THE HINDU EDITORIAL : FEBRUARY 7, 2018
THE HINDU EDITORIAL : FEBRUARY 7, 2018
a) The manufacturing muddle
The Union Budget has reinforced the correction of the inverted duty structure (IDS) which has adversely impacted manufacturing for decades. An IDS means higher duty on intermediate as opposed to final/finished goods, with the latter often enjoying concessional custom duty under some schemes. The Budget has raised customs duties significantly; Chinese/other imports have swamped India’s small- and medium-sized enterprises and large manufacturing companies, raising the import-intensity of manufacturing as well as dampening job growth by raising capital intensity. So it is no surprise that the share of manufacturing in GDP and employment has not risen since 1991. We have ceded ground to China as the ‘factory of Asia and the world’, a process that must be reversed urgently if we are to realise the ‘Make in India’ dream. The goods and services tax (GST), especially the IGST or Integrated GST component, has begun to erode the advantage that the IDS was giving to foreign exporters in Indian markets. Also, the Finance Minister, in Budget 2014, announced the beginnings of a reversal of the IDS in electronics and has sustained that effort in subsequent Budgets. Unfortunately, a series of sectors remain adversely impacted by the IDS.
Advantage China
China had, thanks to a strategic industrial policy it followed for two decades, stolen a march on India in labour-intensive manufacturing exports. But India’s policy structure failed to utilise its labour advantage to grow labour-intensive manufacturing exports. The result: while China reduced the absolute numbers and percentage of the poor in the population by absorbing surplus labour in manufacturing, India’s poverty reduction was much slower. A major reason: while China’s agricultural and rural income growth was much higher as it sustained consumer demand, it also generated industrial jobs much faster. While India grew construction jobs very fast since 2000, all the way to 2011-12, manufacturing output and employment growth left much to be desired. Moreover, analysis shows that between 2004-05 and 2011-12, but much more between 2011-12 and 2015-16, the growth of manufacturing jobs not only first slowed after 2011-12 but also became negative. The most labour-intensive manufacturing sectors which account for over half of total manufacturing employment in India (60 million in 2011-12 to 2015-16) could get a fillip now due to raised customs duties, thanks to the Budget. Customs duties have been raised on capital goods and electronics, and silica for use in manufacture of telecom grade optical fibre. These have been among the sectors adversely impacted by the IDS in the past 10 years or so. Duties have also been raised on labour-intensive manufactures such as food processing, footwear, jewellery, furniture, toys and games. Some have seen this as a return to pre-1991 ‘protectionism’. This reading is misplaced for two reasons. Reduction of tariffs (1991-1998) was precipitous, from an average rate of 150% to 40% by 1999, and to 10% in 2007-08, especially in manufacturing. Indian manufacturers, unreasonably protected till 1990, were suddenly exposed to competition. A slower reduction would have enabled them to adjust to import competition, upgrade technology, and compete. The sudden onslaught of lower-priced imports decimated many domestic enterprises, although it benefited domestic consumers with an array of consumer products. Domestic traders gained too. Unfortunately, this overexposure gathered momentum as from the early 2000s, free trade agreements with much of East/South-east Asia reduced tariffs further, flooding Indian markets with Chinese and other country products – consumer (durable and non-durable) and capital goods.
Chasing jobs
Meanwhile, beginning 2000, the number of those joining the labour force grew sharply to 12 million per annum till 2004-05; as domestic manufacturing employment growth was slow, they could only be absorbed in agriculture or traditional services; and informal employment grew even more than ever before. However, with GDP growth picking up from 2003-04 onwards, non-agricultural jobs began to grow at 7.5 million per annum. Two fortuitous, though policy-induced, developments have saved the day since 2004-05, reducing sharply the number of entrants to the labour force. First, as population growth fell from 1990 onwards, entrants to the labour force fell. Second, as school education access grew rapidly, post-Sarva Shiksha Abhiyaan, children remained in school.
However, these entrants, much better educated than the earlier cohort, are now entering the labour force. Where will they be absorbed? Not in agriculture. The hard labour of construction work is also not attractive to them. They want either white-collar jobs in the private or preferably public sector, or in industry or in modern services. But are such jobs growing fast enough? Recent data from multiple sources such as the government’s Annual Labour Bureau survey, with a sample size larger than the NSS, and the Centre for Monitoring Indian Economy indicate that job growth is lower than entrants to the labour force. The youthful labour force, between 15 and 29 years, saw a very sharp increase of 40 million, from 147 million to 187 million between 2011-12 and 2015-16.
Fall in agricultural jobs
The share of the workforce in agriculture has been falling steadily, from 60% in 1999-2000 to 49% in 2011-12, but the fall has slowed sharply after 2011-12, when the pace of non-agricultural job growth slowed along with GDP growth. Between 2004-05 and 2011-12, the numbers in agriculture had been at a rate of 5 million per year. Since 2012, the numbers leaving agriculture over 2011-12 to 2015-16 fell to 1 million per year, as non-agriculture jobs grew slowly since 2011-12. More worrying is that while the number of youth in agriculture fell between 2004-05 and 2011-12 — from 87 million to 61 million — after 2011-12 there was a significant increase of youth in agriculture. Between 2011-12 and 2015-16, there was a 24 million increase, from 61 million to 85 million, in youth in agriculture, a retrogressive development since education levels have risen, while the aspiration of such youth is for non-agricultural jobs. How slow job growth has been since 2011-12 is demonstrated by the manufacturing workforce (organised and unorganised) declining overall and for youth as well. It appears that as GDP growth slowed after 2011-12, youth who had benefited significantly from jobs in manufacturing have suffered disproportionately. Of all youth employed, those in manufacturing had risen between 2004-05 and 2011-12, from 14.5% to 16%. This dropped precipitously to 10.8%, just as the share of all employment in manufacturing fell, between 2011-12 and 2015-16. The only sector with a significant increase in labour absorption, especially the young, has been services, where employment rose from 36 million in 2011-12 to nearly 52 million in 2015-16 for them, and for all labour from 127 million to 141 million. Incidentally, sheer formalisation of erstwhile informal jobs/enterprises, thanks partly to demonetisation and then GST, is not the same as new job creation (unlike what has been claimed, based on some ill-informed research).
Looking ahead
The GST, especially its inter-State component, has resulted in a neutralisation of the IDS, which had come to prevail. It has also, as the Economic Survey 2018 has rightly claimed, led to a formalisation of some informal firms, and hence workers (by registration in the Employees’ Provident Fund Organisation). The resolution of the twin balance sheet problems (of companies being over-leveraged and banks unable to lend due to mounting non-performing assets), together with the Insolvency and Bankruptcy Code, should now open the floodgates for new manufacturing investment. Of course, manufacturing exports (labour or capital intensive ones) are unlikely to take-off if the rupee continues to strengthen against major foreign currencies. Exports are today well below what they were a decade ago. Finally, policy must attempt to close the loop between rising demand and supply through consumer demand, which the Budget attempts through its agriculture and rural infrastructure focus. As GDP growth rate boomed between 2003-4 and 2013-14 to 7.9% per annum because of rising demand, real wages rose because agricultural growth revived and the rural labour market tightened. This is because non-agriculture jobs grew faster than entrants to the labour force. That sweet phase is long past. Without closing the loop of consumer demand and supply, neither GDP growth nor job growth will quicken. More manufacturing policy initiatives, such as an early announcement of an Industrial Policy by the Department of Industrial Policy and Promotion, must be sustained over 2018.
b) Winter cheer: on politics around the 2018 Winter Olympics
The Russian doping scandal continues to cast a long shadow over international sport as the 2018 Winter Olympics begin in PyeongChang, South Korea, on February 9. In December, the International Olympic Committee banned Russia from competing in the Games following investigation into an alleged state-sponsored doping programme at the 2014 Winter Olympics in Sochi, Russia. The decision to ban Russia came after the IOC’s Disciplinary Commission, headed by former president of the Swiss Confederation Samuel Schmid, confirmed “systemic manipulation of the anti-doping rules and system in Russia”. The IOC had stated, however, that clean Russian athletes would be allowed to compete as neutrals and last month invited 169 of them — each to be known as Olympic Athlete from Russia (OAR) — to participate in the PyeongChang Games. The announcement did not go down well outside Russia, even though the IOC declared that “more than 80%” of those athletes had not competed in Sochi and had been carefully vetted. That the OAR will form one of the largest contingents at the Games, although there will be no place for the Russian flag and anthem, makes the ‘ban’ seem a bit of a farce. Further, Russian athletes could be allowed to march under their own flag at the closing ceremony if they comply with the IOC’s conditions during the Games. There is a sense that the IOC is not able to punish a sporting superpower like Russia. Last week, there was more outrage after the Court of Arbitration for Sport overturned lifetime bans on 28 Russian athletes sanctioned by the IOC following the investigation into Sochi 2014. The IOC expressed its own frustration at the decision, noting that it “may have a serious impact on the future fight against doping”. Proceedings in PyeongChang over the next fortnight will be watched keenly also for other reasons. The little-known host city, which sits some 80 km from the border with North Korea, will bear witness to on-field displays of bonhomie between the neighbours. The two nations will march together at the opening ceremony under a flag representing a unified Korea, and will field a combined women’s ice hockey team. The joint team lost to Sweden in a practice game this week and there are questions over how the two sets of players will get along, but with supporters of both countries cheering their side on together in a time of escalating political tensions, scorecards seem immaterial. North Korea has agreed to field 22 athletes in three sports and five disciplines and is expected to send hundreds of delegates and cheerleaders across the border. India, meanwhile, will be represented by luger Shiva Keshavan, competing in his sixth and probably last Olympics, and skier Jagdish Singh, taking part in his first. Keshavan has been the torch-bearer for winter sports in India for a long time; he will hope for a happy Olympic swansong.
WORDS/ VOCABULARY
1) Reinforced
Meaning: Strengthen (an existing feeling, idea, or habit).
Example: “The next few months reinforced my opinion of Vince as a man of his word”
Synonyms: Strengthen, Fortify
2) Swamped
Meaning: Overwhelm with an excessive amount of something; inundate.
Example: “The country was swamped with goods from abroad”
Synonyms: Overwhelm, Inundate
3) Dampening
Meaning: Make less strong or intense.
Example: “Nothing could dampen her enthusiasm”
Synonyms: Lessen, Decrease
Antonyms: Heighten
4) Ceded
Meaning: Give up (power or territory).
Example: “In 1874, the islands were ceded to Britain”
Synonyms: Surrender, Concede
Antonyms: Keep, Gain
5) Erode
Meaning: Gradually destroy or be gradually destroyed.
Example: “This humiliation has eroded what confidence Jean has”
Synonyms: Wear away/down, Abrade
6) March
Meaning: (Of a country, territory, or estate) have a common frontier with.
Example: “His estate marches with yours”
7) Surplus
Meaning: An amount of something left over when requirements have been met; an excess of production or supply.
Example: “Exports of food surpluses”
Synonyms: Excess, Surfeit
Antonyms: Dearth, Shortage, Lack
8) Fillip
Meaning: Something which acts as a stimulus or boost to an activity.
Example: “The halving of car tax would provide a fillip to sales”
Synonyms: Stimulus, Boost
Antonyms: Curb
9) Tariffs
Meaning: A tax or duty to be paid on a particular class of imports or exports.
Example: “The reduction of trade barriers and import tariffs”
Synonyms: Tax, Duty
10) Precipitous
Meaning: Dangerously high or steep.
Example: “The track skirted a precipitous drop”
Synonyms: Steep, Sheer
11) Onslaught
Meaning: A fierce or destructive attack.
Example: “A series of onslaughts on the citadel”
Synonyms: Assault, Attack
12) Decimated
Meaning: Kill, destroy, or remove a large proportion of.
Example: “The inhabitants of the country had been decimated”
13) Entrants
Meaning: A person or group that enters or takes part in something.
Example: “The prize will be awarded to the entrant who wins the tiebreak”
Synonyms: New member, New arrival
Antonyms: Veteran
14) Cohort
Meaning: A group of people with a common statistical characteristic.
Example: “The 1940–4 birth cohort of women”
Synonyms: Group, Grouping
15) Retrogressive
Meaning: To return to an older and worse state.
Example: Retrogressive and disastrous policies.
16) Aspiration
Meaning: A hope or ambition of achieving something.
Example: “The needs and aspirations of the people”
Synonyms: Desire, Hope
17) Declining
Meaning: Diminish in strength or quality; deteriorate.
Example: “Her health began to decline”
Synonyms: Deteriorate, Degenerate
Antonyms: Flourish
18) Sheer
Meaning: Used to emphasize how very great, important, or powerful a quality or feeling is; nothing except.
Example: His success was due to sheer willpower/determination.
19) Claimed
Meaning: State or assert that something is the case, typically without providing evidence or proof.
Example: “The Prime Minister claimed that he was concerned about Third World debt”
Synonyms: Assert, Declare
20) Prevail
Meaning: Persuade (someone) to do something.
Example: “She was prevailed upon to give an account of her work”
Synonyms: Persuade, Induce
21) Leveraged
Meaning: Use borrowed capital for (an investment), expecting the profits made to be greater than the interest payable.
Example: “A leveraged takeover bid”
22) Mounting
Meaning: Organize and initiate (a campaign or other course of action).
Example: “The company had successfully mounted takeover bids”
Synonyms: Organize, Stage
23) Open the floodgates
Meaning: If an action or a decision opens the floodgates, it allows something to happen a lot or allows many people to do something that was not previously allowed.
Example: Officials are worried that allowing these refugees into the country will open the floodgates to thousands more.
24) Take-off
Meaning: (Of an enterprise) become successful or popular.
Example: “The newly launched electronic newspaper has really taken off”
Synonyms: Succeed, Do well
Antonyms: Fail, Flop
25) Revived
Meaning: Restore interest in or the popularity of.
Example: “Many pagan traditions are being revived”
Synonyms: Reintroduce, Re-establish
Antonyms: Abolish
26) Doping
Meaning: Administer drugs to (a racehorse, greyhound, or athlete) in order to inhibit or enhance sporting performance.
Example: “The horse was doped before the race”
Synonyms: Drug
27) Scandal
Meaning: An action or event regarded as morally or legally wrong and causing general public outrage.
Example: “A bribery scandal involving one of his key supporters”
Synonyms: Outrageous wrongdoing, outrageous behaviour
28) Alleged
Meaning: Said, without proof, to have taken place or to have a specified illegal or undesirable quality.
Example: “The alleged conspirators”
Synonyms: Supposed, So-called
29) Vetted
Meaning: Make a careful and critical examination of (something).
Example: “Proposals for vetting large takeover bids”
Synonyms: Screen, Assess
30) Contingents
Meaning: A group of people sharing a common feature, forming part of a larger group.
Example: “A contingent of Japanese businessmen attending a conference”
Synonyms: Group, Party
31) Farce
Meaning: An event or situation that is absurd or disorganized.
Example: “The debate turned into a drunken farce”
Synonyms: Absurdity, Mockery
32) Ceremony
Meaning: A formal religious or public occasion, especially one celebrating a particular event, achievement, or anniversary.
Example: “The winners were presented with their prizes at a special ceremony”
33) Comply
Meaning: Act in accordance with a wish or command.
Example: “We are unable to comply with your request”
Synonyms: Observe, Obey
Antonyms: Ignore, Disobey
34) Frustration
Meaning: The feeling of being upset or annoyed as a result of being unable to change or achieve something.
Example: “Tears of frustration rolled down her cheeks”
Synonyms: Exasperation, Annoyance
Antonyms: Satisfaction
35) Fortnight
Meaning: (Preceded by a specified day) used to indicate that something will take place two weeks after that day.
36) Keenly
Meaning: In an eager or enthusiastic manner.
Example: “One of this year’s most keenly anticipated movies”
37) Bonhomie
Meaning: Cheerful friendliness; geniality.
Example: “He exuded good humour and bonhomie”
Synonyms: Geniality, Congeniality
Antonyms: Coldness
38) Escalating
Meaning: Increase rapidly.
Example: “The price of tickets escalated”
Synonyms: Increase rapidly, Soar
Antonyms: Plunge
39) Immaterial
Meaning: Unimportant under the circumstances; irrelevant.
Example: “The difference in our ages is immaterial”
Synonyms: Irrelevant, Unimportant
Antonyms: Important, Significant
40) Luger
Meaning: A type of German automatic pistol.
Example: “He frowned and turned toward it, automatically reaching for the Luger he carried with him at all times”
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