PM IAS OCT 30 EDITORIAL ANALYSIS

Editorial 1: A picture of a growing economic divide in India

Context

Data from the paper titled, ‘Relative Economic Performance of Indian States: 1960-61 to 2023-24’, show a growing gap that is leading to the questioning of federalism.

Introduction

In September this year, the Economic Advisory Council to the Prime Minister (EAC-PM) released a paper titledRelative Economic Performance of Indian States: 1960-61 to 2023-24. It presents the share of each State in the country’s income and the per capita income compared to the all-India average.

  • The data tell us the importance of each State in the country’s economy and the average welfare of the citizens of each State relative to the all-India level.
  • The average hides the inequality. For instance, Maharashtra, which is the highest contributor to the nation’s economy, has a per capita income of about 150% of the national average.
    • It consists of Mumbai, which is rich, and Vidharba, which is known for farmers’ suicides due to poverty.
    • Mumbai’s rich contribute the largest amount of direct taxes and the city’s municipality is the richest in the country. But it has huge slums with uncivilised living conditions.

 

Regional differentials

  • Regional performance in India: The report points to the consistently better performance of the western and southern regions of India and the weak performance of the eastern States.
    • The northern States have done poorly with the exception of Haryana and Delhi.
    • Overall, the picture is of a growing divide in the country, which is not good for a federal and diverse nation such as India.

What is the impact on Federalism?

  • This growing gap is leading to the questioning of federalism.
  • Representatives of the richer States recently held a conclave in Kerala and argued that they are not receiving their fair share of resources from the Centre.
  • They say that they contribute much more to the national kitty than what the Centre gives back to them.
  • In the year 2000 also there was a ‘Conclave of the successful’ to protest the devolution by the Eleventh Finance Commission.
  • Slowly, the spirit of federalism is weakening.

What are the factors influencing regional performance?

  • The report lists liberalisation (1991) as a marker of when the southern States began to perform better.
  • But it does not go into the causes. It also points to the coastal areas doing better, which includes Odisha in the east.
  • Could it be that the poorer performance of some States is linked to the better performance of some others?
  • Role of Investment: is the most important determinant of output. The higher the level of investment, the larger the size of the economy.
    • So, for a more complete analysis, the level and the rate of investment in each State needs to be studied.
    • The better-off States typically have a higher rate of investment than the poorer States, and, therefore, perform better.

What are the key details about the investments?

  • Sources of investment: Investment comes from the public and the private sectors.
    • The first is based on policy decisions while the second is determined by profitability considerations.
    • Government may invest in a backward area to develop it even if no profit accrues in the short run.
    • The private sector will not do so unless the government gives it concessions such as tax breaks and electricity at concessional rates.
  • Investment trends: On its own, private investment goes to developed areas where a large market ensures profits.
    • Urban conglomerates such as Mumbai, Delhi, Chennai, Bengaluru and Hyderabad are preferred investment destinations.
    • Haryana which is contiguous with Delhi (with the highest per capita income) has also benefited.
    • Kolkata is not preferred for other reasons. Coastal regions are preferred since they enable cheaper access to external markets through exports.
    • Cheap imported inputs may be available.
  • Determinants of investment success: Infrastructure availability and quality of governance in a State are important determinants of profits. Richer States are better in both and attract more investments.
    • Better governance is also linked to better quality of education and health.
    • This leads to the availability of more productive labour. But this is not critical since there is huge migration from the poorer to the richer States.
  • Shifts Post-Liberalization: Private investment is 75% of the total investment.
    • After the launch of the New Economic Policies (NEP) in 1991, the public sector’s role as the leading sector shifted to the markets.
    • More investment has been going to the richer States where profits are higher.
    • The financial sector which guides investments became more important after 1991.
    • The considerable household savings increasingly got diverted from the poorer States to the richer ones which offered higher profits.
    • This is reflected in the low credit-deposit ratio of the poorer States when compared to the richer States. This diversion of investment leads to growing disparity.
  • Consequences of Investment disparities: The poorer States have a larger share of the unorganised sector working at low productivity and low incomes.
    • Under the NEP, policy has favoured the organised sector. This has been aided by the construction of freight corridors and highways which enables this sector to penetrate into the hinterland.
    • The organised sector has grown at the expense of the unorganised sector and fuelled the faster growth of the richer States.
  • Special Cases: West Bengal and Kerala: West Bengal and Kerala are special cases.
    • Both States have had strong Left movements and labour militancy. So, the private sector has invested little in these States.
    • The border States of India have received less public investment for strategic reasons. It is also because many of them suffered from insurgency which scared the private sector.

What are the Political Dynamics and Investment?

  • Opposition-ruled States have accused the Centre of playing politics with public investment.
  • The often flaunted slogan of ‘Double Engine ki Sarkar’ captures this idea. Further, growing cronyism in India impacts investment decisions since political signals are important.
  • Thisspoils the investment climate by lowering the risk for the cronies while raising it for others.
    • The result is a decline in the overall investment rate which impacts the poorer States more.
  • The black economy is also proportionately more in the poorer States.
    • This vitiates the investment climate due to policy failure and weak governance and reduces the investment they receive. Therefore, it reduces their growth potential.

Threat to federalism

  • The persisting differentials in the economic performance of different States are threatening federalism.
    • Thus, policy needs to reverse this trend. Even keeping differentials at the present level is no more an option.
    • This requires a reversal of the trend of private investment, weak governance and poor infrastructure in the States that are lagging.
  • Required Actions from Centre and States: Both the Centre and the States need to act.
    • The States need to improve governance and reduce the levels of corruption in their jurisdiction.
    • Public expenditures on social sectors need to be raised substantially. Private investment in the poorer States cannot be raised by fiat in the market-driven economy.

Way Forward

It requires a change in the Centre’s strategy of favouring the organised sector at the expense of the unorganised sector. If the focus shifts to the unorganised sector, the incomes of the marginalised would rise and that would boost demand and production in the poorer States. As demand rises in these States, it would attract more private investment.

Conclusion

The organised sector, which is constrained by shortage of demand, would also benefit. More concessions from the government are not what they need since they have enough resources to increase their investment. These policy changes will not mean that the richer States would not grow; only disparities would decline. This would be development from below which would strengthen federalism and help preserve the nation’s unity.

Editorial 2: A collective effort towards peace in Myanmar

Context

ASEAN and India will need to adopt a more inclusive and pragmatic approach towards Myanmar — one that involves all key stakeholders.

Introduction

The 44th ASEAN Summit held from October 6 to 11 in Vientiane, Laos, highlighted mounting regional concerns, especially Myanmar’s worsening crisis. Since the military coup in 2021, Myanmar has been in turmoil, and despite multiple efforts, including ASEAN’s Five-Point Consensus, there has been little progress towards stability. The civil war is not only ravaging Myanmar, but also challenging ASEAN’s credibility as a regional bloc committed to peace and stability.

 

The situation in Myanmar

  • Current Situation in Myanmar: Myanmar remains engulfed in a brutal civil war between the military junta and various resistance groups, including Ethnic Armed Organisations (EAOs) and the People’s Defence Forces (PDFs).
    • The junta, which forcibly took control after toppling the democratically elected government of Aung San Suu Kyi, faces widespread armed resistance.
    • The resistance groups now control significant swathes of territory, including six major border trade routes.
    • The military’s efforts to quash the rebellion have led to violence, displacing hundreds of thousands and creating a humanitarian crisis.
    • More than 18.6 million people, including 6 million children, are in need of assistance, according to the United Nations.
  • International response and challenges: The failure of the junta to cooperate with international peace efforts has exacerbated the conflict.
    • The military continues to label opposition groups as terrorists and has shown little interest in holding genuine negotiations.
    •  In 2021, ASEAN broke its long-standing non-interference policy in response to the coup in Myanmar, recognising the breach of the ASEAN Charter regarding the rule of law and governance.
    • However, its attempts to implement the 2021 Five-Point Consensus, which calls for an end to violenceinclusive dialogue, and humanitarian assistance, remain largely unheeded, revealing the limitations of regional responses.
  • ASEAN’s engagement with Myanmar: Earlier, ASEAN tried to exclude Myanmar’s military leaders from high-level summits due to the country’s non-compliance with the Five-Point Consensus.
    • However, this time, after three years of boycotting the summit, Myanmar sent Aung Kyaw Moe, a senior official from Myanmar’s Foreign Ministry, to Laos.
    • This highlights ASEAN’s need to keep dialogue alive and shows a pragmatic shift in its approach.
    •  It also indicates that the junta is willing to participate in ASEAN dialogues and is not entirely avoiding the bloc’s engagement efforts.
  • Divergent approaches among ASEAN  members: Some ASEAN members, such as Indonesia, Malaysia, and the Philippines, continue to push for stronger action, while others, such as Thailand, Cambodia, and Laos, maintain closer relations with the military government.
    • The principle of consensus-based decision-making complicates matters, as it necessitates unanimous agreement, resulting in diluted and slow responses to the crisis.
    • Thailand’s recent proposal to host informal talks later this year with the Troika involving Indonesia (previous chair), Laos (present chair), and Malaysia (future chair) illustrates an attempt to break the diplomatic impasse.
  • The need for inclusive dialogue: However, without the full involvement of all the stakeholders in Myanmar, including the National Unity Government and the EAOs, such efforts may not succeed.
    • For instance, Thailand’s humanitarian corridor operates only with the junta’s consent in areas under its control.
    • To move forward, engaging non-state actors will be crucial for ASEAN to craft a more inclusive and effective dialogue.

 

India’s Myanmar policy

  • India’s engagement with Myanmar: During the 21st ASEAN-India Summit and the 19th East Asia Summit, Prime Minister Narendra Modi emphasised ASEAN’s centrality and the Five-Point Consensus while encouraging continued engagement with Myanmar.
  • India’s approach to Myanmar is closely tied to its Act East Policy.
  • Myanmar is a pivotal land bridge between India and other ASEAN countries, and its stability is crucial for India’s bilateral and regional interests.
  • India shares a 1,643 km-long border with Myanmar, so it needs to balance security concerns regarding cross-border militancy and illegal activities by maintaining relations with Myanmar’s military regime while supporting democratic processes through diplomacy.
  • Connectivity projects and initiatives: India is involved in regional connectivity projects such as the Kaladan Multi-Modal Transit Transport Project and the India-Myanmar-Thailand Trilateral Highway to enhance trade and connectivity.
    • Recently, both nations signed five Memorandums of Understanding under the Quick Impact Projects framework, focusing on agricultural development, vocational training, disaster management, and education.
    • With India’s $250,000 grant, these projects aim to enhance Myanmar’s socio-economic development, but Myanmar’s political instability will likely challenge its success.
  • Security concerns and policy adjustments: Concerns over regional stability and refugee influxes have led India to discontinue the Free Movement Regime and fence the border.
    •  As the Central government faces resistance from various State governments regarding this move, India is walking a tightrope.

Conclusion

New Delhi is also considering broader engagement with various stakeholders in Myanmar, which would help it safeguard its strategic interests, while also contributing to peace and stability in Myanmar. The effectiveness of this strategy will depend on the evolving undercurrents within Myanmar and India’s ability to engage meaningfully with all the parties involved. ASEAN and India will need to adopt a more inclusive and pragmatic approach towards Myanmar — one that involves all key stakeholders. 

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