[harisreez]

Rescuing textiles29/06/09

NREGA Extension Better Than Protectionism



THE global meltdown has hit the textile industry hard. Global demand for garments and cloth has dried up, so over a lakh workers are unemployed. Competition between developing countries for the reduced global market has shrunk profits and led to dumping below cost in some cases. A lazy response to the crisis will be protectionism, whereas an activist response will convert the crisis into an opportunity for radical reform. Textiles minister Dayanidhi Maran seems inclined toward a lazy protectionist response. Faced with cheap Chinese textile imports, he wants to channel all such imports through just two ports to check their volume. “If imports are allowed at all the entry points it becomes extremely difficult for the customs department to police them”, he told ET. Maran seems to equate imports with criminal activity, which should be policed. In fact only smuggling should be policed, not imports. Far from being a crime, imports are blessings that keep domestic prices low, induce Indian producers to raise their productivity, and so benefit Indian consumers. Ministers want the flexibility whereby the industry competes globally, and simultaneously provides work to a lakh unemployed workers. They instinctively want to subsidise exports and ban imports, part of the old licence-permit mentality that ruined India for so many decades. In fact, we need entry of imports at all possible points precisely because that serves consumers best.
Economic theory says if a government insists on promoting a specific industry, this should be through a specific subsidy or benefit, not protectionism. Going by this logic, the right way to help Indian textiles will be to extend the National Rural Employment Guarantee Act to textile production. Textile producers should be allowed to hire workers at up to 100 days a year, who will be paid the minimum wage by state governments. This will provide textile producers with free labour, so they should be asked to supplement the minimum wage by 50%. This will make the Indian textile industry highly competitive, give it labour flexibility, and employ idle workers. The scheme should automatically lapse after 12 months by which time the recession should be over. This is the way to help the industry, not protectionism.

The author of this passage is trying to justify this thoughts about why NREGA scheme should be extended to include textile industry also. He begins by arguing about the if govt wants to support any industry it should be through subsidy or benefit and not through protectionism(by tightening the lid on imports). He goes onto extend this by saying that NREGA scheme should be used to supplement the textile indusrty to boost their productivity.
But personally i feel that the opinion of the autor is a bit jaundiced. Why because in a country like India where lives of millions of people depend on textile industry which is largley unorganised one it is not pragmatic to provide any financial assistance, only assistance in the form of tax subsidies etc maybe thought upon. Secondly his/her deduction of logic to extened the NREGA scheme is flawed to a certain extend because(1) many areas of textile industry requires semi skilled labourers which cannot be replaced with somebody else as a part of NREGA. (2) The textile industry is concentrated mainly in pockets in TN and Maharastra where there is a glut of these unskilled/semi skilled labourers already and people who have lost jobs form textile indutry. So it will be difficult to include new peoplw through this scheme and also to implement the scheme at a lower daily wage than what they were earning before(when they were working in the industry)

[harisreez]

End licence raj in education30/06/09


Basu’s Dissent Note Shows The Way



FAR more pertinent than the Yashpal Committee report on education is the note of dissent appended by economist Kaushik Basu. He urges an end to the licence-permit raj in education, as has been done successfully in industry. Glorious socialist tirades against commerce in education cannot obscure the fact that government-provided education, in schools and colleges, is often so pathetic that to call it education is preposterous. Yet the same educational establishment that refuses to close down dysfunctional government institutions pretends that it cannot allow private ones, because this may lower standards! The market has weeded out substandard industrialists, and will weed out substandard private schools and colleges too. The government should create an independent rating agency that makes educational quality transparent, and ratings must apply as much to government institutions as private ones. Foreign universities should be welcomed, including forprofit ones. India has a comparative advantage in the lowcost skills needed for education, and can become a global educational hub attracting global students — provided controls are lifted on fees and private institutions. The creation of human capital is a commercial enterprise no less than the creation of industrial capital.
Basu makes the point that the government lacks the money for creating hundreds of universities, and so should focus on creating a score world-class ones. These should pay top academics several times as much as run-of-the-mill academics. The Yashpal Committee is too socialist to stomach this: it prefers the existing, rotten system that pays everybody the same low level, and so induces every decent academic (Basu himself is an example) to seek greener pastures abroad. Privatisation of education is a fact of life, and needs to be encouraged rather than viewed as a scandal. But for private engineering colleges, India could not have become a world power in auto components or software: the IITs produce the generals but the private colleges provide the troops. Basu adds rightly that replacing existing regulatory bodies by a super-regulator means very little if the latter has the old licence-permit mind-set. Such bureaucratic fiddling must not be confused with genuine reform.

A very nice and prolifically constructed article. the author thorws light into the Indian Education system which is in shambles when compared to other nations. The system is clamoring desperately for reforms . The author touches various shades of reasons that have been obstructing these reforms right from the communists to the capitalists. The author goes onto point out that though the govt lacks the economics vigor to create world class universities it can alternatively create a handful of world class univ or colleges. By privatisation the author implies allowing private investors/parties to start new educational institutons esp in the field of higher education but under the purview or controll of Govt or other deemed univ. Author really rings a bell when he says "India could not have become a world power in auto components or software: the IITs produce the generals but the private colleges provide the troops" After all its the troops who fight the battle!

[harisreez]

Challenges to GST rollout


Legal & Administrative Changes Needed



INDICATIONS are that the Centre and states may settle for more a moderate rate for the Goods and Services Tax (GST) when it is implemented, rather the originally proposed 20%. That yet-to-be-finalised rate may be between 16% and 18%, and all forms of taxes currently levied on goods and services would be collapsed into the proposed one. It is envisaged that the new rate would be revenue neutral for the Centre and the states. The proposed tax at a lower rate can be revenue neutral only if the tax base is widened and evasion contained. Both are key challenges that the tax authorities will have to contend with. All services, except the essential ones, will need to be brought into the tax net. Vijay Kelkar, the author of a government report on GST, and currently chairman of the Thirteenth Finance Commission, has suggested sectors such as real estate and construction, as well as railways, be brought under the ambit of GST. That is indeed a suggestion that should be considered, not just to collect more revenues but also to bring greater transparency in the real estate sector transactions.
But should GST be implemented from April 1, 2010? Anecdotal evidence suggests neither the Centre nor the states are ready with legal changes or administrative infrastructure to make the transition. There are many motions to go through before GST can be a reality. To begin with, the Constitution needs to be amended to give both the Centre and states concurrent powers to tax goods and services. A GST Act replacing the Central Excise Act, the service tax law and State VAT Act needs to be put in place. The IT infrastructure required to track inter-state transaction needs to be upgraded, state tax administration familiarised with GST, and new challans formatted. Kelkar’s assurance that the finance commission would compensate states for losses arising from new regime may help lower political resistance to the new tax regime. Given that much needs to be done in less than nine months, it makes sense to postpone GST rollout. The budget must, however, provide a clear road map with appropriate timelines for a comprehensive GST.

The author of this editorial appreciates the govt in bringing out the idea of GST. At the same time he also points out two keychallenges that is waiting the implementation of GST: tax evation and revenue neutrality. HE goes onto say that to attain revenue neutrality many other ssectors like railways and real estate needs to be brought into the purview of GST. Also greater transpernecy is need in its implementation. Compensating the states for the revenue losses that they might incur will avoid unnecessaty headaches for the Center. WE might well recall the expereiences faced during implementation of VAT and the resistance from certain states during the implementation.
The author also points out that the current time frame of 9 months is too short for attainign an complaint free implemenation. The 9 months timeline is described as audacious and the author wants it to be postponed to a more pragmatic time line while wanting the budget to provide a clearer path for its implementation.