What to Read in The Hindu Editorial( Topic and Syllabus wise)

Editorial 1 : The Quality of Growth

Context: Ahead of Budget 2025, why India should take a conservative approach to growth.

 

Introduction: A 6% real growth for 20 years should conservatively increase India’s GDP per capita to $10,000 from $2,650 by 2045. The key is to grow for extended periods with low risk. (Assumptions in both cases of this exercise: 5% India inflation, 2% US inflation, 3% INR depreciation and 1% population growth, all per annum).

 

Debt-Fuelled Growth and Its Consequences

• Risks of High Borrowing
  1. Historical cases of countries with debt-driven growth facing sharp slowdowns highlight the dangers of unsustainable borrowing.
  2. Current account deficits increase vulnerability, leading to potential foreign currency debt crises.
• Indian Household Indebtedness
  1. Shift from borrowing for emergencies or appreciating assets to depreciating assets and experiences.
  2. Rise in click-driven EMIs and consumerist trends fuelled by e-commerce.
• Consequences of Debt-Led Consumption
  1. Shifts growth from the future to the present, requiring eventual payback.
  2. Rising household indebtedness reflected in increasing retail NPAs.
• Suggested Measures
  1. Slowing the growth in personal loans.
  2. Encouraging cash-down purchases over EMIs by offering lower prices.

 

Marshmallow Test

• The marshmallow test is a famous psychological experiment designed to measure a child’s ability to delay gratification.
• The test involves offering a child a marshmallow and telling them they can eat it right away or wait for a second marshmallow.
• The results suggest that children who delay gratification do better in life.

 

Lessons from the Marshmallow Test

• Psychological Perspective: The marshmallow test highlights the importance of delayed gratification for long-term benefits.
• Impact on Consumer Behaviour: EMIs may habituate lower-income consumers to lifestyle upgrades, raising questions about their long-term benefits.
• Proposed Interventions
  1. Tweaking risk weights on loans.
  2. Encouraging conscious consumer choices.

 

Chinese Exports and Impact

• Challenges from China
  1. Continued strength in Chinese exports due to decades of investments and superior infrastructure.
  2. Deflation in export prices due to surplus capacity and weak domestic demand in China.
• Opportunities for India
  1. China+1 strategy offers opportunities, but results will be slow due to structural gaps in India.
  2. Supportive government policies and geopolitical factors could help India grow its manufacturing footprint.

 

Other Temporary Economic Challenges

• Global Economic Pressures
  1. Rising US interest rates.
  2. Low yield gap between India and the US.
  3. Strength of the US dollar.
• Decline in Net FDI
  1. Driven by equity sales by private equity funds and multinational companies.
  2. Not indicative of pessimism about India but linked to sectoral valuations.
• Need for a Conservative Approach: Temporary headwinds necessitate prudence in policymaking.

 

Stock Market Dynamics and Investor Caution

• New Demat Accounts
  1. 75% of the current 20 crore demat accounts did not exist before Covid.
  2. This set of investors has no understanding or memory of the similar cycles of 1992, 2000, 2008 etc.
• Overconfidence in Small/Mid-Caps
  1. Recent rapid wealth creation in small/mid-caps attributed to their sharper fall and recovery post-Covid.
  2. Over 75% of demat account holders are inexperienced, lacking knowledge of past market cycles.
• Concerns with IPO Activity: Frenzied IPO participation highlights speculative tendencies.

 

Conclusion

India has significant potential, challenges such as rising household indebtedness, competition from China, and temporary economic headwinds must be addressed. Investors and policymakers should prioritise long-term stability over short-term gains to ensure enduring progress.

Editorial 2 : MSP is Not Enough

Context: MSP is not enough. Government should become key player in markets to relieve farmer distress.

 

Introduction: Debate Around MSP

• The debate about instituting a legally binding Minimum Support Price (MSP) for crops is both narrow and counterproductive.
• MSP aims to address farmers’ challenges but overlooks complexities that can exacerbate rural poverty and destabilise agricultural markets.
• These complexities include climate-induced production shocks, which pose a greater risk than price volatility, and the need to align agricultural production with changing dietary preferences.

 

Policy Instruments to Address Complexities

• The two best policy instruments to address these complexities are income support and price deficiency payments to ensure stable rural incomes, and expanded and decentralised public procurement at market prices for production and consumption diversification.
• Income Support via a Targeted Quasi-Universal Basic Income (q-UBI)
  1. Concept: A q-UBI for rural households, extending beyond cultivators (e.g., PM-Kisan beneficiaries).
  2. Key Features
     • Payment set higher than current PM-Kisan payouts (aligned with the average income of a five-acre farmer).
     • Covers both price and quantity shocks.
  3. Advantages
     • Ensures a stable income base for rural households, including non-cultivators like traders.
     • Reduces overdependence on artificial price support mechanisms like MSP.
• Price Deficiency Payments (PDPs)
  1. Mechanism: Farmers compensated for a fraction (e.g., 30%) of average losses when crop prices drop drastically.
  2. Key Features
     • Maintains market discipline while insulating farmers from extreme price shocks.
     • Requires robust market intelligence systems to monitor and react to fluctuations.
  3. Benefits
     • Shields farmers from short-term price volatility.
     • Encourages long-term adaptability, such as crop diversification or alternative livelihoods.

 

Rationalisation of Public Procurement

• Expanding Public Procurement Portfolios
  1. Current Issues: Over-reliance on rice and wheat procurement.
  2. Proposed Changes
     • Diversify procurement to include pulses, onions, and other crops.
     • Align procurement with demand conditions for welfare schemes (e.g., PDS, mid-day meals).
  3. Fiscal Considerations
     • Narrowly target subsidies to manage fiscal costs.
     • Minimise wastage through better operationalisation and state accountability (e.g., PM-AASHA framework).
• Build Strategic Reserves Beyond Staples
  1. Broaden Crop Coverage: Include essential crops like pulses and onions in strategic reserves to mitigate price shocks.
  2. Market-Driven Procurement
     • All public procurement to occur at market prices, not predetermined MSPs.
     • Quantities guided by demand and inventory levels to prevent overstocking.

 

Risk of MSP-Centric Policies

• They ignore broader rural livelihood dynamics.
• They fail to address climate and production shocks effectively.

 

Proposed Integrated Framework: Advantages

• Holistic Support for Farmers: Combines income security (q-UBI) with market-oriented mechanisms (PDPs and diversified procurement).
• Dynamic Agricultural Markets: Encourages production diversification and adaptability.
• Resilience Against Future Challenges: Shields farmers and consumers from climate-induced and price-related shocks.
• Alignment with Evolving Needs: Reflects changing dietary patterns and global market dynamics.

 

Conclusion

Working out the details of the proposed framework will require careful planning and collaboration, but this integrated approach promises a more sustainable and equitable way to support farmers. It safeguards rural livelihoods, fosters dynamic agricultural markets, and aligns policies with future demands.