The Hindu Editorial Analysis | 28th June 19

Table of Contents

Prudent prescription

An RBI panel’s suggestions on the MSME sector cut to the heart of crucial issues
The micro, small and medium enterprises (MSME) sector in India is not only a key engine of growth, contributing more than 28% of the GDP and about 45% to manufacturing output. It is also a true reflection of economics where people really matter. Providing employment to about 111 million people, the sector’s health is crucial to the economy’s vitality and society’s well being. An expert committee constituted by the Reserve Bank of India has in this context submitted a substantially germane study on the issues bedevilling MSMEs and made a fairly exhaustive set of recommendations to redress them. The panel is emphatic that the policy environment needs to be urgently refocussed. To that end, it is imperative that the thrust of the enabling legislation — a 13-year-old law, the MSME Development Act, 2006 — be changed to prioritise market facilitation and ease of doing business. Observing that many Indian start-ups that are at the forefront of innovation are drawn to look overseas, given the conducive business environment and the availability of infrastructure and exit policies, the experts suggest that a new law ought to address the sector’s biggest bottlenecks, including access to credit and risk capital. A substantial part of the study is justifiably devoted to reimagining solutions to improve credit flow to MSMEs. For instance, the experts recommend repurposing the Small Industries Development Bank of India. In its expanded role, it is envisaged that the SIDBI could not only deepen credit markets for MSMEs in under-served regions by being a provider of comfort to lenders including NBFCs and micro-finance institutions, but also become a market-maker for SME debt.
With technology, especially digital platforms, having become so ubiquitous, the panel has made a case for greater adoption of technology-facilitated solutions to a plethora of problems encountered by the sector. To address the bugbear of delayed payments, the mandatory uploading of invoices above a specified amount to an information utility is a novel approach. The aim is to name and shame buyers of goods and services from MSMEs to expedite settlements to suppliers. While it does sound simplistic, and banks a lot on the power of moral suasion, it is a tack worth trying. Another suggestion entails expediting the integration of information on the Government e-Marketplace, or GeM, platform with the Trade Receivables Discounting System. The goal here too is to boost liquidity at MSMEs. A noteworthy recommendation urges banks to switch to cash flow-based lending, especially once account aggregators are operational and able to provide granular data on borrowings. The RBI and the Centre clearly have their work cut out in acting on this prudent prescription to help actualise the sector’s true economic potential.

At the high table

India must think big as it takes a step towards a non-permanent seat on the UNSC
By winning the unanimous endorsement of the 55-nation Asia-Pacific Group at the United Nations Security Council, India has cleared an important hurdle in its quest for a non-permanent seat for 2021- 22. The decision of the grouping this week was taken as India was the sole candidate for the post. In the next step, all 193 members of the UN General Assembly will vote for five non-permanent seats in June 2020, when India will need to show the support of at least 129 countries to go through to the UNSC. It will then occupy the seat at the UNSC for a two-year period, as it has previously on seven occasions since 1950-51. There are several reasons why India decided to pursue its candidature for 2021-22. The government at the time had felt it was necessary to have India’s voice at the high table as many times as possible, and therefore began the process for another seat shortly after it had ended its previous tenure in 2011-2012. By rotation, that seat would have reached India only in the 2030s, and India had to reach out to Afghanistan, which had put in its bid already for the 2021-22 slot, to request it to withdraw. Afghanistan did so because of the special relationship between the two countries. India has a unique role to play at the UNSC, given the near-complete polarization among the permanent members (P-5 nations), with the U.S., the U.K. and France on one side, and Russia and China on the other. India’s ability to work with both sides is well known. The year 2022 also has a sentimental value attached to it, as it marks the 75th year of India’s Independence, and a place at the UNSC would no doubt add to the planned celebrations that year. Since 2013, when it first announced the bid, the government has run a quiet but consistent campaign towards this goal.
It is significant that despite the poor state of bilateral relations with Pakistan, and the many challenges India has faced from China at the UN, both the countries graciously agreed to the nomination. From this point on, it is necessary for the government to think beyond the campaign for the UNSC, and work out a comprehensive strategy for what it plans to do with the seat. In the past, India has earned a reputation for ‘fence-sitting’ by abstaining on votes when it was required to take a considered stand on principle, and the seat will be a chance to undo that image. Given the twin challenges of a rising China, and the U.S. receding from its UN responsibilities, India must consider how it will strengthen the multilateral world order amid frequent unilateral moves by both the world powers. An even bigger challenge will be to nudge all five permanent members on the one issue they have unitedly resisted: towards the reform and expansion of the UNSC, which would include India’s claim to a permanent seat at the high table.
In May, a deadly fire at a coaching centre in Surat snuffed out 22 young lives. The rate of suicides in Kota, where many students converge to prepare for entrance exams, remains high. And yet, the coaching industry is rapidly growing. Data from the National Sample Survey Office’s 71st round reveal that more than a quarter of Indian students (a stupendous 7.1 crore) take private coaching. Around 12% of a family’s expenses go towards private coaching, across rich and poor families alike.
What purpose do coaching institutions serve in society? Do they enhance human capital? If they do, they serve the same purpose as schools and colleges. But if they don’t, then they are imposing a huge emotional cost to society. They crush creativity. In most cases, they only help a student to swiftly secure marks in some entrance exam, which is widely understood to be a sign of merit. This is a questionable connection. To signal merit, exams are only one criterion, and not necessarily the best one. So, coaching institutions exist to help people achieve only one idea of merit. This is a small benefit. They do not enhance human capital. Confining students in classrooms and making them study subjects they often hate destroys their natural talent. Hence, the social cost of these institutions outweighs their benefit by far. The industry needs a relook.
Unregulated spaces
First, why must anything be regulated? Economic theories suggest that when markets fail, governments need to be brought in. Market failure may occur because of the presence of externalities or asymmetry in information. Governments are also important because they act to coordinate moral norms. On all these counts, coaching institutions emerge as the proverbial villains. Hidden behind legislations meant for tiny shops (Shops and Establishment Act) as ‘other’ business, they run an empire of evening incarcerations that arrest creative freedom. The big ones draw an entire generation of young minds and systematically erode their imagination. They ignite psychological disorders in students, undermine mainstream education, impose huge opportunity costs to students, charge an exorbitant fee which is often untaxed, and yet remain unaccountable (several court cases on breach of promise of refund are underway). This paints a picture of coaching centres as market bullies. The social costs are exacerbated by the absolute disregard for the well being of students, who are shoved into tiny rooms with little ventilation, let alone a fire exit. Society bears the burden — only for the sake of finding out who is marginally better than the other in cramming for some exam.
The building in Surat had an illegally constructed terrace. It had a wooden staircase that got burnt, thus disabling any possibility of escape. It had no fire safety equipment, nor any compliance or inspection certificate. The response of the State government was to shut down all coaching institutions in Gujarat until fire inspections were completed. This was a typical knee-jerk reaction.
The building which caught fire was located in a premise that was supposed to be a residential space, according to the approved plan of 2001. In 2007, a two-floor commercial complex was illegally built. It was legalized in 2013 under Gujarat’s regularisation laws. The other floors where the fire broke out were constructed illegally later. With such patterns of violating the laws, these inspections will only serve a tick-mark purpose. But here is the point. Although government measures are more emotional than rational, they have achieved the purpose of drawing our attention to coaching centres. In the last six months, three fire incidents have involved coaching institutions in Gujarat.

Valueless idea

Why do people start coaching institutions? Barring a few exceptions, coaching institutions sell a valueless but costly idea. Only those enterprises which have no value themselves play with the law. To blame the systemic flaws in the implementation of safety laws and to blame corruption in the government is to normalise the lack of integrity in the entrepreneur who decided to violate the law. To harp on lapses by the government is to turn a blind eye towards what kind of ethics we are drawing out of our enterprises, particularly those which purport to provide ‘education’. Coaching institutions, of course, are not necessarily ethical entities. Most of them do not add to the value of education.
While the reason for the growth of coaching institutions is the entrance exam culture of India, what is urgently required is a policy on regulating them. Some States have already passed laws to regulate the coaching industry — centres have to register with the government and meet certain basic criteria — for instance, they cannot employ teachers of government-recognised schools. Existing State laws, however, do not evince a consistent rationale that could aid in framing national regulations. There is also the Private Coaching Centres Regulatory Board Bill, 2016 in discussion. A PIL was recently filed in the Supreme Court on regulating coaching institutions. But we must recognise that a bad law is worse than no law. While the discourse being triggered is a welcome step, it is now important to ensure regulations that emerge are agile, forward-looking and empowering.

NPAs down, credit growth picking up: RBI

Capital infusion helps improve CAR
Gross non-performing assets in the banking system have declined for the second consecutive half year, while credit growth is picking up, the Reserve Bank of India (RBI) said in the half yearly Financial Stability report.
“With the bulk of the legacy non-performing assets (NPAs) already recognized in the banking books, the NPA cycle seems to have turned around,” the report said. Gross NPA ratio declined to 9.3% as on March 2019. It was 10.8% in September 2018 and 11.5% in March 2018.

FURTHER DECLINE

Gross NPAs could further decline to 9% by March 2020, the macro stress tests indicated.
Following capital infusion by the government in public sector banks, the overall capital adequacy ratio of commercial banks improved from 13.7% in September 2018 to 14.3% in March 2019, with state-run banks’ CAR improving from 11.3% to 12.2% during the period. However, there was a marginal decline in the CAR of private sector banks.
In his foreword, RBI Governor Shaktikanta Das said state-run lenders showed a noticeable improvement with recapitalization, with both provision coverage as well as capital adequacy improving, though a significant rise in provisioning had impacted the bottom line.
Highlighting the need for governance reforms, Mr. Das said that the proof of the pudding lay in the public sector banks’ ability to attract private capital through market discipline, rather than being overly dependent on the government for capital.
With the number of banks having more than 20% gross NPAs coming down in March 2019, RBI said this implied a broader improvement in asset quality. Credit growth of public sector banks were at 9.6% while private lenders continue to robust growth of 21%. Overall credit growth marginally improved to 13.2% in March 2019 from 13.1% in September 2018.
“Credit growth of scheduled commercial banks (SCBs) picked up, with public sector banks (PSBs) registering near double-digit growth,” RBI said.
The picture is not so rosy on the macroeconomic front, as private consumption turned weak and a widening current account deficit have exerted pressure on the fiscal front. “This has implications for the government’s market borrowing programme and market interest Rates,” RBI said, observing that reviving private investment demand remained a key challenge going forward. Mr. Das said a dip in consumption and private investment exerted pressure on the fiscal situation, but with current inflation outlook remaining moderate, growth could help alleviate fiscal constraints to some extent.

Government revamps WPI revision team

To choose most appropriate base year
The government has reconstituted the working group tasked with revising the current wholesale price index (WPI), it announced on Thursday.
The terms of reference (ToR) of the working group include selecting the most appropriate base year for the preparation of a new official series of index numbers of wholesale price (WPI) and producer price index (PPI) in India.
The working group will also have to review the commodity basket of the current WPI series and suggest additions or deletions of commodities in the light of structural changes that occurred in the economy since 2011-12.
The ToRs also include a review of the existing system of price collection and suggesting improvements, along with coming up with a computational methodology to be adopted for the monthly WPI and PPI.
“The current series of wholesale price index with 2011-12 as base year was introduced in May 2017,” the Ministry of Commerce said in a statement. “Since 2011-12, significant structural changes have taken place in the economy. Therefore, it has become necessary to examine the coverage of commodities, weighting diagram and related issues pertaining to the existing series of index numbers of wholesale price index.”
The working group will be chaired by NITI Aayog Member Ramesh Chand and will have members from the Central Statistical Office, the Ministries of Finance, Petroleum and Natural Gas among others.
Wholesale Price Index (WPI) measures the average change in the prices of commodities for bulk sale at the level of early stage of transactions. The index basket of the WPI covers commodities falling under the three major groups namely Primary Articles, Fuel and Power and Manufactured products. (The index basket of the present 2011-12 series has a total of 697 items including 117 items for Primary Articles, 16 items for Fuel & Power and 564 items for Manufactured Products.)
The prices tracked are ex- factory price for manufactured products, mandi price for agricultural commodities and ex-mines prices for minerals. Weights given to each commodity covered in the WPI basket is based on the value of production adjusted for net imports. WPI basket does not cover services.
In India WPI is also known as the headline inflation rate .
In India, Office of Economic Advisor (OEA), Department of Industrial Policy and Promotion, Ministry of Commerce and Industry calculates the WPI.

The main uses of WPI are the following:

to provide estimates of inflation at the wholesale transaction level for the economy as a whole. This helps in timely intervention by the Government to check inflation in particular, in essential commodities, before the price increase spill over to retail prices.
WPI is used as deflator for many sectors of the economy including for estimating GDP by Central Statistical Organisation (CSO).
WPI is also used for indexation by users in business contracts.
Global investors also track WPI as one of the key macro indicators for their investment decisions.
Producer Price Index (PPI) measures the average change in the price of goods and services either as they leave the place of production, called output PPI or as they enter the production process, called input PPI.
PPI estimates the change in average prices that a producer receives.

PPI Vs Wholesale Price Index (WPI)

PPI is different from WPI on following grounds:
WPI captures the price changes at the point of bulk transactions and may include some taxes levied and distribution costs up to the stage of wholesale transactions. PPI measures the average change in prices received by the producer and excludes indirect taxes.
Weight of an item in WPI is based on net traded value whereas in PPI weights are derived from Supply Use Table.
PPI removes the multiple counting bias inherent in WPI.
WPI does not cover services and whereas PPI includes services.

The Homeopathy Central Council (Amendment) Ordinance, 2019

The Homoeopathy Central Council (Amendment) Ordinance, 2019 was promulgated on March 2, 2019. It amends the Homoeopathy Central Council Act, 1973 which sets up the Central Council of Homoeopathy. The Central Council regulates homoeopathic education and practice.

Time period for supersession of the Central Council: The 1973 Act was amended in 2018 to provide for the supersession of the Central Council. The Central Council was required to be reconstituted within one year from the date of its supersession. In the interim period, the central government constituted a Board of Governors, to exercise the powers of the Central Council. The Ordinance amends the Act to increase the time period for supersession of the Central Council from one year to two years.
The Prime Minister’s Science, Technology and Innovation Advisory Council (PM-STIAC) in an overarching Council that facilitates the PSA’s Office to assess the status in specific science and technology domains, comprehend challenges in hand, formulate specific interventions, develop a futuristic roadmap and advise the Prime Minister accordingly. PSA’s Office also oversees the implementation of such interventions by concerned S&T Departments and Agencies and other government Ministries.