Inequality and growth

Economists don’t write bestsellers. But when Thomas Piketty published Capital in the Twenty First Century, his treatise on the inherent tendency of rising inequality under capitalism, it instantly became a runaway success. Angus Deaton, for whom inequality—including in India—has been a major focus of research, was given the Nobel Prize for economics last week. The World Economic Forum, which is the pre-eminent club of business and political leaders from the world’s richest countries, and not a “bleeding heart” forum for the “have-nots”, continues to cite rising inequality as a major global risk in its annual Global Risk Report. Why all this recent attention to inequality studies? Why the great concern about rising inequality?

I return to this question further below, but first a review of the facts. Is inequality indeed rising?

Piketty verified his theory empirically with data largely drawn from Europe and the US. But the tendency of rising inequality is also firmly confirmed by trends in Asia. Using data from the Asian Development Bank’s 2012 Asian Development Outlook, economists Juzhong Zhuang, Ravi Kanbur, and Changyong Rhee demonstrate that from the 1990s to the 2000s, income (or consumption) inequality distinctly increased in 12 major countries of the region, covering 80% of the Asian population (see chart).

The increase in inequality varied across countries and was most prominent in China. The rise in inequality there was about four times that in Taiwan, where it rose the least. Inequality also increased in India. But the increase was moderate compared with China, Indonesia, Korea, and some other countries. Inequality estimates for India may be underestimates as they are based on consumption expenditure not income. But whether that should effect increases in inequality is not clear.

In a recent study dealing specifically with India (mintne.ws/1Llxss0), economist Himanshu shows that inequality has been rising in rural India, but much less than in urban India. Thus, between 1993-94 and 2011- 2012 the Gini coefficient (x100), a standard measure of inequality, increased from 25.8 to 28.7 in rural India compared with an increase from 31.9 to 35.9 in urban India (see table). For the country as a whole, the Gini coefficient (x100) went up from 30 to 35.9 over the same period.

Why is inequality rising?

There are three broad mutually reinforcing forces at work that drive the rise in inequality.

The first is technological change. Every wave of innovation in the modern era, triggered by the steam engine, electricity, the motor car, the transistor, the computer and the IT revolution, etc., has resulted in the rising capital intensity of technology. That, in turn, has shifted demand in favour of capital vis-a-vis labour, thereby raising the share of profits relative to wages. It has also shifted demand in favour of more skilled workers relative to less skilled workers, thereby raising wage differential between skilled work, including the work of managers, and unskilled work. Both these trends have, in turn, raised inequality.

The capital intensification of technology has been reinforced by the massive growth in global trade and the globalized system of production, communication and finance. Capital can now source labour and locate production wherever it needs to in order to minimize the cost of labour.

Consider miniaturization, a technical change that has combined room sized computers, bulky television sets and landline telephones into a single smartphone. But supporting that little phone is an awesome system of global infrastructure: supply chains, robotized factories, power production and delivery systems, and the network of terrestrial communication systems integrated with satellite communication systems and trans-continental fibre optic cables under the sea.

Click here for enlarge

All of this raises the demand for capital inexorably. It reinforces the shift of demand in favour of capital vis-a-vis labour, and in favour of skilled work as opposed to unskilled work. These, in turn, intensify the rise in inequality.

The trend of rising inequality is further strengthened by liberalization reforms that free up markets in developing countries. Free markets better reflect scarcity values as demand shifts in favour of capital vis-a-vis labour and skilled work vis-a-vis unskilled work, thereby accelerating the rise in inequality.

I now return to my original question, why is rising inequality such a concern for the World Economic Forum?

Traditionally, the relationship between inequality and growth was seen in a rather static, zero-sum framework. Should we redistribute the existing pie, thereby compromising growth, or should we focus on growth, ignoring inequality? After all, a rising tide will lift all boats.

It is now recognized that the forces that drive growth are also the forces that raise inequality as discussed above, i.e., technical change, globalization and liberalizing policy reforms (Juzhong Zhuang, Ravi Kanbur, and Changyong Rhee 2014). They are two sides of the same coin. Moreover, there are negative feedback effects from rising inequality that adversely effect growth. So the search for growth can no longer ignore the challenge of rising inequality.

Consider a poor country where large sections of the working-age people are at the base of the income pyramid. They do not have access to the required minimum levels of nutrition and healthcare. They also lack access to the education and skill training required to equip themselves as skilled workers. Such a country will be trapped at levels of productivity and growth that are well below its potential.

However, countries can be trapped below their potential even without extreme deprivation if rising aspirations clash with the rise in inequality. The growing mass of people at the lower quintiles of income may not be hungry any more. But if they lack the means to fulfil their aspirations, that too can generate a great deal of anger and social tension. Such tensions are heightened in our times by consumerism and 24x7 television. Even poor people living in remote villages are exposed to the lifestyles and consumption of the rich, developing aspirations they may never be able to fulfil.

As the WEF’s 2015 Global Risk Report points out, rising inequality stokes the fires of social unrest and instability. Once instability takes hold of a society, normal governance, peace and security, the rule of law, all fall by the wayside.

In Angus Deaton’s words: “...there are also terrible dangers of inequality, if those who have escaped from destitution use their wealth to block those who are still imprisoned in it”.

The evolution of the crisis thereafter can take two different paths.

If the crisis takes an extreme form, it could be beyond the capacity of the government to cope. Governance could break down, and eventually there could be a failed state. There are several such examples around the world, including in our own neighbourhood. Growth is not even on the agenda in this scenario.

Alternatively, a government may be unable or unwilling to tackle the roots of rising inequality, but it may try to contain social unrest. It will do so through palliative entitlement policies and accommodation of identity politics. We are seeing this path unfold in India.

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the Right to Food, the Right to Education are all examples of such palliatives policies adopted to cope with the consequences of rising inequality. These policies do not contain rising inequality, but merely moderate its adverse social consequences. And they do so at a large cost, compressing the fiscal space for public infrastructure investment, thereby also compromising growth.

These palliative policies are combined with policies of appeasement towards identity politics in the context of scarce employment opportunities. Reservations and quotas in everything from panchayats, to college admissions to jobs rule the day. The Hardik Patel episode is a good example. Here is a community that is by no means poor. Yet it wants reservations, simply because others have it. We may soon see a day when all jobs will be allocated by quotas. Meanwhile, merit is going out of the window. Productivity and growth potential are being compromised.

Is there a better way forward? Some ingredients of inclusive growth are well known. Public provisioning of quality education, skill development and health services for the poor. Ensuring transparency and fair competition in land and other asset markets, preventing regulatory capture. A level playing field between employers and employees in the labour market. Competitive product markets. A prudent fiscal strategy that combines restraint on tax expenditures along with targeting of subsidies.

Will all of this yield growth without rising inequality? We won’t know till we have tried it. Successive Union governments have sworn allegiance to inclusive growth but never delivered. It would take a statesman, not an ordinary politician, to rise above short-term political expediency, and the usual pulls and pressures of power, to walk down this path. Meanwhile, it may be instructive to look around and see which country, if any, has managed to contain the rise in inequality without compromising growth.

The NJAC verdict: An alternative view

The Supreme Court of India, by a majority opinion, has struck down the 99th Constitution Amendment, which provided for the establishment of the National Judicial Commission to appoint judges of the High Court and the Supreme Court. Having read the opinion of the five hon'ble judges, a few issues arise in my mind.

The key rationale behind the majority opinion appears to be that independence of the judiciary is an essential ingredient of the basic structure of the Constitution. This is unquestionably a correct proposition. Having stated this, the majority transgresses into an erroneous logic. It argues that the presence of a law minister in the commission and the appointment of two eminent persons in the commission by a group, which will, besides the Chief Justice of India, comprise the prime minister and the leader of the Opposition, will constitute political involvement in judicial appointments. Judges appointed on this basis may feel gratified to politicians. Political persons would be obviously guided by their political interest. The judges warn of "adverse" consequences if politicians were a part of the appointment process. Hence protection of the judiciary from political persons was essential. This is a key reason on which the Constitution Amendment, unanimously passed by both the Houses of Parliament and the State Legislature, has been struck down.

Politician bashing is the key to the judgement. One learned judge argues that L K Advani has opined that the dangers of an Emergency-like situation are still there. Civil society in India is not strong and, therefore, you need an independent judiciary. Another argues that it may be possible that the present government does not favour appointment of persons with alternative sexuality as judges of the High Court and the Supreme Court. Politician bashing is akin to the 9 pm television programmes.

The judgement ignores the larger Constitutional structure of India. Unquestionably, independence of the judiciary is part of the basic structure of the Constitution. It needs to be preserved. But the judgement ignores the fact that there are several other features of the Constitution, which comprise the basic structure. The most important basic structure of the Indian Constitution is parliamentary democracy. The next important basic structure of the Constitution is an elected government, which represents the will of the sovereign. The prime minister in a parliamentary democracy is the most important accountable institution. The leader of the Opposition is an essential aspect of that basic structure representing the alternative voice in Parliament. The law minister represents a key basic structure of the Constitution - the Council of Ministers, which is accountable to Parliament. All these institutions, a parliamentary sovereignty, an elected government, the prime minister, the leader of the Opposition, the law minister are part of the Constitution's basic structure. They represent the will of the people. The majority opinion was understandably concerned with one basic structure - independence of the judiciary - but to rubbish all other basic structures by referring to them as "politicians" and passing the judgement on a rationale that India's democracy has to be saved from its elected representatives. The judgement has upheld the primacy of one basic structure - independence of the judiciary - but diminished five other basic structures of the Constitution, namely, a parliamentary democracy, an elected government, the Council of Ministers, an elected prime minister and an elected leader of the Opposition. This is the fundamental error on which the majority has fallen. A Constitutional court, while interpreting the Constitution, had to base the judgement on Constitutional principles. There is no Constitutional principle that democracy and its institutions have to be saved from elected representatives. The Indian democracy cannot be a tyranny of the unelected and if the elected are undermined, democracy itself would be in danger. Are not institutions like the Election Commission and the CAG not credible enough even though they are appointed by elected governments?

As someone who has spent more years in court than in Parliament, I feel constrained to speak out for Indian democracy. There is no principle in a democracy anywhere in the world that institutions of democracy are to be saved from the elected.

The illustrations given had to be on a sounder footing. If one leader feels that there are dangers of Emergency, there is no presumption that only the Supreme Court can save it. When in the mid-1970s the Emergency was proclaimed, it was people like me - the politicians - who fought and went to prison. It was the Supreme Court that caved in and, therefore, for the court to assume that it alone can defend the nation against Emergency, is belied by history. As for the cause of those representing alternative sexuality, the Delhi High Court had decriminalised it. I am a part of the present government, but I had publicly supported the opinion of the Delhi High Court. It was the Supreme Court which recriminalised alternative sexuality.

The judgement interprets the provision of Article 124 and 217 of the Constitution. Article 124 deals with the appointment of judges in the Supreme Court and Article 217 deals with the appointment of judges of the high courts. Both provide for the appointment to be made by the President in consultation with the Chief Justice of India. The mandate of the Constitution was that the Chief Justice of India is only a 'consultee'. The President is the appointing authority. In the second judge's case, the court declared the Chief Justice the appointing authority and the President a 'consultee'. In the third judge's case, the courts interpreted the Chief Justice to mean a collegium of judges. The President's primacy was replaced with the Chief Justice's or the collegium's. In the fourth judge's case (the present one) has now interpreted Article 124 and 217 to imply 'exclusivity' of the Chief Justice in the matter of appointment, excluding the role of the President almost entirely. This is the second fundamental error in the judgement. The court can only interpret - it cannot be the third chamber of the legislature to rewrite a law.

Having struck down the 99th Constitution Amendment, the court decided to relegislate. The court quashed the 99th Constitution Amendment. While quashing the same, it re-legislated the repealed provisions of Article 124 and 217 which only the legislature can do. This is the third error in the judgement.

The fourth principle on which the judgement falls into an error is while stating that collegium system, which is a product of the judicial legislation, is defective. It fixed a hearing for its improvement. The court has again assumed the role of being the third chamber. If there is a problem with the procedure of judicial appointments, have those legislative changes to be evolved outside the legislature?

As someone who is concerned about the independence of judiciary and the sovereignty of Parliament, I believe the two can and must co-exist. Independence of the judiciary is an important basic structure of the Constitution. To strengthen it, one does not have to weaken Parliamentary sovereignty.

Prime Minister's interaction with African journalists at the Editors Forum for 3rd India-Africa Forum Summit

Prime Minister's interaction with African journalists at the Editors Forum for 3rd India-Africa Forum Summit

Opening Statement by Prime Minister

A very warm welcome to all of you. Some of you have probably had the opportunity of visiting India before and for some probably it is the first time that you are visiting India. I hope that for your comfort you have been well looked after here. I know that there is an official programme but if you have any suggestion of what you would like to do here in addition to the programme that has been set up for you, that can be accommodated. I also want that your visit here is not only important in the context of the India-Africa Forum Summit but the very fact that it is a visit to India, it is important and there will be full efforts on the part of my Government.

I feel that this India-Africa Forum Summit is very important from many points of view. Of course for India it is very important given that we are the host country, but this is the first summit where all the 54 countries of Africa have been invited and all the 54 countries are participating. In that sense the India-Africa Forum Summit is the biggest event of its sort and partnership at this scale.

Till now as per the information that we have received, 40 countries will be represented at the Head of State, Head of Government level, the rest are being represented by senior Ministers. This time, in association with the India-Africa Forum Summit there is also the Conference of Trade Ministers because we would want that in the days and months and years to come the economic relations between India and Africa should be further strengthened.

The India-Africa Forum Summits have had two summits earlier, in 2008 and 2011, and now this is the 3rd India-Africa Forum Summit taking place. Earlier the two summits were organised on the basis of the Banjul Formula, and in that sense very limited countries had come and participated. But this time we decided to in fact come out of this formula and ensure that there was participation from all countries of Africa.

This I think is going to take relations between India and Africa to new heights. I think it is this partnership and this equality that is being given to all the countries. This is an initiative on our part and I think this is what makes this summit different from the two earlier versions. There are going to be meetings at various levels, at the top level. I think it is this partnership with all which is going to bring a new freshness in every corner of Africa. This new freshness is not just for Africa but also for India that this summit is going to bring new freshness in our relations.

I have been told that of course you have come to India and you are going to have a week-long programme during which you will be taken to various parts of the country and you will be seeing for yourself the progress and development. But in addition to you there are 400 journalists who are coming to cover this event from Africa and they are coming on their own with their own means. I think this itself indicates the importance that is being attached to this summit. From the discussions that I have been having with everyone, this summit in fact is attracting the focus of the entire world and people are in fact looking at it with great importance and I see this as a very good sign.

The relations between India and the countries of Africa, these relations and these bonds that we have, are not just political and economic but we also have a very rich cultural tradition. It is said that millions of years ago in fact the two parts of the Earth were one piece and it was only much later that they became two separate pieces of land, one was Asia and the other was Africa; and we have an Ocean which divides us. The west coast of India and the east coast of Africa in fact are linked by the sea.

I hail from the west coast of India from the State of Gujarat. It was in fact the Gujaratis who started trade and commerce with Africa and maritime relations earlier on. Even today there are 270,000 Indians who live in Africa and many of them are Gujaratis. In fact I too have had my links with Africa not only when I was the Chief Minister of Gujarat but even before that. I have always had relations with the African continent and whenever guests came they always met me. I have always had very good relations with various personalities of Africa. So, from a personal point of view I have always had very close links with this region.

In fact there are many similarities between India and Africa and together India and Africa we represent one third of the world’s population. The population of India equals in fact the population of the entire African continent. Africa in fact represents the youngest region in the world and India too is the youngest country. Perhaps when we look at the world today these are the only two places where 65 per cent of the population is below 35 years of age and I feel that this is a matter of great fortune for both Africa and for India.

The bilateral trade between India and Africa has been growing very rapidly and in the past few years it has grown by eight to nine times. I feel that after this summit it is going to see another major jump. India also is a major investor in Africa today and this is especially so in the oil sector and this is giving a new dynamism to the African economy.

Following the two previous India-Africa Forum Summits, India has given to the tune of 7.4 billion dollars of concessional credit and this has been used to enhance in the fields of infrastructure, agriculture, industry, energy and water. In more than 40 countries today there are more than 100 projects which are under implementation.

In the same vein, India has invested 1.2 billion dollars in more than 100 institutes and this is contributing in a major way to human resource development. For me I think the point which makes me the most happy is that there is this partnership between India and Africa that is human resource development, the capacity building. And in the last few years we have had the good fortune of imparting education and training to around 25,000 African students and I think this is a matter of good fortune for India. Today in Africa many of the leaders who are now in power and in top position have had their education and training in India.

I think between India and Africa there is another aspect that links us with many countries in Africa and that is solar power from which many African countries are benefiting. I think this is going to become a very strong community of nations and in the times to come the problem of climate change that the world is trying to counter and fight, we are going to be playing a very major role in mitigation and lessening the effects of climate change.

I think both India and Africa can feel proud of the fact that today the world is facing the problem of climate change, of the concerns regarding global warming, I think both India and Africa have had a tradition and it is in their culture not to pollute or not to damage the environment, and we have perhaps sinned the less and contributed the minimum to this big problem to the world. I think this also is a common factor between India and Africa.

I am convinced that during this summit and following the summit we are going to have very important decisions which will give both India and Africa a new sense of self confidence, our relations are going to become closer and deeper, and together I think we can lay the foundations of what we can contribute to the world.

Once again a very warm welcome to you. I will also have the opportunity of greeting you during the summit once again. Thank you.

Text of Prime Minister's written interview with African journalists at the Editors Forum for 3rd India-Africa Forum Summit

Question: What is the strategic importance of Africa to India in socio-economic and political terms? Is India's engagement with Africa a catch-up process with China in the scramble for resources?

Answer: The participation of all African countries, including over 40 at the level of Heads of State or Government, in the Summit is a testimony to the deep bonds of friendship and mutual faith between India and Africa.

This is a relationship that is beyond strategic considerations. It is a relationship with a strong emotional link. It has been forged by our intersecting history; our centuries-old ties of kinship, commerce and culture; our common struggle against colonialism; our quest for equality, dignity and justice among all people; and, our shared aspirations for our progress and a voice in the world. We are blessed with vast reservoir of mutual goodwill and confidence.

India and Africa constitute one-third of the world’s population. A large majority of them are in their youth. Indeed, India and Africa will have a significant part of the global youth population in this century. Their future will shape the course of this world to a great extent.

India and Africa are now the bright spots of hope for the global economy. India is the fastest growing major economy today. Africa is experiencing rapid growth, too. While India and Africa will both do much on their own to advance prosperity and peace for their people, our partnership can be a source of great strength for each other, both to reinforce and accelerate each other’s economic development and to build a more just, inclusive, equitable and sustainable world. We have complementary resources and markets; and, the power of our human capital. We have shared global vision.

Our approach to partnership with Africa is driven by the aim of empowerment, capacity building, human resource development, access to Indian market, and support for Indian investments in Africa, so that the people of Africa have the capacity to make their own free choices and the capability to shoulder the responsibility of their continent’s development. Our relationship with Africa is unique and does not need any point of reference.

Question: How and to what extent have the relations between India and Africa helped in the development process of the African continent? How is it a win-win situation for both?

Answer: Africa’s development in recent years has been impressive. First and foremost, it is the result of African vision, leadership and efforts to strengthen peace and support economic development in the continent. There are many inspiring models and examples of African success stories in sustainable development and empowerment of people, especially youth and women.

India is privileged to be a development partner for Africa. From the time African nations started gaining independence, we have been supporting human resource development in African countries. Our cooperation now takes many forms and is expanding rapidly in scale and range.

34 African countries now enjoy duty free access to the Indian market of 1.25 billion people. Over the last two IAFS, we have committed USD 7.4 billion in concessional lines of credit, which is contributing towards development of infrastructure, light manufacturing, public services and clean energy in Africa. We have committed grant assistance of USD 1.2 billion that is helping finance human resource development and establishment of over 100 capacity building institutions in Africa. In the past three years alone, 25000 Africans have been trained or educated in India. The Pan Africa e-network, which now connects 48 African countries, is becoming the new highway of regional connectivity and human development.- India has emerged as a major and rapidly growing source of Foreign Direct Investment in Africa. Indian tourist flow to Africa is also increasing.

Africa’s development is a huge opportunity for India, just as Africa’s resources, including oil, power India’s economic growth and create wealth and jobs in Africa. The continent’s progress will add great stability and momentum to the global economy and benefit India as well.

Question: Some analysts say that the effects of colonialism and neo-colonialism are acting as an impediment to peace, stability and development of Africa. India too underwent such a historical legacy, but has been able to break free of this cycle of strife and fragmentation, and to concentrate on governance, development and growth. What lessons does India hold in this regard for Africa?

Answer: India’s independence had a strong positive impact on anti-colonialism and freedom movements in Africa. We are also proud to have stood firmly in the cause of independence of African countries and to end apartheid.

Africa does not need any lessons from us. Colonial legacy left a long and deep impact on all of us. Africa, too, has passed through difficult times. However, Africa is making impressive progress now. The continent is more settled and stable. African nations are coming together to take responsibility for their development, peace and security. Africans are exercising their franchise in increasingly large numbers. We see growing efforts at economic reforms and regional economic cooperation and integration. Economic growth has accelerated. Around 95% of Africa is on mobile telephone now. There are laudable initiatives on education, innovation, empowerment of women, skill development and conservation of Nature.

Of course, Africa continues to face many familiar development challenges. There are also new security problems, including from terrorism and extremism, which also affect other parts of the world.

Africa has a rich history of accomplishments; abundant natural resources; and, a large and talented youth population. I have full confidence in the African leadership and the African people to realise the vision of "Agenda 2063: The Africa We Want”.

India will always be there, as a friend and partner, to share our experience, expertise and resources to support African nations in whatever manner they want. Since many of our challenges are similar to what Africa faces, our solutions may be relevant in the African context.

Question: What can both India and Africa do to benefit from greater bilateral trade and investments? What are the achievements in this sphere since the first India-Africa Forum Summit (IAFS-I) in 2008?

Answer: I see enormous opportunities for trade and investment ties between India and Africa. India will be the most populous country and Africa the most populous continent in this century. We both have young populations. Africa is also blessed with huge resources. Both India and Africa will grow, modernise and urbanise at a rapid rate.

Our economic partnership is gathering momentum. India’s trade with Africa, which was about US$ 30 billion in fiscal 2007-08 more than doubled to about US$ 72 billion in fiscal 2014-15. Besides economic growth in India and Africa, trade has also benefited from India’s decision in 2008 to offer duty free access to Indian markets to all Least Developed Countries, in the context of the first India-Africa Forum Summit. 34 African countries are direct beneficiaries of the scheme.

India has emerged as a major investor from the developing world in Africa, surpassing even China.

Our Lines of Credit to Africa, which is cumulatively USD 7.4 billion from the first two IAFS is creating infrastructure in Africa and boosting bilateral trade. Similarly, Africa’s vast resources and availability of arable land can not only power Africa’s prosperity, but can also become a major source of meeting India’s rapidly growing demand.

India has focused development partnership in human resource development and establishment of institutions in Africa, which are, in turn, creating the skills and capacities in Africa, including in areas like agriculture, food processing, textiles, small industries, etc., to expand exports to India and other countries.

I should also add that Africa’s laudable efforts at integrating Africa’s markets would also stimulate bilateral trade and investment.

As both India and Africa emerge as the new frontiers of opportunities in the 21st century, I am looking forward to the third India-Africa Forum Summit to explore with African leaders how we can further expand our economic partnership and also work to shaping a more favourable global economic environment and institutional framework.

Question: In what ways can the New Development Bank established by BRICS countries in July 2015 benefit African countries?

Answer: The New Development is a significant initiative that can have a profound impact on the global financial order. For one, it is, perhaps, the first major initiative on a multilateral financial institution along with the Asian Infrastructure Investment Bank in recent times. It has brought together the five BRICS countries as equal partners in the establishment of the Bank, which reflects a completely new paradigm of financial structure of such institutions. The lending practices will be designed keeping the interests and experiences of the developing world in mind. It has opened a new avenue for financing infrastructure investments in developing countries. I think Africa will be a major area of focus and we would also, hopefully, have an African window or regional presence of the Bank in the future.

Question: Agricultural and related activities are fundamental to the people of the African continent? It also sustains a majority of the people of India. How can India assist Africa in adopting and maintaining sustainable agricultural practices and development?

Answer: Africa has 60% of the arable land in the world, but produces 10% of the global food output. Development of the agriculture sector can not only drive Africa’s economic development, employment and food security, it could also turn Africa into the food bowl for the world. African achievements in recent times give us confidence in the future of agriculture in Africa .

India has made considerable progress in agriculture and dairy sectors over the last few decades. We are among the leading global producers in these sectors. Indian success has taken place in the context of low capital intensity farming and varied biodiversity conditions, which can be of great relevance to Africa. Indeed, agricultural experts from India have been deployed in various African countries since the 1960s. Scholarships for agriculture-related courses in India are very popular in Africa. Agriculture remains an area of priority in our development partnership with Africa. It takes many forms: human resource development, creation of agriculture-related institutions in Africa, irrigation projects, technology transfer and modern agriculture practices. As we now look to the future, we will continue to work with Africa in these areas, but also address emerging challenges: climate resilient agriculture and adaptation to climate change. We will also focus on post-harvest processing and supply chain. I also look forward to hearing African priorities in this regard.

Question: The economic partnership between India and Africa extends beyond trade and investment to technology transfer, knowledge sharing and capacity building. What more can be expected from India in the next few years?

Answer: India-Africa economic partnership is not transactional. It rests in the belief of our shared destiny and the power of South-South cooperation in transforming the lives of our people.

India will always work in accordance with the requirements and priorities of our friends in Africa. We will also work together to harness opportunities and possibilities created by new technology and address emerging challenges like climate change. The roadmap for the future will reflect our shared vision and goals, and our respective strengths and capabilities.

Our areas of focus will continue to be on human resource development, institution building, infrastructure, clean energy, agriculture, health, education and skill development. We will also work together on addressing climate change and sustainable development of blue economy.

We will certainly raise our partnership to a much higher level in the years ahead. We will also make our partnership more effective, based on a comprehensive review of our Development Partnership programme with Africa, particularly in terms of capacity building, infrastructure support and technology sharing, and discussions with our African partners.

Question: Does India's commitment to reform of the global political and economic order, dovetail with its aspirations to become a member of the UN Security Council?

Answer: The world is undergoing political, economic and technological transition on a scale rarely seen in recent history. We have four times as many member countries in the United Nations as we had at its inception. Awareness of rights and aspirations for progress is more widespread now. Global power is more distributed. We live in a digitally networked world, which is changing the character of the global economy. Threats to peace and security have become more complex, unpredictable and undefined. In many ways, our lives are becoming globalized, but fault-lines around our identities are growing. Terrorism, cyber and space are entirely new frontiers of threats, opportunities and challenges. Climate change is a pressing global challenge. The developing world is dealing with complexities of a new wave of urbanization.

Yet the global order, its institutions and our mindsets continue to reflect the circumstances that existed at the end of the last World War. These institutions have served us well, but they must be reformed in order to remain effective and relevant in the new era. If global institutions and systems do not adapt, they will risk irrelevance. We might have a more fragmented world and our collective ability to deal with the challenges and changes of our era will also be weakened.

That is why India advocates reforms in global political, economic and security institutions. They must become more democratic, inclusive and representative of our world. No institution will have that character today, if it does not give voice to Africa or the world’s largest democracy, constituting one-sixth of humanity. That is why we ask for reforms of the United Nations Security Council and global financial institutions. India and Africa, constituting one-third of the global population, must continue to speak in one voice for these reforms.

Question: What will the Summit (IAFS-III) produce as a tangible result in terms of cooperation between India and Africa?

Answer: Our objective is to deepen the spirit of partnership, strengthen our international solidarity and expand our cooperation. When I look at the Africa’s vision for itself, captured so eloquently in Agenda 2063 document, I believe that our development goals and international aspirations are closely aligned. This will be the foundation of our partnership in the years ahead.

At the third India-Africa Forum Summit in Delhi, we hope to set substantially higher and ambitious targets for our development partnership. We also aim to make it more effective, drawing upon our experience over the past decade. As in the past, our primary aim is to support our African partners in their efforts to accelerate the momentum of their development. We will also address key challenges of our times, including food, health and environmental security. We will create conditions that stimulate trade and investment flows between our countries. We will work together to address the problems of climate change. We will explore new areas like a sustainable Blue Economy. Our initiatives will aim to use the power of science and technology, Space science and the networked world to transform lives. This is not a one-way street. We hope to learn a great deal from numerous African success stories in all walks of life.

We will also reinforce our partnership on the global platform and deepen our security cooperation, including on maritime security, countering terrorism.

The third Summit, which will see the participation of all African nations for the first time, will launch a new era of India-Africa partnership.

Draft policy suggests steps to boost capital goods sector

The government has proposed tax incentives among other steps to boost the capital goods sector, which, in turn, would give a fillip to Prime Minister Narendra Modi's pet project, 'Make in India'. The draft National Capital Goods Policy, released by the Department of Heavy Industries, was aimed at increasing the share of capital goods contribution from present 12 per cent to 20 per cent of the total manufacturing activity by 2025.

The department suggested various measures to promote specific segments. For instance, in the field of food processing machinery, it proposed abolishing various duties on equipment and components vital for making final machinery, especially those not manufactured in India. Currently, some of the critical equipment are not manufactured in India and manufacturers need to import them. In some cases, duties on these vital equipment reach up to 30 per cent. In the case of printing machinery, it suggested setting up of a research and development centre and testing labs and provision of ready-to-move infrastructure on lease.

The draft, on which inputs from the Confederation of Indian Industry was taken, also urged the government to initiate and spearhead bilateral technology alliances with select countries for steel plant equipment to boost metallurgical machinery.

For dies, moulds and press tools 3.1, the department advised the government to provide special depreciation rates spread over three years for better return on investment (ROI) due to frequent technology obsolescence. It proposed allowing up to 50 per cent CENVAT credit to manufacturers using such products.

It pitches for adoption of uniform goods and services tax (GST) regime, ensuring effective GST rates across all capital goods sub-sectors competitive with import duty after set-off with a view to ensure a level-playing field. The draft makes a case for providing incentives for domestic and global mergers and acquisitions.

It also called for providing incentives for venture funding and risk capital to start-ups. Defining the objective of the policy, the draft says it is aimed at creating an ecosystem for a globally competitive capital goods sector to achieve total production in excess of Rs 5 lakh crore by 2025 from the current Rs 2.2 lakh crore. The policy aims to increase domestic employment from the current 15 lakh to at least 50 lakh by 2025 thus providing additional employment to over 35 lakh people.

It is for the first time that a policy on capital goods is being framed and the department aims to draw up the policy by mid-November, after which it will be sent to the Union Cabinet for approval.

"This is the final draft of the policy, including comments of all the stakeholders related to the industry. After the inputs are received, we shall go for final round of consultations. We hope to frame the policy by mid-November," Heavy Industry Secretary Rajan Katoch was quoted by PTI as saying.

India is a net importer of capital goods across sub-sectors. Around Rs 1.22 lakh crore worth of capital goods were imported in to India in 2014-15. Imports have grown at 15 per cent per annum over five years, signifying consistent demand in the market but from sources outside India. The draft policy further envisages increasing exports to 40 per cent of total production (from Rs 62,000 crore to Rs 2,00,000 crore) by 2025, enabling India's share of global exports in capital goods to increase to 2.5 per cent.

Other objectives of the policy are to improve skill availability in the capital goods sector by training 50 lakh people by 2025; improve technology depth by increasing research intensity from 0.9 per cent to at least 2.8 per cent of GDP; promote standards to curb inflow of sub-standard capital goods by mandating technical and safety standards and to promote promote growth and build capacity of SMEs to compete with established domestic and international firms. The draft paper points out imports continue to address 35 to 40 per cent of domestic demand with the proportion being significantly higher in "critical components" segment for each sub-sector.

Moreover, it said India's share in global exports in the capital goods sector is still low, ranging between 0.1 and 0.6 per cent, across various sub-sectors. In contrast, share of global exports for China ranges between 7.7 and 16.3 per cent depending on the sub sector. The paper also sheds light on the large blocks of underutilised capacity, waiting to capitalise on the latent demand in the market. The paper highlights the fact that support facilities, technology development institutions and skilled man-power continue to lag behind global standards, even as cost disabilities such as higher cost of power, finance and infrastructure lead to higher operating cost.

Big polluters, pay up

Earlier this year, in Myanmar, torrential rain caused mudslides that wiped out hundreds of houses and caused large-scale crop destruction. More than 1.3 million people were affected, and over 100 died. In Vietnam, the same deluges caused toxic slurry pits from coal mines to overflow and run through villages, and into the World Heritage-listed Ha Long Bay; the death toll was 17. As such weather events become increasingly frequent and intense, the need to mitigate and adapt to climate change is becoming more urgent than ever.
And make no mistake: These events are, at least partly, the result of climate change. As climate scientist Kevin Trenberth of the US National Center for Atmospheric Research points out, nowadays, “[a]ll weather events are affected by climate change, because the environment in which they occur is warmer and moister than it used to be”.
International climate negotiators recognize this, to some extent. The effects faced by the people of Myanmar and Vietnam are considered unavoidable costs of failing to adapt to climate change, which officials classify as “loss and damage”. But such language fails to capture the full scale of the consequences—especially their impact on human lives. The people who died in Myanmar and Vietnam are not just “unavoidable costs”, and their loved ones cannot simply “adapt” to losing them.
This kind of bloodless rhetoric reflects the inadequacy of the responses to climate change that international negotiations have so far produced. In fact, if the industrialized world had done what was needed to stop climate change, as promised a generation ago, Myanmar and Vietnam most likely would have been spared their recent “loss and damage”.
The so-called advanced economies failure to fulfil their commitments means that Myanmar and Vietnam are hardly the most vulnerable developing countries today. The tiny island states of the Pacific, for example, have been unable to erect adequate defences against the “king tides” that are encroaching on their land and causing the freshwater “lenses” beneath their atolls to become brackish. Their populations—among the world’s poorest people—are paying for climate change with their lives and livelihoods. And without the resources to adapt, they will continue to suffer.
But it gets even more perverse. Those behind the problem—the world’s biggest polluters—continue to reap billions in profits, while receiving huge energy subsidies from governments (projected to reach $5.3 trillion in 2015, or about $10 million per minute).
So who are these polluters? According to a 2013 study by the scientist Rick Heede, nearly two-thirds of carbon dioxide emitted since the 1750s can be traced to just 90 of the largest fossil fuel and cement-producing entities, most of which still operate. Fifty are investor-owned companies, including ChevronTexaco, ExxonMobil, Shell, BP and Peabody Energy; 31 are state-owned companies, such as Saudi Aramco and Norway’s Statoil; and nine are states such as Saudi Arabia and China.
Recognizing the blatant injustice—not to mention the destructiveness—of this state of affairs, a new initiative, launched by the Carbon Levy Project and supported by a growing number of individuals and organizations, has emerged to demand compensation for vulnerable developing countries from the big polluters. Specifically, the Carbon Levy Project proposes a tax at the point of extraction for fossil fuels.
Such a tax is consistent with international law, including the “polluter pays” principle, and would provide a new and predictable source of finance—amounting to billions of dollars—for the communities that need it most, without letting governments off the hook for providing public sources of finance. And, by raising the cost of extracting fossil fuels, it would contribute to the eventual phase-out of a sector that has no place in a climate-safe world.
Fortunately, the world will not have to wait for moral suasion to carry the day. Fossil-fuel companies and governments are already facing intensifying legal pressure. Typhoon survivors in the Philippines delivered a complaint to the country’s Commission on Human Rights, calling for an investigation into big fossil-fuel companies’ responsibility for causing climate change. The Dutch group Urgenda and nearly 900 co-plaintiffs successfully sued the Dutch government, forcing it to adopt more stringent climate policies. A Peruvian farmer now intends to sue the German coal company RWE to cover the costs of protecting his home, which lies in the flood path of a glacial lake. And the signatories of the Peoples’ Declaration for Climate Justice from Pacific Island countries are committed to bringing a case against big polluters for activities resulting in the destruction of their homes.
If no action is taken, such lawsuits will only become more frequent and difficult to defeat. Big Oil, Big Gas and Big Coal need to accept responsibility for climate change and start making real contributions to adaptation, or prepare to battle for their own survival—a battle that, in the long term, they simply cannot win.

essay test 3

Centre clears first batch of flagship urban projects

Centre clears first batch of flagship urban projects

The Urban Development Ministry has cleared the first batch of projects under the flagship Atal Mission for Rejuvenation and Urban Transformation (AMRUT) for 89 cities worth Rs.2,786 crore.

• The States that are getting benefited from this push are Andhra Pradesh, Gujarat and Rajasthan.
• This is for the first time in India’s urban governance that the Urban Development Ministry is sending money to States in massive chunks so that the development projects are run without financial delays.
• This is also the first time that the Urban Development Ministry approved State level plans unlike the past practice of appraising and approving individual projects.
• The focus of these approved urban renewal projects would be on establishing infrastructure that could ensure adequate water supply and robust sewerage networks.

Atal Mission for Rejuvenation and Urban Transformation (AMRUT):
AMRUT is the new avatar of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).

• It adopts a project approach to ensure basic infrastructure services relating to water supply, sewerage, storm-water drains, transportation and development of green spaces and parks with special provision for meeting the needs of children.
• Under this mission, 10% of the budget allocation will be given to states and union territories as incentive based on the achievement of reforms during the previous year.
• It is being implemented in 500 locations with a population of one lakh and above.
• It would cover some cities situated on stems of main rivers; a few state capitals and important cities located in hilly areas, islands and tourist areas.
• Under this mission, states get the flexibility of designing schemes based on the needs of identified cities and in their execution and monitoring.
• States will only submit state annual action Plans to the centre for broad concurrence based on which funds will be released.
• Central assistance will be to the extent of 50% of project cost for cities and towns with a population of up to 10 lakhs and one-third of the project cost for those with a population of above 10 lakhs.
• Under the mission, states will transfer funds to urban local bodies within 7 days of transfer by central government and no diversion of funds to be made failing which penal interest would be charged besides taking other adverse action by the centre.