IASbaba’s Daily Current Affairs – 2nd November, 2016
TOPIC: General Studies 1
- Poverty and developmental issues, urbanization, their problems and their remedies
What is Urbanisation?
The Census of India, 2011 defines urban settlement as, all the places which have municipality, corporation and cantonment board or notified town area committee. Additionally, all the other places which satisfy following criteria:
- A minimum population of 5000 persons ;
- At least 75 % of male main working population engaged in non-agricultural pursuits ; and
- A density of population of at least 400 persons per square kilometre
Urbanisation in India
India’s urban population increased from 217 million to 377 million, and this is expected to reach 600 million by 2031 — 40 per cent of the country’s population. After independence, urbanization in India is increasing at very high pace, but at the same time there are some problems, which are casting a shadow on the potential of urban areas for poverty alleviation and growth of the nation. Even though urban areas are referred to as “engines of economic growth” they are becoming barriers for balance, equitable and inclusive development.
Features of Urbanisation in India
Urbanisation in India has the following characteristics:
- Occurring on the fringe of cities,
- Occurring in an unplanned manner,
- Outside the purview of city codes and bylaws,
- Shortage of homes,
- Inadequate drinking water, sanitation and waste management facilities
- Imposing high costs, and
- Characterised by a gap in urban infrastructure investment in areas of road and traffic support
Urbanisation, Rural Transformation and Poverty Reduction
With the increasing urbanisation and need for more urban investment, the question arises whether an increase in urban infrastructure investment would compromise on the rural investment. This is critical because rural transformation has a significant impact on the poverty and growth as well.
International Monetary Fund (IMF) in it’s recent study has analysed the impact of urbanisation on rural poverty in two categories:
- Location: Under this criterion it concludes that rural poverty reduces due to change in residence.
- Economic Linkages: As per this criterion, rural poverty again reduces as a result of growth of urban population.
Urban population growth impacts poverty in nearby areas in the following manner:
- Consumption linkages,
- Rural non-agricultural employment,
- Rural land/labour ratios,
- Rural land prices and consumer prices
Urbanisation has lead to a reduction in poverty in surrounding rural areas by 13-25%. However, this has been much less than the impact of rural bank branch expansion. Hence, this points to certain flaws in the IMF report which examines the role of urbanisation in isolation of rural transformation.
Rural transformation has a multiplier and a more significant effect on poverty reduction in the following ways:
- Agriculture modernisation: Development and growth in agriculture reduces rural poverty and overall poverty because the demand for chemical fertilisers, pesticides, mechanisation, processed seeds or fuels rises and this in turn promotes non-agricultural production.
- Increase in income: Higher incomes in rural areas promote demand for processed foods produced mainly in urban areas and generate employment.
- Price reduction: Decrease of food prices due to agricultural growth results in higher food security and poverty reduction in both rural and urban areas.
- Wage reduction: Decrease of food prices lowers the real product wage in the non-agricultural sector, raising profitability and investment in that sector.
To ensure best results in terms of poverty reduction and growth, rural transformation can take place in ways mentioned below. These steps which will not only raise productivity and living standards but also curb rural-urban migration are:
- Access to new technology,
- Availability of credit on easy terms and markets,
- Strengthening of extension services,
- Creation of rural infrastructure,
- Skill development
- Creating more remunerative opportunities
Alternative Categorisation and Study
A further categorical way of conducting such a study could be to examine overall growth and poverty effects of both agriculture and non-agriculture, taking into account the linkages between them.
The non-agricultural sector includes both rural non-agricultural and urban activities, we disaggregate the rural areas into agriculture and non-agriculture sub-sectors, and the urban areas into small towns, secondary towns and metropolitan cities in order to compare their effects on poverty.
With the shift of an economy from the low income to the middle income category, the nature of agriculture also shifts from subsistence farming to commercialized and market farming. It then develops a closer linkage with the non-agricultural sector. Impact of agricultural growth rate is twice as large as from non-agricultural growth and has a much bigger poverty-reducing effect than non-agricultural growth.
As a result of studies it has also been found that the (proportionate) poverty reduction is largest for agriculture. Contrary to the World Bank’s conclusion, we found that agriculture’s contribution to poverty reduction is five times more than that of metropolitan cities.
A definitive conclusion about public investment priorities will depend on the pattern of rural transformation and urbanisation but there is no doubt that rural areas deserve greater emphasis. If urban areas are the engines of growth, then rural areas are those compartments which if not on track could derail the entire growth and development process.
Connecting the dots
- Rural growth and development have an equal role to play in the national growth and poverty alleviation. Discuss
- Define Urbanisation. Highlight the problems that have been a consequences of rapid urbanisation in India
General Studies 2
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
General Studies 3
- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
- Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.
India’s competitiveness and challenges ahead
- The 2016-17 Global Competitiveness Report ranks India 39th among 138 nations
- This is a 16-place jump from year-ago levels. Thus, India’s progress on global competitiveness is impressive.
- The report assesses the competitiveness of a nation based on its macroeconomic environment, strategies employed to promote growth such as institutions and policies, and the ability of enterprises to create and sustain value.
- The nature of the economy and growth measures influence enterprise competency to compete and, in turn, enhance national productivity and prosperity.
- The economic development initiatives launched by NDA government seem to be paying off slowly.
- However, India remains a factor-driven economy characterised by an unskilled workforce, and heavy reliance on agriculture and extractive industries.
- Lack of complexity and technological sophistication in its economy limits its ability to offer high-value goods to global markets.
- In 2015, India exported $262 billion — compare with China’s $2.3 trillion — of which, over one half was commodities and low tech goods (mineral fuel, clothing) while just 15% was engineered goods (autos, appliances).
- Notably, India’s share in global merchandise trade has remained stagnant at 2% over the last five years compared to China’s, which has grown from 10 to 14%.
- The new economic development initiatives hope to rectify the less contribution of merchandised trade through targeted programmes that would equip India for a stronger performance in global trade and competition.
- Among them is ‘Make in India’, a large-scale campaign to attract foreign direct investments to the manufacturing sector. These investments are designed to create jobs in massive numbers to absorb the country’s burgeoning workforce.
- More importantly, they are expected to move India up on the development ladder to the ‘efficiency-driven’ stage — demonstrated by high-volume diversified manufacturing and the ability to globally market a wide range of value-added consumer and industrial goods.
- In 2015, India emerged as the top destination for FDIs and there are indications that it will continue.
- However, only the manufacturing assets will not propel India to the forefront of global merchandise trade and competition. It will need a workforce that has complementary industrial skills.
- India’s workforce of 500 million is mostly unskilled —80% of the workforce has no marketable skills (government estimates).
- It was also revealed that less than 10 million are vocationally trained as against 150 million needed by 2022 to transition India as a leading manufacturer.
- Thus, undoubtedly, it is an uphill task for which India has formed a Skill Development Agency to spearhead implementation, jointly with the private sector.
Challenges and way ahead
- Though there is progress towards the goal, but there is lukewarm enrolment in short-term vocational training and apprenticeship despite the existence of an incentive regime.
- The reason is that India has never been a blue-collar economy. Thus, the educational aspirations of Indians have historically been centred on academics and university education, driven by ambitions in the administrative and management cadres.
- And hence, by contrast, industrial training has generally been perceived as unglamorous, even undignified.
- Thus, the clear solution to this problem lies in educating India through information distribution and publicity that describes entry jobs in industry and pathways to functional and general management.
- The manufacturing assets and workforce skills will give India the foundation to compete globally on a wide range of products.
- However, to be distinguished as a leader, India must transform from low-skilled commoditised production to designing and marketing sophisticated, proprietary technologies. Thus, it has to emerge as an innovation-driven economy.
- For this, India would need highly talented science and engineering graduates and substantial investment in R&D.
- What is contrasting that India is self sufficient in the desired graduates but lacks in the required investments in R&D projects.
- To put into perspective, India’s R&D spending of $66 billion in 2015 (0.9% of GDP) is almost nothing in comparison to China’s $410 billion or 2.1% of GDP). And more troubling fact is that three-fourths of it comes from the public sector.
- The low private sector participation could be because of the relatively small size of most Indian firms and consequent lack of scale economies. This problem is self-solving as the private sector investments in R&D will rise when manufacturing investments will rise.
- Hence, India’s economy as globally competitive is still work in progress.
Connecting the dots:
- Manufacturing sector is not growing at an expected rate despite the initiatives and reforms by government. What can be the reasons and how to rectify them? Explain.
- Increase in manufacturing is considered important for India to establish itself as globally competitive. However, the working population sees industrial employment as undignified and low-paid. How do you think can this situation be handled? Discuss.
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