DAY #111 – Free GS Answer Writing Practice

1)What are the salient features of ‘inclusive growth’? Has India experienced such a growth? Analyze and suggest measures for inclusive growth.

Economic growth is set to be inclusive when it is distributed fairly across society and creates opportunities for all. Growth is inclusive when:
1. It takes place in the sectors in which the poor work (e.g. agriculture);
2. Occurs in places where the poor live (e.g. undeveloped areas with few resources);
3. Uses the factors of production that the poor possess (e.g. unskilled labour);
4. Reduces the prices of consumption items that the poor consume (e.g. food, fuel and clothing).

SALIENT FEATURES OF INCLUSIVE GROWTH

1. Participation– People are able to participate fully in economic life and have greater say over their future. People are able to access and participate in markets as workers, consumers and business owners.

2. Equity-More opportunities are available to enable upward mobility for more people. All segments of society, especially poor or socially disadvantaged groups, are able to take advantage of these opportunities.

3. Growth– An economy is increasingly producing enough goods and services to enable broad gains in well-being and greater opportunity. Good job and work opportunities are growing and incomes are increasing, especially for the poor.

4. Stability– Individuals, communities, businesses and governments have a sufficient degree of confidence in their future and an increased ability to predict the outcome of their economic decisions.

5. Sustainability– Economic and social wealth is sustained over time, thus maintaining inter-generational well-being.

CASE OF INDIA
Inclusive growth is measured by income growth and distributions which are calibrated by combining GDP per capita growth and income inequality GINI coefficient. India witnessed varying rates of growth in the last two three decades in different sectors.

1. From an annual average growth rate of 3.5% during 1950 to 1980, the growth rate of the Indian economy accelerated to around 6.0% in the 1980s and 1990s.

2. The era of the 2000s saw an impressive growth of around 8.8% propelled by the structural reforms of the 90s which slowed down to around 7.5% during the second decade.
Similarly, calculation of inequality can be made by analyzing the data released by CBDT which pertains to income distribution of yearly income tax filers.

Following conclusions may be derived:
1. Slowing growth is hurting inclusive The slowdown in growth rate has hurt the target of inclusive growth as lesser and lesser is created to be distributed among the disadvantaged.
2. Widening inequality: Instead of witnessing a decline the inequality in India has risen of late. The CBDT dataset reveals that the Gini coefficient for India in 2013 was 48, and rose to 63 by 2016, a 15 %age point jump in just three years.
3. Using income data from the National Council of Applied Economic Research’s India Human Development Survey, the Gini coefficient in income (rural+urban) was 0.52 in 2004-05 and increased to 0.55 in 2011-12.

TOWARDS AN INCLUSIVE GROWTH
Inclusive growth is a sine qua non for the sustenance of Indian democracy. Rising inequality and relative deprivation experienced by the vulnerable sections of the society could undermine the foundations of democracy as witnessed in few monarchies of Arab nations during the Arab Spring which was fuelled by similar concerns. Inclusive growth requires interventions in a majority of sectors of the economy:

1. Financial sector: Problems in accessing finance are a major impediment in the performance of small and medium size businesses in India. Improving financial intermediation and ensuring broader access to financial services is critical for equalizing growth.

2. Labor regulations: Better designed regulations can attract more labor- intensive investment and improve the job prospects for India’s unemployed and those trapped in poor quality jobs, and the 80 million new entrants who are expected to join the workforce over the next decade.

3. Agriculture: Raising agricultural productivity requires a return to investments in agricultural technology and infrastructure. Getting the rural economy moving will also require facilitating rural non-farm entrepreneurship.

4. Attention to lagging states: Lagging states create an attractive investment climate by reforming cumbersome regulatory procedures, improving rural connectivity, establishing law and order, creating a stable platform for natural resource investment that balances business interests with social concerns, and providing rural finance.

5. Human capital: Development of the human capital through investments in health and education is of penultimate importance as it will lead to self-awareness and better decision-making by the poor.

6. Using globalization: Trade openness, FDI policies, import-export policies can be attuned to facilitate linkages between demand and supply for goods and services which specifically target small and medium scale enterprises.

To conclude, inclusive growth is a wider connotation encompassing social, economic and political factors and experience has amply demonstrated that anticipatory or inclusive governance is indispensable for achieving inclusive growth.

2)Highlighting the issues associated with power discoms in India, discuss whether privatizing discoms can help in this regard

India became the third largest electricity generator in the world with installed capacity of power
generation reaching 344 GW in 2018. Further, power generation witnessed a compounded annual growth rate of 8.9% between 2006 and 2018. However, the discoms i.e. power distribution companies, continue to be faced with following issues:

• Operational inefficiencies due to huge technical and commercial losses (AT&C) at 21.4% which are primarily caused by power theft, poor payment collection procedures, and inadequate tariff hikes.
• Increasing open access transactions: Big commercial customers who pay higher tariffs are engaging in private power purchase through open access i.e. directly buying from the suppliers bypassing discoms.
• Lack of political will and transparency in dealing with phasing out of energy subsidies for the consumers.
• Decline in demand during lockdown: Revenue of discoms have fallen due to halt in commercial activities while domestic users pay lower tariffs.
• Increased Power Purchase Cost: After the one-time measures under UDAY, the power purchase costs have now increased by 5 per cent in the first nine months of 2018-19. Further the input costs of coal and freight have gone up.
• Indebtedness: According to the PRAAPTI portal, power producers’ total outstanding dues owed by discoms rose over 47% year-on-year to Rs. 1.33 lakh crore in June 2020.
• Financial incompetence: DISCOMs have delayed payments owed to solar and wind energy developers making investments into the sector extremely challenging.

The Government launched various initiatives like UDAY aimed at reinvigorating discoms, but discoms losses have not been minimized. In this context, privatization of discoms is being seen as a measure to revitalize discoms due to following reasons-
• Past experiences: There are sufficient case studies when private players have been proved to run cash strapped discoms successfully via more efficiency, increased revenue and improved consumer services. For e.g. the AT&C losses in Delhi after the privatization in 2002 has been brought down from a high of 53% to around 8%.
• Operational autonomy: Due to improved network efficiency and lack of political interference.
• Operational efficiencies: Privatization will eliminate issues such as payment delays, power cuts, and lack of market-based electricity pricing and stimulate economic activity.
• Generating private sector appetite: Amongst Indian and international investors, various PPP models will be tested and it will also provide confidence to larger states and utilities to undertake privatisation based on improvements achieved.

However, privatization of discoms needs to be accompanied by other measures such as providing autonomy to regulatory bodies; cooperative federalism between centre and state; reinventing revenue model of discoms which should be conducive to the growth of rooftop solar and open access power.

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