In agri-credit, small farmers are still outside the fence
Farmers on the warpath would mean that agriculture reforms have again occupied centrestage not just in the minds of the politicians but also policymakers. To enable small farmers to diversify their crops or improve their income they must have access to credit at reasonable rates of interest. This has been an agenda of the triad of the Centre, the States and the Reserve Bank of India (RBI) for decades. Unfortunately, while the volume of credit has improved over the decades, its quality and impact on agriculture has only deteriorated. Agricultural credit has become less efficient in delivering agricultural growth. Otherwise, why should over 85% of farmers’ income remain stagnant over the years?
Every year, the central government announces an increase in the target of subsidised agriculture credit limit and banks surpass the target. On February 1, Budget day, the Union Finance Minister will again set a new agricultural credit target for 2021-22. In 2011-12, the target was ₹4.75-lakh crore; now, agri-credit has reached the target of ₹15-lakh crore in 2020-21 with an allocated subsidy of ₹21,175 crore. The question is: where is the credit and subsidy going and are they really benefiting the farmers?
Most small farmers left out
In the last 10 years, agriculture credit increased by 500% but has not reached even 20% of the 12.56 crore small and marginal farmers. Despite an increase in agri-credit, even today, 95% of tractors and other agri-implements sold in the country are being financed by non-banking financial companies, or NBFCs, at 18% rate of interest; the banks’ long-term loans rate of interest for purchasing of the same is 11%.
The central bank, the RBI, has also questioned agricultural households with the lowest land holding (up to two hectares) getting only about 15% of the subsidised outstanding loan from institutional sources (bank, co-operative society). The share is 79% for households belonging to the highest size class of land possessed (above two hectares), beneficiaries of subsidised institutional credit at 4% to 7% rate of interest. As in the Agriculture Census, 2015-16, the total number of small and marginal farmers’ households in the country stood at 12.56 crore. These small and marginal holdings make up 86.1% of the total holdings. As in the Situation Assessment Survey of Agricultural Households by the National Sample Survey Office (NSSO), Ministry of Statistics and Programme Implementation, the share of institutional loans rises with an increase in land possessed — showing that the bulk of subsidised agri-credit is grabbed by big farmers and agri-business companies.
A loose definition of agri-credit has led to the leakage of loans at subsidised rates to large companies in agri-business. Though the RBI had set a cap that out of a bank’s overall adjusted net bank credit, 18% must go to the agriculture sector, and within this, 8% must go to small and marginal farmers and 4.5% for indirect loans, bank advances routinely breach the limit.
In 2017, 53% of the agriculture credit that the National Bank for Agriculture and Rural Development (NABARD) provided to Maharashtra was allocated to Mumbai city and suburbs, where there are no agriculturists, only agri-business. It made indirect loans to dealers and sellers of fertilizers, pesticides, seeds and agricultural implements undertaking work for farmers.
A review by the RBI’s internal working group in 2019 found various inconsistencies. It found that in some States, credit disbursal to the farm sector was higher than their agriculture gross domestic product (GDP) and the ratio of crop loans disbursed to input requirement was very unevenly distributed. Examples are in Kerala (326%), Andhra Pradesh (254%), Tamil Nadu (245%), Punjab (231%) and Telangana (210%). This shows the diversion of credit for non-agriculture purposes. One reason for this diversion is that subsidised credit disbursed at a 4%-7% rate of interest is being refinanced to small farmers, and in the open market at a rate of interest of up to 36%.
Subsidised credit should be the ‘cause for viable agriculture but, unfortunately, the agriculture sector’s performance has not been commensurate with the subsidised credit that it has received’. Even new farm laws have not addressed the reform in the agriculture credit system.
The way forward is to empower small and marginal farmers by ‘giving them direct income support on a per hectare basis rather than hugely subsidising credit. Streamlining the agri-credit system to facilitate higher crop loans to farmer producer organisations, or the FPOs of small farmers against commodity stocks can be a win-win model to spur agriculture growth’.
Technology as a solution
With mobile phone penetration among agricultural households in India being as high as 89.1%, the prospects of aggressive effort to improve institutional credit delivery through technology-driven solutions can reduce the extent of the financial exclusion of agricultural households. Farmers have been able to avail themselves of loans through mobile phone apps, says a media report. These apps use satellite imagery reports which capture the extent of land owned by farmers in States where land records are digitised and they grow the crop to extend the Kisan Credit Card loans digitally. Instant, otherwise, farmers have to produce the certified land record copy from the revenue department, which is much time consuming. Other steps are reforming the land leasing framework and creating a national-level agency to build consensus among States and the Centre concerning agriculture credit reforms to fill the gap and reach out to the most number of small and marginal farmers.
Budgeting in a time of crisis
The Great Depression wrecked the economies of the U.S. and Europe. In the words of Jonathan Alter, when Franklin Roosevelt became the American President in 1933, he was told: “Mr. President, if your programme succeeds you would be the greatest President in American history. If it fails, you will be the worst one”. Roosevelt replied: “If it fails, I will be the last one”.
Today the U.S. is facing its worst economic crisis since the Great Depression. Like Roosevelt, President Joe Biden is launching the American Rescue Plan to revive the economy. His $1.9 trillion plan proposes $1,400 per-person payments, increased unemployment benefits, assistance to local governments, support for accelerated vaccine rollout, investments to get children back in school, and a minimum wage of $15 an hour.
In India, Finance Minister Nirmala Sitharaman will present the Union Budget on February 1, 2021. The pandemic has severely affected growth. The government was quick to announce a package of ₹20 lakh crore. Fiscal deficit could overshoot the target set by the Fiscal Responsibility and Budget Management Act. Spending more is going to be difficult. According to the Centre for Monitoring Indian Economy, unemployment, both rural and urban, is surging, and health and infrastructure budgets are getting stretched. How much can the government afford to spend and in what direction? Can Keynesian economics offer guidelines?
The Paul Krugman principles
Noble Laureate Paul Krugman has offered advice against too much of caution in dealing with the economic mess. He has laid down the rules for budget-making. The first rule is to not doubt the power of the government to help. Government spending can be hugely beneficial. The Affordable Care Act, for instance, led to a decline in the number of Americans without health insurance, and gave people a sense of security. The second is to not be obsessed with debt. Economists agree that debt is far less a problem than conventional wisdom asserts. Interest rates are low by historical standards. The burden of servicing debt is low. The third rule is to not worry about inflation. We can run a ‘hot economy’ with low unemployment and large budget deficits, without runaway inflation. The fourth is to not count on bipartisan support.
The Indian context
India’s GDP is estimated at ₹200 lakh crore. The first priority for spending should be health and infrastructure. India has only five beds for 10,000 Indians and ranks 155th on bed availability in the Human Development Report of 2020. Experts opine that the government should increase healthcare spending from 1.5% of the GDP to 2.5%.
The National Infrastructure Pipeline aims to invest ₹111 lakh crore by 2025 in over 6,800 projects. The proposal to set up a Development Finance Institution is still on the anvil. The Chinese government has entered into building social housing projects. As pointed out by the economists in India Today, expenditure on infrastructure can have a large multiplier effect on economic output.
Suggestions have been made for the introduction of an urban employment guarantee scheme on the lines of the Mahatma Gandhi National Rural Employment Guarantee Scheme. This will be far better than direct cash transfers. The stumbling block to budgetary efforts to spend can be the resource crunch. Despite historic lows in fuel prices, the government chose to increase fuel prices to record levels. The Goods and Services Tax has been a big source of revenue. There is a strong case for reducing GST tariff. Cess or surcharge can be levied on the super-rich. Disinvestment must go on at high speed. The average tariff must come down to 10% from its current level of 14% by 2024, as suggested by Professor Arvind Panagariya. He wrote: “With several key reforms – new labour codes, new farm laws, Insolvency and Bankruptcy Code, low corporate profit tax, single nationwide GST and widespread digitisation – already in place, the addition of privatisation and trade liberalisation would nearly guarantee a double digit growth and millions of additional well-paid jobs for the masses in the post-Covid-19 decades.”
The lowering of corporate tax rates, the introduction of the option to choose the tax rate both for companies and for individuals up to fixed monetary limits, the introduction of the Vivad se Vishwas scheme without sacrificing revenue, and the structured infusion of fiscal stimulus without accelerating inflation all point to a right approach to Budget-making. We can expect a never-before Budget to be presented to meet the crisis created by COVID-19. The super-rich must co-operate without insisting on tax concessions.
Emphasising self-reliance in science
On March 4, 1958, under the leadership of Jawaharlal Nehru, for the first time in the history of independent India, Parliament passed a resolution on science policy. The resolution stated: “Science… has provided new tools of thought and has extended man’s mental horizon. It has thus influenced even the basic values of life, and given to civilization a new vitality and a new dynamism.” The resolution said the aim of the scientific policy was, among other things, to “encourage individual initiative for the acquisition and dissemination of knowledge, and for the discovery of new knowledge, in an atmosphere of academic freedom.” In effect, this resolution proved to be a springboard for the development of the country’s scientific infrastructure. Since that resolution, successive governments issued policy statements with varying emphasis on chosen objectives and goals, often echoing the existing national and global imperatives and the ruling dispensation’s ideology.
The 2020 draft policy
India’s Department of Science and Technology recently released a draft of the fifth Science, Technology, and Innovation Policy. This 62-page-long document presents the objectives and goals of our new science policy. The public is expected to provide feedback on this document before it gets finalised. But the problem with the document is that it is rambling and full of jargon and clichés, making the task of separating the grain from the chaff a major exercise in itself.
The new policy envisages technological self-reliance and aims to position India among the top three scientific superpowers. Though the names of the other two nations are not mentioned, it must be understood that they are the U.S. and China. For that to happen, the draft policy says, we need to attract our best minds to remain in India by developing a “people-centric” science, technology, and innovation “ecosystem”. It states that the private sector’s contribution to the Gross Domestic Expenditure on Research and Development should be doubled every five years. The 2013 policy had similar aims. The 2020 draft policy fails to discuss what we have achieved on these fronts since then.
Why does our R&D investment in science continue to hover between 0.5% and 0.6% of the GDP? Raising it to 2% of the GDP has been a national goal for a while. Despite strong recommendations in the past by several scientific bodies and leading scientists and policymakers, we are still well short of that goal. The 2020 draft policy blames this on “inadequate private sector investment” and adds that “a robust cohesive financial landscape remains at the core of creating an STI-driven Atmanirbhar Bharat.” It looks as if the government is trying to shift the responsibility of financing R&D to different agencies such as the States, private enterprises, and foreign multinational companies. But it is doubtful if the various funding models that are presented are workable or practical, especially during a pandemic.
The policymakers who drafted this report should have gone back to the self-financing revenue model proposed in the Dehradun Declaration for the CSIR labs back in 2015 and critically evaluated its success rate. Common sense informs us that the private sector cannot be expected to pay for basic research. This is because the return on investment in basic research takes too long from a private sector perspective. Only the government can have long-term interest to support such research. Participation of the private sector in basic science has not happened even in the U.S. The fact is that basic science research in India is suffering from the lack of adequate funding despite grand proclamations. Even elite institutes like the Indian Institutes of Technology are finding it difficult to run their laboratories on a day-to-day basis because of paucity of funds.
The draft policy visualises “a decentralized institutional mechanism balancing top-down and bottom-up approaches, focusing on administrative and financial management, research governance, data and regulatory frameworks and system interconnectedness, for a robust STI Governance”. This is easier said than done. This intention is in fact defeated in the document itself, where several new authorities, observatories and centres have been proposed, which may end up feeding up the already fattened bureaucracy in science administration. Decentralisation of administrative architecture is essential, but we need to explore the practical option of providing more autonomy to research and academic centres for financial management.
Some points are welcome. These include the fact that policymakers are considering alternative mechanisms of governance of the financial landscape; that they realise the administrative burdens of researchers and the problem of journal paywalls; and promise to explore international best practices of grant management.
It was reported in 2019 that more than 2,400 students dropped out from the 23 IITs in just two years, with over half of them belonging to the Scheduled Caste/Scheduled Tribe and Other Backward Classes. The number of suicides of students is also on the increase in the IITs. Caste discrimination could be one of the reasons for these tendencies. As a part of inculcating an inclusive culture in academia, the document promises to tackle discriminations “based on gender, caste, religion, geography, language, disability and other exclusions and inequalities”. It mentions more representation of women and the LGBTQ community, but is silent on how we are to achieve their proportionate representation.
Science and society
In the chapter ‘Science Communication and Public Enagagement’, concerns on the disconnect between science and society are valid. But the fact is that hyper-nationalism is not conducive to the propagation of evidence-based science and a rational outlook. It is also heartening to see that the document harks back to our constitutional obligation to “develop a scientific temper, humanism and the spirit of inquiry and reform.” But it is silent on how this can be achieved when pseudoscience is deliberately propagated in the name of traditional science with the help of some arms of the government. A recent instance is the proposal by the Rashtriya Kamdhenu Aayog to conduct a national examination under the garb of ‘cow science’.
The document does not mention how to stem the rot within, although it speaks extensively about science communication and scientific temperament. Our belief systems, values, and attitudes have an impact on the quality of research. That partly explains why Indians who have chosen to work in labs abroad are able to make path-breaking discoveries. The ruling dispensation has a moral obligation to facilitate an environment that encourages a mindset that constantly challenges conventional wisdom as well as open-minded inquiry among the students. Only a dissenting mind can think out of the box.
The document contains nuggets of modern scientific vision and information. But its digressive style impacts the reader’s attention. The document should prioritise important issues and amplify first the problems which have cultural and administrative dimensions. With the advent of new disruptive technologies, global competitiveness will be increasingly determined by the quality of science and technology, which in turn will depend on raising the standard of Indian research/education centres and on the volume of R&D spending. India has no time to waste.
Revise the text of the Budget speech
It can be expected that it will be full of self-congratulatory declarations of how the country, the economy and the government’s finances have withstood the pandemic and how the economy is set on a path of revival.
Largely formal sector-centric
Some of this will be only partly correct, much of it will be misleading, and some will be downright wrong. It is certainly true that COVID-19 infections are on the decline in India — as they are in the Asian region generally, including in countries that did not implement the extreme lockdown that India experienced. The “revival” of the economy that is being much touted is from the complete collapse of the first quarter of the current fiscal year, and is largely confined to the formal sector, while most informal activities are still facing crisis. The “recovery” of employment is because of the absence of social security for the vast bulk of Indian workers, which forces them to seek out any income-generating opportunities, simply to survive. Wage incomes are significantly lower than before the lockdown. The stock market reaching stratospheric heights is really more of an indication of how divorced it has become from the real economy and its prospects. The past year has witnessed significant destruction of livelihoods and increases in material distress, poverty and hunger. To talk of economic recovery without factoring these in is untenable.
Now, consider the numbers that will be presented. We know from past Budgets, especially with this government, that the numbers for revenues and spending have been inaccurate, sometimes off by around ₹1,50,000 crore as in Budget 2019-20. This is not only because the actual data are available only for the first nine months. It is also because the Budget numbers are themselves a fudge, with excessively optimistic projections for revenue generation in the remainder of the year and reducing the actual expenditures of the central government by pushing items “off-budget”.
This concern has been repeatedly brought up by the Comptroller and Auditor General of India (CAG). A CAG report in 2018 identified at least three methods of reducing the stated expenditure: not paying for the full fertilizer subsidy by using “special banking arrangements”; not paying the central government’s dues to the Food Corporation of India (FCI) for the food subsidy, and forcing the FCI to borrow from the market; using other special purpose vehicles to pay for infrastructure investment, like the Long Term Irrigation Fund. In 2017-18, just those three items amounted to ₹1,29,446 crore, or 1.8% of GDP. To these could be added other strategies the central government uses to “reduce” its own spending, like not paying States their rightful dues under the Goods and Services Tax Compensation Fund, or not paying what State governments have already spent on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), which is legally mandated.
But what all this does underline is that the numbers presented in the Budget are not to be taken seriously, either for current year projections, or for the next year’s estimates. This also effectively means that Parliament is reduced to approving a piece of fiction.
CGA data and spending
So what do we have to go by, to gauge the real state of the government’s finances? The data from the Controller General of Accounts provide the most reliable information. They tell a rather disturbing story. Between April and November 2020, revenues of the central government predictably collapsed, by around 18%, or ₹181,372 crore, compared to the same period of the previous year. But despite that, expenditures should have gone up, because the lockdown-induced collapse in economic activity meant that public spending would be the only thing keeping the economy afloat.
Indeed, that is what the government promised: in three rounds of stimulus packages, it claimed to inject amounts of ₹1.7-lakh crore in March, ₹20-lakh crore in May and then ₹2.65-lakh crore in November. But it turns out that very little of these apparently large amounts involved actual commitments of more public spending. And the public accounts show that total spending of the central government increased by only ₹86,301 crore. That was only a 4.6% increase — not even enough to keep pace with inflation. In other words, the central government reduced its real spending over the period of the pandemic and economic crisis!
This fiscal stance obviously adds to the material suffering of the people and deprives them of basic goods and essential public services at a time of much greater need. But it is also a macroeconomically stupid strategy, because it adds to contractionary tendencies in the economy, and prolongs the severe demand recession facing millions of small and informal enterprises and hundreds of millions of self-employed workers.
As we saw after demonetisation, policies that destroy informal economic activities set in train processes of economic contraction that eventually come to bite formal enterprises as well. A similar process is under way in India now. Those who celebrate the higher profits of some large corporate houses or the gains in the stock market will find out soon enough that these are ephemeral if the vast bulk of the economy continues to stagnate or decline.
We’re not all in the same boat
One of the most incisive and hard-hitting comments on the real import of the COVID-19 crisis came from none other than the United Nations Secretary General, Antonio Guterres. He said: “COVID-19 has been likened to an x-ray, revealing fractures in the fragile skeleton of the societies we have built. It is exposing fallacies and falsehoods everywhere: The lie that free markets can deliver healthcare for all; the fiction that unpaid care work is not work; the delusion that we live in a post-racist world; the myth that we are all in the same boat. While we are all floating on the same sea, it’s clear that some are in super yachts, while others are clinging to the drifting debris.”
Oxfam International’s annual report on inequality for 2021, aptly titled ‘The Inequality Virus’, puts the uncomfortable but imperative spotlight on the obscene inequality between the few in “super yachts” and the overwhelming majority “clinging to the drifting debris”. The report was published on the opening day of the World Economic Forum’s ‘Davos Dialogues’.
Over the decades, India has faced mammoth challenges including wars and hunger. But the COVID-19 pandemic, which resulted in a migrant crisis, lockdowns, and serious contraction of the economy, and highlighted a crumbling health system, is an unprecedented test of the republic. This is the moment to use the ‘COVID x-ray’ to recognise the deep fissures caused by the growing inequality in the country; and for post-pandemic recovery, resolve to plan a fundamentally different economic model for ensuring an equal, just and sustainable future for all.
The Oxfam report highlights deeply uncomfortable truths of how the virus has exposed, fed off, and increased existing inequalities of wealth, gender and race. Over two million people have died, and hundreds of millions of people are being forced into poverty while many of the richest, both individuals and corporations, are thriving. Worldwide, billionaires saw their wealth increase by a staggering $3.9 trillion between March 18 and December 31, 2020. Within nine months, the top 1,000 billionaires, mainly white men, had recovered all the wealth they had lost, while recovery for the world’s poorest people according to most estimates could take over a decade.
The pandemic, which is the greatest economic shock since the Great Depression, saw hundreds of millions of people lose their jobs and face destitution and hunger. This shock is set to reverse the decline in global poverty we have witnessed over the past two decades. It is estimated that the total number of people living in poverty could have increased by between 200 million and 500 million in 2020.
Globally, women are over-represented in the sectors of the economy that are hardest hit by the pandemic. If women were represented at the same rate as men in those sectors, 112 million women would no longer be at high risk of losing their incomes or jobs. The unequal impact of the pandemic, in addition to this gender dimension, also has a race dimension. In Brazil, for example, people of Afro-descent have been 40% more likely to die of COVID-19 than white people. The virus has also led to an explosion in the amount of underpaid and unpaid care work, done predominantly by women, and in particular women from groups facing racial and ethnic marginalisation.
The rich and poor in India
Sadly, India is a case in point. The country introduced one of the earliest and most stringent lockdowns in the face of the pandemic, whose enforcement brought its economy to a standstill triggering unemployment, hunger, distress migration and untold hardship.
The rich have been able to escape the pandemic’s worst impact. White-collar workers have easily isolated themselves and have been working from home. The wealth of Indian billionaires increased by 35% during the lockdown and by 90% since 2009. This is despite the fact that most of India has faced a loss of livelihood and the economy has dipped into recession. The increase in the wealth of the top 11 billionaires during the pandemic can easily sustain the Mahatma Gandhi National Rural Employment Guarantee Scheme or the Health Ministry for the next 10 years. We have read astonishing stories of how Mukesh Ambani was making ₹90 crore per hour during the lockdown when 24% of the population was earning under ₹3,000 per month. According to the International Labour Organization, with almost 90% working in the informal economy in India, about 40 crore workers in the informal economy are at risk of falling deeper into poverty.
The Oxfam report undertook a survey of 295 economists from 79 countries. They included leading global economists such as Jayati Ghosh, Jeffrey Sachs and Gabriel Zucman. Of the respondents, 87% expected that income inequality in their country was going to significantly increase as a result of the pandemic. These levels of inequality are not viable and will have a deeply harmful impact. This concern is shared by the International Monetary Fund (IMF), the World Bank, and the Organisation for Economic Co-operation and Development. The IMF Managing Director, Kristalina Georgieva, said, “The impact will be profound […] with increased inequality leading to economic and social upheaval.”
India just celebrated its 72nd Republic Day. We must recognise that a radical and sustained reduction in inequality is the indispensable foundation for a just India, as envisioned in the Constitution. The government must set concrete, time-bound targets to reduce inequality. We must move beyond the focus on GDP and start to value what really matters. Fighting inequality must be at the heart of economic rescue and recovery efforts. This must include gender and caste equality. Countries like South Korea, Sierra Leone and New Zealand have committed to reducing inequality as a national priority, showing what can be done.
Four things could be done on priority. One, invest in free universal healthcare, education, and other public services. Universal public services are the foundation of free and fair societies and have unparalleled power to reduce inequality, including gender and caste inequality. An immediate step could be delivering a free ‘people’s vaccine’ to all citizens to tackle the pandemic.
Two, the virus has shown us that guaranteed income security is essential. For this to happen we need not just living wages but also far greater job security, with labour rights, sick pay, paid parental leave and unemployment benefits if people lose their jobs.
Three, reintroduce wealth taxes and ensure financial transaction taxes while putting an end to tax dodging. Progressive taxation is the cornerstone of any equitable recovery, as it will enable investment in a green, equitable future. Argentina showed the way by adopting a temporary solidarity wealth tax on the extremely wealthy that could generate over $3 billion.
Four, we need to invest in a green economy that prevents further degradation of our planet and preserves it for our children. The fight against inequality and the fight for climate justice are the same fight.
Pursuing national interests, at the UN high table
India deserves a permanent seat at the high table of the United Nations, the UN Security Council (UNSC), but is almost sure not to have it anytime soon. Therefore, its two-year non-permanent stint at the UNSC should be viewed as a once-in-a-decade opportunity to clearly identify and pursue its national interests regionally and globally, rather than chase chimerical goals such as a permanent membership or to issue please-all platitudes.
The UNSC, unfortunately, is where the leading powers of the international system dictate terms, show less powerful countries their ‘rightful’ place, fight among themselves even as they negotiate deals outside the horseshoe-tabled room. This is not where the lofty ideals of the human race come to fruition; nor are the members of the elite body persuaded by moral and ethical considerations. Seated at the table for the eighth time, New Delhi knows the game. And yet, sometimes it becomes a victim of its own past rhetoric and forgets to play the game to its advantage.
Timing of membership
New Delhi’s entry into the UNSC coincides with the emergence of a new world order, one marked by systemic uncertainty, little care for global commons, absence of global leadership, the steady division of the world into rival blocs, and an age marked by unabashed pursuit of narrow national interests, putting even the rhetoric about a value-based global order on the backburner.
The UNSC has also reached a point wherein its very relevance is in serious doubt, let alone serious expectations of it to live up to its primary objective: “the maintenance of international peace and security”.
India is different too. It is no longer an ardent believer in the fantastical claims about a perfect world at harmony with itself, nor is it a timid bystander in global geopolitics. Contemporary India is more self-confident, resolute and wants to be a shaper of geopolitics even though it lacks the material wherewithal, economic heft, and domestic consensus, to action its ambitions. But at least its mindset has changed, from being satisfied on the margins to desiring to be at the centre stage. On the downside, however, its hard realism is not just a foreign policy attribute but reflective of and stems from its domestic political dynamics, worrying as it were.
New Delhi’s pursuit of its interests at the UNSC should, therefore, reflect its material and geopolitical limitations, and its energies should be focused on a clearly identified agenda.
The China factor
New Delhi’s tenure at the UNSC comes in the wake of its growing military rivalry with Beijing, the impact of which has already started to be felt at the UNSC meetings in New York. China’s opposition to having India chair the Counter-Terrorism Committee (CTC) in 2022 was a precursor to the things to come on the high table. If the Biden administration were to continue with Donald Trump’s policy of pushing back Chinese aggression including at the UNSC, New Delhi might find itself some useful allies in checking Chinese aggression in the region.
Greater Indian alignment with the West at the UNSC, an unavoidable outcome, could, however, widen the growing gulf between Moscow and New Delhi given Russia’s increasing dependence on Beijing in more ways than one. However unfortunate that may be, it might not be possible for New Delhi to sit on the fence anymore; doing so would bring more harm than goodwill in an international system where battlelines are sharpening by the day.
India’s seat at the UNSC is also significant vis-à-vis China because the next two years will be key to ensure checking further Chinese incursions along the Line of Actual Control and building up enough infrastructure and mobilising sufficient forces in the forward areas.
Focus on terror
Terror is likely to be a major focus for India at the UNSC. External Affairs Minister S. Jaishankar’s statement at the UNSC Ministerial Meeting on the 20th Anniversary of Security Council Resolution 1373 and the establishment of the Counter Terrorism Committee has set the stage for New Delhi’s approach on the issue: “Terrorists are terrorists; there are no good and bad ones. Those who propagate this distinction have an agenda. And those who cover up for them are just as culpable”.
New Delhi recently assumed the chair of the Taliban sanctions committee which assumes significance given the fast-moving developments in Afghanistan and India’s new-found desire to engage with the Taliban. The issue of terrorism has been a major theme in the country’s national security and foreign policy discourse for decades now, more so of this government. India must, however, formulate its policy towards terrorism with far more diplomatic finesse and political nuance especially given that it is chairing the Taliban sanctions committee while courting the very same Taliban. Put differently, if New Delhi wishes to make its mark on the global discourse and policy formulation on terrorism, it would need to approach them with far more clarity and intellectual coherence.
Yet another area New Delhi would want to focus on while seated at the high table would be to use the forum and its engagement there to build coalitions among like-minded states and set out its priorities for the next decade — from climate change to non-proliferation.
Perhaps more significantly, New Delhi’s UNSC strategy should involve shaping the narrative and global policy engagement vis-à-vis perhaps one of the biggest grand strategic concepts of our time — the Indo-Pacific. Given India’s centrality in the Indo-Pacific region and the growing global interest in the concept, New Delhi would do well to take it upon itself to shape the narrative around it.
Think beyond reforms
New Delhi’s pursuit of its national interest at and through the UNSC must also be tempered by the sobering fact that the UNSC is unlikely to admit new members any time soon, if ever at all. India’s past global engagements and efforts have often been contingent on the hope that it would one day be admitted to the UNSC given its irrefutable claim. But a cursory glance at the recent debates on UNSC reforms and the state of the international system today should tell us that bending over backwards to please the big five to gain entry into the UNSC will not make a difference.
A Budget blueprint for difficult times
As the country prepares to enter a new financial year after an ominous and gloomy 2020-21, there are great expectations about green shoots and the shape of the economic recovery. The havoc wreaked by the novel coronavirus pandemic on people’s lives and livelihoods is deep and enormous. The impact of the COVID-19 induced lockdown cannot be understood merely through headline macro-economic numbers of Gross Domestic Product (GDP), stock market indices, industrial activity indices or any such measure. COVID-19 has exacerbated the inequality between the haves and the have-nots, which can turn into a permanent scar if not remedied urgently.
The sudden onslaught and rapid spread of COVID-19 have devastated most nations. Yet, we believe India could have done better. A better planned lockdown by being sensitive to India’s unique conditions of a large migrant and informal workforce could have reduced the deep distress in the labour market. A responsible and generous fiscal aid package would have soothed millions of struggling families, brought food to starving homes and contained widening inequality. The Reserve Bank of India’s actions to supply enough liquidity were laudable, but they were inadequate.
One of the most telling signs of the economic desperation of Indian families was — and is — the demand for work under the MGNREGA programme. After being mocked by the PM, MGNREGA, by providing work at minimum wages to anyone that asked, has proved to be the only safety net for hundreds of millions of Indian households during these times of severe distress. Nearly 120 million people have asked for work under MGNREGA this financial year, the highest in the history of the programme. Total work demanded under MGNREGA in 2020-21 is 53% higher than last year. The optimism about headline economic recovery in the last few months seems hollow when we realise that nearly 35 million people have requested MGNREGA work in the months of December and January, the highest in the last six months. Such continued high demand for MGNREGA work at subsistence wages is a clear sign that there is no true economic recovery, let alone a ‘V’ or any other letter shaped.
India’s stock market indices are at the highest levels ever. The top 50 companies increased their market wealth by nearly ₹3,00,000 crore ($40 billion) during this time. The excess liquidity pumped in by central banks is finding its way to asset markets, including India’s stock markets, driving it to unreasonable highs. If the stock market exuberance were to benefit the broader economy and most Indians, then it is welcome. Alas, the benefits of rising stock markets have accrued only to a minuscule few. The curative economic measures of governments in response to the COVID-19 pandemic may have unintentionally caused one of the worst phases of economic disparity between the rich and the poor in most nations.
Threats and weaknesses
Soaring asset prices and supply shocks have also led to a rise in consumer price inflation. Rising inflation will inevitably force the RBI to tighten interest rates or at least pause the lowering of rates. A tighter monetary policy carries the risk of slowing down private investment, with the consequential effect of lacklustre growth in jobs and wages. India’s macro economy is, thus, precariously poised and needs deft handling.
The external sector could be a potential saviour of India’s economy as global trade grows from its post-COVID-19 lows. Unfortunately, however, the government has shot itself in the foot by reversing its trade policy suddenly and turned inwards toward import substitution, quantitative restrictions, non-tariff barriers and shunning trade alliances. Over the past three decades, a surge in labour intensive exports has been the predominant driver of growth in jobs and wages for millions of high- and low-skilled Indians. The slowdown in exports and the misplaced aversion to two-way external trade will further harm the livelihoods of many Indians.
India’s fiscal policy response to the COVID-19 shock has been underwhelming. The lack of a basic minimum income safety net to cope with the shock has plunged millions of families into poverty. As of December, 12 million adult Indians have dropped out of the labour force compared to last year when, given India’s demographic profile, there should have been a net addition to the labour force. Unemployment in the formal sector too is very high. Most supply-side measures such as the government’s corporate tax cuts, loan moratoriums, and guaranteed credit schemes seem to have helped corporates to boost their profits and reduce their debt.
However, the government’s fiscal situation is bleak. The government had budgeted to collect tax revenues of ₹16-lakh crore in 2020-21. Eight months into the year, the government has been able to collect only ₹7-lakh crore in tax revenues at the end of November 2020. In contrast, the government had budgeted to spend ₹30-lakh crore this financial year and is on track to fulfilling, and even possibly exceeding, its expenditure budget. The government was right to not cut back on expenditure despite falling revenues during a time of unprecedented crisis. Therefore, India’s fiscal deficit is bound to rise significantly. We can live with it provided there are smart responses to inflation and future borrowing.
The COVID-19 pandemic has exposed the multiple lacunae in India’s public health infrastructure and served a stern warning that nothing is more important than increasing health-care expenditure and ramping up the health infrastructure. The central government’s Ministry of Health and Family Welfare’s budget has to increase from the current levels of roughly ₹70,000 crore (2% of total expenditure in 2020-21) to at least ₹1,00,000 crore.
Since May 2020, India’s borders have been under threat by the Chinese. Any weakness will invite a war. India must immediately shore up its defence preparedness and be ready to defend its borders. India’s defence expenditure as a share of GDP has been falling. The government must increase defence expenditure from the current level of 1.6% of nominal GDP to 3% of nominal GDP in the next year, keeping in mind that the GDP will be lower than the level attained in 2019-20.
There is no credible evidence yet that bankers are willing to lend and borrowers — especially corporates — are willing to make fresh investments. A rising interest rate environment, a financial sector choked with record non-performing loans and weak consumption demand implies that a pick up in private investment cannot be assured. Hence, public investment must step in to do the heavy lifting and pull the economy from its current dismal state. The central government’s capital expenditure must be increased significantly from the level of ₹4 lakh crore (14% of total expenditure) in 2020-21 to at least 20%-25% of total expenditure.
A basic income safety net
Any increase in the government’s public investment will take time to translate into jobs and incomes for large numbers of the labour force. So, there is an immediate need for a basic income safety net for the bottom half of India’s families for a six-month period, similar to the Congress party’s NYAY (or Nyuntam Aay Yojana/Minimum Income Support Programme) idea. We believe that an unconditional monthly cash transfer to the needier segments of the population will be the most efficient way to alleviate their miseries fastest.
Fiscal deficit and the threat of international ratings cannot dictate India’s economic policy in current times of deep distress when lives, livelihoods and the nation’s security are at stake. The situation is so grim that it is not the time to experiment or play loose.