Pakistan has been availing International Monetary Fund loan packages without stricto sensuo acting upon reforms since late 1980s. Its finance minister is now horn-locked with the International Monetary Fund ferreting out strings, a tangled skein, to a US$ 6 billion to $12 billion bailout package. Pakistan could complete one IMF package that ended in 2016. That too with a number of requirements relaxed.
The thorny questions hovering over the instant package are opaque US$ 60 billion Chinese loans (diversion of IMF dollars to China), trimming unbridled spending, nurturing bloated state-owned corporations, inaction against tax dodgers (low tax-to-Gross Domestic Product ratio), sluggish textile exports (lost out to Bangladesh), and US$7.6 billion debt-stricken energy sector. Besides, current-account and budget gaps have swelled to more than 5 percent of gross domestic product and foreign-currency reserves have plunged to the lowest in almost four years. In response authorities have devalued the rupee five times since December and hiked interest rates the most in Asia. The GDP growth of about 5.2 per cent in 2018 rolled down to 2.9 per cent in 2019 and a further decline to 2.8 in 2020.Inflation jumped from 3.9 per cent in 2018 to over 7.6 per cent in 2019. Already grey listed, Pakistan is fighting tooth and nail to wriggle out of stigma notwithstanding virulent Indian pressure to freeze it so.
Interest-free Medina-model rhetoric
Pakistan had to go to the IMF doorstep despite cricketer-turned-prime minister Imran Khan’s reluctance. He was enamoured of Medina model as every Muslim should. Both Islam and Marxism did away with `interest’ as primum mobile of capital formation. But, Alas! Imran had to wake up about bitter reality of the economic world around. Much to his chagrin, even chairman of Pakistan’s Islamic Ideology Council has warned (October 22, 2018) him against `romanticism’. He urged the government to set up a task force to realize a “Medina State” and suggested the formation of a task force to realize this vision., The whole of Pakistan, with wistful eyes, looks forward to fulfillment of this dream of `new Pakistan’.
We now live in a different world.
Unlike Medina, today’s Pakistan is a complex state. Shortly after his arrival at Medina, the Holy Prophet Muhammad (PBUH) built a mosque and a market place there. Like the mosque, the market place could not be privatised. There was free entry and exit of traders (akin to perfect competition under micro-economics) and caravans to the market. No monopolies, duopolies and cartels! A section of the market caravanserai was reserved for foreign traders. The whole world could sell their goods there free of any taxes.
Some clever local traders tried to take advantage of robust trade. They used to buy caravan camel loads outside the Medina (before they reached Medina), and sell it at dictated price. Islam outlawed this practice as talaqqiur rukaban (seeing faces of riders). Islam prohibited all types of future trading involving element of uncertainty (advance purchase of raw tree-fruit, fish in the pond, and so on). Islam prohibited usury (riba) in all its forms (loan giving at agreed interest taffazzul, or loan profiting due to delay naseea). When Bilal (may Allah be pleased with him) tried to exchange his coarse-quality dates with fine-quality dates the Holy Prophet forbade him. He told him to sell his dates for cash and buy better dates at prevailing price. The Prophet did not live in a 300-kanal-and-10-marla house (like Pakistan’s prime minister). Nor did he, like our numerous politicians, own assets abroad. He bequeathed a dozen swords but no precious metals (Golda Meier). Islam globalized free-market mechanism (laissez faire). It changed attitudes and avaricious mindsets. Being a dominant religion, Islam dictated its own terms of trade.
To fulfil its promises, Pakistan’s government budgeted public-sector development- programme outlay of only Rs. 800 billion for the federation and only Rs 850 billion for the provinces. The government has a Hobson choice. With India, at daggers drawn, could it divert security allocation to welfare? Some writers described Pakistan as a `garrison state’.
For an economic turnaround, Pakistan’s visionary prime minister has to shun rhetoric, and decide upon suitable economic policies. It needs to look at the economic world around, beyond Medina.
Interest outlawed under Pakistan’s constitution
Under preamble to Pak constitution `sovereignty’ belongs to Allah Almighty, not to people themselves as under US constitution. The elected representative can wield authority within defined religious limits. Interest is outlawed under
Article 38 (f) of the Constitution of Pakistan, quoted heretofore _ Article 38 (Promotion of social and economic well-being of the people) The State shall…(f) eliminate riba
as early as possible. The Islamic preamble (Objectives Resolution) was inserted in draft constitution under Pakistan’s prime minister Liaquat Ali Khan’s influence. Unlike Pakistan’s most `leaders’, Liaquat Ali Khan was financially scrupulous. Aside from his honesty, Liaquat Ali Khan could not foresee he would be the first to sow seeds of religious discord. Jamsheed Marker, in his book Cover Point, observes ` charge against Liaquat was that he moved the Objectives Resolution, which declared Pakistan to be an ‘Islamic State’ (ibid. p. 33)”. Unlike the US and many other secular constitutions, the Objectives Resolution (now Preamble to 1973 Constitution) states `sovereignty belongs to Allah Almighty’. The golden words of the constitution were warped to continue an interest-based economy. We pay interest on our international loans and international transactions. Do we live in an interactive world or in an ivory tower? Isn’t Islamisation old wine in new bottle?
Follow-up to `Interest’ outlawed
The Security and Exchange Commission of Pakistan enforced Shariah Governance Regulations 2018. This regulation is follow-up to Article 38 (f) of the Constitution of Pakistan, and Senate’s resolution No. 393 (July 9, 2018) for abolition of riba (usury).
(extortionist interest) and normal interest/profit are indistinguishable. They disallow even saving bank-accounts. They point out that riba is anathema both as `addition’ (taffazzul) and due to `delay'(nas’ee) consequent upon fluctuating purchasing power.
The regulation is welcome but there are unanswered questions about Islamisation of finance in Pakistan. We pay interest on our loans and international transactions. The sheiks put their money in Western banks and earn hefty interest thereon.
Future trading is hub of modern commerce. Yet, it is forbidden under Islam. At International Islamic University, I learned that Islamic law of contract does not even allow advance contracts concerning raw fish, fruit, or anything involving element of `uncertainty’. Islam does not allow even tallaqi-ur-rukbaan (buying camel-loads of goods from caravan before they had reached Madina open-market. Holy Prophet (Peace be upon him) forbade Bilal (may Allah be pleased with him) to exchange poor-quality dates with superior-quality dates. He was advised to sell off his dates in open market for cash and then buy better-quality dates with money so earned.
Interest-based real world
Complex `interest’-based world
Gnawing reality of complex interest-based economic world has now dawned on the government. To quote a Murphy Law `nothing is as simple as it seems at first’. Pakistan needs to review the whole gamut of its economic structure (feudal lords, industrial robber barons, money launderers, and their ilk) and International Monetary Fund conditions. In his lifetime, even our Holy Prophet had to engage in commercial partnerships with the non-Muslim also.
Even Marx did not live in Utopia. He, also, constantly searched for solutions to the problems of the real world around. Disgusted at the simplistic interpretations of his ideas, he cried in boutade: “If this is Marxism, what is certain is that I am not a Marxist”. Keynese offered panacea of deficit financing with concomitant inflation to swerve 1930-Depression unemployment and stagnation. He also reacted to mis-interpretation of his ideas, saying `I am not a Keynesian’.
Keynesian theories preceded a lot of discussion about Gold Exchange Standard, stable prices. To create more money, deficit financing (paper money) was resorted to. As a result the hydra-headed monster of inflation was unleashed. Keynes believed inflation was a `short run phenomenon typical of a full- employment stagnant economy’. But, it became a long run phenomenon. Keynes postulated `With perfectly free competition, there will always be a strong tendency for wage relates to be so related to demand that everyone is employed at level of full employment’. When Keynes was asked about persistence of inflation (too much money chasing too few goods), he replied `In the long run we are all dead’. Post-Keynesian economists coined the term `stagflation’ to explain the phenomenon. With visible massive joblessness, Pakistan is far from a full-employment economy. The paltry household income has to bear the brunt of forced reduction in purchasing power due to rising price level, or falling rupee value.
We adopted floated exchange rate that ballooned our debt burden. No economist has ever applied his mind to effect, positive or negative, of international debt burden on Pakistan economy. No-one ever visualized even the idea of `odious debts’.
Pak government discourages savings
Keynes postulated savings are equal to investment. But, Pakistan discourage savings and encourage consumerism by reducing profit on saving deposits, and increasing taxes on small savings. Locke and others say government can’t tax without taxpayer’s consent. In Pakistan, the govt. picks people’s pockets through withholding taxes and reduction in National Saving Schemes profits. Even unissued bonds lying in Pakistan’s State Bank vaults are included in each draw. The prizes on such bonds are devoured by State Bank, a body corporate, without buying them. Pakistan’s hidden economy is more than the monetized one. It needs to evolve politico-religious milieu and macro-economic theories that suit our country best. It should promote savings while blocking illegal cash flows by introducing magnetic-card transactions in everyday life.
Pakistan’s burgeoning interest-based debt burden
External Debt in Pakistan increased to US$ 95097 million in the second quarter of 2018 from US$ 91761 million in the first quarter of 2018. External Debt in Pakistan averaged US$ 54065.23 million from 2002 until 2018, reaching an all-time peak of 95097 US$ Million in the second quarter of 2018 from a record low of US$ 33172 million in the third quarter of 2004. International Monetary Fund expects Pakistan’s external debt to climb to US$103 billion by June 2019. Pakistan Government Debt to GDP 1994-2018 presents a dismal picture. Pakistan recorded a government debt equivalent to 67.20 percent of the country’s Gross Domestic Product in 2017. Government Debt to Gross Domestic Product in Pakistan averaged 69.30 percent from 1994 until 2017. It reached peak of 87.90 percent in 2001 and a record low of 56.40 percent in 2007. Successive Pakistan governments treated loans as free lunches. They never abode by revised Fiscal Responsibility and Debt Limitation Act. Nor did our State Bank warn them about the dangerous situation. State Bank however passively reported, every Pakistani owed over Rs115, 000 as the country’s burden of total debt and liabilities increased to Rs. 23.14 trillion by the end of December 31, 2016.
Pakistan’s debts not payable being `odious’?
Pakistan’s debt burden has a political tinge. For joining anti-Soviet-Union alliances (South-East Asian Treaty Organisation and Central Treaty Organisation), the USA rewarded Pakistan by showering grants on Pakistan. The grants evaporated into streams of low-interest loan which ballooned as Pakistan complied with forced devaluations or adopted floating exchange rate. Soon, the donors forgot Pakistan’s contribution to break-up of the `Soviet Union’. They used coalition support funds and our debt-servicing liability as `do more’ mantra levers.
Apparently, all Pakistani debts are odious as they were thrust upon praetorian regimes to bring them within anti-Communist (South East Asian Treaty Organisation, Central Treaty Organisation) or anti-`terrorist’ fold. To avoid unilateral refusal of a country to repay odious debts, UN Security Council should ex ante [or ex post] declare which debts are `odious’ (Jayachandaran and Kremer, 2004). Alternatively, the USA should itself write off our `bad’ debts.
But Pakistan and its adversaries are entrapped in a prisoner’s dilemma. The dilemma explains why two completely rational players might not cooperate, even if it appears that it is in their best interests to do so. .The ` prisoners’ dilemma’ was developed by RAND Corporation scientists Merrill Flood and Melvin Dresher and was formalized by Albert W. Tucker, a Princeton mathematician.
No demand raised for forgiveness of `odious debts
Several IMF and US state department delegations visited Pakistan. But, Pakistan could not tell them point-blank about non-liability to service politically-stringed debts. The government’s dilemma in Pakistan is that defence and anti-terrorism outlays (26 per cent) plus debt-service charges leave little in national kitty for welfare. Solution lies in debt forgiveness by donors (James K. Boyce and Madakene O’Donnell(eds.), Peace and the Public Purse.2008. New Delhi. Viva Books p, 251).
Debt forgiveness promotes growth
Debt forgiveness (or relief) helps stabilise weak democracies, though corrupt, despotic and incompetent. Research shows that debt relief promotes economic growth and boosts foreign investment. Sachs (1989) inferred that debt service costs discourage domestic and foreign investment. Kanbur (2000), also, concluded that debt is a drag on private investment.
In fact, economists have questioned justification of paying debts given to prop up a regime congenial to a dominant country. They hold that a nation is not obliged to pay such `odious debts’ (a personal liability) showered upon a praetorian individual (p. 252 ibid.). Legally also, any liability financial or quasi-nonfinancial, contracted under duress, is null and void.
No economist to steer economy
Economics is mumbo jumbo to Pakistan’s finance minister. Renowned economist Atif Mian could not take over as finance minister because of uproar against his Ahmediyya/Qadiani religious belief. In protest, another cabinet-slot nominee Khwaja Asim also regretted to assume office formally (though continuing informal help ).
Pakistan’s economy: Back to basic
Economics remains a match between limited resources vis-à-vis unlimited wants (Lionel Robbins). What are our resources or factors of production (land, labour and socio-economic milieu, capital and organisation)? Through what system these resources could interplay to start capital accumulation (growth/development/technical progress) in our country?
Our agriculture is exposed to vagaries of nature (floods, famines, etc.). Besides, productivity of our agricultural sector is low because of disguised unemployment (farmers produce less as compared to their ilk in advanced countries).
People are shy of investing in productive capacity because they could earn more in marketing and other business lines (even in real estate).
We have to determine optimal balance between public and private sectors. We have to balance constraints of security and welfare.
Manufacturing sector, not agriculture, produced Asian Tigers. Studies reflect that there is
correlation between manufacturing sector and economic development in our country. We need to adopt such polices as make manufacturing primum mobile of our economic development.Let some industries be croissance des fleures and improve some nuclei (one school, one university, one hospital) before expecting to transform the whole country through a magic wand (Waterston, Development Planning: Lesson of Experience).
Lessons for an economic turnaround
We need to realize that economics is a social, an inexact, science, but responsive to dynamic environment. Keynesian post-1930-Great-Depression macro-economic policies understood that unemployment is not due to un- or under-utilised productive capacity. It is due to under-spending and lack of effective demand to buy over-produced goods.
Mega housing project to promote capital formation Pakistan government has announced to build a million houses under Naya Housing Project . The scheme smacks of Ragnar Nurkse (Capital formation in underdeveloped countries). Will effective demand increased through mega housing projects will spill over into increased buying of goods imported from China and other countries?
A faulty project
To solve any problem, its nitty-gritty (features) should be first identified: (a) Shelter-providers are highly stratified. (b) Defence Housing Authority caters for shelter needs of military officers. It strictly adheres to its formula of allotment of flats and plots. But, it excludes `civilians paid out of defence services estimates’ (c) The Federal Government Employees Housing Foundation (and affiliate Pakistan Housing Authority) is supposed to allot plots to retired employees. But, it does not follow the date-of-birth criteria. Now only Grade 22 employees (including judges) get plots. Those in Grade 17 to 21(septuagenarians like me or even octogenarians and nonagenarians) may die without a plot or a flat. (d) The FGEHF misuses hardship clause which favours not so hard-up people. For instance, a Customs collector on deputation to National Accountability Bureau was quickly obliged with a plot. He was allotted plot first and asked to submit illness certificate later (e) It is eerie that FGEHF’s definition of `employees’, now, has infinity as its limit. It includes non-employees like legal fraternity, including Supreme Court Bar Association. (f) According to media reports, the FGEHF reeks of corruption and favouritism. (g) Shelter for general public needs careful study, beyond rhetoric of market demand and supply _ The Korangi Town Project, Lyari Expressway Projects, Khuda Ki Basti, ‘Home Ownership Scheme for the People’(1964), and ‘The National Housing Policy’ 2001.Trusting FGEHF for `naya housing’? `A cat’s a cat and that’s that’. The new government should have the nerve to merge all shelter providers (in khaki and mufti) and devise a national housing policy, instead of focusing on `houses’.
China should change consumerist Pakistan into a productive economy
Let China help expand Pakistan’s manufacturing capacity and thereby reduce unemployment in Pakistan. All policymakers should act in unison. They include policy formulators (prime minister, finance minister, et. al), policy detailers (chief economic adviser, statisticians) and technocrats. The policy-makers should decide upon balance of priority. agriculture or industry, “closed” economy with import substitution, “living within means” and balanced budget or deficit budget. Will increased spending “crowd in” or “crowd out” private investment? Monetary policy objectives and the role of the central bank_ stability of employment and inflation, growth rate, balance-of-payments issues Role of foreign-direct investment and “non-bank financial institutions? Their impact on capital formation, consumption trends, and other macroeconomic aspects.
Technocrats, being apolitical unlike policy formulators, could implement policies single-mindedly. Our precious borrowed dollars should not be frittered away into increased imports.
Pakistan’s economic system?
During Ayub era, capitalist growth had a free hand. That led to rise of 22 nouveau rich families. A university mapped them in `Concentration of wealth and economic power in Pakistan’. Dr. Mahbubul Haq, himself the architect of laissez faire growth strategy, identified his mistakes in `Seven Sins of Economic Planners in Pakistan’. During post-Ayub period, we experimented with Bhutto-brand socialism. Later we embraced Islamic mode of financing mostly by packing old wine in new bottle (PLS sharing for `interest’, modarba, musharika for partnership, so on). At the same time we kept paying debt service and contracting new loans under capitalist international system.
The downtrodden remained so in our Islamic system. The international exploitative capitalist system, on the other hand, delivered goods. Rapid economic growth with substantial amelioration in lot of the common man. Soviet brand collectivism collapsed into oblivion.
Capitalism accepts inequality in incomes as a fait accompli. So do studies by political philosophers like Aristotle, Tacitus, Moska, Michel, Marx, Pareto and C. Wright Mill. Yet, sans uniform health care, education, and other basic facilities to masses, life in Pakistan is more miserable than in the West. Why? Soul searching needed by rulers and ruled alike.
A fetter to Pakistan’s rapid economic growth is debate between radical Islamists (fundamentalists) and liberal reformers The liberals, like Farag Fuda and Abu Zayd (Egypt), read the sources of Islamic sharia in terms of time and place (historical relativism). They advocate reading holy texts in our own terms, interpreting them in accordance with spirit and intentions. The radials (conservatives) regarded the liberals as heretics or apostates. Farag was murdered in 1992 and Abu-Zayd exiled in following years.
The conservatives say `Islam is complete’. The man in the street sees no undisputed Islamic model in Saudi Arabia, Iran, Pakistan or anywhere. We `circumcised’ some banking, civil and criminal laws to show case them as Islamic. For instance, we introduced PLS, modarba, musharika. Practically, there was no tangible impact on society, economy or polity. In international aid and trade, we conformed to secular principles. We continued to interest-based loans and pay debt service. Islamic punishments, introduced by Ziaul Haq had questionable impact. Sami Zubaida points out in his book Law and Power in the Islamic World (p. 224), “It is ironic that so-called Islamic punishments are described as `medieval’, when in fact, medieval jurists and judges showed great restraint in their application while modern dictators flaunt them as a religious legitimacy”.
The Islamisation of laws is regarded by critics as hypocritical. Pakistanis have a long list of Constitutional rights. But, a proviso makes them non-enforceable through courts. Pakistan’s qanun-shahadat (evidence law) defines qualifications of a witness (tazkia-tus-shahood). But, it softens its Palladian to accept any witness if the ideal witness is not available. The less said about sadiq and ameen clauses, the better. Under these clauses, even a three time priminister was sacked by Pakistan’s Supreme Court.
A judge has to decide according to law not according to his conscience and divine authority. An example is ban on gambling like circuses by one judge. The decision was turned down on appeal as it is Pakistan’s Electronic Media Regulatory Authority, not the court to adjudicate such matter.
Pakistan could not emerge as an Asian tiger because of indecision about what system to follow. The vested interests, particularly religious obscurantists, often smother dissent from so called enlightened moderators. Rampant sectarianism in Pakistan with concomitant effects on economy is an offshoot of lacunae in religious interpretations by vested interests.
Pakistan has abolished interest (riba) in accordance with its fundamental law. Yet its banking sector and international transctions are interest based.
Let Pakistan face the truth. It needs to evolve and show case a politico-economic model of Islam that is compatible with international practices. Or else, dispense with hypocritical patchwork, and go for secularist IMF model.
Bangladesh’s Graduation: A Ray of Hope for India’s Garment Industry?
Authors: Ms. Prerana Manral and Mr. Shreyansh Singh*
A report was released by the World Trade Organization (WTO) on May 8th highlighting the implications of graduation of Least Developed Countries (LDCs) on their trade participation. By virtue of their status as LDCs, these countries enjoy access to international support measures such as development financing, preferential market access, technical assistance etc. WTO also obliges LDCs with certain carve outs such as Special and Differential Treatment (S&DT) to increase their participation in global trade. The LDCs are graduated to developing country status if they meet the threshold levels for at least two of the three indicators i.e. Gross National Income (GNI), Human Assets Index (HAI) and Economic Vulnerability Index (EVI) for two consecutive triennial reviews. Interestingly, in 2018 Bangladesh became the first country to meet the thresholds for all the three indicators and if it meets these thresholds again for the second triennial review in 2021, it will be eligible for graduation in 2024.
In such a scenario, Bangladesh will lose some of the benefits provided to LDCs by developing and developed countries like the preferential market access which presently accords Bangladesh a competitive edge over Indian products. One of the key labor-intensive sectors which contributes significantly to the exports of both Bangladesh and India is garments industry. In 2009, both the countries almost had an equivalent share in the world market, however in 2018 India was left far behind Bangladesh. India’s total garment exports stood at 21 billion USD whereas Bangladesh’s exports were at 40 billion USD in 2018.
Bangladesh’s garment sector, due to its LDC status, currently enjoys a duty-free access to markets of Europe and other developed countries. Specifically in EU markets, goods from Bangladesh are covered under “Everything But Arms” (EBA) preferential arrangement which provides zero percent duty on all the products except arms and ammunition. On the other hand, India loses out due to 9% average tariff on garments under the Standard GSP scheme of EU. Further, under the SAFTA and APTA Agreements, India also provides similar duty-free market access to LDCs which along with the removal of quantitative restrictions has exponentially increased Bangladesh’s garments exports to India leading to a tough time for the domestic industry even in the internal market.
The major markets for India and Bangladesh garment exports are the EU, Australia, Canada and Japan. Trade estimates of garment products clearly show that India’s export in terms of value is significantly less than that of Bangladesh. Since 2010, India’s total share of exports grew by 9.4% whereas Bangladesh’s exports skyrocketed by 141% in these markets. The major reasons behind Bangladesh’s exemplary export performance are tariff exemptions and lower wage labor market which provides impetus to narrowly beat its competitors in the international market. The analysis done in the report reveals that 70% of Bangladesh’s overall export is covered under LDC-specific preferences.
At this juncture a possible graduation of Bangladesh will lead to termination of such preferential access granted exclusively to LDCs which may provide an opportunity for Indian exporters to grab a larger share. However, to maximize the gains arising from this development India needs to prepare a robust action-plan. Firstly, low cost inputs such as cheap power, land and raw materials will have far-reaching effects in enhancing the export competitiveness. Secondly, India should focus on mass scale production of garments in order to achieve economies of scale to bring down its cost of production. Presently, the production is limited majorly to small-scale enterprises which lack capital intensive technology. This in turn negatively affects the quality and time of production which are crucial factors in tapping the domestic and international markets. The improvement in these parameters would help Indian exporters to move up the value chain in terms of creating brand value for its superior quality products. Another overdue policy action could be cutting the import duties on high-quality machinery required for better production. In addition to this, a fiscal stimulus is required to boost the ecosystem in wake of Covid-19 pandemic.
Lastly, to offset the preferential access enjoyed by its competitors such as Vietnam, Bangladesh etc. India should identify its partners and strategically negotiate FTAs for lower tariffs and Non-Tariff Measures (NTMs) to obtain better market access for Indian exports. Needless to mention, India will only be able to reap the benefits arising from Bangladesh’s graduation (due in 2024) if it sows the right seeds today. Effectuating such policies especially at a time when corporate taxes are slashed to match that of India’s competitors along will definitely send a positive signal for investment in the sector from the top global garment companies.
*Authors are Research Fellows at Centre for WTO Studies, Indian Institute for Foreign Trade. Views expressed are personal.
Post-Pandemic Economies and Environment
The cleaner air in cities, the burgeoning biodiversity and dramatic shift to less pollution-intensive lifestyle across the globe indicate the scope of the environmental improvement that can be achieved in just days. This is what we need to adhere to navigate the current pandemics:COVID-19 and environmental degradation. The environmental issues as we know do not seem to wait for a more convenient time, we therefore must deal it and Covid-19 pandemic concurrently. It is a very fatal disease and has incited urgent response all over the world. The governments, businesses and industries have been forced to deal with the pandemic in an unprecedented way.
According to the experts, this pandemic has provided us with the opportunities to deal with other crises also. We can take a transnational leap towards a sustainable society that produce minimum wastes and emissions. How we deal with current pandemic will also set our environmental trajectory for the centuries to come. The changes in our behaviour that we are experiencing nowadays and some of which may instilus permanently have a far-reaching impact on the environment. Our consumption and travel patron are more responsible: driving less car, attending online meetings rather than taking flights. Equally, it indicates that considerable dent on emissions and wastes products can be made without disturbing too much economic growth.
However, according to International Renewable News Agency (IRENA), for the long-run substantial reduction in the emissions of the toxins, huge and lasting changes are needed in the way how energy is produced and consumed. Though China and India two major growing economies, observed 25% and 30% reduction respectively during the months of lockdown. However, a shift towards low-emission society cannot be accomplished only via individual choices instead it involves reimagining the ways our urbane centres are built and organised, how roads are laid out so that moving without cars become easier, how provisions for walking, cycling and public transport is mad. There is a need for complete overhauling theway we grow, manufacture, trade, consumes and the way we travel.
Cities of Western Europe have been leading this transition by introducing innovative infrastructure projects: Milan has allocated 35 Km street for pedestrians and cyclists; Brussels has created 40km of a new path for cyclists and France has subsided cycling. Also, the Mayor of London started taking measures to build a car and buses free streets and bridges. Similarly, many cities are working on the circular economy where wastes are minimized through reuse and recycling. Following the footsteps of these cities, Pakistan also needs to devise pro-environmental urbane policies and mobility models.
Many studies such asYaron Ogen, 220 and Dario Caro, 220 indicate a strong link between COVID-19 death rate and an increase in emissions. Especially in North Italy and Spain, the high death rate from COVID-19 is seen to be associated with high air pollution in cities. Curtailing the pollution, therefore, would reduce general health burden and prevent any future pandemic may not prove to be so lethal. It has been learnt from the pandemic that early actions to contain the virus were more effective than trying to deter when the virus has spread. The same is also true for the environmental issues as Prof. Stern of Brentford claimed in 2006 that “countries needed to spend 1% of their GDP to stop greenhouse gases rising to dangerous levels. Failure to do this would lead to damage costing much more, the report warned – at least 5% and perhaps more than 20% of global GDP”.
Eventually, it is time for governments to forge with the private sectors to produce a sustainable economy. After this pandemic is over, the businesses, the industry, and individuals would plead to governments for state support. The governments should have an agenda of a sustainable economy while pouring money into the economy as aid packages. Governments should use this opportunity and must take a long view to utilize the stimulus packages. To an extent, the impact of COVID-19 on the environment is the functions of a kind of fiscal stimulus will be adopted in post-pandemic. Ideally, we should avoid a post-2008-09 financial crisis when fiscal measures of China government boosted the emissions by 6% (World Bank,2020). Rather, a more successful model of South Korea should be borrowed where stimulus package of 2008 included investment in natural conversation, energy efficiency, renewable energies, and sustainable transportations.
The COVID-19 virus is a global issue that requires a global response asall states are sharing data, experiences, equipment, and resources to deal with this pandemic. This same spirit of international collaboration is needed to produce the viable solution of the environmental issues. An inclusive global programme collaborated by rich and poor nations that ensures sustainable production can ensure low-emissions economies across the globe. The post-pandemic economies should be navigated in a way that protects people and planet and avoids any ecological destruction that leads to viral diseases. This pandemic can be taken as a mandate to build a new world from its broken parts.
Long lockdowns and the status of Indian MSMEs
Recently, when the Government of India decided to classify institutions as Micro, Small, and Medium Enterprises (MSMEs) they were trying to set up an incentive structure to usher a new era of growth. The incentives announced are in the form of attractive cheap loans, fewer compliance standards, tax benefits, and host of other freebies. The intended scheme wanted to keep growing — from Micro to Small and Small to Medium, and the support system and put the nation on a path of self-sufficiency .
Change of classification criteria
In fact, the businesses are classified as Micro, Small, or Medium depending on the kind of investments they were making in plant and machinery and if we made investments of up to 5 Crore, then we are as a Small enterprise. But what happens when business is booming and there’s an incentive for us to invest and expand. Well, without government intervention, we’d have lapped up this opportunity no questions asked. But now, we have to consider the downside. Because, as our transition from being Small to Medium, we’ll forego a few benefits. Benefits that might not want to cede. Here likes the dilemma because when we try and deceive the government into thinking we are a Small enterprise when in fact we are not and we will have to do is to keep making the investments we need, but figure out ways to hide the investments on our accounting books. That means the government will now have to spend additional resources in physically verifying your claims. In effect, the incentives that were designed to help MSMEs grow and become self-sufficient have now turned “perverse”. A move that was meant to promote investment and foster growth is now yielding terrible unintended consequences stifling all progress.
Scheme of the Government
So they began working on a proposal to change the classification criteria. They figured that total revenues would be a good metric since claims regarding revenue can easily be verified with the GST Sales data filed at the Goods and Service Tax portal. More importantly, entrepreneurs won’t have to worry about making new investments since the benefits are no longer tied to this metric. But the industry body representing MSEMs is not happy with this development. They lobbied and urged the government to keep the classification criteria intact but when the government finally charged ahead and introduced turnover as an additional criterion. They even expanded the investment limit to ensure MSMEs don’t graduate out of benefits too soon. However, MSMEs in the service sector (IT and stuff) will also be classified along the same lines as their manufacturing counterparts. So no step-motherly treatment for the people in the service industry either. Besides the classification, the government also wants to get the big guns interested in the space. They want Venture Capitalists to walk in and buy ownership in promising upstarts. The plan is simple. Put together a mother fund with 10,000 crores from the government. And then disburse the funds from the mother entity to smaller daughter funds in a piecemeal fashion and try and get other investors on-board these smaller funds. If all goes well, the 10,000 crores from the government should attract an additional 40,000 crores from outside investors (PE/VCs) and this should give MSMEs some much-needed funding support. They are calling it the Fund of Funds.
However, in the present status of pandemic banks don’t want to offer another lifeline by extending new loans considering their own precarious situation. And they most certainly cannot contain the problem; since we are likely to see a spike in defaults owing to the fact that most MSMEs have shut shop completely since the lockdown. And if MSMEs can’t restart operations and fail en masse, we will have a systemic problem on our hands. So a government intervention was inevitable. And the finance minister finally announced 3 lakh crore worth of collateral—free loans for businesses, including MSMEs in a bid to plug the funding gap. If we are in a business with a loan burden on your hands, banks will now extend new loans of up to 20% of the total loan outstanding so that we can restart operations. Now, we’ll have 4 years to repay this loan. Repayment obligations won’t kick in until the end of the first year. The government will stand as our guarantor in case we default and they will compensate the banks in full interest and principal. So technically, banks should be more willing to lend to these institutions now.
Growing importance of agriculture
Around 51 lakh people migrated to agriculture last year and this should be seen positively. In fact, we should actively pursue this endeavour and focus on making farming economically viable. Indian Agriculture, on an aggregate level, has been unprofitable for a good while now. Monsoons are erratic. Irrigation infrastructure still needs work. Warehousing and storage problems still persist. The middlemen skim most of the profit and many farmers work with land parcels so tiny that they can almost never leverage benefits of scale. Meaning we have a small proportion of landowners who run an extremely profitable enterprise while a good chunk of the agrarian population still live below the poverty line. The point is — there’s been very little incentive for people to continue and work the farmland. And as a consequence, many people migrated from rural hinterlands to urban centres en masse.
But now in the pandemic and long lockdown the migration patterns have reversed. There’s now more incentive for India’s labour population to return to agriculture. It’s become prosperous again. First, it is likely that employment did not actually increase in agriculture, but the sector merely absorbed the excess labour as it had no other place to go to. Farmers did not actually call out for more labour. But, family labour landed up in farms when they had no other place to go to. The real estate and construction sector, which is usually a provider of employment to low-skilled farm labourers who try to move out of the labour surplus farmlands, shed 4.6 million jobs between January-April 2018 and January-April 2019. This failure of the construction industry to absorb farm surplus labour is, possibly, the biggest reason why there is an increase in employment under agriculture. A family farm always has scope to absorb some unpaid labour although such additions may not increase any production or profit. There is always an extra patch of the farms to tend to or the need to take the cattle to graze a little farther. Farm work can be spread thinly over available labour and keep everyone “employed” when there is no alternate work available to them.And right now, with the lockdown in place, we are seeing it happen again. People are moving back to agriculture en masse because they have nowhere else to go. The only difference—it’s happening at a scale that almost seems unreal. This migration also has some very real policy implications.
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