Yojana April 2014

April 2014 YOJANAVol 58Chief Editor : Rajesh K. Jha Joint Director (Production) : V.K. MeenaSenior Editors : Shyamala M. Iyer Cover Design : Gajanan P. Dhope Hasan ZiaSub Editor : Vatica Chandra E-mail (Editorial)  : [email protected] (Circulation)  : [email protected] Website : www.yojana.gov.in https://www.facebook.com/pages/Yojana-JournalLet noble thoughts come to us from all sides Rig Veda CONTENTSIndia’s Three Arrows Microfinance Regulation in India:Alok Sheel................................................................................................4 A Critical Perspective Tara S Nair .............................................................................................45Economic Growth In India –Performance and Prospects Economic growth with technologicalRavindra H Dholakia................................................................................8 self-reliance in India What can we infer from the evidence?do you know ................................................................................12 Sunil Mani..............................................................................................50Productive Employment and Empowering Jobless GrowthEducation: An Agenda for India’s Youth Artika Vats..............................................................................................55Raghbendra Jha......................................................................................13 Interim Budget 2014-15: What It RevealsIs India back to the Hindu Growth Rate? Sona Mitra..............................................................................................58Kumar Gaurav, Nalin Bharti, Priyanka Sinha........................................20 The New Drug Price Control RegimeBest practices Anant Phadke, S. Srinivasan..................................................................61Safeguard of the Traditional WisdomBaba Mayaram .......................................................................................27 India’s Lost Economic Transformation Kunal Sen...............................................................................................67Globalization of Markets and ConsumerRights: Challenges and Opportunities ShodhYatraM C Paul.................................................................................................28 Portable stove with high efficiency V Jayaprakash.........................................................................................71Tax Reforms and GST Challengesfor Future Reforms An Analysis of the Urjit Patel CommitteeMahesh C Purohit...................................................................................36 Report On Monetary Policy Rajeswari Sengupta................................................................................73Special ArticleWho governs the Internet? Implications forfreedom and national securitySunil Abraham........................................................................................41Our Representatives : Ahmedabad: Amita Maru, Bangalore: B.S. Meenakshi, Chennai: A. Elangovan, Guwahati: Anupoma Das, Hyderabad: Vijayakumar Vedagiri,Kolkata: Antara Ghosh, Mumbai: Abhishek Kumar, Thiruvananthapuram: R.K. Pillai.YOJANA seeks to carry the message of the Plan to all sections of the people and promote a more earnest discussion on problems of social and economic development. Althoughpublished by the Ministry of Information and Broadcasting, Yojana is not restricted to expressing the official point of view. Yojana is published in Assamese, Bengali,English, Gujarati, Hindi, Kannada, Malayalam, Marathi, Oriya, Punjabi, Tamil, Telugu and Urdu.EDITORIAL OFFICE : Yojana Bhavan, Sansad Marg, New Delhi-110001 Tel.: 23096738, 23042511.Tlgm.: Yojana. 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YOJANA Fault Lines of the Promised LandThe economic history of India shows a number of distinct phases over the period it fell under the colonial control to the modern times when it embarked on economic reforms. Before the formal onset of the British colonial rule in India after the battle of Plassey in 1757, India was amongthe richest countries of the world. According to some estimates during the Mughal period India wasthe second largest economy having a share of almost 25 per cent of the world economy. Two centuriesof the exploitative British colonial rule led to India's wealth being drained away and the process of'deindustrialisation' taking a heavy toll on the people of India. The great nationalist leader DadabhaiNaoroji was the first person to systematically highlight this aspect of the colonial exploitation. Hisanalysis laid the theoretical foundation for the freedom struggle culminating in India's independencein 1947. At the time of independence, India inherited a stagnant economy. Between 1900-1950, thereal GDP growth rate of India was almost zero. The independent India embarked on a process ofeconomic reconstruction and growth by adopting the model of planning. The beginning was made with the Mahalnobis-Feldman model which aimed to build the capital goods industry to lay the foundation for self-reliant growth in India.However, beginning the 1980s winds of change had started blowing across the world in the form of greater internationaleconomic integration in the process of globalisation. India realised that its growth rate, sarcastically dubbed the 'Hindugrowth rate' of close to 3 percent annually, was far too low to sustain the expanding aspiration of its people. The distortionin the planned economic process was glaringly reflected in the 'license-permit raj' that empowered the rent seeking classof bureaucrat-contractor-politician to extract surplus from the system. This was the period when economic reforms wereinitiated, prompted in no small measure by the expanding sphere of finance capital in the world economy. The process of economic reforms picked up momentum by the early 1990s as India had to undergo structuraladjustment in order to avoid defaulting on its international obligations towards debt repayment. The reforms movedapace to include opening up of the economy, decontrol and significant changes in the financial and banking sectors. Thetransition from the public sector attaining the 'commanding heights of economy' to the 'market driven open economy' hasbeen a complex and multi-layered process. The transition has indeed resulted in an accelerated GDP growth rate of above5 percent for the period 1991-92 to 2003-04 and above 6 per cent for the period 2003-04 to 2011-12. Fall in the povertyratio, improvement in the FDI and better forex reserves have also been noticeable achievements of this period. However, this period has also been marked by an increase in the level of inequality in the country. According to astudy 'in both the early 1990s and the early 2000s the wealthiest 10 per cent of wealth-holders held at least 50 per cent oftotal assets, while the least wealthy 10 percent held at most 0.4 per cent of total assets'. In case of land, it is more unequallydistributed than wealth as a whole. The ownership of financial assets is even more concentrated, as 'almost all financialwealth is held by well below 1 per cent of the population'. It needs to be highlighted that inequality in resource endowmentalso culminates into inequalities of opportunity which defeats the purpose of inclusive development that India has adoptedas a stated objective of its economic policy. There has also been a serious concern about employment generation in theperiod of economic reforms. The robust growth rate has not really been accompanied with improvement in the employmentgeneration. Similarly, share of manufacturing sector in the GDP has also been quite low at 16 per cent, putting a structuralconstraint on the future prospect of growth with employment. Indeed, the rights based model of inclusive development could be successful only when we are able to bring in largerand larger number of people in the 'circuit of capital' for their productive integration in the process of creation of nationalwealth. After all, the famous economist Joan Robinson has rightly remarked that 'what is worse than being “exploited” is qnot to be exploited at all!' YOJANA April 2014 3

Sustaining Economic recovery lead articleIndia’s Three Arrows Alok SheelPolicy makers need R ecent quarterly data from especially in the major economies of to push through the US, UK and Japan the US, China, Germany and within far reaching and notwithstanding, the the EU. These imbalances are nowpolitically difficult global economy is not out unwinding, dragging down trendstructural reforms of the woods. It continues growth. Lawrence Summers of Harvard in both advanced to be on extraordinary University indeed thinks that the US economies and life support. The fate of economy is in “secular stagnation”. Aemerging markets the two major demand rebalancings, return to former trend growth is unlikely to rebalance their from Advanced to Emerging Market in the absence of far reaching and economies and economies and from public to private, politically difficult structural reforms. generate new still hangs in the balance. The false Put differently, the recovery has runengines of growth dawns or green shoots of 2010 and into the headwinds from globalization, 2011 make it prudent for the jury to excessive financialization and ageing suspend judgement till the recovery that were blowing prior to the crisis is sustained over a number of quarters but were temporarily held in check with the life support withdrawn. Even by the ‘Great Moderation’. Japan with this support, with the notable was the frontrunner in succumbing to exception of the US and Germany, these headwinds, but other Advanced major advanced economies have still Economies were never far behind. to recoup the output loss of the Great Recession. The US, the star-performer The current global growth rate amongst Advanced Economies, has not of 3 - 3.5 per cent seems politically recovered the notional output loss based unacceptable to policy makers because on the 2003-2007 growth trend. This is of the 2003-2007 average of over 5 unusual. Run of the mill recessions are per cent. But if the ‘new normal’ is followed by above trend growth that here to stay, more stimulus may create recovers this potential loss. distortions rather than growth. Indeed, there are enough indications that this There are two ways in which one is already happening. can look at the global recovery. On the one hand, research by Kenneth Rogoff Growth in both Advanced and Carmen Reinhart indicates that the Economies and Emerging Markets has recovery is par for the course, as this is declined sharply relative to 2003-2007. unusually slow and painful in the wake But global growth is, nevertheless, of financial crisis. The other view is now back to the ten year average that the lower trend growth is here to prior to this boom. The big difference stay because the old growth model is is that Emerging Markets are still broken; that the 2003-2007 trend was growing at a rate faster than the 1994- an unsustainable boom based on high 2003 average. Advanced Economies levels of leverage and imbalances, are not. Secular stagnation wouldThe author is currently Secretary, Prime Minister’s Economic Advisory Council (PMEAC). He has a long experience in handlingdevelopment and macro-economic policy issues as administrator, senior policy maker and multilateral interlocutor on economic policyissues on behalf of India in the G20.He has also Published several original research articles in international academic journals.4 YOJANA April 2014

therefore, appear to be an Advanced the wake of the Quantitative Easing diagnoses the general malady andEconomy problem, especially since ‘taper tantrums’. writes a preliminary prescription.the 2003-2007 boom was largely He has neither the sectoral expertisean Emerging Market phenomenon. What are the prospects of a nor experience to suggest definitiveHowever, going forward, the prospects sustainable recovery to high growth remedies. This is generally done afterfor Emerging Markets look less over the medium term and on what detailed diagnosis involving a team ofcertain than they have done at any critical factors does it hinge? Although, specialists.  The author has neither thetime since the Global Financial Crisis. the prospects for the global recovery domain knowledge, nor the necessaryThe International Monetary Fund’s over the medium term are distinctly experience to design, build and fire therecent World Economic Outlook downbeat in view of the major brahmastras with the required degreehave been repeatedly lifting growth rebalancings required, there is more of accuracy. However, he does haveforecasts for Advanced Economies cause for optimism regarding India the confidence that should these threeand downgrading those of Emerging over the medium term for two good brahmastras be fired accurately fromMarkets. The growth differential reasons. First, the two major drivers a cross bow called good governance,between the two gets further reduced that recently pushed Indian trend they can address current macro-when measured in per capita terms. growth from 5.5 – 6.5 per cent into the economic imbalances, and also lay the 8-9 per cent trajectory are intact. The foundations for a return to a sustainable The fact of the matter is that dependency ratio continues to decline, high growth trajectory.Emerging Markets are still too while the roughly ten per cent increasedependent on Advanced Economy in domestic savings as a share of GDP At a time when inflation trends aredemand for rapid growth. Given the is largely intact but for some short term becoming more globally aligned, theheadwinds to growth in Advanced damage to financial savings. Second the persistence of high inflation in IndiaEconomies, if Emerging Markets are rather startling fact is that in a demand even by Emerging Market benchmarksto sustain a high growth trajectory over constrained world, India has the luxury seems a trifle puzzling. The globalthe medium term, they would need of a domestic crisis caused by supply trend is presently deflationary. Theto rebalance their engines of growth. side problems. Unlike other Emerging roots of Indian inflation also doLike Advanced Economies, they too, Markets dependent on external levers not seem to lie in macro-economicwould need to push through politically for a return to high growth, our levers imbalances. But if food inflation isdifficult structural reforms. are mostly domestic. the villain of the piece, it is worth pondering that global food prices have Emerging Markets are still too The boom was the best time to have been subdued. That pegs the question dependent on Advanced Economy pulled these levers. There is no better why India is an outlier.demand for rapid growth. Given the time to absorb pain than high growth. headwinds to growth in Advanced But the reality is that the boom is also This is not the place to enumerate Economies, if Emerging Markets the time when difficult reforms are a shopping list of levers. It may pushed under the carpet as it creates instead be more useful instead are to sustain a high growth the seductive illusion that we can carry to underscore the three most trajectory over the medium term, on without them. Be that as it may, critical levers, or, as has becomethey would need to rebalance their since the supply side crisis is of our fashionable these days, the three engines of growth. Like Advanced own making and not a result of any big arrows, or brahmastras, that Economies, they too ,would need major external shock, the solutions are need to fire. These are agricultureto push through politically difficult also within our control. This will not that targets the inflation problem, be easy. In the immortal words of the labour-intensive manufacturing structural reforms. English poet Thomas Elliot, between that targets the current account the idea and the reality, falls the deficit, and fiscal restructuring that The Indian economy is also clearly shadow. Pulling these domestic levers targets the infrastructural deficit.in trouble, although the challenges is the big political challenge ahead.facing it are a little different, but no Indian food prices have traditionallyless daunting, from those of other This is not the place to enumerate a been lower than global prices. Theymajor emerging markets. The decline shopping list of levers. It may instead continue to remain lower despite highin growth and the levels of internal, be more useful instead to underscore levels of food inflation and volatilityexternal and structural imbalances the three most critical levers, or, as in vegetable and horticultural prices.compare unfavourably with other has become fashionable these days, International trade cannot, thereforeEmerging Markets. India recently the three big arrows, or brahmastras, be expected to dampen domestic foodlost its traditional rank of the second that need to fire. These are agriculture inflation. The roots of Indian foodfastest growing G-20 economy to that targets the inflation problem, inflation are domestic, the result ofIndonesia. For these reasons, unlike labour-intensive manufacturing that market failure. This should not come1997 and 2008, India now finds itself targets the current account deficit, andwithin the polar vortex of the currency fiscal restructuring that targets thecrisis, sweeping emerging markets in infrastructural deficit. The macro-economist can be likened to a general physician whoYOJANA April 2014 5

as a surprise because agriculture is labour force. India enjoys the same social. Extant social compacts wouldthe one sector which has yet to reap advantage as China in manufacturing, need to be renegotiated by the politicalthe efficiency gains from the opening with the added advantage of stronger executive, as reforms are painful overup and liberalization of the Indian private entrepreneurship and more the short-run. As Chancellor Gerhardeconomy since the early nineties. developed capital markets. With Schroeder showed in Germany a competitive frameworks in land, labour, decade ago, they can be made more Cereal inflation has increased tax, skill development, education, and palatable through greater, rather thanbecause of repeated sharp spikes governance, there is no reason why less, fiscal support during the criticalin the administered support prices Indian manufacturing cannot plug into phase through well-designed andfor, public stocks in the large-scale globalization the way China has. This targeted social safety nets.procurement programme. This has would also help address India’s currentnegated the deflationary pressures account imbalance. To conclude, let me recapitulatefrom the demand shift away from my central arguments. The globalcereals to non-cereal food items on The third brahmastra is fiscal. economy is by no means out of theaccount of rising incomes. Non- There is avoidable confusion regarding woods. The recovery is still tepid, thecereal inflation has increased because fiscal reform in India because we do fate of the two major rebalancingsof an antiquated marketing system not distinguish between cyclical and remains uncertain, and extraordinaryand infrastructure that leads to low structural budget deficits. Ceteris life support mechanisms are still paribus, falling growth increases the in place. Over reliance on macro- India enjoys the same advantage budget deficit through a negative economic policies over an extended as China in manufacturing, with revenue shock and vice versa. In period to drive growth higher will the added advantage of stronger either case, the structural balance only create their own distortions. Thisprivate entrepreneurship and more does not change. The last thing that is already evident. Policy makers developed capital markets. With policy makers should do is aggravate need to push through far reaching and competitive frameworks in land, an economic slump by cutting back politically difficult structural reforms labour, tax, skill development, government demand when private in both Advanced Economies and demand is slack in an attempt to keep Emerging Markets to rebalance their education, and governance, the nominal fiscal deficit unchanged. economies and generate new engines there is no reason why Indian manufacturing cannot plug into While on the high side, India’s Historical experience indicates that globalization the way China has. structural fiscal deficit has not led to private investment can at bestThis would also help address India’s a runaway deterioration in the public supplement this on the margins, debt to GDP ratio. This has actually current account imbalance. been falling. The fiscal brahmastra is and that too, in a conducive policy not about the level of India’s structural environment. If this policy space islevels of productivity, large amounts budget deficit as its composition. squandered instead by offering lowof wastage and big mark up in prices High growth in the early stages of levels of public goods and servicesbetween the farm and final consumer. development creates its own fiscal at subsidized cost, growth as wellThe price signalling mechanism, that is space for the large-scale investmentthe basis of efficient markets equating in physical and social infrastructure as the productivity of capitalsupply and demand, is therefore necessary to sustain high growth and employed are bound to sufferrelatively weak. The agriculture arrow improve human well-being. Historical and eventually also the consumerneeds to address these fatal flaws in experience indicates that privatethe agricultural sector and working of investment can at best supplement welfare.agricultural markets. Controlling for this on the margins, and that too, in atechnology, Indian agriculture has a conducive policy environment. If this of growth. While the Indian economyglobal comparative advantage that is policy space is squandered instead bywaiting to be unlocked. offering low levels of public goods is also in trouble, the challenges before and services at subsidized cost, growth The second brahmastra that needs as well as the productivity of capital it are a little different. The levers thatto be fired is one that will create a employed are bound to suffer andconducive environment to leverage eventually also the consumer welfare. need to be pulled are mostly domestic,India’s comparative advantage in Fiscal restructuring would involvelabour intensive manufacturing. This tax reforms, such as the Goods and and on the supply rather than demandwould facilitate the transfer of large Services Tax, the Direct Tax Codenumbers of underemployed workers and improved tax administration, to side. Three big arrows in particular,stuck in low productivity agriculture improve revenue buoyancy to GDP. Onto high productivity manufacturing, the expenditure side, it would involve namely agriculture, labour intensivethereby raising incomes and absorbing a shift from non-targeted subsidiesthe large projected additions to its to stepping up public investment manufacturing and fiscal, need to in infrastructure, both physical and fire in an overall environment of good governance. This would restore domestic and external macro-economic balance and facilitate a return to a high growth trajectory on a sustainable q basis.  (E-mail : [email protected])6 YOJANA April 2014

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PAST, PRESENT AND FUTURE overviewEconomic Growth In India – Performance andProspects Ravindra H Dholakia The growth T hemostcomprehensive analysis (Sivasubramonian, 2004; and performance during indicator of economic Hatekar & Dongre, 2005). There is the first phase when growth in an economy considerable research on attempting the country was under is the average annual periodization of the economic growth the last 50 years of the growth in real Gross history in India to gain insights about British rule was the Domestic Product policy regimes and factors determining worst during all the (GDP) that is originating within the the performance of the economyphases so far. Real GDP geographical boundary and measured over long periods of time (Hatekar grew at around 1 per at constant base period prices. It would, & Dongre, 2005; Balakrishnan & cent annually and so therefore, reflect average incremental Parameswaran, 2007; and Dholakia, did the population. As availability of goods and services 2014). Accordingly, there are five a result, the per capita produced domestically in the economy distinct phases so far in the history real income almost over time. When the growth of real of economic growth in India: (i) stagnated for the first GDP is adjusted for the population 1900-1901 to 1950-51; (ii) 1950-51 fifty years of the last growth, it gives the average annual to 1980-81; (iii) 1980-81 to 1991-92; growth of per capita real GDP and (iv) 1991-92 to 2003-04; (v) 2003-04 century in India reflects closely the improvements in to 2011-12. standard of living enjoyed by people in the economy on an average over The growth performance during the time. This is particularly valid for first phase when the country was under large countries where the cross border the last 50 years of the British rule was flows of goods and services are limited the worst during all the phases so far. in relation to the amount produced Real GDP grew at around 1 per cent within the geographical boundary. annually and so did the population. These three average annual growth As a result, the per capita real income rates in: (i) real GDP, (ii) population almost stagnated for the first fifty and (iii) per capita GDP (PCI) are years of the last century in India. very significant parameters to reflect Since the last fifty years of the British the performance and prospects of rule in the country were perhaps the economic development in any country best period for the Indian economy over fairly long time period. under their rule of about 190 years in terms of development of all physical History of economic growth in and social overhead capital such as India is both interesting and educative. railways, ports, schools, colleges, Comparable time series estimates of hospitals, banks and other institutions, real GDP in India can be stretched it can be safely assumed that the back till the year 1900 for meaningful stagnation of real living standardsThe author is Professor of economics at Indian Institute of Management, Ahmedabad since 1985 with research interests in regionaleconomic development, productivity studies, public finance, input-output analysis, labour economics, health economics and nationalaccounting. He was a member of the Sixth Central Pay Commission, High Level Committees for Measurement of Savings & Investment,and for Management of Public Expenditure in India.8 YOJANA April 2014

of people observed during 1900-51 equilibrium. Committing ourselves to The fourth phase saw acceleratedwas perhaps the phenomenon during achieving self-sufficiency in general pace of implementation of somethe entire period of 190 years of the and the socialistic pattern of society by systematic economic policy reformsBritish rule in the country. These adopting both economic and physical in various segments of the economytwo centuries of stagnation ensured planning through creation of public such as fiscal policy, autonomy ofthat one of the richest countries in sector undertakings and imposing the Reserve Bank of India (RBI),the world luring everybody by its numerous controls, licenses and commercial policy, capital markets,wealth and prosperity turned into one high taxes, during the second phase aviation sector, banking and insuranceof the poorest countries by the year (1950-81) we achieved the break- sector, etc. Sequencing of the reforms1950-51. through largely through public sector was meticulously done starting with interventions. In terms of managerial privatizing selected sectors by allowing The stagnation of real per capita decision to buy or make, the national participation by the private sector intoincome for such a long time also commitment to self-sufficiency those activities reserved hitherto forhad other implications. Under such implied complete focus on import only the public sector undertakings,circumstances, if anyone becomes substitution without consideration to liberalizing economic activities bybetter off, it cannot happen without cost of production. It was consistent abolishing licensing requirements,someone else becoming worse off, with the export pessimism subscribed gradually reducing protection bybecause it becomes a zero sum game by most of the leaders of those days. cutting tariff rates to integrate domesticunder stagnation. Therefore, in the Although our share in world exports economy with the internationalsociety people started looking at started falling significantly, the real economy, allowing foreign directprogressing few with suspicion that growth of GDP increased to about 3.5 investments in the economy andthey would have been involved in per cent annually over the 30 years finally allowing domestic players tosome wrong doing to become rich period, 1950-81. Because of a sharp go global and become multinationalby depriving others or snatching fall in the death rate due to improved companies. The growth of real GDPopportunities from others making them provisioning of primary healthcare further increased during this phase topoorer - a perception that continues infrastructure in the rural areas, the 6 per cent and per capita real GDP toeven today! Social and cultural barriers growth of population also increased more than 4 per cent annually. substantially to about 2.2 per cent The stagnation of real per capita annually and the per capita income Because of a sharp fall in the income for such a long time also registered annual growth of meagre death rate due to improvedhad other implications. Under such 1.2 per cent. It marked an increase provisioning of primary healthcare circumstances, if anyone becomes of about 2.5 percentage points in the infrastructure in the rural areas,better off, it cannot happen without annual growth of real GDP, but only the growth of population also someone else becoming worse off, about 1.2 percentage points in per increased substantially to about 2.2 because it becomes a zero sum capita real GDP. per cent annually and the per capita income registered annual growth of game under stagnation. The need for reforms in economic policies was duly recognized in India meagre 1.2 per cent.to entrepreneurship became stronger in the early 1980s, not substantiallyand economic growth in the nation lagging behind China. Several During the last phase so farfurther suffered. Moreover, long economic reform measures got initiated covering the period 2003-04 to 2011-stagnation in the living standard of during the 1980s with exchange rates 12, although no major economic reformmasses implies that their consumption adjusting continually for differences took place, the economy was allowedpattern would not change significantly, in the inflation rates, change in to consolidate and adjust to the reformsand because there would be hardly any the approach of monetary policy already made initially for 5-6 years.innovations or technological progress to monetary targeting, instituting However, during the last 4-5 years,in the system, people would continue to new institutions in financial sector, some reforms got reversed effectivelyconsume the same products throughout announcement of long-term fiscal by introduction of new controls,their life with little diversity and policy, reducing quota requirements regulations, approval requirements,change. Rate of product obsolescence in selected commodities, focusing on bans, environmental and ecologicaland depreciation was very small and telecom & information & technology balance oriented clearances and so on.the culture of preserving things by sector, etc. The economic growth Favourable global factors prior to therecycling, saving resources and using during the third phase further picked year 2008 coupled with easy monetaryoutdated technology with low material up from 3.5 per cent to 5.1 per cent policy and movement towards fiscalcosts was widely prevalent. annually and the population growth fell consolidation resulted in high growth. to about 2 per cent. Per capita real GDP, After achieving independence, it therefore, started growing at more thanwas a major challenge to break out 3 per cent annually during the 1980s.from such vicious circles of low levelYOJANA April 2014 9

Annual growth of real GDP increased GDP. Thus, the year 2007-08 was provision, raw material supplies,further to 8.4 per cent and per capita outstanding in all relevant performance taxation, providing environmentalreal GDP to more than 6.5 per cent. parameters except consumer inflation. clearances, giving timely approvalsInterestingly, critical areas of pending This was made possible primarily for projects with huge investments,reforms such as labour reforms, because domestic savings rate and etc. resulted in sharply reducing capitalland market reforms, foreign direct domestic investment rate reached their efficiency and consequently increasinginvestment, direct & indirect taxation respective peaks at 36.8 per cent and the ICOR in the system. From thereforms, expenditure reforms and so 38.1 per cent of GDP. The Incremental economy’s potential assessment angle,on are yet not satisfactorily addressed. Capital Output Ratio (ICOR) reflecting all these factors are of temporary natureThese represent the opportunities for the efficiency of converting capital and can get reversed very fast. If thefuture growth of the economy. formation into growth of output was central government starts performing around 4.1. by taking quick decisions and clearingProspects For Indian Economic the pending cases of approvals, itGrowth The performance of the economy may not only provide good incentives slipped on all these parameters sharply for additional investments from the In the recent past, the best economic after the year 2007-08. International private corporate sector but also leadperformance of the Indian economy developments in terms of financial to improvements in utilization rates ofwas achieved during the year 2007-08. & confidence crisis of 2008, increase existing projects. All this can result inIt is important to note some relevant in commodity prices including oil reducing the ICOR back to the levelparameter values during the year prices, Eurozone sovereign debt achieved in 2007-08. Similarly, thebecause they have been actually crisis, etc. led almost all developed central government can reign in theachieved by the nation in not too economies into severe recession and fiscal discipline soon to ensure a risedistant past and, therefore, can easily be most of the developing economies to in the public sector saving back to theachieved again. It represents the lower a significant slowdown. Both fiscal level of 2007-08.bounderies on the potential existing and monetary boosts were providedin the economy. In 2010-11, we came all over with a significant collaborative Thus, achieving the domesticvery close to achieving several of those effort to emerge out of such a slump. savings rate of 36.8 per cent inparameter values, which indicates the Indian economy could fast recover near future is very likely. Then,feasibility and practicality of such a and emerged out of the slowdown attaining the investment rate ofpotential existing in the economy at initially in terms of regaining the 38 per cent is also quite feasible.present. growth momentum, but failed to reign However, the future potential of in the inflation, twin deficits on fiscal India is far more attractive, because In the recent past, the best & current account, steep depreciation India is among the few economieseconomic performance of the Indian of the currency and loss in foreign currently in the world enjoying the economy was achieved during the exchange reserves. Public sector savings fell sharply from 5 per cent demographic dividend. year 2007-08. It is important to of GDP in 2007-08 to 1.3 per cent note some relevant parameter in 2011-12. Savings of the private Thus, achieving the domesticvalues during the year because they corporate sector also fell from 9.4 per savings rate of 36.8 per cent in nearhave been actually achieved by the cent of GDP in 2007-08 to 7.2 per future is very likely. Then, attainingnation in not too distant past and, cent in 2011-12. As a result, overall the investment rate of 38 per cent therefore, can easily be achieved savings rate in the economy fell by 6 is also quite feasible. However, the percentage points to 30.8 per cent of future potential of India is far more again. GDP in 2011-12. Investment rate also attractive, because India is among the fell from 38.1 per cent of GDP in 2007- few economies currently in the world In 2007-08, the Indian economy 08 to 35 per cent in 2011-12 and the enjoying the demographic dividend.clocked the growth of 9.3 per cent in growth of real GDP came down to 6.2 The proportion of population in thereal GDP at factor cost, exports growth per cent in 2011-12. ICOR increased to employable age group of 20 years toof 29 per cent in dollar terms, inflation 5.6 indicating substantial deterioration 65 years is on the rise in the countryrates of 4.7 per cent (Wholesale Prices) in the efficiency of capital resources and is likely to continue rising till about& 6.2 per cent (consumer prices), that can occur only if the investments 2027-28 as per the UN projections.foreign exchange reserves of $310 remain under or unutilized. Thereafter it may stabilize for a whilebillion equivalent, average exchange and then start falling. To attain therate of Rs. 40.3 per dollar, current The government’s failure to take current level of the ratio, it may takeaccount deficit of only 1.3 per cent several decisions of critical importance another 15-20 years because the lifeof GDP, combined fiscal deficit of 4 and urgency to ensure proper utilization expectancy in the country is also likelyper cent of GDP, combined revenue of natural resources and capital to rise in the meantime, but the furtherdeficit of 0.2 per cent of GDP and investments in areas of strategicprimary surplus of 0.9 per cent of importance such as infrastructure10 YOJANA April 2014

rise would be necessarily slower as we achieve higher levels.Since the dependency ratio would be falling in the country till2027-28, domestic savings rate is most likely to rise further toreach the levels already reached in south-east Asia of 40-42 percent of GDP. If the efficiency of capital resources is maintainedwith the ICOR staying at 4.1, this in itself would generate anannual growth rate of 10 per cent of real GDP. This is purelydomestically funded growth potential. We expect that such ahigh growth momentum is most likely to attract huge foreigninvestment in search of better returns and dynamic markets.Similarly our companies would reach out to foreign destinationsto expand their markets. If we assume a net inflow of only 2 percent points, it would push our annual growth potential upwardto 10.5 per cent over a fairly long period unto 2050. Population growth rate is likely to slow down considerablyand would be about annual 1 per cent on average. Then the percapita real GDP is likely to grow at around 9 per cent annually.This is a mind-boggling scenario where the per capita realincome would be doubling every 8 years. The availability ofgoods and services would be increasing at an unprecedented rateand so would be the consumption of people. With such a highspeed of expansion in the consumption basket, the consumptionpattern would be changing drastically and rapidly. The basketwould be highly diversified and ever changing. Rate of productobsolescence and depreciation would be very high. Preservinggoods would not be found viable and feasible. Recycling ofproducts and resources could become a formal business butaffording it within the household could be almost ruled out.Service sector, entertainment, information, communication,research and development are the fields most likely to come toprominence. In short, the first fifty years of the current centuryare likely to be quite opposite to the first fifty years of the lastcentury in India. In such a dynamic and fast pace of economic growth,entrepreneurship and diversity of consumption would requireconsiderable resources devoted to research and development.This would require qualitatively a much superior humanresource development strategy. For a business enterprise, tosurvive and maintain one’s relative position, rapid growth inlabour productivity, technological improvements and emphasison exclusive products would be the key. Emphasis and relianceon the private sector participation is likely to address most ofthese concerns as a part of their self-interest.REFERENCES1. Balakrishnan P. and M. Parameswaran (2007): “Understanding Economic Growth in India: A prerequisite”, Economic and Political Weekly, July 14, pp. 2915-22.2. Dholakia, Ravindra H. (2014): “Sacrifice Ratio and Cost of Inflation for the Indian Economy”, IIMA Working Paper No. 2014-02-04.3. Hatekar, N. and A. Dongre (2005): “Structural Breaks in India’s YE-283/2013 Growth”, Economic and Political Weekly, April 2, pp. 1432-35.4. Sivasubramonian S. (2004): The National Income of India in the qTwentieth Century, Oxford University Press. (E-mail : [email protected])YOJANA April 2014 11

do you know?What Is White Label Atm? and on a continuous basis after the unique and particular. ICANN permission. coordinates these unique identifiers Cash transactions through ATMs across the world. Without such a(Automated Teller Machines) have Non-bank entities allowed to open coordination, we can not have onemade life easy for us. Until recently, White Label ATMs would be free to global internet. ICANN was formedonly banks were authorised to run choose the location of these ATMs, in 1998. According to ICANN, it is athe ATMs. However, in view of the however, the guidelines of RBI in “not-for-profit partnership of peoplereach of ATMs still being largely connection with the urban-rural ratio from all over the world dedicated tolimited to metro/urban centres, the have to be adhered to. keeping the internet secure, stableReserve Bank of India (RBI) has and interoperable. It promoteschanged its policy in 2012. The The cards issued by the banks shall competition and develops policy onobjective is to maximise the reach be permitted and no deposits shall be the internet’s unique identifiers.”of ATMs throughout the length and accepted at these ATMs. The Whitebreadth of the country. Label ATM operator can earn revenue The domain name system through advertisements or by offering (DNS) is designed to make internet White Label ATM is an ATM value added services. The WLA accessible to human beings. As it iswhich provides alternative source operator shall not charge any fee from not practically possible to rememberof cash dispensing as against the customer. The WLA operations the numbers, the DNS uses lettersthe traditional ATMs owned and in the country shall be governed by instead of numbers and then linksoperated by banks. White Label the Payments & Settlement Systems a precise series of letters with aATMs (WLA) accept the debit Act, 2007. The WLA operator shall precise series of numbers. Thiscards of all banks but the company/ declare one “Sponsor Bank” which system makes the network easier toagency running this ATM is not a will serve as settlement bank for all use. A domain name consists of twobank itself. This system started in service transactions at all WLL. The elements, before and after the dotthe western countries and has now sponsor bank shall see to it that WLAs such as com, net, org etc.come to India too. are adequately stocked with cash and only good qualify currency notes are According to ICANN, it plays According to the RBI, banks have dispensed to the users. an administrative role with theplayed a major role in encouraging IP addresses used by computers.use of ATMs. Banking has seen The RBI has said, the primary ICANN does not run the system butconsiderable growth in terms of responsibility to redress grievances it helps in coordination. The role ofnumber of ATMs. At present, there of customers related to failed ATM this organization is to oversee theare about 87,000 ATMs in the transaction shall be with the issuing huge and complex interconnectedcountry. Yet the small cities and bank. The sponsoring bank would network of unique identifiers thatrural areas are still under-covered. provide the necessary support. allows computers on the internet toDespite a 30 per cent per year find one another.growth in the number of ATMs in the According to media reports, RBIcountry since 2008, per capita, ATM has issued certificate of authorisation ICANN is made up of differentpenetration continues to be less, as to four non-bank entities to set upcompared to other countries. white label ATMs in India. These groups, which represent a different are Tata Communications Payment Keeping this reason in mind, RBI Solutions Ltd. (TCPSL), Prizm interest on the network. Therereviewed its policy in February 2012 Payment Services Pvt. Ltd., Muthootand decided to allow non-banks to Finance Ltd. and Vakrangee Ltd. are organisations dealing withset up, own and operate ATMs to TCPSL has opened the first white labelwiden the spread of ATM network ATM in the country at Chandrapada, IP addresses, domain names etc.in the country. These are called a rural village in Thane district nearWhite Labelled ATMs. They would Mumbai. ICANN is incorporated under theprovide ATM services to customersof all banks. What Is Icann? law of State of California in the United States. It has to abide by the US laws and can be taken to court. ICANN says, it also has mechanism for its accountability to the community through its bye-laws A non-banking entity seeking ICANN is Internet Corporation and other methods. qpermission to open such ATMs need for Assigned Names and Numbers.to have net worth of Rs.100 crore at To reach a person on internet we (Compiled by Hasan Zia, Sr. Editor,the time of making the application use an address, which should be e-mail: [email protected])12 YOJANA April 2014

human capital analysisProductive Employment and EmpoweringEducation: An Agenda for India’s Youth Raghbendra Jha The current fixation \"A man educated at capital in economic growth becamewith growth and poverty the expense of much popular. As the Nobel Laureate labour and time…may Robert Lucas (1988) remarked “Once is understandable but be compared to one… one starts to think about [economic the realization that expensive machine … growth], it is hard to think about neither high growth The work which he learns anything else.” in the medium term to perform… over and above the usual wages of common Empirical research accompanying nor sustained poverty labour will replace the whole expense this theoretical re-orientation came reduction is possible of his education” (Adam Smith, in thick and fast. Almost first off without a paradigm 1904[1776],p.101) the block, Barro (2001) showed thatchange in our approach for a sample of almost 100 countries “The most valuable of all capital over the period 1965 to 1995 that to education and is that invested in human beings” educational attainment had a strongly employment of youth (Alfred Marshall, 1961 [1890] edition, significant impact on the growth of p.564). per capita GDP. In particular, this must become the human capital variable had a stronger centerpiece of India’s At least since 1776, economics impact than traditional investmentdevelopment philosophy has placed a premium on education. It conceived of as net accrual of capital. was one of the central pillars of Adam An additional year of schooling leads Smith’s work and was underscored in to an increase of 0.44 per cent in the good measure by the leading economist growth rate of per capita GDP1 and of the 19th century, Alfred Marshall. It investment in education has a social is one of the sharpest ironies of modern rate of return of 7 per cent. Further, economic history that the pre-eminent science and mathematics education had growth models of the 20th century, particularly strong impacts and much including those in the Harrod-Domar more needs to be done to adequately and neoclassical traditions, diluted if equip women with per human capital. not eliminated the emphasis on human The “empirics” of economic growth capital. It was only in the late 1980s rapidly became a key area of research and early 1990s when economists and the consensus in favour of the started realizing the inadequacy of importance of education for hastening the then extant growth models, with economic growth remained a dominant their emphasis on labour, capital and theme. The basic message is clear. technology, in explaining differences Adam Smith and Alfred Marshall in cross-country growth rates and per capita incomes that models of humanThe author is PhD (Columbia), FWIF, Head, Arndt-Corden Department of Economics, Rajiv Gandhi Professor of Economics andExecutive Director Australia South Asia Research Centre, College of Asia and the Pacific, Australian National University. He haspreviously taught at Columbia University and Williams College in the US, Queen’s University in Canada, University of Warwickin the UK and Delhi School of Economics, Indian Institute of Management Bangalore, and Indira Gandhi Institute of DevelopmentResearch in India. He specializes in the areas of public economics, macroeconomics and development economics. He has publisheda number of books and authored several papers and has consulted widely for major international organizations.YOJANA April 2014 13

were right: from the point of view of aggressive program of education with Table 1 summarizes the much-medium to long term economic growth, emphasis on science and technology discussed demographic dividend Indiainvestment in education is at least as would empower India’s burgeoning currently enjoys. It compares India’simportant as investment in capital. youth population and lay the true current position and potential with foundations of sustainable high rates that of China, other countries that had After India’s independence, the of economic growth for the medium similar (to India’s) per capita GDPprocess of planning for economic to long term. in Purchasing Power Parity dollarsdevelopment largely reflected the in 2009, the world and some majorabove-mentioned disregard for human India’s demographic dividend country groups.capital accumulation and concentratedlargely on issues of capital, labour and While quantitative estimates of rates In 2012, 65 per cent of India’sto a lesser extent, technology. of return to investment in education are population was in the working age unavailable, in view of the burgeoning group 15-64. Given the current The time has come for Indian youth population of India, the social population trends, this proportionplanners to view education expenditure rate of return is likely to be higher than is likely to surpass that of China.as an essential investment for speeding 7 per cent estimated by Barro (2001), Also, India already has the smallesteconomic growth. Further, apart and last well into the future. dependency ratio (old as percentagefrom boosting economic growth, an Table 1: Population Dynamics: India and Select other countries/Groups Country/ Population (millions) Average Population Age Dependency Ratio Crude Crude Group annual Composition 2012 Death birth population 2012 % age Rate rate India growth 2011 2012 China ( per cent) 0-14 15-64 65+ Mongolia 2000 2012 2025 Young per Old per Per 1000 Per Viet Nam 2000- 2012- cent of cent of people 1000 Philippines 2012 2025 working age people Indonesia working age population World population 21 Low income 12 Middle income 1,042.30 1,236.70 1,418.70 1 1 29 65 5 45 8 8 23 Lower middle 1,262.60 1,350.70 1,415.90 1 0 18 73 9 16 income 1 1 27 69 4 25 12 7 25 Upper middle 2.4 2.8 3.3 1 1 23 71 7 20 income 77.6 88.8 95.8 2 2 35 62 4 39 5 7 19 Low & middle 77.7 96.7 119.2 1 1 29 66 5 33 income 208.9 246.9 282 1 1 26 66 8 32 9 6 19 East Asia & 6,102.10 7,046.40 8,003.80 2 2 39 57 4 Pacific 648.2 846.5 1,113.20 1 1 27 67 6 56 6 6 Europe & 4,243.30 4,897.80 5,555.00 Central Asia 45 8 6 Latin America & Caribbean 40 12 8 Middle East & North Africa 69 7 9 South AsiaSub-Saharan 40 10 8AfricaHigh income 2,077.90 2,507.00 2,965.90 2 1 31 63 5 50 8 8 24Euro area 2,165.40 2,390.80 2,589.10 1 1 22 70 8 31 11 7 15 4,891.50 5,744.30 6,668.20 1 1 29 65 6 44 9 8 21 1,812.20 1,991.60 2,142.80 1 1 21 71 8 30 11 7 14 256.5 272.1 281.3 0 0 22 68 10 32 15 9 16 500.3 581.4 660.2 1 1 28 66 7 42 11 6 19 276.6 339.6 413.3 2 2 30 65 5 47 7 6 24 1,382.20 1,649.20 1,909.70 1 1 30 65 5 47 8 8 22 663.7 910.4 1,261.00 3 3 43 54 3 80 6 12 38 25 23 9 12 1,210.60 1,302.10 1,335.60 1 0 17 67 16 23 29 9 10 315.1 333.8 331.4 0 0 15 66 19Source: World Development Indicators 2013; World Bank14 YOJANA April 2014

Table 2: Global Comparison of Education Statistics for India Category Statistics Year for which data is Rank in the world reportedAverage years of schooling of adults 5.1 years 2000 65th out of 100Duration of compulsory education 8 years 1997 8th out of 12Duration of Education (Primary level) 6 years 2002Duration of education (secondary level) 5 years 2002 62nd out of 177Primary Completion rate 2005 155 out of 176Education spending (percentage of GDP) 90 per cent 2002 71st out of 124Hours of Instruction for pupils aged 9 4.1 2000 82nd out of 131Primary education teachers ( per cent female) 2003Primary educationa teachers per 1000 1,051 hours 2011 5th out of 38Public spending per student primary levelb 44 2002 112th out of 135Universities top 100 per millionc 2005 104th out of 134 3.21 7.2 61st out of 70 22nd out of 22 0.00177Teaching staff in primary. Public and private. Full and part-time. All programs. Total is the total number of teachers in public andprivate primary education institutions. Teachers are persons employed full time or part time irrespective of their qualifications or thedelivery mechanism, i.e. face-to-face and/or at a distance. This excludes educational personnel who have no active teaching duties(e.g. headmasters, headmistresses or principals who do not teach) and persons who work occasionally or in a voluntary capacity ineducational institutions. Figures expressed per thousand population for the same year..Public expenditure per student, primary level is the total reported current spending by the government on primary education, dividedby the total number of pupils in primary education, expressed as a percentage of per capita GDP..Number of universities in the top 100. Figures expressed per million population for the same year..Source: “India Education: Statistical Profile”, Nation Master. Retrieved from http://www.nationmaster.com/country-info/profiles/India/Education,accessed 28th February 2014.of working age population), which In average years of schooling Although the idea of spending at leastimplies that, over time, if the youth is 6 per cent of GDP on education wasproductively engaged, India’s private of adults India ranks 65th out of 100 mooted soon after independence, Indiafinancial savings and physical capital spent only 4.1 per cent in 2002. Someinvestment are likely to boom. Also, countries. In fact, except for duration authors have categorised the 1980sin contrast to China, India’s population and 1990s as lost decades for Indianwill continue to grow beyond 2025 of compulsory education and hours of higher education (Pushkar, 2013).hence these trends are likely to persist Indeed, Table 2 is a vivid portrait ofwell into the future by which time India instruction for pupils aged 9, India’s the gross neglect that India’s highercan be a high-income or high middle- education sector has faced over theincome country. Of particular concern is the fact years. The 11th Five Year Plan (2007- that India with its burgeoning 2012) substantially raised expenditure Arguably, no country currently faces youth population has so few on higher education as did the 12thsuch fortuitous circumstances; indeed universities in the top 100 and Plan (2012-2017). However, there arevery few countries ever have. It is for ranks last out of 22 countries. a number of obstacles to realizing theIndians to seize this opportunity. Although the idea of spending full potential of this higher expenditure at least 6 per cent of GDP on (Pushkar, 2013), e.g., both central andPotential and Performance- education was mooted soon after state governments have a say in higherEducation independence, India spent only 4.1 education management. Sometimes, per cent in 2002. Some authors the relation between them in this area is Central to capitalizing on India’s have categorised the 1980s and less than co-operative with consequentdemographic dividend are mass 1990s as lost decades for Indian turf wars.education of youth, particularly inscience and mathematics and their higher education Table 3 provides some furthergainful employment in productive evidence for primary and secondaryjobs. Table 2 reports on key education performance is lacklustre. Of particular education. In 1999, only 63 per centstatistics for India in comparativeperspective. concern is the fact that India with its burgeoning youth population has so few universities in the top 100 and ranks last out of 22 countries.YOJANA April 2014 15

of male students and 60 per cent of Even so, according to the World India’s employment to population ratiofemale students who had begun grade Development Indicators 2013, youth for those over 15 was only 58 per cent1 reached grade 5, which is lower unemployment during 2008-11 for in 1991 and actually fell to 54 perthan the rate for lower middle-income India was 10 per cent for men and cent in 2011. Youth participation incountries. Even if we ignore the quality 12 per cent for women. For the same the labor force was lower, even lowerof such education and the inequality period, 12 per cent of those with than low-income and low and middleof access across segments of income, primary education were unemployed. income countries. Unpaid family workthese statistics should set off alarm The corresponding figures for those formed a huge proportion of totalbells. with secondary and tertiary education employment, particularly for females were 42 per cent and 23 per cent and although GDP per person growthPotential and Performance- respectively. picked up during 2009-11 as comparedEmployment to 1990-92, it was still lower than that Table 4 sheds further light on the in China and low and middle income Unemployment data for India and structure of employment, particularly countries.several other countries is sketchy. youth unemployment over a decade. Table 3: Educational Attainment: India and Select other countries/group Gross Intake ratio Reaching Reaching Cohort Survival Rate Repeaters in Primary Transition rate in first grade of grade 5, male grade 5, female per Education to secondary primary education per cent cent of grade of grade 1 1 students education students Male per Female Reaching Reaching Male, per Female, Male Female last grade last grade cent of per cent of per per cent of per of primary of primary education, education, enrolment enrolment cent cent relevant cent of male per female age relevant cent of per cent grade 1 of grade 1 group age students students groupIndia 2011 2011 1999 2010 1999 2010 2010 2010 2011 2011 2010 2010 112 114 63 .. 60 .. .. .. 5 5 88 89China 109 110 82 .. 80 .. .. .. 0 0 .. ..Mongolia 106 104 .. 92 .. 94 92 94 0 0 98 99Viet Nam .. .. 80 .. 86 .. .. .. .. .. .. ..Philippines 130 120 69 75 79 82 72 80 3 2 99 97Indonesia 110 115 87 .. 92 .. .. .. 3 3 84 96World 114 111 .. .. .. .. 74 76 5 5 .. ..Low income 134 126 .. 60 .. 62 58 59 10 10 .. ..Middle income 111 109 .. .. .. .. 76 78 4 4 .. ..Lower middle 115 111 69 .. 72 .. 68 71 4 4 86 88incomeUpper middle 104 106 83 .. 81 .. 88 88 4 4 .. ..incomeLow & middle 115 112 .. .. .. .. 72 74 5 5 .. ..incomeEast Asia & 106 109 83 .. 80 .. 88 89 2 1 .. ..PacificEurope & Central 102 101 .. .. .. .. 98 99 1 1 99 98AsiaLatin America & 115 112 .. .. .. .. 81 86 9 8 .. ..CaribbeanMiddle East & 107 105 89 97 90 97 88 86 8 6 .. ..North AfricaSouth Asia 122 119 63 .. 60 .. 61 65 5 5 86 88Sub-Saharan 120 111 .. 66 .. 67 58 57 8 9 .. ..AfricaHigh income 101 100 .. .. .. .. 96 93 1 1 .. ..Euro area 100 99 .. .. .. .. 96 97 1 4 .. ..Source: World Development Indicators, 2013; World Bank16 YOJANA April 2014

A Final Word FDI. Particular emphasis should market regulations (for large and be placed on science, engineering small businesses) that inhibit labor If nothing else, this essay has and mathematics education. The mobility and adaptation to domesticunderscored the importance of structure of education may have to be and global market requirements mustaggressively increasing education responsive to these transformations. be addressed.and employment opportunities for A regulatory mechanism to facilitateIndian youth. How to accomplish rapid expansion of education needs Perhaps, the most significantthis is a task well beyond the scope to be set up and central and state change required among policymakersof this paper. However, some basic governments should be involved in is attitudinal– both in the publicpoints can be made. First, there cooperative federalism. and private sectors. The currentmust be enhanced public and private fixation with growth and poverty isinvestment (both human (teachers) Similar conclusions are warranted understandable but the realization thatand capital) in education across for employment. India has recently neither high growth in the mediumthe spectrum: primary, secondary, enjoyed high economic growth but term nor sustained poverty reductiontertiary, professional, vocational. this has largely been jobless economic is possible without a paradigm changeSuch investment should come from growth which is unsustainable. in our approach to education andboth domestic sources as well as The plethora of labor and product employment of youth must become Table 4 : Vulnerability of Unemployment: India in Comparative Perspective Employment to Population Vulnerable Employment Labour Ratio Productivity Total ( per cent Youth ( per Unpaid family workers Unpaid family GDP per person ages 15 and cent ages and own-account workers and own- employed (per cent older) account workers, 15-24) workers, male ( per cent growth) of male employment) female (per cent of female employment 1991 2011 1991 2011 1990-1992 2008-11 1990-1992 2008-11 1990-92 2009-11India 58 54 46 34 .. 79 .. 85 1 5.2China 75 68 71 51 .. .. .. .. 6.8 9.4Mongolia 55 59 38 32 .. 57 .. 52 .. ..Viet Nam 77 75 73 59 .. .. .. .. 4.6 3.5Philippines 60 61 42 41 .. 42 .. 46 -3.3 2.7Indonesia 61 63 42 40 .. 62 .. 67 6.2 3.9World 62 60 52 42 .. .. .. .. 0.6 3.4Low income 72 72 59 56 .. .. .. .. -3.5 4.3Middle income 63 59 52 40 .. .. .. .. 2.7 5.7Lower middle income 58 55 43 36 .. .. .. .. 0.4 3.9Upper middle income 67 63 60 45 .. .. .. .. 4.1 6.6Low & middle income 64 61 53 43 .. .. .. .. 2.4 5.5East Asia & Pacific 73 68 66 49 .. .. .. .. 6.7 7.9Europe & Central Asia 55 51 40 32 .. .. .. .. -5.9 4.1Latin America &Caribbean 57 62 48 46 .. .. .. .. 0.8 2.4Middle East & NorthAfrica 41 41 26 23 .. .. .. .. 1.9 0.6South Asia 59 55 47 37 .. .. .. .. 3.1 4.7Sub-Saharan Africa 64 65 47 47 .. .. .. .. -5.2 2.2High income 57 56 45 37 .. .. .. .. 0.9 1.9Euro area 50 51 42 34 .. .. .. .. 2.3 1.9Source: World Development Indicators 2013; World BankYOJANA April 2014 17

the centerpiece of India’s development education, badly delivered and imperfectly Lucas, R., Jr. (1988) “On the Mechanicsphilosophy. absorbed. Jha (2014) has shown that the of Economic Development” Journal of problem of inadequately targeted subsidies Monetary Economics, vol. 22, no.1, pp.3-Endnotes extends to welfare programs in general. 42. The estimated contribution of human Readings Marshall, A. (1890) Principles ofcapital to per capita GDP growth is sizable Economics, Volume 1 Text, 9th(Varorium)in view of the fact that average per capita Barro, R. (2001) “Human Capital edn 1961, with annotations by C.W.GDP growth in India over the period Growth: History and Policy” American Guillebaud, London Macmillan and1951-52 to 2012-13 has been 5.0 per cent Economic Review:Papers and Proceedings, Company for the Royal Society.(computed from RBI data). vol. 91, no.2, pp. 12-17. Pushkar (2013) “Will Increased A caveat needs to be added here. Chaudhri, D. and R. Jha (2011) “Inclusive spending improve India’s higher educationIndia’s demographic dividend is also growth: Malnutrition-education link” sector” Asian Scientist, March 13 2013,associated with a deteriorating gender Economic Times, December 22, available available atbalance – a problem that is only going to get at http://articles.economictimes.indiatimes.worse with higher education and incomes com/2011-12-22/news/30546960_1_child- h t t p : / / w w w. a s i a n s c i e n t i s t . c o m /(Chaudhri and Jha, 2013). poverty-rte-inclusive-growth academia/increased-spending-improve- indias-higher-education-sector-2013/ Far too often, government agencies Chaudhri, D. and R. Jha (2013) (accessed 28th February 2014).have tended to treat child poverty separately “Chaudhri, D. and R. Jha (2013) “India’sfrom child education. The fact is that the gender bias in child population, female Romer, D. (2006) Advancedproportion of children that are poor is higher education and growing prosperity:1951 Macroeconomics,3rd edition, Boston:than the proportion of adults who are poor. to 2011” International Review of Applied McGraw Hill Irwin.There should be an integrated approach Economics, vol. 27, no.1, pp. 23-43.to both issues as argued by Chaudhri and Smith, A. (1904) The Wealth of Nations,Jha (2013). The Right to Education Act Jha, R. (2014) “Welfare Schemes and 5th edition, ed. Edwin Cannan, London:has too often meant a right to poor quality Social Protection in India” International Journal of Sociology and Social Policy, Methuen &Co. first published (1776).  q forthcoming. (E-mail :[email protected]) Macro-Economic Framework Statement 2014-15Overview of the EconomyIn the recent past, the Indian economy has had to overcome varied challenges in its resolve to sustain its economicsuccess. The major challenges included: unsupportive external environment, domestic structural constraints, growthslowdown and inflationary pressures. The slowdown manifested in the decline in the growth of Gross DomesticProduct (at factor cost at constant 2004-05 prices) from 8.9 per cent in 2010-11 to 6.7 per cent in 2011-12 and 4.5per cent in 2012-13. With the economy projected to have registered a growth rate of 4.9 per cent in 2013-14, thedeclining trend in growth seems to have reversed. The growth slowdown in India is broadly in sync with trends insimilar emerging economies. The sharp downturn in growth owes to the interface of domestic factors with the globaleconomic environment of uncertainties and slow growth in many advanced economies. The growth of real GDP hasgenerally shown a declining trend since the first quarter (Q1) of 2011-12, and is characterized by a moderation inservices growth and a protracted slowdown in industry. The revival in agriculture on the back of a steady monsoonand robust growth in financial and business services led to a modest uptick in growth in 2013-14.The option of a fiscal stimulus did not exist in face of the economic slowdown, post 2010-11, as the elevatedlevels of inflation precluded further fiscal space. Besides, factors including the slack in investment, exacerbatedby delays in projects, signaled the emergence of bottlenecks that made new reforms an imperative to ease thestructural constraints hampering growth. The Union Budget 2013-14 laid considerable emphasis, inter alia, oncontainment of inflationary pressures and mitigation of structural bottlenecks to growth.The policy response of the Government to the present growth slowdown has been in the form of structuralreforms aimed at reducing entry-barriers and boosting competition and productivity in various sectors; fiscalconsolidation and reforms in administered prices; further strengthening of financial/ banking sectors; introductionof instruments to encourage financial savings of households; measures to restart the investment cycle throughsupport to infrastructure financing and encouragement to micro, small and medium enterprises (MSMEs); stepsto revive growth in manufacturing and reforms in energy pricing. These policies have gone hand-in-hand withmacroeconomic stabilization that has had to balance the concerns of inflation and growth recovery, while managinga volatile external situation characterized by a sharp depreciation of the Rupee witnessed till the second quarter(Q2) of 2013-14. Source : Statements laid before Parliament under the Fiscal Responsibility and Budget Management Act, 200318 YOJANA April 2014

YE-295/2013YOJANA April 2014 19

reforms POINT OF VIEWIs India back to the Hindu Growth Rate? I ndia’s post economic Kumar Gaurav reforms growth has been one of the most cited Nalin Bharti examples by economists in last many years. Priyanka Sinha Ahluwalia (1995), of national output and income (Todaro and Smith, 2003). Samuelson and Srinivasan (2002), Stern (2004), Nordhaus (2007) assert that economic growth represents the expansion of a Virmani (2004), Tendulkar and country’s potential GDP or national output. Soon after the independence, Bhavani (2007), Panagariya (2008), Indian Economy was facing chronic imbalances as part of colonial rule. Bhagwati and Panagariya (2012.) to Indian economy was left with weak industrial base, poor infrastructure and The crisis of 1991 led the name a few are among some of the static economy. India made the firstIndian policy makers to think declaration of industrial policy in their beyond the policy of import leading contributors in this regard. resolution dated 6th April, 1948 in which both public and private sectors substitution to outward India was blamed for its inward- had been given importance. oriented export promotion model. The Indian economy looking industrialization from 1950-90. India followed the planning model that was adopted in socialist countries was integrated with the Growth got a new boost from India’s including former USSR. In tune with economies of the world. the socialist central planning model, Reforms were initiated in macroeconomic reforms when it India started its planning beginning industrial policy & foreign from 1951. However, the development investment policy, trade & moved from inward looking to outward of industries was left in shadow during exchange rate policy, tax first five year plan. The gloomy picturereforms, public sector policy, looking industrialization. This was in of industrialization and sub normality financial sector reforms, as part of industrial development canreforms in agricultural sector, anticipation of the policy makers that be traced through the facts. According labor market reforms and to the 1st Five Year Plan, on the one others. The results of these Indian economy would achieve faster hand, factory establishments in thereforms were seen soon after country accounted for merely 6.6the reforms. The GDP growth economic growth. But, the growth in per cent in 1948-49 as a proportion rate which was merely 1.43 of national income and on the other,per cent in 1991-92, increased the post reforms period has become only 1-8 per cent of the working to 5.36 per cent in 1992-93 population were engaged in these a matter of debate. Economists argue establishments. that India is an open economy where A new industrial policy statement was announced on 30th April, 1956. It the Hindu Growth Rate is far from was aimed at accelerating the process the reality. To get an external linkage in this particular paper, the Pearson correlation coefficient (r) finds the strength of the linear relationship between the GDP Growth and trade deficit in India. Growth Rate vs. Hindu Growth Rate Economic growth is defined as the steady process by which the productive capacity of the economy is increased over time to bring about rising levelsKumar Gaurav and Priyanka Sinha are Doctoral Candidates, Department of Humanities and Social Sciences, Indian Institute of TechnologyPatna, Nalin Bharti is Assistant Professor, Department of Humanities and Social Sciences, Indian Institute of Technology, Patna.20 YOJANA April 2014

of industrialization and specifically cent. Thus, it was successful on the Slow-down Growth Linkagesdeveloping large scale heavy industries. part of industries.The new revised industrial policy Growth potential of Indianincludes Schedule A and Schedule B. Ahluwalia (1995) pointed out economy can be gauged in twoSchedule A included industries which that the inadequacy of the growth ways: quantitative and structural. Towere the exclusive responsibility of the performance of the Indian economy understand the quantitative aspects,state - monopoly of the state. Schedule led Prof. Raj Krishna to coin the growth rates of different sectors andB included mixed sector of public and much quoted phrase 'the Hindu rate overall GDP growth are considered.private undertakings. All the rest of of growth, to specify the disappointing But to understand the economy well,the industries were left for the private trend of growth. The Hindu growth rate structural aspects have to be considered.sector to establish and operate. has nothing to do with any specific Changes in sectoral distribution of religion; rather it is a term that was GDP give the more realistic account The Third plan was largely devoted economic in nature. It was a caustic on the part of economic growth of theto long run benefits and was in tune remark on the socialist pattern that country. Agriculture dominated thewith the objectives of increase in the was adopted by the government after sectoral composition of the GDP tillnational output and income generating the Independence. It was an indication 1970. In 1950-51 agriculture and alliedhuge employment. The focus was on the of low and almost stagnant growth sector’s share in GDP was 55.3 perdevelopment of capital and producer of Indian economy during 1950s to cent. Two decades of planning in India,goods industries. It also emphasized on 1980. The average annual growth rate did not show any significant declinethe development of machine-building of GDP during this period was 3.5 in the share of agriculture and alliedindustries. However, the growth rate of per cent. The growth rate of GDP has sector. This was the manifestation ofindustrial output declined, initially at shown in table1: the fact that industries were indeed in aslow pace and after that, it decelerated bad condition in India. The process ofsharply reaching stagnation levels. Table1: GDP growth rate industrialization was not smooth andThis created serious concerns for from 1950-1979 not contributing significantly.nearly three years when the economyfluctuated. The year 1968-69 showed Decades GDP growth Rate Growth Trends after Reformsa clear sign of recovery. Fourth Five 1950-59 3.3Year Plan (1969-74), was marked 1960-69 4.4 The crisis of 1991 led the Indianby a very low growth in industrial 1970-79 2.9 policy makers to think beyond theproduction of 3.9 per cent against the 1950-79 3.5 policy of import substitution to outwardtargeted rate of 8-10 per cent. oriented export promotion model. The Source: Bhalla’s(2009) calculation extended by Indian economy was integrated with Fifth Five Year Plan, started in authors during the period 1950-1979. the economies of the world. Reforms1974, proposed to achieve growth were initiated in industrial policy andwith the attainment of self-reliance. Virmani (2004), asserts that the foreign investment policy, trade andThe emphasis was on the industries new economic policy introduced exchange rate policy, tax reforms,of core-sector like- iron & steel, non- in 1991-92 had changed the Indian public sector policy, financial sectorferrous metals, fertilizers, mineral economy and pushed it from the Hindu reforms, reforms in agricultural sector,oil, machinery-building, coal and rate of growth to a new higher rate of labor market reforms and others. Theothers. The economy was faced with 5 per cent-6 per cent, called as, new results of these reforms were seen soonpressures and the industrial growth rate Hindu rate of growth.was low at 2.5 per cent in 1974-75.It was 5.7 per cent in 1975-76 which Figure 1: GDP growth rate and trade deficit from 1991-92 to 2010-11provided some relief for the economy.Sixth Five Year Plan was started in Source: Annex Table 41980. Substantial policy changes wereannounced during this plan. Industriallicensing and controls were relaxedand import policy was more liberalizedthan ever before. The result was thatgrowth was witnessed in industrialproduction. Seventh Five Year Planwas started in 1985.The emphasiswas on development with growth andincrease in productivity. The industrialgrowth rate during this plan was 8.5per cent against the target of 8.4 perYOJANA April 2014 21

Table 1 Formulae for calculation of sectoral growth in IndiaStatistics Formula InterpretationMean ∑(x-Mean) 2/N-1 ∑ = summationSample variance (S2) √∑(x-Mean) 2/N-1 √=square rootSample standard deviation(S) x=different values of variables N=size of the sample data set n (Σxy) – (Σx)(Σy) n=number of values r= x=first set of variables Y=second set of variables √[nΣx2 – (Σx)2] [nΣy2 – (Σy)2] ∑xy=sum of products of x and y ∑x=sum of first set of variables Sample Pearson correlation ∑y= sum of second set of variables coefficient (r) ∑x2=sum of squares of first set of variablesSource: Authors ∑y2= sum of squares of second set of variables Table 2 Sectoral Results from Growth data Agriculture & Allied Results Sum 66.41 Mean ∑(X-Mean)2 3.018636364 Sample variance (S2) 352.5430591 Sample standard deviation (S) 16.78776472 Industry 4.097287483 Sum Mean Results ∑(X-Mean)2 143.93 Sample variance (S2) 6.54227273 Sample standard deviation (S) 210.641786 Services 10.0305613 Sum 3.16710613 Mean Results ∑(X-Mean)2 181.31 Sample variance (S2) 8.24136364 Sample standard deviation (S) 78.2312591 GDP 3.72529805 Sum 1.93010312 Mean Results ∑(X-Mean)2 145.7 Sample variance (S2) 6.622727 Sample standard deviation (S) 92.04044Source: Based on calculations from the data available in annex table 6 4.382878 2.09353222 YOJANA April 2014

after the reforms. The GDP growth that real investment in agriculture, both was 5.7 per cent with a peak growth ofrate which was merely 1.43 per cent private and public, has been stagnant 12.17 per cent in 2006-07 and lowest ofin 1991-92, increased to 5.36 per (Ahluwalia, 1993). This, with other 0.34 per cent in 19991-92. (Table 2 andcent in 1992-93. The growth rates of structural factors, led to slow growth Table 6)different sectors have been shown in in agricultural and allied sector. ( Tablethe Table 6. 2) and (Table 6). Service SectorAgriculture & Allied Sectors Industry The service sector in India after the reforms has dominated the sectoral Indian economy was heavily based The economic reforms were composition of GDP. The share ofon agriculture. Its importance can be more radical as far as industries services in 1991-92 was 43.9 per centevaluated on two grounds- share in were concerned. Changes in the which rose to 59.29 per cent in 2012-GDP and in employment. So there policy framework gave a big boost 13.There is a sharp increase in IT,is a need to address the problems of to industries. The major reforms telecom, banking service, insurance,agriculture. The low production and were the abolition of licenses to a entertainment and many more. But,productivity poses constraints on wide range of industries. Licenses it’s also true that only few servicesthe total output of agriculture. The are required now only for some are performing well. Today, India isinefficiency on the part of agriculture industries. Industries have thus grown well known for IT and IT-enabledmerits sound policy implications significantly during the last two services (ITES), communication andand investments. A very alarming decades after the reforms. Average BPO. The growth of service sectorcharacteristic of agricultural sector is growth rate from 1991-92 to 2010-11 after the reforms shows a relativelyTable 3 Mean, sample variance and Sample standard deviation of Growth Rates from 1991-92 to 2012-13 Sectors Mean growth rate Sample variance (S2) Sample standard deviation (S) 3.018636364 16.7877647 4.097287483 Agri. & Allied (X1) 6.54227273 10.0305613 3.16710613 Industry (X2) 8.24136364 3.72529805 1.93010312 Services (X3) 6.622727 4.382878 2.093532 GDP (X4)Source: Calculated by authors Table 4 Trade balance and GDP growth rateYear GDP Growth1 Trade Balance (US m $)21991-92 1.43 -15461992-93 5.36 -33451993-94 5.68 -10681994-95 6.39 -23241995-96 7.29 -48811996-97 7.97 -56631997-98 4.3 -64781998-99 6.68 -91711999-00 7.59 -128492000-01 4.3 -58992001-02 5.52 -75862002-03 3.99 -86932003-04 8.06 -143062004-05 6.97 -279812005-06 9.48 -460752006-07 9.57 -593212007-08 9.32 -885222008-09 6.72 -1184012009-10 8.59 -1096222010-11 9.32 -118633Source: 1 Data book for DCH (2013). Data for use of Deputy Chairman, Planning Commission, Government of India2 Economic survey 2012-13, Ministry of Finance Department of Economic affairs, Government of India, DelhiYOJANA April 2014 23

smooth trend compared to agriculture of growth also, comprising exports Affairs during recent couple of years.and industries. The growth rate which and imports. Trade balance remained Quarterly data released from 2010-11was 4.69 per cent in 1991-92, started negative since long. There has been to 2012-13 related to the growth ratesincreasing and witnessed double-digit trade deficit in the balance of payments of agriculture & allied sector industrygrowth in several years. account. Table 4 shows trade balance and service sector have been shown and GDP growth rates from 1991-92 in Table 5.Performance of Indian Economy to 2010-11. Agriculture & allied sectors have There are different phases of The correlation coefficient between been performing poorly. This is thegrowth of Indian economy. Before GDP growth rate and trade deficit most fluctuating sector – growth rates1980s, there was relative stagnation is found to be 0.58. This indicates have fluctuated between peak ratesin the economy, with average growth that there is a moderate positive of 11.0 per cent in quarter 3 (Q3) ofrate of GDP at 3.5 per cent. Partial relationship between these two. The 2010-11 to mere 1.2 per cent in quarterreforms were started during 1980s. But value of correlation coefficient shows 2 (Q2) of 2012-13. Average growth ratetotal reforms were initiated only after that when GDP increases, India’s during this period was 3.4 per cent.1991. The currency crisis of 1990s trade deficit also increases (though Industrial sector is also a matter ofcompelled the policy makers to initiate moderately), indicating that the exports concern for the policy makers and thethe reforms. are not responding as fast as compared government. Industries have grown on to imports. These growth rates indicate an average of 4.4 per cent during Q1 of GDP started peaking after reforms. that the reforms had certainly brought 2010-11 to Q2 of 2012-13. However,Table 2 and 6 shows the growth more imports which has contributed service sector shows a steady trendrate, mean, sample variance, sample in our growth because such range during this period. Average growthstandard deviation and deviations from of growth rate (1991-2010) has not rate in this sector stood at 8.6 per cent.mean and sample standard deviation of been achieved by India before trade Overall GDP growth rate during thisGDP growth rates. liberalization started in 1991. Figure period was 6.9 per cent. 1 shows how GDP growth rate and The mean growth rates of all the trade deficit are inter-related. Primary Conclusionthree sectors- agriculture & allied, vertical axis shows trade deficit in USindustry and services, have been million $ and secondary vertical axis Compared to the pre reforms era,shown in Table 3. It gives the complete shows GDP growth rate in percentage Indian economy had much fasterpicture of performance of the economy (per cent). Horizontal axis indicates economic growth in the post reformson the basis of each individual sector’s years from 1991-92 to 2010-11. period. But, the recent revised forecastsperformance. released by ADB and others on the Recent Growth Trends growth of Indian economy provideExternal Linkages a glimpse of slow down of Indian The Indian economy is facing economy. Domestic sectors have been problems that are reflected throughdiscussed till now. To analyze the the facts released by the Ministry of Agriculture and allied sector is stilleconomy completely, it is imperative Finance, Department of Economic a matter of concern as it is the mostto understand the external linkages fluctuating sector in the Indian economy Table 5 Quarterly Growth Rates Year Quarter Agri. & Allied Industry Services GDP2010-11 Q1 3.1 8.3 10 8.5 Q2 4.9 5.7 9.1 7.62011-12 Q3 11 7.6 7.7 8.2 Q4 7.5 7 10.6 9.2 Q1 3.7 5.6 10.2 8 Q2 3.1 3.7 8.8 6.7 Q3 2.8 2.5 8.9 6.12012-13 Q4 1.7 1.9 7.9 5.3 Q1 2.9 3.6 6.9 5.5 Q2 1.2 2.8 7.2 5.3 Average1 3.4 4.4 8.6 6.9Source: Monthly Economic Report (2013), Ministry of Finance1Calculated by the authors24 YOJANA April 2014

YOJANA April 2014 Table 6 Deviations & Squared Deviations from Mean and Deviations from standard deviation of Growth Rates of Agriculture & Allied, Industry, Service Sector and GDP from 1991-92 to 2012-13 Year Agri. & (X1-Mean) (X1-Mean)2 (X1-S) Industry# (X2- (X2-Mean)2 (X2-S) Services# (X3- (X3-Mean)2 (X3-S) GDP# (X4-Mean) (X4-Mean)2 (X4-S) 1991-92 Allied# (X ) Mean) (X ) Mean) (X4) (X1) 2 3 -1.95 -4.96864 24.687347 -6.04729 0.34 -6.20227 38.468187 -2.82711 4.69 -3.55136 12.61218368 2.759897 1.43 -5.19273 26.96441653 -0.66353 1992-93 6.65 3.631364 13.186802 2.552713 3.22 -3.32227 11.037496 0.052894 5.69 -2.55136 6.509456405 3.759897 5.36 -1.26273 1.594480165 3.266468 1993-94 3.32 0.301364 0.09082 -0.77729 5.5 -1.04227 1.0863324 2.332894 7.38 -0.86136 0.741947314 5.449897 5.68 -0.94273 0.888734711 3.586468 1994-95 4.72 1.701364 2.8946382 0.622713 9.16 2.617727 6.8524961 5.992894 5.84 -2.40136 5.766547314 3.909897 6.39 -0.23273 0.054161983 4.296468 1995-96 -0.7 -3.71864 13.828256 -4.79729 11.29 4.747727 22.540914 8.122894 10.11 1.868636 3.49180186 8.179897 7.29 0.667273 0.445252893 5.196468 1996-97 9.92 6.901364 47.62882 5.822713 6.39 -0.15227 0.023187 3.222894 7.53 -0.71136 0.506038223 5.599897 7.97 1.347273 1.815143802 5.876468 1997-98 -2.55 -5.56864 31.009711 -6.64729 4.01 -2.53227 6.4124052 0.842894 8.93 0.688636 0.474220041 6.999897 4.3 -2.32273 5.395061983 2.206468 1998-99 6.32 3.301364 10.899002 2.222713 4.15 -2.39227 5.7229688 0.982894 8.28 0.038636 0.001492769 6.349897 6.68 0.057273 0.003280165 4.586468 1999-00 2.67 -0.34864 0.1215473 -1.42729 5.96 -0.58227 0.3390415 2.792894 11.19 2.948636 8.694456405 9.259897 7.59 0.967273 0.935616529 5.496468 2000-01 -0.01 -3.02864 9.1726382 -4.10729 6.03 -0.51227 0.2624233 2.862894 5.37 -2.87136 8.244729132 3.439897 4.3 -2.32273 5.395061983 2.206468 2001-02 6.01 2.991364 8.9482564 1.912713 2.61 -3.93227 15.462769 -0.55711 6.88 -1.36136 1.85331095 4.949897 5.52 -1.10273 1.216007438 3.426468 2002-03 -6.6 -9.61864 92.518165 -10.6973 7.21 0.667727 0.4458597 4.042894 6.97 -1.27136 1.616365496 5.039897 3.99 -2.63273 6.931252893 1.896468 2003-04 9.05 6.031364 36.377347 4.952713 7.32 0.777727 0.6048597 4.152894 8.06 -0.18136 0.032892769 6.129897 8.06 1.437273 2.065752893 5.966468 2004-05 0.18 -2.83864 8.0578564 -3.91729 9.81 3.267727 10.678042 6.642894 8.13 -0.11136 0.01240186 6.199897 6.97 0.347273 0.120598347 4.876468 2005-06 5.14 2.121364 4.5001837 1.042713 9.72 3.177727 10.097951 6.552894 10.91 2.668636 7.121620041 8.979897 9.48 2.857273 8.164007438 7.386468 2006-07 4.16 1.141364 1.302711 0.062713 12.17 5.627727 31.671314 9.002894 10.06 1.818636 3.307438223 8.129897 9.57 2.947273 8.686416529 7.476468 2007-08 5.8 2.781364 7.7359837 1.702713 9.67 3.127727 9.7826779 6.502894 10.27 2.028636 4.115365496 8.339897 9.32 2.697273 7.275280165 7.226468 2008-09 0.09 -2.92864 8.576911 -4.00729 4.44 -2.10227 4.4195506 1.272894 9.98 1.738636 3.022856405 8.049897 6.72 0.097273 0.009461983 4.626468 2009-10 0.81 -2.20864 4.8780746 -3.28729 9.16 2.617727 6.8524961 5.992894 10.5 2.258636 5.101438223 8.569897 8.59 1.967273 3.870161983 6.496468 2010-11 7.94 4.921364 24.21982 3.842713 9.16 2.617727 6.8524961 5.992894 9.75 1.508636 2.275983678 7.819897 9.32 2.697273 7.275280165 7.226468 2011-12 3.65 0.631364 0.39862 -0.44729 3.49 -3.05227 9.3163688 0.322894 8.2 -0.04136 0.00171095 6.269897 6.21 -0.41273 0.170343802 4.116468 2012-13 1.79 -1.22864 1.5095473 -2.30729 3.12 -3.42227 11.711951 -0.04711 6.59 -1.65136 2.72700186 4.659897 4.96 -1.66273 2.764661983 2.86646825 Source: Authors calculations based on data book for DCH (2013, Planning Commission, Government of India

with mean growth of mere 3.01 per cent question on our post reform growth Retrieved from: http://eac.gov.in/reports/with high standard deviation of 4.09 performance that at the sectoral level, economicoutlook_201314_highlights.pdf.per cent in the post-reforms era. Mean the major contributor in our growth isgrowth of industries during 1991-92 services where a small workforce is Five Year Plans, Planning Commissionto 2012-13 stood at 6.5 per cent with dependent. For many years, agriculture of India, Government of India, Newstandard deviation of 3.16 per cent had negative growth rate where the Delhi.indicating fluctuations in the growth majority of the workforce is dependent.rates. Services are performing well as To conclude, there may be fluctuations Industrial Policy (1991), Ministrycompared to agriculture and allied and in growth of the economy, but the post- of Finance, Government of India, Newindustries. The mean growth is 8.24 per reforms growth statistics show that Delhi.cent which gives a trend of growth from India will certainly not be back to the1991-92 to 2012-13. Sample standard Hindu Growth but much ahead from Mohan, Rakesh (2008). The Growthdeviation is comparatively low at 1.93 such growth. The quantum of fear for Record of the Indian Economy, 1950-per cent showing low spread of growth back to Hindu growth rate has mostly 2008: A Story of Sustained Savings andrates from mean. These results show been exaggerated. Investment. Retrieved from http://rbidocs.a relative smooth trend of services rbi.org.in/rdocs/Speeches/PDFs/83118.growth in India. References pdf. After the wake-up call of economic ADB (2013). Asian Development Monthly Economic Report (2013),reforms and trade liberalization, the Outlook 2013 update: Governance and Ministry of Finance, Department ofrole of external sector became crucial Public Service Delivery.Asian Development Economic Affairs (Economic Division).in determining the fate of Indian Bank. Retrieved from: http://www.adb. Retrieved from http://www.finmin.economy. Trade balance exports- org/sites/default/files/pub/2013/ado2013- nic.in/stats_data/monthly_economic_imports (X-M) remained negative update.pdf. report/2013/indjan13.pdf.and sharp even in the post reformsperiod. The correlation coefficient Ahluwalia, Montek S. (1993). India's Panagariya, A. (2008) India: Thebetween GDP growth rate and trade Economic Reforms. Retrieved from http:// Emerging Giant. New Delhi: Oxforddeficit is found to be 0.58 which www.planningcommission.gov.in/hindi/ University Press.shows a positive moderate association aboutus/speech/spemsa/msa012.pdf.between two- GDP is increasing and Samuelson, Paul A. and Nordhaus,so is trade deficit. At the beginning of Ahluwalia, Montek S. (1995). First Raj William D. (2007). Economics. Eighteenththis period, the ratio was admittedly Krishna Memorial Lecture, 1995: Economic Edition. New Delhi: Tata McGraw –Hill.low but after 1991 reforms, the ratio Reforms for the Nineties. Retrieved fromrose more rapidly (Sinha and Bharti http://planningcommission.gov.in/aboutus/ Srinivasan, T.N. (2002) Economic2012). Data (in table-4) reveals the speech/spemsa/msa033.pdf. Reforms and Global Integration asfact that the increase in GDP growth on Stern, N. (2004) Acceleratinghas not turned into increasing exports Ahluwalia, Montek S. (2002). Development, Franceis Bourguignonas increasing import. This indicates Economic Reforms in India Since 1991: and Boris Pleskovic (ed.), World Bank,that the exports are not responding as Has Gradualism Worked? Journal of p.31.fast as compared to imports. Economic Perspectives,Volume 16, Number 3—Summer. Sinha Priyanka and Bharti Nalin, Has The results on growth statistics Trade and Telecom Policy Reforms helpedafter the reforms suggest that GDP Bhagwati, J. and Panagariya, A. (2012). India in getting Jobs: Some evidencegrowth of 6.6 per cent during 1991-92 India’s Tryst with Destiny: Debunking from ITES Growth, , Paper presentedto 2012-13 is out-lying from Hindu myths that Undermine Progress and at 95th Indian Economic Associationgrowth rate of 3.5 per cent. The sectoral Addressing New Challenges. Noida: Collins Conference, Held at GITAM University onmean of growth rates of industry and Business. 29th December, 2012service sector are 6.5 per cent and 8.2per cent respectively, moving far away Bhalla, Surjit S. (2009). Indian Tendulkar, S. D. and Bhavani T.A.from Hindu growth rate. But the most Economic Growth 1950-2008: Facts & (2007) Understanding Reforms: Postrevealing fact lies in the growth rate of Beliefs, Puzzles & Policies. New Delhi: 1991 India. New Delhi: Oxford Universityagriculture and allied sector witnessing Oxus Research & Investments. Press.mean growth rate of only 3.01 per centduring the same period, which is even Databook for DCH (2013). Data for use Todaro, Michael P. and Smith, Stephenlower than Hindu growth rate. Thus, of Deputy Chairman, Planning Commission, C. (2003).Economic Development. Eightagriculture and allied sector being close Government of India. Retrieved from Edition. New Delhi: Pearson.to Hindu growth rate means more need http://planningcommission.nic.in/data/of the God’s blessing. This is a big datatable/1705/databook_dch_160511. Virmani, Arvind (2004): 'India's pdf. Economic Growth' from Socialist Rate of Economic Outlook 2013-14: Highlights. Economic Advisory Growth to Bharatiya Rate of Growth'. Indian Council to PM, Government of India. Council for Research on International Economic Relations, February.  q (E-mail :[email protected], [email protected], [email protected])26 YOJANA April 2014

Best practicesSafeguard of the Traditional Wisdom Baba MayaramT he remote wandering from one village to another rivers can offer a boat ride.’ Based Pithauragarh village of and growing them with the most on such wisdom, the farmer created Satna District lies in the traditional and natural methods. proverbs and folk songs which played central Indian state of an important role in passing on such Madhya Pradesh holds “Harmful insects are naturally ingrained wisdom to the following the dubious distinction controlled by flies, honeybees, ants generations. Alas, the link has beenof being one among the five Indian and other insects. Earthworms work broken, much to the dismay of the olderStates that showed an increase of 24 hours a day, eating into the infertile generations.over 50 farmer suicides compared to elements of the soil and making it2010, according to the National Crime soft, facilitating a healthy crop. As “Like our indigenous seeds areRecords Bureau (NCRB). Ironically, compared to the hybrid varieties which becoming extinct, so also are we, losingin this village lies a secret that can demand more irrigation, indigenous our agriculture-related vocabulary.help arrest the suicide trend and also varieties take less time to be ready The entire culture around our farmingbring back the agriculture in this land for harvesting and that too, through a activities and life system is beingof farmers. natural process.” hampered. We manage with words like rice, wheat and dal. Earlier, we Here, a farmer, is not only Each variety of paddy has its own had several varieties of pulses andexperimenting with indigenous seeds unique characteristics. Some like grains: Sama, Kodo, Kutki, Mung,on his farm but is also inventing new Sarya, Sikiya, Shyamjeer, Dihula and Udad, Jwar and Tilli, to name a few.methods for their conservation and Sarekhni are ready for harvest within People would be involved at everypromotion, becoming a role model for 70-75 days while others like Newari, step, every procedure of farming, righthis fellow farmers caught in the web Jhalore, Kargi, Mungar and Sekurgar from the day it was planted to the dayof hybrid seeds. take 100-120 days; and Badal phool, it was harvested. ,” says Babulal whose Korakhamha, Vishnubhog, Dilbakhsh vast collection of season-related songs As one enters the house of sixty five are ready only 120-130 days after and proverbs have been published inyear old Babulal Dahiya, the sight of sowing. a book named “Sayanan ke Thathi”his impressive collection of conserved brought out by the Madhya Pradeshseeds brings back images of a glorious The gradual extinction of traditional Biodiversity Board.ancient India. On the wall, like a songs and folklores celebrating theblackboard, are the varieties of paddy beauty and colour of the innumerable In olden days, the agriculturalseeds preserved carefully in poly bags. varieties of seeds attracted Babulal’s activities were self-reliant. Except forFlakes from the recent harvest stored attention towards the conservation of salt, people could procure all their dailyin the cow dung plastered yard reflect vulnerable indigenous grains which necessities from within the village.the hard work invested in the farming have nearly lost the battle to the hybrid They would produce all they requiredpractices. As a knowledgeable Babulal varieties. This concern drove him to through the year on their farm. Theyexplains the merits of indigenous conserve and promote not only the would grow multiple grains: Jwar,seeds, his wisdom is complemented by traditional ways of farming but the Mung, Udad, Tuar, Til or Kodo.the fragrance of fresh saplings and the “farming in culture” as well. They followed the concept of milwansound of the hand driven mill crushing farming (mixed farming). This wouldthe urad daal. In earlier days, when there were provide wheat, rice and dal. Similarly, no radios and televisions to give us the village blacksmith would prepare “These paddies, as compared to the a weather forecast, the experience all the tools necessary for farming.hybrid ones, offer good taste, hence one of our forefathers helped predict the He would barter it for grain during thegets a better price for them. Indigenous weather appropriate for each stage harvest. The entire village was inter-paddy crops can be grown using the of the farming process. They could dependent. We will have to return to thetraditional cow-dung fertilisers, while gauge Nature’s mood by assessing wisdom of our traditions, our own desihybrid or dwarf crops necessarily the colour of the clouds, the flow of seeds, plow-bullocks and cow-dungrequire chemical fertilisers. Besides the wind, and the pattern of rainfall. fertilizer-based farming if we want toincreasing the production cost, it also An old saying goes, ‘Purva jo purvai save our tradition and, most important,damages the fertility of the soil,” pabay, sookhi nadiyan nav chalavein’, the lives of our fellow farmers!shares a proud Babulal, flaunting the meaning, ‘When wind starts blowingcollection of the seventy varieties in the direction of the Orient star, Charkha Featuresof paddy seeds he has collected by it rains so heavily that even the dryYOJANA April 2014 27

consumer rights the other sideGlobalization of Markets and Consumer Rights:Challenges and Opportunities M C Paul synergizing all the A s a result o f necessities of life goading the aam pro-consumer action economic reforms, consumers to buy them or spur a a large capital flow demand is certainly a violation of programmes and helped making varieties consumer rights as enshrined in strategies together can of quality goods and Consumer Protection Act, 1986. It isdeliver the goods. Now the services, cheap telephone in this developing scenario that the time has come when the services, internet and computers, role of welfare state is considerable.legislature, the executive, airline services, etc. available offering The various intervention measures the judiciary and the choices in the free markets including by the state setting proper consumer fourth Estate must come 24X7 E-commerce to consumers. protection mechanisms are sine quatogether and pro-actively Along with this profit-driven market non to ensure the safety, security work in tandem curbing growth, new ideas, consumption and overall wellbeing of its citizens the rising menace of culture shaping lifestyle changes since they rely increasingly on the market wrongdoings are also increasingly seen like in free-market for purchases of goods and injustices in the developed economies as a result and services. Moreover, there is a era of globalization and of development of multi-storied growing dissatisfaction and serious liberalization of Indian well-stored malls, super markets concern raised by consumers how to and other refurbishing markets with stem many other rising phenomena market economy varieties of goods and high-end of consumer rights violations by products and services. It is a fact that the profit-driven market forces profit-driven global market forces affecting the health, wellbeing and of all hues are in continuous search environment. For example, the of consumer markets in every nook marketing of adulterated and spurious and corner because nation’s growing goods and unsafe services, and their consumer markets are very lucrative consequences on millions of aam and profitable as India’s affluent consumers on particularly belonging and vast middle class consumers are to poorer sections, cannot be easily becoming ‘lifestyle-change-agents’. imagined as the sufferers only know This asymmetric information through where the shoes pinch. This is not eyeball-catching advertisements an aberration but certainly a very and publicity definitely act to the disturbing scenario; a phenomenon of disadvantage of aam consumers as serious concern that urgently demands they do not help in making informed- comprehensive state intervention choice /decision but only mislead. since it relates to larger socio- economic and political questions of This rising menace of unethical policy-making. and misleading advertisements by the producers of goods and services Fortunately, at the behest of the from cars to electronics to daily UN, the Indian Parliament legislatedThe author is professor at School of Social Sciences, Jawaharlal Nehru University, New Delhi.28 YOJANA April 2014

the Consumer Protection Act in Unethical, Unfair and Deceptive charged on many goods and services1986, much before the adoption of Trade Practices: in regards to quality, beyond the fixed or MRP.liberalization and privatization policy quantity pricing policy, deceptivein 1991. In fact, India became one of and innovative packaging, and sales Excessive/ Aggressive Usethe first few countries in the world promotion schemes etc. of Media-Deceptive, Misleadingto have passed such a revolutionary Surrogate Advertisements andlegislation exclusively for consumer High and Unfair Prices: charging Marketing Strategies are very oftenprotection with three-tier machinery high prices to accrue undue profit used to skilfully manipulate, allureat district, state and national level for and thereby exploit vulnerable or influence consumers. Theseredressing consumer grievances. consumers. manipulative strategies do not help consumers to make informed-choiceGlobalization, Market Growth and High Cost of Distribution- about the goods and services marketed,Consumer Rights Violations Consumers pay for excessive and thereby they are made to suffer loss distribution costs as there are too financially, psychologically, physically It is a fact that India is the second many intermediaries, inefficiency and in health and wellbeing.fastest growing economy of the world, duplication of services.after China, with 8 per cent plus Planned Obsolescence and Salesaverage GDP growth rate for the last Under-weight and Unsafe Products Policy-Some producers follow a policyfew years before the recession hit. and Services- Many times, the product or program of planned obsolescence;The rate of growth of consumerist offered lacks the requisite quality and causing products to become obsoleteculture is expected to increase but performs less than the promise with and thereby fail to supply parts towhether free-market activities without regard to weights and measures and consumers who need replacement etccomprehensive regulatory regime poor services as well.under globalization are pure manna Often consumers end up buyingfrom heaven or a fiendish attempt to Product Safety and Security-This inferior, unsafe, spurious, low concerns the production of flawed quality, impure goods at higherIndia is the second fastest growing products due to company indifference, prices from many retail outletseconomy of the world, after China, increased product complexity, and etc. In rural areas, marketers sell with 8 per cent plus average GDP poor quality control. Most companies spurious, unsafe products which growth rate for the last few years are wary of producing poor quality often pass off as originals by the before the recession hit. The rate products in the backdrop of rising dealers/ retailers, particularlyof growth of consumerist culture is consumerism and market expansion. in weekly Haats and Bazars expected to increase but whether to illiterates, uninformed and Harmful, Spurious and Low- free-market activities without benefit Products-Producing harmful uneducated. comprehensive regulatory regime and low-benefit products affectingunder globalization are pure manna health and well-being of consumers Poor service to Disadvantage - It is from heaven or a fiendish attempt in the short and long run like observed that the consumers often feel to exploit consumers is a question adulterated food products, tobacco- disadvantaged as they become victimsthat will be definitely debated for a based harmful products, cigarettes, of poor service in many emerging areas alcoholic beverages/ health drinks, like banking, insurance, real estate, long time skin creams and genetically-modified health, hotel and hospitality, travel, products, spurious pharmaceuticals tourism, airlines, education sectorsexploit consumers is a question that and healthcare products etc. are etc.will be definitely debated for a long causes of great concern and manytime. For example, the Corporate of these promotional products often Some Broader IssuesSocial Responsibility (CSR) is lack nutritional value without muchnarrowly defined and the issues of scientific validity including hazardous The issues of global warming,consumer rights protection are yet to junk foods/fast foods. Often consumers climate change etc. are also causeenter into the lexicon of business and/ end up buying inferior, unsafe, spurious, of tremendous concern as the over-or take a firm place. Unless it is whole- low quality, impure goods at higher consumption and consumption-heartedly accepted by the business, prices from many retail outlets etc. In stimulated economic growth andthe consumer rights violations cannot rural areas, marketers sell spurious, development may be a boon to thebe defeated to the satisfaction of aam unsafe products which often pass off business, but in the long run, it willconsumers. Some of the problems as originals by the dealers/ retailers, be a curse for future generations.consumers face in the emerging particularly in weekly Haats and Gandhiji’s message that ‘The planetmarket economy are: Bazars to illiterates, uninformed has everything to fulfil the needs of and uneducated. These are not rare. the people and not the greed’ is equally Moreover, they are also often over-YOJANA April 2014 29

revolutionary to make our saner, planet blinded by profit-making syndrome the guilty can go a long way. A public-safer and secure so the excessive pay little heed to it. It is here that the private participation scheme, as saidconsumerist culture as adopted by the welfare government has tremendous earlier, can check the menace. Aware,West cannot become the panacea. the responsibility to bring this universal active and concerned consumers areConsumer Protection Act, 1986 has message into the senses of all business an important part of civil society; itbeen amended thrice to meet the needs activities to create a healthy society will pave the way for creating ethicalof the times but due to one reason or and economy through appropriate marketing of products and consumer-the other, the consumer protection government interventions. oriented services. It is in this contextmechanisms are yet to make difference that the spread of consumer rightsto consumer rights violations in 24X7 Consumer Education and Awareness education and awareness movementsmarket scenario in our country. Movement find their relevance and centrality. Thus, the need of the hour is to pro- In India, the consumer rights Media, Awareness and Consumeractively take measures to strengthen movement, is certainly not a new idea; Protectiongood governance system with strong it is as old as trade and commerce. Inregulatory mechanisms applying fact, Kautilya’s Arthashastra detailed Media plays a significant role instringent rules and laws against many consumer protection rules and bringing objective news and views towrongdoers to meet the growing regulations to check exploitations by public at large. Their expansion, reachchallenges thrown up by profit- the trade and industry, particularly and coverage are assets in spreadingdriven free-market forces under the related to under-weights and measures, consumer awareness and protectionprivatization and liberalization agenda adulteration etc. with highlighting education; it helps in maintaining theif the fruits of growth are to reach clauses for punishment for many vitality of democracy and its vital organsthe aam people. In other words, the offences in clear terms. There is no of governance. Audio-visual and printrelevance and centrality of consumer doubt that ensuring consumer welfare media, internet and daily newspapers is certainly the responsibility of the are exposing regularly the free-market It is often said that in a free- government. For example, we often wrongdoings; how they are exploitedmarket environment, consumers are see or buy goods with a label or clause in not getting value-for-money as they even printed in the cash memo: “Items the kings and/or sovereign since once sold will not be returned under Aware, active and concerned they have the options of when, any circumstances” or “goods once consumers are an important part where, how and what to buy from sold cannot be taken back”. This is just of civil society; it will pave the way the market. But in reality, it may direct by opposite to what the sellers for creating ethical marketing ofnot always happen that way as the of free-market developed societies products and consumer-oriented vulnerable consumers find them prominently declare: “In case you are selve under mercy of powerful not fully satisfied with our product, services. It is in this context you can bring the same to us within a that the spread of consumer manufacturers and traders month for either replacement or return rights education and awareness of your money.” This specific example movements find their relevance andprotection mechanisms must be realized shows all the difference between Indianif we want to sustain the balanced and the Western business approach to centralitygrowth of economy and society with consumers.equity. It is here that the Father of frequently suffer underweight, under-the Nation, Mohandas Karamchand The recent data from the consumer measurement; sub-standard quality ofGandhi’s pragmatic message that “A courts in different States shows that products and materials; higher pricingcustomer is most important visitor on there is a direct relationship between than fair price; you pay for originalour premises. He is not dependent on literacy and consumer awareness. A but get the duplicate or fake one;us. We are dependent on him. He is person’s choice to approach Consumer impure or adulterated items in thenot an outsider on our business. He Forums for redressal of grievances name of pure; false advertisements–notis part of it. We are not doing him a against marketers depends on levels of providing full information, hidingfavour by serving him. He is doing us consumer awareness and confidence information, forcing us to make aa favour by giving us an opportunity generated by the former. Thus, to wrong choice, poor after-sales service;to do so.” Thus, both the consumers check the rising malaise of market shop-keepers misbehave after productsand producers are partners of growth wrongdoings, deceptive trade practices are sold; consumers are harassedand development and, the adoption of related to unfair pricing, promotion by sellers and service providers forGandhiji’s message by the business of harmful products and/or unsafe demanding full satisfaction for theof all hues can bring a sea change to goods and services, counterfeits etc. value of money for the products andconsumer rights violations in India. the role of regulatory authority with services; etc. The web sites are full ofBut the disgruntled marketers who are specific powers to check and punish heart-breaking stories of consumers30 YOJANA April 2014

who have been cheated 24X7 in our may be threatened, and national off complaints within 90-150 dayscountry by the unscrupulous companies interest suffers.” Through a historic without giving the fear of usual civilwhether it is travel and tourism sector, declaration in Congress on March court sites, the decision prompt, simpleairlines to coaching and education 15, 1962, he extended to American and pro-consumer. Thus, the Act wassector, banking, insurance, hospital to consumers four basic consumer rights passed with high hopes that thesepharmaceutical sector, real estate and (choice, information, safety and the quasi-judicial bodies would deliverhousing sectors, telecommunication right to be heard). Now, every year quick justice to affected consumersor mobile telephone companies. The 15 March is celebrated as World whose rights are so rampantly violatedtrader bodies and associations both Consumer Rights Day. in the market but today it is a far cry.national, states and local levels can beroped in by giving them confidence Consumer Disputes Redressal It is unfortunate that even afterthat the consumer rights protection System: The Challenges more than 25 years of passing of theis for the benefit of all stakeholders. Consumer Protection Act of 1986, andHowever, many established business fortunately, the Government of after more than 16 years of passingfirms do really care for consumer India, recognizing the consumer rights of the said Ruling, the similar ‘rot’ asrights; it has helped them enhance their protection, took in right earnest a highlighted above, is still prevailing inreputation, goodwill and consumer historic step to enact the Consumer the market arena costing the consumersloyalty since they believe and practice Protection Act, 1986. The Act is heavily. It is in this regard that the rolefair and ethical business practices. If also considered as one of the most of specially institutionalized quasi-this type of policy is adopted by all progressive, comprehensive and judicial machinery is highly importantas mandatory requirement, then the unique piece of legislation ever to protect and build consumermenace of consumer rights violation enacted by the Indian Parliament confidence since increasingly, thewill be greatly checked. exclusively for consumer protection. It defines the consumer as one who It is unfortunate that even afterThe trader bodies and associations purchases goods and services for his/ more than 25 years of passing of both national, states and local her use. The user of such goods and the Consumer Protection Act of levels can be roped in by giving services with the permission of the 1986, and after more than 16 years buyer is also a consumer unless these of passing of the said Ruling, thethem confidence that the consumer are purchased for resale purposes. similar ‘rot’ as highlighted above, rights protection is for the benefit Under this Consumer Protection is still prevailing in the market Act, 1986, a separate Department of of all stakeholders. However, Consumer Affairs was also created in arena costing the consumers many established business firms the Central and State Governments heavily. It is in this regard that thedo really care for consumer rights; focusing on ensuring the rights of role of specially institutionalized it has helped them enhance their consumers as enshrined in the Act. quasi-judicial machinery is highlyreputation, goodwill and consumer In fact, the Consumer Protection Act, 1986 has set in motion a revolution important to protect and build loyalty since they believe and in the fields of consumer rights, the consumer confidence practice fair and ethical business parallel of which is not seen anywhere practices. If this type of policy in the world. unsuspecting consumers are falling is adopted by all as mandatory victims to wrongdoings of business requirement, then the menace of The special feature of this Act is and commerce that now operate in an consumer rights violation will be to provide speedy and inexpensive international environment with new redressal to grievances of the consumer varieties of goods and services, and greatly checked. and provide relief of a specific nature they are also growing fast, getting and award appropriate compensation. integrated and powerful. The legal We may be aware that the As per the Act, the government has systems have to cope with the impact ofconsumer movement in the USA set up a three-tier quasi-judicial 21st century technologies and methodsgot a boost when the late U.S. redressal machinery popularly known of working which demand better andPresident, John F. Kennedy extended as “Consumer courts” at national, timely updating of knowledge to meetwholehearted support and legislative state and district levels with an apex the growing challenges. It is sinecover to consumers. He remarked: National Consumer Commission qua non for the core functionaries of“If a consumer is offered inferior which functions from Upabhokta Nyay these quasi-judicial redressal bodiesproducts, if prices are exorbitant, Bhavan, ‘, New Delhi. As of now, there to develop consumer jurisprudence.if drugs are unsafe or worthless, if are 35 State Commissions and 629 Thus, pragmatic training modules havethe consumer is unable to choose on District Consumer Fora in India. As to be developed to effectively train thean informed basis, then his dollar per the Act, these quasi-judicial bodies functionaries of these quasi-judicialis wasted, his health and safety must be consumer-friendly, disposingYOJANA April 2014 31

dispute redressal bodies, since at rightly advised that the “proceedings can hire seasoned lawyers with heftypresent most of the core functionaries in a consumer Forum are not of fees to contest against the aggrievedare appointed on retirement from adversarial nature. For breach of certain complainant to win the case and makethe civil courts without having clear obligations, there has to be consumer the scenarios worse for the latter whoconcept about different provisions factor or consumer surplus, as one may can hardly afford to confront theof consumer protection laws. That’s like to call, to which a consumer should mighty businessmen. This certainly iswhy it is found that consumer courts be entitled”. The other ills that have another factor that does not encourageinvariably habitually fall back upon the been found prevailing in quasi-judicial aggrieved consumers to approach thecivil court formats and procedures while consumer redressal system are that they quasi-judicial consumer fora even ifadjudicating consumer complaints are not punctual and regular, delivery of they wish to and suffer the marketas they have had long training and justice is unusually delayed, presence misdemeanor silently.experience in the civil court procedures of lawyers is scarce and they frequentlyand techniques. Thus, the inadequate rely on technical points than on the Many of the above situationsknowledge bank in various provisions substance of the case, lawyers make the have also resulted in piling up ofof revolutionary Consumer Protection litigation a very costly affairs in many cases without disposal in differentAct, 1986 and lack of sensitiveness ways like seeking adjournments as a consumer courts all over the country.to its true spirit among the 3-tier Fora matter of course, increasing reliance on Thus, appropriate amendments offunctionaries who are appointed to man lawyers by the core functionaries, etc. the Act by appreciating the presentthe quasi-judicial consumer dispute As Justice Wadhwa said that the justice challenges of the market and properredressal Fora have failed to satisfy the delivery inside of being in expensive understanding of the same can helpaggrieved consumers who approach and speedy, the people are getting the in rectifying the drawbacks of thethem with tremendous expectation. impression that these are another set of system to ensure consumer protection,In fact, the consumer confidence in civil court. Under this circumstance, inFora administration and governance many cases, the aggrieved consumers ...the unscrupulous powerfulof justice is diminishing. It is in this daring to approach consumer courts businessmen with moneybagsscenario that the aggrieved consumers often decide not to do so as they don’t can hire seasoned lawyers withsuffer from ‘double-victimization have time, energy and money to invest hefty fees to contest against the in it. aggrieved complainant to win ...the inadequate knowledge the case and make the scenarios bank in various provisions of The consumer redressal Fora have worse for the latter who canrevolutionary Consumer Protection to be strengthened by several other hardly afford to confront theAct, 1986 and lack of sensitiveness timely measures like funding from mighty businessmen. This certainly to its true spirit among the the Central and State governments, is another factor that does not 3-tier Fora functionaries who are punctuality and regularity of these encourage aggrieved consumersappointed to man the quasi-judicial courts have be enforced, proper methods to approach the quasi-judicial consumer dispute redressal Fora have be identified to reduce the delay consumer fora even if they wish to;have failed to satisfy the aggrieved in justice delivery, improvement of and suffer the market misdemeanorconsumers who approach them with infrastructural facilities, adjournments cannot be allowed as a matter of silently. tremendous expectation. course, lawyers presence must be banned and/or discouraged, adoption otherwise the noble purpose of thesyndrome’, i.e., once in the hands of of complex and long procedures like Act will fail to serve the consumers’market and second, in the hands of in civil courts have to be avoided, interests. Without delivering the quickconsumer redressal fora when their etc. Law colleges and universities and appropriate consumer justicecomplaints find inappropriate redressal must start core courses on Consumer as has been laid down in the Act,by putting them into the adversarial laws and jurisprudence to produce the consumer confidence cannot betechnical and procedural laws. right manpower to man these special enhanced which at present seems to quasi-judicial redressal bodies and/or be a rarity. Thus, what is required is the urgent experienced lawyers well-versed withtraining and appropriate orientation for the Consumer laws and jurisprudence Comprehensive Consumerthe core functionaries to understand have to be appointed, unlike the Protection Mechanismsand appreciate the purpose of the present system of appointing retiredspecial Act and its different provisions Judges to do justice with aggrieved Last but not the least, the followingto deliver justice. only then they can consumers as well as to justify their innovative initiatives could helptruly protect and uphold the dignity of position as, certainly, these quasi- effectively in protecting the consumeraggrieved consumers. In fact, Justice judicial bodies are not a civil court rights and interests keeping in viewM.B. Shah, former President, NCDRC, structure. Moreover, the unscrupulous powerful businessmen with moneybags32 YOJANA April 2014

the challenges at present confronted about the performance of the quasi- In the process of mediation, in noby aam consumers. In this, the strong justice delivery system in our way should the lawyers be allowedwill of the government in serving country. There is also a urgent need to intervene, mediate or promptthe interests of consumers will be to amendment the CP Act. The except the designated Mediatorscritical. Only showing concern following suggestions would help whose professional conduct andwithout responsibility to intervene strengthen the quasi-Fora system. action will be monitored by thein the evolving market scenarios as Fora administration. The Mediatorshighlighted above cannot redress the a. Once the complainants fail to find in this process screen the case filedrampant consumer rights violations as justified and reasonable solution in Affidavits, noting its strengthsenshrined in the CP Act, 1986. to their problem at the level of and weaknesses of the disputes sellers/dealers etc., they can brought before them which would1. All producers and dealers of goods immediately contact any registered help the 3-tier Fora to adjudicate and services must be forced to and government accredited the matter in the future. Thus, follow the fair trade and ethical Voluntary Consumer Organizations once the mediation fails, the matter practices in all business activities (VCOs) to open Mediation and automatically moves to the second as a part of their duty to the people Reconciliation Centres in different stage (Stage-II) at the 3-tier quasi- and the nation as well. parts of the country under PPP judicial Redressal Fora for final model. The genuine pro-active adjudication as per the provisions2. The national business associations VCOs need to be given contract of Consumer Protection Act, 1986. like CII, FICCI, ASSOCHEM, etc. to mediate with the help of well- The mediation process would as well as other small business trained professional Mediators certainly relieve the consumers, association all over the country, authorized by the National unburden and reduce the costs of producing goods and services, must Consumer Protection Authority the consumer fora in many ways. I mandatorily take pro-active roles in and/ or NCDRC to perform these feel the separate Mediation Centre adopting this ideal without fail. special tasks. Their performances under the Delhi Government have to be reviewed and monitored opened with separate paraphernalia3. Business of all hues, the producers periodically for renewal of the may be discontinued. Once we and dealers of goods and services licences. integrate and run the Mediation must have ‘Consumer Complaint Cell under 3-tier Fora jurisdiction Redressal Cell’ to deal with The PSUs, the Ministries both in in turn, would also strengthened the consumer complaints within a the Centre and States that produce Redressal system. The Mediation specified time-limit. Centre can also be authorised to and market goods and services perform with flexi-time schedule4. The CSR cannot be narrowly should also be mandatorily made (till evening) and the modalities defined but broadened to cover the responsible to protect consumer can be designed and formulated consumer rights protection as its rights. It means, all the business based on the need. Initially, we primary objective. The rest of the may start this programme on a activities undertaken under the CSR entities involved in marketing pilot basis to serve the interests of should be secondary, like social goods and services must respect aggrieved consumers. The multi- welfare or philanthropic activities media should be suitably used to etc. and protect consumer rights advertise and cases focussed to without question. check further misdemeanour by the5. The PSUs, the Ministries both in disgruntled marketers in future. the Centre and States that produce b. Similarly, the NCDRC will also and market goods and services have to play a pro-active role in c. Keeping the spirit as above, it should also be mandatorily made streamlining and institutionalizing will be required to suitably amend responsible to protect consumer the Mediation Cells in 3-tier the existing Consumer Protection rights. It means, all the business Fora system. That means once Act, 1986 to incorporate these in entities involved in marketing a complainant files a complaint the provisions for pro-actively goods and services must respect in Affidavit (mandatorily) to the ensuring protection of consumers and protect consumer rights without quasi-Fora-controlled Mediation as well as their welfare. These question. Cells (for this we need to suitably two stages will definitely send amend the Consumer Protection a strong signal to the producers/6. with regard to the redressal of Act, 1986), the trained professional manufacturers of goods and consumer complaints which are Mediators would try to mediate providers of service to have in- filed in quasi-judicial 3-tier Fora giving sufficient chance to the built mechanisms to sort out the system, we may think of following disputing parties to mutually find consumer problems right earnest innovative initiatives to strengthen satisfactory amicable solutions. in their own premises. the administration and governance of the 3-tier Fora because at present, the consumer-victims are not happyYOJANA April 2014 33

d. Regular movement of Mobile strong committee to guide and Redressal Courts: Missing Commitment Consumer Right Protection Van recommend punishment for any to Public Interest”, Economic and stationed at specific market market misdemeanour. Political Weekly, May 30, 1992, locations with Mediators to mediate pp.1129-30. and solve the consumer complaints The above innovative programmes then and there, can usher a new era are basically to ensure the timely 7. NCDRC Judgment on Lucknow of consumer protection. This may adequate relief to the consumers as Development Authority Vs M.K. Gupta, be operated under the PPP scheme their rights are rampantly violated AIR 1994 Supreme Court 787. with the help and facilitation of by the marketers of goods and concerned sections of local people services. Thus, synergizing all the 8. Nayar, Deepak: “Good Values aid the and/or organizations like RWAs, pro-consumer action programmes Market”, The Pioneer, 26 November Schools, Colleges, Universities, and strategies together can deliver 2010, p.2. NGOs, VCOs, etc. Many may the goods. Now the time has come like to volunteer also to check the when the legislature, the executive, 9. Paul, M.C.: “Globalization and market rot. the judiciary and the fourth Estate Consumer Rights Protection.” in must come together and pro-actively Brig. R.S. Chhikara Ed. Governance:e. A n y o t h e r a s s o c i a t i o n s , work in tandem curbing the rising Problems and Prospects, Hope India organizations, recognized Law menace of market wrongdoings and Foundation, 2009. colleges and universities including injustices in the era of globalization many others who wish to participate and liberalization of Indian market 10. Paul, M.C.: “Consumer Rights Protection and impart consumer awareness economy. and Challenges of Consumer Courts in and education, advocacy etc. can India” in International Journal of Youth be encouraged with seed fund Readings Affairs, IYC, New Delhi, 2010 provided by the government or by voluntary scheme like CSR. Part 1. Bal, Arun: “Consumer Protection Act 11. Paul, M.C. (Ed.): Consumer Redressal of the revenues collected from the and Medical Profession”, Economic Systems and Consumer Protection in buyers as sales tax and service tax and Political Weekly, March 13, 1993, India (in press), may be deployed to finance these 432-435; innovative consumer protection 12. Paul, M.C. (Ed.): Consumer Rights programmes. Special care has to 2. Hanspal, Savita: Protection of Protection in India (in press) be taken to outreach the poorer Consumer Rights and Advertising, sections of society. Delhi University, 2008; 13. Paul, M.C.: Problems of Consumers and Awareness of Rights: A Study of NCR,f. As said, there should be an Apex 3. Kapoor, Sheetal: “Legal and Ethical An unpublished Report 2006. Body called National Consumer Aspects of Advertising”, Unpublished Protection Authority to take care Paper, 2008 14. Rao, D.N.: “Globalization and to all the activities highlighted Environmental Footprints”, unpublished above. They will oversee the 4. Kapoor, Sheetal: Consumer and the paper, CESP, JNU, 2008 overall functioning of these Market, Department Of Consumer formal, informal and non-formal Affairs and IIPA, 2005 15. Rao, Rajyalakshmi: Consumer Is King, activities of different bodies and Universal Law Publishing Co., Delhi, sub-bodies like Lokpal with a 5. N a n d , N r i t y a : G l o b a l i z a t i o n , 2010 Consumerism and the Environment, TERI, New Delhi, 2008 16. Wadhwa, Justice D.P. and N.L. Rajah, 6. Narasimhan, Shakuntala: “Consumer Eds.: The Law of Consumer Protection, Wadhwa and Company, Nagpur, 2006. q (E-mail : [email protected])Yojana May 2014 & Forthcoming Issues June 2014 May Energy Security June Indian Agriculture34 YOJANA April 2014

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fiscal reforms challengesTax Reforms and GST: Challenges for FutureReforms Mahesh C Purohit S ince Independence, enactment of all the taxes on income India has followed the and property, the tax structure has now path of planned economic become very complex. Consequently, development. Initially, efforts were made to redraft the the basic objective of overall Income Tax Act. The revised enactment, known as Direct Taxes Indian fiscal policy was Code (DTC), consolidates all the laws relating to direct taxes, viz. income-tax, to ensure acceleration in the growth dividend distribution tax, fringe benefit tax and wealth-tax, so as to establish an rate with social justice. Given this economically efficient, effective and equitable direct tax system. objective, the fiscal policy had a In the case of indirect taxes, steps significant impact on the overall growth have been taken to reduce multiplicity of rates, rationalize the rate structure, rate of the economy during the period and facilitate the adoption of VAT in union excise duty and sales tax. The of planned economic development. introduction of dual-VAT has been a remarkable achievement. It helped in However, the overall growth rate of the removing the cascading effect from taxes and in making business moreSince 1991, the major thrust economy was not up to the mark and competitive. However, this was only in fiscal policy was on a short-term reform. The dual-VAT the results on many fronts did not meet did not take into account all theoverall reforms in tax policy deficiencies in the tax system. Dual-and administration. Initially, with the expectations. Some countries, VAT still suffers from the following weaknesses: the reforms in direct taxes in a similar situation, attained a very focused on simplification l The CenVAT generates definitional and rationalization of the high rate of growth during the same issues relating to a commodity whether it falls in a particularrate structure; reduction in period, leaving India way behind on rate group and causes valuation problems leading to large numberthe high marginal rates and the path of development. Due to the of litigations.the rate categories; reducing sluggish growth rate and the adverse l It has a narrow base due to which the tax system lacks neutrality andthe dispersion and lowering balance of payments, financial stability continues to be inefficient.of tax rates. However, owing to the plethora of changes was on the brink of collapse prior to thein the original enactment of adoption of the structural adjustmentall the taxes on income and property, the tax structure programme in 1991. has now become very Tax Reforms complex Since 1991, the major thrust in fiscal policy was on overall reforms in tax policy and administration. Initially, the reforms in direct taxes focused on simplification and rationalization of the rate structure; reduction in the high marginal rates and the rate categories; reducing the dispersion and lowering of tax rates. However, owing to the plethora of changes in the originalThe author is Director, Foundation for Public Economics and Policy Research, New Delhi. Prior to this, Dr. Purohit was Professor at theNational Institute of Public Finance and Policy, New Delhi. He has also worked as the Member-Secretary of the Empowered Committeeof State Finance Ministers to Monitor Sales Tax Reforms, Government of India.36 YOJANA April 2014

l The services are taxed by the goods (which are currently classified as first year of the introduction of GST Centre only and these are taxed customs duty); cesses and surcharges there would be a three tier rate category, independent of commodity taxes. levied by the Union; and special viz. 6 per cent on essentials, 8 per cent This causes difficulties in taxation additional duty of excise on motor on services and 10 per cent as standard of goods supplied as a part of a spirit and high speed diesel. Among rate. The standard rate would come composite works contract or leasing the State taxes, the GST will cover down to 9 per cent in the second year contract. state-VAT, purchase tax, entertainment and will be 8 per cent in the subsequent tax, luxury tax, and entry tax not levied years. Similarly, the 6 per cent rate onl The cascading of CenVAT under in lieu of octroi. The coverage of GST essentials would increase to 8 per cent sales tax and of sales tax under would, however, exclude the taxes on in the third year. Thus, in the third year CenVAT continues. This applies to petroleum crude and its products. GST would have a single rate. central sales tax (CST) as well. The exclusion of petroleum crude The States, however, differ onl The existing system is creating a and its products from GST is based on this aspect. In fact, after a recent visit bias in favour of imports which do the premise of raising larger resources of some foreign countries by State not bear the hidden cost of taxes on through cascade type taxes. This would Finance Ministers, the EC has opined inputs. in fact cause higher incidence of tax that when the European countries have on inputs including capital goods and more than one rate in their VAT regime,l The tax administration at both the would ultimately affect the efficiency why should it be so difficult to have Centre and the State levels is still of the overall petroleum sector. It is, similar system in our country? very complicated and complex. therefore, suggested that the overall petroleum sector should be brought All inputs including capital goods The exclusion of petroleum crude under the GST regime with additional would be given a set-off. Also,and its products from GST is based levy of excise and sales tax, if necessary exports would be zero-rated. on the premise of raising larger for raising more revenue. While there has been some sort of resources through cascade type In the case of tobacco it has been agreement on this issue in the past, taxes. This would in fact cause proposed that it would be a part of the higher incidence of tax on inputs base of GST. However, the Centre will it seems that the “Pandora’s box including capital goods and would levy a special excise duty to yield larger of different models of inter-State ultimately affect the efficiency of tax resources for its activities; the the overall petroleum sector. States would not levy any additional taxation” has been reopened. tax on it. This raises the question: Why Recognizing the above weaknesses, should there be an unequal base for the Tax on inter-state trade under theit is now proposed that a Goods and Centre and the States? current system of dual-VAT is origin-Services Tax (GST) be introduced to based and is collected by the exportingreplace the existing dual-VAT, service Whatever the base finally accepted State under the provisions of the Centraltax and some other commodity taxes by both, the proposed GST will have Sales Tax (CST) Act of 1956. Thelevied by both the Centre and State two components – CGST (levied by the origin-based CST being inconsistentGovernments. Centre) and SGST (levied by the States). with the GST, the current system of The rates of these two components will CST is proposed to be replaced by aDesign of GST be determined keeping in view the destination based “Integrated GST”. revenue implications for the Centre Therefore, there would be no ‘tax- In 2009, the Empowered Committee and the States, total tax burden and the exporting’ to the importing States. Allof State Finance Ministers (EC) general acceptability of the tax. inputs including capital goods wouldconstituted a Joint Working Group be given a set-off. Also, exports would(JWG) to give a detailed framework In this context, the EC initially be zero-rated. While there has beenfor GST. According to the JWG, the suggested that the rate should be in some sort of agreement on this issue inGST for Central Government would the vicinity of 15 per cent, a 7 per cent the past, it seems that the “Pandora’scover CenVAT (including union excise rate to be levied by the CGST and 8 per box of different models of inter-Stateduty); the additional excise duty levied cent by the SGST. This is based on the taxation” has been reopened. This ison pan masala; petroleum and tobacco premise that currently the effective tax unfortunate and must be treated asproducts; additional excise duty levied rate is 13.5 per cent (with some lower settled.under Additional Duties of Excise rate categories of 5 per cent and some(Goods of Special Importance) Act, more than 13.5 per cent) for state-VAT, Constitutional Amendment1957; additional customs duty in the 10 per cent for CenVAT and 12 per centnature of countervailing duties (CVD) for service tax. Under the present provisionsand other domestic taxes imposed on of the Constitution, the Centre isimports to achieve a level playing The Central Government on the not empowered to levy tax beyondfield between domestic and imported other hand, has proposed that in the manufacture and the States do notYOJANA April 2014 37

have the power to levy tax on services; Second, the bill provides for the l gross turnover of goods up to Rs 1.5therefore, an amendment to the setting up of a GST Dispute Settlement crore be assigned exclusively to theConstitution is a pre-requisite for the Authority. This will have a Chairperson States;levy of GST. Keeping in view this and two members to resolve disputesfact, the Finance Ministry, had tabled arising out of deviations from the l gross turnover of services up to Rsthe 115th Amendment Bill 2011 in the recommendations of the GST Council, 1.5 crore be assigned exclusively toLok Sabha on 22nd March 2011. It is either by the Centre or the State the Centre; andpertinent to note that prior to this Bill, Governments. The States have seriousthe EC had considered three drafts of concern about the need of having such l gross turnover of above Rs 1.5the Constitutional Amendment Bill a body. crore be assigned to both thesent by the Union Government to three Governments: for the administrationdifferent meetings of the EC held in Third, the decision to exclude of CGST to the Centre and for theAugust-October 2010 and one held in petroleum products from the coverage administration of SGST to theFebruary 2011. The States had some of GST needs reconsideration. It is States.serious objections on the provisions of proposed that the petroleum productsthe Bill and these are given below: should be included in the definition of The above design for the GST to have a broader base for the tax. administration of GST would not only Under the present provisions of Even if the GST is presently not levied involve both the tiers of Government but the Constitution, the Centre is not on these items, excluding these items also require interaction between dealers from the definition and coverage of and the officers of tax administration at empowered to levy tax beyond GST in the Constitution Amendment the Centre, as well as in the States. manufacture and the States do Bill will make the system inflexible. not have the power to levy tax on In future, if the States or the Centre In future, if the States or theservices; therefore, an amendment decided to levy GST on these items, it Centre decided to levy GST on these would require another Constitutional to the Constitution is a pre- Amendment. From a futuristic point of items, it would require another requisite for the levy of GST. view, it would be prudent not to confine Constitutional Amendment. From a the scope of the tax under the bindings futuristic point of view it would be First, the proposed amendment of the Constitution. prudent not to confine the scope ofto the Constitution envisages the the tax under the bindings of thesetting up of a GST Council to make It is hoped that a consensus wouldrecommendations on issues like rates be possible between the Centre and Constitution.of tax, exemptions and threshold limits. the States to take care of the issuesThe Bill empowers the President to set mentioned above. However, keeping in view theup the Council with the Union Finance tenets of taxpayer convenience andMinister as Chairperson, and the Union Administration of GST least compliance cost, it is suggestedMinister of State for Revenue and that instead of involving both theFinance Ministers of all the States as The authority for administering Governments in all the administrativeMembers. The States, however, feel GST has become a perplexing issue. procedures it would be more rationalthat they should have equal authority The Joint Working Group (JWG) to assign specific tasks to the Centrewith regard to all the aspects related on GST, appointed by the EC has and the States.to the Council. Keeping in mind suggested that the taxpayers belowthese objections raised by the States, a defined threshold limit would Therefore, the following road mapwe propose that the GST Council be accountable for the day-to-day is proposed for a rational administrationshould be constituted on the pattern administrative matters (including of GST in India.of the present EC which has had an registration, collection, and the ITCexcellent track record of reforming issues for both CGST and SGST) to First, there should be a thoroughthe tax system for more than a decade. the State authorities and the taxpayers re-engineering of the department ofAccordingly the proposed Council above the prescribed turnover would GST (i.e. the departments of SGSTshould comprise of the Union Finance be accountable to both the Central and and of the CGST) at both the levels.Minister and the Finance Ministers of the State authorities. The EC further This must be done in such a way thatall the States and the Union Territories considered these recommendations and the responsibility, accountability andas its members. The revenue interest put forth its view in A Model and Road authority of each tax department atof the Centre would automatically be Map for GST in India. Accordingly, the the Central and the State level couldtaken care of due to the fact that any assignment of the administrative tasks be established.change would affect the Centre and the will be based on the threshold limits forStates in a similar fashion. gross turnover of goods or services as Second, given the limited number given below: of officials at the Central level, it is proposed that these officers be assigned special tasks to monitor the operations of a large number of dealers under38 YOJANA April 2014

CGST and SGST. The day-to-day Fifth, auditing is essential to and CGST offices. The integration ofoperations related to registration, minimise the gap between the reported information for SGST, CGST, customspayment of tax, and submission of tax and the actual statutory tax liability and income tax through PAN numberreturn for all the dealers (irrespective of the taxpayer. Therefore, there and tax information exchange systemof their size) should be assigned to the is need for a proper audit plan to (TINXSYS) would be an essentialStates. In other words, the dealers will cover different economic activities component of GST administration.register and submit their return to the and the large variety of taxpayers, While these aspects will remain withState Department where the dealer is classified according to the level of the concerned authorities, officialslocated. In general, the dealers will turnover of goods and services. Also, from other tax departments will haveinteract with one tax authority only. it should include different procedures access to such information whenever to identify and appropriately deal with required. Third, payment of tax by the non-compliance. Since GST auditregistered dealer will be made into Conclusionthe bank account of the concerned The introduction of GST in theGovernment, viz. the tax receipts from indirect tax system of the Union The introduction of GST in theSGST would be paid into the account and the State Governments and indirect tax system of the Unionof the State Government and the tax the DTC in the direct taxes of the and the State Governments and thereceipts from CGST paid into the bank Union Government will help to DTC in the direct taxes of the Unionaccount of the Central Government. establish an economically efficient, Government will help to establish an cost effective and transparent tax economically efficient, cost effective Fourth, cross-verification of and transparent tax system. It woulddocuments must be strengthened under system. make the Indian taxpayer competitivethe new regime. In the absence of proper at home as well as in the internationalcross-verification, the dealers avoid the (whether for SGST or for CGST) market. It is, however, important topayment of tax and claim undue credit involves local factors as well as inter- remove the bumps and road blocks infor taxable sales. Tax evasion can be State issues, the audit role has to be its introduction. Also, the other taxesprevented by setting up departments assigned to the officials of both the at the State level need to be furthersimilar to the centralized, as well as SGST as well as those of the CGST. reformed. Special care need to be takenregional, anti-evasion organization in In general, the cases involving inter- to reform the other State taxes, viz. stateFrance. Drawing upon the experiences State boundaries should be taken up excise, motor vehicles tax, passengersof countries like France, it is proposed by the CGST officials. This will entail and goods tax and stamp duty andthat this role be bifurcated between proper coordination between the top- registration fee. That would make thethe officials of the SGST and those of level officials of SGST as well as the Indian tax system suitable for takingCGST. The former should look into the CGST in the selection of cases. the country toward a new horizon ofissues of cross-verification within the future growth and prosperity.  qState boundaries and the latter should Sixth, the MIS has to be andeal with tax cases having inter-State integrated activity of both the SGST (E-mail : [email protected])and inter-country ramifications.GDP Growth Macro-Economic Framework Statement 2014-15As per the Advance Estimates released by the Central Statistics Office (CSO), the Indian economy is estimated to register a growthrate of 4.9 per cent in 2013-14 (in terms of GDP at factor cost at constant prices). This growth is significantly lower in comparison tothe decadal average of 7.6 per cent during 2004-05 to 2013-14. The sub-5 per cent growth of the economy in 2013-14 is primarilythe result of the continued slowdown in the industrial sector that is estimated to grow at 0.7 per cent in 2013-14 and lower growthin the ‘trade, hotels, transport and communications’ segment of the service sector. On the brighter side, sectors, viz. agriculture,electricity, gas & water supply, financial, insurance, real estate & business services and community, social & personal services areprojected to have grown at faster rates in 2013-14 visà-vis 2012-13.The economy recorded a modest pick-up in Q2 2013-14 with a growth of 4.8 per cent, compared to 4.4 per cent in Q1 this year. Thegrowth of 4.6 per cent achieved in the first half of the current year, set against the growth of 4.9 per cent for the full year projectedby the Advance Estimates, also indicates a further recovery in the second half of the year.On the demand side, GDP at constant market prices is projected to register a growth of 4.6 per cent in 2013-14 as against a growthof 4.7 per cent in 2012-13. The growth of consumption expenditure, gross fixed capital formation and exports is estimated at 4.4per cent, 0.2 per cent and 8.0 per cent respectively in real terms during 2013-14. The growth in these components was 5.2 per cent,0.8 per cent and 5.0 per cent respectively in 2012-13. The growth of investment in the economy is estimated to have registered adecline during 2012-13 as compared to 2011-12. As per the First Revised Estimates released by the CSO, gross domestic savings as aratio of GDP at current market prices (savings rate) declined from 31.3 per cent in 2011-12 to 30.1 per cent in 2012-13. This declineis primarily accounted for by a reduction in savings of the private corporate sector and savingsby households in physical assets. Source : Statements laid before Parliament under the Fiscal Responsibility and Budget Management Act, 2003YOJANA April 2014 39

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world wide web SPECIAL ARTICLEWho governs the Internet? Implications forfreedom and national security Sunil Abraham Multistakeholderism is a T he second half of this mean that the I star bodies were form of governance that last year has been quite finally willing to end the special role seeks to ensure that every momentous for Internet that US played in Internet governance? stakeholder is guaranteed a governance thanks However, that dramatic shift in positionseat at the policy formulation to Edward Snowden. was followed with the following table (either in consultative German Chancellor qualifier “...towards an environment capacity or in decision Angela Merkel and Brazilian President in which all stakeholders, including all making capacity depending Dilma Rousseff became aware that they governments, participate on an equal who you ask). The Tunis were targets of US surveillance for footing.” Clearly indicating that for Agenda, which was the end economic not security reasons. They the I star bodies multistakeholderism result of the 2003-05 WSIS protested loudly. The role of the US was non-negotiable. Two days laterupheld the multistakeholder perceived by some as the benevolent President Rousseff after a meeting withmode. The 2003–2005 World dictator or primary steward of the Fadi Chehadé, announced on Twitter Summit on the Information Internet because of history, technology, that Brazil would host \"an international Society process was seen by topology and commerce came under summit of governments, industry, civil those favouring the status scrutiny again. The I star bodies also society and academia.\" The meeting quo at that time as the first known as the technical community has now been dubbed Net Mundialattempt by the UN bodies or - Internet Corporation for Assigned and 188 proposals for “principles” ormultilateralism - to takeover Names and Numbers (ICANN); five “roadmaps for the further evolution of Regional Internet Registries (RIRs) the Internet governance ecosystem” the Internet ie. African, American, Asia-Pacific, have been submitted for discussion European and Latin American; two in São Paulo on the 23rd and 24th of standard setting organisations - World April. The meeting will definitely be Wide Web Consortium (W3C) & an important milestone for multilateral Internet Engineering Task Force and multi-stakeholder mechanisms in (IETF); the Internet Architecture Board the ecosystem. (IAB); and Internet Society (ISOC) responded by issuing the Montevideo It has been more than a decade since Statement on the 7th of October. The this debate between multilateralism statement expressed “strong concern and multi-stakeholderism has ignited. over the undermining of the trust and Multistakeholderism is a form of confidence of Internet users globally governance that seeks to ensure that due to recent revelations of pervasive every stakeholder is guaranteed a seat monitoring and surveillance.” It called at the policy formulation table (either for “accelerating the globalization of in consultative capacity or in decision ICANN and IANA functions...” - did making capacity depending who youThe author is is the executive director of the Centre for Internet and Society (CIS), Bangalore. He is also the founder of Mahiti, a 15year old social enterprise aiming to reduce the cost and complexity of information and communication technology for the voluntarysector by using free software. He is an Ashoka fellow. For three years, he also managed the International Open Source Network, aproject of United Nations Development Programme's Asia-Pacific Development Information Programme, serving 42 countries in theAsia-Pacific region.YOJANA April 2014 41

ask). The Tunis Agenda, which was Seven years later, during the World as was the case with censorship,the end result of the 2003-05 WSIS Conference on Telecommunication China only conducts pervasive blanketupheld the multistakeholder mode. in Dubai, the status quoists dubbed surveillance upon its citizens – unlikeThe 2003–2005 World Summit on it another attempt by the UN to take US surveillance, which not only affectsthe Information Society process was over the Internet. Even those non- its citizens but targets every single userseen by those favouring the status American civil society actors who were of the Internet through a multi-layeredquo at that time as the first attempt by uncomfortable with US dominance approach with an accompanyingthe UN bodies or multilateralism - to were willing to settle for the status acronym soup of programmes andtakeover the Internet. However the end quo because they were convinced initiatives that include malware,result ie. Tunis Agenda clarified and that US court would uphold human trojans, software vulnerabilities, backreaffirmed multi-stakeholderism as the rights online more robustly than doors in encryption standards, overway forward even though multilateral most other countries. In fact, the the top service providers, telcos, ISPs,governance mechanisms were also US administration had laid a good national backbone infrastructure andaccepted as a valid component of foundation for the demonization submarine fibre optic cables. SecurityInternet governance. The list of of the UN and other nations states guru Bruce Schneier tells us thatstakeholders included states, the private that preferred an international “there is no security without privacy.sector, civil society, intergovernmental regime. “Internet freedom” wasorganisations, international standards State Department doctrine under the Security guru Bruce Schneier tells usorganisations and the “academic and leadership of Hillary Clinton. As per that “there is no security withouttechnical communities within those her rhetoric – there were good states, privacy. And liberty requires bothstakeholder groups mentioned” above. bad states and swing states. The US,The Tunis Agenda also constituted the UK and some Scandinavian countries security and privacy.” BlanketInternet Governance Forum (IGF) and were the defenders of freedom. surveillance therefore underminesthe process of Enhanced Cooperation. China, Russia and Saudi Arabia were examples of authoritarian states that the security imperative and When it comes to surveillance, were balkanizing the Internet. And compromises functioning markets one could argue that the US is India, Brazil and Indonesia were by make e-commerce, e-banking, worse than China. Again, as was examples of swing states – in other the case with censorship, China words, they could go either way – join intellectual property, personal only conducts pervasive blanket the good side or the dark side. information and confidential surveillance upon its citizens – information vulnerable. Building unlike US surveillance, which not But Internet freedom rhetoric was a secure Internet and informationonly affects its citizens but targets deeply flawed. The US censorship society will require ending mass every single user of the Internet regime is really no better than China’s. surveillance by states and private through a multi-layered approach China censors political speech – US censors access to knowledge thanks actors.The IGF was defined in detail with to the intellectual property (IP) rights-a twelve point mandate including to holder lobby that has tremendous And liberty requires both security and“identify emerging issues, bring them influence on the Hill. Statistics of privacy.” Blanket surveillance thereforeto the attention of the relevant bodies television viewership across channels undermines the security imperativeand the general public, and, where around the world will tell us how the and compromises functioningappropriate, make recommendations.” majority privileges cultural speech markets by make e-commerce,In brief it was to be a learning Forum, over political speech on any average e-banking, intellectual property,a talk shop and a venue for developing day. The great firewall of China only personal information and confidentialsoft law not international treaties. affects its citizens – netizens from information vulnerable. Building aEnhanced Cooperation was defined as other jurisdictions are not impacted secure Internet and information society“to enable governments, on an equal by Chinese censorship. On the other will require ending mass surveillancefooting, to carry out their roles and hand, the US acts of censorship are by states and private actors.responsibilities, in international public usually near global in impact. This ispolicy issues pertaining to the Internet, because the censorship regime is not The opportunity for Indiabut not in the day-to-day technical and predominantly based on blocking oroperational matters, that do not impact filtering but by placing pressure on Unlike the America with itson international public policy issues” – identification, technology and financial straitjacketed IP regime, Indiaand to this day, efforts are on to define intermediaries thereby forcing their believes that access to knowledgeit more clearly. targets offline. When it comes to is a precondition for freedom of surveillance, one could argue that speech and expression. As global the US is worse than China. Again, intellectual property policy or access to knowledge policy is concerned, India is considered a leader both42 YOJANA April 2014

when it comes to domestic policy will. Instead of just being a friendly limits it to management of criticaland international policy development jurisdiction from the perspective of Internet resources, including theat the World Intellectual Property access to medicine, it is time for India domain name system, IP addressesOrganisation. From the 70s our to also be the enabling jurisdiction for and root servers – in other words, thepolicy-makers have defended the access to knowledge more broadly. We ICANN, IANA functions, regionalright to health in the form of access could use patent pools and compulsory registries and other I* bodies. This isto medicines. More recently, India licensing to provide affordable and where US dominance has historicallyplayed a critical role in securing innovative digital hardware [especially been most explicit. This is alsothe Marrakesh Treaty for Visually mobile phones] to the developing where the multi-stakeholder modelImpaired Persons in June 2013 which world. This would ensure that rights- has clearly delivered so far andintroduces a user right [also referred holders, innovators, manufactures, therefore we must be most carefulto as an exception, flexibility or consumers and government would all about dismantling existing governancelimitation] which allows the visually benefit from India going beyond being arrangements. There are very broadlyimpaired to convert books to accessible the pharmacy of the world to becoming four approaches for reducing USformats without paying the copyright- the electronics store of the world. We dominance here – a) globalizationholder if an accessible version has not could explore flat-fee licensing models [giving other nation-states a rolebeen made available. The Marrakesh like a broadband copyright cess or equal to the US within the existingTreaty is disability specific [only for levy to ensure that users get content multi-stakeholder paradigm], b)the visually impaired] and works [text, images, video, audio, games internationalization [bring ICANN,specific [only for copyright]. This is and software] at affordable rates and IANA functions, registries and I*the first instance of India successfully rights-holders get some royalty from all bodies under UN control or oversight],exporting policy best practices. India’s Internet users in India. This will go aexception for the disabled in the long way in undermining the copyright ...we need a scientific, targetedCopyright Act unlike the Marrakesh enforcement based censorship regime surveillance regime that is inTreaty, however, is both disability- that has been established by the US. compliance with human rights When it comes to privacy, we could principles. This will make India Regardless of the final solution, enact a world-class privacy law and simultaneously an IP and privacy it is clear that those that control establish an independent, autonomous haven and thereby attract huge domain names and allocate IP and proactive privacy commissioner investment from the private sector,addresses will be able to impact the who will keep both private and state and also earn the goodwill of globalfreedom of speech and expression. actors on a short lease. Then we need a civil society and independent media.The impact on the national security scientific, targeted surveillance regime of India is very limited given that that is in compliance with human c) eliminating the role for nationthere are three root servers within rights principles. This will make India states in the IANA functions and d) national borders and it would be simultaneously an IP and privacy haven introducing competitors for names and near impossible for the US to shut and thereby attract huge investment numbers management. Regardless from the private sector, and also earn of the final solution, it is clear that down the Internet in India. the goodwill of global civil society and those that control domain names and independent media. Given that privacy allocate IP addresses will be able toneutral and works-neutral. Given that is a precondition for secuiryt, this will impact the freedom of speech andthe Internet is critical to the successful also make India very secure from a expression. The impact on the nationalimplementation of the Treaty ie. cross cyber security perspective. Of course security of India is very limited givenborder sharing of works that have this is a fanciful pipe dream given our that there are three root servers withinbeen made accessible to disabled current circumstances but is definitely national borders and it would be nearpersons in one country with the global a possible future for us as a nation to impossible for the US to shut downcommunity, it is perhaps time for pursue. the Internet in India.India to broaden its influence into thesphere of Internet governance and the What is the scope of Internet For a more expansive definitiongovernance of information societies Governance? – The Working Group on Internetmore broadly. Governance report has four categories Part of the tension between multi- for public policy issues that are relevant Post-Snowden, the so called swing stakeholderism and multilateralism to Internet governance:states occupy the higher moral ground. is that there is no single, universallyIt is time for these states to capitalize accepted definition of Internet “(a) Issues relating to infrastructure andon this moment using strong political governance. The conservative the management of critical Internet definitions of Internet GovernanceYOJANA April 2014 43

resources, including administration Convention on Cybercrime – and be as interested in deregulation for the of the domain name system and bilateral arrangements like Mutual public interest as it is in regulation for Internet protocol addresses (IP Legal Assistance Treaties. “Spam” is the public interest. addresses), administration of the root currently being handled through self- server system, technical standards, regulatory efforts by the private sector Readings peering and interconnection, such as Messaging, Malware and telecommunications infrastructure, Mobile Anti-Abuse Working Group. 1 Montevideo Statement on the Future including innovative and Other areas where there is insufficient of Internet Cooperation https://www. convergent technologies, as well as international or global cooperation icann.org/en/news/announcements/ multilingualization. These issues include “peering and interconnection” announcement-07oct13-en.htm are matters of direct relevance to - the private arrangements that exist Internet governance and fall within are confidential and it is unclear 2 Brazil to host global internet summit in the ambit of existing organizations whether the public interest is being ongoing fight against NSA surveillance with responsibility for these adequately protected. http://rt.com/news/brazil-internet- matters; summit-fight-nsa-006/ So who really governs the(b) Issues relating to the use of the Internet? 3 Tunis Agenda For The Information Internet, including spam, network Society http://www.itu.int/wsis/docs2/ security and cybercrime. While So in conclusion, who governs tunis/off/6rev1.html these issues are directly related to the Internet is not really a useful Internet governance, the nature of question. This is because nobody 4 Roadmap for globalizing IANA: global cooperation required is not governs the Internet per se. The Four principles and a proposal for well defined; Internet is a diffuse collection of reform: a submission to the Global standards, technologies and actors and Multistakeholder Meeting on the(c) Issues that are relevant to the Internet dramatically different across layers, Future of Internet Governance by but have an impact much wider than geographies and services. Different Milton Mueller and Brenden Kuerbis the Internet and for which existing Internet actors – the government, the March 3rd 2014 See: http://www. organizations are responsible, such private sector, civil society and the internetgovernance.org/wordpress/ as intellectual property rights (IPRs) technical and academic community are wp-content/uploads/ICANN reformg or international trade. ...; already regulated using a multiplicity lobalizing IANA final.pdf of fora and governance regimes – self(d) Issues relating to the developmental regulation, coregulation and state 5 Mumbai (I Root), Delhi (K Root) and aspects of Internet governance, regulation. Is more regulation always Chennai (F Root). See: http://nixi.in/ in particular capacity-building in the right answer? Do we need to en/component/content/article/36-other- developing countries.” choose between multilateralism and activities-/77-root-servers multi-stakeholderism? Do we need Some of these categories are stable definitions to process? Do 6 Report of the Working Group onaddressed via state regulation that we need different version of multi- Internet Governance to the President ofhas cascaded from multilateral stakeholderism for different areas the Preparatory Committee of the Worldbodies that are associated with the of governance for ex. standards vs. Summit on the Information Society,United Nations such as the World names and numbers? Ideally no, no, Ambassador Janis Karklins, and theIntellectual Property Organisation no and yes. In my view an appropriate WSIS Secretary-General, Mr Yoshiofor “intellectual property rights” and global governance system will be Utsumi. Dated: 14 July 2005 See:the International Telecommunication decentralized, diverse or plural in http://www.wgig.org/WGIG-Report.Union for “telecommunications nature yet interoperable, will have htmlinfrastructure”. Other policy issues both multilateral and multistakeholdersuch as “cyber crime” are currently institutions and mechanisms and will 7 Messaging, Malware and Mobile Anti-addressed via plurilateral instruments– for example the Budapest Abuse Working Group website See: http://www.maawg.org/  q (E-mail : [email protected]) Condolences Yojana condoles the demise of its founding editor Khushwant Singh. An author ofrepute, illustrious editor and a popular columnist, he is considered a doyen of Indianjournalism. 'Yojana, like the plans themselves will endeavour to embrace the entire fieldof development, economic, educational, social and cultural'. Writing in the inaugural issueof Yojana in January 1957, he had set the tone of the magazine. His words of wisdom stillinspire us.44 YOJANA April 2014

microfinance DEEP PROBEMicrofinance Regulation in India: A CriticalPerspective Tara S Nair It is noteworthy, however, G oing by the 2011 RBI statistics, the financial inclusion that between 2001 and Census data, 102 million indices have not been very favourable 2011, there was a 23 per households out of a to India. These indices incorporate the total of 247 million in measure of usage of banking servicescent increase in the number India are not covered along with those of availability and of households serviced by the banking system. accessibility to estimate the extent Importantly, 63 per cent of these of inclusion. As per the Global by banks. The increment households are in rural areas. The Findex (2011), only 35 per cent of was more pronounced in coverage of urban household is by adults in the country have a formal the rural areas, where the banks, according to the Census data, account and 8 per cent, a formal share of such households is more (69 per cent of all households) loan. Among the bottom 40 per centrose from 30 per cent to 54 compared to rural households (54 per of the population in terms of income per cent. These numbers cent). It is noteworthy, however, that only 27 per cent have accounts with to some extent allay the between 2001 and 2011, there was a formal financial institutions. Onlyanxieties expressed by some 23 per cent increase in the number of 12 per cent adults save with banks, that with the deregulation households serviced by banks. The while a miniscule 2 per cent and 4 per of the banking industry, increment was more pronounced in cent respectively use their accountsthere would be a retreat of the rural areas, where the share of such to receive remittance and receive banks from serving rural households rose from 30 per cent to government benefit transfers. The 54 per cent. These numbers to some CRISIL Inclusive (2013), though populations extent allay the anxieties expressed reports an improvement in the status by some that with the deregulation of of financial inclusion since 2009, the banking industry, there would be finds that only 14 per cent individuals a retreat of banks from serving rural access bank loans. Significantly, populations. The branch expansion the analysis by CRISIL shows that data reveals that during the period the bottom 50 districts have just 2 2007-13, a fourth of all the new per cent of all bank branches in the branches created in the country were country. in rural areas or areas with population less than 10,000 (RBI 2008; RBI Low level of financial inclusion 2013). is attributed by some to the inherent incapability of the formal banking Despite such encouraging signals system in the country to cater to from the population census as well as the distinct needs of certain regionsThe author is Associate Professor at the Gujarat Institute of Development Research (GIDR), Ahmedabad. Her research spansareas like rural financial intermediation, microfinance, livelihoods, micro enterprise development, gender and entrepreneurship,and innovation-institution interface. She has undertaken primary research across Indian states and countries like Bangladesh andMyanmar, and consulted many national and international programmes/organisations. Her papers have appeared in several academicjournals and books. Recently she co-authored the State of the Sector Report Microfinance 2013, the most valued national resourcedocument on microfinance in India.YOJANA April 2014 45

and population groups, especially efficient businesses of microfinance especially from the public sectorthe poorer ones. They argue that and enhancing financial capability to banks. The loan disbursements thatinstitutions that can mediate the flow fulfill social mission. The infusion experienced a dip from Rs. 8500of financial resources between the of equity started attracting debt crore to Rs. 5200 crore betweenformal institutions and the fragmented from banks triggering the onset of 2010-11 and 2011-12 could rise upcommunities of users of financial a phase in the 2000s of expansion, to Rs.7800 crore by March 2013.services are critical for furthering the high growth, intense competition The loan disbursements to SHGsgoals of both financial inclusion and and ‘legalization’ of microfinance increased from Rs.16535 crore to Rs.inclusive development. While one structures (Ibid). 20585 crore (NABARD, 2013). Thus,section advocates the commercially during 2012-13 fresh loans worthoriented microfinance institution The state of Andhra Pradesh about Rs. 28000 crore were infused(MFI) model as the most appropriate bore the brunt of the aggressively in the microfinance sector as againstform of an intermediary, others put growing microfinance sector caught Rs. 22000 in 2011-12.their faith on self-help groups and between a set of ambitious MFIsthe linkage banking model, which and the provincial government in Regulating for Orderfocuses on gradually building the poor the guise of a dynamic self helphouseholds’ financial discipline and promoter. Two crisis in the state What made such quick turn-aroundcredit history by combining members’ in 2006 and 2010, where the MFIs of the microfinance sector possibleown money saved over time and bank were accused of driving borrowers post 2012 despite badly bleeding MFIsloans without any collateral and at to committing suicide, discouraged and a near-stagnant SHG-bank linkagemarket interest rates. further investment in the sector, programme? forcing it to slow down the pace ofMicrofinance Sector: Structure and growth. Table 1 demonstrates the The crisis in Andhra PradeshGrowth deceleration in microfinance activity prompted a rather controversial in the case of both the channels during legislative action from the state The SHG and MFI models have 2010-13 compared to 2007-10. The government - the passage of Andhrabeen evolving parallel to each other decline was more pronounced in the Pradesh Micro Finance Institutionssince the early 1990s. There are case of the MFI channel. The annual (Regulation of Money Lending) Act,two distinct phases in the growth average increment in loan outstanding 2011. The Act severely restricted thetrajectory of Indian microfinance in the MFI stream dwindled to Rs. functioning of MFIs within the state(Nair, 2011). The 1990s can be 248 crore between 2010-11 and 2012- and caused several of them to downsize,described as the decade of learning 13 from over Rs. 3700 crore during restructure and relocate businesses.and innovation. During this phase the previous period. The sector’s overall performance inseveral independent experiments terms of loan disbursals, outstandingwere carried out largely within the A review of the data relating to and number of borrowers got affectednon governmental, not for profit both MFIs and SHGs suggest that the by the losses made by the market-sector with NGOs acting as self sector has been able to transcend the leading MFIs in Andhra Pradesh.help promoting agencies (SHPA). worst part of the crisis. Flow of debt Funds flow from banks became aThe southern states spearheaded funds to MFIs improved considerably trickle. Investors wary of the politicalmost of these initiatives. The SHG-bank linkage programme of the Table 1 Growth of Microfinance: 2006/07 to 2012/13National Bank for Agriculture andRural Development (NABARD) and Year Number of clients (crore) Loan outstanding (Rs. crore)the SHG based poverty alleviationschemes implemented by the state SBLP MFI Total SBLP MFI Totalgovernments, mainly, AndhraPradesh, Kerala, Tamil Nadu and 2006-07 3.8 1 4.8 12,366 3,456 15,822Orissa, led to massive promotion ofself-help groups. Through the late 2007-08 4.7 1.4 6.1 16,999 5,954 22,9531990s and early 2000s, several ofthe prominent SHPAs transformed to 2008-09 5.4 2.3 7.7 22,679 11,734 34,413commercial entities mainly with thehelp of private equity. Unlike their 2009-10 6 2.7 8.7 28,038 18,343 46,381NGO predecessors, the transformedentities licensed as non-banking 2010-11 6.3 3.2 9.4 31,221 21,556 52,777finance companies (NBFCs), puttheir emphasis on building viable and 2011-12 6.1 2.7 8.8 36,340 20,913 57,253 2012-13 6.5 2.8 9.3 39,375 22,300 61,675 Average annual addition   2007-10 0.55 0.43 0.98 3918 3722 7640 2010-13 0.07 -0.13 -0.03 2718 248 2966 Source: Nair and Tankha (2014).46 YOJANA April 2014

risks also abstained from infusing of regulations recommended by and annual percentage rate whichfund in MFIs, especially the ones with the Malegam Committee was can be charged by any microfinancesignificant business within Andhra subsequently accepted by the RBI institution, sector related benchmarksPradesh. As seen earlier, the progress and the annual Monetary Policy and performance standards pertainingof linkage banking programme too got Statement 2010-11 of the Bank to methods of operation, fair andimpacted negatively by the erosion of laid out its details. Specifically, reasonable methods of recovery ofconfidence among bankers. the creation of a separate NBFC- loan advanced by the microfinance MFI category formulation of the institutions” as also the authority to Coming out of a damaging crisis, regulatory guidelines putting in inspect and scrutinise MFI records and the microfinance sector in general place restrictions and safeguards to direct them in matters that involve and MFIs in particular have been with regard to minimum standards transaction of property and assets. of governance, management and The central bank is also vested with looking forward to a robust customer protection (RBI, 2012) are the authority to approve/ disapprove regulatory arrangement. The observed to have helped the for-profit activities of MFIs like closure, intervention of the central bank MFIs to streamline and standardize amalgamation, demerger, division, on several occasions has helped their operational policies. take over, transfer of ownership or ease the situation substantially control. by boosting the confidence of the Even as the RBI came out with a banking system and facilitating series of steps to guide the working Considering the dynamic nature increased funds flow to the MFIs. of for-profit companies engaged in of financial services business, microfinance activities, the Ministry the MF Bill 2012 was drafted as Addressing the general concerns of Finance prepared a draft legislation a broad framework and not as aregarding the implications of - the Microfinance Institutionsthe AP government’s uncannily (Regulation and Development) Bill The intervention of the centralspeedy legislative action, the RBI 2012 - to regulate the sector nationally bank on several occasionsconstituted a sub-committee (under and introduced it in the Parliamentthe chairmanship of Y. H. Malegam) on 22 May 2012. The MF Bill 2012 has helped ease the situationto study the issues related to regulated states its purpose as to provide for substantially by boosting theMFIs. The Committee recommended “development and regulation of the confidence of the banking systemthe creation of a separate category microfinance institutions for the and facilitating increased fundsof NBFC-MFIs, which hold more purpose of facilitating access to credit, flow to the MFIs. Its emphasisthan 90 per cent of their total assets thrift ad other microfinance services on encouraging self-regulatory(excluding cash, bank balance, to the rural and urban poor and certain organisations (SRO) gives someand money market instruments) as disadvantaged sections of the people hope that sector networks willqualifying assets (defined mainly and promoting financial inclusion get to play more definite andin terms of annual income of the through such institutions….”. As constructive role in helping MFIsborrowing household, proposed per the Bill microfinance institutions stick to the regulated path.use of loan, loan amount, extent include all societies, trusts, companiesof indebtedness of the borrowing and other body corporates that provide prescriptive regulation. After widehousehold and loan term). Importantly, microfinance services, but exclude ranging consultations with multiplethe committee recommended interest banks, cooperatives and individual stakeholders and despite generalrate and margin caps for NBFC- moneylenders. consensus about its potential to furtherMFIs. The other recommendations the positive aspects of microfinanceincluded transparency in interest The major provisions in the MF (Becker (2013), the Parliamentarycharges, restriction in the number Bill 2012 include (1) registration of Standing Committee that reviewedof loans extended by the same MFI microfinance institutions (excepting the draft Bill found that “the Billto a single individual, restriction in those NBFCs that are registered is rather sketchy with inadequatethe number of MFIs lending to the a under the RBI Act, 1934) that are groundwork and lacking in consensus,single individual, creation of credit involved in extending services requiring wider consultations withinformation bureaus and social capital such as credit, thrift, pension and stakeholders and deeper study onfunds and setting up of grievance remittance and (2) setting up a layered vital issues” (Standing Committee onredressal systems at the MFI level. architecture spanning district, state and Finance, 2014: 56). The CommitteeThe committee also recommended national levels vested with advisory, hence did not accept the Bill. Itthat bank loans to compliant NBFC- implementation and review functions urged the government “to haveMFIs be categorized under priority related to microfinance activities. It wider consultations with the Statesector loans. The broad framework confers on RBI the power to “specify Governments and stakeholders and the maximum limit of the marginYOJANA April 2014 47

arrive at a consensus; and reconsider the limited financial intermediation Standing Committee on Finance,/ review the proposals contained role of microfinance institutions Ministry of Finance (2014) ‘The Microin the Bill in all its ramifications currently, this seems logical as only Finance Institutions (Developmentand bring forth a fresh legislation formal financial institutions have the and Regulation) Bill, 2012: Eighty-before Parliament duly addressing the capability to provide a range of critical Fourth Report’, New Delhi, Lok Sabhaconcerns expressed by the Committee” financial services. However, as the Secretariat.(Ibid). experimentations around financial inclusion progress, opportunities Tankha, Ajay (2012) Banking on Self-Some Concerns seem to arise for integrating the Help Groups: Twenty Years On, New Delhi: existing microfinance institutional SAGE Publications India Pvt. Ltd. and Coming out of a damaging crisis, channels with the predominantly Access Development Services.the microfinance sector in general technology driven initiatives. Effectiveand MFIs in particular have been exploitation of such opportunities Endnoteslooking forward to a robust regulatory would warranty regulatory supportarrangement. The intervention of the from the state and the central bank. l The government passed the Andhracentral bank on several occasions has Pradesh Micro Finance Institutionshelped ease the situation substantially Readings (Regulation of Money Lending) Actby boosting the confidence of the in December 2010 (effective frombanking system and facilitating Becker, Ashley (2013) ‘”Micro- January 1, 2011) which among otherincreased funds flow to the MFIs. Management”: Constitutional and Policy things, makes it compulsory for MFIsIts emphasis on encouraging self- ConcernsArising from India’s Microfinance to register themselves with the districtregulatory organisations (SRO) gives Institutions (Development and Regulation) administration, and prescribes limits forsome hope that sector networks Bill’, Northwestern Journal of International he number of loans per household andwill get to play more definite and Law and Business, Vol.33, No. 3, pp.711- multiple SHG membership. The lawconstructive role in helping MFIs 740. treats microfinance on par with moneystick to the regulated path. However, lending.RBI has limited its focus only to Nair, Tara S. (2011) ‘Two DecadesMFIs as of now. In the absence of of Indian Microfinance  : Trajectory l For a detailed discussion of the impactan appropriate regulatory umbrella, and Transformation’, Working Paper of the crisis, see, Srinivasan (2011)the non-profit and community based 205, September, Gujarat Institute of and ‘2011 - Country Briefing: Recentmicrofinance organisations are left Development Research, Ahmedabad. Events – Andhra Pradesh Crisis’,with only one option – transform into www.mixmarket.org (accessed 20 Julyeither an NBFC- MFI or a for profit Nair Tara and Ajay Tankha (2014) 2013).company. Microfinance India: State of the Sector Report 2013, l The central government made the first New challenges have also cropped ever attempt to bring the sector under theup in the SHG-bank linkage programme New Delhi: Sage Publications India Pvt. legislative umbrella in 2007, followingdespite its continued growth in terms Ltd. and Access Development services. an earlier crisis in Andhra Pradesh. Inof outreach and transactions. Their March 2007 a bill named The Microcooperation by the state as sheer National Bank for Agriculture and Financial Sector (Development andconduits of government benefits, Rural Development (2013) Status of Regulation) Bill, 2007 was introducedneglect of member savings and internal Microfinance in India 2012-13, NABARD, in the Lok Sabha. Though the Billlending, over lending to members, Mumbai. could not be enacted into a law beforemultiple memberships, inadequate the incumbent government went out ofquality monitoring and rise in non- Reserve Bank of India (2008) Statistical power, it marked a significant watershedperforming assets are some of the ills Tables Relating to Banks in India 2007-08, as it laid down the basic framework ofthat affect the effective functioning RBI, Mumbai. the legal regulation of microfinance. Itof this channel of microfinance designated NABARD as the regulator(Tankha, 2012; NABARD, 2013). An Reserve Bank of India (2012) Report for all the ‘microfinance organisations’appropriate regulatory structure is yet on Trend and Progress of Banking in India, (MFOs), which by definition includedto evolve around the SHG-bank linkage RBI, Mumbai. all registered societies, trusts andmodel. cooperative societies that provide Reserve Bank of India (2013) Statistical microfinance services insurance and The current phase of the financial Tables Relating to Banks in India 2012-13, pension services, but excluded SHGsinclusion drive of the state is said RBI, Mumbai. and SHG federations. The for-profitto be bank-led in that only the NBFC microfinance providers weremainstream, regulated financial players Srinivasan N. (2011) Microfinance left out of the purview of the Bill givenare considered as part of it. Given India: State of the Sector Report 2011, New Delhi: Sage Publications India their licensed-with-RBI status. q Private Limited and Access Development services. (E-mail : [email protected])48 YOJANA April 2014