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GDP GREW 8.4% IN Q2, BUT RECOVERY APPEARS PATCHY
India’s gross domestic product (GDP) grew by 8.4% in the July to September quarter, compared to a 7.4% contraction a year ago, with the economy’s gross value added (GVA) rising 8.5%, the National Statistical Office said on Tuesday. Factoring in the first quarter GDP growth of 20.1%, the first half of this year has recorded 13.7% growth and India is likely to record double digit growth for 2021¬22 as a whole, the Finance Ministry’s Chief Economic Adviser (CEA) Krishnamurthy Subramanian said, seeking to emphasise that the recovery process is continuing to play out. Economists, however, were not fully convinced about the extent and durability of this recovery and re acted with caution. Though the absolute GDP in the second quarter (Q2) was 0.3% higher than prepandemic levels, there were still many worrying areas.
ADMIRAL HARI KUMAR IS NAVY CHIEF
Admiral R. Hari Kumar on Tuesday took charge as the25th Chief of the Naval Staff from Admiral Karambir Singh, who retired after a 41 year career.
SMALL GRANT BUT A BIG OPPORTUNITY FOR LOCAL BODIES
The earmarked health allocation recommended by the 15th Finance Commission can fulfil a mandate on primary care
In early November 2021, a potentially game-changing and transformative development went by, almost unnoticed — the release of ₹8,453.92 crore to 19 States, as a health grant to rural and urban local bodies (ULBs), by the Department of Expenditure, the Ministry of Finance. This allocation has been made as part of the health grant of ₹70,051 crore which is to be released over five years, from FY2021-22 to FY2025- 26, as recommended by the Fifteenth Finance Commission. The grant is earmarked to plug identifield gaps in the primary health- care infrastructure in rural and urban settings.Of the total ₹13,192 crore to be allocated in FY 2021-22, rural local bodies (RLBs) and ULBs will receive ₹8,273 crore and ₹4,919 crore, respectively.
IT IS SIGNIFICANT
The allocation in FY2021-22 is relatively small by some comparisons. It would be 2.3% of the total health expenditure (both public and private spending together) of ₹5,66,644 crore in India and 5.7% of the annual government health expenditure (Union and State combined) of nearly ₹2,31,104 crore (both figures for 2017-18), the most recent financial year for which national health accounts data areavailable.
This grant is equal to 18.5% of the budget allocation of the Union Department of Health and Family Welfare for FY 2021-22 and around 55% of the second COVID-19 emergency response package anounced in July 2021. Yet, it is arguably the single most significant health allocation in this financial year with the potential to have a far greater impact on health services in India in the years ahead.
Good intentions gone wrong
In 1992, as part of the 73rd and 74th Constitutional Amendments, the local bodies (LBs) in the rural (Panchayati raj institutions) and urban (corporations and councils) areas were transferred the responsibility to deliver primary care and public health services. The hope was this would result in greater attention to and the allocation of funds for health services in the geographical jurisdiction of the local bodies. Alongside, the rural settings continued to receive funding for primary health-care facilities under the ongoing national programmes.
However, the decision proved a body blow, specially to urban health services. The government funding for urban primary health services was not channelled through the
State Health Department and the ULBs (which fall under different departments systems in various States) did not make a commensurate increase in allocation for health. The reasons included a resource crunch or a lack of clarity on responsibilities related to health services or completely different spending priorities. Most often, it was a varied combination of these factors. The well- intentioned legislative step inadvertently enfeebled the health services more in the urban areas than the rural settings.In 2005, the launch of the National Rural Health Mission (NRHM) to bolster the primary healthcare system in India partly ameliorated the impact of RLBs not spending on health. However, urban residents were not equally fortunate. The National Urban Health Mission (NUHM) could be launched eight years later and with a meagre annual financial allocation which never crossed.
₹1,000 crore (or around 3% of budgetary allocation for the NRHM or
₹25 per urban resident against
₹4,297 per person per year health spending in India).
In 2017-18, 25 years after the Constitutional Amendments, the ULBs and RLBs in India were contributing 1.3% and 1% of the annual total health expenditure in India. In urban settings, most local bodies were spending from less than 1% to around 3% of their annual
4 | P a g e budget on health, almost always lower than what ULBs spend on the installation and repair of streetlights. The outcome has not been completely surprising. Both urban and rural India need more health services; however, the challenge in rural areas is the poor functioning of available primary healthcare facilities while in urban areas, it is the shortage of primary health-care infrastructure and services both.
ESSENTIAL STEPS
First, the grant should be used as an opportunity to sensitise key stakeholders in local bodies, including the elected representatives (councillors and Panchayati raj institution representatives) and the administrators, on the role and responsibilities in the delivery of primary care and public health services. Second, awareness of citizens about the responsibilities of local bodies in healthcare services should be raised. Such an approach can work as an empowering tool to enable accountability in the system. Third, civil society organisations need to play a greater role in raising awareness about the role of LBs in health, and possibly in developing local dashboards (as an mechanism of accountability) to track the progress made in health initiatives. Fourth, the Fifteenth Finance Commission health grants should not be treated as a ‘replacement’ for health spending by the local bodies,which should alongside increase their own health spending regularly to make a meaningful impact. Fifth, mechanisms for better coordination among multiple agencies working in rural and urban areas should be institutionalised. Timebound and coordinated action plans with measurable indicators and road maps need to be developed. Sixth, local bodies remain ‘health greenfield’ areas. The young administrators in charge of such RLBs and ULBs and the motivated councillors and Panchayati raj 5 | P a g e institution members need to grab this opportunity to develop innovative health models. Seventh, before the novel coronavirus pandemic started, a number of State governments and cities had planned to open various types of community clinics in rural and urban areas. But this was derailed. The funding should be used to revive all these proposals.
A much awaited springboard
India’s health system needs more government funding for health. However, when it comes to local bodies, this has to be a blend of incremental financial allocations supplemented by elected representatives showing health leadership, multiple agencies coordinating with each other, increased citizen engagement in health, the setting up of accountability mechanisms and guiding the process under a multidisciplinary group of technical and health experts. The Fifteenth Finance Commission health grant has the potential to create a health ecosystem which can serve as a much awaited springboard to mainstream health in the work of rural and urban local bodies. The Indian healthcare system cannot afford to and should not miss this opportunity.
INDIA’S INFORMAL ECONOMY HAS NOT SHRUNK
An SBI Research study’s claim that there is greater formalisation of the economy is unfounded
According to a recent State Bank of India (SBI) Research report, the informal economy in India has been shrinking since 2018. Formalisation, the report says, has taken place through the gross value-added (GVA) route, consumption through increased digital payments, and the employment route. Let’s examine each of these.
The report claims that the share of the informal sector is just 15-20% in 2021 compared to 52.4% in 2018. If that was the case, India would have become a ‘miracle’ economy overnight, since no upper-middle-income economy in Latin America or the ASEAN or any low-middle-income country has achieved this kind of transformation. On the other hand, since the COVID-19 outbreak, informality of enterprises and workers has increased in all such economies. There is an internationally recognised definition of informality of enterprises and workers. In the 15th International Conference of Labour Statisticians (1993) of the International Labour Organization, household enterprises not constituted as separate legal entities independently of the households or household members that own them, and for which no complete accounts are available, are categorised as informal enterprises. In the 17th Conference (2003), informal workers were defined as those without social security. Based on these definitions, internationally, comparable estimates of both types of informality are available. India’s levels are 80% and 91%, respectively. The latter is higher because there are also informal workers within formal enterprises.
MISLEADING CLAIM
The SBI study adopts multiple definitions of formality (digitisation, registration in GST, cashless payments), which are not used by anyone. These could be possible instruments of encouraging formality, but cannot separately or even together be equated with formality. The SBI study confuses the shrinking of the informal sector’s share of the GDP due to demonetisation and COVID19’s impact on the economy with formalisation. The informal sector was adversely impacted by the lockdowns and the consequent economic contraction. The sectors that were most impacted by the lockdowns were those with higher informality. Even formal sector activities which are considered informal (outsourcing and contracual activities) were curtailed heavily during the lockdowns. The decline in informal activities might be the cause of the fall in share of the informal sector of the GVA. To term this as for malisation is misleading at best and cruel at worst.
We don’t know if this GVA fall is temporary or permanent. It has clearly led to a fall in employment, especially in the nonfarm sector, while the share of agricultural workers in total employment rose sharply between 201819 and 201920 (NSO’s Periodic Labour Force Survey). Agriculture is almost entirely informal for enterprises as well as workers. Catastrophically, for already informal workers, the absolute number of workers in agriculture rose from 200 to 232 million between 2018-19 and 2019-20. This was a reversal of the trend of structural transformation in employment underway since 2004- 05
— shown by the firstever absolute fall in workers in agriculture from 2012 to 2019.
Registration on e-Shram
Another reason that the SBI claims that informality declined is the number of workers registered in the new eShram portal. Since the portal’s launch, over 9.9 crore unorganised workers have registered themselves
However, registration means documentation, not formalisation, of workers. Workers who are ‘formal’ receive social security benefits. Giving such benefits is not the objective of the portal; the objective is to develop a national database of unorganised workers. After registration on the portal, the workers receive a card with a 12-digit unique number, which is good. The government has announced linking accident insurance with e-Shram registrtion.
At present, there is no credible database for India’s unorganised workers. In 2020, government pleaded helplessness in providing numbers pertaining to the number of migrant workers who had suffered or died during the lockdowns. These migrant workers were and are part of the broad unorganised sector.
Mere registration under this portal does not guarantee access to institutional social security benefits or coverage under labour laws. Benefits such as Provident Fund, 7 | P a g e gratuity and maternity benefits will remain outside the reach of unorganised workers as conceptualised in the Social Security Code of 2020. All these instruments were and are available only to establishments with 10 or 20 or more workers. Also, the SBI study notes that West Bengal tops the list in registration. This is no surprise. Over 1.3 crore unorganised workers are already registered under various social security schemes in West Bengal. A share of them is now registering themselves on the new portal. Further, the formal sector has been treated as a homogenous entity in the study. In reality, there are various layers within the formal sector. Not all workers engaged in the formal sector are ‘formal’. There has been large scale informalisation of the formal sector over the last three decades through contractualisation and outsourcing of labour. Among wage workers, the proportion of non-permanent, casual and contract workers increased in the organised sector from 1999-00 to 2011-12. It marginally decreased after that but the pandemic once again changed the numbers. Thus, a significant portion of the output attributed to the formal sector is actually produced by an informal workforce within the formal sector.
A BLURRED DISTINCTION
The systematic dismantling of employer employee relations in the labour market blurs the distinction between formal and informal. The entire edifice of the formal sector is based on informal workers. There are layers of intermediaries between the employers and the workers to create a disconnect between them. Such a disconnect is deliberate rather than organic. For example, the majority of the output in construction is attributed to the formal sector. But most workers in the construction sector are informal. They don’t have access to social security benefits or protective labour laws. They remain informal throughout their lives even though their contribution is attributed to the formal sector. Thus, contrary to what has been asserted in the research, the formal sector’s contribution has been overestimated and the informal sector’s contribution has been underestimated.
Eightyfour percent of Indian non farm establishments are informal by their own account. Some might get registered under miscellaneous laws but that does not imply that they have become formal. Registration under the Factories Act or Employees’ Provident Fund or State insurance means that these organisations are formal as the organisation needs 10 or 20 employees to be registered under these laws. But mere registration under other acts like local municipal acts or tax laws does not indicate formalisation.
Thus, the SBI’s claim that significant formalisation has occurred in India is unfounded.
CONTROLLING THE CRYPTO GENIE
Cryptocurrencies cannot be controlled unless all nations work together, which is unfortunately a remote possibility
Elon Musk may be the real crypto piper, for cryptocurrencies dance to his tunes. Crypto prices shot up when Tesla announced that it has invested $1.5 billion in Bitcoin and when Mr. Musk said that Tesla would accept Bitcoin as payment for its electric cars. They slumped when he reversed that decision and tweeted that Bitcoin prices “seem high”.
NATURE OF CRYPTOCURRENCIES
What is the true nature of such highly volatile cryptocurrencies? New York University Professor Nouriel Roubini considers Bitcoin a “pseudoasset” that is pumped by “massive manipulation”. Whether the crypto hype is a ‘bubble’ is still a matter of speculation. While cryptoassets or cryptocurrencies are being embraced by many, they are under fire mostly by the officialdom in many parts of the world, primarily because the transaction process using cryptocurrencies is so secure that only a money transfer can be seen and nothing can be known about the sender and the recipient. These decentralised assets, with no central bank controlling them, may therefore be used for ‘hawala’, which is a trust based system of transferring money quickly in a parallel arrangement avoiding the traditional banking system and escaping the due tax. Anonymity and privacy are the underlying characteristics as well as the potential danger of cryptocurrencies. There have been money laundering charges using cryptocurrencies. Shadows of cryptocurrencies loom in the supply of money for terrorist activities. Cryptos have become the preferred payment system for hackers in ransomware attacks. And so, the bid to put the genie back in the bottle was inevitable. But how is that possible and to what extent? At one extreme we have China which has almost banned cryptocurrencies and introduced its own centrally regulated digital currency called Digital Renminbi. At the other extreme we have El Salvador which is the first country to use Bitcoin as legal tender. While many parts of the world are planning to clip the wings of cryptocurrencies, El Salvador is planning to build the world’s first ‘Bitcoin City’, funded initially by Bitcoin backed bonds. The idea may be to harness the cryptocurrency to fuel investment in the country. The International Monetary Fund, however, recently said that Bitcoin should not be used as legal tender in El Salvador and urged the country to strengthen the regulation and supervision of its newly established payment ecosystem. The standpoints of the U.K., the U.S., and most countries of the European Union seem to be in between. Many countries try to regulate it to some extent and also tax Bitcoin gains in their own ways.
UNDER THE SCANNER
In India, cryptocurrencies were under the scanner for some time. In 2018, the then Union Finance Minister said, “The government does not recognise cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these cryptoassets in financing illegitimate activities or as part of the payments system.” A highlevel government 9 | P a g e committee recommended a ban on all cryptocurrencies, except those issued by the state. Then, in 2020, the Supreme Court revoked the curb on cryptocurrency trade imposed by the Reserve Bank of India (RBI).
The Cryptocurrency and Regulation of Official Digital Currency Bill of 2021 is listed for introduction this Parliament session. It seeks to “prohibit all private cryptocurrencies in India” but allow for “certain exceptions to promote the underlying technology and its uses”. It also aims to “create a facilitative framework” for the creation of the official digital currency to be issued by the RBI. Of course, the digital currency of a central bank may not look like a real substitute for a decentralised cryptocurrency to many users. A few weeks ago, there was speculation whether strong regulations would be imposed and income from crypto taxed in India. There was also speculation about a blanket ban, which led to a slump in the prices of major cryptocurrencies. It is not clear what kind of regulation is going to be imposed finally.
A regulated market will certainly keep illegal activities under control to some extent. Most of the common investors will comply with the rules and substantial money will be gained from taxes. But is it at all possible to completely stop hawala, drug or terror funding by crypto with such regulations? Recently, Prime Minister Narendra Modi said cryptocurrencies must not fall into the “wrong hands and spoil our youth” and urged all democratic nations to come together and ensure that things like these do not happen. Of course, unless all nations work together, the genie cannot be completely controlled. And, unfortunately, that’s a remote possibility. For the time being, countries are imposing their own regulations. And Mr. Musk’s tweets might continue to regulate the crypto dance
