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1.Policy push for policy intensive exports (Live Mint)

2.Sticky steps for Finance Commission (Indian Express)

3.Food fortification as a way to ensure food security (General)

1.Policy push for policy intensive exports (Live Mint)

Synoptic line: It throws light on the intervention needed for boosting thee exports for India. (GS paper III)

Overview

  • The government of India has taken several measures to boost exports in its midterm review of foreign trade policy 2015-20. Apart from incentives for specific sectors such as ready-made garments and footwear, it also allowed duty-free procurement of the inputs needed for exports on a self-assessment basis. Further, a new logistics division has been established in the department of commerce to coordinate development in the logistics space.
  • These measures, along with recent changes in the goods and services tax, are likely to help the export sector.

 Changes needed at macro-level

  • However, at a broader level, India needs structural changes to be able to attain higher and sustainable exports growth in the medium to long run, particularly in labour-intensive sectors. At a time when the global economy is witnessing a synchronized recovery, the latest gross domestic product data showed that India’s exports went up by just 1.2% in the second quarter of the current fiscal. According to the World Trade Organization (WTO), merchandise trade volume in 2017 is expected to grow by 3.6%, compared to 1.3% in 2016.
  • Exports are an important driver of economic growth and will also help create much needed jobs for India’s growing workforce. They played an important role in transforming countries such as South Korea and China in recent decades. Therefore, India will need to work on increasing competitiveness to expand its exports share in the world market.

Present trends

  • It is often argued that India stands to gain as labour-intensive manufacturing is moving out of China due to rising wages and an ageing population. But this is not happening in a big way, and India is losing out to other Asian countries such as Bangladesh and Vietnam. India’s revealed comparative advantage an indicator of competitiveness, in some of the labour-intensive sectors has actually declined over the past decade.
  • Vietnam and Bangladesh are becoming more competitive and are capturing the low-end manufacturing space being vacated by China. India will need to swiftly take necessary measures in order to improve its position. The latest Economic Survey (2016-17) also highlighted how India is losing out in labour-intensive sectors like apparel and footwear, and why it is important to focus on these sectors. For instance, apparel is 80 times more labour-intensive than the auto sector.

Steps needed to be taken

  • India will have to work on multiple levels to increase its competitiveness.
  • First, it will need to improve logistics to increase efficiency, both in terms of the time and costs involved. The trade policy review shows that the government is addressing this issue.
  • Second, the government will need to move forward with reforms in the factor market. India has a large number of small enterprises, which are not in a position to attain economies of scale and compete in international markets. As the Economic Survey highlighted, Indian firms in the apparel and leather sectors are smaller than those in China, Vietnam and Bangladesh. The reason for this is regressive labour laws. Firms in labour-intensive sectors will need more freedom to operate. Similarly, more flexibility in land acquisition will also help the manufacturing sector.
  • Third, while there is a threat of rising protectionism, India needs to be prepared to protect its interests without compromising on its open trade policy. India has always supported rule-based multilateral trade negotiations under the WTO. But as progress has been limited in recent years, it should also look for opportunities to reduce trade barriers at the regional and bilateral levels.
  • Fourth, it will be important to keep the currency competitive. This is not to suggest that India needs an undervalued currency, but the Reserve Bank of India (RBI) should not allow the rupee to appreciate sharply. The RBI has done well in recent months to absorb a significant amount of the foreign exchange flow by building reserves to keep the rupee in check. However, the 36-currency exports-based real effective exchange rate is still showing significant overvaluation. As we have argued in these pages before, now that India has adequate reserves, policymakers should reassess the kind of funds it needs. This will not only assist in keeping the rupee competitive and stable but will also help in conducting the monetary policy.

Way ahead

  • To be sure, the government is working on increasing the ease of doing business, which should also help India’s exports. Policymakers would do well to increase the pace of reforms as challenges on the export front may increase owing to the growing threat of protectionism and rising automation.

Question–  How challenges on the export front may increase owing to the growing threat of protectionism and rising automation?

2.Sticky steps for Finance Commission (Indian Express)

Synoptic line: It throws light on the challenges for the 15th Finance commission. (GS paper III)

Overview

  • In February 2015, when the government accepted the recommendations of the 14th Finance Commission, which recommended a record increase in the devolution of the Centre’s divisible pool of taxes from 32 per cent to 42 per cent, reactions in the government and the commentariat were celebratory.
  • Now, on the verge of its inception 15th Finance commission is facing various challenges.

Unfolding federalism

  • The government packaged it as a giant step for cooperative federalism, and a move away from the past when the Planning Commission and fiscal managers in Delhi sat in judgment over the resource needs and development plans of states.
  • The Planning Commission had been replaced with the NITI Aayog, and the dominant theme was Team India, a grand federation of states. Prime wrote to Chief Ministers, highlighting his government’s efforts to strengthen the country’s federal polity, and sending out the message that federalism was the only way to achieve rapid and inclusive growth, and strong states could be the foundation of a strong India. He then went to say that while the Centre had “wholeheartedly accepted the recommendations of the 14th Finance Commission”, they “put tremendous strain on the Centre’s finances.
  • However, we have taken the recommendations of the 14th Finance Commission in a positive spirit as they strengthen your hands in designing and implementing schemes as per your priorities and needs.” This, the PM said, would help states move away from rigid central planning, and a one-size-fits-all approach.

Challenges for 15th FC

  • Now, as the 15th Finance Commission headed by N K Singh prepares to begin work, its terms of reference suggest that the celebrations of 2015 were possibly premature. The primary remit of a Finance Commission is to work out the distribution of the net proceeds of taxes between the states and the central government, and the allocation among states. Post-1991, successive Finance Commissions have been asked by the President to review the fiscal discipline efforts of the federal and state governments, and their debt levels, and to suggest prudent ways of managing their finances.
  • This Commission has been mandated to recommend a fiscal consolidation roadmap for sound fiscal management, taking into account the responsibility of the central and state governments to adhere to appropriate levels of general and consolidated debt and deficit levels, while fostering higher inclusive growth in the country, guided by the principles of equity, efficiency and transparency.
  • This is something that a previous Commission, too, had been asked to work on. But there is a hint in one of the terms of reference that the higher devolution of 42% recommended by the 14th Finance Commission may well have to be reconsidered. The 15th Commission will look at the “impact on the fiscal situation of the Union Government of substantially enhanced tax devolution to states following the recommendations of the 14th Finance Commission, coupled with the continuing imperative of the national development programme including New India, 2022”.
  • This is as good as saying that the Centre has been hamstrung by the greater flow of resources to states following the award of the 14th Commission, and after implementation of GST. And interestingly, post-2015, even after the greater flow of resources, in a slowing economy, the fiscal deficit of states, which, on a combined basis, was far better than the federal government, started sliding while that of the Centre, which was 4.1% of GDP in 2014-15, started reversing.
  • Reining in states on fiscal consolidation will thus be a goal. From a political perspective, it may have struck many in the government that the elbow room to spend extra in the face of the slowdown without breaching mandated deficit levels had been severely restricted — even as the blame for economic management continued to be assigned to the union government. (Indeed, the Centre’s finances would have been in bad shape if not for the windfall from oil; the government raised Rs 1,50,000 crore through higher excise duty.)
  • This Commission will be tested on how it re-works the record devolution recommended by its predecessor panel. In fact, C Rangarajan, who headed the 12th Finance Commission, had in the past suggested a constitutional cap on the size of devolution.
  • Chief Economic Adviser Arvind Subramanian, writing in the Business Standard in February 2015 with his colleagues Syed Zubair Naqvi and Kapil Patidar, had said that the recommendations of the 14th Commission had the potential to redefine Indian federalism. The authors had also flagged challenges of the transition notably on how the Centre would meet its multiple objectives, given the shrunken fiscal leeway.
  • This Commission could get into tricky territory politically and otherwise on measurable performance-based incentives for states: say, for expanding and deepening the tax net under GST, boosting tax and non-tax revenues, promoting savings by adopting direct benefit transfers, promoting digital economy, removing layers between the government and beneficiaries, making strides in sanitation, solid waste management and behavioural changes, eliminating losses in the power sector, and improving the ease of doing business.
  • However, proposing a measurable performance-based incentive on the “control or lack of it in incurring expenditure on populist measures”, is bound to raise questions on whether it challenges the spirit of federalism. It would mean defining a “populist scheme”, and whether spending on social welfare by a democratically elected state government can be penalised. It will also lead to questions on the nature of schemes being run by the central government some of which can be seen as “populist” as well.

Way ahead

  • states should be allowed to chalk out their programmes and schemes with greater financial strength and autonomy, while observing financial prudence and discipline”. How the 15th Commission goes about this task would describe the difference between cooperative federalism and coercive federalism.

Question: What are the constitutional provisions for the Finance commission? How it is different from erstwhile Planning Commission?

3.Food fortification as a way to ensure food security (General)

Synoptic line: It throws light on how the idea of food fortification can ensure the nutritional viability of crops. (GS paper III)

Overview

  • The problem of malnutrition is an impending crisis for India. Even the families who are getting adequate supplies of food, are facing problems of malnutrition.
  • Food fortification can offer a window to tackle the menace of hidden hunger in India.

The need of fortification of foods

  • Fortification as part of a country’s nutrition strategy is supported by global organizations such as UNICEF, the World Health Organization (WHO) etc.
  • Fortification is adding vitamins and minerals to foods to prevent nutritional deficiencies. The nutrients regularly used in grain fortification prevent diseases, strengthen immune systems, and improve productivity and cognitive development.

Wheat flour, maize flour, and rice are primarily fortified to:

  1. Prevent nutritional anaemia
  2. Prevent neural tube birth defects
  3. Increased productivity
  4. Improve economic progress
  • Fortification is successful because it makes frequently eaten foods more nutritious without relying on consumers to change their habits.
  • Vitamins and minerals often used in flour and rice fortification and their role in health include:
  • Iron, riboflavin, folic acid, zinc, and vitamin B12 help prevent nutritional anemia which improves productivity, maternal health, and cognitive development.

Fortification of food in Indian context

  • Malnutrition isn’t just about acute starvation. Often, healthy-looking people are malnourished too, because their diet does not include the right micronutrients. In severe forms, such deficiencies can have serious effects.
  • To tackle the issue, the Food Safety and Standards Authority of India (FSSAI) released a set of standards and a logo last year. Since then, it has focussed on awareness- and consensus-building. Now, a number of enterprises will begin adding premixes of micronutrients to launch fortified foods.
  • Milk cooperatives in Haryana, Punjab, Rajasthan, Assam and Maharashtra will fortify their products too. Targeting children, the Rajasthan, Madhya Pradesh, Haryana and Himachal Pradesh governments have begun using fortified oil for their mid-day meal schemes.
  • West Bengal and Andaman and Nicobar Islands are now distributing fortified wheat flour through the public distribution system, and the Maharashtra government has started a pilot project.
  • The FSSAI is also working with small local suppliers, for instance local flour grinding mills, to get them to add premixed micronutrients.

Certain essential mineral that are fortified and their usage:

  1. Folic acid (vitamin B9) reduces the risk of neural tube birth defects.
  2. Zinc helps children develop, strengthens immune systems, and lessens complications from diarrhea.
  3. Niacin (vitamin B3) prevents the skin disease known as pellagra.
  4. Riboflavin (vitamin B2) helps with metabolism of fats, carbohydrates, and proteins.
  5. Thiamine (vitamin B1) prevents the nervous system disease called beriberi.
  6. Vitamin B12 maintains functions of the brain and nervous system.
  7. Vitamin D helps bodies absorb calcium which improves bone health.
  8. Vitamin A deficiency is the leading cause of childhood blindness. It also diminishes an individual’s ability to fight infections. Vitamin A can be added to wheat or maize flour, but it is often added to rice, cooking oils, margarine, or sugar instead.

Way ahead

  • Food fortification can lead to solve the complex puzzle of tackling malnutrition as it is not only the quantity of food which has to be ensured, rather quality matters equally. The next level of intervention by government should be initiated in a direction to drive an awareness among consumers to opt for fortified staple.
  • Moreover, government should support the initiatives and provide financial support for food fortification.

Question: How food fortification along with enrichment of produce hold several promises for food security?