Daily Current Affairs 20.05.2021 (FinMin grants ‘infrastructure’ status for convention centres, ‘Low confidence plus high fuel, health costs to hurt demand’)

Daily Current Affairs 20.05.2021 (FinMin grants ‘infrastructure’ status for convention centres, ‘Low confidence plus high fuel, health costs to hurt demand’)


1. FinMin grants ‘infrastructure’ status for convention centres

Tag to ease bank financing for such projects

The Finance Ministry has granted ‘Infrastructure’ status for exhibition and convention centres, a move that is expected to ease bank financing for such projects.

‘Exhibition-cum-Convention Centre is included in the Harmonised Master List of Infrastructure sub-sectors by insertion of a new item in the category of Social and Commercial Infrastructure,’ the Department of Economic Affairs said.

However, the benefits would only be available for projects with a minimum built-up floor area of 1,00,000 sq. m. of exclusive exhibition space or convention space or both combined. As of now, the major projects under way in the sector are backed by the government – the International Exhibition-cum-Convention Centres at Dwarka and Pragati Maidan in the capital.

The infrastructure tag does not involve significant tax breaks but would help such projects get easier financing from banks, said experts. However, restrictions on size may be a dampener.

“India doesn’t have large convention centres or single halls with capacities to hold 7,000 to 10,000 people, unlike countries like Thailand that is a major global MICE destination,” said Abhaya Agarwal, partner, infrastructure practice at EY India.

Becoming a MICE (Meetings, Incentives, Conferences and Exhibitions) destination can generate significant revenue with several global firms active in India but it will take time to become a preferred destination.

Last August, the government had granted infrastructure status to affordable rental housing projects.

2. ‘Low confidence plus high fuel, health costs to hurt demand’

ICRA says slackening in activity due to second wave overshadows base effect

The pandemic’s second wave will dent consumer sentiment even as high healthcare expenses and retail fuel prices will squeeze disposable incomes and consumers, rating agency ICRA warned in a note on Wednesday.

While the low base of April 2020, which saw very tepid economic activity, had propped up several economic indicators this April, ICRA said that there is a persistent slackening in activity due to the second wave that overshadows the base effect.

“The optimism generated by this trend of high growth rates in several high-frequency indicators for April is limited, as eight of the 13 non-financial indicators in April 2021 remained below their pre-Covid (April 2019) levels,” Aditi Nayar, the rating agency’s chief economist, said. Many indicators such as GST e-way bills, fuel consumption and vehicle registrations displayed a slowing sequential momentum in April 2021, reflecting the rise in COVID-19 cases, and imposition of restrictions in various parts of the country, ICRA noted, adding that this trend has continued so far in May, with restrictions spreading to more States.

“In our view, the sharply higher daily infections in the second wave of COVID-19 in India will have a prolonged negative impact on consumer sentiment.

In addition, the substantial healthcare expenses related to the COVID-19 treatment, along with high retail prices of fuels, are likely to squeeze disposable incomes in the urban as well as rural areas,” Ms. Nayar said. With pent-up demand satiated during the festive season in 2020, demand for many varieties of consumer durables may be low, ICRA reckoned.

3. Editorial-1: Interpretations which impede a just social order

The Maratha reservation case also shows that divesting States of the power to determine backwardness hits federalism

On May 5, the Supreme Court of India declared as unconstitutional a Maharashtra law which provided for reservation to the Maratha community in education and public employment in the State. Four judges of the five-judge Bench wrote separate opinions, from which three primary findings emanated.

First, the Court held that the Maratha community did not constitute a socially and educationally backward class. Second, the judges discovered that the law was in breach of a rule previously set by the Court disallowing reservations made in excess of 50% of the total available positions. Third — and on this finding, two judges on the Bench dissented — the Court held that State governments had no independent power to declare a group as a backward class. The latter two findings run sharply athwart values of equality and federalism, which the Court has long regarded — in rhetoric if nothing else — as integral to India’s democracy.

Not from the Constitution

The idea that reservations ought to be restricted to 50% does not stem from the Constitution. The text of Articles 16(4) and 15(4) which confer power on the government to make reservations contains no such limitation. Originally, however, these clauses were seen by the Supreme Court as exceptions to a broad rule of formal equality that was thought to be envisioned by the Constitution. To that end, the Court held that to allow reservation in excess of 50% would lead to an exception overriding a rule.

But a seven-judge Bench, in State of Kerala vs N.M. Thomas (1975), laid this theory to rest. There, the Court held that a programme of reservation was inherent in the Constitution’s basic guarantee of equal treatment, and that affirmative action by the state was compelled by an objective of attaining substantive equality. With that, the rule requiring that reservations stay under 50% ought to have been deemed incongruous. But when the Court sat as a nine-judge Bench in Indra Sawhney vs Union of India (1992) it sustained a paradox. The majority on the Bench ruled, on the one hand, that N.M. Thomas was correct in seeing reservations as embedded in a constitutional vision of substantive equality, and, on the other hand, that reservation made in excess of 50%, barring exceptional circumstances, was harmful to that very vision. As the lawyer Gautam Bhatia has pointed out, this is an incompatible position. Yet, efforts to have the verdict in Indra Sawhney reconsidered have failed. The upshot: a mathematical formula with no basis in the Constitution’s text is retained, even as the Court pays symbolic obeisance to the ideals of substantive equality.

Court stand on listings

These limitations are made worse by the Court’s present ruling on the power of State governments to declare groups as backward. Until now, the central government and each of the State governments produced separate lists declaring communities as socially and educationally backward. Following the Supreme Court’s judgment in Indra Sawhney, the determination of backward classes was made by the National Commission for the Backward Classes, at the level of the Centre, and by regional commissions at the level of the State governments. As a result, backward communities that were kept out of the central list were entitled to reservation at least for those posts and seats under the control of the State government. For example, 25 different groups categorised as backward in Tamil Nadu do not find place in the central list.

This division in power, which gave States autonomy to classify groups as backward, stood in contrast to the lists of Scheduled Castes and Scheduled Tribes. In the case of those lists, right from the Constitution’s inception, the power to prepare them vested solely with the Union government. But the Supreme Court has now held that this distinction no longer holds good.

The 102nd Amendment (2018), which forms the basis for the Court’s ruling, granted constitutional status to the National Commission for Backward Classes. In addition, it introduced Article 342A, through which it stipulated that the President of India may, after consultation with the State government, notify groups of persons within such a State who are deemed to be socially and educationally backward. Any such “Central List”, the clause clarified, could only be altered by Parliament. Article 366(26C) was also added, and “socially and educationally backward classes” was defined as “such backward classes as are so deemed under Article 342A for the purposes of this Constitution”.

Term and interpretations

In interpreting these changes, a majority on the Bench concluded that the Constitution had now created a structure for determination of other backward classes identical to that in place for the preparation of the lists of Scheduled Castes and Scheduled Tribes. The verdict, which was controlled predominantly by Justice S. Ravindra Bhat’s opinion, relied on the plain meaning of Articles 342A and 366(26C). But it overlooked, at least, two essential factors: first, the term “Central List” — which is used in Article 342A — has always been understood in contradistinction to the term “state list”, in that it refers to the categorisation of groups as backward for the purposes of reservation to posts and seats under the Union government’s control. Second, when State governments objected to the 102nd Amendment on the ground that their power was being divested, the Union Minister of Social Justice and Empowerment, Thaawarchand Gehlot, assuaged their concerns and pointed out that the proposed changes did no such thing. The “right to include or remove in the States List…will remain as it is and it will not be violated in any manner,” he said in Parliament.

It is an acceptable proposition of constitutional interpretation to hold that external aids, such as parliamentary debates, are useful only when the plain meaning of a provision is unclear. However, here, the term “Central List” in Article 342A (unlike Articles 341 and 342, which concern the preparation of a list of Scheduled Castes and Scheduled Tribes respectively) shows that, if anything, the Constitution recognises the power of State government to frame lists of their own. Any other interpretation of the term “Central List” would only impinge on the plain meaning of the term. On the other hand, if one were to concede that two interpretations to the amendments were plausible, then one would have thought that the Court would have adopted the interpretation that allows for a more equitable division of power between the central and State governments.

If the majority’s interpretation of the 102nd Amendment is correct, then the changes altogether dispossess States from exercising a time-honoured authority. But yet the amendment, in the Court’s belief, did not violate the Constitution’s basic structure. This was because, according to the majority, the alterations neither took away “the very essence of federalism” nor denuded the States of their effective power to legislate. But it is hard to see how divesting states of a power this critical, to classify groups as backward, entitling many communities to protection under Articles 15(4) and 16(4), can be seen as anything but offensive to the “essence” of federalism. The changes, as interpreted by the Court, are by no means superficial; they directly impede the ability of States to secure a just social order.

The Union government has already filed a petition to review the judgment insofar as it limits the power of State governments. Should the Court refuse the plea, it is imperative that Parliament amends the Constitution and grants to States an express power to determine backwardness. Any other result will offend the delicate balance at the heart of Indian federalism.

4. Editorial-2: A collage of laws that leaves the worker out in the cold

The universalisation of social security remains an unfulfilled aspiration in the new code on social security

As COVID-19 destroys lives and livelihoods, an unprepared government has rendered low-paid, informal workers, who constitute 91% of the workforce, totally hapless, pushing them further into poverty. Imagine if these same informal workers had social security (including free basic curative care in public clinics and hospitals, the elderly had old age pensions, the dying had death/disability insurance or life insurance). Imagine also that they had at least a minimum income guarantee, which prevented them from falling into debt; debt is currently exploding among the poor as their incomes collapsed.

Gaps in the code

India’s Parliament in September 2020 passed a Social Security Code (SS Code 2020; Does this law even attempt to provide these, let alone guarantee them? That is what we examine here. We shall set aside the issue of free basic curative health care, since the SS Code does not have that in its scope. Fair enough, but has the Government of India ensured that at least in a year of a nation-wide pandemic, the health Budget for FY 2021-22 is higher than the pathetic just over 1% of GDP that it has been for decades (making all past central/State governments complicit)? If we leave out the allocation for the COVID-19 vaccine (still mostly unused), then the FY22 health Budget is actually lower.

The SS Code 2020 merges existing social security laws and attempts to include informal workers within the ambit of social security administration. However, an examination of the code reveals that universalisation of social security remains an unfulfilled aspiration.

The SS Code 2020 amalgamates and rationalises the provisions of eight existing central labour laws. Of these acts, employees provident fund, employees state insurance (ESI), maternity benefit, gratuity are entirely for organised sector workers. This has remained so even in the new scheme of things. For employees’ state insurance, the existing employee threshold has been withdrawn and now the central government can extend ESI benefits to any organisation irrespective of the number of workers employed therein. However, there are areas of ambiguity and overlapping too.

Hurdles for informal workers

However, is the Code going to provide universal social security to the 91% workers in the informal sector? It proposes that both the central and State governments will formulate schemes for unorganised workers. The legal framework as proposed in the Code and Rules, implies that the basic onus lies on informal workers registering as beneficiaries. Registration is a prerequisite for universal coverage. To avail social security, an informal worker must register herself on the specified online portal to be developed by the central government.

Similar provisions are already there in existing social security schemes run by State governments under the Unorganized Workers’ Social Security Act, 2008. Still, a large number of informal workers are outside the ambit of any social security even after 13 years. The absence of definite and unambiguous provisions in the present code would further complicate achievement of universal registration.

Also, experience shows that there is an awful lack of awareness among informal workers regarding social security schemes. Online registration places a further challenge as most informal workers lack digital literacy and connectivity (already demonstrated by a similar registration requirement for COVID-19 vaccines under CoWIN, the government app). Informal workers also find it difficult to furnish all documentary papers required as part of the registration process. Most informal workers are footloose casual workers (26% of all workers) and self-employed (46% of all). They move from one place to another in search of livelihoods. Furnishing proof of livelihood and income details in the absence of tangible employer-employee relations is very difficult. Such requirements deter informal workers from completing the registration and they continue to remain outside the social security ambit.

Inter-State cooperation must

Further, as unorganised workers are spread across the length and breadth of India, inter-State arrangement and cooperation becomes imperative. The code does not provide for such eventualities. Ideally, the central government should conceptualise a basic structure, which if successful, should be adopted by States after necessary customisation. Without such a basic structure, implications of this code would be too varied across States to be administered.

Providing holistic social security cover for the unorganised workforce in a simple and effective manner is something lost in the Centre-State labyrinth and jurisdictional or institutional overlap. The unorganised workforce is all encompassing, minus the minuscule regular workers of organised sectors. This identity should be primal and all unorganised workers should have basic social security coverage, irrespective of labour market classifications.

The code fails to undertake such inclusion in a meaningful way.

Key benefits

Maternity benefit: Under the SS Code, the provision of maternity benefit has not been made universal. Maternity benefit is presently applicable for establishments employing 10 workers or more. The definition of ‘Establishment’ in the proposed code did not include the unorganised sector.

Hence, women engaged in the unorganised sector would remain outside the purview of maternity benefit. This obsession with thresholds of the number of workers employed was the bane of earlier labour laws too.

Employees Provident Fund: The SS Code maintains that the Employees’ Provident Fund Scheme will remain applicable, as before, to every establishment in which 20 or more employees are employed. Thus, for informal sector workers, access to employees’ provident fund remains unfulfilled too in the new code.

Payment of gratuity: Gratuity shall be payable to eligible employees by every shop or establishment in which 10 or more employees are employed, or were employed, on any day of the preceding 12 months.

But although payment of gratuity was expanded in the new Code, it still remains inaccessible for a vast majority of informal workers.

Lost opportunity

The provision of social security could be used to formalise the workforce to a certain extent. Employers could have been made to own up to the responsibility of providing social security to their workers. The state has a responsibility but the primary responsibility still lies with employers since they are taking advantage of workers’ productivity.

Financial constraints are there for the state too; but all the code does is to state that it will design schemes for informal workers as and when it deems fit. In the end, this code remains a collage of existing pieces of legislation without that interweaving thread of integration. It has promise but cannot meet those expectations. At a time when India chairs a BRICS meeting in Delhi (preparatory to a Summit) that is focused on issues of labour, especially informality, it fails to even recognise that India is ageing without social security, and the demographic dividend of the young workforce that could support the ageing ends in 15 years. This is a dreadful failure on the part of the state in a time of dire crisis for the nation.

5. Editorial-3: Flashing lights

As inflation threatens economy’s consumptive capacity, cash transfers can boost demand

The RBI’s latest monthly bulletin has just confirmed what many economists and anecdotal evidence have been pointing to — a sharp backslide in economic momentum. In an article on the State of the Economy, RBI officials including Deputy Governor Michael Debabrata Patra have flagged the ‘demand shock’ inflicted by the ferocious second wave of the COVID-19 pandemic. Specifically, they have cited the loss of mobility, impact on discretionary spending and increase in unemployment as clear signs that demand is in the doldrums. Several high-frequency indicators for April have captured the reversal in momentum. GST e-way bills, an indicator of the health of domestic trade, contracted 17.5% month-on-month, while automobile fuel consumption, commercial vehicle sales and domestic air passenger traffic all shrank from the preceding month. And the previously relatively unscathed rural economy too saw demand begin to dry up as new infections spread wider and deeper into the countryside, a trend reflected in a 33.5% contraction in the dispatches of two wheelers and a palpable weakening in demand for tractors. Also, unemployment, which hit a four-month high of 8% in April as per a survey by the Centre for Monitoring Indian Economy, was at 9.5% on May 18 based on a 30-day moving average. Crucially, rural unemployment captured by the moving average has risen to 8.6%, and this at a time when the pandemic’s grip and higher spending on health are likely to be pushing up precarity among households in the hinterland.

Looking ahead, the critical risk to the economy even as it tries to recover from the last fiscal year’s crippling contraction is posed by the speed at which the virus continues to spread in the country. With the pace of vaccinations having slowed nationwide, more so in rural and semi-rural areas, the agriculture sector is likely to face challenges in the coming months when sowing for the kharif crop will need to be done. The reports on the infections and deaths linked to the disease from the villages and towns portray a grim picture and it is hard to see rural demand for anything other than the barest of essentials including food and medicines reviving any time soon. Add to this the rising cost of transport fuels, and the sharp increases in commodity prices, cutting across agricultural and industrial raw-materials segments and one sees ‘a worsening of domestic cost conditions’ as the RBI officials warn. Accelerating inflation threatens the economy’s overall consumptive capacity and policy makers need to be wary of the real danger of stagflation. The shrinking fiscal space notwithstanding, authorities need to spend more on an expedited nationwide vaccine roll-out and must seriously consider direct cash transfers to boost demand.

6. Editorial-4: A thaw in India-Pakistan trade relations?

Latest data give a reason to push for revival of dialogue

The rejection by the Pakistan government of the recent proposal made to it by the Economic Coordination Committee (ECC) to import sugar, cotton and cotton yarn from India was disappointing, but at the same time indicative of a possibility of resumption of trade relations between the two countries. In 2019, India and Pakistan undertook trade-restrictive measures against each other, which were perhaps the most severe in several decades. After the Pulwama terror attack in Kashmir in February 2019 and cross-border air strikes, India withdrew the Most Favoured Nation (MFN) status of Pakistan and imposed a customs duty hike of 200% on imports. Later, when India revoked the autonomy of Jammu and Kashmir, Pakistan suspended bilateral trade.

Despite the trade ban setback, the Indo-Pak history suggests that there are reasons for having cautious optimism towards reviving the trade dialogue. Even though trade curbs have been applied several times in the past, such measures have been reversed to create a trade enhancing environment. Most notable is the protocol on resumption of trade in 1974 after a hiatus of nine years following the India-Pakistan war in 1965. The two countries agreed to trade in a list of items, including essential agricultural commodities, which could stabilise domestic prices and take care of seasonal shortages and food security in the home country. Both countries worked on positive lists for some years, which expanded over the years.

We can see parallels emerging in the current context. Within a month of suspending bilateral trade with India, the Pakistan government lifted the ban on the import of medicines and raw material from India to avert any crises and ensure that there is no shortage of essential drugs. A year and a half later, there is a demand for the inclusion of three more items, namely sugar, cotton and yarn. A deeper examination of the trade measures and data indicate that there is more concrete evidence of trade between the two countries even after the imposition of restrictions. A key difference between India and Pakistan is that while India imposed a 200% import duty and no ban on export, Pakistan banned both export and import. Hence, Indian trade data are likely to reflect trends better. Not only has trade been recorded in the first eleven months of the financial year 2020-21, but a sizeable number of items have been traded between the two countries. During 2020-21 (April-February), the recorded bilateral trade was $280 million, of which India’s exports to Pakistan were $278 million and imports were $2 million. Nearly 77% of India’s exports comprised vaccines, pharmaceutical products and products of chemical and allied industries. Interestingly, despite the trade ban, sugar was already being exported to Pakistan and was the second most important item, accounting for 15% of India’s total exports. Dates were the most important item being imported from Pakistan, accounting for 31% of total imports, followed by ethyl alcohol, which accounted for 17% of total imports.

Significant costs

While the overall value of trade with Pakistan may not be significant, the number of items traded certainly is. A closer look at the trade data reveals that India exported 357 products (at HS-6 digit level classification) to Pakistan and imported 25 products from the country. This is despite the complete ban on trade by Pakistan on both exports and imports. Thus, even under restrictive trade conditions, there are interdependencies between India and Pakistan.

The trade measures impacted several important domestic and export industries, even though the volume of trade was small at $2.56 billion in 2018-19. Governments of both countries need to recognise that there are significant costs of non-cooperation. Restrictions also shift trade to informal channels, which have functioned for decades and are a ready option for traders from both countries. Initiating a positive list for trade is the right move towards normalisation. The recent data provide an indicative list of products that can be included. Business organisations and chambers of commerce can play an important role in creating a strong lobby that could build momentum in opening channels and influence the shaping of the India-Pakistan trade policy.

7. Editorial-5: The basics of an effective vaccine policy

Prioritising groups, addressing hesitancy and rethinking the distribution plan is the way forward

Over a year after the SARS-CoV-2 struck the world, it is now clear that the virus is not going away any time soon and breaking the chain of transmission seems unlikely. The best policy against COVID-19, thus, appears to be to ensure that the infection is mild in most people, and that in those in whom the disease might be more severe, it can be pushed towards a milder form by vaccination. Therefore, it is important to vaccinate as many people as possible.

Unfortunately, the number of vaccine doses available is limited at present. Technicalities of vaccine production make it likely that indigenous manufacturers will require three to six months from now to increase capacity significantly. The whole virion vaccine from the National Institute of Virology, Pune, currently being manufactured by Bharat Biotech, is produced in facilities where biological safety requirements are essential and will take time to be upscaled.

The mRNA vaccine technology is new. Though the Moderna vaccine does not have intellectual property constraints and Gennova is making its own mRNA vaccine based on science from HDT in the United States, it is unrealistic to expect Indian manufacturers to be able to embrace this new technology without handholding through the process.

Difficult choices

Import of vaccines in quantities that can make a difference will be possible perhaps from August, when wealthy nations would have made substantial progress in the immunisation of their populations.

India is thus faced with the unpleasant reality of having to decide the priority in which it is going to vaccinate its population, i.e., the order in which the different groups should be vaccinated. However, it can take comfort in the fact that all countries were forced to make this decision, and nowhere in the world has it been possible to vaccinate the entire population at one go.

The experience of vaccine hesitancy should not distract us from the goal of inoculating as many people as quickly as possible. The speed with which the vaccines were developed, the introduction of new technology, reports of a few serious adverse events, the decision of certain wealthy countries to halt using the AstraZeneca shot due to concerns over blood clots and because they had other vaccines, contributed to doubts about the safety of vaccines in India.

But it is now clear that vaccines are highly effective and the risks are extremely low. Indeed, vaccines are the only way that we can stay ahead of the virus. It is, hence, important to draw in behavioural scientists to address vaccine hesitancy and ensure that the population is covered.

Careful planning

Should we vaccinate the most vulnerable, i.e., those who are most likely to succumb to the disease if they get infected, or should we vaccinate the population which contributes the most to the economy? This is a stark and perhaps unpalatable way to delineate the choice, but it is a factual position. Should we first vaccinate the elderly who are at high risk of serious illness and death, or should we vaccinate the working population so that we can open workplaces and revive the economy? Wealthy countries with small populations went with the first option, but India must design a vaccine policy carefully because breaking the chain of transmission is not an option currently. Repeated lockdowns do not break the chain of transmission of the infection. They only slow the spread of the virus for a period, and when they are lifted, as they must be, the virus surfaces again.

Transparent decision-making

The ethical and humane choice would be to vaccinate the most vulnerable first. If this is impractical, then the choice would be to vaccinate some combination of the elderly vulnerable and the working population in every tranche. This should be worked out using data and the basis of the decision should be made public. Opaque decision-making leads to a loss of trust in governance and social discord.

Access to all

Leaving the vaccination policy to market forces is neither ethical nor practical. Allowing all adults to access the vaccine at the same time introduces ethical distortions, which no humane society should face. Those with the resources to get vaccinated early are the least vulnerable because they also have the ability to protect themselves.

Attempts to make vaccination more accessible through technology, as is being done with the Co-WIN app, are failing at the moment. Many States have declared that they will bear the cost for all their citizens, but this is a decision that they should not have been forced to make; the approach also does not address the dilemma of who will get the vaccine and in which order, given the very limited supply.

Governments are elected to represent the will of the people. In a civilised society, when a life-saving resource is in short supply, the government must take it upon itself to both enhance the supply and formulate a policy to allocate the resource. In India, the Centre should desist from being opaque in its decisions, abdicating its responsibility, transferring expenses to State governments, and allowing market forces to decide on vaccine access for a substantial part of the population.

Given our current circumstances, the State governments are struggling to find a way forward amid the scramble for vaccines. There are many options for distribution, and as a society, we ought to make decisions that are based on science and fairness. The logical basis of the decision should be explained.

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