Promoting entrepreneurship

a million people join the labour force every month.

pace of creation of new businesses and new start-ups in India is low compared to the
rest of the world

The two most consistent policy factors that predict overall entrepreneurship in a district
are its local education levels and the quality of local physical infrastructure.

Good physical infrastructure is essential to supporting entrepreneurship, economic

growth and job creation.
Goods and services cannot be produced, or jobs created, without access to roads,
electricity, telecommunication, water, education and health. The link between education
and entrepreneurship has strong roots.

Education improves skill and spreads ideas more quickly.

women-headed entrepreneurship will become the new driver of job growth in the future.

Perils of going cashless

bank runs and destabilise the banking system because bank deposits are only
fractionally backed by actual cash.

Such rapid withdrawal of cash deposits, however, may slowly cease to be an option for
depositors as the world increasingly turns away from cash and towards digital money.

So a cashless world will, once and for all, free banks from the obligation to meet cash
demands from depositors, thus protecting them from any liquidity crisis.

A cashless world, on the other hand, makes it easier for banks to carry out their
business of credit creation without the risk of having to satisfy the demand for cash from
depositors.

policies like negative interest rates, which would otherwise push depositors to rush out of
banks to escape the tax imposed on their deposits, become more feasible under a
cashless banking system in which depositors are essentially locked in by banks.
A global opportunity for the Indian workforce

India urgently needs to focus on education and skill development.

ASER periodically shows the depressing state of education in Indian schools.

India has not been able to create enough employment opportunities for people moving
out of agriculture. The basic reason for this is India has not capitalized on labour-
intensive manufacturing.

Recent research shows that India’s competitive advantage in some of the labour-
intensive sectors has actually declined in recent years.
The legal and regulatory requirements in markets like land and labour make it difficult
for firms to grow and take advantage of economies of scale.
To be able to absorb its rising workforce, India needs to remove impediments in the
manufacturing sector. If prospects for manufacturing don’t improve soon, even better
outcomes in education would be of limited use.

adequate attention should be paid to currency management in the world of volatile

capital flows.

Exports are an important driver of growth and job creation. It will be difficult to grow at a
faster pace without the backing of strong exports.

Even though India is likely to regain its position as the fastest growing
rate of growth will still be much lower than what China attained in its high growth years.

A skilled labour force along with a focus on manufacturing and exports will help India
grow at a faster rate in the medium to long run. An increasing number of skilled workers
not only raises the potential growth but also reduces inequality within the country by
reducing the skill premium.

Cities need a sustainable transport update –

Bengaluru is engulfed in a never-ending traffic jam, Delhi’s pollution is at world-beating
levels and Mumbai was never famous for its fast roads.

Modi made a fine attempt to persuade people to choose public transport over private,
but persuasion only goes so far. India is stuck in a collective action problem: It’s not
rational for anyone to switch to public transport until everyone else also follows. An
individual will stop using his car if the bus is faster, but that is possible only if others also
get their cars off the road. Unfortunately, city-development plans have failed to create
the right incentives, as is borne out by the preference for private transport.

The lack of adequate devolution as per the Constitution (74th Amendment) Act, 1992,
and consequently, effective power vested in a city-level governance mechanism, exacts
a heavy toll.

Municipal corporations lack adequate transparency and accountability, and urban

governance is a tangled web of overlapping jurisdictions. This becomes abundantly clear
every time a major city floods or faces some other upheaval, like the Elphinstone Road
railway bridge tragedy in Mumbai earlier this year.

The urban transport policy must rethink the hierarchy of needs; pedestrians and cyclists
must be on top, followed by buses and then motor vehicles.

delivering reliable public transport. The metro project is a step in the right direction, but it
needs complementary changes that improve the citizens’ experience.

the metro system needs a bus system to provide last-mile connectivity. If people have to
take buses, they need pedestrian paths to walk on the roads. The bus system also
needs to be reliable. Mysuru has managed to achieve that because of a centralized
monitoring system that tracks buses using GPS. monitors driving speed and ensures
that they stop at every bus stop.

As a positive step towards reforming urban governance, the Centre has proposed
incentives worth Rs10,000 crore for meeting certain defined parameters. This should,
hopefully, empower municipal bodies, encourage states to delegate more powers to
them, and improve the delivery of services.
There are other reforms as well, like lateral entry of officers and giving local bodies
greater flexibility in urban planning. However, it remains to be seen whether these
reforms will be able to change the conventional ways of the bureaucracy.

. Another 300 million people will be added by 2050 and the planning for carrying those
people in our cities must begin now. Public transport can easily be the cheaper, faster
and economical alternative if policymakers plan for tomorrow’s problems today.
Countering growing inequality
inequality in China today is considerably lower than in India

both been large agrarian economies at similar levels of per capita income when they had
started out in the early 1950s.

Moreover, the absence of democracy in a society does not by itself guarantee faster
economic growth and greater income equality. For a populous poor country to lift itself to
a higher growth path and stay there requires imaginative public policy and a steady
governance. We can see this in the divergent economic histories of North and South
Korea. So what is it that China did better than India?

Human capital may be understood as a person’s endowment derived from education

and robust health.

The spread of health and education in that country enabled the Chinese economy to
grow faster than India by exporting manufactures to the rest of the world.

These goods may not have been the byword for quality but they were globally
competitive, which made their domestic production viable.

The resulting growth lifted vast multitudes out of poverty. As the human capital
endowment was relatively equal, most people could share in this growth, which accounts
for the relative equality of outcomes in China when compared to India. An ingredient of
this is also the greater participation of women in the workforce of China, an outcome that
eludes India.

India economic progress here has been neither efficient nor equitable. Democracy per
se cannot be held responsible for this. There are States in India with superior social
indicators than China. This shows that not only is democracy not a barrier to
development but also that similar political institutions across India have not resulted in
same development outcomes across its regions.

direction that public policy should now is to spread health and education far more widely
amidst the population.

We now need to reorient public policy so that the government is more enabling of private
entrepreneurship while being directly engaged in the equalisation of opportunity through
a social policy that raises health and education levels at the bottom of the pyramid.
As the borders begin to close

The positive impact of migration on economic growth and development through

increased remittances is well established.
The experience of Kerala, which receives remittances equalling 36.3% of its gross State
domestic product, is testimony to this.

India receives about 56% of its remittances from migrants in West Asia, with the
remainder from mainly North America and Europe.
Rapid changes in the economy and the sociopolitical climate in West Asia have had an
impact on remittances.
Additionally, developments such as Brexit and the Trump presidency in the U.S. have
further complicated matters. Simply put, the more a rich nation starts to rely on its own
workforce and tightly controlled borders, the less a poorer nation can rely on remittances
for its development needs and to achieve the sustainable development goals.

Governments in West Asia have been trying to reduce unemployment and

“demographically engineer” the workforce

Kerala is unique in this sense that no other large State in India depends so much on
remittances.

it is imperative that developing nations that have relied on remittances formulate

strategies to compensate for the restricted flow of remittances that is expected in the
near future.
India must remember that with the rapid and large-scale economic and cultural changes
in West Asia, Europe or the U.S., the future of emigration and remittances remains
uncertain.

employment is the intersection at which politics comes face to face with economics.

Labour-intensive exports need a policy push -

At a time when the global economy is witnessing a synchronized recovery
Exports are an important driver of economic growth and will also help create much
needed jobs for India’s growing workforce. They played an important role in transforming
countries such as South Korea and China in recent decades.

It is often argued that India stands to gain as labour-intensive manufacturing is moving

out of China due to rising wages and an ageing population. But this is not happening in a
big way, and India is losing out to other Asian countries such as Bangladesh and
Vietnam.

Vietnam and Bangladesh are becoming more competitive and are capturing the low-end
manufacturing space being vacated by China.
India will need to swiftly take necessary measures in order to improve its position.

Indian firms in the apparel and leather sectors are smaller than those in China, Vietnam
and Bangladesh.
The reason for this is regressive labour laws.
Firms in labour-intensive sectors will need more freedom to operate.
Similarly, more flexibility in land acquisition will also help the manufacturing sector.

important to keep the currency competitive.

(RBI) should not allow the rupee to appreciate sharply. The RBI has done well in recent
months to absorb a significant amount of the foreign exchange flow by building reserves
to keep the rupee in check.

India cannot take shortcuts to development -

The argument of GDP cheerleaders was that the state needs resources to invest in
human development. Therefore, the growth of the economy must precede improvements
in human development.
Amartya Sen and other economists who pointed out that it must be the other way
around, and indeed has been the other way around for the Asian miracle economies and
China too, were dismissed as socialist, anti-capitalist, and anti-growth by those on the
GDP bandwagon.

poor levels of education and skills in the country have become evident.

The need to create jobs, to prevent India’s demographic dividend from turning any
further to a demographic disaster
Fight for market economy status
They say that the use of state subsidies in China distorts market prices

Conversely, as long as major trading powers treat China as a non-market economy, they
would insist on ascertaining the value of goods with reference to prices in a third country
to ensure that domestic firms did not gain an unfair trade advantage.

Were China to be granted the coveted position, it would be hard for the U.S. to defend
its anti-dumping rulings against Chinese firms at the world body.

The protocol to China’s 2001 WTO entry has been a subject of controversy.
Beijing insists that under Section 15 of the Protocol of Accession, the country’s upgrade
as a market economy was automatic on the completion of 15 years of its WTO
membership in 2016. Several nations have endorsed China’s position in return for
bilateral cooperation in trade and investments in infrastructure projects.

Section 15(1)(i) places the onus on Chinese firms to prove that they were operating
under conditions of a competitive market economy in the manufacture and sale of
relevant products. If they fail to do so, the Section provides that importing states would
be entitled to invoke rules applicable to a non-market economy while probing firms for
dumping.

Western resistance to accord China the necessary recognition is rooted in concerns over
a glut of Chinese imports flooding domestic markets and causing job losses in the
manufacturing sector.

Misallocation of welfare schemes’

The poor belonging to a poor district receive less welfare spending than the poor from
richer districts. What explains this misallocation of resources across districts?

Remember that the states have to provide for a matching grant to get funds from the
Centre for CSS.

States such as Bihar and Jharkhand have often represented that they have limited
resources and are not able to provide the state’s share to enable them to access the
required funds under CSS.

inefficient administrative capacity of poor districts leading to poor implementation of

schemes.
The Economic Survey 2016-17 had observed that resources allocated to districts are
often a function of the district’s ability to spend them and since richer districts have better
administrative capacities to effectively implement schemes, their spending on welfare
schemes is relatively greater than poor districts’.

Economic Survey 2016-17 made the point that misallocation of funds may lead to
exclusion error.

need to rationalize existing welfare schemes.

A large majority of these are small in terms of allocation with the top six to seven
schemes accounting for about 50% of total welfare spending.

thousands of other schemes that different state governments run.

The B.K. Chaturvedi committee report (2011) had observed that welfare and other such
schemes should either be weeded out or merged for convergence with larger sectoral
schemes

political backlash against globalization in industrialized countries, means that external

markets cannot provide the demand to stimulate growth.

This can happen if, and only if, the government gives up its deficit fetishism. There is
nothing in macroeconomics that stipulates an optimum level to which the fiscal deficit of
the government must be reduced as a percentage of GDP. Government borrowing is
always sustainable if it is used to finance investment and if the rate of return on such
investment is greater than the interest rate payable. Hence, there is nothing sacrosanct
about keeping the fiscal deficit at 3% of GDP.

The utility of export subsidies to promote exports has long been questioned. While the real impact of these subsidies has
never been clearly measured, what has been quite evident is they have benefited the rent-seekers. There is, therefore, a
strong case for the government to invest in trade-related infrastructure and trade facilitation measures, which can deliver
tangible results on the export front.
Aadhaar’s benefits for financial inclusion -
Richard Thaler convinced lawmakers to pass a law encouraging employers to enrol
workers automatically in the pension scheme but offer the right to opt out to anyone who
did not want to participate. This small change in the presentation of choices “nudged” the
participation rates to more than double.

a default option of consent for linking Aadhaar to the bank account should be preferred.

Protectionism-

Retaliation may seem impressive on paper, but economic history tells us that tit-for-tat
protectionist strategies not only hurt every country in the 1930s but also led the way to
World War II.
India has been one of the clear beneficiaries of the second wave of globalization

internal reforms to make domestic industry more competitive should be the preferred
response.
Protectionism is not the way to achieve core national goals.

Dangers of the ‘lynch mob’ mentality

In most countries, defaulting on a loan does not lead to criminal proceedings. It certainly
leads to legal proceedings for recovery and, if necessary, for bankruptcy. In India,
however, news of a default is followed closely by hysterical demands for prosecutions
and arrest.

The reason for this is complex. It shows a deep mistrust in the legal system. The fear is
that people, especially the rich and powerful, will be able to manipulate the system.
Prosecution and arrest are expected to be a way to pressurise people into repaying their
loans or perform any other obligation, for that matter.

There may be acts which might actually be criminal offences. For instance, if the
allegations that Nirav Modi’s officers were authorising bank transactions by using bank
officials’ log-ins are true, it would amount to a criminal offence.

However, the simple act of being unable to repay a loan, no matter how large, cannot be
considered such an offence.

A global outlook on virtual currencies

some have expressed concerns over how central banks issuing an e-currency
will make it compete with commercial banks as individuals can open accounts
with central bank as well

in case of any crisis, people might shift deposits towards the central bank leading
to the collapse of the entire financial system.

digital currency should have the anonymity feature, as seen in case of physical
cash. This is ironical as one reason for pushing digital money is that it will help in
making a trail of one’s income and expenses and track illegitimate activity.

virtual currencies have risen mainly due to poor policies of central bankers.

Preserving banking and financial stability - Livemint

IMF highlights that credit expansion is less likely to lead to riskier allocation with
tighter macroprudential norms, an independent banking supervisor, smaller
footprint of government in the corporate sector, and strong corporate
governance.
(RBI’s) new framework for the resolution of stressed assets makes it mandatory
to report non-performing accounts above Rs5 crore on a weekly basis.
This will make tracking easier.
It will be important for the banking system not to become part of an excessive
build-up of leverage in the corporate sector.

Further, acceptance of the Kotak committee recommendations will help improve

the level of corporate governance.

Continued efforts to strengthen the framework to protect the interest of minority

shareholders will push managements in the corporate sector to take more
prudent decisions.

in India, the financial system is dominated by state-run banks, which is partly

responsible for the ongoing bad debt problem.

Since privatization is not on the cards, India should work on a governance

system where government holding in banks does not affect their operations.

Demographic dividend, growth and jobs -

Livemint

Growth, education, home ownership, better economic security, and a desire for more
durable goods are the cause and consequence of young demographics.

demographic dividend can also transform into a curse

not automatic

mounting concern that future growth could turn out to be jobless due to de-
industrialization, de-globalization, and the fourth industrial revolution and technological
progress.

Investing in people through healthcare, quality education, jobs and skills helps build
human capital, which is key to supporting economic growth, ending extreme poverty,
and creating more inclusive societies.

India is home to the world’s largest concentration of illiterate people in the world.

big barriers to secondary schooling, low-quality public services, and gender

discrimination.

New technology could be exploited to accelerate the pace of building human capital,
including massive open online courses and virtual classrooms.