Daily Editorial Analysis for 22nd January 2020

Andhra Pradesh Assembly clears proposal for three capitals

Paper: II

For Prelims:

For Mains: Parliament and State Legislatures—Structure, Functioning, Conduct of Business, Powers & Privileges and Issues Arising out of these.

Context of News:

• The Andhra Pradesh assembly passed the Capital Region Development Authority Repeal Bill 2020 and the AP Decentralisation and Inclusive Development of all Regions Bill 2020, the first steps the current YSR Congress Party (YSRCP) government took in decentralizing the state’s capital between Amravati, Visakhapatnam and Kurnool.

What has been decided?

• Present Government of Andhra Pradesh has decided to establish a judicial capital at Kurnool in Rayalaseema and an administrative capital at Visakhapatnam in the north coastal region or Uttarandhra, while the legislative capital would be at Amravati.

Background of Andhra Pradesh decision to have three Capitals:

• The first reference of decentralisation was made in the Sri Bagh pact, which was signed by the then political leaders from Coastal Andhra and Rayalaseema on November 16, 1937.
• The separate Telangana movement in 1972 saw people of Rayalaseema and coastal Andhra go hand in hand against Telangana and demand to have capital in their own region.
• It was widely thought that the clamour for a capital of Andhra Pradesh would be set to rest after the TDP government chose patches of farmland dotted with villages on the Krishna river basin for the construction of the capital and named it Amravati, after the state bifurcation in 2014.TDP government justified his decision to locate the new capital in Amravati by saying that it was at the centre for all three regions.
• Nearly five decades after the Jai Andhra movement, people from five districts in the coastal Andhra region have hit the streets demanding a capital. The immediate trigger is chief minister Y.S. Jaganmohan Reddy pitchforking the narrative of the three capitals, one for each of three regions in the state, as a substitute to Amravati.
• Sri Krishna panel:
• The advantages and qualities of Visakhapatnam to become the capital was discussed not only in the Sri Bagh pact but was also elaborately deliberated by the Sri Krishna Committee, which was formed by Ministry of Home Affairs, Union of India, to study the alternatives for a new capital for the State of Andhra Pradesh.
• Coming to suggestion for the alternative capital, the Sri Krishna Committee primarily took up three things for consideration creation of single city or super city in Greenfield location, expanding existing cities and distributed development.
• The Committee however did not consider a single large capital city as a feasible option available to Andhra Pradesh as of then. But the State government had pushed the VGTM (VijawadaGuntur, Tenali, Mangalagiri) area for development.

Why Andhra Pradesh decided to have three states?

• Decentralised Model:
• Present government of Andhra Pradesh sought to script the inclusive and decentralised growth story as a counter-narrative for earlier government of Andhra Pradesh development model and decided to unbundle the capital into three parts and locate them in all the three regions as a remedy for growth imbalances.
• This decision clearly defined decentralisation, for the benefit of all three main regions such as Coastal AP, Godavari and Krishna districts and Rayalaseema.
• People’s Development is key Aspect:
• With the priorities of the state government being different and more focused on the welfare of the people with a thrust on education, health, and agriculture sectors, the whopping ₹1.09 lakh crore budget could be put to better use than building one city with so many irregularities.

Political Angle:

• The change of power in the state from Naidu to Jagan Reddy is a ramification of the caste war between the two dominant communities Kammas and Reddys  for power, which the state continued to witness right before it was unbundled from Madras province.
• When Naidu was charged with promoting cronies from his own caste, triggering a social divide during his regime, Jagan Reddy unseated him, helping his Reddy community reacquire the status as a ruling caste after a long gap.
• By shifting the core capital out of Amaravati, Jagan Reddy is ostensibly also striking at the financial roots of the Naidu’s support base.
• Kammas, largely present in the south coastal region with control over lands, have been identified with TDP since its formation. The community seemed to be the main losers of the YSRCP government’s three capitals plan since they had heavily invested on lands in Amaravati region, identifying a mascot of their economic interests in Naidu.

Way Forward:

• The idea of multiple capitals is not new. Arguably, the most frequently cited example of multiple capitals is South Africa, another country rich in terms of diversity. In South Africa, Pretoria is the administrative capital, Cape Town is the legislative capital and Bloemfontein is considered the judicial capital.
• India is based on asymmetric federalism to accommodate diversity not only between states but also within states. To illustrate, seven years ago there was a Constitutional amendment to enable the grant of special status for six backward districts of Karnataka which provided for reservation in education and jobs, among other things.
• In this context, there is a case for some states to consider the possibility of having more than one capital to accommodate the needs of distinct regions. Given the advances in communications technology it is unlikely that old arguments of the practicality in locating everyone in the same place are still relevant.

India’s economic slowdown & Expectations from Budget

Paper: III

For Prelims:

For Mains: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context of News:

• Citing a sharp economic slowdown in India and other emerging markets, the International Monetary Fund (IMF) lowered growth estimate for the world economy to 2.9 per cent for 2019. Besides, the International Monetary Fund also trimmed India’s growth estimate to 4.8 per cent for 2019, citing stress in the non-banking financial sector and weak rural income growth.
• The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years.
• Presenting the numbers ahead of the start of the World Economic Forum (WEF) annual summit, the IMF said it expected growth in India to be 5.8 per cent in 2020 and rise to 6.5 per cent in 2021 supported by a monetary and fiscal stimulus as well as subdued oil prices.
• https://chanakyaiasacademy.com/wp-content/uploads/2020/01/z1.jpg

Reasons for Global Slowdown:

• Trade War:
• USA trade clash with China has already put global growth under pressure. U.S. goals in the trade war center on accusations of intellectual-property theft, forced technology transfer and complaints about Chinese industrial subsidies. This Tit for Tat policy adopted by both USA and China has put lot of pressure global growth.
• Geopolitics:
• As well as the U.S.-China skirmish, the U.K. and EU have yet to seal a Brexit deal. The U.S. is at odds with Iran after a drone attack on Iranian General, which leads to rise in oil prices.
• Protests in Iraq have turned violent, Turkey launched an offensive in Syria and marches in Hong Kong might tip that economy into recession. Argentinais facing another fiscal crisis and looks likely to oust a market-friendly government, and Ecuador, Peru and Venezuela also have political problems.
• Squeezed Central Banks:
• Monetary policy may be easier than at the start of the year, but central banks lack ammunition and in some cases may have been too slow to act.
• The Federal Reserve has cut its benchmark rate by about 500 basis points in all three recessions since the early 1990s, yet it began this year with only half that amount available. The European Central Bank and Bank of Japan are already running negative rates with doubts about how much further they can go.
• Reluctant Governments:
• The IMF is among those urging governments to loosen budgets, but the signs are that fiscal policy will be reactive not pro-active. Although Morgan Stanley estimates the primary fiscal deficit has risen to 3.5% of gross domestic product in major economies from 2.4% last year, it sees it increasing only to 3.6% next year. Some governments are spending more, but China and Germany, both of which have room for fiscal stimulus, are holding back and Japan just raised its sales tax.

Impact of Global Slowdown on India:

• India is not only impacted on trade front, but through capital inflows which have been affected. What has also precipitated this, this time, is the Non-Banking Financial Companies [NBFC] crisis which has affected the flow of credit to capital goods. The demand for capital goods is down, as is car sales. Real estate is in trouble. The flow of credit to some of these sectors, which were an important determinant of sales, has been affected. This has resulted in a spillover in the rest of the economy.

What India must do?

• This is the time we have to worry about fiscal stimulus, not fiscal consolidation. There is a slump in demand. Public investment is very critical. Then there should be some kind of social spending which affects people in need with a high propensity to consume. Any cash reaching the poor will find its way into the market quickly.
• The reduction of corporate tax will have only a medium-term impact. In the short term, we need to get the money in the hands of the poor which pushes them to the market so aggregate demand gets generated and, in the process, we also address the inequalities in recent times.
• The Western markets are really flat. There is also a rise in protectionism. In such a situation, we need to tap the Asian markets. In that context, RCEP [Regional Comprehensive Economic Partnership] is an important initiative. It gives us a possibility to integrate the Indian economy and production with the value chains in east-Asian countries.
• Agricultural commodities are more volatile than industrial ones. Crop failures happen, which leads sometimes go out of the market. It does affect your reliability as an exporter, but in the agricultural commodities market.Reliabliy in Agriculture sector is far more important.
• Government will have to improve regulations for businesses so that they don’t have handicaps vis-a-vis global competitors.

Conclusion:

• India has worked on the fundamentals (of its economy), but there are problems to be addressed. In the financial sector, especially non-banking institutions, there are steps taken now to consolidate banks. They ought to help resolve some of these issues.
• In India, what is critically important is to continue with addressing the long-term drivers of growth. Investment in human capital in India is a top priority. It has to continue bringing women in the labour force.
• Policy measures needed to revive growth in emerging market economies. Increase domestic finance and improve governance mechanisms is the way forward for India.