May 2018

Implications of Us Scrapping Iran nuclear deal

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US President Donald Trump, like many of his impulsive decisions scrapped the Iran nuclear deal on May 08. Trump has called it the “worst deal ever negotiated” and wanted Britain, France and Germany — co-signatories, along with Russia, China and the European Union — to toughen up its terms. In announcing his decision , Trump blasted the deal as “defective at its core.” He further added that  “America will not be held hostage to nuclear blackmail.” His primary complaint is that the 2015 pact, which was originally conceived as a starting point for better relations between Iran and the West, doesn’t extend beyond 2025. He also criticized the deal for failing to address other concerns about Iran, such as its ballistic missile program or its support of the Lebanese militant group Hezbollah, its military aid of Syrian President Bashar al-Assad and its role in the war in Yemen. Although Trump has been emphatic in his opposition to the deal, he was less clear about what should replace it or how far the U.S. is willing to go to limit Iran’s nuclear ambitions or its regional aggression.

Trump’s hard line on nuclear deal with Iran echoes Isreal’s stand on the issue. Israeli Prime Minister Benjamin Netanyahu had alleged a weak earlier that “Iran lied” about its nuclear weapon ambitions in the 2000s, although the information he shared seemed to match up with what nuclear inspectors had already reported about Tehran’s program.

Analysts commenting on the decision pointed out that it will make it harder for Iran to engage with the international community and could empower hard-liners in Tehran. Some other analysts also warned that the decision also risks weakening trust in the United States, raising questions about whether Washington can be taken at its word, and could potentially bolster hard-liners in Tehran who are pushing an agenda of Middle East aggression. Under the deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), the United States committed to ease a series of sanctions on Iran and has done so under a string of “waivers” that effectively suspend them. Failure to renew waivers means the sanctions will be restored, but under U.S. law the White House must allow a 90-day or 180-day period to allow companies to withdraw from any contracts or financial transactions involving Iran. The waiver that was due for renewal on May 12 covered Iran’s central bank and was intended at limiting Iran’s oil exports. Other waivers are due for renewal in July. In his televised address on Tuesday, Trump said the United States would impose the “highest-level” economic sanctions on the Iranian regime, suggesting that he intends to scrap all of the waivers. Restoring sanctions amounts to a U.S. breach of the original deal whereas Iran was deemed to be compliant, according to international nuclear inspectors.

Meanwhile President Hassan Rouhani says he’ll stick to the deal even without the U.S., while European leaders issued a joint statement expressing “regret and concern.” It must be recalled the parties that signed or favoured a nuclear deal with Iran and for removing economic sanctions were quite unhappy on Donald Trump’s decision from the very beginning. More than 500 parliamentarians from France, Germany and the UK have written to their US counterparts urging them to persuade Donald Trump not to abandon the Iran nuclear deal. In a joint statement published in the Guardian, Der Spiegel, the New York Times and Le Monde, they urged a White House rethink before the 12 May deadline set by Trump to pull out of the deal, known as the joint comprehensive plan of action (JCPOA), unless Europe can come up with a new policy that will meet his concerns. “The US government threatens to abandon the JCPOA, although Iran fulfils its obligations under the agreement,” the letter said. They warn that “an exit from the US would have fatal consequences”. It may be recalled that France, Germany and the UK negotiated the landmark deal in 2015 that lifted sanctions on Iran in exchange for strict limits on its nuclear programme, and are using all their leverage to try to persuade Trump that the deal is salvageable.

World Bank Commits $ 500 million for Pradhan Mantri Gram Sadak Yojana

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The government of India and World Bank signed (May 31) a $500 million (Rs 3,375 crore) loan agreement to provide additional funding to flagship Pradhan Mantri Gram Sadak Yojana (PMGAY). The objective of the PMGAY is to provide good all-weather road connectivity to unconnected villages. Under the scheme, the government aims to build 7,000 kms of climate resilient roads, of which 3,500 km will be constructed using green technologies. It is not new that the World Bank has offered funds for infrastructure development in India. In fact the World Bank has funded the rural road scheme since 2004 and so far has invested over $1.8 billion in loans and credits. The additional finance will bring a new shift in construction technology using green and low carbon designs and climate resilient construction techniques.

According to the Rural Development Ministry, by December 2017, more than 82% of the habitations in the country had been connected with all-weather roads under the PMGSY. About 1.31 lakh habitations were connected under the PMGSY and another 14,620 habitations were connected through various programmes of the state governments, together accounting for 82% of the target.

 Pointing towards importance of road making and maintenance in India, Junaid Ahmed, World Bank India director said that it was important to build and maintain infrastructure to support the rural economy and communities and households that depend on rural livelihoods.    The government said that the maintenance of the existing 4.6 million km of the road network is emerging as a major challenge. Climate-induced events such as floods, high rainfall, sudden cloudbursts and landslides end up damaging roads, especially in rural areas. In view of the problem of rural connectivity, the Budget 2018, allocated Rs 14.34 lakh crore for rural development in the year 2018-19 to generate employment and develop infrastructure. The Budget outlay also included the construction of 3.17 lakh km of roads. The allocation for the PMGSY was Rs 19,000 crore for 2018-19.

Important Landmarks of Indian Economic History- Part 3

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Green Revolution

The term “Green Revolution” was first used in a March 8, 1968, speech by the administrator of the U.S. Agency for International Development (USAID), William S. Gaud, who noted the spread of the new technologies. After the recommendation of a study team of the Ford Foundation, a technological package programme called the “Green Revolution” was adopted in India to enhance production and productivity of Indian agriculture sector. The technological revolution or package programme started from the Kahrif season of 1966 comprised of use of High Yielding Variety (HYV) of Seeds, Chemical fertilizers and assured irrigation. Both the Ford Foundation and the Rockefeller Foundation were heavily involved in the spread of the programme. One key leader was Norman Borlaug, the “Father of the Green Revolution”, who received the Nobel Peace Prize in 1970. He is credited with saving over a billion people from starvation. The basic approach was the development of high-yielding varieties of cereal grains, expansion of irrigation infrastructure, modernization of management techniques, distribution of hybridized seeds, synthetic fertilizers, and pesticides to farmers.The credit to introduce Green Revolution in India goes to Dr.M.S. Swaminathan supported by Indian agricultural scientist Vehla Swaminathan Banda, GS Kalkat etc. Dr. M.S Swaminathan later earned the title ‘Father of Green Revolution of India’. It was a technological revolution that transformed the Indian agriculture from subsistence farming to commercial farming, which led to increase in production, productivity, income, and wages in green revolution areas and eventually raised the living standard of farmers and farm labourers. In its first phase the green revolution led to an increase in food grain production, especially in Punjab, Haryana and Western Uttar Pradesh. The main development was higher-yielding varieties of wheat, for developing rust resistant strains of wheat. In its second phase, green revolution was extended to rice producing areas in the Tamil Nadu, Andhra Pradesh and some parts of Bihar and West Bengal. In some parts of the countries the green revolution increased the production of millets like jowar and bajra, especially in Karnataka, Rajasthan and Maharashtra, but the improvement was not very remarkable. The Green revolution is now in its third phase in which it is being extended to newer areas like eastern and northeastern states. The green revolution, nevertheless, mostly enhanced production of a few crops like wheat and rice and it could not improve the production of pulses and oilseeds. It was geographically confined to a few areas. It also led to agrarian inequality and in some cases substitution of labour by machines due to rising wages.

Operation flood

Operation Flood, launched in 1970, was a project of India’s National Dairy Development Board (NDDB), which was the world’s biggest dairy development program. It transformed India from a milk-deficient nation into the world’s largest milk producer, surpassing the USA in 1998, with about 17 percent of global output in 2010–11. In 30 years it doubled milk available per person, and made dairy farming India’s largest self-sustainable rural employment generator. It was launched to help farmers direct their own development, placing control of the resources they create in their own hands. All this was achieved not merely by mass production, but by production by the masses.

Operation Flood is the program behind “the white revolution.” It created a national milk grid linking producers throughout India with consumers in over 700 towns and cities, reducing seasonal and regional price variations while ensuring that the producer gets a major share of the price consumers pay, by cutting out middlemen. The bedrock of Operation Flood has been village milk producers’ co-operatives, which procure milk and provide inputs and services, making modern management and technology available to members. Operation Flood’s objectives included: (1) Increase milk production (“a flood of milk”), (2) Augment rural incomes and (3) Fair prices for consumers

The Anand pattern experiment at Amul, a single, cooperative dairy, was the engine behind the success of the program. Verghese Kurien, the chairman and founder of Amul, was named the chairman of NDDB by the then Prime Minister of India Lal Bahadur Shastri. Kurien gave the necessary thrust using his professional management skills to the program, and is recognized as its architect.

Technology Mission for pulses and oilseeds

The green revolution failed to make any significant effect on production and productivity of oilseeds and pulses, for which India heavily depended on imports that put huge burden on balance of payments, apart from deficiency of fat and protein among the poor households.

The Technology Mission on Oilseeds was launched by the Central Government in 1986 to increase the production of oilseeds to reduce import and achieve self-sufficiency in edible oils. Subsequently, pulses, oil palm and maize were also brought within the purview of the Mission in 1990-91, 1992 and 1995-96 respectively. In addition, the National Oilseeds and Vegetable Oils Development (NOVOD) Board also supplement the efforts of TMOP by opening of newer areas for non-traditional oilseeds. IT is promoting Tree Borne Oilseeds (TBO)s. The schemes implemented under TMOP are: 1. Oilseeds Production Programme (OPP), 2. National Pulses Development Project (NPDP), 3. Accelerated Maize Development Programme (AMDP), 4. Post Harvest Technology (PHT) and 5. Oil Palm Development Programme (OPDP). Later government decided to have an Integrated Scheme of Oilseeds, Pulses, Oil Palm and Maize in order to provide flexibility to the States in implementation based on regionally differentiated approach, to promote crop diversification and to provide focused approach to the programmes, the schemes of Oilseeds Production Programme, Oil Palm Development Programme, National Pulses Development Project and Accelerated Maize Development Programme of Ninth Plan were merged into one Centrally Sponsored Integrated Scheme of Oilseeds, Pulses, Oil Palm and Maize (IPOPOM) and during the 10th Five Year the scheme was implemented by 14 major growing States for oilseeds and pulses and 15 States for Maize and in 10 States for oil palm.

In 2011 it was planned to implemen the integrated development of 60,000 villages of pulses crops. The2011 budget allocated Rs 300 crores under the Rashtriya Krishi Vikas Yojana (RKVY) for this scheme. This project will supplement the ongoing work on pulses development under the National Food Security Mission. There is also an emphasis on building institutions that would provide market linkage to the grower of pulses. The states of M.P, U.P, Karnataka, Andhra Pradesh, Gujarat, Chattisgarh, Bihar, Maharashtra, Orissa, Rajasthan, and Tamilnadu were chosen for this programme. These states together constitute nearly 96% of area where pulses are grown.

MNREGA

National Rural Employment Guarantee Act 2005 (or, NREGA), later renamed as the “Mahatma Gandhi National Rural Employment Guarantee Act”, (MGNREGA), is an Indian labour law and social security measure that aims to guarantee the ‘right to work’. It aims to enhance livelihood security in rural areas by providing at least 100 days of wage employment in a financial year to every household whose adult members volunteer to do unskilled manual work.

The act was first proposed in 1991 by P.V. Narasimha Rao. In 2006, it was finally accepted in the parliament and commenced implementation in 625 districts of India. Based on this pilot experience, NREGA was scoped up to covered all the districts of India from 1 April 2008. The statute is hailed by the government as “the largest and most ambitious social security and public works programme in the world”. In its World Development Report 2014, the World Bank termed it a “stellar example of rural development”.

The MGNREGA was initiated with the objective of “enhancing livelihood security in rural areas by providing at least 100 days of guaranteed wage employment in a financial year, to every household whose adult members volunteer to do unskilled manual work”.Another aim of MGNREGA is to create durable assets (such as roads, canals, ponds, wells). Employment is to be provided within 5 km of an applicant’s residence, and minimum wages are to be paid. If work is not provided within 15 days of applying, applicants are entitled to an unemployment allowance. Thus, employment under MGNREGA is a legal entitlement.

MGNREGA is to be implemented mainly by gram panchayats (GPs). The involvement of contractors is banned. Labour-intensive tasks like creating infrastructure for water harvesting, drought relief and flood control are preferred.

National Food Security Mission

National Food Security Mission (NFSM) is a Central Scheme of GOI launched in 2007 for 5 years to increase production and productivity of wheat, rice and pulses on a sustainable basis so as to ensure food security of the country. The aim is to bridge the yield gap in respect of these crops through dissemination of improved technologies and farm management practices. The mission included in its components:  1. Restoring soil fertility and productivity at the individual farm level, 2.Creation of employment opportunities and enhancing farm level economy i.e. farm profits to restore confidence amongst the farmers, 3. Beneficiaries can choose to draw loans from the Banks, in which case subsidy amount prescribed for a particular component for which the loan availed will be released to the Banks. Otherwise it is directly allocated to state government which distributes among them, 4.  Promotion and extension of improved technologies i.e., seed, Integrated Nutrient Management including micronutrients, soil amendments, IPM and resource conservation technologies along with capacity building of farmers, 5.  Subsidies are also given for farm instruments and technologies such as Rotovators, Sprinkler Sets, Multi Crop planters etc., 6.  Farmers and their dependents are eligible for this scheme, 7. Productions of breeder seeds are done under ICAR while certified seeds and pulses are implemented by State and District agencies, 8.  For wheat and rice, these all are done by State Government agencies at district level or state level.

National Manufacturing Policy

Indian Government announced the National Manufacturing Policy in 2012. The policy aims to increase manufacturing sector’s share in India’s GDP from the current 16% to 25% by 2022. The National Manufacturing Policy aims to create 100 million additional jobs in the next decade.

Pradhan Mantri Jana Dhan Yojana

Pradhan Mantri Jan Dhan Yojana(PMJDY), Prime Minister’s Peoples’ Wealth Scheme, is a government scheme that aims to expand and make affordable access to financial services such as bank accounts, remittances, credit, insurance and pensions. This financial inclusion campaign was launched by the Prime Minister of India Narendra Modi on 28 August 2014. He had announced this scheme on his first Independence Day speech on 15 August 2014. Run by Department of Financial Services, Ministry of Finance, under this scheme 1.5 Crore (15 million) bank accounts were opened on inauguration day. The Guinness Book of World Records recognised this achievement, stating: “The most bank accounts opened in one week as a part of the financial inclusion campaign is 18,096,130 and was achieved by the Government of India from August 23 to 29, 2014”. By 7 February 2018, over 31 crore (310 million) bank accounts were opened and over ₹745 billion (US$12 billion) were deposited under the scheme.

Rashtriya Swasthya Bima Yojana

Rashtriya Swasthya Bima Yojana is a government-run health insurance programme for the Indian poor. The scheme aims to provide health insurance coverage to the unrecognised sector workers belonging to the BPL category and their family members shall be beneficiaries under this scheme. It provides for cashless insurance for hospitalisation in public as well as private hospitals. The scheme started enrolling on April 1, 2008 and has been implemented in 25 states of India. A total of 36 million families have been enrolled as of February 2014. Initially, RSBY was a project under the Ministry of Labour and Employment. Now it has been transferred to Ministry of Health and Family Welfare from April 1, 2015.

Every “below poverty line” (BPL) family holding a yellow ration card pays ₹30 registration fee to get a biometric-enabled smart card containing their fingerprints and photographs. This enables them to receive inpatient medical care of up to ₹30,000 per family per year in any of the empanelled hospitals. Pre-existing illnesses are covered from day one, for head of household, spouse and up to three dependent children or parents. In the Union Budget for 2012-13, the government made a total allocation of ₹1,096.7 crore (US$170 million) towards RSBY.

Ayushman Bharat

Ayushman Bharat Yojana or National Health Protection Scheme is a program which aims to providing a service to create a healthy, capable and content new India. It has two goals, one, creating a network of health and wellness infrastructure across the nation to deliver comprehensive primary healthcare services, and another is to providing insurance cover to at least 40 per cent of India’s population which is majorly deprived of secondary and tertiary care services. Indu Bhushan has been appointed as a Chief Executive Officer (CEO).

The scheme has two components: upgrading the 150,000 sub-centres (for a 5,000 population level) into wellness clinics that provide 12 sets of services; and providing health security to 40% of India’s population requiring hospitalisation for up to a sum assured of ₹5 lakh per year per family. If implemented as integral components of a strategy to improve the abysmal status of India’s health-care system, these initiatives can help achieve the goals of equity, efficiency and quality.

Important Landmarks of Indian Economic History: Part 2

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Janata Plan

Janata Plan was adopted in 1977 by the Janata Party after J.P movement and defeat of Congress party in the General Elections. The Janata Party was an amalgam of Indian political parties opposed to the State of Emergency that was imposed between 1975 and 1977 by the Government of India under the Prime Ministership of Indira Gandhi.

The new government wanted to reverse the model of economic growth based on capital intensive large scale industrialization and give more focus on production of “wage goods” rather than “capital goods” and small and cottage industry. There was a debate on “Mahalanobis Model” and “Wage Goods Model” of economic growth when India embarked on five year palns for economic growth. Mahalanobis Model represented Nehruvian Model of economic growth while Wage Goods Model represented Gandhian Model of economic growth. Earlier Mahalanobis model had been selected which was based on capital intensive large scale industrialization strategy, but the Janata Party was more inclined towards small scale and cottage industry based industrialization to produce wage goods, i.e., commodities required by labour households. The Janata plan also focused on rural development and agriculture, employment generation and poverty alleviation. It also wanted to promote indigenous industries and curb the market dominance of the MNCs.

Janata Party launched the Sixth Five-Year Plan (1978-80), aiming to boost agricultural production and rural industries. Seeking to promote economic self-reliance and indigenous industries, the government required multi-national corporations to go into partnership with Indian corporations. The policy proved controversial, diminishing foreign investment and led to the high-profile exit of corporations such as Coca-Cola and IBM from India. But the government was unable to address the issues of resurging inflation, fuel shortages, unemployment and poverty. The legalisation of strikes and re-empowerment of trade unions affected business efficiency and economic production.

Despite a strong start, the Janata government began to wither as significant ideological and political divisions emerged. The party consisted of veteran socialists, trade unionists and pro-business leaders, making major economic reforms difficult to achieve without triggering a public divide.Socialists and secular Janata politicians shared an aversion to the Hindu nationalist agenda of the Rashtriya Swayamsevak Sangh, whose members included Vajpayee, Advani and other leaders from the former Bharatiya Jana Sangh. Violence between Hindus and Muslims led to further confrontations within the Janata party, with most Janata leaders demanding that Atal Bihari Vajpayee and Lal Krishna Advani choose between staying in government and being members of the RSS. Both Vajpayee and Advani as well as other members of the former BJS opted to remain members of the RSS and consequently resigned from their posts and from the party. The Janata Government fell in 1979. Through 1979, support for Morarji Desai had declined considerably due to worsening economic conditions as well as the emergence of allegations of nepotism and corruption involving members of his family. On 19 July 1979 Desai resigned from the government and in the 1980 General Election the Congress Part bounced back to power, reverting again to Mahalanobis strategy albeit some elements of liberalization and export promotion.

Rolling Plan

Rolling Plan was adopted by Janata Party in 1978 for Sixth Five Year Plan (1978–1983) after scrapping the Fifth Five-Year Plan before its completion in 1979. Rolling Plan was an effort to integrate annual plan (short term plan) with the Five Year Plan (medium term plan) and further to integrate 5-year plan with perspective plan (a long term plan for 15 years). First is the plan for the current year which comprises the annual budget. Second is a plan for a fixed number of years, which may be 3, 4 or 5 years. Third is a perspective plan which is for 10, 15 or 20 years. Thus, there is no fixation of dates in respect of commencement and end of the plan in the rolling plans. This plan was again rejected by the Indian National Congress government in 1980 and a new Sixth Plan was made for the period 1980-85.There was an annual plan for the year 1979-80 when the Janata Government fell.

Priority Sector Lending

After the nationalization of banks it was decided to make available more funds by the banks to priority sector including agriculture, small and cottage industry and weaker sections. Priority sector was first properly defined in 1972, after the National Credit Council emphasized that there should be a larger involvement of the commercial banks in the priority sector. The sector was then defined by Dr. K S Krishnaswamy Committee. Priority Sector Lending is an important role given by the Reserve Bank of India (RBI) to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections.. This is essentially meant for an all round development of the economy as opposed to focusing only on the financial sector. In 1974, the banks were given a target of 33.33 % as share of the priority sector in the total bank credit. On the basis of Dr. K S Krishnaswamy committee, the target was raised to 40%. The current Priority sector targets are as follows:

Categories

Domestic Scheduled Commercial Banks and Foreign banks with 20 branches and above

Foreign banks with less than 20 branches

Total Priority Sector

40 percent of Adjusted Net Bank Credit (ANBC)$

34% for 2016-17 and 36% for 2017-18*

Agriculture

18 percent of ANBC

Not applicable

Micro Enterprises

7.5 percent of ANBC

Not Applicable

Advances to Weaker Sections

10 percent of ANBC

Not Applicable

* Total Priority Sector target of 40 percent for foreign banks with less than 20 branches has to be achieved in a phased manner as below:

$It can be either ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

Apart from the above mentioned subjects priority sector lending also covers newer areas. They include the following:

  • Export credit is a part of priority sector loan subject to 2% cap for domestic banks and foreign banks with >20 branches. However, for foreign banks with <20 branches, the export credit limit is up to 32% of the ANBC.

  • Education funding is also included in priority sector lending. This includes loans to individuals for educational purposes including vocational courses up to Rs. 10 lakh irrespective of the sanctioned amount will be considered as eligible for priority sector.

  • Loan for Housing is also considered a part of priority sector lending. This includes housing loans to individuals (up to Rs. 28 Lakh in Metros and Rs. 20 Lakh in other cities, towns and villages), repairing of house (up to Rs. 5 Lakh in metros and Rs. 2 lakh in others), loans to any government agency for construction of houses subject to ceiling of Rs. 10 Lakh per house / dwelling unit for weaker sections or slum clearing and outstanding deposits with NHB on account of priority sector shortfall.

  • Social infrastructure is also included in priority sector lending. This includes loans up to ₹5 crore per borrower for building social infrastructure for activities viz. schools, health care facilities, drinking water facilities and sanitation facilities including construction/ refurbishment of household toilets and household level water improvements in Tier II to Tier VI centres. It also includes loan to Micro-finance Institutions (MFIs) for on-lending to SHGs and JLGs for water and sanitation facilities.

  • Another important component of priority sector lending is renewable energy. This includes loan up to Rs. 15 crore to borrowers for purposes like solar based power generators, biomass based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities Viz. Street lighting systems, and remote village electrification. For individual households, the loan limit will be ₹10 lakh per borrower.

  • And finally loans to weaker section are also included in the priority sector lending. For example, personal loans to weaker sections up to Rs. 50,000 per borrower and loans to distressed persons with a limit to Rs. 1,00,000/- per borrower to prepay their debt to non-institutional lenders etc.

Creation of NABARD

National Bank for Agriculture and Rural Development (NABARD) is an apex development financial institution in India, headquartered at Mumbai with regional offices all over India. NABARD was established on the recommendations of B.Sivaraman Committee, (by Act 61, 1981 of Parliament) on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and Development Corporation (ARDC). It is one of the premier agencies providing developmental credit in rural areas. NABARD is India’s specialised bank for Agriculture and Rural Development in India.

The initial corpus of NABARD was Rs.100 crores. Consequent to the revision in the composition of share capital between Government of India and RBI, the paid up capital as on 31 May 2017, stood at Rs.6,700 crore with Government of India holding Rs.6,700 crore (100% share). The authorized share capital is Rs.30,000 crore. International associates of NABARD include World Bank-affiliated organizations and global developmental agencies working in the field of agriculture and rural development. These organizations help NABARD by advising and giving monetary aid for the upliftment of the people in the rural areas and optimizing the agricultural process.

NABARD discharge its duty by undertaking the following roles :

  1. Serves as an apex financing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas

  2. Takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc.

  3. Co-ordinates the rural financing activities of all institutions engaged in developmental work at the field level and maintains liaison with Government of India, state governments, Reserve Bank of India (RBI) and other national level institutions concerned with policy formulation

  4. Undertakes monitoring and evaluation of projects refinanced by it.

  5. NABARD refinances the financial institutions which finances the rural sector.

  6. NABARD partakes in development of institutions which help the rural economy.

  7. NABARD also keeps a check on its client institutes.

  8. It regulates the institutions which provide financial help to the rural economy.

  9. It provides training facilities to the institutions working in the field of rural upliftment.

  10. It regulates the cooperative banks and the RRB’s, and manages talent acquisition through IBPS CWE.

Creation of Securities and Exchange Board of India

The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India. It was established in the year 1988 and given statutory powers on 30 January 1992 through the SEBI Act, 1992. This is a body for regulating the, securities market. It became an autonomous body by The Government of India on 12 April 1992 and given statutory powers in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Controller of Capital Issues (under the RBI)was the regulatory authority before SEBI came into existence; it derived authority from the Capital Issues (Control) Act, 1947.SEBI has its headquarters at the business district of Bandra Kurla Complexin Mumbai, and has Northern, Eastern, Southern and Western Regional Offices in New Delhi, Kolkata, Chennai and Ahmedabad respectively. It has opened local offices at Jaipur and Bangalore and is planning to open offices at Guwahati, Bhubaneshwar, Patna, Kochi and Chandigarh in Financial Year 2013 – 2014. Ajay Tyagi was appointed SEBI Chairman on 10 January 2017 replacing U.K Sinha.

The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as “…to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected there with or incidental there to”.

SEBI has to be responsive to the needs of three groups, which constitute the market: (1) the issuers of securities (2) the investors (3) the market intermediaries. SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi-executive. It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it very powerful, there is an appeal process to create accountability. There is a Securities Appellate Tribunal which is a three-member tribunal and is headed by Mr. Justice J P Devadhar, a former judge of the Bombay High Court. A second appeal lies directly to the Supreme Court. SEBI has taken a very proactive role in streamlining disclosure requirements to international standards.

BOP Crisis and New Economic Policy

India was exposed to a massive BOP crisis in 1990 when it came almost on the verge of default on its international payments as it had only $1.5 billion in its foreign exchange reserves. Although the situation was salvaged by swapping gold to the Bank of England and getting the requisite funds followed by an IMF loan, , it was realized that the economic crisis was due to structural problems deep rooted in the development planning in India.

Therefore, India adopted the new economic policy 1991 to address its structural constraints. The New Economic Policy had two components- (1) Stabilisation policies (short term) – aimed at reducing inflation, fiscal deficit, trade deficit and current account deficit and exchange rate reforms (convertibility of rupee), and (2) Structural Reforms (medium and long term)—mainly based on the premises of liberalization, privatization and globalization. The first generation of economic reforms included the new industrial policy 1991, Chellaih Committee recommendations on tax reforms and Narasimhan Committee Banking sector reforms. The second generation of reforms included newer subjects such as infrastructure and insurance. The third generation reforms further included reforms in labour law, subsidies, fiscal consolidation and value added taxes at state level followed by the GST.

Montek-Manmohan-Rao Strategy

Montek-Manmohan-Rao Strategy refers to the strategy of the New Economic Policy of 1991 which was based on the three pillars of liberalization, privatization and globalization. This policy gave emphasis on private enterprises, export promotion, integration of domestic economy with the global economy and market mechanism instead of import substitution, protectionism and commanding heights envisaged by the Mahalanobis strategy.

Important Landmarks of India’s economic history: Part 1

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National Planning Committee

Rudimentary economic planning, deriving from the sovereign authority of the state, was first initiated in India in 1938 by Congress President and Indian National Army supreme leader Netaji Subhash Chandra Bose, who had been persuaded by Meghnad Saha to set up a National Planning Committee. M. Visvesvaraya had been elected head of the Planning Committee. Meghnad Saha approached the great engineer and requested him to step down. He argued that planning needed a reciprocity between science and politics. M. Visvesvaraya generously agreed and Jawaharlal Nehru was made head of the National Planning Committee.The so-called “British Raj” also formally established Advisory Planning Board under K. C. Neogy that functioned from 1944 to 1946.

The Bombay Plan

The Bombay Plan is an economic plan published in 1944/1945 by eight leading Indian industrialists, proposed state intervention in the economic development of the nation after independence from the United Kingdom (which took place in 1947). Titled A Brief Memorandum Outlining a Plan of Economic Development for India, the signatories of the Plan were Jamshedji Ratanji Dadabhoy Tata, Ghanshyam Das Birla, Ardeshir Dalal, Sri Ram, Kasturbhai Lalbhai, Ardeshir Darabshaw Shroff, Sir Purshottamdas Thakurdas and John Mathai. The Plan went through two editions: the first was published in January 1944. This first edition became “Part I” of the second edition, published in 2 volumes in 1945 under the editorship of Purushottamdas Thakurdas. Although Jawaharlal Nehru, the first Prime Minister of India, did not officially accept the plan, “the Nehruvian era witnessed [what was effectively] the implementation of the Bombay Plan; a substantially interventionist state and an economy with a sizeable public sector.

People’s Plan

In the year 1945 M.N.Roy prepared the people’s plan.He gave equal importance to both agriculture and industries.This plan is also called “radical plan”. Although there was no explicit mention of any radical plan in post independence India the Left Democratic Front government of Kerala (1996-2001) headed by Sri. E.K. Nayanar tried to implement a People’s Plan proposing to involve the masses in the process of decision making in the field of local self-government. It was conceptualised by late E M S Namboodiripad, the foremost leader of the Communist Party of India (Marxist) in Kerala.Such a plan intended to involve people in planning at local government level in planning and implementation in accordance with priorities of an area. It included involvement of the ward sabhas comprising the entire electorate of the ward of a local self-government institution such as a Panchayat, Municipality or Corporation.

National Income Committee

After independence, the Government of India appointed the National Income Committee in August, 1949 with Prof. PC. Mahalnobis as its Chairman and Prof. D.R. Gadgil and Dr. V.K.R.V. Rao as its two members so as to compile a national income estimates rationally on a scientific basis.

Planning Commission

After India achieved Independence, a formal model of planning was adopted, and accordingly the Planning Commission, reporting directly to the Prime Minister of India, was established on 15 March 1950, with Prime Minister Jawaharlal Nehru as the Chairman. Authority for creation of the Planning Commission was not derived from the Constitution of India or statute; it is an arm of the Central Government of India. In his first Independence Day speech in 2014, Prime Minister Narendra Modi announced his intention to dissolve the Planning Commission. It has since been replaced by a new institution named NITI Aayog.

Mahalanobis Strategy

The Mahalanobis strategy of industrialization and economic growth was given by Professor Prasanta Chandra Mahalanobis. He was the architect or designer of India’s Second Five Year Plan (1956-61. In his strategy he had adopted the simple two sector model of Soviet Planning of Feldman type. He gave top priority to investment goods, as they were crucial for further economic growth of India. The main attributes of the Mahalanobis strategy included: primacy to growth, trickle- down theory, focus on basic, core and large scale industries/ projects, commanding heights to public sector, limited role of the private sector with a licensing policy for enterprises, import substitution and protection to indigenous industries and promotion of small and cottage industries.

Plan Holiday

India embraced Five Year Plan since 1951 for its economic development. But there were interruptions in Five Year Plan Known as “plan holiday”. Plan holiday means the replacement of fiv year plans by annual plans during certain periods of economic history of India due to different kinds of economic and non-economic constraints. The first Five-Year Plan was launched in 1951, focusing mainly on development of the agricultural sector. Two subsequent Five-Year Plans were formulated before 1965, when there was a break because of the Indo-Pakistan conflict. Two successive years of drought, devaluation of the currency, a general rise in prices and erosion of resources disrupted the planning process and after three Annual Plans between 1966 and 1969, the fourth Five-Year Plan was started in 1969. The period 1966-69 is therefore called “plan holiday.”

The Eighth Plan could not take off in 1990 due to the fast changing political situation at the Centre, and the years 1990–91 and 1991–92 were treated as Annual Plans. We may therefore call the period 1991-92 as plan holiday. The Eighth Plan was finally launched in 1992 after the initiation of structural adjustment policies.

Garibi Hatao desh bachao

Garibi hatao was part of the 5th Five-Year Plan. Garibi Hatao desh bachao (“Abolish poverty, save the nation”) was the theme and slogan of Indira Gandhi’s 1971 election bid and later also used by her son Rajiv Gandhi. Since “trickle down” theory of economic growth could not effectively reduce poverty in India in the first three five year plans, Mrs. Indira Gandhi proposed a direct attack on poverty on the lines suggested by many economists and international think tanks at the time. The slogan and the proposed anti-poverty programs that came with it were designed to give Gandhi an independent national support, based on rural and urban poor, which would allow her to by-pass the dominant rural castes both in and out of state and local government; likewise the urban commercial class. And, for their part, the previously voiceless poor would at last gain both political worth and political weight. The programme was conceived and funded by the central government and implemented with the help of state governments. Garibi hatao led to initiatives like twenty point programme, programmes for development of small farmers and small sace industries etc. But about 4% of all funds allocated for economic development went to the three main anti-poverty programs, and so the effect of the programmes was not so remarkable on raising the standard of living of the poor.

Twenty Point Programme

The Twenty Point Programme was initially launched by Prime Minister Indira Gandhi in 1975 and was subsequently restructured in 1982 and again on 1986. With the introduction of new policies and programmes it was finally restructured in 2006 and it has been in operation. The Programmes and Schemes under TPP-2006 are in harmony with the priorities contained in the National Common Minimum Programme, the Millennium Development Goals of the United Nations and SAARC Social Charter. The restructured Programme, called Twenty Point Programme – 2006 (TPP-2006), was approved by the Cabinet on 5th October, 2006 and operated w.e.f 1.4.2007. The nomenclature of programs was changed and the components of the programme were covered under different programmes with the change of government. 20 Points as defined in 2006 included: Poverty eradication power to people, Support to farmers, Labour welfare, Food security, Clean drinking water, Housing for all, Health for all, Education for all, Welfare of SC/ ST/ OBC and minorities, Women welfare Child welfare, Youth Development, Improvement of slums, Environment protection and afforestation, Social security, Rural Roads, Energising of rural areas, Development of Backward areas, IT enabled and e-governance. The monitoring of the programme at the centre has been assigned to the Ministry of Statistics and Programme Implementation, Government of India.

Nationalisation of Banks

The Government of India issued an ordinance (‘Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969’) and nationalisedthe 14 largest commercial banks with effect from the midnight of 19 July 1969. These banks contained 85 percent of bank deposits in the country. A second dose of nationalisation of 6 more commercial banks followed in 1980. The stated reason for the nationalisation was to give the government more control of credit delivery. With the second dose of nationalisation, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalised banks and resulted in the reduction of the number of nationalised banks from 20 to 19. Until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

Hindu Rate of Growth

The Hindu rate of growth is a term, coined by prof Krishna Raj, referring to the low annual growth rate of the planned economy of India before the liberalisations of 1991, which stagnated around 3.5% from 1950s to 1980s, while per capita income growth averaged 1.3%. The word “Hindu” in the term was used by some early economists to imply that the Hindu outlook of fatalism and contentedness was responsible for the slow growth. Later economists reject this connection and instead attribute the rate to the Government of India’s protectionist and interventionist policies (Licence Raj), rather than to a specific religion or to the attitude of the adherents of a particular religion. Accordingly, some writers instead use the term “Nehruvian socialism”. Indian economy remained trapped in low growth syndrome till the end of the five year plan, and GDP growth remained well below 5 per cent. India broke free of Hindu rate of growth in the 6th Five Year plan (1980-85) due to some elements of liberalization and growth of sunrise industries. Agricultural production also increased and India achieved self reliance in food grains production in 1985 with food production at 150 million tones.

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Know about Multilateral Financial Institutions and WTO

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Multilateral institutions refer to global institutions relating to finance, trade and investment. In the post second world war period the international trade payments and exchange rate system was in doubt and shambles on one hand on the other hand the devastation of infrastructure caused by the two wars needed post war reconstruction and development. Due to these urgencies “Bretton Woods Twins”, the International Monetary Fund (IMF) and the International Bank for reconstruction and Development (IBRD, later World Bank) were born in 1945. The same could not happen in the case of setting up a body for regulating and promoting free trade together with these institutions. However, separately, an institution called General Agreement on Trade and Tariff was created in 1947, which later gave birth to the World Trade Organisation (WTO) in 1995.

The International Monetary Fund

The International Monetary Fund (IMF) is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. Before Nauru, the last country to join the World Bank and IMF as 188th member was South Sudan in April 2012. Created in 1945, the IMF is governed by and accountable to the 189 countries that make up its near-global membership. The Headquarters of IMF is situated in Washington, D.C., United States. Christine Madeleine Odette Lagarde is a French lawyer and politician who has been the Managing Director of the International Monetary Fund since 5 July 2011 till date.

The IMF, also known as the Fund, was conceived at a UN conference in Bretton Woods, New Hampshire, United States, in July 1944. The 44 countries at that conference sought to build a framework for economic cooperation to avoid a repetition of the competitive devaluations that had contributed to the Great Depression of the 1930s.

The IMF’s responsibilities

The IMF’s primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other. The Fund’s mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.

A country can face economic Crisis due to

  • Domestic factorsinclude inappropriate fiscal and monetary policies, which can lead to large economic imbalances (such as large current account and fiscal deficits and high levels of external and public debt); an exchange rate fixed at an inappropriate level, which can erode competitiveness and lead to persistent current account deficits and loss of official reserves; and a weak financial system, which can create economic booms and busts. Political instability and/or weak institutions can also trigger crises.
  • External factorsinclude shocks ranging from natural disasters to large swings in commodity prices. These are common causes of crises especially for low-income countries, which have limited capacity to prepare for such shocks and are dependent on a narrow range of export products. Also, in an increasingly globalized economy, sudden changes in market sentiment can result in capital flow volatility. Even countries with sound fundamentals could be severely affected by the impact of economic crises and policies in other countries.

IMF assistance to member countries

The IMF assists countries hit by crises by providing them financial support to create breathing room as they implement adjustment policies to restore economic stability and growth. It also provides precautionary financing to help prevent and insure against crises. The IMF’s lending toolkit is continuously refined to meet countries’ changing needs. IMF lending aims to give countries breathing room to implement adjustment policies in an orderly manner, which will restore conditions for a stable economy and sustainable growth. These policies will vary depending upon the country’s circumstances. For instance, a country facing a sudden drop in the prices of key exports may need financial assistance while implementing measures to strengthen the economy and widen its export base. A country suffering from severe capital outflows may need to address the problems that led to the loss of investor confidence—perhaps interest rates are too low; the budget deficit and debt stock are growing too fast; or the banking system is inefficient or poorly regulated.

In the absence of IMF financing, the adjustment process for the country could be more abrupt and difficult. For example, if investors are unwilling to provide new financing, the country would have no choice but to adjust—often through a painful compression of government spending, imports and economic activity. IMF financing facilitates a more gradual and carefully considered adjustment. As IMF lending is usually accompanied by a set of corrective policy actions, it also provides a seal of approval that appropriate policies are taking place.

The IMF’s various lending instruments

The IMF’s various lending instruments are tailored to different types of balance of payments need as well as the specific circumstances of its diverse membership (see table). Low-income countries may borrow on concessional terms through facilities available under the Poverty Reduction and Growth Trust ( IMF Support for Low-Income Countries ), currently at zero interest rates. Historically, for emerging and advanced market economies in crises, the bulk of IMF assistance has been provided through Stand-By Arrangements (SBAs) to address short-term or potential balance of payments problems. The Standby Credit Facility (SCF)serves a similar purpose for low-income countries. The Extended Fund Facility (EFF) and the corresponding Extended Credit Facility (ECF) for low-income countries are the Fund’s main tools for medium-term support to countries facing protracted balance of payments problems. Their use has increased substantially in since the global financial crisis, reflecting the structural nature of some members’ balance of payments problems.

To help prevent or mitigate crises and boost market confidence during periods of heightened risks, members with already strong policies can use the Flexible Credit Line (FCL) or the Precautionary and Liquidity Line (PLL).

The Rapid Financing Instrument (RFI) and the corresponding Rapid Credit Facility(RCF) for low-income countries provide rapid assistance to countries with urgent balance of payments need, including from commodity price shocks, natural disasters, and domestic fragilities.

Conditionality

Typically, a country’s government and the IMF must agree on a program of economic policies before the IMF provides lending to the country. A country’s commitments to undertake certain policy actions, known as policy conditionality, are in most cases an integral part of IMF lending

IMF Quota

The IMF is a quota-based institution. Quotas are the building blocks of the IMF’s financial and governance structure. An individual member country’s quota broadly reflects its relative position in the world economy. Quotas are denominated in Special Drawing Rights (SDRs), the IMF’s unit of account.

There are many role of IMF Quota

  1. Resource Contributions– Quotas determine the maximum amount of financial resources a member is obliged to provide to the IMF.
  2. Voting Power– Quotas are a key determinant of the voting power in IMF decisions. Votes comprise one vote per SDR100,000 of quota plus basic votes (same for all members).
  • Access to Financing– The maximum amount of financing a member can obtain from the IMF under normal access is based on its quota.
  1. SDR Allocations– Quotas determine a member’s share in a general allocation of SDRs.

Special Drawing Right (SDR)

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. So far SDR 204.2 billion (equivalent to about US$291 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis. The value of the SDR is based on a basket of five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.

The role of the SDR

The SDR was created as a supplementary international reserve asset in the context of the Bretton Woods fixed exchange rate system. The collapse of Bretton Woods system in 1973 and the shift of major currencies to floating exchange rate regimes lessened the reliance on the SDR as a global reserve asset. Nonetheless, SDR allocations can play a role in providing liquidity and supplementing member countries’ official reserves, as was the case with the 2009 allocations totaling SDR 182.6 billion to IMF members amid the global financial crisis.

The SDR serves as the unit of account of the IMF and some other international organizations.

The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.  It is an accounting creation, so it is also called “paper gold.”

The value of the SDR

A basket of currencies determines the value of the SDR. The SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system, the SDR was redefined as a basket of currencies.

The SDR basket is reviewed every five years, or earlier if warranted, to ensure that the SDR reflects the relative importance of currencies in the world’s trading and financial systems. The reviews cover the key elements of the SDR method of valuation, including criteria and indicators used in selecting SDR basket currencies and the initial currency weights used in determining the amounts (number of units) of each currency in the SDR basket. These currency amounts remain fixed over the five-year SDR valuation period but the actual weights of currencies in the basket fluctuate as cross-exchange rates among the basket currencies move. The value of the SDR is determined daily based on market exchange rates. The reviews are also used to assess the appropriateness of the financial instruments comprising the SDR interest rate (SDRi) basket.

   Currency Weights determined in the 2015 Review Fixed Number of Units of Currency for a 5-year period Starting Oct 1, 2016
  U.S. Dollar 41.73 0.58252
  Euro 30.93 0.38671
  Chinese Yuan 8.33 1.0174
  Japanese Yen 8.09 11.900
  Pound Sterling  10.92 0.085946

During the last review concluded in November 2015, the Board decided that the Chinese renminbi (RMB) met the criteria for inclusion in the SDR basket. Following this decision, the Chinese RMB joined the US dollar, euro, Japanese yen, and British pound sterling in the SDR basket, effective October 1, 2016.

The SDR interest rate (SDRi)

The SDRi provides the basis for calculating the interest rate charged to members on their non-concessional borrowing from the IMF and paid to members for their remunerated creditor positions in the IMF. It is also the interest paid to members on their SDR holdings and charged on their SDR allocation.

The World Bank

The World Bank was born in Bretton Woods with the IMF as the International Bank for Reconstruction and Development in 1944. The WBG came into formal existence on 27 December 1945 following international ratification of the Bretton Woods agreements, which emerged from the United Nations Monetary and Financial Conference (1–22 July 1944). It also provided the foundation of the Osiander Committee in 1951, responsible for the preparation and evaluation of the World Development Report. Commencing operations on 25 June 1946, it approved its first loan on 9 May 1947 (US$250M to France for postwar reconstruction, in real terms the largest loan issued by the Bank to date). With 189 member countries, staff from more than 170 countries and offices in over 130 locations, the World Bank Group is a unique global partnership: five institutions working for sustainable solutions that reduce poverty and build shared prosperity in developing countries.

The bank is based in Washington, D.C. and provided around $61 billion in loans and assistance to “developing” and transition countries in the 2014 fiscal year. Kristalina Ivanova Georgieva-Kinova is a Bulgarian politician and the current chief executive officer of the World Bank. Until 2017, she was European Commissioner for Budget and Human Resources in the college of the Juncker Commission.

 Although it started as the International Bank for Reconstruction and Development (IBRD), later in due course of time it added four more institutions in its ambit- the IDA (International Development Association, soft loan window of the World Bank for LDCs and developing countries), the IFC (International Finance Corporation, World Bank window for private sector lending), the ICSID (the International Centre for Settlement of Investment Disputes (ICSID) and the MIGA (Multilateral Investment Guarantee Agency). IFC, MIGA, and ICSID focus on strengthening the private sector in developing countries.  IBRD and IDA are sometimes referred to as the World Bank and taken all other arms it is called World Bank Group. The bank’s stated mission is to achieve the twin goals of ending extreme poverty and building shared prosperity. Total lending as of 2015 for the last 10 years through Development Policy Financing was approximately $117 billion.

The World Bank Group is one of the world’s largest sources of funding and knowledge for developing countries. Its five institutions share a commitment to reducing poverty, increasing shared prosperity, and promoting sustainable development. While the five institutions have their own country membership, governing boards, and articles of agreement, they work as one to serve the partner countries.  Today’s development challenges can only be met if the private sector is part of the solution.  But the public sector sets the groundwork to enable private investment and allow it to thrive.  The complementary roles of our institutions give the World Bank Group a unique ability to connect global financial resources, knowledge, and innovative solutions to the needs of developing countries.

The World Bank’s (the IBRD and IDA’s) activities are focused on developing countries, in fields such as human development (e.g. education, health), agriculture and rural development (e.g. irrigation and rural services), environmental protection (e.g. pollution reduction, establishing and enforcing regulations), infrastructure (e.g. roads, urban regeneration, and electricity), large industrial construction projects, and governance (e.g. anti-corruption, legal institutions development). The IBRD and IDA provide loans at preferential rates to member countries, as well as grants to the poorest countries. Loans or grants for specific projects are often linked to wider policy changes in the sector or the country’s economy as a whole. For example, a loan to improve coastal environmental management may be linked to development of new environmental institutions at national and local levels and the implementation of new regulations to limit pollution.

In fact all the countries do not participate in all the five organs of the World Bank Group, All of the 193 UN members and Kosovo that are WBG members participate at a minimum in the IBRD. The International Bank for Reconstruction and Development (IBRD) has 189 member countries, while the International Development Association (IDA) has 173 members. As of May 2016, all of them also participate in some of the other four organizations: IDA, IFC, MIGA, ICSID. Here is a description:

WBG members by the number of organizations which they participate in:

  1. only in IBRD: None
  2. IBRD and one other organization: San Marino, Nauru, Tuvalu, Brunei
  3. IBRD and two other organizations: Antigua and Barbuda, Suriname, Venezuela, Namibia, Marshall Islands, Kiribati
  4. IBRD and three other organizations: India, Mexico, Belize, Jamaica, Dominican Republic, Brazil, Bolivia, Uruguay, Ecuador, Dominica, Saint Vincent and the Grenadines, Guinea-Bissau, Equatorial Guinea, Angola, South Africa, Seychelles, Libya, Somalia, Ethiopia, Eritrea, Djibouti, Bahrain, Qatar, Iran, Malta, Bulgaria, Poland, Russia, Belarus, Kyrgyzstan, Tajikistan, Turkmenistan, Thailand, Laos, Vietnam, Palau, Tonga, Vanuatu, Maldives, Bhutan, Myanmar
  5. All five WBG organizations: the rest of the 138 WBG members

Non-members are: Andorra, Cuba, Liechtenstein, Monaco, State of Palestine, Vatican City, Taiwan, and North Korea.

The World Trade Organisation

The World Trade Organization (WTO) was created in the Uruguay Round of GATT. It became operational since January 995. It started with only 139 members. Today, the WTO has 164 members and 23 observer governments. Liberia became the 163rd member on 14 July 2016, and Afghanistan became the 164th member on 29 July 2016. In addition to states, the European Union, and each EU Country in its own right, is a member. The current Director-General is Roberto Azevêdo of Brazil, since 1 September 2013. Before the creation of the WTO, the General Agreement on Tariffs and Trade had a series of Directors-General. Peter Sutherland was the last DG of GATT and the first of the WTO.

It is the only global international organization dealing with the rules of trade between nations. At the heart of the system — known as the multilateral trading system — are the WTO’s agreements, negotiated and signed by a large majority of the world’s trading nations, and ratified in their parliaments. These agreements are the legal ground-rules for international commerce. Essentially, they are contracts, guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits to everybody’s benefit. The agreements were negotiated and signed by governments. But their purpose is to help producers of goods and services, exporters, and importers conduct their business.

Basic Principles of WTO

The basic principle of the WTO is “Non-discrimination”. It has two major components: the most favoured nation (MFN) rule, and the national treatment policy. Both are embedded in the main WTO rules on goods, services, and intellectual property, but their precise scope and nature differ across these areas. The WTO agreements later on added the principle of reciprocity. It means lowering of import duties and other trade barriers in return for similar concessions from another country. Reciprocity is a traditional principle of GATT/WTO, but is practicable only between developed nations as they have similar level of development. Of late in the Doha round there is a demand for reciprocity from emerging economies like India and China.

Special and Differential Treatment

The WTO agreements contain special provisions which give developing countries special rights and allow other members to treat them more favourably. These are “special and differential treatment provisions” (abbreviated as S&D or SDT). The special provisions include:

  • longer time periods for implementing agreements and commitments
  • measures to increase trading opportunities for these countries
  • provisions requiring all WTO members to safeguard the trade interests of developing countries
  • support to help developing countries build the infrastructure to undertake WTO work, handle disputes, and implement technical standard
  • provisions related to least-developed country (LDC) members

In the Doha Declaration, ministers agreed that all special and differential treatment provisions should be reviewed, in order to strengthen them and make them more precise, effective and operational.

 Objectives

  • The primary purpose of the WTO is to open trade for the benefit of all.
  • It is an organization for trade opening.
  • WTO acts as a forum for negotiating trade agreements. The goal is to help producers of goods and services, exporters, and importers conduct their business.
  • WTO operates a global system of trade rules. It is a forum for governments to negotiate trade agreements. The main goal is to ensure that trade flows as smoothly, predictably and freely as possible.
  • It settles trade disputes between its members and it supports the needs of developing countries.

The WTO Agreements

The WTO’s rules — the agreements — are the result of negotiations between the members. The current set were the outcome of the 1986–94 Uruguay Round negotiations which included a major revision of the original General Agreement on Tariffs and Trade (GATT). GATT is now the WTO’s principal rule-book for trade in goods. The Uruguay Round also created new rules for dealing with trade in services, relevant aspects of intellectual property, dispute settlement, and trade policy reviews. The complete set runs to some 30,000 pages consisting of about 30 agreements and separate commitments (called schedules) made by individual members in specific areas such as lower customs duty rates and services market-opening. Through these agreements, WTO members operate a non-discriminatory trading system that spells out their rights and their obligations. Each country receives guarantees that its exports will be treated fairly and consistently in other countries’ markets. Each promises to do the same for imports into its own market. The system also gives developing countries some flexibility in implementing their commitments.

GATT

General Agreement on Tariffs and Trade (GATT) is about trade in goods and tariff reduction. It all began with trade in goods. From 1947 to 1994, GATT was the forum for negotiating lower customs duty rates and other trade barriers; the text of the General Agreement spelt out important rules, particularly non-discrimination.Since 1995, the updated GATT has become the WTO’s umbrella agreement for trade in goods. It has annexes dealing with specific sectors such as agriculture and textiles, and with specific issues such as state trading, product standards, subsidies and actions taken against dumping.

GATS

GATS refer to General Agreement on Trade in Services. Banks, insurance firms, telecommunications companies, tour operators, hotel chains and transport companies looking to do business abroad can now enjoy the same principles of freer and fairer trade that originally only applied to trade in goods. These principles appear in the new General Agreement on Trade in Services (GATS). WTO members have also made individual commitments under GATS stating which of their services sectors they are willing to open to foreign competition, and how open those markets are.

TRIPS

TRIPS refer to trade related intellectual property rights. The WTO’s intellectual property agreement amounts to rules for trade and investment in ideas and creativity. The rules state how copyrights, patents, trademarks, geographical names used to identify products, industrial designs, integrated circuit layout-designs and undisclosed information such as trade secrets — “intellectual property” — should be protected when trade is involved.

TRIMS

TRIMS refer to Agreement on Trade-Related Investment Measures (TRIMs). This Agreement, negotiated during the Uruguay Round, applies only to measures that affect trade in goods. Recognizing that certain investment measures can have trade-restrictive and distorting effects, it states that no Member shall apply a measure that is prohibited by the provisions of GATT Article III (national treatment) or Article XI (quantitative restrictions). Examples of inconsistent measures, as spelled out in the Annex’s Illustrative List, include local content or trade balancing requirements. The Agreement contains transitional arrangements allowing Members to maintain notified TRIMs for a limited time following the entry into force of the WTO (two years in the case of developed country Members, five years for developing country Members, and seven years for least-developed country Members). The Agreement also establishes a Committee on TRIMs to monitor the operation and implementation of these commitments.

Agreement on the Application of Sanitary and Phytosanitary Measures

The Agreement on the Application of Sanitary and Phytosanitary Measures is one of the final documents approved at the conclusion of the Uruguay Round of the Multilateral Trade Negotiations. It applies to all sanitary (relating to animals) and phytosanitary (relating to plants) (SPS) measures that may have a direct or indirect impact on international trade. The SPS agreement includes a series of understandings (trade disciplines) on how SPS measures will be established and used by countries when they establish, revise, or apply their domestic laws and regulations. Countries agree to base their SPS standards on science, and as guidance for their actions, the agreement encourages countries to use standards set by international standard setting organizations. The SPS agreement seeks to ensure that SPS measures will not arbitrarily or unjustifiably discriminate against trade of certain other members nor be used to disguise trade restrictions. In this SPS agreement, countries maintain the sovereign right to provide the level of health protection they deem appropriate, but agree that this right will not be misused for protectionist purposes nor result in unnecessary trade barriers. A rule of equivalency rather than equality applies to the use of SPS measures.

The 2012 classification of non-tariff measures (NTMs) developed by the Multi-Agency Support Team (MAST), a working group of eight international organisations, classifies SPS measures as one of 16 non-tariff measure (NTM)chapters. In this classification, SPS measures are classified as chapter A and defined as “Measures that are applied to protect human or animal life from risks arising from additives, contaminants, toxins or disease-causing organisms in their food; to protect human life from plant- or animal-carried diseases; to protect animal or plant life from pests, diseases, or disease-causing organisms; to prevent or limit other damage to a country from the entry, establishment or spread of pests; and to protect biodiversity”.

Examples of SPS are tolerance limits for residues, restricted use of substances, labelling requirements related to food safety, hygienic requirements and quarantine requirements.

Building a reliable database of the Indian economy

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The ministry of statistics and programme implementation (Mospi) is often in the news for all the wrong reasons. It is criticized for the poor quality of data, gaps in the data or delays in the release of data. However, several initiatives are progressively putting the database of the Indian economy on a much firmer footing than in the past. The results should begin to show by the end of this year.

The data on employment and unemployment has been the subject of much controversy lately. Generating data on employment for a country like India, with its dualistic structure, is particularly challenging. Over half the labour force is still dependent on agriculture, where the rhythm of production follows the weather cycle with long periods of seasonal unemployment between crops. Further, thanks to the high pressure of population on land and continuing land fragmentation, the phenomenon of what economists call underemployment or “disguised unemployment” is widespread. To illustrate, a family of five people may be cultivating a tiny plot of land which actually requires only two people working full-time. Everyone is underemployed and the production may be no more than what two people could have produced, i.e., zero productivity for the three superfluous workers.

A similar problem of low productivity, low wage, underemployment is also faced in the millions of small and tiny unorganized sector enterprises that account for the bulk of non-agricultural employment as well. Thus, underemployment affects virtually the entire workforce in the country except the small proportion who are employed in the organized sector. Conventional concepts of employment used in the advanced countries are not of much use in measuring employment or unemployment in such a context.

The National Sample Survey Office (NSSO) has addressed the problem through a clever technique of measuring a sampled person’s time disposition using multiple concepts: usual status, daily status and weekly status. By collecting data on employment through large sophisticated surveys of inter-penetrating samples and using these multiple employment concepts, the NSSO has been generating fairly reliable estimates of both open unemployment and underemployment for several decades.

However, since the employment-unemployment survey is an elaborate and costly operation, it is undertaken only once every five years. Such quinquennial estimates of unemployment are obviously inadequate for macro-economic policy, which requires up-to-date information at least annually, if not more frequently. In fact, no NSS estimates of employment are available since 2011-12. Unfortunately, the more recent Labour Bureau surveys have been largely ignored, and all sorts of humbug estimates are put out to fill the gap.

As professor Shibdas Bandhopadhyay of the Indian Statistical Institute would wryly observe when we worked together as members of the National Statistical Commission (NSC) a few years ago, “there are lots of numbers but no data”. A flourishing cottage industry is now engaged in discussing the pros and cons of using such numbers that were never intended to measure employment in the first place. Meanwhile, researchers and analysts hungry for estimates quote and use these numbers for various purposes.

This situation is about to change. The NSSO has replaced the old series of quinquennial employment-unemployment estimates with a new survey series, the periodic labour force survey (PLFS), that matches the different production cycles of the agricultural and non-agricultural sectors. Urban employment surveys are now being conducted every quarter to give us quarterly estimates of urban employment covering most of the non-agricultural sector. Rural surveys are being conducted annually to give us annual estimates of rural employment, and underemployment, covering most of the agricultural sector. The urban and rural estimates are being combined to give us annual estimates of total employment. Survey data collected for 2017-18 is now being processed and the first annual PLFS estimate of total employment, unemployment and underemployment will be available by the end of this calendar year. This will mark a sea change in employment and other derivative estimates.

The second area where there is a marked strengthening of the database is the use of the ministry of corporate affairs (MCA) data from 2011-12 onwards. It is mandatory for all companies registered with the MCA to submit their audited balance sheets. This database, covering over 500,000 companies, is vast compared to the annual survey of industries (ASI) data that was used earlier for the industrial sector and the RBI data for some 2,500 companies that was used in the case of services for estimating gross domestic product (GDP) in these sectors.

However the unit of observation in this database is the company, not the producing establishment as under the ASI. A company may be in multiple lines of production, providing industrial products as well as services out of multiple establishments located in many states and even abroad. Hence the MCA data is not conceptually comparable to the earlier ASI data where the unit of observation was the individual industrial establishment. It is also not possible to readily disaggregate MCA data on value of output, costs, etc., by industrial sectors or by states, as could be done with ASI data.

National income estimates since 2012-13 have been partly based on the new MCA database. There are also other conceptual differences between the old series (2004-05 base) and the new series (2011-12 base) which is now better aligned with the internationally accepted United Nations System of National Accounts. Since the MCA database is not available for earlier years, Mospi has not projected the new series (2011-12 base) backwards for earlier years as was done before whenever national income estimates were shifted from an old base year to a new base year. However, national income estimates based on both the old and new series are available for the three years: 2012-13, 2013-14 and 2014-15. These indicate that growth rates based on the new series are significantly higher than those based on the old series.

This has generated a huge controversy. While many independent analysts have directly questioned the credibility of the new national income series, even official sources like the Reserve Bank of India and the chief economic adviser have hinted at their discomfort with the new series. It is essential that Mospi takes the initiative to generate the back series of national income estimates, as in the past, to try and resolve this issue. Fortunately, a committee set up by the NSC is now actively addressing this matter. In addition to the MCA data, the ASI data series needs to be continued and used in combination with the MCA data to generate sector-wise and state-wise industrial production data that are consistent with the MCA aggregates. Further, an annual survey of services sector (ASSS) series needs to be introduced for the services sectors similar to the ASI for industrial sectors. Reportedly, such an ASSS series is now work in progress.

The MCA data combined with the ASI and ASSS should give us fairly robust estimates of output, value added, etc., for the organized sector companies registered with the MCA. But this would still exclude the entire non-agricultural unorganized sector consisting of some 63 million small and tiny enterprises employing around 111 million workers (see my Mint column of 15 September 2017 bit.ly/2InhWDP ). The unorganized sector has remained the most important gap in the database of the Indian economy, though it employs the bulk of the non-agricultural workforce. Fortunately, our data blindness for this sector has been considerably reduced in recent years by the NSS surveys of such unorganized (unregistered) sector enterprises. Starting in 2000-01, these quinquennial surveys alternatively covered industrial and service enterprises and now cover both industries and services in the same survey. Indeed, it is from such an enterprise survey of the NSS 73rd round (2015-16) that we know there are around 63 million such unorganized sector enterprises.

Since these surveys are conducted quinquennially, the data for the intervening years is projected using the ASI-based organized sector growth rate for industry and other organized sector proxies for the services sector. This is clearly unsatisfactory since there is no reason to expect that the organized and unorganized sector enterprises will behave similarly. The PLFS employment data that will be available henceforth will provide a much firmer foundation for such projections. Further, business registers being prepared by the states will provide a sound sample frame for the NSS enterprise surveys. This data, projected forward using PLFS employment data, combined with the MCA, ASI and ASSS data bases will give us a much more robust estimate of GDP for the non-agricultural sector, and hence for the economy as a whole.

The initiatives discussed above do not cover all the data problems pertaining to the Indian economy. Data on agricultural production is still based on unreliable archaic procedures while the recommendations of several committees for improving this data remain unimplemented. The use of wholesale prices as proxies for producer prices continues to confound the analysis of price and real output trends. Poor quality state-level statistics and missing micro-macro data linkages require strengthening capacity in state statistical bureaus, a challenging task. These persisting problems notwithstanding, the improvements in data sources discussed above should give us a much more robust data base for the Indian economy by the end of this year.

(Comments by Ajit Ghosh, Biswanath Goldar and S. V. Ramana Murthy on an earlier draft are gratefully acknowledged.)

Sudipto Mundle is emeritus professor at the National Institute of Public Finance and Policy and was a member of the Fourteenth Finance Commission.

Unemployment: Measurement in India

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A person who is in the age group of working population (15-60 years), is called unemployed if s/he does not get work, despite offering himself in the labour market for work on existing wage rate. There are various sub categories of unemployed people such as underemployed, seasonally unemployed and disguisedly employed. If a person voluntarily chooses to remain unemployed for education, upgrade of skills and waiting for a better job avenue, he is not considered as unemployed. Only involuntarily unemployed are described as unemployed.

Types of Unemployment

  1. Structural unemployment: unemployment occurring because of structural features of the economy such as lack of economic growth and private enterprise, use of capital intensive technology, higher share of services sector in GDP especially financial sector
  2. Frictional unemployment: Such kind of unemployment is short term unemployment that exists in the developed countries due to recession in some sectors. Labour force remains unemployed while taking some kind of training and skill enhancement and soon they get employment in sectors that are vibrant.
  3. Cyclical unemployment: Such kind of unemployment occurs due to downswing of the business cycle.
  4. Seasonal unemployment: This kind of unemployment occurs when any seasonal activity like agriculture passes through slack season.
  5. Underemployment: Underemployment refers to a situation in which the labour force is employed at lower than his qualification and at lower wages than s/he deserves or for lesser hours than he can work.
  6. Disguised unemployment: This kind of unemployment exists in agriculture. This is about employment of such labour force in agriculture, who contribute nothing or negligible amount in total production, still they seem to be employed while actually they are disguisedly unemployed. Technically the marginal productivity of disguisedly unemployed is zero or near zero. For example 10 labour units produce 100 quintals of wheat in a plot and 15 labour units also produce 102 quintals. Then we can say them disguisedly unemployed.

 

Measurement of unemployment in India

Unemployment and employment is measured in India on the basis of quinquennial (every five years) and annual surveys on activity status of the work force of India done by the National Sample Survey Organization (NSSO), since its setting up in1950. The quinquennial data is based on bigger samples and so more reliable than annual data, which is based on a smaller sample. Thus we can say that more reliable unemployment and employment figures come with a time lag of four years at least.

The National Sample Survey Organization (NSSO) provides three different estimates of employment and unemployment based on different approaches / reference periods used to classify an individual’s activity status. These are the

  1. Usual status approachwith a reference period of 365 days preceding the date of survey. reference period of 365 days preceding the date of survey. The activity status on which a person spent relatively longer time (major time criterion) during the 365 days preceding the date of survey is considered the principal usual activity status of the person.
  2. Current weekly status approachwith a reference period of seven days preceding the date of survey. A person found ‘working’ for at least one hour for at least one day during the reference week was categorised as ‘working’ according to current weekly status even if he was seeking work or available for work for the rest of the period.
  3. Current daily status approachwith each day of the seven days preceding date of survey as the reference period. CDS does provide day-to-day accounting of the available labour time (in terms of ‘half-day’ units) of persons classified under the categories employed and unemployed (labour force) is done according to the current weekly status concept separately for each of the seven days period of reference. It mean if you get employment for more than half a day on a particular day, your activity status according  to CDS  is equal to one full man day “employed.”

 

 

Activity Status

The surveys by NSSO try to find the activity status of the work force from the given samples in order to find out whether an individual is employed or unemployed during the chosen reference period. Activity Status refers to the activity situation in which the individual is found during the reference period with respect to his participation in economic or non-economic activities. The NSSO defines three broad Activity Status—first is activity status classified as employed or working (engaged in an economic activity), second is unemployed that is seeking employment  and still not getting it and third is that segment of working age which is not the part of work force as they are not seeking nor available for work.

Work force = Number of people employed + no of people seeking employment

It is notable that “not seeking work” segment of working age people are classified as “not in labour force.”

Unemployment Rate

Unemployment rate is the percent of the labor force that is without work.

Unemployment Rate = Unemployed Workers/Total Labour Force x 100

Work participation rate

The Work participation rate is also estimated which is defined as the percentage of total workers (main and marginal) to total population.

Work Force Participation Rate = Total Workers (Main + Marginal)/ Total Population x 100

Usual Status measures chronic or open ended unemployment (unemployment in the longer period) whereas Current Weekly Status and Current Daily Status measure underemployment and variations in unemployment in the shorter period. It is notable that Usual Staus Unemployment and Current Weekly Status unemployment are “person rates” of unemployment whereas Current Daily Status Unemployment is the “time rate of unemployment”. Person rates of unemployment how many persons out of total work force are unemployment whereas time rate of unemployment measures how many work days remained unemployed out of total man days available in a country.

Man Day =  one unit of labour’s  work in a day (within legal working hours)

Thus a man day is a day regarded in terms of the amount of work that can be done by one person within this period.

As far as the situation in India was concerned, the longer the reference period, the smaller will be the rate of unemployment and the shorter the reference period, the larger the unemployment rate. Current Daily Staus unemployment is the most comprehensive measure of unemployment in India.

The NSSO collected employment data based on ‘usual status (UPS)’ only upto its eighth round. However from 9th round onwards, it started collecting data based on ‘current weekly status (CWS)’ approach also. Planning Commission set up the Committee of Experts on Employment Estimates (Dantwala Committee) in 1960. The Committee recommended concepts and definitions for conducting such surveys. It recommended collection of data based on CDS in addition to UPS and CWS. Accordingly, beginning with the 27th round (1972-73),quinquennial(5-yearly) surveys were being conducted by NSSO to collect employment-unemployment data based on all the three approaches of UPS,CWS and CDS.

In the annual survey rounds of NSSO, only employment-unemployment data based on ‘usual activity status’ and ‘current weekly status’ were collected up to 59th round. However in 60th round, a separate schedule was canvassed to collect employment and unemployment data on ‘current daily status’ also. In fact, since 60th round, NSSO is collecting data on employment and unemployment on current daily status also in its annual rounds.

NSSO surveys are conducted on quinquennial basis. In order to measure employment-unemployment on an annual basis, Employment-Unemployment Survey is being conducted by Labour Bureau since 2009. This survey also captures the labour estimates in terms of usual principal status, usual principal and subsidiary status, current weekly status and current daily status.

Besides this, a quick quarterly enterprise level surveys (Quick Employment Survey)are also conducted by Labour Bureau to capture the changes in the employment –unemployment scenario at much shorter interval. However the intent of this survey was to mainly assess the impact of global financial crisis on the Indian economy.

The National Sample Survey Office (NSSO) has addressed the problem through a clever technique of measuring a sampled person’s time disposition using multiple concepts: usual status, daily status and weekly status. By collecting data on employment through large sophisticated surveys of inter-penetrating samples and using these multiple employment concepts, the NSSO has been generating fairly reliable estimates of both open unemployment and underemployment for several decades.

However, since the employment-unemployment survey is an elaborate and costly operation, it is undertaken only once every five years. Such quinquennial estimates of unemployment are obviously inadequate for macro-economic policy, which requires up-to-date information at least annually, if not more frequently. In fact, no NSS estimates of employment are available since 2011-12. Unfortunately, the more recent Labour Bureau surveys have been largely ignored, and all sorts of humbug estimates are put out to fill the gap.

This situation is about to change. The NSSO has replaced the old series of quinquennial employment-unemployment estimates with a new survey series, the periodic labour force survey (PLFS), that matches the different production cycles of the agricultural and non-agricultural sectors. Urban employment surveys are now being conducted every quarter to give us quarterly estimates of urban employment covering most of the non-agricultural sector. Rural surveys are being conducted annually to give us annual estimates of rural employment, and underemployment, covering most of the agricultural sector. The urban and rural estimates are being combined to give us annual estimates of total employment.

Pointers from latest NSSO data

According to NSSO 68th round of the Employment and Unemployment Situation among Major Religious Groups in India report, following points come out.

Key findings of the survey 

  • The unemployment rate in urban areas reduced from 4.5% in 2004-05 to 3.4% in 2011-12, the unemployment rate in urban areas reduced from 4.5% in 2004-05 to 3.4% in 2011-12.
  • According to the survey, which was conducted in 2011-12, the unemployment rate across all the religious groups in rural areas was on the lower side than those in urban areas for both males and females.
  • The most peculiar finding of the survey is that Christians which are supposed to be a better off community have the highest rate of unemployment in both rural (4.5%) and urban (5.9%) areas in 2011-12. The rate in urban areas for Christians stood at (8.6%) in 2004-05 while the rural rate stays constant.
  • While the unemployment rate in rural areas has decreased for Sikhs (from 3.5 to 1.3%) – now the lowest across all religious groups – it has slightly increased for Muslims (from 2.3 to 2.6%). At 3.3%, Hindus have the lowest unemployment rate in urban areas.
  • Self-employment is the major source of income for almost half the households, across all religious groups, in rural areas, followed by casual labour.
  • In urban areas, the proportion of households deriving major income from regular wage or salary earnings is the highest. Half the Muslim households in urban areas have self-employment as major source of income, the highest among all religions, while regular wage or salary earnings was the highest for Christians with 45.8 per cent households.

What does the survey indicate?

  • The survey confirms the apprehensions shown by many experts that India is facing rural distress. As survey clearly indicates that all religious groups registering an increase in unemployment in rural areas.
  • The report states that the unemployment rate is 1.7% in rural and 3.4% in urban areas. In its previous report of 2013, unemployment rate was 1.5% in rural and 4.8% in urban areas.
  • The unemployment rate in India is even lower than Many developed countries, however survey of NSSO on number of jobs created reveal that there are very less number of jobs created in formal sector in last 2 decades, Therefore this low unemployment figure indicates that most jobs created in last few years are either in informal sector or in unorganized sector.

Why do Christians have largest unemployment rate?

  • Unemployment level in India is highest among those people who are richer and more educated. The reason is that poor people can’t afford to stay unemployed, and hence, opt for any kind of work, irrespective of the nature of the job. The better off have the capacity to be unemployed as they look for the right job. Christians are the most educated group, hence unemployment rate is higher among them
  • Among the persons of age 15 and above, the proportion of people who are not literates was the lowest for Christians. Also, the proportion of persons with educational level secondary and above is highest for Christians.

Reality about unemployment in India

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India, according to Census 2011, estimates its workforce at 402 million. According to the labour ministry, as of 2016, India’s labour market comprises more than 475 million people. Of this, it is estimated that less than 10% are in formal employment.The inability to create formal economy jobs haunted the United Progressive Alliance government and is now a growing cause for worry for the Bharatiya Janata Party-led National Democratic Alliance.

It is true that a reliable and up to date measure of employment and unemployment is not easy. There are many sources of data on employment and unemployment. Currently, unemployment data is collected and disseminated by several departments, agencies, ministries in India. The primary agencies for survey and data collection are Central Statistical Office (CSO) and the National Sample Survey Office (NSSO) of the Ministry of Statistics and Programme Implementation (MOSPI). Other agencies include Labour Bureau of the Ministry of Labour and Employment (MoLE) and Registrar General and Census Commissioner of India under Home ministry. Further, Ministry of Micro, Small and Medium Enterprises (MSMEs) and the Directorate General of Technical Education (DGET) also occasionally collect employment data. Nevertheless, dubbing all these data as unreliable, or just cherry picking of one set of data to showcase government’s achievement does not change the reality.

Mirza Ghalib once remarked, “I know the reality of heaven; what you say is good to soothe my heart.” This aptly applies when government agencies are propagating that statistics show that formal employment in India has increased. This kind of statistical jugglery may win elections, but eventually it may break the hearts of millions of young people. Contrast this with a report in the Hindustan Times in July 12017. According official data, one of every three IITians graduating in 2017 either didn’t find a suitable job or wasn’t found suitable for a job through campus placement, pointing to shrinking employment opportunities for India’s large pool of engineering talent. Only 66% of those who made themselves available for campus recruitment landed a job offer in 2016-17, as against 79% in 2015-16 and 78% in 2014-15, according to data made available by IITs to the human resource development (HRD) ministry. Out of 9,104 student in 17 IITs who applied this year, only 6,013 got jobs. The data for placement was shared by 17 IITs. There are 75,000 students studying in 23 IITs in the country. DNA also reported that The number of private job offers for graduates across the Indian Institutes of Technology (IITs) has dropped in the last two years. While 7,367 students were placed in 2015-16, only 6,406 got the opportunity in 2016-17. If this is the fate of IITs, where students are rigorously educated and trained, what might be happening to the students of social sciences and humanities or to those who are less educated or uneducated? Private sector provides approximately 90 per cent of jobs and the informal sector in India generates more than 90 per cent of jobs. This has not happened in a few years of course, and there are deep rooted problems in our educational system (with regard to employability) as well as the strategy of growth and industrialization (which is less labour absorbing). The only change in recent times is propagating that all is well because the new government has consciously worked for increasing employment. It is not truth, but a post truth—that is ‘take the truth as it is being told’ and not ‘as it actually exists’!

What Economic Survey says?

 While the economists have recently raised concerns over not enough jobs being created, the government has rejected the worrying employment scenario, saying that there is a lack of comprehensive data on job creation. Rajiv Kumar, Vice-President of Niti Aayog said in January that there is “much better news on employment”, which was in contrast with the then CMIE data. He had also said that the government think-tank would “very soon” release a report based on high-frequency data on job creation. The report has not been released yet.

The Economic Survey 2017-18 claims that Formal Sector Non-Farm employment is much more than it is believed and it has increased in the last two years. The survey has madesome interesting points in this regard. According to it, assessments of the employment challenge are hampered by a lack of timely data. Recognizing this, the government authorized the NITI Aayog to provide new guidelines for filling this lacuna, and the next comprehensive survey of employment is under way. In the meantime, the digitization of government data and the introduction of the GST have provided an opportunity to make some preliminary estimates of formal employment.

The Survey explains that from a social security perspective formal employment amounts to 6 crores, to which we must add an estimated 1.5 crore of government workers (excluding defense), for a total of 7.5 crores. Since the non-agricultural workforce (again adding government to the figure in the table) is estimated at 24 crores according to the 68th Round (2011) of the NSSO Employment-Unemployment Survey, formal employment under this definition is equivalent to 31 percent of the non-agricultural workforce.

It adds that from a tax perspective formal employment is 11.2 crores; adding government employment yields a total count of 12.7 crores. This implies that nearly 54 percent of the non-agricultural workforce is in the formal sector. Of course, not all the firms that pay GST are formal, in the common-use sense of the term. As Chapter 2 shows, many small, below-the-threshold firms have registered for the GST so they can secure tax credits on their purchases. Against this, the figure excludes many formal workers in sectors outside the GST such as health and education.

It concludes :Notwithstanding the caveats regarding the specific numbers, the broad conclusion is likely to be robust: formal payrolls may be considerably greater than currently believed.

What other sources of data show?

CMIE Data

According to data of Centre for Monitoring Indian Economy (CMIE), the unemployment rate in India has doubled between July 2017 and April 2018, whereas the number of jobs in the country in the last financial year 2017-18 also fell to 406 million from 406.7 million in the previous year, data from the Centre for Monitoring Indian Economy show. The unemployment rate in the country rose from 3.39% in July 2017 to 6.23% in March 2018, and is projected to reach 6.75% in April 2018.

The unemployment rate between July 2017 and October 2017 rose significantly from 3.39% to 5.04%. It declined for two months — November and December to 4.76% and 4.78% respectively and started rising again from January 2018. Jobless growth is one of the major challenges the country is facing.

Analysts have pointed out that since nearly half of India’s workforce is dependent on agriculture, jobs suffer due to the volatility in the sector — drought, unseasonal rains, bad crop et al. Madan Sabnavis, Chief Economist of CARE Ratings says that there has been a trend of replacements than adding new jobs.According to him “There have been softer recruitments in the corporate sector with just 2-3% growth rate, while jobs in the public sector have not increased.”  He explained that a lot of people are understood to have lost their jobs when housing projects got stuck last year.

KLEMS India database: What happened the previous year?

Given how key labour-intensive sectors, such as agriculture and exports, have not done too well between FY14 and FY16, it is not surprising no new jobs were being created in the economy during this time. In fact, the KLEMS India database reveals a contraction in the workforce over this period, with about 1.2 million jobs being lost and the total employment down from 483.9 million to 482.7 million. Even though growth rates were purportedly high, in 201-16 and 206-17, the KLEMS India database show that manufacturers didn’t hire too many more people—because only an additional 0.3 million jobs were created. Unfortunately, the agriculture sector, which provides nearly half the total employment, barely grew in either of the years, and actually contracted 0.2% in FY15. Consequently, the number of people employed slipped from 217.6 million in FY14 to 210.1 million in the next year and further to 202.7 million in the subsequent year. Again, the loss of jobs in the textiles sector—around 0.7 million jobs were lost in the two years between FY14 and FY16—could be partly due to the near collapse of the exports sector, which contracted to $316.5 billion in FY15 and further to $266.4 billion in FY16, from $318.6 billion FY14. Sector experts have been pointing out exports from labour-intensive sectors have been slower than that of the sector as a whole. Much of this, they say, is due to structural issues, and caution that labour-intensive sectors are becoming less competitive. Over the past year, demonetisation and the delays in refunds, on account of GST, have further hurt exporters. The slowdown in sectors, such as construction, which grew just 1.3% in FY17, is not good news because it accounts for around 12-14% of the total employment. More than 10 million jobs were created in the construction sector in the two years to FY16 although growth decelerated from 4.3 % in 2014-15 to 3.7% in FY16. With real estate slowing down significantly since then, it’s unlikely the additional employment would have been significant. The KLEMS data shows the pace of job creation has decelerated since the early nineties; with an additional12 million people looking to earn a livelihood every year, the economic environment needs to be a lot friendlier.

International Labour Organisation Estimates

According to the latest report of International Labour Organisation (ILO),, the unemployment rate in India dipped from 3.6 per cent in 2012 to 3.4 per cent in 2014. It, however, rose to 3.5 per cent in 2015 and the unemployment rate has remained unchanged since then.  India could witness a higher unemployment rate of 3.5 per cent in 2018, a little more than the 3.4 per cent projected earlier

The unemployment rate in the country will stand at 3.5 per cent in 2018 and 2019 – the same level of unemployment seen in 2017 and 2016, the ILO’s ‘World Employment and Social Outlook: Trends 2018’report said. In its 2017 report, the ILO had projected unemployment rate in India at 3.4 per cent in 2017 and 2018. The ILO said the unemployment rate at a global level would decline for the first time in three years.

The report disagreed with denial of jobless growth by Prime Minister Narendra Modi and assertion that seven million jobs had been created in the current financial year. The ILO has, on the contrary, projected in its latest report that the number of jobless in India  will increase to 18.6 million in 2018 and 18.9 million in 2019, against 18.3 million in 2017. In last year’s report, the ILO had forecast that the number of unemployed in the country is expected to be 18 million in 2018 and had estimated the unemployment figure for 2017 at 17.8 million. So, the number of unemployed persons in India in 2017 was 0.5 million more than ILO’s previous year estimates.

The ILO has projected a dip in unemployment rate globally from 5.6 per cent in 2017 to 5.5 per cent in 2018 and 2019. In its 2017 report, the ILO had projected the global unemployment rate at 5.8 per cent for 2017 and 2018. Globally, 192.3 million people will remain unemployed in 2018 – a slight dip from 192.7 million in 2017. India is still better in comparison to the global average unemployment, but this is not enough. Former RBI governor recently said that India needs a higher employment growth and for this it needs to achieve a double digit growth rate led by the labour absorbing manufacturing sector.

The fallacy of EPFO data on employment

A recent study titled “Towards a payroll reporting in India” – by Pulak Ghosh and Soumya Kanti Ghosh used a new dataset, the Employees Provident Fund Organisation (EPFO), to gauge employment growth in India after demonitisation. This report authored by the Group Chief Economic Adviser of the State Bank of India and a professor from the Indian Institute of Management, Bangalore made a case for a better payroll reporting system in India and claimed that 55 lakh new jobs were created in India in a year. The authors later claimed that “7 million formal jobs are being added annually” in Indian labour market. To be sure, seven million formal jobs belies all past expectations, estimates and experiences of India’s labour market. In fact, by the authors’ own estimates, this would mean that India creates more formal jobs (7 million) than the number of skilled workers entering the workforce every year (6.6 million). The authors also claim in their study that 80% of the workforce in India is unorganised labour. That is, 80% of India’s workers are not registered with the EPFO or other formal sector databases. So, if there are seven million new formal sector jobs every year, does that mean there are also 28 million informal jobs being created every year to maintain this ratio of 80:20 unorganised to organised employment in India? This is sheer exaggeration if the truth inside the data is  analysed.

 The report used data from the Employees’ Provident Fund Organisation (EPFO) which registers employees from the formal sector for provident fund benefits. It found that as of November 2017, there were 36.8 lakh new members in the age group of 18-25 years who registered with the EPFO vis-à-vis the previous year. It assumed that any 18- to 25-year-old registering with the EPFO implies that he or she found a new job in the organised sector. This happened on the back of massive external forces of formalisation by the twin forces of demonetisation in FY-2017 and the GST in FY-2018.  It then extrapolated this November 2017 data to the full year of FY-2018 and boldly claimed that 55.2 lakh new jobs were created in FY-2018. This analysis was flawed in the sense that new 18- to 25-year-old EPFO members do not automatically mean net new jobs in the economy; an informal job that turns formal with an EPFO registration does not mean it is a new job; cherry-picking an EPFO data point and post-demonetisation/Goods and Services Tax (GST) time frames lead to these grossly misleading conclusions. Jayaram Ramesh rightly points out that the costs of formalisation may have resulted in many firms cutting costs or even shutting down. The EPFO methodology does not capture any of these costs of forced formalisation but merely showcases the new formal employees as new jobs. In other words, if, say, for every five informal employees, four lost their jobs due to the GST and demonetisation and one became formal, this study will count it as one new job created. Instead, the truth would be that four jobs were lost and one job turned formal from informal, not new. Thus, the study conflates what could be formalisation gains with new jobs. Forced formalization increased the number of EPFO registration. It is seen from the fact that in FY-2015, the total number of contributing EPFO members grew 7%. In FY-2016, it grew 8%. But after demonetisation, in FY-2017, it grew 20% and by December 2017, it had grown a further 23%. To cross check, the latest official numbers revealed in July 2017 (livemint reported) that the subscriber base of the Employees Provident Fund Organization (EPFO) rose 26% in the last six months from 38 million to 48.1 million. The jump was attributed mainly to an amnesty scheme allowing firms to come clean on their actual staff strength without being penalized, rather than jump in employment. EPFO’s amnesty scheme encouraged companies to enrol workers who had joined them between 1 April 2009 and 31 December 2016. Employees’ contributions, if not collected during the period, were waived. The employers’ contribution will be required to be remitted but unpaid dues will not attract any penalty. Every month an organized sector employee contributes 12% to EPF and a matching contribution is given by the employer. The amnesty scheme started on 1 January and ended on 30 June, 2017.

WTO can’t even get its maths right

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CSS Editorial: It is one of the finest articles on subsidy issue in the WTO related to India for a logical understanding of India’s stand in the WTO; really very beneficial for students!

Few things symbolise the WTO’s failure as evocatively as the developing world’s fight over food subsidies does. This has stalled various trade rounds because, while developing countries like India want more time to phase out their subsidies, especially since the Europeans and the US spend billions of dollars every year to subsidise their farmers, the latter give “data” to show this isn’t true. Most lay observers are swayed by the “data” and think countries like India are indeed guilty. Perhaps the best example of this is the latest submissions by India on its subsidies—Aggregate Measure of Support (AMS) in WTO jargon—and the US response to this. The US submission says that while India claims its AMS for rice was 5.45% in 2013-14, the actual number was 76.9%—that is, while India says its support to rice farmers adds up to 5.45% of the value of the crop in that year, in reality, India gave farmers more than three-fourths extra by way of price support. The corresponding figures for wheat are 3.53% and 65.3%. A figure below 10% is acceptable according to the WTO negotiations for developing countries, and below 5% for developed ones. How the US and India get such remarkably different numbers is at the heart of the problem with how the WTO operates.

Apart from the price that India guarantees its farmers, what obviously matters is the proportion of the crop that this applies to. Since India’s minimum support price (MSP) is, theoretically a price at which every farmer can sell to the government, the US assumes India’s price support extends to 100% of the crop; India, however, buys only 25-30% of the crop, so, logically, the price support should only apply to that amount. The fact that wheat/rice prices in India are way below MSP in most parts of the country is testimony to the view that MSP is not an effective price support to 100% of the crop. Indeed, while the US calculates India’s AMS for just wheat and rice as Rs 274,515 crore in 2013-14, the entire budget for the ministry of consumer affairs, food and public distribution that oversees all MSP and ration shop functions was Rs 92,927 crore! Just correcting for this distortion will reduce the US estimate of Indian subsidies from the 65-77% range to 16-19%.

This, it turns out, is the minor part of the story. When you look at the US calculation, it talks of the MSP of Rs 13,500 per tonne for wheat in most parts of the country. It then takes a “reference price” of Rs 3,540, multiplies the difference (13,500-3,540) by the 71 million tonnes of crop and arrives at the AMS; the same exercise is done at a higher price in some states that offer a bonus over the MSP. Given value of wheat was Rs 147,795 crore, the US arrives at an AMS of 65.3%. In the case of paddy, the US takes an MSP of Rs 13,100 per tonne and a “reference price” of Rs 2,346.67. But, and here’s the catch, the current global price of wheat is not Rs 3,540 per tonne, it is around Rs 16,900—in 2013-14, prices were 25-30% higher. With India’s MSP lower than the international price, its price support is negative, not a positive 65.3% as the US alleges! In the case of paddy, the US uses an MSP of Rs 13,100 vs a reference price of Rs 2,346.67, and uses this to arrive at a 77% AMS. Yet, when you look at the current price of Rs 19,500 per tonne, it is obvious India’s price support is negative —indeed, it is because India’s prices are lower than global prices that it is able to export in large quantities.

So, why is the US using the wrong “reference price”? When the WTO reached its agreement, it needed a “reference price” to avoid disputes based on annual fluctuations in global prices. It used the average global price between 1986-88 for this. Logically, this price should have been revisited regularly or adjusted by, say, the level of inflation or the exchange rate. India’s WPI, for instance, is up 5.6 times since then; not surprisingly, the exchange rate to the dollar which was 13.4 then is also up 5-6 times. Such is the rigidity in the WTO process, in 2018, we are using 30-year-old prices to calculate market support.  But, the serious question is, why doesn’t this trip up the US and Europe who spend a lot more on farmers? Because, when the WTO focussed on trade-distorting subsidies—that meant anything like MSP that affected the domestic price—the US and Europe simply converted their price support to unconditional cash transfers to farmers which were not related to a particular crop. Each system gave, say, Rs 100 to a farmer, but the Indian one required him to grow wheat or rice while the US/EU didn’t.

Now that India has got Aadhaar-based cash transfers, it too can follow EU/US and stop its MSP while ensuring the farmer gets the same amount of subsidies. Indeed, there are attendant benefits to doing this since higher MSPs mean Punjab and Haryana grow too much wheat and rice and that hurts their soil and lowers the water table. But at a more basic level, why does India need to change its system of MSPs just because the WTO is unable to learn basic maths?

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