Mitras Analysis of News : 15-05-2017

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  1. Is Make in India boring fruits? (Live Mint)
  1. A New Beginning (The Indian Express, IDSA)
  1. Explained: Threat to Hangul conservation in Kashmir
  1. Explained: Revision of IIP and WPI base year

 

Is Make in India boring fruits? (Live Mint)

 Synoptic line: It throws light on the progress of Make in India in the context of higher economic development. (GS paper III)

Overview

  • Government is working aggressively towards making India a global manufacturing hub. Govt. wants the share of manufacturing in GDP to go up to 25% in the near future.
  • The way to do this, according to Make in India, is to increase the share of manufacturing in India’s GDP to 25% by 2022, which is expected to generate approximately 100 million jobs for Indian workers.
  • Recently, various reports have quoted Make In India as spearheading growth in India. Hence, it becomes crucial to track the progress of MII

Is Make in India bearing fruits?

  • Ratings agency Moody’s has said that net foreign direct investment (FDI) inflows have hit an all-time high in early 2016, highlighting the success of ‘Make in India’ initiative. The ratings agency said that the FDI inflows have more than financed the current account deficit (CAD) for the first time since 2004. A country is known to be facing a CAD when the value of its imports is more than the value of its exports.
  • The rise in FDI points to stronger investor interest in India on the back of robust economic growth. Higher inflows also suggest that recent government policies, such as efforts to liberalize foreign investment limits in several sectors and the ‘Make in India’ initiative, are bearing fruit.
  • Three different sets of macro-economic data the number (and value) of industrial projects being set up in the country, foreign direct investments (FDI) and merchandise exports seem to point to a pick-up in industrial activity
  • However, it remains to be seen whether the trend continues in the coming years. The value of proposed projects in 2016 was significantly higher than that in 2015 but only marginally higher than that in 2014.
  • There seems to be a sharp regional skew in the pattern of investments. Maharashtra, Karnataka and Madhya Pradesh have witnessed the greatest spurt in new industrial investments over the past two years, with most new industrial units being set up in these states. Maharashtra alone accounted for a third of new industrial units set up since the beginning of 2015.
  • Not only did FDI inflows jump 18% to a record level of $46.4 billion in 2016, the proportion of investments directed towards manufacturing also saw an increase. Although services such as telecom and insurance continue to remain the favourite bets of foreign investors.
  • However, there is slight problem with our manufacturing exports. While manufacturing exports as a share of India’s aggregate output has increased in recent years, the contribution of the manufacturing sector to India’s gross domestic product (GDP), embodied in the sector’s value-addition, has not increased. This is because most value-addition is taking place offshore.

Future Trends

  • According to a report by Moody’s, the development of industrial corridors, investment & manufacturing zones, and ‘smart cities’ will further bolster investment inflows. In particular, flows into the manufacturing sector are likely to accelerate as the government seeks to boost the sector’s share of gross domestic product (GDP) to 25% by 2022.
  • Government investment in infrastructure and the establishment of a dedicated fund in last year’s Budget to foster private sector participation in infrastructure projects will also help address some of India’s deficiencies in this area and foster FDI.

Way ahead

  • The challenge for the ‘Make in India’ initiative is to facilitate the creation of high-productivity jobs in labour-intensive sectors. With China attempting to rebalance its economy and lower its dependence on exports, there is an opportunity for India to step in, and carve out a space for manufacturing labour-intensive products for the world.
  • There are some encouraging signs in this regard, DIPP data shows. Textiles and electrical equipment, two relatively labour-intensive sectors with export potential, are two of the top three gainers in new projects over the past two years. While India already enjoys a comparative advantage in textile exports, it is a small player in the global electrical equipments market.
  • Only if India is able to grow such sectors will it be possible to generate new jobs even while raising productivity levels of Indian manufacturing.

Question: What more reforms should be initiated by the government to make MII align with sophisticated and high end manufacturing?

  

A New Beginning (The Indian Express, IDSA)

 Synoptic line: It throws light on issue that how friendly relations between Nagaland and Manipur could help transform the Northeast. (GS paper III)

Overview

  • Manipur and Nagaland have been held hostage to entrenched ethnic and tribal loyalties and rivalries, which flare up at regular intervals.
  • The barriers between Manipur and Nagaland are in a way to demolish as a historic meeting between chief ministers of both the states has taken place recently in Imphal, it is the first time since Nagaland attained statehood in 1963 that Nagaland chief minister is paying visit to Manipur.
  • The Tanghkhul Naga-dominated Ukhrul district has now become the centre of the newfound friendship. The leaders of two states opened a new chapter in the history of their states. Their meeting also underscored the dichotomy of the two states staying so far apart despite sharing borders.
  • Manipur chief minister has invited a delegation from Nagaland to participate in the annual Shirui Lily Festival at Shirui village in Ukhrul district which will be held from May 16 to 20. Shirui lily is state flower, is found in abundance in Ukhrul, which is also the home district of NSCN (I-M) general secretary.

Background 

  • Manipur is a melting pot of diverse cultures and ethnicities and has gradually evolved into a dynamic multicultural society. Naga, Kuki and Meitei stayed together side by side for centuries and developed their heritage in parallel within their respective ethno-social boundaries.
  • Merger with India in 1949 is a political, social and emotive issue for the Meiteis. The NSCN (IM)’s demand for the formation of Nagalim, which included four districts of Manipur (Chandel, Senapati, Tamenglong and Ukhrul), was seen as a threat to Manipur’s territorial integrity.
  • Till date, Meitei insurgent groups continue to wage insurgency in the name of self-determination and restoration of lost sovereignty. For their part, Kuki insurgents want a state within a state under the Constitution while Naga insurgents are still divided between the demand for greater Nagalim (a separate entity carved out by merging the Naga-inhabited areas of Arunachal Pradesh, Assam, Manipur and Myanmar) and shared sovereignty under the Constitution.
  • Since the Kuki and Meitei insurgencies have primarily gained ideological strength and relevance as tools to safeguarding their respective community interests.

Highlights of the meet

  • The chief minister of both the states emphasized on learning to live together. The chief minister of Manipur said, “We have to learn to live together in peace and harmony as our ancestors had done for ages. We shall continue to be good neighbours for ages to come.”
  • The Nagaland CM mentioned, recognizing the fact that the Meitei community were among the most advanced people in the Northeast. The Meitei people should come forward to play the role of the big brother to other communities in the region. Learned scholars and intelligentsia from the Meitei community should also come forward and create conducive environment for the return of lasting peace and harmony.

Way ahead

  • The governments of the two neighbouring states are in step closer to foster better ties between them, it sent out positive signals, although no effort has been made yet to quantify the suffering that years of bitterness has brought to the common Naga and common Meitei people. However, to resolve the issue the right way forward should be to move closer together.

Question: How friendly relations between North-east are most crucial from the point of view of internal security of the country?

 

 

Explained

Threat to Hangul conservation in Kashmir (GS paper III)

Introduction

  • Hangul comes from the Kashmiri word haang, which means a dark, rusty brown colour. It is the only surviving subspecies of the red deer family in the Indian subcontinent. The stags boast magnificent antlers of 11 to 16 points, which they shed during the mating season in March.
  • It is found in dense riverine forests in the high valleys and mountains of the Kashmir Valley and northern Chamba district in Himachal Pradesh.
  • In Kashmir, it’s found in the Dachigam National Park where it receives protection but elsewhere it is more at risk. In the 1940s, the population was between 3000 and 5000 individuals, but since then habitat destruction, over-grazing by domestic livestock and poaching have greatly reduced that dramatically.

Hangul under threat

  • The Hangul were present in thousands towards the beginning of the 20th century in many parts of Kashmir. The number dropped drastically by the 1970s as hunting permits were misused to poach the Hangul in large numbers. Though militancy in the 1990s deterred people from venturing into the forests to hunt, the downward trend has continued. The census of 2015 had estimated that there were only 186 Hangul deer left in Dachigam.

Shrinking Habitat

  • The Dachigam National Park was meant to be a habitat exclusively for the Hangul. But the deer are now competing for space and resources with new and old habitants alike. A sheep farm of the state animal husbandry department, spread over an area of a square kilometre, has posed one of the biggest disturbances. Introduced to the farm in 1961, the sheep are suspected of spreading Dictyocaulus viviparus infections (respiratory infections) to the deer.
  • Hangul conservation also took a hit because of the onset of militancy in Kashmir. In the 1990s, security forces took over possession of all high-altitude meadows, making them inaccessible to pastoral nomads. The nomads found Dachigam a good alternative for shifting their cattle in the absence of any regulations. In summers, when the Hangul moves to lower Dachigam, huge herds of sheep and goats also graze there. The Hangul does not like this disturbance and the competition for food.
  • Among other interferences are a trout farm, government offices, army posts and tourist huts. Khanmoh-Khrew, an industrial area adjacent to Dachigam, is the source of large-scale quarrying and blasting. The industrial activity is eating into the habitat of Hangul.

Way ahead

  • Despite its low numbers, the Hangul is not recognised as “critically endangered” in the International Union for Conservation of Nature (IUCN) Red List of Threatened Species. Hangul has been categorised as a subspecies of red deer Cervus elaphus, which features in the Least Concern category.
  • Research has shown its genetic distinction makes it worthy of being recognised as a species. But the Hangul do not have much time left. Their sex ratio and female-to-fawn ratio are imbalanced, with fewer males and fawns per 100 females. Hangul senses movement from yards away. With so much human activity, the animal shies away from mating. Hence, only a secure habitat and government action can save the animal.

Question What can be the possible measures to rejuvenate the population of Hangul in Kashmir? How Civil societies can be roped in this aspect?

 

Explained

Revision of IIP and WPI base year (GS paper III)

Introduction

  • The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation revised the base year of the all-India Index of Industrial Production (IIP) and Wholesale price index (WPI) from 2004-05 to 2011-12.
  • The new base year has been selected keeping in view the base year of other macroeconomic indicators namely Gross Domestic Product (GDP), Consumer Price Index (CPI).
  • Several changes have been made in the new series of the IIP in order that new IIP is able to reflect the changes in the industrial sector in a more representative and robust manner.

Analysis and explanation

  • IIP and WPI were hopelessly outdated and out of sync with other economic indicators. The base year in each of these two was 2004-05; it was 2011-12 in the case of the others. The basket of goods they were based on was also obsolete. And that led to problems.
  • There used to be noise over the conflict between the index of industrial production (IIP) data and gross domestic product (GDP) data on industry every quarter.
  • This was mainly (but not solely) because the base year of the IIP was 2004-05, reflecting the basket of goods of that year, many items in which are probably not being produced any more. There may have been cases where factories from where data was supposed to come had shut down, leaving a black hole in statistics.
  • Given changes in the economy, both the base year and the basket of goods of economic indices need to change regularly, generally every five years. The base year in the new series should have been 2009-10 (since the earlier base year was 2004-05), but that was an outlier year for the economy because of the global financial crisis the previous year as well as severe drought conditions. The base year should be a normal year and so it was decided to have 2011-12 as the new base year. This was also the rationale behind base year change in the case of GDP to 2011-12.
  • Dynamic revision of the IIP would lead to better output estimates. The new index shows that industrial production is more buoyant than as per the previous estimate, and further that there’s been a sharp deceleration in output following the withdrawal of large currency notes last November. In changing the base year of the index from 2004-05 to 2011-12 (output in the new base year has the index number of 100), 149 new items such as cement clinkers and refined palm oil have been added, while 124 items such as calculators and TV picture tubes have been discontinued.

How is the composition of the basket of goods decided?

  • In the case of the IIP, which tracks production, the basket is based on traded volumes of goods in the base year. In the case of WPI, it is on the volume of goods consumed in the base year. Goods that have a very insignificant share in production and consumption get dropped and new ones reporting high volumes get added.

What are the big changes in the WPI?

  • A major conceptual difference between the old and the new series is the exclusion of indirect taxes while compiling indices. Earlier, the wholesale price was taken as producer price plus indirect taxes minus trade discount. Now, it will be producer price minus trade discount only. There are three reasons for this.
  • One, netting out indirect taxes removes the impact of fiscal policy on prices and brings it closer to a producer price index (PPI), which India still does not have. This is also in line with global best practices.
  • Two, according to a note put out by the Department of Industrial Policy and Promotion (DIPP), which monitors the WPI, excluding indirect taxes from WPI makes it a compatible and appropriate deflator because the nominal estimates are computed at basic price which does not include product taxes.
  • Third, according to the note, the exclusion of indirect taxes will also ensure continuity of the WPI in the post-goods and services tax (GST) scenario. Under GST, the tax is levied at the final point of consumption; excise is levied at the production stage.
  • The revised WPI basket has 564 items against 555 earlier. As many as 199 items have been added and 146 items have been deleted; 498 items are common to the two series.

What are the big changes in the IIP?

  • The number of items in the basket of goods is now 809 against 620 items in the old series. There are 149 new items; 124 items have been deleted. The weights have changed, with that of electricity going up and that of mining and manufacturing dipping.
  • In the electricity segment, the new IIP has data on electricity from renewable sources, since that is growing in importance.

Question: On what lines the reforms initiated by government to change WPI and IIP base year will have bearing? Discuss.

 

 

 

 

 

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