1.Smart policies for redistribution (The Indian Express)

2.Natural partners in the Asian century (The Hindu)

1.Natural partners in the Asian century (The Hindu)

Synoptic line: It throws light on the issue of need for restructuring India-China policy. (GS paper II)

Overview

  • We completed two decades of the 21st century; a paradigm change in the global power structure is taking shape, due to technology and size. As the physical size of a nation did not matter during the 19th and most of the 20th centuries.
  • Now the potential power is shifting to the two large nations of the Asian mainland, China and India, which are nuclear weapons states and with fast-growing economies. Together they represent 60% of the Asian mainland.

Reasons for the shift

  • Asia already accounts for almost half of the world’s population, half of the world’s container traffic, one-third of its bulk cargo and 40% of the world’s off-shore oil reserves. It is home to several fast-growing new economies with GDP growth rates above 7% per year, i.e. a doubling of the GDP every 10 years. In a few years half of the world’s naval fleet and combat aircraft with extended range missiles, supported by highly sophisticated communications networks, will soon be seen roaming in the Indo-Pacific region.

India-China

  • Since the late 1990s, China and India have been rapidly emerging as influential power hubs. Being two of the three most post populous and largest GDP nations, India and China, both culturally akin, are socially structured on family values and associated social attitudes.
  • Though potentially both are poised to fill the role of global powers, but to achieve that potential, both the countries require hardware, software and the clear mindset for exercising this power. As of now, China is ahead of India in reaching that level. There are concerned with the question whether India can reach it?
  • India’s China policy thus needs a re-structuring based on a fresh perspective that is relevant for the 21st century. This is because the global power matrix has undergone a paradigm change, from an exclusively Atlantic shores-based concern to emerging Indo-Pacific ocean strategic issues.
  • The diminishing influence of Western powers in the region and due to the acknowledged of rising power of China are the new global reality. In terms of hardware capability and mindset, India is at present only a regional power.
  • China would be more flexible in dealing with India if it is convinced of India’s equidistance with the U.S. on China-U.S. disputes involving distant places such as Taiwan and South China Sea islands. Of course, we will require that China respond with similar nonchalance on Pakistan-India disputes.
  • India for strategic diplomacy need to develop deeper cultural and civilisational linkages with China and the rest of Asia. India has to realise that it can’t just be a spectator, or a mere visible participant, or even a ‘pole’ in the so-called multi-polar world. China has conceptualised and implemented the centrality of befriending all of India’s neighbours and has brought them on board in its Belt and Road Initiative (BRI).

Beyond Pakistan

  • In its present mindset India is obsessed with the problem of Pakistan-trained terrorists entering Indian Territory rather than asserting higher priority on global issues, and thus it is complicit in international attempts to hyphenate the two regional-minded nations, India with Pakistan.
  • India needs a new mindset to look beyond Pakistan. India can take initiative for US, as U.S. has become a much friendlier nation for India, especially because the Soviet Union unravelled, and India’s economy is growing fast to become an open, competitive market economy, the third largest in PPP terms.
  • The world already is dazzled by India’s prowess in information technology, the capability to produce pharmaceuticals at low cost, and the high quality of its trained manpower capable of innovation. But India does not exert this soft power advantage on the world scene commensurate with this potential or its size in Asia.

Way ahead

  • The key for India today is to bond strategically with China, but it will require dealing bilaterally on huge pending issues. There is need for a common ground to cement the relationship. The Indian Ocean has now emerged as the epicentre of global power play in the 21st century; we can embrace the new concept of Indo-Pacific alliances that accommodates Chinese perspectives on a reciprocity basis.
  • Hence we need to recognise this centrality and primacy of the Indian Ocean in India’s global economic and military activism. With Indonesian partnership, India can monitor the Malacca Strait through which over 80% of the freight traffic of China and East Asia passes.
  • India is now poised to form a global triangle with the U.S. and China, and therefore the government must seize the opportunity, which requires a serious effort at reconciliation with China in a give-and-take mode without sacrificing our national interest.

Question – As the potential power is shifting to the two large nations of the Asian mainland- India and China. India’s China policy thus needs a re-structuring based on a fresh perspective that is relevant for the 21st century. Examine.

 

2.Smart policies for redistribution (The Indian Express)

Synoptic line: It throws light on the issue that India is on the need for modern welfare system. (GS paper II)

Overview

  • According to the latest World Economic Forum (WEF) report, around 60 per cent of the Indian population was poor (according to the World Bank poverty line of 3.2 PPP dollars per person per day). For Indians, the interpretation of a PPP poverty line is easy because although the World Bank has never formally admitted it, it has always defined the poverty line to be near identical to the official Indian poverty line.

Assessment

  • The WB poverty line is the official (Tendulkar) poverty line. In 2011, the poverty line based on either the Tendulkar or World Bank poverty line was equivalent to PPP $1.91 and the poverty rate was 14 per cent (based on NSS survey data). The WEF result of 60 per cent poor in 2017 is obtained by raising the poverty line from PPP $1.91 to PPP $3.2 and keeping nominal consumption levels identical to those observed in 2011-12.
  • Correcting this mistake by allowing consumption to increase by the actual nominal compound growth of 10 per cent in per capita consumption as observed in national accounts data, one obtains the result that in 2017-18, the poverty rate was 36 per cent and not 60 per cent as per the WEF. Further, the percentage of poor according to the Tendulkar poverty line in 2017-18 is under five per cent.

Transformation in India

  • Over the last two decades, absolute poverty, from close to 50 per cent in 1993/94, is now less than 5 per cent. India is now close to a middle economy, not a poor economy. Which means its own Tendulkar poverty line needs to be raised, in real terms, by 61 per cent to Rs 2,000 per person per month in 2017/18 prices.

Reformation

  • India’s poor population should be targeted via a reformed welfare system, a system which emphasises redistribution through direct benefit transfers (DBT). The gains from such a reformed welfare system are enormous, and the extra expenditure involved is minimal.
  • As India is today a lower middle-income economy, and should be thought of as such. It is the lower-middle class that should be the prime focus of policy, for both moral and political reasons; and the lower-middle class (the emerging middle class) is about a third of the population.

Thus, a new welfare policy is needed, which should also to be made clear by the following calculation-

  • Existing welfare subsidies (food, fertiliser, petroleum, interest rate subsidies etc) in 2017/18 are estimated to have been Rs 2.73 trillion. The average consumption level of the bottom third of the population, with a Rs 2,000 a month poverty line, is Rs 1,600. In other words, to make the poor non-poor, and perfect targeting, the government will have to spend Rs 4,800 per person per year. For a third of the population, this will mean an expenditure level of Rs 1.9 trillion. Therefore, a distinct possibility of replacing leaky welfare expenditures with targeted cash transfers. More money to the bottom third and not much additional expenditures, the phase-out from the old welfare system should not take more than three years.
  • GST will stop being a new policy in another six months, and enhance indirect tax buoyancy. This tax buoyancy will open doors for a reformist fiscal policy, doors that can lead to greater tax collection, lower tax rates, and greater, and more efficient, tax redistribution.
  • The Unique ID number (UID)/Aadhaar) provides the base for a comprehensive reform of India’s welfare expenditure system. Elements of this have already been put in place, through the conversion of LPG and 84 schemes across 17 departments using DBT. A comprehensive reform will ensure that every deserving person is identified and gets his/her welfare entitlement, with leakages minimised.
  • As roughly 99 per cent of the adult population over 18 years of age has an Aadhaar number, thus the Budget must make an allocation usable by all welfare departments and district collectors to ensure that the residual one per cent gets an Aadhaar number, using photo ID if there are finger-print problems. This provides the basis for a comprehensive tax-transfer system, which can be layered (for ID protection and privacy reasons) by providing a separate Welfare Identification Number (WIN) and a welfare card with this number, linked confidentially and within the firewalls of the government to Aadhaar.
  • All the subsidies can also be linked to Aadhaar and can be paid as DBT. Similar entitlements must be defined for health insurance and health expenditures and on basic education, job training. All these would be incorporated into a smart welfare card, all the benefits (transfers) must linked to the Aadhaar database behind the firewall. This will ensure the goal that each and every citizen in the bottom third of the population receives all the welfare benefits she is entitled to.
  • As the recent ASER study shows that roughly 50 per cent of 14-18 year-olds, despite having been schooled, cannot read, write or do basic arithmetic. Worse the actual learning seems to have deteriorated over the years. The solution must be a combination of public education reforms by increased use of e-learning (for teachers and students), good regulation, competition and empowerment of the poor and marginalised. Spending power in the hands of the people should ensure accountability of public education institutions.

Thus, the more efficient redistribution is desirable for ethical and political reasons.

Question –India is now close to a middle economy, not a poor economy.  Explain why India can, and must, reform its welfare system?