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In news:

According to the Economic Survey, high fees at the institutes of higher education push the poor and underprivileged out of the education system.

In Brief :

  • The survey noted that as many as 13.6% of those in the age group of 3-35 were never enrolled,” the Survey cites from the NSS.
  • Those surveyed attributed “financial constraints” among the reasons for not pursuing education.
  • The course fee, which is 50.8% at the all-India level (including tuition, examination, development fees and compulsory payments) accounts for half of the average expenditure of a basic course.
  • The proportion of the course fee is high in rural and urban areas. This is followed by cost of books, stationery and uniform, wherein students in rural areas spend 10 percentage points more than urban residents.

Essential Commodities Act Is Outdated

In Brief:

  • According to the Economic Survey 2019-20 the Centre’s imposition of stock limits in a bid to control the soaring prices of onions over the last few months actually increased price volatility.
  • The finding came in a hard-hitting attack in the report against the Essential Commodities Act (ECA) and other “anachronistic legislation” and interventionist policies, including drug price control, grain procurement and farm loan waivers.
  • In July 2019, the NITI Aayog set up a panel of Chief Ministers to suggest agriculture reforms, whose mandate included possible amendments to the ECA.
  • However, just a few months later, in September 2019, the Centre invoked the Act’s provisions to impose stock limits on onions after heavy rains wiped out a quarter of the kharif crop and led to a sustained spike in prices.
  • The Survey argued that if the government had not intervened, traders would have stored part of their produce to ensure smooth availability of the commodity at stable prices throughout the year.
  • In the long term, the Act disincentivises development of storage infrastructure, thereby leading to increased volatility in prices following production/consumption shocks the opposite of what it is intended for.
  • The Survey argued that the Drug Price Control Order issued under the ECA also distorted the market and actually made medicines less affordable.
  • Estimates showed that the prices of drugs that came under the DPCO, 2013, increased Rs. 71 per mg of the active ingredient, in comparison to just Rs. 13 per mg for drugs unaffected by the order.

Food Inflation Higher In Urban Areas

  • The Economic Survey highlighted the higher food inflation in urban areas.
  • There has been a sudden change in trend so far as food inflation is concerned, in the current financial year, for urban and rural areas.
  • Since July 2019, urban areas have registered much higher food inflation when compared to rural areas. Divergence in rural-urban food inflation in 2019-20 was mainly led by cereals, eggs, fruits, vegetables etc”.
  • Headline inflation has been consistently higher for urban areas since July 2018, which is in contrast to the earlier experience, and the divergence has been mainly due to differential rates of food inflation between rural and urban areas.
  • The slide in rural inflation could be because of a fall in the growth of real rural wages.
  • The report further noted that the divergence in rural-urban inflation was not just observed in the food component, but also in other components like clothing and footwear.
  • The decline in rural inflation in items like clothing and footwear, fuel and light could be due to fall in growth of real rural wages, while rise in rural price index for items like education, health, personal care, etc., also raises the question of affordability of these items to the rural segment.
  • Observing that food and fuel inflation in India have had strong secondary effects leading to persistence in household inflation expectations, the report said one way to check for the presence of secondary effects of food and fuel inflation was to look at the swiftness with which headline inflation converged to
    core inflation after the occurrence of a food or fuel price shock.
  • The report cautioned that if headline inflation did not completely revert to core inflation within a reasonably short span of time, it may indicate the presence of strong secondary effects.
  • The reversion of headline inflation to core inflation has considerable implications for the conduct of monetary policy in an inflation targeting framework. In an economy with strong secondary effects, monetary policy may have to be tighter in an event of a food or fuel price shock compared to an
    economy where such effects are minimal.

India Has Low Rates Of Formal Entrepreneurship

In brief:

  • The Economic Survey said that India currently ranks third globally in the number of new firms created with about 1.24 lakh new entities coming up in 2018.
  • However, India has lower rates of formal entrepreneurship on a per-capita basis compared to other countries.
  • As per the Survey, new firm creation had gone up dramatically since 2014.However, on a per-capita basis , India had low rates of entrepreneurship in the formal economy. “Between the 10-year period from 2006 to 2016, the mean number of new firms registered per year per 1,000 workers was 0.10. In contrast, the mean entrepreneurial intensity for the U.K. and the U.S. was 12.22 and 12.12, respectively.
  • The Survey also pointed out that in contrast to the other countries, a large number of India’s enterprises operate in the informal economy which was not captured in the data.
  • The data showed that new firm creation in services sector (at around 85,000) was significantly higher than that in manufacturing (a little less that 15,000), infrastructure (about 5,000) or agriculture (less than 5,000).
  • It added that enhancing ease of doing business and implementing flexible labour laws in job-creating sectors, such as manufacturing, can create the maximum number of jobs in districts and thereby, in the States.
  • Literacy, education and physical infrastructure are the other policy levers that district and State administrations must focus upon to foster entrepreneurship and thereby, job creation and wealth creation.

Stubble Burning Incident

  • According to satellite data, there were 61,332 instances of stubble-burning in Punjab, Haryana and Uttar Pradesh between October and November, 2019.
  • There were 75,532 instances in 2018, 88,948 in 2017 and 127,774 in 2016, according to data sourced from the Indian Council of Agricultural Research.
  • The pollution levels spike when farmers in these three States burn the residue after harvesting paddy to clear the fields of the summer harvest and make way for wheat sowing.
  • The smoke from these fires travels to Delhi, leading to a gaseous cocktail that causes air quality to plummet.
  • There has been a ban on burning this agricultural residue, but the State authorities have not been able to entirely stop it.
  • Agriculture conservation should be promoted with “low lignocellulosic” crop residues, such as rice, wheat and maize.
  • Crop residue-based briquettes ought to be encouraged and thermal power plants in the vicinity ought to be encouraged to undertake firing of crop residues with coal, the Survey noted.

Core Sector Grows At 1.3% In Dec.2019

  • Growth of the eight core industries recovered to 1.3% in December 2019 after remaining in the negative zone in the previous four months, helped by expansion in the production of coal, fertiliser and refinery products.
  • However, growth rate in the steel and cement sectors slowed down to 1.9% and 5.5% respectively.

Privatization: Survey Suggests New Vehicle

Highlightens of the survey:

  • The Economic Survey has aggressively pitched for divestment in public sector undertakings (PSUs) by proposing a separate corporate entity wherein the government’s stake can be transferred and divested over a period of time.
  • Privatised entities have performed better than their peers in terms of net worth, profit, return on equity and sales, among others.
  • The government can transfer its stake in listed CPSEs to a separate corporate entity. This entity would be managed by an independent board and would be mandated to divest the government stake in these CPSEs over a period of time.
  • This will lend professionalism and autonomy to the disinvestment programme which, in turn, would improve the economic performance of the CPSEs.
  • The survey analysed the data of 11 PSUs that had been divested from 1999-2000 and 2003-04 and compared the data with their peers in the same industry.
  • Analysis shows that these privatised CPSEs, on an average, performed better post-privatisation than their peers in terms of their net worth, net profit, return on assets (ROA), return on equity (RoE), gross revenue, net profit margin, sales growth and gross profit per employee.
  • The ROA and net profit margin turned around from negative to positive, surpassing that of peer firms, which indicates that privatised CPSEs have been able to generate more wealth from the same resources… The analysis clearly affirms privatisation unlocks the potential of CPSEs to create wealth.
  • Interestingly, according to the government document, the recent approval of strategic disinvestment in Bharat Petroleum Corporation Limited (BPCL) led to an increase in value of shareholders’ equity of BPCL by Rs. 33,000 crore compared to its peer Hindustan Petroleum Corporation Limited.
  • “Aggressive disinvestment, preferably through the route of strategic sale, should be utilised to bring in higher profitability, promote efficiency, increase competitiveness and to promote professionalism in management in CPSEs,” stated the Survey.
  • “The focus of the strategic disinvestment needs to be to exit from non-strategic business and directed towards optimising economic potential of these CPSEs,” it added, highlighting there were about 264 CPSEs under 38 Ministries or departments.