06 April, 2021 - Daily Current Affairs Analysis & MCQs - The Daily News Simplified from The Hindu
- Announcement for Prelims Compass
- Govt. amends IBC for MSME resolution (Economy)
- The pillars of an equitable post-COVID India (Social Justice, Economic inequality)
- Lavrov-Jaishankar talks today (International Relations)
- Railways completes arch closure of Chenab bridge
- Question for the Day
UPSC Current Affairs: Govt. amends IBC for MSME resolution
UPSC Syllabus: Mains : GS Paper III: Economy
Sub Theme: MSME| Medium | UPSC
The MSME sector employs around 111 million people and is the second largest employer after agriculture. It contributes 28% of India's GDP , 45% of our manufacturing output and 28% of GDP.
However, MSMEs continue to face challenges of formalization, access to knowledge services, access to timely and adequate finance, improving competitiveness, availability of skilled man-power, access to latest technology and marketing. The MSME sector is yet to benefit from the advances in digitization, which can substantially reduce the cost and time for this sector. The sector was also affected in the recent past due to structural changes in the economy such as implementation of GST and demonetisation.
Various Government Initiatives/Programmes for development of MSMEs
- Prime Minister Employment Generation Programme (PMEGP): Financial Support for setting up of new MSMEs; Maximum Cost of project: Rs 25 lakhs
- ZED Certification Scheme: Financial support for manufacturing products which have Zero Defect and Zero Effect on Environment.
- Credit Guarantee Trust Fund for Micro & Small Enterprises (CGT SME): Collateral free loan up to a limit of Rs 1 crore is available for individual MSE on payment of guarantee fee to bank by the MSE.
- A Scheme for promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE): One-time grant of 100% of the project cost or Rs 1 crore (whichever is lower) for promotion of innovation and entrepreneurship
- National Manufacturing Competitiveness Programme (NMCP): Credit Linked Capital Subsidy for Technology Upgradation (CLCSS); Lean Manufacturing Competitiveness for MSMEs
- MSME SAMADHAAN: Portal to monitor the delays in the payments
- MSME-SAMBANDH: Portal to monitor Public procurement policy
- TReDS Platform: Discounting of invoices for MSMEs from corporate buyers through multiple financiers.
New Definition of MSME
Problems with the existing Definition of MSME: The definition of MSMEs has been provided under MSMED Act, 2006. Presently, MSMEs are defined in terms of their investment in plant and machinery or equipment as shown below. There are a number of problems with the existing definition of the MSMEs.
- Definitions based on investment limits in plant and machinery/ equipment were decided when the Act was formulated in 2006 and does not reflect the current increase in price index of plant and machinery / equipment.
- MSMEs due to their informal and small scale of operations often do not maintain proper books of accounts and hence find it difficult to get classified as MSMEs as per the current definition.
- Presently, the MSMEs get number of benefits from the government such as collateral free loans, tax concessions etc. Hence, if they lose the status of MSME, then they would no longer be able to avail these benefits. Hence, in order to avoid losing the status of MSME, the industries deliberately keep their investment levels below the threshold mentioned in the MSMED act.
Hence, in a way, the existing definition has incentivised the MSMEs to remain smaller rather than incentivising them to grow bigger and create a greater number of jobs.
New Definition: As shown in the above table, 3 important changes have been introduced in the new definition of MSMEs:
- The Investment limit has been increased.
- An additional criterion of annual turnover has been introduced.
- The distinction in the definition of Manufacturing and service sector enterprises has been done away with.
U.K. Sinha Committee Recommendations to improve the functioning of MSMEs
Institutional Framework: In order to have convergence of various MSME related policies, National Council for MSMEs should be set up at the apex level under the Chairmanship of the Prime Minister. The States should have a similar State Council for MSMEs, for better co-ordination of developmental initiatives. Further, Ministry of MSME may consider setting up of a Non-Profit Special Purpose Vehicle (SPV) to support crowd sourcing of investments by various agencies particularly to pave the way for conducive business ecosystem for MSMEs.
Addressing delays in Payments to MSMEs by setting up a monitoring authority under the office of Development Commissioner MSME. Further, majority of the States have only one MSE Facilitation Council (MSEFC) which is not adequate to cater to delayed payment cases arising in the entire State. Hence, there is a need to increase the number of Facilitation Councils particularly in larger States.
Expanding the Scope of GeM Portal: Government should make it mandatory for PSUs/ Government Department to procure from MSEs up to the mandated target of 25% through the GeM portal only. Further, the portal can be developed as a full-fledged market place enabling MSE sellers to procure raw-material as well.
Improving Ease of Doing Business: Presently, MSMEs must do multiple registrations with various entities such as Udyog Aadhaar portal, GSTN, National State Insurance Corporation (NSIC) etc. This leads to replaced by making PAN as a Unique Enterprise Identifier (UEI) and the same should be used for various purposes like procurement, availing government sponsored benefits, etc.
Capacity Building: Proposal to establish Enterprise Development Centres (EDCs) within District Industries Centres (DICs) has to be expedited; Provide handholding support to the entrepreneurs in various aspects such as technical know-how, managerial skill, filling up of the knowledge gap, etc.
Focussing on MSME Clusters: MSME clusters should collaborate with companies having innovation infrastructure, R&D institutions and universities that specialize in a specific industry or knowledge area.
Distressed Asset Fund: Assist units in clusters where a change in the external environment, e.g. a ban on plastics or ‘dumping’ has led to a large number of MSMEs becoming NPA.
Access to Finance
- PSBLoansIn59Minutes portal as of now caters only to existing entrepreneurs having information required for in-principle approval such as GSTIN, Income Tax returns, bank statement, etc; Portal should also cater to new entrepreneurs, who may not necessarily have such information, including those applying under PMMY loan and Stand-up India.
- Priority sector lending (PSL) guidelines apply uniformly to all the lenders and mandates specific targets to banks to lend to priority sectors, i.e. agriculture, small and marginal farmers, micro enterprises, weaker sections, etc. At present, the overall target for the universal bank is 40% and target for small finance bank is 75%. The committee has recommended that for banks that wish to specialize in MSME lending, the requirements to do agricultural lending under PSL can be waived provided they achieve 50% PSL lending target to MSMEs in the case of Universal Banks and 80% in the case of Small Finance Banks.
- The RBI should increase the limit for non-collateralised loans to Rs 20 Lakh from the present limit of Rs 10 Lakh. This limit of Rs 20 lakh should also be applicable to the loans provided under the MUDRA scheme.
Loan Service Providers: RBI should create a new category of Loan Service Providers (LSPs). The LSPs would act as agents of the borrowers (MSMEs) and offer individualised advice to them catering to all the aspects of finance.
Development service providers: MSMEs lack expertise in product development, technology adoption and marketing strategy. The Government should build networks of development service providers that can provide customized solutions to MSMEs in the area of technology, product development and marketing techniques; Need for strengthening of MSME Export Promotion Council.
Insurance: Government should take active efforts to provide insurance coverage to MSME employees on the lines of PMSBY and PMJJBY schemes.
Fund-of-Funds: Government sponsored Fund of Funds (FoF) to support VC/PE firms investing in the MSME sector
Recommendations of Economic Survey 2018-19
The Government provides a number of incentives so as to nurture Infant MSMEs to grow into large sized giants and ensure optimum utilization of factors of production, higher productivity and job creation. However, the Government policies as shown below create perverse incentives for firms to remain small rather than grow bigger.
The above mentioned problem has led to dominance of dwarf MSMEs firms which are more than 10 years old but yet continue to employ less than 100 people. These firms account for more than half of all firms in manufacturing by number, but their contribution to employment is only around 14%. This clearly shows that these firms are reluctant to grow bigger due to the fear of losing out on the benefits enjoyed by MSMEs.
The dominance of dwarf firms has led to a number of problems- Stagnation in Share of Manufacturing Sector (17%), Problem of Missing Middle, lower employment elasticity, Informalization of jobs etc.
In this regard, the Economic Survey 2018-19 has given the following recommendations:
Incentivizing ‘infant’ firms rather than ‘small’ firms: Provision of incentives to firms irrespective of their age has led to dwarf firms. Hence, incentives should be limited to initial 5-7 years only.
Re-orientation of PSL: Under MSME’s PSL targets, it is necessary to prioritize start-ups and infants.
Focus on High Employment elastic sectors such as Textiles, leather etc.
Deregulating labour law restrictions can create significantly more jobs, as seen by the recent labor reforms introduced in states such as Rajasthan.
MSMEs that grow not only create greater profits but also contribute to job creation and productivity in the economy. Hence, the Government policies must, therefore, focus on enabling MSMEs to grow by unshackling them.
UPSC Current Affairs: The pillars of an equitable post-COVID India | Page
UPSC Syllabus: Mains: GS Paper III: Inclusive Growth
Sub Theme: Income Inequality | UPSC
Context: A recent Pew Research Report shows that India’s middle class may have shrunk by a third due to the novel coronavirus pandemic while the number of poor people earning less than ₹150 per day more than doubled.
While India is one of the fastest growing economies in the world, it is also one of the most unequal countries.
Inequality has been rising sharply for the last three decades. The richest have cornered a huge part of the wealth created through crony capitalism and inheritance.
They are getting richer at a much faster pace while the poor are still struggling to earn a minimum wage and access quality education and healthcare services, which continue to suffer from chronic under-investment.
These widening gaps and rising inequalities affect women and children the most.
While the Coronavirus was being touted as a great equaliser in the beginning, it laid bare the stark inequalities inherent in the society soon after the lockdown was imposed.
How covid has affected different segments of society and economy:
- Unemployment went up to nearly 24 percent in April 2020.
- 170,000 people lost their jobs every hour in the month of April 2020, the report points out.
- WORSE AFFECTED : India’s large informal workforce was the worst hit as it made up 75 per cent of the 122 million jobs lost.
- As a result between February and April 2020, the share of households that experienced a fall in income shot up to nearly 46 percent.
Social distancing resulted in the job losses, specifically those Indian society’s lower economic strata. Several households terminated domestic help services – essentially an unorganized monthly-paying job. Most Indians spent a large amount of time engaging in household chores themselves, making it the most widely practiced lockdown activity.
Government STEPS: launched various programs and campaigns to help sustain these households. Under the Pradhan Mantri Garib Kalyan Yojana, 312 billion Indian rupees were accrued and provided to around 331 million beneficiaries that included women, construction workers, farmers, and senior citizens.
OXFAM report, titled ‘The Inequality Virus’, the richest billionaires in India increased their wealth by 35 per cent.
The number of people who are poor in India (with incomes of $2 or less a day) is estimated to have increased by 75 million because of the COVID-19 recession.
“The spread of disease was swift among poor communities, often living in crammed areas with poor sanitation and using shared common facilities such as toilets and water points.
In this regard, it found that only 6 per cent of the poorest 20 per cent households had access to non-shared sources of improved sanitation, compared to 93 per cent of the top 20 per cent households in India.
Education inequalities :
Over the past year as education shifted online, India saw the digital divide worsening inequalities. Various private providers experienced exponential growth yet, on the other, just 3 per cent of the poorest 20 per cent of Indian households had access to a computer and just 9 per cent had access to the internet.
Annual Status of Education Report (Aser) revealed two startling facts.
One, only a little under a third of India’s schoolchildren are accessing online education—the only means available to students with schools shut down for the last seven months.
Second, even fewer are able to take live online classes. And this despite most families having access to smartphones. This has brutally exposed the deep digital divide in the country.
Pew Research finds that the middle class in India is estimated to have shrunk by 32 million in 2020 as a consequence of the downturn, compared with the number it may have reached absent the pandemic.
In terms of caste, just 37.2 per cent of SC households and 25.9 per cent of ST households had access to non-shared sanitation facilities, compared to 65.7 per cent for the general population.
The unemployment rate among women rose from already high 15 per cent before Covid to 18 per cent. This increase in unemployment of women can result in a loss to India’s GDP of about 8 per cent or $218 billion.
Of the women who retained their jobs, as many 83% were subjected to a cut in income according to a survey by the Institute of Social Studies Trust.
Beyond income and job losses, poorer women also suffered healthwise because of the disruption in regular health services and Anganwadi centres. It is predicted that the closure of family planning services will result in 2.95 million unintended pregnancies… 1.80 million abortions (including 1.04 million unsafe abortions) and 2,165 maternal deaths.
The pandemic also fueled domestic violence against women. As of November 30, 2020, cases of domestic violence rose by almost 60% over the past 12 months.
Here author makes three suggestions:
- Creation of quality or productive employmentis central to the inclusive growth approach.
- At the macro level, the investment rate which declined from 39% in 2011-12 to 31.7% in 2018-19 has to be improved.
- Creating productive jobs for seven to eight million per year;
- Correcting the mismatch between demand and supply of labour (only 2.3% of India’s workforce has formal skill training as compared to 96% in South Korea, 80% in Japan, and 52% in the United States
- Structural change challenge (manufacturing should be the engine of growth. Here, labour-intensive exports are important and manufacturing and services are complementary)
- Focusing on micro, small & medium enterprises and informal sectors including rights of migrants; Getting ready for automation and technology revolution
- Social security and decent working conditions for all
- Raising real wages of rural and urban workers and guaranteeing minimum wages.
- Capital Investment in infrastructure including construction can create employment.
- Creating equality of opportunity by improving human development. Education and health achievements are essentialfor reducing inequality of opportunities. Much dichotomy exists in both these sectors.
- Public expenditure on health is only 1.5% of GDP. Need to move towards universal health care and spend 2%3% of GDP on health. In education, there are islands of excellence that can compete internationally even as a vast majority of masses of children are churned out with poor learning achievement. We also have the experience of a digital gap in education during the pandemic. One has to fix this dichotomy in health and education.
- Quasi universal basic income and other safety nets.
- cash transfers to all women above the age of 20 years
- expanding the number of days provided under the Mahatma Gandhi National Rural Employment Guarantee Act and a national employment guarantee scheme for urban areas.
- Enhancing tax and nontax revenuesof the government is needed to spend on the above priorities. The tax/GDP ratio has to be raised, with a wider tax base. Richer sections have to pay more taxes
- re-introducing wealth tax and a one-time COVID-19 cess of 4% on taxable income of over ₹10 lakh. It will help the economy to recover from the lockdown. According to its estimate, a wealth tax on the nation’s 954 richest families could raise the equivalent of 1% of India’s GDP.
- Inequalities between the Centre and States in finances should be reduced.State budgets must be strengthened to improve capital expenditures on physical infrastructure and spending on health, education and social safety nets.
- Focus on increasing farmers’ income especially for small and marginal farmers is needed to reduce inequalities and create demand.
- Farmer producer organisations should be strengthened.
- Agri marketing reforms.
Apart from economic factors, noneconomic factors such as deepening democracy and decentralisation can help in reducing inequalities. Unequal distribution of development is rooted in the inequalities of political, social and economic power. We have to find opportunities and spaces where the power can be challenged and
redistributed. In the postCOVID19 world, addressing inequality is important for higher and sustainable economic growth and the wellbeing of the population.
UPSC Current Affairs: Lavrov-Jaishankar talks today – Page 1
UPSC Syllabus: Mains – GS Paper II – International Relations
Sub Theme: India-Russia relations | UPSC
- As we all know that Russian Foreign minister Mr Sergey Lavrov is visiting India and it is expected that an important round of discussion will take place between the visiting Russian Foreign Minister, Sergey Lavrov, and External Affairs Minister S. Jaishankar.
Under GS Paper II International Relations
So let us briefly revisit India-Russia Relations while emphasising:
- Background of India Russia Relations.
- Why is there a Stagnation between India-Russia Relations.
- Future areas of Areas of Cooperation.
Background of India Russia Relations
- India and Russia have traditionally enjoyed good relations since 1947 wherein Russia helped India in attaining its goal of economic self-sufficiency through investment in areas of heavy machine-building, mining, energy production and steel plants.
- Later India and the Soviet Union signed the Treaty of Peace and Friendship in August 1971 which was the manifestation of shared goals of the two nations as well as a blueprint for the strengthening of regional and global peace and security.
- After the dissolution of the Soviet Union, India and Russia entered into a new Treaty of Friendship and Cooperation in January 1993 and a bilateral Military-Technical Cooperation agreement in 1994.
- In 2000 both countries established a Strategic Partnership. The year, 2017 marked the 70th anniversary of establishment of diplomatic relations.
Stagnation between India-Russia Relations
While the bilateral relations between the two nations appear free from blemishes, the recent shifting in geopolitical dynamics point to new equations, which can be understood with the help of following factors:
- Growing economic relations between Russia and China: Economic stagnation and international sanctions imposed by the US and European countries have badly hit Russian economy.
- Russia has also made efforts for strategic outreach towards China since Ukraine Crisis primarily because China’s opinion carries greater weight globally than India’s. Recently Russia has also sold Su30 30MKK/MK2 fighters and especially the Su-35, S-400 long-range anti-aircraft missiles, which are likely to have an immediate and tangible impact on the Sino-Indian military balance and India’s security.
- Further Russia is tilting towards Pakistan as well. Russia has also started military exercise and defence trade with Pakistan.
- Diversified Defence Procurement: India’s efforts at diversifying its defence procurement and thus bringing in other partners such as the United States, Israel, and France has also impacted the relations.
- In the absence of a strong bilateral economic and trade relationship, India-Russia relations must have a robust defense ties and any downgrading of those ties could have adverse impact on the overall state of India-Russia ties.
- India’s growing proximity to the United States: Rapidly expanding ties and growing defence relationship between India and US and, India joining quadrilateral group led by the US has led to a strategic shift in Russia’s foreign policy.
Areas of Cooperation
- Defence dependency on Russia
- Despite India’s diversification of defence partnerships India’s 70% defence inventory still consists of Russian systems and when it comes to certain critical platforms such as nuclear submarines, Russia’s importance cannot be understated.
- North-South Corridor
- There is scope for improvement in trade between Russia and India if the international North-South corridor through Iran, and the Vladivostok-Chennai sea route can be operationalised.
- Emerging Technology
- India can benefit from hi-tech cooperation with Russia in the fields of artificial intelligence, robotics, biotechnology, outer space and nanotechnology.
- It can also cooperate with Russia on upgrading its basic research and education facilities. There is scope for growth in the energy sector, beyond mutual investments. Mutual benefits in trade of natural resources such as timber, and agriculture can also be harnessed.
- On the strategic side and economic side, Russia is realising about its over-dependence on China and Russia has made a conscious attempt to energise his relationship with Japan, Vietnam and other Southeast Asian countries through the East Asia Summit and ASEAN. Given India’s long-term association with these countries, India can help Russia in navigating these relationships.
UPSC Current Affairs:Railways completes arch closure of Chenab bridge – Page 5, 10 |
UPSC Syllabus: Prelims:
Sub Theme: Dhubri-Phulbari bridge | UPSC
Prime Minister has laid the foundation for Dhubri-Phulbari bridge across the Brahmaputra, to be India’s longest bridge at 19.282 km. The 19.282 - km-long bridge will be built over the Brahmaputra between Dhubri in Assam and Phulbari in Meghalaya, bringing socio-economic relief to the region as the bridge will reduce the distance between Dhubri and Phulbari by 203 kilometres. Construction of another 55 km-long road from Serampore in West Bengal to Dhubri in Assam, a part of the project, will reduce distance and time needed to travel to Bhutan and Bangladesh.