It is no news to anyone that India fares poorly in giving economic freedom to its citizens and business firms. Two key indexes in this regard establish the poor standing of India.
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In the Index of Economic Freedom brought out by The Heritage Foundation, Indian economy ranked 129th among 186 countries. In the Index of Global Economic Freedom by Fraser Institute, India ranks 79th among 162 countries with 108th rank in business regulation.
The Indian state is not only involved in running businesses that it has no business running but also intervenes in markets quite frequently. Though the intentions are honest and good, more often than not, the interventions succeed in making matters worse.
2019-20 economic survey lists four such interventions by the government of India which has done more harm than good and hurt the ability of the markets to support wealth creation, and has led to outcomes opposite to those intended.
First is frequent and unpredictable imposition of blanket stock limits on commodities under Essential Commodities Act (ECA). The survey notes that such steps neither bring down prices nor reduce price volatility. Rather, they enable opportunities for rent-seeking and harassment.
The survey takes three examples for consideration — a) imposition of stock limits on dal in 2006-Q3; b) sugar in 2009-Q1 and; c) onions in September 2019. In each of these cases, the intervention spiked up the volatility of the wholesale and retail prices whereas the objective was to ease pressure on prices.
The act is anachronistic as it was passed in 1955 in an India worried about famines and shortages; it is irrelevant in today’s India and must be jettisoned, the survey argues.
Due to ECA, four distortions take place in the agriculture market —
a) It weakens development of agricultural value chain;
b) reduces producer’s profit;
c) Inhibits development of vibrant commodity derivative markets;
d) reduces incentive to invest in storage.
All these increase price volatility in the market thereby reducing consumer welfare.
Second is the regulation of prices of drugs through the Drug Price Control Order (DPCO) 2013. The survey notes that this led to the increase in the price of a regulated pharmaceutical drug compared to that of a similar drug the price of which was not regulated.
While the DPCO aimed at making drugs affordable, it ended up achieving the opposite. “The prices increased for more expensive formulations than for cheaper ones and those sold in hospitals rather than retail shops,” shows the survey’s analysis. The very objective of the DPCO stood destroyed.
The survey’s analysis show that the prices of drugs that came under DPCO, 2013 increased on average by Rs 71 per miligram (mg) of the active ingredient, but, for drugs that were unaffected by DPCO, 2013, the prices increased by only Rs 13 per mg of the active ingredient.
For drugs sold at hospital and which came under DPCO regulation, price increased by Rs 99 per mg but for drugs not under DPCO, price increase was only Rs 25 per mg. As far as drugs sold at retail outlets are concerned, for those under DPCO, prices increased by only Rs 0.23 per mg while for those not under DPCO, prices decreased (yes, decreased!) by Rs 1.49 per mg.
Basically the act helped achieve the opposite. As the survey concludes, DPCO “increased prices by about 21 percent for the cheaper formulations (i.e, those that were in the 25th percentile of the price distribution). However, in the case of costly formulations (i.e., those that were in the 99th percentile), the increase was about 2.4 times.”
Third bad intervention is government policies in the foodgrain markets. The survey says that this has led to the “emergence of Government as the largest procurer and hoarder of foodgrains – adversely affecting competition in these markets.”
The Food Corporation of India (FCI) has overflowing buffer supply — more than it needs, and it has to pay up for this humongous food subsidy burden and what does it achieve? It only helped create divergence between demand and supply of cereals.
Moreover, this is the reason why crop diversification remains a dud because farmers keep producing crops that the FCI pays good monies for rather than growing what the market needs.
Currently, we are at a stage where the consumption of cereals (in both rural and urban areas) has been constantly declining since the last two-and-a-half decade due to rise in incomes, the production of wheat and rice (constitute more than 80 per cent of cereals) is constantly increasing and the biggest incentive for this has been continuous increase in their minimum support price).
The survey recommends that everyone will be better off if the government gives direct investment subsidies and cash transfers to farmers which do not interfere with their crop pattern decisions.
Fourth bad intervention has been debt waivers. The survey analysis shows that “full waiver beneficiaries consume less, save less, invest less and are less productive after the waiver when compared to the partial beneficiaries”.
“The share of formal credit decreases for full beneficiaries when compared to partial beneficiaries, thereby defeating the very purpose of the debt waiver provided to farmers,” the survey notes.
As action points for policy-makers, the survey has listed various acts which have the potential to create distortions in the markets and thus need to be amended and repealed. These are Factories Act, 1948, ECA, 1955, FCI Act of 1965, Land Acquisition Act of 2013, etc.
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- Lowering Emissions by Accelerating Forest Finance (LEAF) Coalition, a collective of the United States, United Kingdom and Norway governments, came up with a $1 billion fund.
- LEAF is supported by transnational corporations (TNCs) like Unilever plc, Amazon.com, Inc, Nestle, Airbnb, Inc as well as Emergent, a US-based non-profit.
- The world lost more than 10 million hectares of primary tropical forest cover last year, an area roughly the size of Switzerland.
- Ending tropical and subtropical forest loss by 2030 is a crucial part of meeting global climate, biodiversity and sustainable development goals. Protecting tropical forests offers one of the biggest opportunities for climate action in the coming decade.
- Tropical forests are massive carbon sinks and by investing in their protection, public and private players are likely to stock up on their carbon credits.
- The LEAF coalition initiative is a step towards concretising the aims and objectives of the Reducing Emissions from Deforestation and Forest Degradation (REDD+) mechanism.
- REDD+ was created by the United Nations Framework Convention on Climate Change (UNFCCC). It monetised the value of carbon locked up in the tropical forests of most developing countries, thereby propelling these countries to help mitigate climate change.
- It is a unique initiative as it seeks to help developing countries in battling the double-edged sword of development versus ecological commitment.
- The initiative comes at a crucial time. The tropics have lost close to 12.2 million hectares (mha) of tree cover last year according to global estimates released by Global Forest Watch.
- Of this, a loss of 4.2 mha occurred within humid tropical primary forests alone. It should come as no surprise that most of these lost forests were located in the developing countries of Latin America, Africa and South Asia.
- Brazil has fared dismally on the parameter of ‘annual primary forest loss’ among all countries. It has lost 1.7 mha of primary forests that are rich storehouse of carbon. India’s estimated loss in 2020 stands at 20.8 kilo hectares.
- Between 2002-2020, Brazil’s total area of humid primary forest reduced by 7.7 per cent while India’s reduced by 3.4 per cent.
- Although the loss in India is not as drastic as in Brazil, its position is nevertheless precarious. For India, this loss is equivalent to 951 metric tonnes worth carbon dioxide emissions released in the atmosphere.
- It is important to draw comparisons between Brazil and India as both countries have adopted a rather lackadaisical attitude towards deforestation-induced climate change. The Brazilian government hardly did anything to control the massive fires that gutted the Amazon rainforest in 2019.
- It is mostly around May that forest fires peak in India. However, this year India, witnessed massive forest fires in early March in states like Odisha, Uttarakhand, Madhya Pradesh and Mizoram among others.
- The European Union’s Copernicus Atmospheric Monitoring Service claimed that 0.2 metric tonnes of carbon was emitted in the Uttarakhand forest fires.
- Implementation of the LEAF Coalition plan will help pump in fresh rigour among developing countries like India, that are reluctant to recognise the contributions of their forest dwelling populations in mitigating climate change.
- With the deadline for proposal submission fast approaching, India needs to act swiftly on a revised strategy.
- Although India has pledged to carry out its REDD+ commitments, it is impossible to do so without seeking knowledge from its forest dwelling population.
Context:-
At the recently concluded Leaders’ Summit on Climate in April 2021, Lowering Emissions by Accelerating Forest Finance (LEAF) Coalition, a collective of the United States, United Kingdom and Norway governments, came up with a $1 billion fund plan that shall be offered to countries committed to arrest the decline of their tropical forests by 2030.
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Why LEAF Coalition?
Brazil & India
According to the UN-REDD programme, after the energy sector, deforestation accounts for massive carbon emissions — close to 11 per cent — in the atmosphere. Rapid urbanisation and commercialisation of forest produce are the main causes behind rampant deforestation across tropical forests.
Tribes, Forests and Government
Disregarding climate change as a valid excuse for the fires, Indian government officials were quick to lay the blame for deforestation on activities of forest dwellers and even labelled them “mischievous elements” and “unwanted elements”.
Policy makers around the world have emphasised the role of indigenous tribes and local communities in checking deforestation. These communities depend on forests for their survival as well as livelihood. Hence, they understand the need to protect forests. However, by posing legitimate environmental concerns as obstacles to real development, governments of developing countries swiftly avoid protection of forests and rights of forest dwellers.
For instance, the Government of India has not been forthcoming in recognising the socio-economic, civil, political or even cultural rights of forest dwellers. According to data from the Union Ministry of Tribal Affairs in December, 2020 over 55 per cent of this population has still not been granted either individual or community ownership of their lands.
To make matters worse, the government has undertaken systematic and sustained measures to render the landmark Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006 ineffective in its implementation. The Act had sought to legitimise claims of forest dwellers on occupied forest land.
Various government decisions have seriously undermined the position of indigenous people within India. These include proposing amendments to the obsolete Indian Forest Act, 1927 that give forest officials the power to take away forest dwellers’ rights and to even use firearms with impunity.
There is also the Supreme Court’s order of February, 2019 directing state governments to evict illegal encroachers of forest land or millions of forest dwellers inhabiting forests since generations as a measure to conserve wildlife. Finally, there is the lack of data on novel coronavirus disease (COVID-19) deaths among the forest dwelling population;
Tardy administration, insufficient supervision, apathetic attitude and a lack of political intent defeat the cause of forest dwelling populations in India, thereby directly affecting efforts at arresting deforestation.
Way Forward
Tuntiak Katan, a global indigenous leader from Ecuador and general coordinator of the Global Alliance of Territorial Communities, aptly indicated the next steps at the Climate Summit:
“The first step is recognition of land rights. The second step is the recognition of the contributions of local communities and indigenous communities, meaning the contributions of indigenous peoples.We also need recognition of traditional knowledge practices in order to fight climate change”
Perhaps India can begin by taking the first step.