Economy, Economic Growth and Development (DAMP)
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Contents
- Despite reducing poverty, the 1991 reforms led to sectoral imbalances and increased inequalities. Economic Reform 2.0 must prioritize key areas to effectively address these challenges.
- Examine the diverse applications of drones across sectors. Identify the major obstacles impeding the growth and utilization of drone technology in India.
- Discuss the objective and significance of the National Monetization Pipeline in the context of India’s economic development.
- What is the National Infrastructure Pipeline? What is its significance for India’s development.
11-08-2023
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Answer :
The 1991 economic reforms transformed Indian economy by shedding the socialist principles of state’s economic intervention and license raj. A World Bank study revealed that poverty declined by 1.36% per annum after 1991.
While economic growth in India brought about notable development, the country’s economic reforms fell short of implementing comprehensive structural changes.
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Comprehensive structural reforms remain incomplete because: |
- Partial liberalization of industries: Many sectors remained heavily regulated, hindering competition and productivity growth.
- Inadequate labor market reforms: Stringent labor laws persisted, limiting flexibility, and discouraging job creation and investment.
- Slow agricultural sector reforms: Insufficient changes in agriculture prevented efficiency gains and modernization, impeding rural development.
- Limited financial sector reforms: Banking sector reforms were incomplete, leading to inefficiencies, non-performing assets, and limited access to credit.
- Weak governance and corruption: Governance reforms lagged, leading to corruption, red tape, and uncertainty, deterring domestic and foreign investments.
- Lack of comprehensive tax reforms: Complex tax structures persisted, burdening businesses and hindering investment and economic growth.
Lack of comprehensive structural reforms resulted in sectoral imbalances and increased inequalities.
Sectoral imbalances are in the form of growth inequities in various sectors. The growth has been concentrated only in some areas in the services sector such as telecommunication, IT, finance, entertainment, travel and hospitality, trade etc., whereas vital sectors such as agriculture and manufacturing industry continue to struggle.
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Other aspects of sectoral imbalances are discussed below: |
- Post-reforms economic growth was disproportionately led by the service sector. The share of services in GDP has risen from 28% in 1950s, 44% in 1990s to 54% in 2000s.
- Reforms did not lead to sustained growth in the manufacturing sector. After an acceleration in the mid- 1990s, growth slowed in the decade’s second half. The contribution of the manufacturing sector to GDP has remained almost stagnant.
- The share of agriculture in GDP declined after economic reforms. Data shows that the agricultural share in GDP has declined by 7.3% since the 1991 reforms.
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The evidence shows that inequalities have increased post-economic period: |
- According to Oxford report, the richest 1% of Indians own 58.4% of the country’s total wealth, and 10% of richest Indians own 80.7% of the country’s total wealth.
- Another report, by Council of Social Development, reported six-fold increase in India’s wealth inequality between 2000 and 2017.
- The Gini coefficient measured in terms of consumption for rural areas increased from 0.29 in 1993-94 to 0.31 in 2011-12 and from 0.34 to 0.39 in urban areas. The India Human Development survey revealed that the Gini coefficient in income (rural + urban) was 0.52 in 2004-05 and increased to 0.55 in 2011-12.
- The economy witnessed a period of jobless growth.
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To overcome the imbalances and inequalities mentioned above, following areas should be the focused during reform 2.0: |
- Macro-Economic Reforms: It should include- controlling current account deficit, balancing growth, and inflation, increasing tax revenues by broadening the tax base, and managing debt by setting up a separate Debt Management Office.
- Social Sector Reforms: Should focus on- reducing wealth and income inequality by raising the minimum wage, reducing gender pay gap, raise female labor force participation rate (FLFPR) and focus on health, education and skilling.
- Market Reforms: Should include- infrastructure development, factor markets reforms including land, labor and energy reforms, industrial and bureaucratic reforms (PSUs, PSBs), easing regulations toward ease of doing business and encouraging new-generation entrepreneurs and start-ups by creating opportunities.
- Agricultural Reforms: Should focus on- integration of the agricultural market, rationalization of supply chain, encouraging the formation of cooperatives and boosting agricultural exports.
India’s past economic reforms resulted in a significant transformation of the economy and positively impacted the lives of millions. To ensure inclusive growth and reduce inequalities, it is imperative for India to embark on Economic Reforms 2.0.
20-07-2023
Answer :
Remotely Piloted Aircrafts, popularly referred to as drones, are unmanned aircrafts piloted from a remote platform. Drones, with its associated remote pilot station(s), command and control links and other components form a Remotely Piloted Aircraft System (RPAS). It has many wide-ranging applications.
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Key Areas of Application: |
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Challenges and limitations hindering the growth of drone sector in India: |
» Evolving Regulatory framework: The regulatory framework for drone sector in India is still evolving, and this can make it difficult for businesses to operate.
» Poor Demand: There is a lack of awareness among people and businesses about potential uses and applications of drone sector. This has kept the potential demand on the lower side.
» Safety Concerns: With increased uses of drones, there may be increased risk of drone accidents/ drone falling. This may create problems specially in a densely populated area.
» Privacy Concerns: Drones may be used for spying on people without their permission leading to privacy violations.
» Cybersecurity issues: Drones are vulnerable to cyber-attacks and these attacks may disrupt drone operations.
» Job Losses: In future, when drones are used for work like delivery by online sellers, food delivery companies etc, it may lead to a job loss situation for a lot of people.
» Military use of drones can also be very devastating:
▫ Easier, violation of sovereignty
§ For e.g., in recent years, sightings of drones along the Indo-Pak borders have increased.
§ Drones have been used by Pakistan based outfits to smuggle arms, ammunitions and drugs in India.
▫ Risk of overusing of military options
▫ Making it more difficult to identify violations of constraints against targeting noncombatants.
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Key steps taken in recent times to promote drone sector in India: |
» Liberalized Drone Rules, 2021
» India’s Airspace Map for Drone Operations Released by Ministry of Civil Aviation
» PLI scheme for Drones, 2021
» Guidelines for PLI incentive scheme to support Indigenous drone industry (Nov 2022)
» Drone Shakti Scheme – Financial incentives to startups that are developing drone based solutions.
» Initiatives to promote the use of drones in different sectors like Agriculture, infrastructure logistics etc.
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Way Forward: |
» Encourage drone use in various sectors like logistics, infrastructure, agriculture etc.
» Create a favorable regulatory environment: The 2021 rules need further simplification to promote ease of doing business in the drone sector
» Support Drone Industry
▫ Launch a drone startup accelerator program.
▫ More R&D Support: Government should incentivize/support R&D in drone sector to ensure innovation and development in the drone sector.
▫ Organized drone-expos and conferences.
» Encourage PPP models in Drone sector – This will help pool resources and expertise and accelerate the development of the sector.
» Education and Skill development: Create dedicated courses for drone sector at both graduation and post-graduation level to promote drone sector. Jobs in the areas of drone repairs will be a big deal.
» Promote Industry-Academia collaboration to support research.
» Focus on Cyber Security, which is expected to increase in vulnerability
» Plan for sustainable disposal of e-waste generated by the use of drones.
17-07-2023
Answer :
Asset Monetization is one of the key recommendations of National Infrastructure Pipeline (2020-25). Consequently, the National Monetization Pipeline was announced in 2021. It focuses on the principle of ‘asset creation through monetization’ and thus taps private sector investment for new infrastructure creation.
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Details: |
- Asset monetization entails a limited period license/lease of a brownfield underutilized asset owned by government or a public agency, to a private sector entity for an upfront or periodic consideration.
- The private sector entity is expected to operate and maintain the asset based on the terms of the contract/concession, generating returns through higher operating efficiencies and enhanced user experience.
- The public authority, which receives the fund, will invest it in new infrastructure or deploy it for other public purposes.
- A robust asset pipeline has been prepared to provide a comprehensive view to investors and developers of the investment avenues in infrastructure.
- It includes selection of de-risked and brownfield assets with stable revenue generation profile (or long rights) which will make for an attractive investment option.
- Total indicative value of NMP for core assets of the Central Government has been estimated at Rs 6.0 lakh crore over 4-year period (FY22 – 25) (5.4% of the total infrastructure investment envisaged under NIP)
- National Land Monetization Corporation (NLMC): Cabinet approved the setting up of the NLMC to monetize surplus land and building assets of CPSEs and other agencies linked to government (March 2022)
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Progress so far: ESI 2022-23: |
- Against the monetization target of 0.9 lakh crore in FY22, Rs 0.97 lakh crore have been achieved during the period under roads, power, coal, and mines.
- NMP’s 2nd year target, i.e., FY23 target is ₹6 lakh crore (27% of the overall NMP target).
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Significance: Positives |
- Infrastructure Upgradation and Development: The NMP aims to enhance infrastructure development in the country by leveraging the potential of existing assets.
- Unlocking of Capital and Revenue Generation: The funds generated can be used for financing new infrastructure projects without increasing the fiscal deficit.
- Efficient Asset Management: Promotes the use of complete assets which are languishing, or it is not fully monetized or underutilized.
- Job Creation and Skill Development: It will attract investment, promote entrepreneurship, and stimulate economic growth.
- A clear framework for monetization and given potential investors a ready list of assets to generate investment interest.
- Along with disinvestment, monetization of idle land is part of the Centre’s strategy to reduce its business presence to a bare minimum and generate resources for future asset creation.
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Key challenges: |
- Valuation of Assets is a complex process. There may be challenges in accurately assessing the future revenue, depreciation factors etc.
- Lack of government’s expertise in designing long term contracts:
- Contractual disputes can pose hurdles in the implementation process.
- Monetizing assets with low revenue potential may be a challenge.
- Asset Management and Quality Maintenance – Poor monitoring may lead to poor quality of asset management.
- Sector Specific Challenges:
- Level of capacity utilization in gas and petroleum pipeline networks -> lack of capacity utilization has been due to lower gas supplies.
- Regulated tariffs in power sector assets
- Low interest of investors in national highways of less than 4 lanes.
- Threat of monopolization: Because of the limited number of private players, bidding for assets may not be totally fair.
- Public welfare may get ignored (which should be the basic focus of public sector assets)
- Why are the assets being poorly managed at the first place. If its poor management, Asset Monetization makes sense. But if the issues are structural, even asset monetization will not solve the problem.
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Way Forward: |
- Set up a centralized institution with the skills and responsibility to oversee contract design, bidding, and implementation, separate from, but with appropriate assistance of, the concerned line ministries.
- Robust dispute resolution mechanism
- Government should start with sectors that offer the greatest cash flow predictability and the least regulatory uncertainty before expanding the experiment.
- Ensure that resources raised from the NMP are used to fund new asset creation.
While the ideal of monetization seems great, execution of the plan remains key to its success.
15-07-2023
Answer :
Ministry of Finance estimates that to achieve a GDP of $5 trillion by 2024-25, India needs to spend about $1.5 trillion (Rs 111 lakh crore) over these years in infrastructure. Keeping this in mind, government has
launched National Infrastructure Pipeline (2020-25) with projected infrastructure investment of around Rs 111 lakh crores. It also envisages improving project preparation and attracting investment, both domestic and foreign, in infrastructure.
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Progress So Far: |
» The NIP currently has 8,964 projects with a total investment of more than Rs 108 lakh crore
under different stages of implementation.
» Status of Projects under NIP
» Transportation Sector Dominates the NIP
» Jointly funded by Central Government, State Government and Private Sector
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Some steps to improve the implementation of NIP: |
» Invest India Grid (IIG): NIP is hosted on the Invest India Grid (IIG) platform and provides and provides opportunities states/UT and ministries to collate all major infrastructure projects at a single location. It is thus a centralized portal to track and review project progress across all economic and social infrastructure sub-sectors. It also provides the project sponsoring authorities to showcase investment opportunities to national and international investors.
» Project Monitoring Group (PMG): It is an institutional mechanism put in place by the government for resolution of issues related to large-scale projects. It is also involved in fast tracking of approvals/ clearances for projects with an anticipated investment of Rs 500 crore and above. Now it has been proposed to integrate NIP and PMG portals. PMG portal will pick up data, as per requirements (project cost of Rs 500 crore or more), from the NIP database. This will save substantial time and effort by Ministries and States/UTs and ease monitoring of large-scale projects.
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Significance: |
- Economic Development: Well-planned NIP projects will enable more infra projects, grow businesses, and create more jobs. It will also promote ease of doing business and enhance export competitiveness of Indian products.
- Inclusive Growth: Improved infrastructure will improve ease of living and will provide equitable access to infrastructure for all making growth more inclusive.
- Government: Enhanced economic activities will lead to creation of additional fiscal space by improving revenue base of government. It also ensures quality of expenditure focused on productive areas.
- Advantages for Developers: NIP provides a better view of project supply, provides time to be better prepared for project building, reduces aggressive bids/failures in project delivery and ensure enhanced access to source of finance because of increased investor confidence.
- Banks/Financial Institutions/Investors: Confidence in the identified projects is likely to be higher and they are less likely to suffer stress given active project monitoring, thereby less likely of NPAs.
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Way Forward: |
- Improving Project Preparation Process to avoid delays and reduce costs. The preparation framework shall consist of a transparent policy and legislative framework, an empowered public institution for infrastructure planning, multi-stage reviews, audits, and approvals for quality assurance etc.
- Enhancing execution capacity of private sector participants – There is a need for a deep pool of experienced developers with the required competence and execution capacity. Here collaboration and joint ventures with strong global infrastructure developers can be crucial.
- Robust Enabling Environment through appropriate policy framework and a well-developed public institutional capacity.
- Institutionalization and Efficiency of Dispute Resolution
- Steps already taken: The Commercial Courts Act 2015, The Specific Relief (Amendment) Act 2018 and the New Delhi Arbitration Centre Act 2019
- What more can be done? Ministry level committees to resolve complex contractual disputes as mediation mechanism that can settle disputes out of courts.
- Strengthening infrastructure quality – Creating a National Framework for Infrastructure Quality for each sector based on global and national standards.
Overall, the National Infrastructure Pipeline (NIP) is a transformative initiative that aims to propel India’s economic growth, improve living standards and position country as a global powerhouse.