcing the other.
    India’s reform process which commenced in 1991 has been termed by experts as gradualist in nature with traits of occasional reversals, and without any big ideological U-turns. It reflects the compulsions of India’s highly pluralist and participative democratic policy-making process. Though such an approach helped the country to avoid sociopolitical upheavals/instability, it did not allow the desired economic outcome could have accrue from the reforms. The first generation of economic reforms could not bring the expected results due to lack of some other set of reforms for which India goes after almost over a decade—the second generation of economic reforms. Similarly, the economic benefits (whatever accrued) remained non-inclusive, in absence of an active public policy aimed at inclusion (commencing via the third generation of economic reforms). This created a kind of disillusionment about the prospects of reforms and failed the governments to muster enough public support in favour of reforms.