Stubble burning issues and suggestive measures
Context
- Last week, as the national capital recorded its worst reading in three years on the Air Quality Index, the Supreme Court pulled up the governments of Punjab, Haryana, and Delhi for their lack of concerted action against stubble burning.
Supreme Court
- It also upbraided the chief secretaries of Punjab and Haryana for not being sensitive enough to the issue.
- The Delhi and Punjab governments had resorted to blaming each other for the national capital’s pollution crisis, the court’s censure is timely.
- But the significance of the two-judge bench’s order of November 7 goes beyond its stern tone.
- It has asked the governments of Punjab, Haryana and Uttar Pradesh to pay, within seven days, Rs 100 per quintal of paddy as an incentive to farmers who have not burnt stubble on their fields.
Two questions remain:
- Do the states have the financial resources to bear the burden of the cash incentive?
- More importantly, are such incentives enough to wean farmers away from stubble burning?
Responses to the judgement
- Punjab Chief Minister Amarinder Singh has said that “his government will implement the order”.
- More than 90 per cent of the non-Basmati paddy crop has been harvested. But the Punjab CM has given enough indications of the state’s limitations in providing cash incentives in the future.
• The Centre will have to help the states, which are facing serious fiscal constraints. While the GST regime has stifled financial resources of all states, Punjab, in particular, is in dire straits. - The apex court has said that it will take a final call on the “aspect of finance” after “considering the
detailed report to be submitted by the state governments and after hearing the other stakeholders, including the Centre”. - It will have to chart a plan that takes into account the interests of the farmers as well as recognises the constraints of the states.
Way forward
- The Punjab and Haryana governments subsidise the Happy Seeder sowing machines, which obviate straw burning.
- The technology has not got the necessary traction because farmers do not want to invest in a machine that lies idle for most of the year.
- As in the case of most farm technologies in the country, the adoption of Happy Seeders will require changing mindsets.
- To persuade farmers to not set their fields on fires, state governments will need to reach out to them with educational programmes — not just financial incentives.
Asian Century
Context
- India is at an inflection point. Its recent period of significant growth—faster than the global average.
Slowdown in growth
- India has stalled in the face of global headwinds against trade, volatile commodity markets, stagnant private investment, weaker domestic consumption and constrained government spending in the wake of recent fiscal and monetary reforms.
Potential in Asia
- Asia is becoming the world’s powerhouse and economic center.
- New research from the McKinsey Global Institute finds that Asia could generate more than half of the world’s GDP by 2040 as cross-border flows shift toward the region, which is rapidly integrating; with 60% of goods traded, 56% of greenfield foreign direct investment (FDI) and 74% of journeys by Asian air travelers taking place within the region.
Asian connectivity
- This research identifies 4 distinct sub-Asias—diverse groups of economies with characteristics that complement each other, which are fast becoming increasingly interconnected.
- As a result, dynamic new flows and networks are appearing, redefining globalization as we know it.
- The new era will be one of regionalization, and Asia is taking a lead. Historically, India—and other countries in ‘Frontier Asia’ (Bangladesh, Sri Lanka, Kazakhstan, Uzbekistan, etc)—have had relatively low levels of integration when compared with the rest of the region; only around 31% of their flows are intra-regional.
- Yet, how they now respond to these shifting flows, and the opportunities they present, could be key in defining and delivering its next chapter of growth.
- Chinese President Xi Jinping’s recent meeting with Prime Minister Narendra Modi could catalyze accelerated economic collaboration between the two countries.
What India offers?
- India offers key major ingredients to the broader Asian economy:
- Services: It’s account for 53% of India’s GDP;
- A young labour force (younger than China’s median age by around ten years);
- New markets for the rest of the region.
- Growth: Even factoring in the downturn, GDP in India is expected to grow at well above 5% for the coming period, and incremental consumption is expected to reach $2.4 trillion by 2030.
Adding the Asia focus: Manufacturing
- Advanced Asian countries like China move up the economic development ladder, phasing out manufacturing in favour of a shift to R&D and more knowledge intensive manufacturing.
- There is room for India to seize the baton and become a larger sourcing base for global supply chains.
- The global sourcing value of mobile handsets is over $500 billion in scale, and India could aspire for a 15-20% share of this footprint.
What needs to be done?
- Investments are needed to improve the logistical backbone supporting manufacturing, incentives are needed to encourage future investments in R&D, and large-scale innovation hubs need to be developed to move manufacturing to the next phase and help to capture the demand opportunity.
- The recent move towards an attractive corporate taxation regime could provide the much-needed ignition to attract more investment for Make in India.
Capital flows and investments:
- There are opportunities for India to benefit from the flows of capital and investments powering development as Asia integrates more closely.
- ‘Advanced Asia’ (Japan, South Korea, Singapore) and China have been huge contributors to the development of ‘Emerging Asia’ (small highly interconnected economies like Indonesia, Malaysia, Philippines, Thailand, Vietnam, etc), with China accounting for 42% of total Asian outbound FDI in 2013-17 and 43% and 61% of Emerging Asia’s imports and exports respectively.
- India and China have a history of competition, thus flows between the two countries both in terms of trade and people are not as strong as with other countries across the region.
What needs to be done?
- India is beginning to attract investment from firms across Asia—Softbank.
- It has led several rounds of funding for Indian unicorns—more needs to be done to realize the potential opportunity of investment flows from other countries, and this may mean ‘looking East’.
Innovation
- East Asia has emerged as a leading hub, rivalling the leading innovation hubs globally. East Asia has already gained pole position in driving innovation relating to key disruption themes such as electric mobility, 5G telecom, and renewable energy.
- Nearly 65% of global patents stemmed from Asia between 2015 and 2017, derived from the 50 fastest rising innovation cities in Asia, with an opportunity for Indian firms to be a part of this Asia-wide innovation arc.
Growth:
- A rapidly growing Asia is catapulting its major cities into leading consumption centres, that offers a ripe market opportunity for Indian businesses ranging from IT services, tourism services, generic pharmaceuticals, automotive components, agrochemicals, and so forth.
- Just with China alone, India runs an over $50 billion of trade deficit, that could be narrowed down by targeting these export opportunities.
- Our previous MGI research found that about 420 cities in emerging markets could generate 45% of global growth, many of them residing in Asia.
Conclusion
- The Asian century is well and truly underway.
- As globalization gives way to regionalism, and Asia takes a leading position, India could look to many of the opportunities arising out of the region’s rapid integration and shifting networks and flows to help drive its next chapter of growth.
Moody’s rating on growth prediction
Context
- Ratings agency Moody’s has reacted predictably to the turbulence in the economy by revising the outlook on its sovereign rating for India from stable to negative.
- Moody’s India rating is a notch higher than that of Standard & Poor’s.
- The outlook revision now may well be to compensate for its past optimism on India.
What’s the rating indicate?
- It is a warning that if the economy fails to bounce back soon enough, the sovereign rating could be up for an unfavourable review.
- With due respect to Moody’s, none of the issues that it has highlighted is unknown.
- The growth slowdown and its effects on the fiscal deficit and borrowings are the main worries.
- On the one hand, tax revenue growth is nowhere near budgeted levels and with the slowdown extending into the third quarter, it is clear that tax revenues will undershoot by a wide margin.
- On the other, the government has been forced to spend more to give a leg up to the economy.
- Apart from pushing expenditure on capital projects, the government last month gave away corporate tax concessions amounting to a whopping ₹1.45 lakh crore.
Growth prediction
- The boost from the ₹1.76 lakh crore dividend payout from the Reserve Bank of India, the budget arithmetic is optimistic and it now appears certain that the government will miss the fiscal deficit target of 3.3% of GDP.
- Moody’s has projected that the deficit will slip to 3.7% of GDP this fiscal.
- Ratings agencies are ultra-sensitive to fiscal deficit overruns but the positive factor here is that India’s borrowings are almost wholly domestic.
- External debt to GDP is just 20% but the ratings do have an impact on investor sentiment.
Moody’s outlook revision
- It may be another quarter or two before growth picks up the second quarter numbers due later this month may show GDP growing at less than 5%.
- But the festive season uptick in sales of automobiles and white goods does point to the return of the consumer to the market.
- The possibility that it was an artificial boost driven by the big discounts that were on offer cannot be ruled out.
- But there are other positive signals such as the increase in bank credit offtake reported by the RBI for the second successive fortnight.
Way forward
- The government needs to press the pedal harder on reforms and in debugging GST.
- It may also have little option than to go big on disinvestment in the remaining four months of this fiscal.
- The target of ₹1.05 lakh crore that it set for itself in the budget has to be bested by a wide margin if the fiscal deficit slippage is to be contained.
- The supportive measures announced in the last two months should be closely monitored for implementation.