Tuesday, 7 July 2015

Daily News Mail - News of 06/07/2015

Greek Crisis – The Referendum
Greece crisis has reached its boiling point with Greeks decisively rejecting conditions of austerity(meaning of austerity - sternness or severity of manner or attitude; severity; strictness; seriousness; solemnity) offered by Troika (EU, EC & IMF) in return for extension of debt repayment timelines. More worrying is the fact that as high as 61% people voted for ‘no’, which indicates unwillingness of debtors to repay their debt as per terms. This has sent shockwaves across capital markets of the world as they witnessed a notable fall in indices.

Greece adopted Euro (in place of Drachma) in 2001, that time it was agreed that it would observe canons of fiscal prudence as mandated by EU. Notably, that time too there was significant disparity in economy of Greece and richer EU countries like Germany and France. Global financial crisis of 2008 upset the economy of vulnerable Greek from which it has so far been unable to emerge. Now it has Debt to GDP ratio as high as 177%, which was below 100% couple of decades back. This means Greece owes 1.77 time its annual GDP. In actual terms its debt is above $ 300 billion. This is result of Debt trap.

Greece from long has been unable to raise taxes or control public expenditure, so that it can service its debt. Value Added Tax in Greece is lowest among EU nations. On top of it, tax evasion is severe. This prompted government to borrow fresh loans to repay old ones (along with interest). Major part of its revenue and borrowings went in interest payments. Borrowed money, unless invested in productive assets which yield return (profit) in excess of interest payable, is dangerous for borrower.

Consequently, Greece defaulted(meaning of defaulted - default/ past participle - defaulted -- fail to fulfill an obligation, especially to repay a loan or to appear in a court of law) on repayment of Euro 1.6 billion to IMF on 30th June; another payment of Euro 4.5 billion is due on 13th July. To let this happen it will have to agree with conditions of lenders (Troika), in which Germany is main party. On one hand, people of Greece will have to pay high taxes, while on the other Government will rollback public expenditure significantly. Conditions of austerity are very detailed – for e.g. govt. will have to increase retirement age from 60 to 65 or Greece will have to reduce spending of military by certain amount. Problem is that, even if this is agreed by Greeks, it will take decades for them to revive. Otherwise they will have to break away from EU, which ironically Greeks don’t want either.

If Greece gets out of the Union, it will have to revive its own currency. Recent crisis has resulted intense outflow of currency (or capital funds) from Greece. In such scenario its own currency will be constantly spiraling downwards which will make its imports much expensive, which in turn will lead to wide ‘current account deficit’ and ‘balance of payment’. In normal circumstances, net importing countries like India, makes well their ‘Current account deficit’ good by utilizing their ‘capital account’ inflows through FDI or FIIs. But, as Greece is a big financial defaulter, big investors will treat this country as untouchable and stay away from it.

Greek leadership is obviously aware of consequences, so they are exerting moral pressure on lenders to ease the conditions. But Troika and interested countries (mainly Germany) fear that there are other vulnerable (but better) economies (Portugal, Italy, Ireland, Spain) and any relaxation to Greece will lure these countries to follow the suit. On the other hand, big fall out of the exit could be breakdown of European Union as a section in UK seems to be interested in it.

It should be noted that Germany is a very strong export led economy having huge current account surplus. In case it is not part of EU, value of its own currency will be much higher in comparison to euro, thus turning its exports uncompetitive and expensive in world markets. Having said that, at the first place strength of German economy owes much to peripheral European economies which were weaker. Same reasons which made Germany as strong export led economy turned Greece into an import dependent and uncompetitive economy. This fact justifies Greece’s expectation of some relaxation from European community.

Greece face emergency in 4 aspects –

  • Sovereign Debt Crisis – Money owed by Greece government to International/ European lenders.
  • Banking Crisis – Huge capital outflows has left very little with banks. They have stopped many of their functions.
  • Capital Outflows – More and more money exiting Greece everyday
  • Negative Trade Balance – Tourism industry is severely hit which was main source of Euros and Forex, now that too gone.

India has not so much to fear from the crisis. Fallout will be much less than 2008 crisis, which India withstood. But there are some lessons to learn – Regional disparities are threat to security of any union. We should expedite the process of integration of national markets. Main steps toward this will be implementation of GST and Integrating national agriculture markets.

In the light of recently released Socio Economic and Caste Census (SECC), examine how poverty has been defined in India by various committees and commissions. Also critically comment how poverty in India is linked to the caste factor.
In the light of recently released Socio Economic and Caste Census (SECC), examine how poverty has been defined in India by various committees and commissions. Also critically comment how poverty in India is linked to the caste factor. (200 Words)

So far, Poverty definition has been done by various committees. name of various committees are - Lakdawala committee, Tendulkar Committee, Rangarajan committee, etc. 
The different perception of poverty line by these committees lie in their methodology of calculating poverty. For example Lakdawala committee defined poverty line based on calories consumption in rural and urban are. Tendulkar committee defined poverty line based on expenditure in rural and urban ares. While Rangarajan Committee considered expenditure of a family of five person (which benefits economies of scale) to calculate poverty line.

Recently released SECC tried to calculate poverty based on 7 deprivations - such as households with only one room with no solid walls and roof, those with no adult member aged 15-59, female-headed households with no adult male aged 15-59, those with differently abled members and no able-bodied member, SC/ST households, those with no literate member above the age of 25, and landless households deriving a major portion of their income from manual casual labour.

Poverty is directly linked to the occupation of the person. In India, caste has been in social scene and determines persons occupation. That is a person born is a particular caste is supposed to do a particular job only. that is why those involved in low paying occupation are always confined to that occupation considering their caste. at times, certain low caste people are denied skill educations, thus depriving them of any opportunity as well. In this way poverty is linked to the caste in India. however due to positive discrimination (i.e. reservation) and other liberal thoughts this cycle of caste is breaking and people from any caste are occupying high paying jobs based on their talent and merit.

Write a note the objectives and the importance of newly launched Pradhan Mantri Krishi Sinchai Yojana(PMKSY) for Indian agriculture. (200 Words)
The newly launched Pradhan Mantri Krishi Sinchai Yojana (PMKSY), with an allocation of Rs 50,000 crore spread over a period of five years, will amalgamate three major ongoing irrigation programmes of the Centre to achieve a holistic development of irrigation potential.

The programmes, which would be brought under one roof, are the accelerated irrigation benefit programme of the ministry of water resources, integrated watershed management programme of the ministry of rural development and land resources, and the farm water management component of the national mission on sustainable agriculture of the department of agriculture.

"The scheme also aims at bringing the ministries, departments, agencies, financial institutions - engaged in creation, use and recycling of water - under a common platform so that a comprehensive and holistic view of the entire 'water cycle' is taken into account and proper water budgeting is done for all sectors - households, agriculture and industries," Singh told Business Standard.

The Union Cabinet said it would be implemented in project mode, which means the district administration draws up its own irrigation plan with the help of district forest officers, a lead bank officer and other departments. The state irrigation plan will be an amalgamation of all district plans.

"The final guidelines of the programme for effective implementation and monitoring is being formulated in consultation with the departments concerned and ministries, and will be issued soon.

The PMGSY was one of the big poll promises of the BJP. Finance Minister Arun Jaitley allocated Rs 5,300 crore towards this in the budget for 2015-16.

According to official data, till 2011-12, around 46.34 per cent of India's net sown area of around 140.80 million hectares was under irrigation.

In 2000-01, around 40.5 per cent of net sown area was under irrigation, a rise of around 5.8 percentage point in a decade.

Allocation: Rs 50,000 crore spread over a period of five years
Subsumes three major ongoing irrigation programmes of the Centre - accelerated irrigation benefit, integrated watershed management and farm water management component of the national mission on sustainable agriculture.

Rs 1,500 crore would be spent to develop rain water structures, check dams and contour buildings under the watershed management programme.

Rs 2,000 crore for ongoing projects under the accelerated irrigation benefit programme and also for construction of field canals.

Rs 1,800 crore will be spent on developing water harvesting structures.

Examine the linkages between job growth and manufacturing sector, and discuss how should India reform the manufacturing sector to generate more jobs.
Of the 3 sectors of an economy: agriculture, industry and services, it is industry that can play the best role so far as equity is concerned. Job creation in manufacturing sector becomes important for India that needs to shed its excessive dependency (over 50% of total employment) on primary sector. It increases productivity and income - an effective way to tackle rampant poverty. Development of even one industry creates forward and backward linkages, encouraging ancillary units and boosting logistics, trade and commerce.

The pattern of growth matters to citizens more than the amount of growth. India’s manufacturing sector has limped along at around 15% of its GDP since the 1990s in spite of economic reforms and substantial increase of GDP. The government’s Make in India programme aims to rectify this. However, the measure of its success must not be whether the manufacturing sector becomes 25% of the GDP, which is often stated as the objective of the manufacturing policy, because that goal could be achieved with large capital-intensive plants and refineries. Which would not create many jobs. Therefore, the measure of the national manufacturing strategy’s success must be the numbers of jobs created across the country, especially in small and medium enterprises that create more employment, to ensure inclusion of people everywhere in the country’s progress. In the next 10 years, the aim must be to create 100 million good jobs across the country in manufacturing.

Manufacturing sector reform has been charted out in recent years via National Manufacturing Policy (NMP), 2012 that aims to raise GDP contribution of industry to 25% from present 15%, creating 100 million jobs in the process by 2022. Although ambitious, the road to these goals have to whether political and economic storms.

- Introduction of GST to rationalize indirect tax regime needs to be the priority

- Linkages between industrial units, factories with equal quality and performance standards for all must be improved. The industries like apparel that help India earn significant forex are fragmented and have weak linkages

- Labour laws have to be reformed at the earliest. Rajasthan has taken steps in this regard, that must be emulated by others as well

- Total factor productivity that hinges on human resource development and technology use in factories also needs to improved. For textiles, govt schemes like TUFS have been implemented but delayed payments and support discourage manufacturers

Creating of 100 million good jobs has be at the core of any manufacturing sector reform to avoid a phenomenon of "jobless growth" that India faced in 2000s.

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