August 03, 2016

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4 Wednesday, August 03, 2016 EDITORIAL The dynamic nature of poverty Child labour by other means The amendments to the Child Labour (Prohibition and Regulation) Act, 1986, passed by Parliament recently, demonstrate a lack of national commitment to abolishing all forms of child labour. Instead of attempting an overhaul of legislation that has proved ineffective in curbing the phenomenon, Parliament has allowed children up to the age of 14 to be employed in ‘family enterprises’, and created a new category of ‘adolescents’ (the 14-18 age group) who can be employed in ‘non-hazardous’ occupations. In the name of acknowledging the socio-economic realities of India, the amendments tweak the law in such a way that children are in some form or other available for employment. The only concession to their educational rights is that they are permitted to work in family enterprises only outside school hours and during vacations. Curiously, the main amendment — to ban children up to the age of 14 in any occupation — is being touted as a progressive leap from the earlier ban limited to some occupations and processes. It should not be forgotten that with the passage of the Right of Children to Free and Compulsory Education Act, 2009, a statutory obligation to ensure that every child completes elementary education, is already in place. The exemption to family enterprises effectively retains conditions under which children are made to contribute economically while studying. Working outside of school hours and earning valuable income for the family will surely have a deleterious effect on the children’s health as well as their aptitude for learning. Regulation is going to be a big challenge, as it will be difficult to determine whether a particular family is running an enterprise, or whether some faceless owner has employed a single family to circumvent the law. The fallout will be a higher dropout rate. They may go to school for some years, concurrently work with their families, and graduate to being full-time adolescent workers, without completing elementary education. The NDA government, like its predecessor that proposed the amendments, seems to be satisfied with mere compliance with International Labour Organisation Conventions 138 and 182. The former mandates compulsory schooling till the age of 15, but permits countries with inadequate education facilities to reduce it to 14, while Convention 182 prohibits employment of children “in the worst forms of labour”. Bare compliance with international norms is not enough. Children from the poor and marginalised sections, especially Dalits, are still in danger of being deprived of both the joys of childhood and their constitutional right to education. It is yet another stark reminder that the country is far from achieving the complete elimination of child labour. Soft on Saudi Arabia’s war on Yemen Saudi Arabia’s war on Yemen is going on and on. But 16 months after a Saudi-led coalition started bombing rebels in the poor Arab country, none of the declared objectives of the war seem to have been met. The Shia Houthi rebels still control huge swathes of territory, including the capital Sana’a. President Abd Rabbuh Mansur Hadi, on whose behalf Saudi Arabia intervened in Yemen, hasn’t established credible authority even in territories technically ruled by his government. The war and the resultant chaos have helped al-Qaeda in the Arabian Peninsula steadily expand its influence in Yemen. Over the past year and a half, Saudi Arabia has repeatedly come under international criticism for its brute use of force and lack of interest in finding a settlement to the civil war. UN Secretary General Ban Ki-moon admitted earlier this year that the UN did not blacklist Saudi Arabia as a violator of children’s rights because it had threatened to cut off funding to the organisation. The statistics are chilling. Since the bombing started in March 2015, over 6,400 people have been killed, half of them civilians, according to the World Health Organisation. More than 30,000 people have been left injured, and about 2.5 million remain displaced. An TheBIGpicture estimated 9.4 million Yemeni children are in urgent need of humanitarian aid, as the country grapples with food, power and water shortages. These numbers suggest that Yemen, a country of 24 million people, is facing one of the worst humanitarian crises in its modern history. Tragically, there has been no meaningful international attempt to solve this crisis. There is a peace process on, but the prospects of a settlement appear grim as the Saudi coalition continues its attacks. Saudi Arabia may have its strategic goals behind the war, such as defeating Houthi rebels who Riyadh perceives to be proxies of Iran. What is intriguing is the silence of the Western powers that are vocal about rights violations elsewhere. The U.S. and the U.K., allies of Saudi Arabia, could have exerted pressure to end the bombing, and push for a diplomatic solution. Nothing of that sort has been evident. In fact, both have shored up arms sales to Saudi Arabia in recent years. This “special relationship” explains Saudi Arabia’s impunity. But how long can the world look away from Yemen? The botched Saudi intervention has proved that it is in no position either to win the war or push for peace. Letting the status quo continue will be disastrous. SCRIPSI “Please believe that one single positive dream is more important than a thousand negative realities.” ~ Adeline Yen Mah Sometimes the grand narratives of the Left and the Right do not seem to have any relationship with the lived experiences of ordinary Indians. For the past two decades, the Left has tried to expand social welfare programmes for the poor in the country by highlighting the growing disparities between the rich and the poor. The Right, on the other hand, points to the growing burden of politically driven welfare policies and emphasises the need for economic growth to alleviate poverty and improve the lives of the poor. These grand narratives often obviate the fact that the concept of poverty today is fundamentally different from that of poverty three decades ago, and that safety nets need to be tailored to meet the needs of a society in transition. Complicated data For example, most of our anti-poverty policies rely on identifying the poor by using Below Poverty Line (BPL) Censuses conducted approximately once every 10 years. In 1993-94, when half the Indian population fell in the BPL category, it was easier to identify the poor — they lived in rural landless households in underdeveloped districts such as the Dangs and Bastar and often belonged to the Scheduled Castes (SC) or Scheduled Tribes (ST). Even if all the above identification strategies failed, we still had a 50 per cent chance of being right in identifying the poor. Today, however, when one in four rural Indians and one in six urban Indians is poor, our Strategic affairs analysts ponder whether India can become a “great power”. It has the prerequisites of size, location, demography, economic potential and political standing. The question is about its capacity to forge these attributes into demonstrable national strength. The Modi government’s ambition in that direction is evident in India’s foreign policy initiatives in our near and extended neighbourhood, with major powers and in campaigns for UN Security Council and Nuclear Suppliers’ Group (NSG) membership. Securing desired outcomes in multilateral forums tests a country’s international influence. India’s application for NSG membership at the recent Seoul meeting of the group encountered an unwillingness or inability of the United States to decisively influence the result, unlike in 2008 when it effectively got the group to approve civil nuclear cooperation with India. Besides raising questions about U.S. motives, this turned the spotlight on the diplomatic tools India could use to obtain success. P. S. Raghavan In 2008, India had addressed NSG members’ non-proliferation concerns. Its application, therefore, should not have been controversial, since its record had not changed. What was different was the geopolitical landscape and the absence of a strong U.S. push. This gave countries the space to advance their perspectives or to pursue strategic advantage by taking one or the other side. The geopolitical games The outcome in such international negotiations is really determined by geopolitical games, bilateral equations and domestic politics, more than the “merits” of a case. The strength of bilateral relationships underpins such negotiations. Every country, big or small, matters. Mutually beneficial bilateral cooperation enhances the stake of both countries in the relationship. This influences their attitude in multilateral forums on subjects of interest to each other. As in interpersonal relations, so in diplomacy: make a friend before you need him. Another diplomatic tool is projecting to countries the advantages of a positive stance and the “costs” of a negative position. A current example is the Saudi Arabian threat to sell $750 billion of U.S. assets if the latter enacts a law enabling victims of 9/11 to sue the Saudi government for its alleged involvement in the terrorist act. The U.S. Congress may pass the bill, but the President will probably veto it. Awarding or withholding major contracts and facilitating chances of being wrong in identifying the poor are far greater. Data from the India Human Development Survey (IHDS) point to another trend. This survey, conducted by the University of Maryland and the National Council of Applied Economic Research (NCAER) for the same households at two points in time, viz. 2004-05 and 2011-12, is the first large panel survey in India. Results from the survey show that if BPL cards had been handed out in 2004-05 on the basis of the household’s average consumption expenditure, 25 of the 38 Indians who would have received these cards in 2004-05 would have been out of poverty by 2011-12. On the other hand, of the 62 Indians who were not eligible to receive BPL cards in 2004-05, nine became newly poor in 2011-12. Thus in 2011-12, 66 per cent of the BPL card-holders would have already moved out of poverty, while 40 per cent of the poor would not have had a BPL card. Spreading the net wide Once we recognise that poverty is dynamic in nature, and that as per our conventional definition of poverty, poor households may move out of poverty and the non-poor may become poor over a period of time, we are forced to question the veracity of our fundamental assumptions about poverty. Perhaps poverty occurs not simply due to the accident of birth or as defined in terms of where and in which family people are born, but also due to the accident of life caused by the occurrence of disease, disability and unemployment. Achieving this recognition entails a complete transformation in our mindset. The second concern about our approach to poverty is that we want to cover the maximum number of people, consequently diluting the support that we are able to provide the poor. Empirical data point to a strange paradox. Ironically, in spite of a decline in poverty, the proportion of the population receiving welfare benefits has risen sharply. The IHDS shows that between 2004-05 and 2011-12, the proportion of the population deemed to be poor fell or impeding investments are recognised negotiating tactics. Countries leverage strategic import decisions — civilian and defence — to extract benefits from the exporting country. In the 1990s, when Boeing dominated its market, China placed a large order with Airbus — apparently reacting to U.S. criticism of its human rights record. Airbus thereafter consolidated its position in China. Today, China is exploiting the Airbus-Boeing competition to extract technological know-how for designing and manufacturing its own civilian aircraft. India does not have the internal flexibility to use such tactics. Central audit and vigilance guidelines are invoked to block them. These guidelines are meant to check profligacy and venality of officialdom; not to obstruct strategies pursued in the national interest, provided they are coherently defined and implemented. In 2003, the Vajpayee government initiated an internal dialogue on evolving a methodology, conforming to international practices, for extracting strategic value from our major import orders. from 38 per cent to 22 per cent. But the proportion of households receiving any of the benefits under different government schemes, such as old age pension, widow pension, and the Janani Suraksha Yojana, or scholarships and other benefits, grew from 13 per cent in 2004-05 to 33 per cent in 2011-12. The proportion of households buying cereals from the Public Distribution System (PDS), which was intended to provide subsidised foodgrains to the poor, grew from 27 to 52 per cent. Further, the newly initiated Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) provided employment to 17 per cent of the households, signifying a substantial increase from the almost negligible participation in erstwhile public works programmes. Thus, the proportion of households covered by all these schemes taken together grew from 35 per cent to 68 per cent of the total population over the period under study. Despite this massive expansion in the coverage of welfare programmes, the incomes and subsidies accruing from them still account for a relatively small proportion of the overall household budget. In 2004-05, the transfers and subsidies under the above schemes accounted for an average of Rs.3,129 per recipient household per year, which had increased to Rs.6,017 in constant terms in 2011-12. This amounts to only about Rs.100 per person per month in 2011- 12. How to win the world over Predictably, bureaucratic headwinds grounded the initiative. India’s Missile Technology Control Regime (MTCR) membership was vetoed by Italy in 2015. When this veto was lifted this year, some attributed it to a deal on the Italian marines awaiting trial in India for the killing of two fishermen off the Kerala coast in 2012. Even if true, the national interest justifies such deals. Similarly, every time our government signs a multilateral agreement, it faces charges of a “sell-out”. The truth that you must concede somewhere to get something elsewhere is as valid in international negotiations as in daily life. The China lessons Influence in multilateral forums is enhanced by bilateral and plurilateral alliances promoting shared strategic, security or economic interests. India’s initiatives in East, Southeast and West Asia and in Africa are relevant in this context. These elements feed into specific negotiations: strategic alliances, tactical alignments, bilateral trade-offs and pressure at sensitive points combine to achieve the objective. All these factors are relevant in our approach to China. Notwithstanding its inflexibility at Seoul, India’s NSG membership is not its most important concern. This was demonstrated by China’s strident response to the recent Permanent Court of Arbitration judgment on its actions in the South China Sea. China dismisses the court’s authority, but is assiduously canvassing international support for its position.
BUSINESS Wednesday, August 03, 2016 On-tap bank licence not for big corporates New Delhi August 02, 2016 Large industrial houses, whose income from non-banking sources is over 40 per cent of total will not be eligible to set up a universal bank in the country, the Reserve Bank of India (RBI) said on Monday. However, they are allowed to pick up 10 per cent stake in banks. Final guidelines In the final guidelines on on-tap licensing, the central bank has allowed individuals with 10 years of experience in banking and finance, as well as business groups with 10 years’ track record to promote universal banks. For business groups with more than Rs.5,000 crore in total assets to be eligible for a licence, their income from non-financial businesses should not account for 40 per cent or more in terms of total assets/in terms of gross income. “Large industrial houses are excluded as eligible entities but are permitted to invest in the banks up to 10 per cent,” RBI said in its guidelines statement.The existing non-banking financial companies (NBFCs) that are controlled by residents and have a successful track record for at least 10 years will also be eligible. However, an NBFC, which is a part of the group where the non-financial business of the group accounts for 40 per cent or more in terms of total assets/gross income, is not eligible, the banking regulator clarified. The bank should have a minimum capital of Rs.500 crore and should list on the stock exchanges within six years of commencing operations, RBI said. The bank shall open at least 25 per cent of its branches in unbanked, rural centres. The bank should also maintain a capital adequacy ratio of 13 per cent in the first three years of operation as compared to 9 per cent in existing banks. NOFHC requirement Setting up of a non-operative financial holding company (NOFHC) has not been made mandatory for individuals and standalone promoting entities that do not have any other group entities. For others, the RBI has mandated that at least 51 per cent stake in the NOFHC should be owned by the promoter group. “No shareholder, other than the promoters/promoter group, shall have significant influence and control in the NOFHC,” the norms said. The promoters should hold a minimum of 40 per cent stake in the bank, locked-in for a period of five years, but the stake should be brought down to 15 per cent within 15 years. After setting up the bank, the NOFHC will not be allowed to set up any financial services entity for three years, the RBI said. A Standing External Advisory Committee (SEAC) will be set up by the RBI to vet the applications. The committee would send its recommendations to the Internal Screening Committee (ISC), consisting of the Governor and Deputy Governors. The ISC would then submit its recommendations to the Committee of the Central Board of RBI for the final decision to issue an in-principle approval, which would be valid for 18 months. Unsuccessful applicants can appeal against the decision to the Central Board of Directors, within one month of being rejected. Names of applicants and successful candidates would be made public, the RBI said. Uber’s Chinese rival acquiring company’s China operations New Delhi tive market. Wal-Mart viously Didi Kuaidi, August 02, 2016 Stores Inc. sold its Chinese operates in some 400 online operation in Chinese cities. It said Uber Technology June to JD.com Inc., the the company completed Ltd.’s main Chinese country’s No. 2 e-commerce 1.4 billion rides in 2015. rival on Monday said service. The company said in it is acquiring the U.S. Didi was formed June it raised $7.3 billion ride-hailing service’s by the February 2015 from investors in China operation in a merger of competing what it described as one deal that links the companies ride-hailing services of the world’s largest following a cost- launched by Chinese private equity funding ly battle to attract riders. Internet giants Tencent rounds. Didi Chuxing’s announcement Uber will receive a said in a statement. Holdings Ltd. and Ali- That included $1 bil- marked the stake in Didi Chuxing Ride-hailing services baba Group following lion from Apple Inc., latest surrender by a foreign and Uber founder Tra- in China have grown a similar battle for cus- which became a strate- technology brand vis Kalanick will join fast but suffered heavy tomers. gic investor alongside in the face of intense the Chinese company’s losses as they fought to Monday’s announcement Tencent and Alibaba. competition in China. board while Didi Chuxing attract customers. Kala- came after the Last September, Didi Yahoo, eBay and others founder Cheng Wei nick told the Canadian Chinese government on Chuxing and Lyft of the also have turned over joins the Uber board, it technology platform Thursday announced United States agreed local operations to Chinese said. BetaKit in February the its first rules for the to link their services to partners or with- “This agreement with company was losing $1 ride-hailing industry, allow travellers to use drawn. Uber will set the mobile billion a year in China. confirming the legal status them in each other’s Didi Chuxing said it transportation industry Foreign technology of the industry after markets. In December, would take over all of on a healthier, more sustainable brands have struggled repeated run-ins with their alliance added In- Uber China and operate path of growth in China’s populous regulators. dia’s Ola and Southeast it as a separate brand. at a higher level,” Cheng but intensely competi- Didi Chuxing, pre- Asia’s GrabTaxi. RBI may go for status quo in Aug 9 meet : DBS New Delhi “The second quarter “Odds for this cut will might limit the Governor’s August 02, 2016 (April-June) inflation hastened however fall if these factors single-handed influence on RBI may keep the key interest to 5. Seven per cent do not toe the line,” DBS policy decisions. rates on hold in the year-on-year, with a high added. These factors will narrow upcoming policy meet as inflation likelihood that July—August For 2016-17 fiscal, there the room for an extended pe- for the second quarter prints will also stay high. is a high likelihood that the riod of accommodative mon- has hastened to 5.7 per cent This diminishes the window 5 per cent inflation target etary policy. and July-August prints may to cut rates this quarter(July-September),” will be missed on demand In policy review meet in also stay high. According to DBS said in pressures from higher public June, RBI Governor Raghu- the global financial services a research note. sector wages and firm rural ram Rajan kept interest rates major, the room for further However, DBS expects a demand due to a good monsoonary intact, citing rising inflation- easing by the Reserve Bank 25 bps cut in the fourth quarter pressure, but hinted at a is dependent on the inflation of this year, “contingent Also important will be the reduction later this year if path and make-up of the on softening food prices and make-up of the new monetary good monsoon helps ease inflation. monetary policy committee. a dovish RBI candidate“. policy committee, which 5 Manufacturing activity increases to 4-month high, job creation negligible New Delhi August 02, 2016 Manufacturing activity picked up marginally, rising to a four-month high in July, according to a survey. The Nikkei India Manufacturing Purchasing Managers’ Index came in at 51.8 in July, up from 51.7 in June. A reading of over 50 implies expansion while one below 50 suggests a contraction. “The performance of India’s manufacturing economy continued to improve in July, with a stronger expansion in new business contributing to faster increases in output and buying levels,” the report said. Job creation However, the report noted that overall job creation was negligible despite some companies adding to their workforces. “Although output expanded at the fastest rate since March and backlog accumulation intensified, businesses refrained Power, cement, coal drive core sectors up 5.2% New Delhi August 02, 2016 Eight core sectors of the economy registered a 5.2 per cent year-on-year growth in June due to higher electricity, coal and cement output, according to latest data. In June 2015, these eight sectors — comprising about 38 per cent of the weight of items included in the Index of Industrial Production (IIP) — had risen by 3.1 per cent. The June number was higher than the 2.8 per cent in May 2016. Data released on Monday by the Commerce and Industry Ministry showed that in June 2016, the growth in electricity generation with a weight of 10.32 per cent in the IIP — the maximum weight in the IIP among the eight core sectors — had soared to 8.1 per cent. It had risen by 14.7 per cent in April but dropped to 4.6 per cent in May. In June 2015, the sector had recorded only 1.2 per cent growth. Coal output in June rose 12 per cent, the highest since the 14.6 per cent in November 2014. Coal production had increased by 5.4 per cent in June 2015. Cement sector posted a 10.3 per cent growth in June, the highest since 11.89 per cent in March 2016. In June 2015, the sector had recorded growth of Buyer sentiment drives July auto sales aMumbai August 02, 2016 Major car makers such as Maruti Suzuki, Hyundai, Mahindra and Mahindra posted strong growth in domestic sales in July riding on improved consumer sentiment. “New models and running discounts on the older ones is creating a lot of excitement in the market. With festive season on the horizon, we expect the market to grow at an even stronger pace in the coming quarters,” said Amit Kaushik, Country Head (India), JATO Dynamics, a research firm. 2.9 per cent. Growth in the steel sector slowed to 2.4 per cent in June, the lowest since the (-) 0.5 per cent in February 2016. The output of the sector was 4.2 per cent in June 2015. Production in fertiliser sector increased from 5.8 per cent in June 2015 to 9.8 per cent in June 2016 but this was a decrease from 14.8 per cent in May 2016. On the other hand, refinery products’ output decreased from 7.5 per cent to 3.5 per cent year-on-year. Crude oil and natural gas output continued to remain in the negative growth territory since March 2016. In June, the output of crude oil shrunk by 4.3 per cent while that of natural gas contracted by 4.5 per cent. Fluctuating numbers These eight core sectors grew 8.5 per cent in April and 2.8 per cent in May – the slowest since 2.9 per cent in Maruti Suzuki Market leader Maruti Suzuki, saw the highest-ever monthly sales in the country last month at over 1.25 lakh units, a growth of almost 14 per cent year-on-year. The growth was driven by robust demand for utility vehicles, including Vitara Brezza, Ertiga and the S-Cross. Sales in the segment grew over 2.5 times to 17,382 units. Sales of Ciaz also rose 146 per cent to 5,162 units. Sales of mini segment cars (Alto and WagonR), however, declined by 7.2 per cent to 35,051 units, while those of from creating jobs,” said Pollyanna De Lima, Economist, Markit and author of the report. “The ongoing muted trend for employment indicates that companies remain somewhat uncertain regarding the sustainability of the upturn. “Input cost inflation softened and while output prices were raised at the quickest pace in three months, the rate of change inflation was only slight,” the report said. The growth was driven by new business with demand coming from both domestic and international sources. “With inflation rates remaining lower than their respective long-run averages, it wouldn’t be surprising to see the Reserve Bank of India loosening monetary policy at its August meeting in an effort to encourage investment,” Ms. De Lima said. Rising demand “This paints a picture of steadily increasing demand levels on the back of some recovery in rural economy,” said Rishi Shah, Economist, Deloitte India. January 2016. Their output had plunged to the negative growth territory in November 2015 when it shrank by 1.3 per cent. “Cement and coal output will moderate as the monsoon has begun and this will reflect in the core sector growth number. Also, credit flow to core sector has become almost negligible, and, therefore, these numbers are unlikely to have a positive impact on the headline IIP numbers,” according to Soumya Kanti Ghosh, Chief Economic Advisor, State Bank of India. Though the core sector grew by 8.5 per cent in April, the IIP for April shrunk 1.35 per cent. Similarly, in March, the sector posted a 6.4 per cent growth while IIP grew just 0.05 per cent. In May, the sector’s growth slowed to 2.8 per cent while IIP, surprisingly, rose to 1.2 per cent. compact segment cars (Swift, Estilo, Ritz, Dzire and Baleno) increased 4.1 per cent to 50,362 units in July. Hyundai Motor India’s domestic sales grew by almost 13 per cent to over 41,200 units. The company’s Senior Vice-President (Sales and Marketing) Rakesh Srivastava said the company continued to sustain growth trajectory thanks to strong pull performance of Grand i10, Elite i20 and Creta. The market has showed improved customer sentiment led by a good monsoon, low inflation, reduced interest rates and dropping fuel prices, he said.
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