Editorial Notes

Editorial Notes 11th July 2016

New Industrial Policy of 1991; Namami Gange programme; South China Sea disputes
By By IT's Editorial Notes Team
July 11, 2016



  • Seven failures of economic liberalization

Environment & Ecology

  • More of the same

International Relations

  • Storm in the South China Sea



GS (M) Paper-3 Topic: “Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth”


Seven failures of economic liberalization

The year 2016 marks the 25th anniversary of the New Industrial Policy of 1991. As a positive note, it has brought the end of the licence raj and the opening up of the economy to private and foreign capital. However, there are also several areas where our hopes have been belied. Here are a few of them:

  1. Share of manufacturing in GDP%

Since the New Industrial Policy, unveiled in 1991, share of manufacturing sector in GDP% hasn’t increased however, manufacturing holds out the promise of jobs for the masses and its productivity is also relatively higher.

  1. Combined fiscal deficit of centre and states

One underlying reason for the crisis of 1991 was the indiscriminate rise in government borrowing in earlier years. It was only to be expected therefore that after the crisis, the government would do all it could to curb its fiscal deficit and that of the states. Unfortunately, that didn’t happen. In 2014-15, the combined fiscal deficit of the centre plus the states, as a percentage of GDP, was higher than it was in 1995-96.

  1. Tax to GDP ratio

One reason why government deficits remained high is that, in spite of robust economic growth, tax revenues weren’t buoyant. Widespread tax evasion is probably the reason, along with a plethora of sops given to companies. In spite of recent efforts, the central government’s gross tax revenues as a percentage of gross domestic product have remained below the 1991-92 level.

  1. Central government expenditure

The disinclination to reduce the fiscal deficit had the effect of raising the central government’s interest burden, as it had to pay out ever-increasing interest on its outsize borrowings. The upshot was deterioration in the quality of the deficit. The government was borrowing to fund, not productive capital expenditure on infrastructure, but unproductive revenue expenses. The chart shows that in 1990-91, capital expenditure accounted for 30% of total central government expenditure. The budget for the current fiscal year puts the share of capex at a mere 12.5%.

  1. Average employment per non-agricultural establishment

Economic liberalization has failed to provide secure and decent jobs to the mass of the population. In spite of all the reforms, the number of employees per non-agricultural establishment has been coming down steadily. This means the vast majority of the establishments in India are in the informal sector, with neither the capital nor the technology to improve productivity.

  1. Distribution of employment according to size of employment

Before the 1991 liberalization, 37.11% of employees used to work in establishments employing 10 or more workers. Instead of increasing, that proportion has been steadily coming down and in 2013, only 21.15% of employees worked in establishments employing 10 or more workers.

  1. Mortality rate

India has made considerable progress on that front, with the under-five mortality rate coming down from 125.8 per thousand in 1990 to 47.7 per thousand in 2015. But, neighbouring Bangladesh and Nepal, much poorer than India, have both brought down their under-five mortality rates more than India.

[Ref: LiveMint]


Environment & Ecology

GS (M) Paper-3 Topic: “Conservation”


More of the same


Namami Gange programme does not appear to have learnt from the failings of earlier Ganga cleansing projects.

How can we say so?

  • The overwhelming emphasis on pollution abatement that had led to the GAP’s failure bedevils Namami Gange as well.
  • Like its predecessor, Namami Gange lays much store on improving the sewerage infrastructure by constructing new sewage treatment plants (STPs) and improving the older ones. In this respect, it seems that the government has not learnt lessons from the GAP’s failure.
  • The lag between sewage generation and treatment has remained between 55% and 60% even as new sewage treatment plants were built under the GAP. This is because a lot of the waste is generated outside the sewerage network and is not conveyed to the STPs. A large section of the country’s urban population lives outside this network.
  • Ganga is the sum total of the contribution of some 12 major tributaries. Without a rejuvenation strategy for each of Ganga’s tributaries, there can be no Ganga rejuvenation.

Namami Gange vis a vis Ganga Action Plan:

  • The Ganga Action Plan or GAP was a program launched in January 1985 by the Prime Minister Rajeev Gandhi, to reduce the pollution load on the river. But the efforts to decrease the pollution level in the river were unsuccessful. Whereas ‘Namami Gange’ Programme has been approved in May 2015, with a renewed impetus to decrease river pollution and conserve the revered river ‘Ganga’.
  • To be executed over five years, the Namami Gange programme has a budget outlay of Rs 20,000 crore. This is 10 times more than what was allocated in previous Ganga cleaning programmes — Ganga Action Plan (GAP) phase I and II.
  • In certain respects, Namami Gange is an improvement on the GAP. The cleanliness programme that took off recently with the launch of more than 200 projects has projects to develop interceptor drains, plant trees and improve the river species composition.
  • There are also plans to develop Ganga Grams — villages where people will be educated in reducing pollution. The GAP had none of these.
[Ref: Indian Express]


International Relations

GS (M) Paper-2 Topic: “Effect of policies and politics of developed and developing countries on India’s interests”


Storm in the South China Sea


The International Court of Arbitration is set to give its ruling on the South China Sea disputes on July 12 amid strong opposition from China.

What’s the issue?

  • China claims almost all of the South China Sea along the nine-dash line on the map. The Philippines argues that the claim made by China is against international law.
  • The current round of tension between the two countries began in 2008-2009 after a tense but bloodless stand-off over the Scarborough Shoal (an island in the South China Sea), which led to China gaining de facto control of it in 2012.
  • In 2013, the Philippines had filled the case at the International Tribunal for the Law of the Sea at The Hague, seeks to counter the Chinese claims in the South China Sea.

The pace and scale of China’s island-building works and installation of military-capable infrastructure in the Spratly Islands have dwarfed the presence of other countries that engage in similar activities, and is beginning to take on a more overtly strategic character, which includes the construction of runways and port facilities.


Position of ASEAN on the South China Sea disputes:

One of the fundamental principles of the Association of Southeast Asian Nations (ASEAN) has been to resolve disputes by peaceful means and to reach agreement by a consensus. But over the years, the position of ASEAN on the South China Sea disputes has been weak. At times, the organisation has been unable to formulate a consensus policy.

  1. This is partly due to the fact that not all 10 ASEAN members are claimants to the South China Sea.
  2. Another reason is that members of ASEAN have overlapping claims among themselves.
  3. Moreover, bilateral relations between China and some smaller ASEAN members, such as Laos and Cambodia, are also a factor.
  4. Because of its economic and military power, China has been able to win over some ASEAN members.

Why ASEAN has welcomed the role of the United States as a power balancer on the issue?

  • China is well aware that a united voice of all ASEAN members would have greater force. ASEAN’s inability to build a united front on the South China Sea disputes is a major challenge for the regional bloc. There is no single country in ASEAN party to the South China Sea disputes that is capable of challenging China individually.

This is an important reason why ASEAN has welcomed the role of the United States as a power balancer on the issue.

Impediments in bringing a mutually acceptable solution:

There are no easy answers to the South China Sea disputes.

  • Because of the capital spent on island-building works by individual countries on the one hand and the sea’s rich natural resources and annual revenues generated from the sea routes on the other, none of the disputing parties is likely to sacrifice or surrender its claims easily.
  • While China insists on talks among the parties concerned, the claimants in ASEAN want to pursue it through multilateralism or the Court of Arbitration. The existence of two diametrically opposing approaches is a major challenge for bringing a mutually acceptable solution to the South China Sea disputes.
  • Since China has openly refused to acknowledge or accept the ruling of the arbitration court, despite support from several countries, as well as its lack of enforcement power, this channel is likely to be inconclusive.

Possible solutions:

To resolve the disputes peacefully, the claimants should be willing to abandon their confrontational attitude and agree to find some common grounds even if this requires sacrificing certain portions of their claims. For example,

  • One possible peaceful solution would be for all claimants to limit their claim to the areas of 200 nautical miles of the Exclusive Economic Zone in accordance with the United Nations Convention on the Law of the Sea (UNCLOS). By agreeing to such proposal, the parties to the dispute can also reach an agreement to leave international waters for free navigation.
  • Another way out is for the parties concerned to establish a common ownership of the disputed areas whereby all the revenues from the South China Sea are equitably shared among the littoral countries.
  • Yet other possibility is for the disputing countries to specifically lay out their claims and allow a neutral party to adjudicate on the basis of the UNCLOS or any other relevant international laws.
[Ref: Hindu]


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