QUESTIONS : Discuss the current economic slowdown being witnessed by the country. What are the underlying causes and what measures are needed to be taken to bounce back on the right growth trajectory?
Topic- INEVITABLE COLLAPSE
WHAT ?
- Contraction of India’s GDP Growth
WHY IN NEWS ?
- As per the GDP data released by the Ministry of Statistics and Programme Implementation (MoSPI)for the first quarter (April, May, June) of the current financial year, the GDP contracted by 23.9 per cent in 1st quarter.
MORE ABOUT TO KNOW :
It is the sharpest contraction since India started reporting quarterly data in 1996.
Gross Value Added (GVA) growth rate also declined by 22.8% in the first quarter of this financial year.
o GDP is a measure of economic activity in a country. It is the total value of a country’s annual output of goods and services. It gives the economic output from the consumers’ side.
o GVA is the sum of a country’s GDP and net of subsidies and taxes in the economy.
KEY TAKEAWAYS FROM GDP DATA :
- In terms of the gross value added by different sectors of the economy, data show that barring agriculture, where GVA grew by 3.4%, all other sectors of the economy saw their incomes fall.
- The worst affected were construction (–50%), trade, hotels and other services (–47%), manufacturing (–39%), and mining (–23%).
FACTORS FOR GDP CONTRACTION:
o In any economy, the GDP growth is generated from one of the four engines of growth. i.e. private consumption, demand generated by private sector businesses, demand generated by government and exports.
- Private consumption has fallen by 27%. It is the biggest engine that drives the Indian economy.
- Investment by private sector businesses have fallen by 47%. It is the second biggest engine.
- The net export demand has turned positive in this first quarter because India’s imports have crashed more than its exports.
- While on paper, this provides a boost to overall GDP, it also points to an economy where economic activity has plummeted.
- The government’s expenditure went up by 16% but this was nowhere near enough to compensate for the loss of demand in other sectors (engines) of the economy.
IMPLICATIONS OF GDP CONTRACTION:
- It means that the total value of goods and services produced in India in April, May and June this year is 24% less than the total value of goods and services produced in India in the same three months last year.
- Since economic liberalisation in the early 1990s, Indian economy has clocked an average of 7% GDP growth each year. This year, it is likely to turn turtle and contract by 7%.
- The sectors that create the maximum new jobs in the country are hit the maximum. Their output and incomes are falling — it would lead to more and more people either losing jobs (decline in employment) or failing to get one (rise in unemployment).
- On Jobs: The sectors which have contracted (e.g. construction, manufacturing etc.) are the sectors that create the maximum new jobs in the country.
- On Informal Sector: The real extent of the economic crisis is expected to be deeper given that the small-scale sector and informal sector is more affected than the organised sector, but is not reflected in the quarterly GDP numbers.
- On Banks: The looming defaults in the banking sector after the moratorium ends will add to the banking sector woes, impacting bank’s lending.
Also, there are worries regarding household debt, with incomes stagnating, salary cuts and job losses.
CALCULATING GDP :
- Since the total GDP = C + I + G + (X-IM)
- The net result is that while, on paper, government expenditure’s share in the GDP has gone up from 11% to 18% yet the reality is that the overall GDP has declined by 24%.
LIMITATIONS ON ACCELERATING GDP GROWTH :
- The vicious cycle of falling incomes and poor demand: When incomes fall sharply, private individuals cut back consumption.
o When private consumption falls sharply, businesses stop investing. Since both of these are voluntary decisions, there is no way to force people to spend more and/or coerce businesses to invest more in the current scenario.
o It is true for exports and imports as well.
- Increasing fiscal deficit: Even before the Covid crisis, government finances were overextended.
o For April-July, the Centre’s fiscal deficit stood at Rs 8.21 trillion, or 103 per cent of 2020-21 budget estimates of 7.96 trillion.
NEED FOR TARGETED GOVERNMENT SPENDING :
Only when the government spends more by building roads and bridges and paying salaries or by directly handing out money — can the economy revive in the short to medium term.
- Increased short term borrowing and Covid-19 fiscal package will consume 2% of GDP.
- Increased public infrastructure spending including healthcare will need 1.7% of GDP.
GROSS DOMESTIC PRODUCT (GDP) :
- GDP is the final value of the goods and services produced within the geographic boundaries of a country during a specified period of time, normally a year.
- GDP growth rate is an important indicator of the economic performance of a country.
- It can be measured by three methods, namely,
- Output Method :
GDP (as per output method) = Real GDP (GDP at constant prices) – Taxes + Subsidies.
- Expenditure Method:
- GDP (as per expenditure method) = C + I + G + (X-IM)
- C: Consumption expenditure, I: Investment expenditure, G: Government spending and (X-IM): Exports minus imports, that is, net exports.
- Income Method:
GDP (as per income method) = GDP at factor cost + Taxes – Subsidies
CONCLUSION :
Only when the government spends more by building roads and bridges and paying salaries or by directly handing out money — can the economy revive in the short to medium term.
WAY FORWARD :
The only option is to increase the government’s savings to fund the growth spending using innovative methods.
- Efficient subsidy and social spend: The government can save 1% of GDP by higher subsidy efficiency and savings in admin expenses.
- Disinvestment: Monetisation of capital owned by state owned enterprises can mobilise 0.7% of GDP.
- Asset monetisation: 0.7% of GDP can be mobilised by recycling of PSU infrastructure.
- Higher tax buoyancy: A simplified GST structure can garner 0.65% of GDP.
- Power sector reforms: Cost reflective tariffs with targeted subsidies to agriculture and household can save 0.3% of GDP.
QUESTION : How Covid-19 is transforming the education sector in India ? Discuss and suggest a way forward for facilitating digital education in India.
Topic- DISRUPTION AND CHALKING OUT A NEW IDEA FOR EDUCATION
WHAT :
Impact of Covid-19 on Indian Education
WHY IN NEWS ?
Along with a colossal(extremely large ) loss of life and economic damage to the world over, COVID-19, is leaving a lasting impression on education.
BACKGROUND :
- Covid-19 is threatening educational institutions to shut down or downsize that will affect jobs and livelihoods.
- For professional and non-professional courses, the natural tendency for students would be to opt for online courses as they could cut back and save on hostel, mess and travel costs.
o This means that some institutions may well have to shut down due to their inability to meet costs.
- How the educational institutes management, especially in private institutions, is going to balance the demand for education and the costly digital resources, is the question.
- It may be called a new phenomenon “acadonomics”, that will involve seeing the economics of moving on to an online mode of the teaching-learning process, whether it is going to be a temporary phenomenon or a long term.
A COMPARISON WITH WEST WORLD :
- Private academic institutions in India which are not-for-profit do not have any emergency funds, unlike western universities.
o Their survival is on the annual income that comes from tuition and the other fees collected.
- For instance, in the United States, the elite private and state-subsidized universities like Harvard University have endowments of close to $40 billion that can be used for a range of academic activities. This can include giving out fellowships to subsidizing tuition fees.
CONCERNS :
- The new social distancing norms would lead to the enforcement of smaller class sizes, thereby increasing the effective teaching load and multiplicity of efforts.
- The online teaching mode brings with it increased costs of IT infrastructure such as network bandwidth, servers, cloud resources and software licensing fees.
- Online teaching means new hiring in the IT sector and increased costs due to engagements with Massive Open Online Courses (MOOCs), and other online platforms.
- Online teaching means setting up multiple studios and educational technology centres which translate into investments in high technology.
- Creation of virtual laboratories across all domains of studies and examination centres, etc. would add to the financial woes.
- All faculty members are not adept in online teaching. Therefore, additional funds have to be allocated to train faculty for online teaching.
CONSTITUTIONAL PROVISIONS ON INDIAN EDUCATION :
- Article 45 in Directive Principles of State Policy stated that the government should provide free and compulsory education to all until the age of 14 within 10 years from the commencement of the Constitution. Since it was not realized, Article 21A was introduced by the 86th Constitutional Amendment Act of 2002. It made elementary education a fundamental right rather than a directive principle.
- Article 45 was amended to provide for early childhood care and education to children below the age of 6 years.
Right to Free and Compulsory Education Act, 2009:
- In order to implement Article 21A, the parliament had passed the Right to Education Act.
- This Act provided necessary legal backing for the implementation of Sarva Shiksha Abhiyan (SSA).
- SSA is the government programme that provides for the Universalization of Elementary Education in a time-bound manner. It has been operational since 2000-01.
CONCLUSION :
Acadonomics’ of the future will not only decide the fate of the academic sector in India but also its quality, ranking, research, innovation potential and its collective impact on our country’s economy.
WAY FORWARD :
- Soft loans: The onus is on the Centre and State governments to provide soft loans to students to stay with the educational course.
- Financial autonomy: The government and regulatory bodies should not interfere in the fee structure.
- Maintaining corpus: While replicating any western model in India may not be wholly appropriate, it is high time institutions in India are allowed to create coffers or corpuses for a rainy day.
- Corporatization: In India, good quality higher education is subsidized in relation to their direct costs. Educational institutions can be treated like any other corporate body, with an allowable small margin of profit.
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