GS 2
CATEGORY: GOVERNANCE
- NITI Aayog: Export Preparedness Index 2020
THE ISSUE IN NEWS
In partnership with the Institute of Competitiveness the NITI Aayog , recently released the Export Preparedness Index (EPI) report 2020.
Main Points
- Export Preparedness Index 2020:
- Aim of EPI 2020: identifying challenges and opportunities, enhance the effectiveness of government policies and encourage a facilitative regulatory framework for export.
- Ranking Parameter: The index ranked states on four key pillars:
- Policy: A comprehensive trade policy providing a strategic direction for exports and imports.
- Business Ecosystem: An efficient business ecosystem helping states attract investments and create an enabling infrastructure for individuals to initiate start-ups.
- Export Ecosystem: Assess the business environment, which is specific to exports.
- Export Performance: This is the only output-based parameter and examines the reach ofexport footprints of States and Union Territories.
Sub-pillars:
- The index also took into consideration 11 sub-pillars – export promotion policy; institutional framework; business environment; infrastructure; transport connectivity; access to finance; export infrastructure; trade support; R&D infrastructure; export diversification; and growth orientation.
- Features: The EPI is a data-driven effort to identify the core areas crucial for export promotion at the sub-national level (states and union territories).
- Benefit: The Index would be a helpful guide for the state governments to benchmark regional performance with respect to export promotion and thus deliver key policy insights on how to improve and enhance the exports.
Performance:
- Gujarat has topped the overall EPI 2020 followed by Maharashtra and Tamil Nadu.
- Among the landlocked states, Rajasthan has topped the index, followed by Telangana and Haryana.
- Among the Himalayan states, Uttarakhand topped the index, followed by Tripura and Himachal Pradesh.
- Across Union Territories, Delhi has performed the best.
India’s Exports:
- India’s merchandise exports have witnessed growth from USD 275.9 billion in 2016-17 to USD 331.0 billion in 2019-20.
- However, the Covid-19 crisis gave a major blow to the current fiscal. Consequently, India’s exports shrank by 60% in April 2020.
- This consistent positive growth has been a result of key measures adopted by the government post-2016 for the promotion of merchandise exports.
- A mid-term review of the Foreign Trade Policy 2015-20 was conducted in 2017 to assess the policy interventions required to boost the export levels.
- A new Logistics Division was established in the Department of Commerce to organize the integrated development of the logistics sector.
- Trade Infrastructure for Export Scheme (TIES) was launched in 2017 to address the existing export infrastructure gaps.
- Agriculture Export Policy was rolled out to target export contribution at a micro-level.
- Transport and Marketing Assistance (TMA) scheme was also introduced for the export of specified agriculture products to mitigate the disadvantage of the higher cost of transportation.
Challenges:
- The export promotion in India faces three fundamental challenges: Intra- and inter-regional disparities in export infrastructure.
- Poor trade support and growth orientation among states.
- Poor research & development infrastructure to promote complex and unique exports.
GS3
CATEGORY: ECONOMY
- Economic Measures Suggested by McKinsey
THE ISSUE IN NEWS
Recently, the McKinsey Global Institute (MGI) has released a report titled ‘India’s turning point: An economic agenda to spur growth and jobs’.
- The report identifies a reform agenda that could be implemented in the next 12 to 18 months to increase productivity and create jobs.
Main Points
Data Analysis:
- Increasing Workforce: Given the increasing urbanisation and population trends, there will be 90 million additional workers in search of non-farm jobs by
- Triple Job Creation: To cater to that, India will have to triple job creation to 12 million gainful non-farm jobs per year from the 4 million achieved between 2013 to 2018.
- Required GDP Growth: The Gross Domestic Product (GDP), which is set to contract by over 5% in 2020-21, needs to go up to 8-8.5% per annum for the next decade to create the opportunities in the post Covid-19 era.
- Promising Sectors: Manufacturing and the construction sectors offer the most opportunities for economic growth and also for higher employment.
- Risk of Stagnation: The country risks a decade of stagnating incomes and quality of life if urgent steps are not taken to spur growth.
Measures Suggested:
- Global Shift: Global trends such as digitization and automation, shifting supply chains, urbanization, rising incomes and demographic shifts, and a greater focus on sustainability, health, and safety can become the hallmarks of the post pandemic economy.
- Higher Productivity through Privatisation: Privatisation of 30 or so of the largest state-owned enterprises to potentially double their productivity.
- Government also had a focus on privatisation under the Aatmanirbhar Bharat Package.
- Sector Specific Focus: Framing sector-specific pro-growth policies to attract investment in manufacturing, real estate, agriculture, healthcare and retail.
- Labour Reforms: Creation of flexible labour markets for industry with better benefits and safety nets for workers.
- Improvement in Infrastructure: India needs to unlock supply in land markets to reduce land costs by 20-25%, enable efficient power distribution to reduce commercial and industrial tariffs by 20-25%; and improve the ease and reduce the cost of doing business.
- Going Big: India needs to triple its number of large firms having revenues of over USD 500 million.
- Efficient Financing: Streamlining fiscal resources can deliver USD 2.4 trillion in investment while boosting entrepreneurship by lowering the cost of capital for enterprises by about 3.5 percentage points.
- Measures are required to channel more household savings to capital markets, to reduce the cost of credit intermediation, and to streamline government finance.
- Bad Bank: Creation of a ‘bad bank’ can take care of the inoperative assets. Responsibility for Reforms: A bulk 60% of the reforms will have to be undertaken by states and the remaining 40% by the Centre.
- Economic Impact of Covid-19Assessment: DSGE Model
THE ISSUE IN NEWS
The Reserve Bank of India (RBI) is using Dynamic Stochastic General Equilibrium (DSGE) model to provide a tentative and proximate assessment of the likely impact of Covid-19 and the subsequent lockdown on the Indian economy.
Main points
DSGE Model:
- DSGE modelling is a method in macroeconomics that attempts to explain economic phenomena, such as economic growth and business cycles, and the effects of economic policy, through econometric models based on applied general equilibrium theory and economic principles.
- Econometrics is the application of statistical methods to economic data in order to give empirical content to economic relationships.
- General Equilibrium Theory is a macroeconomic theory that explains how supply and demand in an economy with many markets interact dynamically and eventually culminate in an equilibrium of prices.
- RBI has considered three main economic agents, viz., households, firms and the government.
- Because of lockdown, households have to stay at home and therefore, reduced labour supply to firms and consumption and income fall due to nonavailability of non-essential items.
Possible Scenarios under the DSGE Model:
- First scenario i.e lockdown I which impacts the supply side of the economy by decreasing the labour supply and its productivity.
- Second scenario i.e lockdown II, which additionally considers the increase in marginal cost i.e. the additional cost incurred in the production of one more unit of a good or service.
- Inflation is expected to decline under both the first and second scenario. Under the first scenario production cut is less severe, but demand contraction is more pronounced due to a rise in infections.
- In the second scenario firms will curtail production as profits take a hit, wages see a lower rise and the economy goes through a large contraction.
- However, the recovery from the pandemic is faster in the lockdown scenario on account of fewer opportunities for people-to-people interactions.
- RBI has calibrated the DSGE model for the above two scenarios by assuming that: Covid-19 infections peak around the second half of August 2020.
- The output gap (difference between the actual and the potential output) reduces to about 12% of potential output when the economy is worst hit.
- In both the scenarios of two lockdowns, the decline in economic activity reaches its bottom in April-June quarter of 2020-21 and recovers thereafter, with growth turning gradually positive from January-March quarter 2020-21.
- Third scenario e the government does not impose a lockdown, the pandemic is more widespread and peaks in the second half of January 2021 with a very slow recovery.
- This will cause a persistent labour shortage and the supply shock will increase the inflation and reduce the output.
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