E NABLI NG MONE TI ZAT I ON OF I N FR ASTR UCT UR E ASSE TS I N I NDI A
Why in News?
Government is drawing up a plan to sell public sector Infrastructure assets
More on the news
• The government is identifying assets, including rail lines, national highways and power transmission lines, for monetising through infrastructure investment trusts (InvITs).
21 ©Vision IAS
Significance
• Monetisation of assets being held in public sector undertakings through creation of InvITs will fast-track the agenda of improving infrastructure in the country.
o This year’s Budget suggested the use of InvITs to
monetise roads by the National Highways Authority of
India (NHAI).
• The government feels the role of central public sector enterprises is to develop new infrastructure and create a market rather than just earn returns from their investments.
Infrastructure Investment Trusts (InvITs)
• These are mutual fund like institutions that enable investments into the infrastructure sector by pooling small sums of money from multitude of individual investors for directly investing in infrastructure so as to return a portion of the income to unit holders of InvITs, who pooled in the money.
• InvITs are regulated by Securities and
Exchange Board of India
• The Twelfth Five Year Plan (2012-2017) projected an investment of Rs 55.75 trillion in infrastructure during
2012-17, more than double that in the Eleventh Five Year Plan.
o India’s banking sector is under pressure as banks, weighed down by bad loans and weak profitability, are
reaching their exposure limits in infrastructure lending.
Advantages
Monetization of infrastructure assets will,
• Strengthen the capital position of PSBs so that they are well placed to fund new credit growth opportunities
• Improve fund flow to the infrastructure sector by securitizing infrastructure assets, thus enhancing their access to institutional investors such as pension funds, insurance funds and mutual funds.
• Funds generated can be used to set up Greenfield projects
• It will make up for the lack of private investment.
3.4. UNE MPLOY ME NT AL LOW AN CE
Why in news?
The Andhra Pradesh government has announced Mukhya Mantri Yuva Nestam scheme to provide unemployment allowance of Rs 1000 per month to the unemployed youth (between 22-35 years of age) through DBT using Aadhar.
Unemployment in India
• ILO report "World Employment and Social Outlook Trends - 2018": The number of unemployed persons in India is expected to rise from 18.3 million in 2017 to 18.6 million in 2018 and 18.9 million by 2019. At the same time, unemployment rate is expected to remain static at 3.5 per cent.
• World Bank in its comprehensive report on India’s economy opines that India needs to create a lot of salaried jobs (formal jobs) to meet the working population demands and step up its growth to a middle-income country.
• About 65 percent of the population in the country has an average age of less than 35 years. A large section of unemployed within this can become a demographic burden for India.
The case of Unemployment allowance in India
• Social security, social insurance, employment and unemployment comes within concurrent list. Therefore, both Centre and States can make laws over it.
• MGNREGA is the only law in India that guarantees 100 days of employment to all in rural areas.
• However, several states like Andhra Pradesh, Kerala, Uttar Pradesh, Himachal Pradesh, Puducherry, etc. have started to provide unemployment allowances to their youths based on degrees possessed by them.
• Universal Basic income irrespective of employment status has also been proposed as an idea.
Justification for Unemployment allowance
• A safety net will be available to youth during times of unemployment and they can hold on to get better jobs.
22 ©Vision IAS
• According to Keynesian concepts, when the economy falls into recession it needs increased consumer spending, which is provided by a surge in benefits to the unemployed. This government spending creates a large multiplier effect on the economy as it boosts aggregate demand.
• It will give purchasing power to the people who are likely to spend it locally, helping local business which will further help in creation of jobs and more taxable income.
Criticism against Unemployment allowance
• It adds to the fiscal deficit of the government.
• Jobless insurance is a subsidy and an incentive to stay unemployed. Various economists have argued that generous or lengthy jobless benefits artificially inflate the unemployment rate.
• It penalizes workers/employed people.
• The Unemployment allowance raises the cost of hiring.
• Suppress Personal Savings: Unemployment is one of the major reasons because of which people save. This saving is also essential in economic growth when channeled into capital investment. It raises the productivity of economy and ultimately boosts wages. Since Unemployment allowance gives little incentive to save, it hurts economy in the long run.
• Waste, Fraud, and Administrative Costs: A large amount of public money is also wasted because of bureaucratic costs involved in devolution and administration of such allowances. Higher taxes eventually leads to tax evasion and other frauds.
Way-Forward
There are three demographic groups in urgent need of jobs i.e. a growing number of better educated youth; uneducated agricultural workers who wish to leave agricultural distress behind; and young women who are better educated than before. Following steps can be taken to create job for them:
• A better industrial and trade policy is required. Steep fall in tariffs after 1990s and inverted duty structures (higher duty on intermediate goods compared to finished products) have damaged MSMEs which have huge potential of job creation.
• Special packages should be provided to labour-intensive industries such as food processing, leather and footwear, wood manufacturers and furniture, textiles and apparel and garments to create jobs.
• Urban development can be aligned with manufacturing clusters to create jobs. Infrastructure investment (like
AMRUT) by the government always creates many jobs.
• An engagement between the Urban Development and MSME Ministries can ensure that infrastructure is being developed in towns where MSMEs clusters are more. It will attract more investment to industrial clusters, which is where most non-agricultural jobs are.
• Cluster based skilling programs in areas/sectors where employment opportunities are more. Appropriate public investments in health, education, police and judiciary can create many government jobs.
• Schools need to be revitalised. Vocational courses and scientific education must be included in school curriculum at secondary and higher secondary level to give a broader view to students about career prospects.
Why in News?
Government is drawing up a plan to sell public sector Infrastructure assets
More on the news
• The government is identifying assets, including rail lines, national highways and power transmission lines, for monetising through infrastructure investment trusts (InvITs).
21 ©Vision IAS
Significance
• Monetisation of assets being held in public sector undertakings through creation of InvITs will fast-track the agenda of improving infrastructure in the country.
o This year’s Budget suggested the use of InvITs to
monetise roads by the National Highways Authority of
India (NHAI).
• The government feels the role of central public sector enterprises is to develop new infrastructure and create a market rather than just earn returns from their investments.
Infrastructure Investment Trusts (InvITs)
• These are mutual fund like institutions that enable investments into the infrastructure sector by pooling small sums of money from multitude of individual investors for directly investing in infrastructure so as to return a portion of the income to unit holders of InvITs, who pooled in the money.
• InvITs are regulated by Securities and
Exchange Board of India
• The Twelfth Five Year Plan (2012-2017) projected an investment of Rs 55.75 trillion in infrastructure during
2012-17, more than double that in the Eleventh Five Year Plan.
o India’s banking sector is under pressure as banks, weighed down by bad loans and weak profitability, are
reaching their exposure limits in infrastructure lending.
Advantages
Monetization of infrastructure assets will,
• Strengthen the capital position of PSBs so that they are well placed to fund new credit growth opportunities
• Improve fund flow to the infrastructure sector by securitizing infrastructure assets, thus enhancing their access to institutional investors such as pension funds, insurance funds and mutual funds.
• Funds generated can be used to set up Greenfield projects
• It will make up for the lack of private investment.
3.4. UNE MPLOY ME NT AL LOW AN CE
Why in news?
The Andhra Pradesh government has announced Mukhya Mantri Yuva Nestam scheme to provide unemployment allowance of Rs 1000 per month to the unemployed youth (between 22-35 years of age) through DBT using Aadhar.
Unemployment in India
• ILO report "World Employment and Social Outlook Trends - 2018": The number of unemployed persons in India is expected to rise from 18.3 million in 2017 to 18.6 million in 2018 and 18.9 million by 2019. At the same time, unemployment rate is expected to remain static at 3.5 per cent.
• World Bank in its comprehensive report on India’s economy opines that India needs to create a lot of salaried jobs (formal jobs) to meet the working population demands and step up its growth to a middle-income country.
• About 65 percent of the population in the country has an average age of less than 35 years. A large section of unemployed within this can become a demographic burden for India.
The case of Unemployment allowance in India
• Social security, social insurance, employment and unemployment comes within concurrent list. Therefore, both Centre and States can make laws over it.
• MGNREGA is the only law in India that guarantees 100 days of employment to all in rural areas.
• However, several states like Andhra Pradesh, Kerala, Uttar Pradesh, Himachal Pradesh, Puducherry, etc. have started to provide unemployment allowances to their youths based on degrees possessed by them.
• Universal Basic income irrespective of employment status has also been proposed as an idea.
Justification for Unemployment allowance
• A safety net will be available to youth during times of unemployment and they can hold on to get better jobs.
22 ©Vision IAS
• According to Keynesian concepts, when the economy falls into recession it needs increased consumer spending, which is provided by a surge in benefits to the unemployed. This government spending creates a large multiplier effect on the economy as it boosts aggregate demand.
• It will give purchasing power to the people who are likely to spend it locally, helping local business which will further help in creation of jobs and more taxable income.
Criticism against Unemployment allowance
• It adds to the fiscal deficit of the government.
• Jobless insurance is a subsidy and an incentive to stay unemployed. Various economists have argued that generous or lengthy jobless benefits artificially inflate the unemployment rate.
• It penalizes workers/employed people.
• The Unemployment allowance raises the cost of hiring.
• Suppress Personal Savings: Unemployment is one of the major reasons because of which people save. This saving is also essential in economic growth when channeled into capital investment. It raises the productivity of economy and ultimately boosts wages. Since Unemployment allowance gives little incentive to save, it hurts economy in the long run.
• Waste, Fraud, and Administrative Costs: A large amount of public money is also wasted because of bureaucratic costs involved in devolution and administration of such allowances. Higher taxes eventually leads to tax evasion and other frauds.
Way-Forward
There are three demographic groups in urgent need of jobs i.e. a growing number of better educated youth; uneducated agricultural workers who wish to leave agricultural distress behind; and young women who are better educated than before. Following steps can be taken to create job for them:
• A better industrial and trade policy is required. Steep fall in tariffs after 1990s and inverted duty structures (higher duty on intermediate goods compared to finished products) have damaged MSMEs which have huge potential of job creation.
• Special packages should be provided to labour-intensive industries such as food processing, leather and footwear, wood manufacturers and furniture, textiles and apparel and garments to create jobs.
• Urban development can be aligned with manufacturing clusters to create jobs. Infrastructure investment (like
AMRUT) by the government always creates many jobs.
• An engagement between the Urban Development and MSME Ministries can ensure that infrastructure is being developed in towns where MSMEs clusters are more. It will attract more investment to industrial clusters, which is where most non-agricultural jobs are.
• Cluster based skilling programs in areas/sectors where employment opportunities are more. Appropriate public investments in health, education, police and judiciary can create many government jobs.
• Schools need to be revitalised. Vocational courses and scientific education must be included in school curriculum at secondary and higher secondary level to give a broader view to students about career prospects.
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