General Studies-3

Indian Economy and issues relating to planning

During pandemic, the Union government had announced an emergency credit line guarantee scheme designed to
help micro, small and medium enterprises in distress. This facility was meant to ease the cash flow woes of these units,
helping them pay off their obligations and salaries to employees.
MSMEs were provided credit facilities up to a maximum of 20 per cent of their outstanding debt. Subsequently,
the government enhanced the scheme, expanding its scope in order to ensure greater fund flows into the
economy. According to data furnished by the National Credit Guarantee Trustee Company, 16.22 lakh loans have
turned bad or 16.4 per cent of those accounts have turned non-performing. these are “formal” MSMEs with
access to formal sources of finances. as most of the measures announced by the government to help the MSMEs
deal with the fallout of the pandemic, flowed through the formal monetary channels. Informal MSMEs with no
access to formal sources of credit and such facilities are likely to have fared worse. Given that MSMEs, both
formal and informal, employ a sizeable section of the labour force, their continuing financial stress points to the
simmering distress in the labour market.

Prompt Corrective Action (PCA)?

● PCA is a framework under which banks with weak financial metrics are put under watch by the RBI.
● The RBI introduced the PCA framework in 2002 as a structured early-intervention mechanism for banks that
become undercapitalised due to poor asset quality, or vulnerable due to loss of profitability.
● It aims to check the problem of Non-Performing Assets (NPAs) in the Indian banking sector.
● The framework was reviewed in 2017 based on the recommendations of the working group of the Financial
Stability and Development Council on Resolution Regimes for Financial Institutions in India and the Financial
Sector Legislative Reforms Commission.
IDBI Bank Ltd out of its prompt corrective action list.
 General Studies-3
Indian Economy and issues relating to planning

Arvind Panagariya’s book India Unlimited: Reclaiming the Lost Glory points out that export remain key to
economic growth.
Growing global protectionism and automation. the most significant is to underscore the necessity of export-led
growth to India’s prospects. Global merchandise exports stood at almost $18 trillion in 2017 (more than six times
India’s GDP) with India commanding an export share of just 1.7 per cent (versus China’s 12.8 per cent).
Therefore, even if the global market shrinks to $15 trillion — an unlikely prospect — India could double its
exports by raising its global market share to just 4 per cent. 
generating export growth:  India’s 2002-2010 growth boom was underpinned by exports, which grew 18 per cent
a year for eight years — twice the rate of headline GDP — but in an era of hyper-globalisation. Now, India will
have to undertake the harder slog of increasing market share. Reclaiming lays out the package of measures
needed: Avoiding the import-substitution trap, recognising an import tariff is equivalent to an export tax (the
famed Lerner Symmetry Theorem); ensuring the rupee remains competitive (we have found the 15 per cent trade-
weighted appreciation between 2015 and 2020 hurt export competitiveness); boosting free trade agreements and
trade facilitation; creating autonomous employment zones (AEZs) where factors of production are less distorted.
While factors market reform is crucial in the medium term, the AEZ approach appears most pragmatic in the near
term given the narrow window of opportunity emanating from China. exports can create manufacturing jobs, they
will serve as a powerful magnet to attract labour away from agriculture. By 2030, agriculture will constitute less
than 10 per cent of GDP while still employing 35-45 per cent of the workforce. The gulf in per-capita incomes
between agriculture, industry and services will only widen. The medium-term strategy must be to create higher-
wage jobs in industry and services for agricultural workers to migrate to.
the opportunity for labour-intensive manufacturing has not passed us by. In fact, the timing couldn’t be more
fortuitous. Chinese real wages are rising, the workforce is shrinking and the embattled relationship with the US
appears more structural than cyclical. This is India’s moment to integrate into the Asian supply chain by
attracting multinational companies seeking a China hedge in the region.
India’s fragmented industrial structure: It’s estimated almost 60 per cent of India’s manufacturing workforce is
employed in firms with five or less workers, and 75 per cent in firms with 50 or less workers. Productivity is much
lower in smaller firms and it should be no surprise that wages remain low for a large swathe of India’s
manufacturing workforce. A litany of small firms even in the labour-intensive sectors (apparel and footwear) has
impeded India’s export potential in these areas. [based on Hasan and Jandoc’s 2005 work, that 92 per cent of
workers in the apparel sector worked in firms with less than 50 workers. In contrast, 57 per cent of China’s
apparel workforce were employed in firms with more than 200 employees. How can a 20-person firm from India
compete with a 200-person firm from China in the global marketplace?] Going forward, a renewed focus on
exports should endogenously put pressure on firm size to grow, with implications for productivity and wages.
While COVID will spawn creative destruction, it won’t alter the basic tenets that exploiting comparative
advantage, boosting productivity through structural transformation and improving allocative efficiency are the
keys to boosting potential growth and creating productive jobs. Here, there are no silver bullets or quick fixes.
Only a well-thought-out and sequenced reform plan. One that Reclaiming lays out meticulously and
comprehensively.

Wholesale Price Index

 General Studies-3
Indian Economy and issues relating to planning

issues relating to planning

NITI Aayog: