Needed: Price Assurance

One silver lining to the 24 per cent fall in quarterly GDP between April and June was that growth in the agriculture sector was positive at 3.4 per cent. This is the first time in India’s history that we are experiencing a steep recession without any adverse shock of drought or a failed monsoon affecting agriculture. Another notable positive was the robust procurement of the spring harvest (Rabi crop), especially of wheat. Not just the frontrunners like Punjab andHaryana, but also states like Rajasthan, Madhya Pradesh and Uttar Pradesh had a good Rabi procurement via the Food Corporation of India. When FCI does procurement, usually through its designated agencies, based in various states, it means that the farmer gets the assured price called the Minimum Support Price (MSP). That was over Rs 1,900 per quintal this time.The MSP is determined as a political decision, based on inputs given by the Commission on Agricultural Costs and Prices (CACP). This commission was set up nearly 60 years ago, and provides a logical and scienti¦c basis to costs, and hence what is a reasonable price to be paid for the crops. Due to input cost escalation for seeds, pesticides, diesel, credit, fertilisers etc, the MSP too needs to go up, so that the farmer receives an adequate return. Otherwise, it is a loss-making proposition. In the past 50 years, the average escalation in MSP has been about 6 per cent per yearfor wheat and similarly for paddy. But the actual procurement by the government agency has gone up nearly 70 to 80 times during this period.Read More 

Don’t ask the SC for loan waiver

If you have borrowed money as a home or business loan, you are bound by contract to repay that loan. Repayment is over a period of time, so you also pay the time value of money, i.e. interest. Due to the lockdown, the GDP for three months of April to June was down 24 per cent. For many people there was no income. As per CMIE data, 12 crore people lost jobs in the month of April. Imagine if you were running a restaurant.Suddenly there were zero customers. You still have to pay rent, electricity and salaries. And of course you have to pay interest and EMI on your loan, which is needed to run the business.Imagine if you were making unbranded shirts to supply to a large retail chain. You bought the cloth, buttons, collars, thread and made 10,000 shirts for delivery.Read More   

GST compensation delay put onus on states to mobilise funds from their own sources better. Here’s what they can do

At the end of a recently held Goods and Services Tax (GST) Council meeting, the finance minister signalled the Union government’s inability to pay compensation to the states, describing the revenue shortfall as an ‘Act of God’ caused by the pandemic. The Union abdicating its responsibility and leaving the states on its own is problematic on many grounds. In the last few weeks many commentators have succinctly explained this. But one question still remains unanswered: Can states do anything on their own to hedge against similar risks in the future?The Union has provided two options to the states – either borrow from the Reserve Bank of India (RBI) or from the open market. But both these measures create liabilities. A question worth considering is whether states can mobilise their own resources without creating liabilities.Read More 

Why farmers are upset about reforms

Three months ago when Parliament was not in session, the Government of India issued three ordinances. Normally ordinances are issued only as an emergency law, and they have to be converted into proper legislation as soon as Parliament reconvenes. These three ordinances were about agriculture and farming. All three were in the spirit of ‘reforms’, i.e. removing shackles from the farmer. Now one of the ordinances has been passed in the Lok Sabha. The other two are in the pipeline. You would imagine that farmers would welcome any reform that gives them more freedom.But this ‘granting of freedom’ has met with a big backlash. Farmers in Punjab and Haryana have come to the streets. The agitation may spread to Rajasthan, Madhya Pradesh and Uttar Pradesh too. It has spilled on to highways. Opposition parties too are criticising the ordinance, but that is expected. The ruling party in Punjab is opposing the new law, but asking farmers to not blockade traffic. The most awkward thing for the ruling party in Delhi was that the Union food processing industries minister resigned from the cabinet. She resigned in protest because she claimed that the new law is anti-farmer. But in the four-page resignation letter written to the prime minister she did not spell out how, exactly, the new reformist law was anti-farmer. She belongs to Alkali Dal, a coalition partner to BJP.Read More 

Burden of Bad Loans

The economy shrank by nearly one-fourth during the first three months of this fiscal year. Much of this was due to the harsh lockdown initiated in March. Roughly three-fourths of the economy was practically shut for a month, after which there were a series of renewed lockdowns with partial relaxations. For this quarter, the economy suffered a triple shock, like demand, supply and finance collapsed. Unemployment rose close to 30 per cent in April, rendering nearly 122 million people jobless. In cities, whose workforce consists of 40 per cent migrants on an average, the toll on livelihoods was severe. With the loss of jobs and income, it soon became a food crisis for many urban households, necessitating emergency measures from state governments. The Central government’s initial relief package was to enhance food security by doubling the rations and extending this up to November.The big 20-lakh-crore package announced by the Central government in May consisted largely of liquidity support. For instance, micro, small and medium enterprises are eligible to guaranteed loans up to Rs 3 lakh crore. Of this amount, roughly half has been sanctioned and loans are being disbursed. It is no wonder that the demand for loans is muted since small businesses already hit by zero demand are not keen to take on any additional debt burden. But those small businesses which have a cash management mismatch, i.e., they have pending invoices that have not been paid by their customers, are quite willing to take loan support to tide over their crisis. In effect, such small businesses face a problem of illiquidity; not of insolvency.Read More 

Weekly vouchers will boost demand

The economy is in a deep hole, having contracted by one-fourth in the first three months of the lockdown. Hopefully the speed of contraction is slowing, but we will be lucky to see positive growth of the economy before December. So what is to be done? Everyone is crying hoarse for a fiscal stimulus. There are many suggestions. Most of them involve distributing cash from the central treasury. We may need around 5 per cent of the GDP, i.e. nearly Rs 10 lakh crore. But the central government says we don’t have that much to spare. The coffers are running empty, since tax collection has fallen steeply. Why not borrow? The government is already neck deep in debt, and its debt mountain is so huge, that merely paying interest on past debt costs it Rs 6 lakh crore annually. There is such a thing called sustainable debt, beyond which it is simply not affordable.For an average person the debt that you take on depends on how much EMI you can afford. Similar logic applies to government too. But surely they can ask the Reserve Bank of India to print money, and then distribute it to everyone’s Jan Dhan Yojana account? Not quite. Such automatic ‘monetisation’ of government debt has been prohibited by a contract that it signed with the RBI back in 1997. If that prohibition is not in place then it is tempting to all governments who get elected to use this ‘easy’ option of printing money to finance the deficit. Reckless use of monetisation will simply result in hyperinflation.Read More 

Yes, every generation must debate secularism. School textbooks aren’t enough

Many people were upset last week that NDTV 24×7— even NDTV — decided that secularism ought to be a topic of debate. Amid the prevailing climate of deep political polarisation, prejudice and suspicion, some saw this debate segment, which asked panelists whether “Secularism Is Essential To Democracy”,as a sign that this media house, too, was caving in to the Bharatiya Janata Party’s line of thinking. Others were outraged that there should be a debate on the topic at all — for isn’t the need for secularism self-evident? Isn’t the principle non-negotiable, being part of the basic structure of the Indian republic? It is understandable that the beleaguered advocates of secularism should feel this way. But you don’t have to be a BJP supporter or religious Right-winger to argue that a debate on secularism is not only a good thing, and not only necessary at this time, but something that needs to take place regularly.Read More

Passing GST Buck

The past week has been dominated by Finance Minister Nirmala Sitharaman’s remark  alluding to an “act of God”. She was referring to the Covid-19 pandemic which is now seen as the main cause of the unprecedented recession in India and the world. Never mind that the slowing of GDP growth, or investment ratio or the stagnation of exports, or the rise in the bad loan ratio in banking, preceded the pandemic. Naturally the fiscal stress was rising, and the  pressure of the inadequacy of tax collection was tangible even before the full fury of the pandemic.The FM referred to “an act of God” as a Force Majeure clause in a commercial contract. The “contract” in this case is actually an Act of Parliament of 2017 which guarantees compensation to the states from the Centre, in case of a  shortfall in tax collection from the Goods and Services Tax. The compensation clause says that any revenue growth  falling below 14 per cent annual growth from year to year will be compensated from the Central treasury fund for a period of five years – i.e., till 2022. Meeting this legal obligation was becoming difficult, thanks to the slowing GDPgrowth even prior to the pandemic.Read More 

The US-China tech war is being fought across a bamboo curtain

It is becoming clear that the ongoing “tech war" between the United States and China is taking place along five fronts: semiconductors, network infrastructure, operating systems, platforms and content. While it was Beijing that first erected a defensive Great Firewall around its internet users over 25 years ago to censor content, it is now Washington that is on the offensive on all fronts. The ostensible reason for this, as cited by officials of the Donald Trump administration, is national security—to prevent espionage, surveillance and influence operations by the Chinese government, as also its corporate proxies and agents.

The deeper and less-articulated reason is strategic: the US wants to increase its relative technological advantage over China. It is doing this by containing China’s progress and by rejuvenating its own high-technology industrial base. Both sides of the partisan divide in Washington have recognized that three decades of globalization resulted in the relocation of high-tech industrial capacity away from its soil, and that even if American firms and investors reaped the benefits of free trade, the strategic consequence has been the empowerment of an economic competitor and political adversary in the form of China. Nation-states are sensitive to changes in relative power, and the US has decided that China is too close for comfort.

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Pandemic and exam stress

Sometimes it feels as if the Supreme Court is running the country. Otherwise why does everything escalate all the way? The SC’s main job is to examine constitutional issues, but it is often and increasingly embroiled in commercial disputes. For instance, an engineering company in Chennai had registered the trademark ‘Coronil’ back in 1993, as an industrial cleaning product. When Patanjali started using the same name for its Covid-19 product, the Chennai firm said you are infringing on my trademark.Patanjali subsequently toned down its claim, and said it was an immunity boosting product. But this infringement case went all the way to the Supreme Court wherein it ruled the commercial dispute in favour of Patanjali. “In these pandemic times it would be terrible if we restrict the use of the word Coronil,” said the court. Technically the apex court has asked the parties to abide by the decision of the Madras High Court, which is in favour of Patanjali. Of course, there was another issue of the misleading claim in the earlier advertisements of Coronil being a ‘cure’. That too was looked into by the apex court.Read More

Reining in platforms like Facebook

In December 2015 the founder and Chief Executive of Facebook, Mark Zuckerberg, wrote passionately in The Times of India why it was important to give free access to internet. He was promoting the idea of ‘Free Basics’ launched by Facebook. It would give free access to basic internet services to all Indians. No charge would be applied for data use by the telecom company to access Facebook and a few other sites. Facebook would pay directly to the telecom company for the data. It was what he called a bridge to full internet access. It would close the digital divide. It would lead to digital equality. He claimed that full internet access would lift millions out of poverty. He compared this free service to provision of free basic health or education. It was a persuasive pitch.Unfortunately for him, the Telecom Regulatory Authority of India (TRAI) turned it down. Why would TRAI turn down a free service being offered by the social media giant? The answer is subtle but very important. While some free access to internet is better than no access, the Facebook free offer was giving access to only certain websites. Thus the poor who opted for Free Basics would be able to roam only where Facebook allowed them to roam. This curtails a more basic kind of freedom, i.e. freedom to roam the internet. And all other smaller websites would have to pay Facebook to enter this “walled garden”. This is opposite to the principle of net neutrality. A profitmaking organisation like Facebook was offering “free services” because it hoped to make those free customers become sticky and paying customers, in the future. It was like a “foot in the door” policy, giving freebies in the beginning, that any monopoly uses to oust competitors. Once it has hundreds of millions of users inside the “walled garden”, it would charge monopoly pricing to those who wanted to access those customers. It would become a gatekeeper to a privately owned corner of the internet. Thanks to a nationwide people’s campaign for net neutrality, the Facebook plan for Free Basics failed. Read More

The most important freedom we cherish

It is our 74th Independence Day. What is the uppermost thought on this day? It is of freedom. What kind of freedom? It is freedom to speak, to think, to express an opinion, to assemble as a group (without arms), to roam the country, to earn a living. After we gained independence from our colonial rulers, we gave ourselves a constitution as a democratic republic. That constitution is our sacred document, which protects our freedoms. It enshrines them as fundamental rights. There are both positive and negative rights. The right to free speech and expression, to dissent, to move freely and reside anywhere in the country, are all examples of positive freedoms.The negative freedoms are the right not to be harassed, coerced and illegally detained or incarcerated by the state, or the government. We also have the right to a clean environment, right to food, education and rural employment (NREGA). Soon we may have the right to internet interpreted as a basic right.Read More 

Building temples of modern India

The Bhakra Dam in Himachal Pradesh, on the River Sutlej, is one of the largest gravity dams in the world. Thereservoir it creates, spread over 168 square kilometres, is the third largest in India. The waters of Bhakra provideirrigation for 10 million acres of agricultural land across Punjab, Haryana and Rajasthan. It also generates about1500 megawatt hydroelectric power, which is used across six states. When Jawaharlal Nehru poured the firstbucket of concrete during the construction phase of the dam, he said: “This is a gift to the people of India and tothe future generations”. And he insisted that a memorial be constructed for workers who built the dam. The hugeconcrete dam took a total of 15 years to build and Nehru dedicated the dam and irrigation project to the nation inOctober 1963, with these famous word: “This dam has been built with the unrelenting toil of man for the benefitof mankind and therefore is worthy of worship. May you call it a Temple or a Gurdwara or a Mosque, it inspiresour admiration and reverence.”Read More 

NEP 2020: A Lot to Look Forward to in the Indian Education Sector

After several consultations on the draft National Education Policy 2019 with stakeholders in the education sector, the Government of India announced the National Education Policy (NEP) 2020 on Wednesday, 29 June. The NEP 2020 envisages commendable changes in the way education will be delivered in India.

It does so by emphasising on universal Early Childhood Care and Education (ECCE) and foundational literacy and numeracy, capacity building of teachers, and making the system more flexible for students by allowing them to to choose their subjects.However, a few points of concern remain. These include the emphasis on mother tongue as the language of instruction till fifth grade, which if brought into effect, might infringe the autonomy of parents. It may also force all universities and colleges to become multidisciplinary, while their potential for such transition remains unclear.The real test lies in how the provisions in the policy will be supported with the envisioned budget.Read more

A national vaccination campaign ought to be run like an election

Sometime over the next 12 months, a vaccine against COVID-19 is likely to be available. The task of administering it to few hundred million people—perhaps even over a billion—so that India acquires herd immunity appears daunting. That is, until you realise that India routinely carries out a task of the same scale and similar complexity fairly regularly. I’m referring to elections. If you think about it, a national vaccination programme is like a general election, but at much lower temperatures. It is a good idea to approach it as one because our elections involve a combination of administrative machinery, mindsets and behaviours that are ideal for a rapid national vaccination programme.Read more

That magic potion called education

Take one swig of this magic potion called education, and you will become invincible, like the Gauls of the Asterix comics. It is the secret to a better quality of life for yourself and family. It is also the foundation for sustained growth of the economy. Future growth will depend not so much on expanding the area of cultivation of crops, or building bigger factories and buildings, or faster cars or microchips. It will depend on building a large stock of “human capital”.That human capital is nothing but a culmination of education. That capital creates future innovations, productive ideas, creative products and processes, which in turn contribute to economic growth.So our biggest investment priority for the future should be education. How to plan for the future? A Confucian proverb answers it best. It says: If you want to plan for a year, plant some rice. If want to plan for the next ten years, plant a tree. If you want to plan for a hundred years, then educate your children.The New Education Policy (NEP) announced this week is not too soon. And it is also not the first one. The first one was passed by Parliament in 1968 based on the recommendations of the Kothari Commission. The second one was passed in 1986, which was revised in 1992. The present one is the third one. In essence it is a paradigm, a framework, which lays downs certain key focus areas and priorities. It is to be implemented jointly with the states in the next 20 years.Read More 

iPhone 11 is now ‘Made in India’, but Modi govt must see it doesn’t get too taxing for Apple

If you purchased an iPhone 11 recently, chances are that you have in your hands a smartphone assembled in India. After over a year of speculation on whether or not Apple will assemble its top-of-the-line product from a factory in India, news emerged last week that the iPhone 11 has indeed been “Made in India” at its contract manufacturer Foxconn’s plant near Chennai. This is good news that the Narendra Modi government can well claim as a success. But it’s important to understand why it is good news and what kind of success it is, to ensure that new government policies do not undermine this achievement. Read more  

The environment and economy can be friends

Are economic development and environment preservation antithetical to one another? The clear answer is no. It is possible to have clean air and water, less pollution and still be a prosperous country. Indeed the evidence is compellingly on the other side. The hallmark of a developed country is when you can drink water from the tap without worrying about filter or aqua guards. The municipal water supply is potable. Even the air quality in most advanced economies is much better than some of the poorer economies. Germany boasts of producing more energy from wind and solar than by burning coal. The United Kingdom will abolish all coal-fired electricity in the coming decades. One of the oldest articulation of the compatibility of development and environment was the speech given by Indira Gandhi at the United Nations Conference on Human Environment in Stockholm in 1972. She said: “We have to prove to the disinherited majority of the world that ecology and conservation will not work against their interest but will bring an improvement in their lives.” She meant that the fight against poverty was consistent with sustainable and ecologically responsible development.Read More

Avoid that sink(ing) feeling before you do the dishes. Dishwasher is the new washing machine

After booming sales over the past couple of months, dishwashers are in short supply in many Indian cities. The waiting period for some of the reputed brands is as long as two months. Dishwasher detergents have disappeared from supermarket shelves and online retailers. The Covid-19 pandemic has given the dishwasher its moment in India. If it leads to a greater adoption of dishwashers in Indian households, it will be a good thing for Indian society.

It’s easy enough to understand why the demand for dishwashers has surged. The lockdown and social distancing considerations have increased the number of meals cooked and eaten at home. At the same time, access to domestic workers is limited. The additional load of cooking and eating at home has literally piled up the dirty dishes in and around the kitchen sink. Many people have come to realise that dirty dishes don’t get cleaned merely because they have been left near the sink — someone needs to do them. If the falling apple triggered Isaac Newton to theorise about gravity, it could be unwashed dishes that led him to his first law of motion, or Émilie du Châtelet to the law of conservation of energy.

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India’s struggle to impose a ‘Google Tax’

India introduced a tax on e-commerce companies in the February Union Budget. What’s unusual about it? Don’t all companies have to pay a tax on their profits? Yes, but this is about e-commerce companies, which do not have a permanent establishment in India. For tax purposes, they are non-residents and hence not subject to income tax. Obviously we are not talking about Flipkart, Big Basket, Swiggy or Zomato, which are all desi companies with a presence in India – although it is possible that they ‘moved’ their head office out of the country after getting acquired by global giants. We are talking about companies like Google, Amazon and Netflix. All of them happen to be American companies. Hence the new tax, which is actually called a ‘levy’, is often referred to as the ‘Google Tax’. It is 2 per cent of revenues, if your aggregate revenue from India is more than Rs 2 crore.A company like Google makes money from advertisements, which show up on the right-hand side of your search. Or when you watch YouTube. Or sometimes even in Gmail. For users all these services, and many more such as Google Maps, are free. But the company makes money from those tiny ads that keep popping up now and then. Their customer is the advertiser, not you, the user of those services. In fact, a company like Google is selling you, or rather your ‘eyeballs’, to the advertiser. Since the ads can be small and truly micro-targeted, i.e. they show up only based on what you are searching, the ad rates are small.Read More