Daily News Simplified - DNS

06 05 20
Notes
SL. THE HINDU
TOPICS
NO. PAGE NO.
1 Pathways to more resilient economy 06

2 India needs a big stimulus package: Abhijit Banerjee 01

3 India needs a big stimulus package: Abhijit Banerjee 01

Dated: 06. May. 2020 DNS Notes - Revision

Title Pathways to more resilient economy (Page number 6)

Syllabus GS III: Economic and Social development
Theme Understand the fundamental flaws in our Economic Model and how to address these
flaws
Highlights
Context:
• The COVID-19 has served as a wakeup call for the global community. It has
exposed certain fundamental flaws in the basic tenets of economics which have
dominated the Public policy for the past 50 years. Hence, we must turn this crisis
into opportunity and try to find problems with the current model of economic
development. Going forward, we need to view the COVID-19 in a historical
context in order to avoid repeating past mistakes and accordingly plan for the
future.
• In this regard, let us understand the fundamental flaws in our Economic Model
and how to address these flaws by devising a new economic model which is more
sustainable, fair, equitable, healthy, and resilient.

BROAD CONTOURS OF NEW ECONOMIC MODEL

De-Growth: There is huge obsession among the countries to promote their GDP size by
increasing their production of goods and services. However, such a lopsided model of
development in the last 50 years has led to destruction to biodiversity, higher pollution
levels and growing inequalities. For example, even though, India is placed at 5th position
in terms of GDP size across the world. The excessive obsession with GDP growth rates
has led to growing inequalities between different sections of India's population. India's
ranking on various human development indicators such as GHI, HDI etc. is on par with
Sub-Saharan countries.

The COVID-19 has led to short-term positive social and environmental impacts such as
community support, local organizing and solidarity, less pollution and GHG emissions.
However, these changes would be temporary unless we give up our obsession with the
GDP growth Model. Hence, the COVID-19 Crisis should be seen as an opportunity to
introspect on the present economic model and devise a new economic model.
Recently, a group of 170 Academicians came together to sign and release a 5 Point
Manifesto titled "De-growth" to devise a new economic model. The broad contours of
the new economic model is as given below:
1. A move away from development focused on aggregate GDP growth to Critical
Public sectors
Countries need to differentiate among sectors depending upon their criticality,
importance, sustainability and reliability.
The critical sectors such as Education, Health, Clean energy, Housing etc. need to
be promoted by the Governments through higher investments. Sectors such as Oil,
Gas, Mining etc. need to de-grow i.e. those sectors which are unsustainable and
non-critical should not be promoted.
2. Establish an economic framework focused on redistribution. The redistribution in
the new economic model should take place through - Universal Basic Income,
strong progressive taxation, reduced working hours and recognition of care work
Dated: 06. May. 2020 DNS Notes - Revision

and essential public services such as health and education for their intrinsic value
rather than for their monetary value.
3. Agricultural transformation towards regenerative agriculture based on biodiversity
conservation as well as fair agricultural employment conditions and wages;
4. Reduction of consumption and travel, with a drastic shift from luxury and wasteful
consumption and travel to basic, necessary, sustainable and satisfying
consumption and travel;
5. Debt Cancellation for the workers and small business establishments to tide over
the COVID-19 pandemic.

Recognising Importance of Borders: Prior to the COVID-19, there was huge wave of
globalisation across the world. The GDP based Economic Model propagated the idea that
promotion of free movement of Goods, Services, Investment etc. across the world would
benefit both rich and poor countries equally. Borders across the countries were
considered to be impediment to Growth and development of the countries.
However, the COVID-19 has challenged this notion of globalisation as a tool of
development. The COVID-19 has brought home the point that each and every country
need to find its own model of development. Globalisation cannot emerge as "One-Size-
Fits-All" model of development for all the countries.
Rather than being benefitted through Globalisation, the poor and developing countries
have got adversely affected by opening their borders to cheap goods from other
countries. The free movement of capital has also affected the poor and developing
countries in two ways. Firstly, it has not enabled them to promote domestic companies
due to presence of deep pocketed foreign companies. Secondly, the foreign companies
play huge role in influencing the policies of the government and hence hinder
democratic processes in poor countries.
Hence, COVID-19 has shown us that Boundaries are actually good.

Challenged Laissez- Faire economy: The prevailing Economic Model propagated the idea
of Laissez faire economy wherein the Private sector is considered to be more efficient
and hence given free hand. Under this model, the role of the Government has been
confined to Law Making and Regulation. It was believed that such as Laissez faire
economy would be able to promote growth and development without any government
intervention.
However, such a notion associated with Laissez faire economy has been challenged twice
in the last decade- Post Global Financial Crisis (2008) and now after COVID-19. During
both these times, it was the Government which was in driver seat of the Economy and
it was the private sector which was requesting the Governments for the bailouts. Hence,
the COVID-19 has served as a wake-up call to show us that role of the Government in
any economy (including Capitalistic) cannot be undermined. During the time of Crisis, it
is the only the Government which can bring in much needed stability and certainty in a
economy.

Treating Human being as Citizens and not as Consumers: The prevailing economic
model treats human beings as Consumers. Being Consumers, the human beings are
entitled to high quality goods and services at cheaper prices. However, the prevailing
economic model fails to realise that human beings are entitled to broader set of rights
rather than just access to high quality goods at cheaper prices.
Dated: 06. May. 2020 DNS Notes - Revision

The human beings are entitled to rights such as Justice, Dignity, Fairness, Impartiality
etc. which the present economic model fails to deliver.
Hence, Welfare of citizens should be the goal in a country rather than welfare of the
consumers.

Focus on Collaboration rather than Competition: The present economic model focusses
on promoting competition between the Governments and between the Private sector
entities to foster innovation and promote growth and development. However, it fails to
realise that Collaborative efforts can be more fruitful than competition. For example, a
group of 2-3 private sector entities having specialised expertise in different fields can
come together and develop a new vaccine. Similarly, governments across the world can
collaborate with each other to achieve Sustainable Development Goals (SDGs).
So, in case of collaborative efforts, we would have synergistic and coordinated efforts
leading to better outcomes.

Public ownership of Intellectual Property: The vesting of IPRs has led to development
of monopolies due to which the IPR owners have been able to amass huge amount of
wealth. It has led to growing inequalities within the global economy. Further, concerns
have been raised that such IPRs may not have led to commensurate benefit for the poor
and marginalised sections due to higher costs.
Hence, there is a need to evolve new institutions for public ownership of technologies
and for the regulation of their use.

Way forward
The earlier Financial crisis of 2008 did not lead to fundamental rethink of our economic
models. Now, the COVID-19 has exposed the structural weakness in the global economy
once again. Hence, we need to learn from this crisis and design a new economic model
which is more resilient, sustainable, equitable and healthy.

Personal
Notes
Dated: 06. May. 2020 DNS Notes - Revision

Title India needs a big stimulus package: Abhijit Banerjee (Page Number 1)
Syllabus GS III: Economic and Social development
Theme Understanding some of the suggestions given by Nobel laureate Abhijit Banerjee to deal
with the situation.
Highlights
Context:
• This article is based upon the recent interaction between Nobel laureate and
eminent economist Abhijit Banerjee and former Congress president Rahul Gandhi
on the economic situation during the pandemic.
• Let us understand some of the suggestions given by Nobel laureate Abhijit
Banerjee to deal with the situation.

Problems with Government's Package

Insufficient benefits under Package: The US government has announced economic
package of $ 2 trillion which is worth 10% of its GDP.In contrast, India's economic package
of Rs 1.7 lakh crore is hardly around 1% of its GDP. Further, the cash transfers provided
is too less to provide relief to poor and vulnerable sections.
Lack of Benefit for the Migrant Workers: The identification of BPL population in the
urban areas has always been challenging and hence migrant population in urban areas
are unlikely to get benefited. For instance, the migrant workers may not be able to avail
enhanced food grains provided under the package due to non-availability of ration cards
with them.

What should be done to deal with the COVID-19 Pandemic?

Higher Fiscal Stimulus Package: Most of the countries across the world have announced
higher fiscal stimulus package. However, in case of India, the fiscal stimulus package is
hardly around 1% of India's GDP. Hence, in order to provide relief to the poor sections
and to promote growth and development, there is a need to announce much higher fiscal
stimulus package.
Direct Cash Transfers: The economy could be revived only through demand stimulus. As
long as demand does not improve, the firms would not increase the production of goods
and services. Demand within the economy could be revived by direct cash transfers. The
Government must not target the cash transfers only to the poor people, rather the cash
transfers should be available to bottom 60% of India's population. This is so because
identification of the beneficiaries would be too cumbersome during the pandemic.
Increase in Demand--> Increase in Production of Goods and Services--> Creation of
Employment Opportunities--> Promote GDP growth rates.
Involvement of Community: The Indonesian Government had implemented a pilot
project which involved the community in a particular area deciding as to who would get
the cash transfers. Such a pilot project was considered to be successful. We could think
of such a project even in India as well.
Provision of Food: The migrant workers are unable to get food grains from the fair price
shops in the urban areas due to absence of ration cards. The government needs to
provide temporary ration cards to such migrants so that they have access to food grains.
Waiving off Debt: The disruption to the cash flows of the business entities has made them
more vulnerable to defaults leading to a possible increase in NPAs of the Banks. The RBI
Dated: 06. May. 2020 DNS Notes - Revision

has announced moratorium of 3 months on the repayment of the loans for the benefit of
business enterprises. However, we need to go beyond moratorium and announce waiver
of loans. This would strengthen the balance sheet of the companies leading to higher
investment and job creation.

Personal
Notes
Dated: 06. May. 2020 DNS Notes - Revision

Title Boost wages to stimulate India’s growth (Page Number 07)

Syllabus Economic and Social Development

Theme Issues and solutions for migrant labours during lockdown.

Highlights Context:
• The COVID-19 has exposed the problems faced by the migrant population. Most
of the migrants belong to the category of the casual workers and do not have
access to social security schemes such as Insurance, Pension scheme. Further,
the casual workers work for long hours under exploitative conditions.
• The overall consumption among this section of India's population is also lower.
For instance, according to the official consumption-expenditure surveys (for
2011-12), the richest 5% accounted for as much as 64.4% of the value of overall
consumption of durable in urban India. The share of the poorest 50% was only
13.4%.

What could be reason for the poor status of Casual workers?

The mainstream idea has been that the firms should reduce their production costs by
keeping the wages low. Such an idea has led to stagnation in the wages of the casual
workers.

What should be done?

• We need to plan for an economic growth driven by rising wages and a
development model that is dispersed far and wide across the country, and not
centred in a few big cities. Going forward, the firms should increase the wages of
the workers so that consumption expenditure within the economy increases.
• The Government must focus on higher Investment in rural areas to widen the
demand. For instance, the Government must promote higher investment in the
food processing Industries in the rural areas. This would lead to multiplier effects
in the form of boosting farmer incomes, reduce food wastages, create
employment opportunities etc.

Different categories of workers

The NSO data classifies the workers on the basis of employment status into three
categories i.e. self-employed workers; regular wage/salaried employees; and casual
labourers.
• The self-employed category (consists of employers, own account workers and
unpaid family labour) includes those who work for themselves and do not sell
their labour power to anyone else in return for wage. Own account workers
include those who operated their enterprises on their own account without
hiring any labour during the reference period while employers are those own
account workers who ran their enterprise by hiring labourers. However, unpaid
family labourers/helpers included those who were engaged in their household
enterprises
• Regular wage/salaried employees are those who receive predetermined
wages/salary on regular basis.
• Casual worker includes those who are hired for very short time period on daily
or monthly basis.
Dated: 06. May. 2020 DNS Notes - Revision

Important Observations:
• Share of different categories: Self-employed (52%); Casual Workers (25%);
Regular wage (23%)
• Largest share: Own account workers account for the largest share of workers
(36%) followed by casual workers (25%) and Regular wage/Salaried workers
(23%)
• Regular wage/ Salaried Workers: Increase in the share of Workers from 18% in
2011-12 to 23% in 2017-18.
• Self-Employed Category: Proportion of Self-employed workers remained
unchanged at 52% Increase in share of Own account workers and Employers;
Decline in Unpaid Family Labourers;
• Casual Workers: Decrease in the Share from 30% to 25%

Personal
Notes