06th February 2020 : The Hindu Editorials Notes : Mains Sure Shot
Question – Analyze the economic slowdown and suggest the way ahead.(250 words)
Context – The ongoing economic slowdown.
The present state:
- The economy is going through a slowdown.
- The rate of growth of the national GDP has declined to 5.0%, and may go down further; the construction sector, one of the fastest growing sectors so far, is growing at 3.3% this year; agriculture is growing at 2.1% while the auto sector is declining continuously in absolute terms.
- The Micro, Small and Medium Enterprises (MSME) sector too has declined, in turn raising the burden of non-performing assets of the banking sector as well as non-banking financial institutions.
- Also, exports have been declining in recent years, raising the crisis of current account deficit. Credit from banking and non-banking sectors has been declining in the last few years; the Financial Stability Report of the Reserve Bank of India (2019) says that it is unlikely to increase in the next nine months.
- These developments have had an adverse impact on the bottom 30%-40% of the population.
- The incidence of absolute poverty, which has been falling since 1972-73, has increased to 30% (4% jump).
- As the Human Development Report (2019) has shown, more than 44% of the Indian population is under the multi-dimensional poverty line. The poorest 50% population at present owns only 4.1% of the national wealth, while the richest 10% people own 73% of the total wealth in India (Suisse Credit 2019).
- India has 15.2% population malnourished (women 15%) as against 9.3% in China. And 50% of the malnourished children in the world are in India. India’s global hunger rank has gone up to 112 while Brazil is 18, China is 25 and South Africa, 59.
- In the field of education as per a UN report (2015), overall literacy in India is 74.04% (more than the 25% are totally illiterate) against 94.3% in South Africa, 96.6% in China and 92.6% in Brazil. Almost 40-45% population is either illiterate or has studied up to standard 4.
- Given the quality of education in India, the overall population is very poorly educated, with the share of ‘educated unemployment’ rising by leaps and bounds.
1. Collapse in Private Consumption and Investment Freeze Leading to Double Whammy – private consumption has taken a beating due to Demonetization as consumers suddenly prefer to hoard cash or keep it in the bank instead of spending on consumer goods. Moreover, demand has also collapsed in the rural areas as the entire rural economy runs on cash and Demonetization led to the loss of jobs as well as incomes thereby squeezing the rural consumer who now prefers to wait and watch as well as postpone consumption except that of essential goods and services.
2. The Effect of Demonetization – Demonetization can be said to have contributed too much of the slowdown as the Double Whammy of demand collapsing, and supply bottlenecks mean that there is a broad slowdown across the entire value chain of the demand and supply dynamics.
3. Too Much Debt – Added to this is the fact that most Public Sector Banks are saddled with high NPAs or Non-Performing Assets that have resulted in them tightening lending and instead, seeking deposits and otherwise repairing their balance sheets by making provisions for Bad Loans. Indeed, absent recapitalization of such banks by the government, one might very well see a vicious cycle wherein bad debts and demand collapse lead to no lending and no fresh investment in addition to any consumption. The cycle has to be broken somewhere, and this is where the Government and the RBI or the Reserve Bank of India have to take concerted action.
4. Rollout of GST – It can be said that the implementation of GST is also flawed thereby exacerbating some of the factors that have contributed to the slowdown. GST has hampered the small businesses more than Demonetization by forcing them to withhold inventory until they migrate to the GSTN or the GST Network and become compliant with the numerous rules and regulations that are part of this tax.
5. Global Slowdown – it is not these factors alone, and the most important factor is that there is also a global economic slowdown that is happening and given the fact that India is a net commodity exporter, there has been a slump in the volumes of exports. Apart from that, the global slowdown has also been accompanied by a retreat of globalization which has resulted in FDI or Foreign Direct Investment being only in the areas of speculative finance and distressed assets purchases rather than into investments that help the Real Economy. Thus, it can be said that ongoing global headwinds also have contributed to the slowdown in the Indian Economy.
6. Retreat of Globalization – Hence, what the slowdown means for professionals and fresh graduates is that they would be finding it harder to land jobs as well as see their salaries rise year on year basis. In addition, the policies of the Trump Administration have contributed to a decline in the number of students and professionals going to the United States and added to this, Brexit uncertainties have compounded the situation.
7. Ride out the Storm – Lastly, the slowdown is also part of a longer-term structural shift wherein the Economy is shifting gears from the high investment era to a low investment era as well as a transition from being cash-driven economy to a digitally enabled economy. Indeed, this can be seen most in the Real Estate Sector that has come to a grind in recent months and hence, has also contributed to the slowdown. All in all, all the factors have caused a Perfect Storm for the Indian Economy, and there has to be a time lag before one can reasonably and realistically expect a turnaround. To conclude, the best option now for all stakeholders would be to Ride out the Storm.
- Sub-optimal use of labour – These people have been treated as beneficiaries to whom some cash/kind grants are thrown at, but they have not been used as active participants in the growth process. Their potential has not been promoted.
- Though the bottom population depends on the government for basic health and elementary education (and also for access to higher educational opportunities), the government spends just 1.4% of GDP on health (against the norm of 4-6% of GDP) and 3% of GDP on education (against the norm of 6-8% of GDP). As a result, these people are left hardly literate and sick, with poor nutrition and high morbidity.
- They are incapable of acquiring any meaningful skills or participating actively when new technology is spreading in the rest of the economy. This sub-optimal use of the labour force in the economy is not likely to enable India to achieve optimal growth with proper use of the national resources — the labour force.
What can be done: (Understand it step by step)
- Major solution to the present crisis is to go in for inclusive growth. Here, inclusive growth does not mean only including all sections of the population in the growth process as producers and beneficiaries; it also means “shared prosperity”. This should be our “New India.”
- Under the “New India” the main requirements are as follows: To start with, to improve the capabilities of the masses as well as their well-being by expanding productive employment opportunities for them.
- The main steps to expand productive employment for all in the economy should be made up of: a process of inclusion — expanding quality of basic health for all and ensuring quality education to all, which will by itself generate large-scale employment in the government; having a well-educated and healthy labour force will ensure high employability; such people will be able to participate actively in the development process; having a well-educated labour force will help start-ups and MSMEs, in turn triggering a cycle of more productive employment in the economy.
- This will also improve the global competitiveness of our production units. Employment guarantee schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) will also increase employment.
- Following the economic logic of R. Nurkse and A.O. Hirschman, assets generated under MGNREGA will expand capital formation in the economy, thereby raising the labour-absorbing capacity of the mainstream economy.
Advantages of such a strategy:
- First, it will raise incomes and the well-being of those who need it most urgently. Second, it will raise effective demand rapidly, which is so badly needed in the economy today to raise economic growth. Third, growth will be equitable and sustainable.
- There is a need to raise expenditure on health to at least 5% of GDP and expenditure on education to at least 6% of GDP; to push up infrastructural development to enhance capabilities and opportunities of the masses and not just to promote corporate units; to promote agriculture by raising investment in agriculture and not just cash transfer (cash transfer provides relief to them no doubt, and does not raise productivity of agriculture which needs large public investment); and to facilitate credit flow particularly continuous working capital, to labour intensive sectors.
- Finally there is a need to increase public investment.
Question – What is BIS standard of drinking water? Are the recent restrictions on membrane-based water purification systems enough? If not give reasons.( 200 words)
Context – The Environment Ministry’s draft notification to regulate the use of membrane-based water purification systems.
What is BIS standard of drinking water?
- The BIS drinking water specification (IS 10500:1991), which is a voluntary standard, was drawn up in 1983.
- The standard was adopted by the Bureau of Indian Standards with the following objectives –
- To assess the quality of water resources, and
- To check the effectiveness of water treatment and supply by the concerned authorities.
What is membrane processing?
- Membrane processing is a technique that permits concentration and separation without the use of heat. Particles are separated on the basis of their molecular size and shape with the use of pressure and specially designed semi-permeable membranes.
- Example, Reverse Osmosis (RO) is a membrane-based process technology to purify water by separating the dissolved solids from feed stream resulting in permeate and reject stream for a wide range of applications in domestic as well as industrial applications.
Why in news?
- The Environment Ministry’s draft notification to regulate the use of membrane-based water purification systems.
- The intent is to conserve water and cut waste.
- The association of water filter manufacturers challenged this order.
- In RO, the total dissolved solids (TDS) in water — which covers trace chemicals, certain viruses, bacteria and salts — can be reduced, to meet potable water standards. Home filters waste nearly 80% of the water during treatment. Second, some research has shown that the process can cut the levels of calcium and magnesium, which are vital nutrients.
- The resort to prohibition (to restrict home filters) may cause consumer apprehension but it is unlikely that they will be taken to task for using such water filters because the notification implies, these filters are only prohibited if the home gets water supply that conforms to Bureau of Indian Standards (BIS) for Drinking Water.
- So, although several State and city water boards claim BIS standards, the water at homes falls short of the test parameters.
- The BIS, last year, ranked several cities on official water supply Delhi was last and only Mumbai met all the standards. In the 28 test parameters, Delhi failed 19, Chennai 9, and Kolkata 10. The BIS norms are voluntary for public agencies which supply piped water but are mandatory for bottled water producers. Moreover, most of the country does not have the luxury of piped water.
- The Composite Water Management Index (CWMI) of NITI Aayog says that 70% of water supply is contaminated. India is ranked 120th among 122 countries in an NGO, WaterAid’s quality index.
- So the case for restricting people’s choices on the means they employ to ensure potable water is thus weak.
- The notification mainly deals with rules for commercial suppliers and for integration of systems that inform consumers about TDS levels — a major determinant of water quality.
- This is envisaged both before water enters filtration systems and after it has been filtered. The aim is also to ensure that after 2022, no more than 25% of water being treated is wasted, and for residential complexes to reuse the residual waste water for other activities, including gardening.
- When implemented, the notification’s primary aim should be to persuade authorities to upgrade and supply BIS-standard water at the consumer’s end. This should be done without additional costs, particularly on millions who now lack access to protected supply.