To ensure ample employment generation and smooth economic recovery, the ailments of the MSME sector has to be addressed

I recently read in newspapers that a Parliamentary committee on micro, medium and small industries (MSME) has found that the sector is not in good health and needs special measures to come out of the negative impact of the pandemic. The committee observed that enough is not being done to support the sector. It strongly recommended making finance available to the sector at a concessional rate of interest of three to four per cent and also a longer repayment period. I agree with this. Worldwide, the MSME sector is known for its potential for job creation. The sector contributes to 90 per cent of the businesses and provides 50 per cent of employment worldwide. A World Bank estimate has projected that by 2030, 600 million jobs would be required globally and the MSME sector will play a crucial role in this.

The MSME sector is second only to agriculture in terms of employment generation in India. There are close to 6.5 crore industries in the sector that provide employment to about 11 crore people and contribute 29 per cent of GDP and 31.89 per cent of gross value added (GVA). It is one of the major pillars of the economy and accounts for 48.9 per cent of Indian exports. The sector lays out the foundation for flagship government policies like Make in India, Atmanirbhar Bharat and startup/standup India. One district one product (ODOP) scheme of the UP government is also based on the MSME sector.

The Union Government recently changed the definition of MSME on the demands of various industry associations and with the idea of benefitting a large number of industries with various facilities offered by the government. According to the new definition, all industries having investment in plant, machinery and equipment of not more than Rs one crore and an annual turnover of up to Rs three crore are categorised as micro. Similarly, the corresponding norms for the small sector are Rs 10 crore and Rs 50 crore and, for the medium sector, Rs 50 crore and Rs 250 crore. This was hailed as a major achievement in the interest of the MSME sector. However, my interaction with members of the industry gives a different picture. The micro sector feels that this new definition works counter to their interests, as it is now the industries belonging to the medium and the small sector that have a greater capacity to access the benefits of government schemes allowing them to corner disproportionate gains. A little-known reality is that the micro sector is 99 per cent of the MSME sector. There are 6.30 crore micro units whereas; the corresponding figure for the small enterprises is 3.31 lakh and, for the medium, 0.05 lakh. Clearly, the major contribution to the national economy and employment comes from the micro sector which is largely unorganised. This sector plays a major role in bringing people above the poverty line and provides goods and services to the maximum number of people. This sector is often run by people who are not aware of government policies. They are reluctant to register themselves as they want to avoid the numerous regulatory norms. The sector also suffers from a deficiency in financial literacy, leading to a lack of financial inclusion.

The biggest need of this sector is finance. However, people in this sector resort to informal sources of finance — often at a higher rate of interest. Many don’t even go for loans and generate funds as equity from their friends and relatives. They work on thin margins and often have high input costs. It is thus imperative that credit at a low cost is made available at the right time to the micro firms without any collateral.

The micro sector has to be handled differently. The new definition of MSME may not be easy to change as there is a lobby that wants it that way. There should be a separate cell in both the Union and state governments to deal with the problems of the micro sectors. In every government scheme for the MSME sector, a fixed amount should be designated for the micro sector. The government has prescribed a 45-day limit for the payments to be made to the MSME sector and has also devised a mechanism where grievances relating to nonpayment can be addressed. Unfortunately, the reality is that the payments are still not forthcoming despite the assurances at the highest level. This payment clause needs to be enforced in the wake of the precarious financial position of the sector. There is also a definite requirement to set up a payment recovery tribunal to handle such issues in the MSME sector.

The MSME sector, especially the micro sector, is unable to market its products as the units do not have the knowledge and expertise to do so. The portal designed by National Skill Development Corporation could be a big help. It needs to be further activated. The state governments should also design similar portals. Further, the micro-units cannot afford to pay earnest money (EMD) against all tenders. At least in public sector undertakings, the government should waive the EMD requirements. There is also a case for mandating 25 per cent procurement by the government or public sector enterprises from the MSME sector. In the past, these kinds of orders have been issued, but not fully complied with because the issues of quality have been raised. This sector has to certainly introspect and become quality conscious. The sector requires better access to modern technology and the government must come up with innovative schemes to make this possible.

There are a plethora of schemes for the MSME sector. The real problem is that of awareness regarding these schemes. The government agencies must conduct regular awareness programmes to make sure that even the micro units can avail the benefits. The district industry centres should do the required handholding for this purpose. Many MSME units do not know how to avail the benefits of government schemes. A single window system is required, as often the entrepreneur is made to wait for months and run from pillar to post to get the benefits. There should be a prescribed nodal authority to monitor this process.

Covid has led to the closure of more than 33 per cent of MSME units, and a large number are somehow surviving. They require immediate relief which could be in the form of direct cash support or indirect exemptions from fixed charges for utilities like power. Relief in taxes would also help. The government should concentrate on developing this sector by using the cluster approach where they can provide common facilities. Also, a specific intervention for rehabilitation of the sick units is called for.

The MSME sector is vital to employment generation and bringing about economic recovery. Special focus is required for the micro sector. Post-Covid, the governments should focus on supporting the existing units rather than try and get new investment. The government has the right intentions but it needs to understand the ground realities and address them at the earliest.

The strategy of incentives and disincentives counters the population policy 2021-30, UP government should explore effective options like poverty control and upskilling

The latest UP population policy has created a lot of interest and debate. Civil servants, both working and retired, as well as intellectuals, are voicing divergent opinions. There is no denying that population control, stabilization and welfare are issues of concern, particularly in Uttar Pradesh where the current total fertility rate (TFR) is 2.7 as compared to the replacement rate of 2.1 and the national average of 2.2. It is significant to note that India, as a country, has almost attained the replacement level of TFR, and the two states where further work is required are Uttar Pradesh and Bihar. Many southern states like Kerala and Tamil Nadu have TFR well below the replacement level. It has been argued that the population of Uttar Pradesh is one of the major causes of its slower rate of development as compared to the rest of India. It is a fact that despite being one of the top states in GSDP — which is currently around 19 lakh crore, contributing to 8.35 per cent of the GDP of the country — UP remains amongst the bottom three states in terms of per capita income. It is for this reason that there is a focus on population control which is in fact a desirable objective towards which the state should work. The only question is regarding the strategy and tactics to achieve this goal.

Home > Opinion > ‘Inappropriate’ measure ‘Inappropriate’ measure The strategy of incentives and disincentives counters the population policy 2021-30, UP government should explore effective options like poverty control and upskilling BY Alok Ranjan23 July 2021 8:22 PM Alok Ranjan23 July 2021 8:22 PM The latest UP population policy has created a lot of interest and debate. Civil servants, both working and retired, as well as intellectuals, are voicing divergent opinions. There is no denying that population control, stabilization and welfare are issues of concern, particularly in Uttar Pradesh where the current total fertility rate (TFR) is 2.7 as compared to the replacement rate of 2.1 and the national average of 2.2. It is significant to note that India, as a country, has almost attained the replacement level of TFR, and the two states where further work is required are Uttar Pradesh and Bihar. Many southern states like Kerala and Tamil Nadu have TFR well below the replacement level. It has been argued that the population of Uttar Pradesh is one of the major causes of its slower rate of development as compared to the rest of India. It is a fact that despite being one of the top states in GSDP — which is currently around 19 lakh crore, contributing to 8.35 per cent of the GDP of the country — UP remains amongst the bottom three states in terms of per capita income. It is for this reason that there is a focus on population control which is in fact a desirable objective towards which the state should work. The only question is regarding the strategy and tactics to achieve this goal. Also Read – Guardians of the Wild Let me first clarify that two documents need to be studied. On July 11, which is World population day, UP Chief Minister unveiled the UP population policy 2021-30. At the same time, the UP law commission has posted on its website a proposed bill regarding population control in the state and invited comments from all. It is the latter that has become a topic of debate as it has recommended a series of incentives and disincentives for public servants and others if they restrict the size of their family to either two children or one child.

The population policy 2021-30 is a continuation of steps taken after the population policy of 2000 and has drawn a link between development and control of the population. The population policy of 2000 had projected that by 2016, UP shall attain a TFR of 2.1 but it has not been able to do so. In the light of this, the announced policy has talked about improving the overall public health scenario. It has also emphasized the elimination of social issues like girls being married at an early age and there not being a gap between two children. This policy has rightly pointed out that more awareness about contraception measures need to be created along with improved availability of contraceptive methods. Significantly, it has talked of the education of the girl child and its impact on controlling the population. It has appreciated the efforts which have brought down the infant mortality rate (IMR) from 83 in 2000 to 43 in 2016 and maternal mortality rate from 707 in 1998 to 197 in 2016. These figures are to be further brought down by taking quality measures in coming years. This policy says that the overall objective is to improve the quality of life. It aims that by 2026, the TFR would be brought down to 2.1 and by 2030 to 1.9. There can be no argument with any of these policy statements and they need to be appreciated. However, it also mentions that the UP government is considering a new law to control the population by incorporating a set of incentives and disincentives proposed by the UP law commission.

The proposed bill suggests that a public servant who adopts the two-child norm by undergoing voluntary sterilization operation upon himself or their spouse shall be given certain incentives. These include two additional increments, subsidy towards purchase of a plot or house from a government agency, soft loan for construction or purchase of a house, rebate on house tax, water tax and electricity dues, maternity or paternity leave of 12 months with full salary, three per cent increase in employer’s contribution under the national pension scheme and free health and insurance coverage. It further states that a public servant, who has only one child and undergoes voluntary sterilization, shall, in addition to the above incentives, get additional increments — free health care and insurance for the single child till the age of 20, free education up to graduation, preference to a single child in government jobs and in admission to all educational institutions.

The bill goes further to talk about members of the general public other than public servants. Apart from making them eligible for similar incentives as for public servants, it says that if a couple living below the poverty line has only one child, then they would be eligible for a lump sum of Rs 80,000 if the child is a boy and Rs one lakh if the child is a girl. This is followed by the recommendations which need to be considered as they talk about disincentives and revocation of incentives. Any couple which contravenes the two-child norm shall be debarred from benefits under government welfare schemes and also all the incentives that have been proposed. It also says that a ration card would be limited to four people and there would be a bar on contesting elections to the local bodies. There is a clause that says that other disincentives can be imposed. It also bars such couples from applying for government jobs and puts a bar on promotion in government services and on receiving any kind of government subsidies.

The single child recommendation is a bit too radical. We have seen the case of China where they adopted a single child policy and had to retrace their steps recently because of the negative consequences of this policy which led to a large ageing population with a much smaller younger population to support them. In addition, in a country like India, with its preference for a male child, this measure would certainly be inviting female infanticide in a big way. The current sex ratio in UP at the time of birth is already skewed at 903 females per 1,000 males and this policy would encourage unsafe sex-selective abortions and further skew the ratio. Moreover, the disincentives like no subsidized ration or no government job will impact the vulnerable sections of the population disproportionately.

Even historically, disincentives have never really worked. Such measures always lead to putting excessive powers in the hands of the bureaucracy which tends to misuse those, causing harassment to the common people. The events of the emergency in 1975-76 are a testimony. The population can be controlled without resorting to such measures as has been clearly shown by the example of the southern states. Even in UP, there has been a significant decline in TFR and this can be accelerated further by focusing on education of the girl child, providing better nutrition, improving public health and increasing the pace of all-around development. These measures have worked all over the world.

The UP government strangely talks about bringing about a balance among various communities through its population policy. It is not clear how this will be made possible. Will the government fix the number of children for different communities?

The most significant thing is that the disincentives work against the poor. It is the poor who have a higher TFR and will suffer from the proposed disincentives. The objective of a welfare state is to work for the benefit of the poor rather than formulating laws that restrict the poor from getting government jobs or benefits of government schemes. I would go as far as to say that perhaps the most effective population control measure is the elimination of poverty. Moreover, we should view the population as a resource rather than as a liability. Even the honourable Prime Minister had spoken about the tremendous opportunity that our population and demographic dividend is providing us. We have to focus on providing education, skills and jobs to these people rather than fritter away our energies on implementing a system of incentives and disincentives. These proposed measures, in fact, run counter to the population policy 2021-30 declared by the government, and would actually make it ineffective. I may also point out that a technical group on population projections for 2011-36, constituted by the Government of India, has projected that UP will achieve the replacement level of the required TFR by 2025. There is, thus, no need for coercive policies.

Direct elections to the post of ZP chairperson and proper devolution of resources could ensure smooth delivery of public services and reduce corruption

The recent elections to the post of chairman of Zila Parishad in UP made me think about the reality and the possibilities of decentralisation of governance through the third tier of government. I was disturbed by the allegations of use of money power, muscle power and partisan attitude of the local government officers in the indirect election. Such a perception about the election process demeans the office of the chairman and also puts a question mark on the functioning of the third tier of government. An immediate solution to this kind of situation would be to carry out an amendment in the relevant Act and go in for direct elections to the post of chairman. This will give much more stability, credibility, legitimacy and accountability to the institution and also enable the third tier to function in a manner that the 73rd constitutional amendment has envisaged.

I recall that in 1980, I was posted as an administrator of a municipal corporation in Uttar Pradesh and, after one year of my tenure, the elections to the post of corporators and mayor were held. At that time the mayor was elected through an indirect election where the corporators were the voters. I personally witnessed the money power that was used to buy votes by the contestants, and the person who won was reputed to have spent a fortune. Almost immediately after taking the charge, the mayor began to look for avenues to recover his investment and this led to a clash between us. I am not commenting on any one individual but on the system. Indirect elections always tend to bring in these imperfections. A direct election is always a much better alternative. Later on, the Act was amended and we began to have direct elections to the post of mayor in UP. This brought about a big change in the entire system. The mayors today are true representatives of people and have much more acceptance in the society. In fact, more powers should be devolved on the mayor to make him/her the actual leader of a municipal corporation with full accountability to the people. In a similar manner, if direct elections are held for the post of the chairman of Zila Parishad, the elected person would become a genuine representative of the people and local governance will be empowered. I also feel that this system could lead to more people of talent and leadership quality contest for the elections. With this amendment, the institution of the chairman of Zila Parishad would become much more powerful and responsible towards people. I foresee that there could be opposition to this from the bureaucracy. The elected members of the legislature and parliament may also oppose it because the chairman of ZP would be directly elected by a larger vote base than them.

The 73rd amendment in 1992 provided for a three-tier Panchayat system at the village level, intermediate level and district level. This was specifically meant to give these institutions the required status and dignity of viable and responsive people’s bodies. Article 40 of the constitution had laid down, as part of the directive principles of state policy, that every state shall organise village Panchayats and endow them with such power and authority as may be necessary to enable them to function as units of self-government. However, due to the absence of regular elections, insufficient representation of weaker sections and women, inadequate devolution of powers and lack of financial resources, these institutions have not been able to fulfil their role.

As a consequence of 73rd amendment, the three tiers of local self-government have come into existence in most states but the level to which the functions, functionaries and finances that have been devolved to them vary from state to state. States like Karnataka and Maharashtra have set examples of a much higher devolution of power than Uttar Pradesh and Bihar. However, almost all states now have a state election commission which ensures that regular elections to these three tiers are held; the earlier practice of keeping these institutions in a state of suspension is no longer possible. This, by itself, is a major change. The election process gives due representation to women, scheduled castes and scheduled tribes and weaker sections to make them truly representative of the society. Most states have also constituted a state finance commission which decides upon the percentage of state resources that would be transferred to the urban and rural local bodies. In UP, 15 per cent of the state resources are transferred to these local bodies even though successive state finance commissions have recommended a higher percentage. There is indeed a pressing need for such a step.

True decentralisation of power would lead to definite improvement in the delivery of public services to the people. For example, Uttar Pradesh has close to two lakh elementary schools. It is humanly impossible for a state-level secretary or a director or a district-level education officer to monitor the functioning of the village schools. This can be best done by the local village Panchayat. The same is true for ICDS nutrition centers and health sub-centers and other local-level development schemes. This is only possible if local self-government institutions have the power over the functionaries of concerned departments. Practically, departments do not allow this to happen and the government employees threaten to go on strike if put under the jurisdiction of the Panchayats. State governments are not very keen on allowing the Zila Parishad to plan for the development of the district. There is a district planning committee which formulates district plans but, at least in UP, I found that these plans do not find a place in the state budget. I found that schemes which are to be a part of the district plan are identified but very often resources are allocated on the basis of decisions taken at the state level. The ideal situation should be that a fixed percentage of the state budget should be allotted for district plans as drawn up by the Zila Parishads. The ZP should prepare these plans on the basis of plans prepared by the village and intermediate Panchayats. Further, the village panchayat and other tiers have the powers of local taxation as per article 243 H of the constitution but internal revenue at the national level is barely four per cent of their total revenues. There is a case for these institutions to raise their internal revenues. Today, a major part of the revenue comes from devolution from state finance commission and central finance commission. Also, in a lot of schemes, funds are now being directly sent to the Panchayats, making it possible for them to spend on local needs. However, this has also created a situation where there are allegations of corruption against the elected members of the local government. These institutions need to be mentored and nurtured with patience so that they become genuinely accountable to the people. To control corruption, the mechanisms of local fund audit, social audit and having an ombudsman for a cluster of villages can certainly help.

It is in the interest for better governance to devolve funds, functionaries and functions to the local self-government institutions with a system of audit and oversight agencies to see that the funds are spent properly. To make this happen, direct elections to the post of chairman of ZP are also necessary. It will need a lot of vision on the part of the political parties and support of the bureaucracy to make these three tiers of government genuine institutions of decentralised governance.

Development indicators need to be reshuffled to go beyond mere growth goals and incorporate wider parameters

Ever since I was a student of economics at Delhi University, the growth versus equity debate has been at the centre stage of any discussion around development economics. Recently, I read an outstanding book titled “The Growth Delusion” by David Pilling which is a critique of overemphasis on the growth of GDP as an economic welfare measure across the world. India is no exception. The current budget boldly talks about economic growth as the goal to be achieved — based on the philosophy that only if the size of the cake is large, it can be distributed amongst maximum people. We hear the talk that India has already become the fifth largest economy and is soon likely to become the third-largest. The Government of India has set up an ambitious goal to achieve a USD five trillion economy by 2025. The UP government has also set a goal of a USD one trillion economy by that period. GDP is an indicator of the size of the economy but not of the wellbeing or quality of life of the people. Pilling has been severe in his comment when he says that all countries are obsessed with the rate of growth of GDP and put all their energy in chasing this chimera.

Despite growth in GDP, economies are witnessing rising inequalities. This has been highlighted in a famous book written by Thomas Piketty. We have also read the opposing viewpoints of eminent economists like Jagdish Bhagwati and Amartya Sen; the former emphasising growth and the latter talking about state intervention in public services like health and education to bring about genuine economic welfare. In India, over the years, we have witnessed jobless growth leading to an increasing rate of unemployment. Further, despite being one of the largest economies in the world, the per capita income of citizens is abysmally low, leaving us as a developing economy, far behind the developed world. There is still a lot of poverty and the second wave of the pandemic has exposed the poor quality of public health infrastructure in the country. Education and nutrition levels are far behind the developed countries and our rank in the Human Development Index is beyond 100. This clearly shows that growth by itself is not going to solve the problems of our country and we need inclusive growth. The latter requires specific state intervention in favour of the poor and the marginalised. This clearly indicates a need to have a broader index of development that goes beyond GDP and allows us to aspire for an improved quality of life for the people.

Pilling discussed various alternatives to GDP in his book. We could have goals for increasing per capita income or net domestic product. Then, we could have the Human Development Index as an indicator or evolve a Sustainability Index which would factor in the crucial environmental needs. He developed a matrix of economic, environmental and social indicators that can best bring out the status of quality of life in a country. Recently, India lost the World Test Championship to the tiny island nation New Zealand. I read an interesting article which tried to analyse the rise of New Zealand as a cricketing power by bringing out the differences in per capita income and various other social and economic indicators between New Zealand and India. The comparison held India in a very unfavourable light.

Most countries have added parameters other than GDP in their evaluation of development. The most significant has been the concept of Gross National Happiness developed by Bhutan. The utilitarian approach of the greatest happiness of the greatest number is not the solution as it ignores the problems of the minority and tends to perpetuate inequalities. Happiness economics has evolved as a discipline in itself, and 20th March has been declared as the International Happiness Day. India has unfortunately ranked 140 out of 156 countries on happiness indicator, with Denmark, Sweden, Norway and Switzerland being amongst the top nations. Happiness index accounts for GDP per capita, social support systems and healthy life expectancy, freedom to make life choices, generosity, trust and corruption levels. One can think of including more aspects of happiness in this indicator like the government of Bhutan which calculates gross national happiness on the basis of four pillars — promotion of sustainable development, preservation of cultural values, conservation of natural environment and establishment of good governance.

Currently, a new concept known as subjective well-being (SWB) is being used at the global level to measure the quality of life and the extent of happiness. SWB links happiness with life satisfaction which is a function of in-born temperament, fulfilment of basic needs and quality of social relationships. We all know that happiness has both internal and external causes. Internal happiness, of course, is a spiritual concept where happiness depends on inner contentment and the response of an individual to life situations. This is something that is influenced by the culture of the family of an individual and the spiritual practices that he follows. However, external happiness is determined, to a large extent, by the policies of the government. It is this external happiness that can be measured through an index and governments can influence this in a big way. Happiness can be defined as a state of being where there is a high level of satisfaction, positive feelings and infrequent negative feelings. External happiness depends upon a person having sufficient material resources like money, sufficient social resources like family and friends and a desirable society that is free of hunger, injustice, corruption and war; and is full of spirit of trust and cooperation. If the citizens of a country feel that they are leading a purposeful and meaningful life, and are optimistic about their current position and outlook for the future, then they can be considered to be high on the happiness index. The difference between the SWB approach and GDP is the focus on multiple dimensions of the human lives in the former. It is also true that if there are a large number of inequalities in society, particularly in the form of opportunities, then happiness decreases.

It is thus important that we are not caught in the GDP trap and focus on the larger issues of life which lead to a better quality of life for citizens and makes for a happy society. None other than the famous economist Simon Kuznets said, “The welfare of a nation can scarcely be inferred from a measurement of national income.” Robert Kennedy of the United States famously said, “GDP measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything but that which makes life worthwhile.” Human beings have to be at the centre of development policies. We have to evolve an index where we measure the quality of life that we are giving to the people. I would like to end this article by quoting David Pilling where he says towards the end of his book, “Growth was a great invention. Now get over it”.

Even as the economy starts limping back to normal, increased poverty and unemployment would require effective policy intervention

Mercifully, the disastrous Covid second wave, largely fueled by the delta variant, has begun to recede. It is time now to take stock of the impact that Covid has had on the lives and livelihood of the people. The numbers of cases, as well as the fatalities, were much higher during the second wave in comparison to the first. Almost all my friends have told me that someone near and dear to them has passed away due to Covid. The fear of Covid has entered every home. There was a period from mid-April to the first week of May when people were clamouring for oxygen, ICU beds, medicines and treatment. Even though I have retired from the civil service I recollect getting at least a dozen calls each day requesting help for getting someone admitted to a hospital. That was indeed a very traumatic period. One state government followed the other in imposing various degrees of lockdown to break the infection chain. Things are much better now with normalcy approaching, the lockdowns lifted in most states and economic activity limping back to normal. Of course, there is always the apprehension that the virus is not likely to disappear soon and may even come back for a third wave. The government is certainly not taking any chances this time and is likely to be better prepared. The people also would be more careful now.

The future would be determined by the pace, extent and efficacy of the vaccination campaign. The goal is to achieve the vaccination target by end of December as, only if the majority is vaccinated, will we be able to escape the scourge of the pandemic. Various policy options are being considered, debated and implemented. Normal life would return after the battle is won but the scars of the Covid will take years to disappear. The economy has been badly damaged. The year 2020-21 showed a negative GDP rate of -7.3 per cent and now the growth rate projected for 2021-22 has been scaled down even by the RBI to 9.5 per cent. This has impacted the level of unemployment in the economy. The finance ministry has come out clearly putting growth as its main objective in the current budget. However, the anticipated growth momentum has encountered a roadblock in the second wave. Economists and governments are banking on private consumption demand to pick up significantly after the lifting of lockdowns. We have to wait and see with what pace the economy will bounce back. The finance ministry has clearly stated that everything will depend on the pace of the vaccination process and talked about completing maximum vaccination by September end to push forward the growth of the economy. The government is planning to front-load its capital expenditure and also the private sector is planning major capex infusion. All this would certainly help but it remains to be seen to what extent this would raise the spirits of the economy and in how much time.

The CMIE report on unemployment in the Indian economy shows that as of June 17, 2021, the unemployment rate has been as high as 11.2 per cent with urban unemployment being at a staggering 13.9 per cent and rural unemployment at 10 per cent. The unemployment issue which was already troubling the youth before the onset of the pandemic has now assumed dangerous proportions with its consequential impact on the level of poverty. The poor and the marginalised, especially those in the informal economy, have been the worst hit. The State of Working India Report, 2021 prepared by Azim Premji University before the second wave had indicated issues of serious concern. The report proposes policy imperatives for the government to respond to the impact of Covid on the poor. Firstly, it is clear that the Central and state governments will have to focus on healthcare and education. The pandemic exposed the poor quality of health infrastructure in the rural areas which requires massive investment. The sector will assume greater importance in the coming decade and will be a major job provider.

Additionally, the government has to focus on increased poverty resulting from Covid. The Azim Premji report shows that despite the V-Shaped recovery after the first wave about fifteen million workers remained out of work and the per capita income remained below the pre-Covid level. The huge employment and income losses led to the labour share of GDP falling by over five percentage points to 27 per cent in the second quarter of 2021. Most of the decline in income was due to a reduction in earnings. It also came out that the poorer states suffered more in terms of job losses. The women and the young workers were disproportionately affected and many could not return to work even by the end of 2020. The report says that 33 per cent of workers in the 15-24 age group could not recover their employment by the end of the year.

The most significant finding of the above study was that monthly earnings for all workers fell and that of the poorer households declined more than the others. More than 230 million people were pushed into poverty with a 15 per cent increase in rural poverty and 20 per cent in urban poverty. This is indeed an alarming picture and negates all the poverty eradication efforts made since 1991. The challenge now is to provide gainful employment to these displaced people so that they can come out of the poverty trap. It becomes all the more significant as India is aiming to achieve the dream of a five-trillion-dollar economy by 2025. Agriculture has performed in a stable manner and has been the saving grace yet we have to see how this sector can generate more employment. Increased allocation for MGNREGA and more jobs to people on MGNREGA-related projects would certainly help. In addition, the agriculture sector has to be reformed and modernised with the aim to increase the income of the farmer. The Government of India has promised to double the income of the farmers by 2022. However, we are far away from this goal at the moment. A concentrated effort is required to bring out major reforms in the sector to increase the income of the farmer. The recently proposed structural reforms have run into heavy weather but are in the right direction and, with some modifications to protect the interest of the farmers, they can make a difference. Dairy and other animal husbandry projects can contribute to increasing the income of the farmer. Massive investment in storage and cold chain is required. To shift workers from farm to non-farm activities and discourage migration, there is an immediate need for setting up rural growth centers — each of those being a hub of rural industrialisation, particularly for the agro-processing sector.

A lot more needs to be done to support the worst-hit MSME sector. Merely giving loans will not suffice; a fiscal package of direct support is required because this sector has immense potential for employment. In particular, the services sectors like hospitality and tourism have been badly hit and need a special relief package for revival. The time for such a fiscal stimulus is now and should be done without any further delay. A major scheme for employment in the urban areas has to be implemented to cater to the issue of urban unemployment. Measures like increasing the old-age and widow pension and direct cash transfer to the poor can also bring about faster recovery. The impact of Covid on lives cannot be done away with but we can certainly take urgent steps to see that the livelihood of people is not threatened. The impact of Covid on poverty and unemployment needs to be seriously addressed.

In the backdrop of insufficient piecemeal governance reform attempts of the past, the pandemic offers an opportune time for a more holistic framework

I am a great admirer of the writings of Gurcharan Das and rate his work “The difficulty of being good” as outstanding. He is a liberal thinker who believes that a business environment should be free of unnecessary government controls and regulations. I enjoyed reading his piece in the Times of India a day before, where he spoke about the imperative of the Central Government honouring its commitment of minimum government and maximum governance. He emphasized the need for structural reforms in the bureaucratic system to enable it to respond adequately to extraordinary situations like the current pandemic. I fully agree with him that instead of piecemeal dabbling like the half-baked lateral entry into the government, or privatization of some public sector corporations, the government must focus on systemic reforms.

Unfortunately, whenever there is a discussion on governance reforms, people tend to focus almost entirely on the civil services, particularly IAS. It almost appears as if the root cause of the system not delivering is the existence of a service like the IAS. My first take on this is that IAS is only a small part of the government machinery. Several Central services, state services, secretarial services and even technical services form the bulk of the government servants. If we feel that the government is not responding promptly to the governance challenges of the 21st century, including the response to the pandemic, the problem is not with any one service but the entire government machinery and its working culture. The second wave has indeed found the bureaucracy wanting in its response. Things like availability of oxygen, ICU beds and provisioning of medicines are issues that could have been handled much better. The entire government, including the political executive and civil servants, along with doctors and experts could not assess the severity of the second wave and even dismantled many of the arrangements made during the first wave, leading to an unmitigated disaster with people dying not because of the disease but due to lacking life-saving facilities. Even the care, concern and compassion expected in the crisis were absent. It was almost as if the government system abdicated and left the people to fend for themselves. It became a question of survival of the fittest. There is no doubt that many people rose to the occasion and volunteered to provide help to the needy. This has been captured very well in the recent edition of India Today which featured courageous and committed efforts of good samaritans. I must also point out that the doctors and the health workers did a tremendous job and many of them attained martyrdom in the process. There are also encouraging stories of IAS officers like the Mumbai Municipal Commissioner, Iqbal Singh Chahal who have distinguished themselves by leading from the front.

Major structural reforms always come as a response to a crisis. For years, we have been talking about the unsatisfactory level of public service delivery and the need for administrative reforms. The recommendations of two administrative reforms commissions have been implemented to improve the working of the government but that hasn’t sufficed. Some of the bolder recommendations were not favoured by the government which did not find those practical or implementable. The pandemic has allowed us to go for major governance reforms to enable a responsive, prompt, effective as well as a result-oriented bureaucracy.

In the recent past, lateral entry has been tried as a reform measure but it seems to be based on a wrong diagnosis of the problem; also, its implementation hasn’t been result-oriented. For instance, at the Joint Secretary level, ten people were selected of which only nine have joined who seemingly lack special domain expertise. A lateral entry system should identify specific areas and domains for which people having exemplary expertise could be selected, with clearly laid out expectations from them. Lateral entry would yield results if it creates an environment where genuine experts of great calibre join the government. Whenever people talk of lateral entry, they mention Manmohan Singh, Montek Singh Ahluwalia, Vijay Kelkar or Raghuram Rajan. However, the present system is not bringing in any such luminaries into the system. I feel the current half-hearted effort would create more problems than providing solutions. Similarly, there was a suggestion to make civil servants focus on training by allotting them a service after adding marks obtained in the training academy. This would obviously lead to vitiating the merit-based system of selection and bring in personal bias which would erode the credibility of the civil services. These are two illustrations to show how governance reforms should not be attempted.

The basic reform, in my opinion, must relate to evolving a fair, transparent and scientific performance evaluation system that would enable only the best civil servants to reach the top. The Government of India has implemented a 360-degree evaluation system whereby only about 30 per cent of the officers in a particular IAS batch reach the level of Secretary to the Government of India. The promotion is no longer automatic and seniority-based but is a reflection of merit and integrity. However, most officers still find the system opaque; it definitely needs improvement. Performance is always related to reward and punishment and having the right person at the right place. The biggest government reform would be to have such a performance evaluation system in place which would incentivize those officers who deliver results and constantly acquire new knowledge. From the level of the joint secretary, domain specialization should be encouraged in broad areas like the social sector, infrastructure and finance. A civil servant has to ensure that the government does not work in silos, therefore, a very narrow specialization would run counter to the need for good governance. A multidisciplinary approach is required at the top level even in the private sector.

The most important thing is to change the working system in a manner that officers are accountable for giving results and the system should encourage prompt decision-making and visionary thinking. The civil servant should be able to work and take decisions fearlessly without the sword of CAG, CBI, CVC and the courts hanging over his head. The system should enable the entire bureaucracy to function professionally. Political intervention is necessary in a democracy but political interference, which has eaten away the vitals of bureaucracy like a termite, has to be removed. The government should not, and cannot, function as a private sector organization but there is no reason why it cannot have a work culture of efficiency and effectiveness. A complete re-engineering of government processes, procedures, rules, regulations and systems is required to enable result-oriented decision-making and leadership. Innovative models of governance, including the setting up of autonomous and accountable executing agencies, are required. Various programmes would need to be implemented in a mission mode. There is a need for a broader framework for structural reforms in governance. Piecemeal interventions and incremental reforms would not help. A major re-imagination of governance is required.

Replication of MGNREGA’s resounding success to urban areas is an emergent need

Ever since I joined the IAS in 1978 there have been numerous schemes catering to the creation of employment in the rural areas. I recall that we used to implement NREP (National Rural Employment Programme) and RLEGP (Rural Employment Guarantee Programme). The main objective of the schemes was the creation of employment and even at that time, I felt that there should be a greater focus on the creation of productive assets along with the generation of employment. I remember constructing primary schools with NREP funds in district Ghazipur, UP as a pilot which was later on appreciated by the state government. Looking at the positive impact of these schemes Government of India in 2006-07 launched the MGNREGA (Mahatma Gandhi National Rural Guarantee Act) in the year 2000 for the most backward blocks of the country. Subsequently, it was extended to 130 more blocks in 2007-08 and then finally to the entire country in 2008-09. The scheme had the backing of an Act of the Parliament and it was a rights-based approach having a clear legal framework. The Act prescribed that anybody in rural India who was desirous of getting employment could apply for the same and his Job Card would be prepared after which he would be given up to 100 days of employment in a year. The funds of MGNREGA were to be spent in such a manner that 60 per cent would be spent on the labour component and 40 per cent on the materials. This did lead to the creation of productive assets along with the generation of employments but it was a safety net for the poor unemployed in the rural areas. A shelf of projects was prepared for each village and works taken up accordingly. Immediate payment through a bank account was to be made to the beneficiary.

March 20 onwards, we have been in the grip of a pandemic that has led to people losing jobs and slipping back into poverty. We all witnessed the sorry spectacle of thousands of migrant labourers losing their jobs and returning to their villages with no source of income. The MGNREGA became a lifesaver for them at a time of tremendous economic crisis. Almost all the states resorted to this scheme, more evidently in the poorer states of Uttar Pradesh and Bihar.

A comparative study shows that MGNREGA led to an increase in person days generated from 265.35 crore to 385.89 crore (45.43 per cent increase) between 2019-20 and 2020-21. It also shows that there was a 68.9 per cent increase in the number of households completing 100 man-day’s employment and there was a 37.59 per cent increase in the total number of households getting employment. The total number of employed individuals went up from 7.88 crore to 11.17 crore showing a 41.7 per cent increase. The total expenditure on the scheme also went up by 62.13 per cent.

Apart from the pandemic, MGNREGA has penetrated to 40 per cent of the rural households and has on average provided 40 to 55 days of work per household. Various evaluation studies have shown that the additional income earned through MGNREGA has increased the purchasing power of the people leading to improved quality of life for them. The poor have been able to afford food, spend more on the education of children and on health as well as on buying household goods and paying back debts. In particular, the impact on migration of labourers has been significant, leading to a three to four per cent reduction in the figure. In addition, it has led to women getting employment and wages equal to men helping them to become financially independent and also providing food security. It has also helped in creating useful assets for the community. It is significant to note that MGNREGA has had a positive impact on climate change as two-thirds of the projects taken up under MGNREGA have been in the natural resource management area like soil fertility, tree plantation and water conservation. In fact, more than 70 per cent of the projects have been related to water conservation and irrigation. This has led to the creation of a large carbon sink to sequestrate carbon.

The scheme can indeed be implemented better at the field level if certain actions are taken. First of all the scheme involves the mobilization of the community which should be done on priority basis to see that the benefits of the scheme reach the beneficiary. In fact, social audit is used as a tool for the community to monitor the implementation of the scheme and has given a lot of positive results. It is important to carry out extensive capacity-building of the Panchayati raj functionaries and also train the block and village level staff properly so that they are motivated and in a position to implement the scheme as per its objectives. There is also a case for increasing the maximum number of days prescribed from 100 to 150 to provide more relief to the people and also to increase the wage rate being given. Here, I must mention that one consequence of MGNREGA has been that the general wage rate in rural India has gone up about which the farmers sometimes complain. I think one should seriously consider having some flexibility in the labour and material component ratio to allow more projects of importance to be taken up. To make the scheme a success genuine, participatory planning must be ensured. More women should be given employment and the most important thing is the timely flow of funds so that wages are paid on time.

If properly implemented this scheme can be a game-changer. There is a case for not only continuing it with higher allocation but expanding it, particularly as the corona pandemic has still not abated. I personally used the scheme to counter the severe drought in the Bundelkhand area of Uttar Pradesh and not only gave life-saving employment to people but also implemented a lot of water conservation and harvesting measures. This is one of those schemes of the Government which has had a very positive outcome. There is, in these times of unemployment, an immediate need to widen the scope of this scheme and implement it in urban areas also where they can focus on water-related projects. MGNREGA, both in rural and urban areas, would be an excellent response to the problems of poverty and unemployment.

I just finished reading an outstanding book “Method in Madness – Insider-Outsider” written by Parmeshwaran Aiyyar who was Secretary Government of India in the department of Drinking Water and Sanitation and the architect behind the immensely successful implementation of Swatch Bharat Abhiyaan which culminated in the declaration of India as Open Defecation Free (ODF) on 2^nd October, 2019. It is indeed a remarkable look about a result oriented civil servant who has had an unconventional career moving from IAS to the World Bank and then back again as a lateral entrant into government as Secretary. In between he dabbled as a professional tennis coach and manager for his children as he himself had harboured ambitions of becoming a professional tennis player but soon gave it up to join the IAS. He writes that one fine morning sitting in Hanoi (Vietnam) as a drinking water and sanitation specialist for world bank he was astounded to here the 15^th Aug speech of the new Prime Minister Mr. Narendra Modi in 2014 where the PM while outlining his agenda for the development of the country spoke about sanitation as a national priority and also declared that he intended to make India ODF by 2^nd Oct, 2019. Parmeshwaran was amazed because he felt that rarely does a topic like sanitation get a mention in the speech of the Prime Minister of a country and he was excited by the vision painted by the Prime Minister. Desire to be associated with the project was born in his heart at that very moment and fructified two years later when the government appointed him Secretary. It is indeed a remarkable story of grit, determination, leadership and passion that made the seemingly impossible goal a reality.

Toilets were being constructed in the villages and cities for the past several years but it was definitely a low priority program with insufficient funds being made available. The quality of construction used to be poor and it was more of an engineering exercise without any effort to change the mindset of the people. The result was a total failure to curb open defecation and the use of these toilets as cattle sheds or store rooms by the people.  India is a country having a population of over 130 billion and to provide sanitary facility to all and to make them desire it and use it was a herculean task. There is no doubt that no project or initiative succeeds if it does not have the backing of a strong political will. This has been my experience in 38 years as an IAS officer. Fortunately, for this program the political will emanated right from the top level of the Prime Minister and percolated to the Chief Ministers. Parmeshwaran provided the next required condition for success which is a strong and passionate administrative leadership. He writes that he soon realized that in India it is the PM, CM and DM (District Magistrate) model which works and personally made presentation to the Chief Ministers to align them with the vision of the Prime Minister and toured extensively to meet the DMs and ignite their zeal for the implementation of the program at the ground level. Funds were made available in sufficient quantity but still the target of construction of toilets was huge and it required close coordination, regular review and monitoring and dedication to fulfill. However, the important thing is not merely construction of toilets but to bring about a major change in the attitude and behavior of people. Majority of India lives in rural areas and were accustomed to defecating in the open for generations. Parmeshwaran and his team appointed Swatcha Grahis (Volunteers) who worked as social influencers in each village and along with the DM and his team communicated regularly and intensely with the village people about the ill effects of open defecation. Mothers had to be convinced that infant mortality is closely linked to this practice as also are several diseases. Name and shame method was also use along with presenting a realistic picture of the kind of filth people were living in and the impact it was having on their lives. To assist the DM young boys and girls were taken as interns and communication through films and media used extensively. The Akshay Kumar starrer “Toilet Ek Prem Katha” was a major example of this. Parmeshwaran is very clear in his book that this was more a program of behavioral change rather than merely construction of toilets.

I recall being associated with this project as Chief Secretary, UP. Initially, I believed in the CELTS model which was advocated by many experts and was used in countries like Bangladesh to eliminate Open Defecation. I also strongly believe that instead of taking the entire state of UP which comprised of 75 districts I should focus on the 10 district where the DMs were those who had drive and energy and had already done ground work for the implementation of this scheme. However, Parmeshwaran and his team thought otherwise and they wanted the entire state to be taken up at one go. I was skeptical initially but later events have proved me wrong as not only in UP but the entire country made this goal a reality.

We talk of good governance and often lament the Indian system and also its civil service. This making of India ODF is a shining example of the working of the Indian administrative system and the civil service. It only goes to prove that given the right kind of leadership and working environment the civil service is in a position to deliver good governance to the citizens. We see it happening regularly at the time of elections when the District Magistrate and his team are free from any kind of political interference and fully empowered to conduct free and fair elections and they succeed in doing so. In a similar vein I can talk of the success of the Rashtra Swasthya Beema Yojna (RSBY) scheme which was conceptualized and implemented by my colleague Anil Swaroop and it was also a stupendous success and has become the precursor to the intensely aspirational and ambitions scheme of Ayushman Bharat.

Good governance is required to deliver quality public service to the people of this country and the SBM or RSBY only go to show that there is nothing rotten in the system. The same system and the same set of civil servants can deliver outstanding results provided they get political support, strong leadership, unambiguous goals and the right kind of motivation and inspiration. It is leadership which is important as it helps in building teams, sharing goals, being transparent and accountable and working with total objectivity. Civil servants have to be transformed from being wedded to process, procedures and regulations to those having a passion for delivering results and outcomes. The performance evaluation of civil servants should also be done on the basis of the performance indicators they are supposed to fulfill within a time frame. Of course, this would require allowing a civil servant to stay at a post for a minimum period of 2 to 3 years. It is also important for the political executive to realise that policy making is their role and they should do so with the advice of the civil servants but policy implementation should be left entirely to the civil service without any interference directly or through the obnoxious weapon of transfer. I read many articles of intellectuals who desire reform of the civil services and the administration. It is not a rocket science and only if the conditions mentioned by me above are created you will find the civil servants deliver extra ordinary results. It all appears so simple and yet does not happen because of certain vested interests. Governance is linked to providing a better quality of life to the ordinary citizen and systems have to be built which will make this possible.

India needs to eliminate the mismatch between its growth and employment by formulating data-backed comprehensive policy best-suited to its economic situation and demographic dividend

Recovering from the Covid shock the Indian economy is showing great resilience and we are now witnessing a V-Shaped recovery. The GDP growth for the fourth quarter is likely to be positive and for the entire year 2020-21, it should be in the region of -7 per cent. The following year promises a growth rate of anywhere ranging from 10-12 per cent at current prices but even then the economy would just be back to the pre-covid level by March’22. The biggest issue that has been thrown up has been that of unemployment. Large scale unemployment was a result of the covid crisis. Even before that, unemployment was becoming an important issue that needed a policy framework to tackle. India is reaping the demographic dividend with the median age being 28.4 years and also about 8-10 million new entrants are entering the labour force every year. The magnitude of the problem is clear. The CMIE (Centre for Monitoring Indian Economy) comes out with data for unemployment and their data shows that the unemployment rate went as high as 23.5 per cent during the first two months of lockdown. The position is much better today with the February data shows that the overall unemployment rate in India is 6.9 per cent (7.74 per cent in urban and 6.55 per cent in rural). One of the main objectives of the twelfth five-year plan (2012-17) was the generation of decent and productive employment in the non-agriculture sector. The employment policy in India has so far laid emphasis on self-employment whereas a much more comprehensive analysis of the problem and a policy prescription is required.

It is high time India follows the footsteps of several other countries which have a comprehensive national employment policy. The policy emphasis in various countries is different according to their economic situation. East and South-East Asian countries like Singapore, Indonesia or Philippines have policies geared towards global integration as a core element of growth and employment. African countries have focused on employment friendly anti-poverty strategies while some of the Arab countries have moved from active labour market policies which were limited to young college graduates to more comprehensive policies addressing other employment challenges faced by the region. Many countries in Eastern and Central Europe have also formulated comprehensive national employment policies which include steps like improving employment services, promoting skills training and other ways to develop human capital. Latin American countries like Brazil and Argentina have also focused on the informal economy. India has to understand the needs of its own population and the economy and evolve a national economic policy that will answer the challenges the countries faces.

If we analyze the employment scenario in India it throws up certain interesting highlights. The first is that even as GDP growth rates have risen the relationship between growth and employment generation has become weaker over time. In the 1970s and 1980s when GDP growth was around 3-4 per cent, employment growth was around 2 per cent per annum. However, after the 1991 reforms and particularly in the 2000s the GDP growth has accelerated to 7 per cent but employment growth has slowed down to 1 per cent per annum. Thus it is clear that growth by itself will not lead to higher employment generation but specific policy interventions would be required. The philosophy behind the current budget of the Union Government is that growth has to be focused on and all other things will follow. However, looking at the trend over the last 40 years, this may not be true and there is an urgent need for a National Employment Policy. Another point to note is that most of the manufacturing sector is becoming increasingly capital intensive meaning that more manufacturing may not necessarily lead to more employment. Further, it is disturbing to note that though labour productivity in organized manufacturing has increased by six times over the past three decades the wages have increased by only 1.5 times. The result is that the labour share of income in organized manufacturing has fallen down to about 10 per cent. It may also be further pointed out that the labour participation rate of women has declined in recent years and is currently at a low level of 27 per cent.

We have in India policies both at the central and state level which relate to industries, agriculture, skill development, tourism and education and each of them is connected to the issue of unemployment. Industrial policies talked about generating more investment and there are incentives for this. However, it is important to link the incentives in an industrial policy more to the generation of employment than merely the figure of money invested. Similarly, policies relating to an increase in productivity of agriculture aim to free labour from the agriculture sector to move to the non-agriculture sector. Major policy intervention in rural areas has been the MGNREGA policy (Mahatma Gandhi National Rural Employment Guarantee Assurance) which seeks to employ all job seekers. This scheme was a great asset in the time of Covid. Policies related to skill development and tourism create demand for such persons. Above all the education policy is important for determining the type of human capital that is produced. The education policy should come out with young boys and girls who are employable and suitably equipped with domain knowledge as well as soft skills.

Even though all the above-mentioned policies correlate with the generation of employment, there is no doubt that we need a national economic policy that would have a vision in consonance with the overall growth objectives of the nation and be responsive to all the challenges and opportunities. We must be clear that a national employment policy is much more than merely a job creation programme because it has to take into account the whole range of social and economic issues and consider every aspect of the economy. It has to bring together all these schemes, policies, programmes and institutions which influence the demand and supply of labour and the functioning of the labour markets. Decent work has to be provided in which international labour standards, social protection and workers fundamental rights are given as much weightage as is given to job creation. The national employment policy will have to tackle the very important issue of huge informal sector employment, jobless growth, the threat of automation and the changing nature of new jobs along with the gender parity issue.

We must evolve a national employment policy that will bring about a synergy between various sectors of the economy and focus on education and skill development. It should also endeavour to enhance the labour participation rate of women. The crucial problem of disguised unemployment in our agriculture sector needs urgent attention to make productive use of each person as also the issue of underemployment which is persistent in the Indian economy and is highlighted by the fact that even PhD students apply for a class four level job in government.

The most important thing for any sustained policy intervention for employment requires data about the number and category of people looking for jobs and matching them with the demand for jobs in various sectors of the economy. The policy will have to lay adequate emphasis on developing an effective labour market information system that will identify skill shortages, training needs and available employment opportunities. We need to evolve employment portals rather than have the existing moribund employment exchanges at the national and state level.

If India has to become truly Atma Nirbhar and if we have to make the 21st century an Indian one then it is imperative that we focus on the crucial problem of unemployment and evolve a national employment strategy that attends to all aspects of supply and demand of labour across all sectors.