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03 March 2021: The Hindu Editorial Analysis

1) The Survey as policy with ideological overtones.

To say that growth and inequality converge in terms of their effects on socio-economic outcomes is outrageous.

GS-1: Social empowerment,

GS-3: Inclusive growth and issues arising from it.


Context:

1. The Economic Survey 2021 does not seem to be a policy document derived straight from the empirical data of the Indian economy or the socio-economic compulsions embedded in it.

2. The Survey rings with policy postulates based on strong ideological overtones especially in growth and inequality. This is ostensibly “an effort to identify the correct policy objective for India”,

 

INEQUALITY IN INDIA:

1. Across the Indian states, it is observed that both inequality and income per capita correlate similarly with socio-economic outcomes. Inequality across Indian states is measured as the Gini coefficient of consumption expenditure.

2. The  “Gini Coefficient”  for the country is estimated to be close to 0.50, which would be an all-time high.

3. However, across the advanced economies, inequality correlates negatively with the index of health and social outcomes while income per capita correlates positively.

 

Need for desirable outcomes:

1. India has fallen into the vortex of a ‘once-in-a-century crisis’ as the Survey forcefully puts it in weak of the COVID-19 pandemic.

2.  It projects a V-shaped growth of recovery and reiterates the call of the Economic Survey 2019-20 for “ethical wealth creation by combining the invisible hand of markets with the hand of trust”.

3. Given the great truth that trust is broken more in an unequal society, it is unrealistic to abstract from the crony capitalism and corruption that dominate the political society and proceed from there to ethical wealth.

4.  It is hoped that market-mediated growth will take the country to desirable socio-economic outcomes that include not only reducing poverty but also a wide spectrum, ranging from infant mortality to mental illness.

 

A silence on poverty:

1. With a GDP of $2171 per Capita, India comes towards the bottom of our list of poorest countries. A mind-boggling one-fifth of the country's 1.3 billion people live below the national poverty line. For comparison, that's roughly 320 million people or the entire population of the US.

2. Concerned scholars remain confused at the silence of the Survey on the nature and magnitude of poverty which is a multi-dimensional phenomena of deprivation, confounded much worse by the pandemic crisis.

3.  The graphic picture of migrant families trudging home hundreds of kilometres away from the cities in the wake of the lockdown seems forgotten

4. Scholarly estimates on the increase in the extreme poverty under the pandemic in India have ranged from 400 million to 620 million.

5. Anyone familiar with the vast literature on economic growth and inequality will find the claims of the Economic Survey, that unlike in advanced countries, in India economic growth and inequality converge in terms of their effects on socio-economic outcomes, as simply outrageous.

 

Faulty conclusions:

1. The joint dispersion or joint scatter in the couplet (x,y) is measured by covariance between x and y. A scale-free covariance is the correlation where degenerate variables are excluded.

2. Correlation can only measure joint scatter in (x,y) and it cannot measure any type of relationship between x and y. Also, correlation as a measure of joint scatter can make sense only when the variables involved have a joint distribution in the statistical sense. All the conclusions of the chapter by computing correlations are faulty.

3. Another set of analysis is based on fitting linear models, calling them as “linear regression”. In the regression models used, variables are selected according to convenience and linear models are fitted and t-statistics are computed without checking for the validity;

4. Social justice is an intrinsic value of universal relevance. Box 1 of Chapter 4 that goes to justify the poverty and inequality trade-off in totalitarian China is obviously introduced to support the inegalitarian policy options.

 

A sidelining:

1. It is concluded that “poverty alleviation through growth must be central to economic strategy”, rather than inequality because “in India, economic growth and inequality converge in terms of their effects on socio-economic indicators”.

2. This is untenable. Rawls’ A Theory of Justice (1971), treats justice as fairness which is the basic core of democratic traditions the world over.

3.  its  refers to the idea of “original position” of equality of Rawls but fails to note that it will have to be judged by the whole theory of justice.

 

Conclusion:

1. Economic Survey discusses a wide range of policy issues relevant for a democratic society facing the COVID-19 pandemic like universal basic income, progressive taxation of income, carbon emission, property and inheritance, universal access to fundamental goods such as health, education and housing and so on .But inequality and poverty not in priority.

2. The Economic Survey has all the right to suggest what it considers relevant. But democracy demands informed debate especially when it comes to economic inequality which has been admittedly growing exponentially in India.

3. In sum, for a developing country such as India, where the growth potential is high and the scope for poverty reduction is also significant, the focus must continue on growing the size of the economic pie rapidly at least for the foreseeable future.

2) Recalibrating relations with EU.

 

Forging stronger ties with the region could help India strengthen manufacturing and revitalise exports.

GS-2: Effect of policies and politics of developed and developing countries on India’s interests, Indian Diaspora.


Context:

1. The Atmanirbhar Bharat programme and the Budget 2021-22 have set the tone and tenor to bolster supply chains and achieve self-reliance. A self-reliant India, however, cannot be economically insular.

2.  Realizing the vision of a self-reliant India would entail localising an increasing share of value added along supply chains through investments and phase-wise reduction of import tariffs with strategic partners such as the European Union (EU).

3. The stronger bilateral and multilateral Agreement with the region and developed nation could help India strengthen manufacturing and revitalize exports.

 

The Europe union export with India:

1. India's exports to the EU have also risen steadily from €22.6 billion in 2006 to €45.82 billion in 2018, with the largest sectors being engineering goods, pharmaceuticals, gems and jewellery, other manufactured goods and chemicals.

2.  India is among the few nations that run a surplus in services trade with the EU. The EU is the second-largest destination for Indian exports over 14% of the total trade after the USA.

3. The EU is India's largest trading partner, accounting for €80 billion worth of trade in goods in 2019 or 11.1% of total Indian trade, on par with the USA and ahead of China 10.7%.

 

Export potential:

1. India has an untapped export potential of $39.9 billion in the EU and Western Europe. The top products with export potential include apparel, gems and jewellery, chemicals, machinery, automobile, pharmaceuticals and plastic.

2.  EU's GSP (Generalized System of Preferences (GSP)) removes import duties from products coming into the EU market from vulnerable developing countries.  India benefits from tariff preferences under the EU’s for several of these products.

3.  India is among the major beneficiaries of the EU’s GSP, with exports under the GSP valued at nearly $19.4 billion in 2019, accounting for nearly 37% of India’s merchandise exports to the EU.

 

Concern of EU’s GSP:

1. However, there are several products where India has export potential in the EU, but these have “graduated” or are at the brink of “graduation” under EU GSP.

2. Product graduation applies when average imports of a product from a beneficiary country exceed 17.5% of EU-GSP imports of the same product from all beneficiary countries over three years.

3. India’s exports of products such as textiles, inorganic and organic chemicals, gems and jewellery, iron, steel and their articles, base metals and automotives are already out of the ambit of EU-GSP benefits.

4. There is also a likelihood of losing EU-GSP benefits in other categories such as apparel, rubber, electronic items, sports goods and toys due to product graduation.

5. In apparel, India’s exports to the EU were valued at $7 billion in 2019, of which nearly 94% was under EU-GSP, indicative of the impact that the graduation may have on apparel exports.

 

India’s Competitors:

1.  India’s competitors in apparel exports such as Bangladesh would continue to receive tariff benefits in the EU under Everything but Arms Initiative. Another competitor, Vietnam, concluded a free trade agreement (FTA) with the EU in 2019.

2.  The declining preferential access and the plausible erosion of competitiveness in the EU market, there is clearly a need to deepen trade and investment ties with the region.

 

Approach to FTAs:

1. India’s negotiation for a Broad-based Trade and Investment Agreement, which commenced in 2007, is yet to materialise due to lack of concurrence in areas like automotives and dairy and marine products.

 2. India’s cautious approach to FTAs derives from its past experience of an unequal exchange of benefits in several FTAs signed by the country.

3. Therefore, a thorough assessment of the benefits from FTA for domestic producers is warranted, with due consideration to the impact on sensitive sectors, and possibility of inclusion of safeguards such as sunset clause on concessions for some items.

4.  There should be investment and non-tariff measures (NTMs). Between India and the EU expect to promote bilateral trade by removing barriers to trade in goods and services and investment across all sectors of the economy.

 

Solution for India-Needs:

1. China has already negotiated a comprehensive agreement on investment. India also needs to negotiate on investment-related aspects with the EU.

2. Negotiation for enhance bilateral investments and foster stronger value chains, especially in technology-intensive sectors in which the EU has a comparative advantage.

3. Non-tariff measures (NTMs) are concerned; India faces as many as 414 NTMs in the EU, in a wide array of sectors. FTAs have some institutional arrangements for NTMs. India should critically review the availability of such arrangements in its negotiations, as also their operationalisation and effectiveness.

 

Way Forward:

1. India is amongst the world’s fastest-growing large economies and is an important player in global economic governance. India is an important trade and investment partner for the EU. It represents a sizable and dynamic market, with an annual GDP growth rate of around 6%.

2. The EU objective in its trade relations with India is to work towards a sound, transparent, open, non-discriminatory and predictable regulatory and business environment for European companies trading with or investing in India, including the protection of their investments and intellectual property.

3. Post-Brexit EU finds itself in the midst of a growing need for recalibrating ties with its partner countries. Forging stronger ties with the region through a mutually beneficial agreement could help strengthen Indian manufacturing and revitalise the flailing exports.