TTBR (Topics To Be Read) 24 May 2024

Today's Topics To Be Read (TTBR)

1 Reviewing Agnipath (The Tribune)

2 India must seize the opportunity in the FDI domain (The
Tribune)
3 Fund transfer from RBI to Centre: The next government’s task
(Indian Express)
4 Ex-Election Commissioner Ashok Lavasa writes: A message on
the Model Code of Conduct for leaders – from Mahabharata
and beyond (Indian Express)
5 Powerful symbolic value: On the recognition of Palestine (The
Hindu)
6 Snap poll: On the surprise election announcement for the U.K.
(The Hindu)
7 Fear gives way to election fervour (The Hindu)
8 RBI bonanza (Financial Express)
9 No ‘surge in employment’
10 Meeting $1-trillion digital economy goal
11 Fiscal dividend (Business Line)
12 The middle-class identity is constantly changing (Business
Line)
TTBR (Topics To Be Read) 24 May 2024

Reviewing Agnipath (The Tribune)

Tweaks a must to allay fears over the scheme

REPEATEDLY described by the government as a game-changer and a force multiplier

for the armed forces, the Agnipath scheme has been under intense scrutiny ever since
it was rolled out in June 2022. The retention of only 25 per cent of the inductees after
the completion of their four-year tenure has been a contentious point in military and
political circles, with the Congress promising in its 2024 Lok Sabha election manifesto
that it would scrap the scheme and revert to the old recruitment procedure that had
been followed by the Army, Navy and the Air Force.
Weeks after Defence Minister Rajnath Singh said that the government was open to
bringing about any change in the scheme, ‘if required’, a leading newspaper has
reported that the Army is conducting an internal survey to assess Agnipath’s impact
on the recruitment process; it is seeking the views of Agniveers, unit commanders and
the staff at regimental centres. On the basis of the survey’s findings, the Army is likely
to make recommendations to the next government on possible tweaks.
The Centre’s reassurance that the future of young individuals inducted as Agniveers
would not be adversely affected has failed to allay doubts and apprehensions about
the job prospects of 75 per cent of the recruits, whose economic and social security
would be at stake after their service period ends. The Congress is tapping into this
unhappiness with the scheme and making it a poll issue in Haryana. A thorough review
of Agnipath is in order, particularly the retention ratio. There is no quarrel with the
objective of creating younger, fitter forces by reducing the average age of defence
personnel, but the government must not lose sight of the long-term picture.
Considering the widespread unemployment and underemployment in the country, the
rehabilitation of tens of thousands of disgruntled, dispirited youth will require
unswerving commitment from the public and private sectors.
TTBR (Topics To Be Read) 24 May 2024

India must seize the opportunity in the FDI

domain (The Tribune)

Countries like Vietnam and Indonesia have easier investment terms and
many firms are preferring to shift there.

THE government that will assume office next month will inherit an economy that is
fast moving towards full recovery after the ravages of the Covid-19 pandemic and the
impact of geopolitical tensions. Over the past few months, multilateral institutions and
global investment agencies have revised their growth estimates for India in the light
of the latest economic data. The International Monetary Fund recently revised growth
estimates for 2024-25 from 6.2 to 6.5 per cent. The United Nations has gone a step
further and projected growth in 2024 to reach 6.9 per cent from the earlier estimate
of 6.2 per cent. The driver of this higher growth is expected to be strong public
investment and resilient private consumption.
Fitch Ratings, Moody’s and Goldman Sachs have made similar upward revisions and
their expectations now range between 6.6 and 7 per cent for the current financial year.
The catalyst for these changes is the fact that most economic indicators are showing
an upswing. Overall GDP growth in the third quarter of 2023-24 has touched a robust
8.4 per cent, following over 8 per cent growth in the earlier quarters. Similarly, the
index of industrial production has risen by 5.8 per cent during 2023-24 compared to
5.2 per cent in the previous fiscal. The core sector industries have recorded 7.5 per
cent growth over this period, while GST collections reached a record high of Rs 2.1 lakh
crore in April this year.
Inflation is also largely under control, though food prices continue to remain an area
of concern. During April, retail inflation touched an 11-month low at 4.83 per cent, but
food inflation has remained at the double-digit levels. The mid-year update of the UN’s
TTBR (Topics To Be Read) 24 May 2024

World Economic Situation and Prospects 2024 expects inflation to decelerate from 5.6
per cent in 2023 to 4.5 per cent in 2024, thus staying within the ambit of the central
bank’s range of 2 to 6 per cent.
It is in this backdrop that developed economies like the US are finding investment in
this country increasingly attractive. Significantly, India has found its mojo, as it were,
at a time when the relations between the world’s two economic superpowers — the
US and China — are witnessing discontent. Analysts are expecting the East Asian giant
to become more aggressive and yet more closed in its economic policies than ever
before. At the same time, the Biden administration has begun to impose export
controls aimed at China on sensitive high-technology products like semiconductors,
along with their tools and personnel. This has more to do with security issues than any
economic rationale as the curbs will likely hurt American industry. India’s ban on
TikTok for similar security reasons is now being viewed as a worthy precedent.
It is the US-China friction as well as the recognition during the pandemic that
concentrating investments in a single location can be counter-productive that have
spawned the China Plus One policy. India is being viewed as a ‘friendly’ developing
country and multinationals are thus looking at it through a fresh lens. It has not hurt
that tech giant Apple has taken a big leap by shifting its established infrastructure here
from our northern neighbour. It has begun making its latest models in this country,
while investments in new plants have risen exponentially in the southern states of
Tamil Nadu, Karnataka and Andhra Pradesh.
Some Western economists are describing the strategic shifts in the US-China relations
as a decoupling that has now reached an inflection point. It is for the new government
to seize this opportunity and ensure that the investment climate becomes easier for
companies seeking to set up projects outside China.
In fact, improving the ease of doing business here will have to be one of the priority
items on its agenda. Despite efforts made by the current regime to reduce regulatory
tangles, bureaucratic red tape continues to bedevil foreign investors. In contrast,
countries like Vietnam and Indonesia have easier investment terms and many
companies are preferring to shift there. India will thus need to unravel much of its
regulatory complexities especially at the level of state governments. Much
streamlining has been done by the Centre, but several states continue to have onerous
approval processes. This is one of the reasons that states in the south, for instance,
tend to have a higher inflow of foreign investments.
The growing protectionism that had accompanied the Make in India initiative has also
been a worry for investors. Average import tariffs have been gradually rising over the
past few years. On the bright side, top industry ministry officials recently warned
domestic industry to prepare for a lower tariff regime as the country looks to sign more
TTBR (Topics To Be Read) 24 May 2024

free trade agreements (FTAs). Thus, it looks as if protective tariff walls may slowly
shrink, which is all to the good.
The drive to enter into FTAs also indicates greater flexibility in the approach towards
market access. This has enabled the conclusion of FTAs with the UAE, Australia and
Mauritius. The latest trade pact entered into with the European Free Trade Association
has even taken an innovative approach involving a commitment of $100 billion of
investments from the group. Similarly, FTAs with the European Union, the UK and
Oman are currently under negotiation.
The urgency of creating a conducive investment climate has grown as foreign direct
investment (FDI) flows have dwindled in the past two years. One reason has been the
slowdown in global transnational investment flows owing to geopolitical factors. Even
so, concerted efforts must be made to reverse the trend and bring more FDI into the
country.
Though many issues are bound to be on the agenda of the new government, FDI has
to rank high. A protectionist attitude must be shed and outdated regulatory processes
reviewed so that setting up a business does not entail hundreds of approvals. A
window of opportunity exists right now in the arena of foreign investments due to
shifts in geoeconomic ties. It must be utilised rapidly or the country will lose out in the
long run.
Sushma Ramachandran, Senior Financial Journalist
TTBR (Topics To Be Read) 24 May 2024

Fund transfer from RBI to Centre: The next

government’s task (Indian Express)

The amount exceeds government expectations, creates space to

increase capital spending, reduce deficit

On Wednesday, the central board of the Reserve Bank of India approved the transfer
of Rs 2.1 lakh crore as surplus to the central government. This is a fiscal bonanza for
the Centre as it is considerably higher than what was factored in earlier — in the
interim Union budget 2024-25, the government had estimated the dividend/surplus
of RBI, nationalised banks and financial institutions at Rs 1.02 lakh crore. Alongside,
the central board has also decided to increase the contingency risk buffer to 6.5 per
cent of the central bank’s balance sheet in 2023-24, up from 6 per cent in 2022-23.
This buffer is meant for a “rainy day”, a financial stability crisis, and is maintained by
the central bank, considering “its role as lender of last resort”. Both the surplus and
the buffer have been determined on the basis of the economic capital framework, as
recommended by the expert committee headed by former RBI Governor Bimal Jalan.
The higher than expected transfer could be a consequence of an increase in interest
income from the central bank’s foreign and domestic assets and forex transactions.
This has created considerable fiscal space for the next government when it presents
the full budget for the year after the ongoing national elections. This space, which
works out to around 0.4 per cent of GDP, can be utilised in either of the following ways.
It can use this to bring about a steeper decline in the government’s fiscal deficit than
what has already been outlined — in the interim budget, the government had
promised to bring down its deficit from 5.8 per cent of GDP in 2023-24 to 5.1 per cent
in 2024-25. A higher transfer could help offset possible revenue shortfalls in areas such
as disinvestment. The next government could also choose to increase the amount
allocated for capital expenditure in the interim budget — the budgeted capex was
pegged at Rs 11.1 lakh crore or 3.4 per cent of GDP. Or it could opt for a combination
TTBR (Topics To Be Read) 24 May 2024

of the two. The impact is already being felt in the markets with the 10-year bond yield
falling.
In the Union budget 2021-22, the government, while announcing the deficit of 9.5 per
cent of GDP for 2020-21, had declared its intent to bring it down to below 4.5 per cent
by 2025-26. In subsequent budgets, it has reaffirmed its commitment, and has stuck
to the path of fiscal consolidation. Alongside, it has steadily increased its allocation for
capital expenditure. The centre’s capex to GDP ratio has edged upwards from 2.5 per
cent of GDP in 2021-22 to 3.23 per cent in 2023-24, and further to 3.4 per cent in 2024-
25 (interim budget), improving the quality of its spending. The next government must
continue down this path.

Ex-Election Commissioner Ashok Lavasa writes: A

message on the Model Code of Conduct for
leaders – from Mahabharata and beyond (Indian
Express)

Elections are necessary in a democracy. What is not necessary for the

people and our leaders is to lose their moral ballast. That could cause
damage that extends beyond the periodic exercise of political choice.

Satyameva Jayate (“Truth alone triumphs”) from the Mundaka Upanishad was
adopted as the national motto on January 26, 1950, the day India became a Republic.
A day earlier, the country’s Election Commission was born. Its primary responsibility is
to enable us to exercise our democratic right to choose a government. The ECI is
expected to provide a level playing field so that the candidates, political parties and
TTBR (Topics To Be Read) 24 May 2024

their campaigners do not exercise undue influence on voters by excessive use of

money and muscle power or by their mendacity.
But what is falsehood and what is truth?
The philosopher Francis Bacon begins his famous essay ‘Of Truth’ thus: “What is truth?
said jesting Pilate and would not stay for an answer”.
Not only Pilate, hardly anyone stays for an answer because of the philosophical
complexity of the query. Take the four lions on the Ashokan pillar, our national
emblem on the base of which Satyameva Jayate is inscribed. Three of them can be
seen as representing the three dimensions of truth. One that I can see, the other that
you can see, and the third that neither of us can but a third person could. Truth,
however, has a fourth dimension that no one can fathom. That is why we often say,
“God only knows the truth”.
The ECI, however, deals with ordinary mortals who it tries to bind by a Model Code of
Conduct (MCC) during the period they seek votes. These men (and some women too)
often face the dilemma of whether it is worse to lie to others or to oneself. It is
somewhat naïve for us to expect anyone to be a “model” for a few days if he has not
been that in the course of his ordinary existence.
The adoption of the MCC was accompanied by a fervent expectation that it would instil
in all stakeholders a sense of self-restraint. In the Manual on Mode Code of Conduct
published at the time of the General Elections in March 2019, I wrote, “It is incumbent
upon those who aspire to represent the people to project before the people a
behaviour that is worthy of emulation and an example of a model conduct that reflects
their values.”
The ECI describes the MCC as the “singular contribution by political parties to the cause
of democracy in India.” Having contributed to making a model code, should not the
political parties and their leaders demonstrate model conduct in what they say and
mean? Some feel that the coarseness of the language used by some political leaders
uncovers their ignoble intent, while others think that this sparring is merely a part of
the political jousting.
Some people also wonder, why it is a “model” and not a “moral” code. Morality, as we
all know, is often amorphous. It has more to do with intent than impact. Law looks at
mens rea, the motive behind the action to determine the full measure of guilt.
Morality, however, is deeper; sometimes so deep and subjective that the intent lies
hidden in the inaccessible recesses of the mind of the accused. That’s why Immanuel
Kant said “In law, a man is guilty when he violates the rights of others. In ethics, he is
guilty if he only thinks of doing so.”
TTBR (Topics To Be Read) 24 May 2024

The core of Kant’s assertion informs the spirit of the MCC. The Code states: “No party
or candidate shall include in any activity which may aggravate existing differences or
create mutual hatred or cause tension between different castes and communities,
religious or linguistic” and that “there shall be no appeal to caste or communal feelings
for securing votes.” In fact, it is listed as a “corrupt practice” and “electoral offence”
in the Indian Penal Code under Section 123 (3&3A) and Section 125 of the
Representation of the People Act, 1951. The catch, however, is that for any appeal on
grounds of “religion, race, caste, community or language” to become a “corrupt
practice”, it must be “to vote or refrain from voting for any person.” Similarly,
promoting enmity between classes becomes an offence punishable with
imprisonment for a term which may extend to three years, or with a fine, or with both
only if it is “in connection with election”. However, proving that such a statement was
made in connection with an election could legally mean that it should be an explicit
appeal to vote or refrain from voting.
This is enough of a loophole for clever wordsmiths to escape the law. This is what
might make law enforcement seem like “Dor ko suljhā rahā hai aur sirā miltā nahīñ”
(to use Akbar Allahbadi words) — trying to untangle the thread but not finding the
end. The ECI apparently finds itself in this bind as seen from its exhortation to the
political parties while announcing the elections and repeating the same dutifully while
disposing of the complaints of egregious violation of the MCC against the star
campaigners of two national parties.
Even Yudhistra could not be held guilty technically because his announcement of
Ashwathama’s death was loud enough for everyone to be heard. He did mutter that it
was an elephant but that was lost in the din of the tactical triumphal conch that
followed the announcement. Both facts in question – Bhima’s killing Ashwathama the
elephant and Yudhistra’s confirming that Ashwathama was killed — were true.
Dronacharya thought that his son Ashwathama was killed and withdrew into
meditation because the “whole truth” was not spoken in a manner he could
comprehend. In the process Dhristadyumna killed Dronacharya. In this mythological
story, the purpose of the ruse was achieved but Yudhistra lost his moral high ground.
For us, the Mahabharata story has a message: Rethink MCC and reboot our
conscience. Elections are necessary in a democracy. It should not lead to people and
their leaders losing their moral ballast. That could cause damage that extends beyond
the periodic exercise of political choice.
The writer Ashok Lavasa is a former Election Commissioner.
TTBR (Topics To Be Read) 24 May 2024

Powerful symbolic value: On the recognition of

Palestine (The Hindu)

The recognition of Palestine by more nations is an indictment of Israel

The announcement by Ireland, Norway, and Spain, of their intent to formally recognise
the state of Palestine, next week, is one more important sign of the changing tide of
international opinion that Israel Prime Minister Benjamin Netanyahu cannot afford to
ignore. In just the past month, in the UN General Assembly, 143 countries, including
India, passed a resolution calling for the recognition of the Palestinian state by the UN
Security Council, where the U.S. has vetoed such a move. Earlier this week, the
International Criminal Court Prosecutor moved applications for arrest warrants for Mr.
Netanyahu and Defence Minister Yoav Gallant for operations after October 7 in Gaza
as well as the Hamas leadership for the terror attack that killed 1,200 in Israel, terming
these as “war crimes”. On May 24, the International Court of Justice will pronounce
another verdict in the petition by South Africa calling for additional measures in the
prosecution of Israel for “genocide”. The latest decision by the three countries, that
have been vocal in their criticism of Israel — they join eight EU members that have
already recognised Palestinian statehood — may not materially change the situation
on the ground. But it is meant to be what the Irish Taoiseach Simon Harris referred to
as an “act of powerful political and symbolic value” to Israel, especially as it essays
what could be the “final assault” on Rafah. While practically every country has
condemned Hamas’s terror attacks, Mr. Harris said it would be a mistake to ignore the
legitimate Palestinian government in the West Bank, saying that “Hamas is not the
Palestinian people”. Norway’s Prime Minister Jonas Gahr Støre said that the move
aimed to support “moderate forces that are on a retreating front in a protracted and
cruel conflict”. Spain’s action followed its denial of port facilities to a Danish-flagged
ship with explosive material from India meant for Israel, which it said was a firm policy
TTBR (Topics To Be Read) 24 May 2024

now. Israel’s response, however, has been to recall its envoys and summon the envoys
of all three countries for a dressing down.
In the immediate future, the multiple messages of near-global consensus are meant
to push Israel’s government to rethink its plans for Rafah, to stop more civilian losses,
and to allow humanitarian aid free access into Gaza. But in the longer term, they are
meant to remind Mr. Netanyahu that even if he has disassociated himself from the
“two-state solution”, this is something the world believes is the road map to peace. By
turning deaf to these messages, Mr. Netanyahu is only furthering his isolation,
especially from an international community that came out in full sympathy on October
7, but has grown increasingly horrified by the military campaign since then.

Snap poll: On the surprise election

announcement for the U.K. (The Hindu)

Rishi Sunak seems to have sensed a small window of opportunity for his
party

Prime Minister Rishi Sunak sprung a surprise election announcement when he

revealed that the United Kingdom would head to the polls on July 4. While the
incumbent government of the Conservative Party was not required to call for an
election until January 2025, almost since the day Mr. Sunak entered 10 Downing
Street, most polls have suggested that his party would lose the next election by a
margin of over 20%, the likes of which are “usually only seen at exceptionally bad
moments in the midterm”. It is possible that Mr. Sunak and his team seized upon the
political capital that may accrue to them from the recent announcement that the
U.K.’s inflation rate has dropped to 2.3%, the lowest in at least three years. There
might have been a few other factors including a positive assessment of Mr. Sunak’s
TTBR (Topics To Be Read) 24 May 2024

cabinet in steadying the economic ship in the post-COVID-19 scenario, and a legal
victory securing the government’s plans to implement immigration reforms that will
see some asylum seekers sent to Rwanda to have their applications processed there.
While it is true that polls suggest voter frustration at the end of 14 unbroken years of
rule by the Conservative Party, Mr. Sunak’s comment that this election will take place
at a time where the world is “more dangerous than it has been at any point since the
end of the Cold War”, is not without merit. Indeed, the denouement of the long-drawn
Russian invasion of Ukraine could make or break the security paradigm for Europe and
the U.K., including not only serious questions regarding territorial sovereignty on the
eastern front but also energy security with knock-on effects for prospects for
economic stability. Similarly, the churn in West Asia, including the humanitarian
tragedy unfolding in Gaza and the strategic churn punctuated by the threat of war in
the Iran imbroglio, will have echoes throughout the region and certainly for the U.K.
Finally, it is unclear that even with the Rwanda plan receiving a legal green light, the
Sunak government has been able to have a tangible impact on small boat crossings at
a broad level. Contrarily, government statistics indicate that even though such arrivals
dropped by around 33% during 2022 and 2023, boat crossings for 2024 are at a “record
high” by comparison, and between January 1 and May 21 of this year more than 9,800
people crossed the U.K.’s border through such means. In this context, his remark that
the Labour Party would want people to think “this election is over before it’s even
begun” might not be wrong, but he and his colleagues would do well to ask where the
opposition’s confidence in this regard stems from.
TTBR (Topics To Be Read) 24 May 2024

Fear gives way to election fervour (The Hindu)

While violence and fear marred elections in Kashmir earlier, this time
the region recorded a relatively high turnout as well as many firsts

In the last 34 years, parliamentary elections in Jammu and Kashmir (J&K) have been a
battleground for mainstream political parties and separatists espousing ideologies
ranging from Kashmir’s independence to accession to Pakistan. This year, for the first
time in my journalistic career, I covered an electoral battle limited to the mainstream
parties, with some championing the cause of semi-autonomous status for J&K and
others for a complete integration with the Union of India. This is an unprecedented
leap in the electoral dynamics of the region after the erstwhile State of J&K was
stripped of special status and reduced to two Union Territories in 2019.
In 1999, I was a cub reporter with a local daily in Srinagar. Kashmir was in the throes
of violence. Omnipresent militants kept security forces on their toes. As reporters, we
had to prepare for days to cover the general election. We had to get special passes
and plan to report from spots that ensured the least possibility of militant violence or
street protests. The fear of being hit by stones on the street or even grenades near
polling booths kept us on edge, especially on polling day.
The stage was set for elections in September-October. Most of the militant outfits and
separatist groups had called for a poll boycott in all the three parliamentary seats of
Kashmir Valley — Anantnag, Baramulla, and Srinagar. They described their decision as
“a democratic way to reject India’s rule in Kashmir and a means to seek international
attention” to the Kashmir issue. The run-up to the polls were marred by attacks on
security forces and workers of parties. ‘Fidayeen’ or suicide attacks by militants began
in Kashmir. I could gauge the fear from the fact that very few rallies were held, and
only under multi-tier security arrangements. Many areas such as Srinagar’s old city and
Baramulla’s Old Town were no-go zones for mainstream leaders for electioneering.
TTBR (Topics To Be Read) 24 May 2024

Angry local youth would throw stones at these leaders if they attempted to hold rallies
in these areas.
On polling day, bullet-proof vehicles or long columns of security forces could be seen
on every lane. There were hardly any voters. In fact, no voter liked to be identified.
Protesters checked locals for indelible ink and punished them on finding it. Many
voters’ houses were stoned at night. Reporters could only speak to voters whose faces
were covered. Locals referred to the voters as “ghadar (traitors)”. Srinagar recorded a
voter turnout of 11.8% and Baramulla, 27.8% that year.
Cut to 25 years later. The scene has completely changed. The two regions recorded a
turnout of 38% and 59%, respectively. The National Conference vice president, who is
a candidate from the Baramulla seat, made his maiden poll speech in his 25-year-long
political career in Srinagar’s old city. The poll venue was less than 1 km away from the
plaque bearing the names of more than 30 civilians who died in firing by security forces
on May 21, 1990, when they were carrying the body of assassinated separatist leader
Mirwaiz Molvi Farooq for burial. The Peoples Democratic Party president, who is a
candidate from the Anantnag seat, addressed a rally in Srinagar’s old city, a stone’s
throw from the house of Mohammad Abdullah Bangroo, one of the founding members
of the Hizbul Mujahideen. Rallies during the late evening and door-to-door campaigns
were held for the first time in the most volatile pockets of south Kashmir. Parties hired
lyricists and singers to increase their poll pitch.
On polling day, stone-pelters, militants’ families, and hardline cadres of the Jamaat-e-
Islami, which was banned in 2019, stood in queue along with others who had
boycotted elections in the past, at polling booths in Srinagar and Baramulla. Pockets
of Pulwama and Sopore, which once recorded the highest number of militant recruits,
led the change. In Sopore, the voter turnout was 44% compared to the less than 4% in
the past. Outside polling booths, people debated Article 370, jobs, mining rights and
harsh police verifications. I saw voters with varied ideologies for the first time. Indeed,
this was the first election where ideology, and not sadak, bilji, pani (road, electricity,
water), dominated the campaign.
Writer: PEERZADA ASHIQ
TTBR (Topics To Be Read) 24 May 2024

RBI bonanza (Financial Express)

The govt should use the opportunity to cut personal income tax rates in
the Budget.

Now that the Reserve Bank of India’s bumper dividend payout of Rs 2.1 trillion for FY24
puts a lot more money in the central government’s hands, the question is how best
this money can be spent. The government could borrow less from the markets during
the year and thereby reduce the fiscal gap. Or it could create assets by upping the
capex allocation. It could also reduce taxes and use the extra money to cover the
shortfall in revenues. In reality, it could do a bit of all three. A smaller quantum of
borrowings from the bond markets would undoubtedly keep yields reined in and leave
more resources with banks who are biggest buyers. With yields trending down, banks
would prefer to lend to customers rather than subscribe to bonds. That, in turn, should
keep a lid on deposit rates and in interest rates in general, which should be good for
businesses.
In fact, foreign portfolio investors (FPI) have been buying bonds — net purchases so
far in 2024 are close to $5.5 billion compared with $8.5 billion in 2023. The purchases
come ahead of India’s inclusion in the JP Morgan Chase’s Emerging Markets Index,
which is about a month away. Goldman Sachs estimates close to $40 billion could flow
into the debt market over the next two years, after Bloomberg Index Services adds
Indian bonds to its EM index from January. The enhanced demand for bonds should
let yields stay benign for the better part of the year; the benchmark yield is already
sub-7% and experts believe it could trend down to 6.7%.
However, while lower interest rates will no doubt benefit small businesses as well as
retail borrowers, it is unlikely to spur the private sector to make big investments. At
the same time, given that there will be limited time in the remaining part of the year
to spend on additional capex, setting aside money might not help. Instead, a cut in
personal income tax rates would put more disposable income in the hands of
TTBR (Topics To Be Read) 24 May 2024

households. Consumers in the lower-income groups have been badly hurt by the high
levels of inflation which, for several categories of goods and services, is way above the
headline CPI inflation. Since the government is nudging taxpayers to opt for the new
personal income tax (PIT) regime, the changes can be made to this set of rates.
Reducing the tax rates — for slabs at the lower end — would bring a much-deserved
relief to the middle class.
As has been noted by experts, there has been a shift in tax incidence from companies
to individuals. Revenues collected from corporation tax were 2.15 times those from
PIT in FY11; in FY24, it was 1.15 times the corporate tax collections. At the same time,
gross household savings — the total of financial and physical assets — as a share of
GDP fell to approximately 18.3% in FY23, lower than the 19.1% seen pre-pandemic and
20.3% in FY19. The 4.7% increase in gross household savings in FY23 was way slower
than the rise in the nominal GDP of 14.2%. Private final consumption expenditure grew
at only 6.8% in FY23 and is estimated to have risen at an anaemic 3% last fiscal. Going
by the premiumisation in virtually every category, it would seem only the well-off are
spending. The not-so-well-off also need some succour.

No ‘surge in employment’

Claims about rising employment continue to grow without supportive

evidence.

Unemployed youth are so disheartened they are turning to drugs, addiction to which
is growing across north India and not just in Punjab. National Crime Records Bureau
data shows that in 2018, three unemployed youth committed suicide every two hours;
in 2022, it increased to two suicides per hour. Yet the claim of a “surge in employment”
continues to mount during elections.
TTBR (Topics To Be Read) 24 May 2024

“Between 1983 and 2023, there has been no period that has seen jobless growth,”
contends a recent piece (rb.gy/qujehy) in Indian Express, forgetting that jobless
growth in India or any developing country for that matter is impossible. People must
work to survive in all low- and low-middle-income countries, especially if the working
age share of population is constantly rising.
Labour force surveys in India use two definitions of employment: principal status (PS)
and subsidiary status (SS). PS is defined as work over 182 days in the last 365 days; so
even PS work could be part-time, just as SS work (defined as 31-181 days in the past
365 days) will be part-time.
For a developing country characterised by extremely high levels of time related under-
employment, it would be bizarre to leave out SS or short-duration employment. So it
is a bit rich for the authors to advise labour economists, who have studied India for
decades, that only PS employment should be studied. That is a recipe for completely
misunderstanding an informalised economy’s labour market — 85% of India’s
enterprises are actually “informal” or unorganised.
We are then informed that the “fastest increase in employment has been from 2017-
18 to 2022-23 when about 80 million additional employment was reported”. What is
not revealed is that 60 million of this has been in agriculture — a reversal of the
process of structural change underway from 2004 to 2019, when the absolute number
of workers in agriculture fell.
In an economy where 42% of the workforce was producing 15% of its GDP, agri-
productivity is already so low that the last thing the farmers themselves want is to
work in farming. No development economist worth his salt regards the growth of
agricultural employment as “employment”. Even less if there is an increase in farm
employment from 42% to 45% in just three years (2020-2023), from 200 million to 260
million.
The authors note that “the employment growth has been highest for women during
this period, by more than 8% annually”. They dismiss the argument that they returned
due to increasing distress. They claim: “With falling fertility rates, improved access to
water, energy, etc., they are those involved in care- and home-related work.”
However, such work is not employment, they forget.
The authors admit that wages have been stagnant in 2017-18. Second, the piece is
devoid of any recognition of the kind of wages available in agriculture. We have shown
(rb.gy/ydeaba) that wages have stagnated in real terms in the last 10 years in all
sectors.
But the distress is greater than that. We estimated the number of workers with daily
wages/salary in agriculture earning up to `100: they were 99.8 million in 2017-18, and
TTBR (Topics To Be Read) 24 May 2024

had risen to 127.1 million by 2022 (at 2012 constant prices). An additional 63 million
were workers in agriculture earning wages of `100-200 in 2017-18, it remained 63
million in 2022. In other words, 190 million of the 247 million workers in agriculture
received these kind of wages. If such wages do not indicate distress, what must they
earn to denote presence/absence of distress?
Women (and men) leaving agriculture (with mechanisation gathering momentum) had
been a hugely important development in the process of structural transformation
since 2004. By contrast between 1996 and 2004, agricultural output had stagnated,
and so had incomes. Like earlier, a recent surge of women employment in
agriculture/allied activities is purely informal and in precarious forms, characterised
by low or no wages, long hours, and little job security. This not only perpetuates
gender inequalities but also reinforces the cycle of poverty for women/families.
Girls and women leaving agriculture has historically been seen as a process that
accompanies an economy transitioning from low- to low-middle-income status (in
accordance with a U-shaped relationship observed [by Goldin and others] between
per capita income and female labour force participation, across countries).
Indian enrolments of children in schools, especially of girls, increased sharply between
2004 and 2015. Child labour fell, and female labour force participation rate again fell
further.
However, some women returning to agriculture are now taking up livestock rearing as
an option; but all this is unpaid family labour. That is causing the so-called “surge in
employment”. There has been a surge of 30 million workers in agriculture as unpaid
family labour, and of 5 million in urban areas; a majority are women. Also, there is a
sharp increase in own account workers among women in agriculture. By and large, this
is due to reduced effective demand as remittances to rural areas fell.
India already had the highest open unemployment in 45 years in 2017-18. Worse, the
pandemic-induced economic downturn led to widespread job losses, reducing
effective demand. Manufacturing employment, a significant share of it unorganised
and in rural areas, fell after the double shocks of demonetisation and unplanned GST.
Manufacturing employed 60 million in 2012; it was down to an average 56 million for
three years (2017-18 to 2019-20), before recovering above the level prevailing a
decade earlier, only after Covid.
Finally, the authors repeat a claim made by many government economists: the
government’s schemes are also generating jobs since 2015. This segment may benefit
from the massive Pradhan Mantri Mudra Yojana loans that disbursed about `23 lakh
crore among 380 million accounts between 2015-16 and 2022.
TTBR (Topics To Be Read) 24 May 2024

However, we should know the reality of Mudra before making such claims. First, over
80% of loans given under this scheme have been the smallest Shishu loans, of less than
`50,000. Their average is only `27,000 per borrower: how useful is a loan of this size
for creating new employment? Second, banks have constantly been complaining
about rising non-performing assets under Mudra— hardly surprising given the low
demand with limited non-farm job growth, and constant wages.
CSDS April 2024 surveys showed 62% of respondents across India said it was more
difficult to get a job now compared to only a third in 2019, regardless of claimed
“surges in employment”.
Author Santosh Mehrotra taught economics in JNU and was with the Planning
Commission; Jajati Parida is associate professor of economics, University of
Hyderabad.
Disclaimer: Views expressed are personal and do not reflect the official position or
policy of Financial Express

Meeting $1-trillion digital economy goal

The first 100 days of incoming govt will be critical. Bridging regulatory
gaps is crucial to foster innovation and support growth of emerging
sectors.

India is witnessing a surge in technology adoption with momentous changes in the

financial and digital landscape of the country including the rise of consumer internet,
and tech-based start-ups ably backed by the government’s digital public infrastructure
TTBR (Topics To Be Read) 24 May 2024

(DPI). Referred to as India’s techade, the rise of numerous successful start-ups,

advancements in DPI, and rising investments are hard to miss.
The first 100 days of a new government are always critical for setting the wheels in
motion for the next five years as it lays a strong foundation for growth, stability, and
policy predictability. With ease of doing business being a central tenet, bridging critical
gaps in the regulatory ecosystem becomes crucial to foster innovation and support the
growth of emerging sectors. To meet the $1-trillion digital economy target for 2026,
several key focus areas have to be addressed on priority.
Start-ups have become the undisputed pillars of India’s techade, having created
wealth in and for the country by generating employment and work opportunities,
besides ease of access to products and services for consumers. A large number of such
start-ups have their holding companies abroad to leverage access to venture capital,
beneficial tax structures, market expansion, and international branding. The time is
now ripe for India to enable the listing of such holding companies back to India.
Dubbed ghar wapsi, the process of reverse-flipping of such unicorns should be
incentivised to ensure further wealth creation in India.
The rise of consumer internet start-ups led to an unprecedented growth in the
creation of work opportunities for a category called gig workers. While the gig
economy offers flexibility and new avenues, there is a need for providing formal social
security, implementing the Code on Social Security, 2020, and notifying its rules, taking
into account some industry recommendations. Extending social protection and
medical benefits to gig and platform workers under existing schemes via e-Shram’s
Universal Account Number as the basis for single-identity registration nationwide will
help broaden the reach of social security.
GST has been integral to the shift towards one nation, one tax. However, sectors like
e-commerce and online travel have had to continuously deal with ambiguities within
the regulatory framework, resulting in compliance and procedural burden. The
requirement of multiple GST registrations across states, lack of input credits, filing
hundreds of returns, and even applicability of GST on non-AC bus tickets bought online
need immediate attention. It is time for the government to review them through a GST
2.0 to ensure ease of conducting business besides their simplification.
Talking of ease, electric mobility start-ups in India have ushered in an era of ease of
mobility besides providing livelihoods. Aside from climate objectives, accessible,
affordable, and safe transportation are essential elements for employment and
commerce. Projections indicate a surge in demand for electric vehicles, with annual
sales anticipated to cross 16 million units by 2030. An extension of the Electric Mobility
Promotion Scheme and the Faster Adoption and Manufacturing (of Hybrid and)
Electric Vehicles is necessary for incentivising usage of greener and cleaner energy.
TTBR (Topics To Be Read) 24 May 2024

This should be accompanied by expansion and diversification of charging

infrastructure.
The other aspect of mobility is ease of owning and disposing vehicles. IndiaTech.org’s
whitepaper, titled “One Bharat One Road Tax” and submitted to the government, has
the potential to reduce cumbersome compliances and open avenues for businesses to
efficiently trade and lease vehicles for emerging start-ups in the pre-owned vehicle
space. Similarly, start-ups in the pre-owned gadgets and mobile space, which are
bringing an informal economy into the formal structure, must be encouraged and
supported under PM’s Mission LiFe.
Friendly laws, re-evaluation of regulatory obstacles, and establishing a favourable
ecosystem for the growth of start-ups is increasingly necessary. Emerging sectors such
as online gaming, AVGC-XR (animation, visual effects, gaming and comics, and
extended reality), and VDAs (virtual digital assets) can benefit from such a
transformation in India’s regulatory and legal environment.
Everything above is part of Digital India and the quest for a more innovative and
inclusive digital Bharat will propel the country to fulfill its $1-trillion digital economy
goal.
The government had also proposed the Development of Enterprise and Services Hubs,
covered in the finance minister’s 2022 Budget speech; under this the Special Economic
Zones Act was to be replaced with a new legislation enabling states to become
partners. This is welcome, as it will lead to the removal of several operational
restrictions and allow domestic market sales under a proportional duty payment
structure. The government needs to include this on its 100-day priority list to ensure
broader growth of manufacturing sectors, so as to help replace imports with high-
quality, domestically produced goods.
India stands on the cusp of a transformative era, and the first 100 days of the new
government can give direction to and empower innovators and entrepreneurs, who
will drive economic growth with a forward-looking policy framework.
Authors Rameesh Kailasam and Dhiraj Gyani, are respectively, CEO and senior
director (policy & operations) at IndiaTech.org
Disclaimer: Views expressed are personal and do not reflect the official position or
policy of Financial Express
TTBR (Topics To Be Read) 24 May 2024

Fiscal dividend (Business Line)

RBI’s large surplus transfer can spur fiscal correction

(RBI transfers its surplus, which is the excess of income over expenditure, to the
government as per Section 47 of the Reserve Bank of India Act, 1934)
The Reserve Bank of India’s (RBI) surplus transfer of ₹2,10,874 crore for 2023-24
comes as a surprise and will prove handy to the next government when it draws up its
Budget for this fiscal year. The quantum of the transfer is huge; it is 141 per cent higher
that the ₹87,416 crore transferred for 2022-23, and is the highest ever transfer by the
central bank to the government. The surplus has been determined after making the
transfer to the contingency risk buffer at the upper end of the recommendation as per
the Economic Capital Framework adopted by the RBI on the recommendation of the
Bimal Jalan committee in 2019.
The central bank has adopted a prudent approach in increasing the allocation to the
contingency risk buffer to 6.5 per cent of the RBI’s balance sheet for FY24, in line with
the improvement in economic activity. The allocation had been at the lower end of 5.5
per cent between FY19 and FY22, due to slowing economic growth and the pandemic.
While the exact drivers behind the large surplus for last fiscal year will be revealed only
in the RBI’s annual report for FY24, several factors may have helped. More than two-
thirds of RBI’s assets are held in foreign currency ; these assets expanded around 17
per cent in FY24, according to provisional numbers. With interest rates in the US and
other advanced economies at a multi-decade high, the interest earnings from these
assets would have been quite healthy. Elevated interest rates in India would have
helped RBI garner higher income from its holding of Indian government bonds. A
significant portion of its income could have been derived from gains made from
interventions in the foreign exchange market. On the expenditure side, the outgo on
interest on domestic LAF operations appears to have been lower. Overall, the central
bank appears to have done a good balancing act in keeping the rupee and government
TTBR (Topics To Be Read) 24 May 2024

bond yields stable and managing large foreign portfolio inflows while improving the
surplus available for transfer to the government.
The surplus announced by the RBI for FY24 is far higher than the amount of ₹1,02,000
crore pencilled as dividend and surplus from the RBI, other nationalised banks and
financial institutions in the interim Budget for 2024-25. With the additional transfer
from the RBI amounting to 0.2 to 0.3 per cent of GDP, the fiscal deficit could move
lower by that extent, thereby bringing down market borrowing. The other option
before the Centre is to utilise the funds to spend on infrastructure. Lower market
borrowing has many positive fallouts. It will speed up the Centre’s fiscal consolidation,
helping it achieve the 4.5 per cent fiscal deficit target by 2025-26. Lesser supply of
paper will reduce the pressure on RBI to support government borrowing through
market intervention, helping it trim its balance sheet from the current ₹70-lakh crore.
Finally, lower supply of government bonds will push G-sec yields, and market rates,
lower. These are important cues for monetary policy.

The middle-class identity is constantly changing

(Business Line)

This class is now seen as a thriving and dynamic catalyst for economic
growth on a worldwide scale

Is the middle class becoming more and more evolved? Or is an emerging class simply
being rebranded as the new middle class? In February 2009, The Economist asserted
that over 50 per cent of the world’s population had entered the middle class, primarily
because of explosive growth in emerging markets. It defined the middle class as
starting at the point where people have roughly a third of their income left over for
discretionary spending after paying for basic food and shelter. It characterised the
TTBR (Topics To Be Read) 24 May 2024

middle class as those who don’t live from hand-to-mouth like the poor do. This enables
people to purchase consumer items, enhance their healthcare, and pay for their
children’s education.
The Lewis model of a dual economy has gained relevance in the US, according to MIT
economic historian Peter Temin’s 2017 book, The Vanishing Middle Class. A number
of factors, including globalisation, deindustrialisation, new technologies that benefit
capitalists and professionals, and dwindling labour protections, have led to a growing
divide between winners and those left behind.
A different situation
While the US has seen a decline of the middle class, or more colloquially, “middle-
income” individuals, the situation in many other countries, notably India, is very
different. An independent, non-profit think tank called People Research on India’s
Consumer Economy (PRICE) published a report in 2023 titled, The Rise of India’s
Middle Class. The middle class in India more than doubled to over 30 per cent of
households after the start of economic liberalisation in 1991, with favourable effects
on growth, consumption, urbanisation, and social mores, according to PRICE. It
predicts that by 2047, 63 per cent of Indian households will belong to the middle class
if the country implements the essential political and economic reforms.
Clearly, there are varied opinions regarding the composition and number of middle-
class individuals. The definition of the “middle class” in a given country varies
depending on a number of characteristics, including social service levels, educational
attainment, purchasing power, and opinions about who is considered to be wealthy.
In 2015, two economists from Mumbai described the middle class as those who spend
between $2 and $10 per person on daily expenses. By this measure, the middle class
currently comprises around half of the Indian population. In contrast, when incomes
have been adjusted for household size, people in the middle class are those whose
yearly household income was two-thirds to twice the national median income in 2020,
according to a Pew Research study from 2021. The majority of organisations, like the
OECD and the World Bank, state that middle-class people usually make between $10
and $100 a day, as indicated by the 2015 purchasing power parities.
A social class
In late feudalist society, Friedrich Engels defined the “middle class” as a social class in
between the nobles and the peasantry. The word “middle class” was first used in the
modern era in the UK Registrar-General’s report in 1913. THC Stevenson, a statistician,
defined the middle class as individuals who are in between the upper and working
classes.
TTBR (Topics To Be Read) 24 May 2024

Homi Kharas of the Brookings Institution chronicled the history of the middle class
from its beginnings in Victorian England to present-day India in his book The Rise of
the Global Middle Class: How the Search for the Good Life Can Change the World,
published in 2023. Perceived as Kharas, the quest for a better life that began just over
200 years ago has propelled an unparalleled worldwide shift.
This class is now seen as a thriving and dynamic catalyst for economic growth on a
worldwide scale. It also plays a crucial role in promoting other social developments
that support the proliferation of components that support a healthy society and
stimulate growth in other areas. The late eminent MIT economist Lester Thurow
succinctly summarised the significance of this class when he said, “A healthy middle
class is necessary to have a healthy political democracy. A society made up of rich and
poor has no mediating group either politically or economically.”
Homi Kharas asks in his book if the middle class can withstand the pressures of
consumption, politics, pollution, automation, and unemployment, or if it will
eventually collapse. In order to address the urgent problems of inequality, climate
change, and technological advancements, he offers a new manifesto for the middle
class.
In any case, the middle-class identity is constantly changing due to ever-evolving global
scenarios. Consequently, the traditional middle class gives rise to a neo-middle class,
and little is known about the many social and economic identities of this class, let alone
what they desire from society and politics. All we know is that today’s middle-class
people probably differ greatly from RK Laxman’s portrayal of the dhoti-clad, silent
“common man.” Crucially, this is too significant, diverse, and influential social class to
be ignored on both an economic and political level.
The writer ATANU BISWAS is Professor of Statistics, Indian Statistical Institute,
Kolkata