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For now RBI should be comfortable letting it slide (gently if it so wishes) by another 5% in the coming months and even more if the external market pressure continues.

Global capital flows have been retrenching from emerging market (EM) economies since end-February in the wake of Russia’s invasion of Ukraine. Another factor for this situation is the higher-than-anticipated persistence of inflation in advanced economies which is expected to continue to dictate the monetary policy globally. Also an oil and commodity price shock has aggravated the situation for countries that are net importers.

Circumstances have been ripe for global investors to fly to safety – to rebalance out of large EMs such as India Brazil Indonesia Mexico South Africa and Turkey into the US and other advanced economies. The immediate impact of this rebalance is being felt by EMs on their currencies equity markets and bond yields.

Have global developments had a disproportionate impact on India?

No as most other countries have faced similar implications. In some ways the shock itself has been harder for India than many other countries because of it being an oil importer a reasonably integrated economy through trade and a large recipient of capital flows in the last two years.

Yet it has so far escaped the worst obvious from the rates of depreciation of the exchange rate during end-February 2022 till now which have been as high as 20% in Turkey 17% in Chile and 11% in Thailand. Even South Africa at 9% Brazil at 8% and the Philippines also at 8% have experienced higher depreciation rates than India (6%) during the same period. Only Malaysia at 5% and Indonesia at 4% have lower rates than India.

Similarly equity markets have taken a hit across almost all the large EMs. The decline in equity prices has been 12% each in South Africa the Philippines and Brazil; 10% in Malaysia; 9% in Thailand; and 8% in Mexico. The decline in India has been 6%.

Has India’s response been in the desired direction? Of the desired magnitude?

In the right sequence?

In a 2018 World Bank working paper Oliver Masetti and I analysed the policy kit that central banks in EMs use to handle such external volatility. This tool kit comprises monetary policy exchange rate foreign reserves and capital flow measures. We found that of these the most readily used measures are monetary policy exchange rates and foreign reserves. The capital flow measures are used sparingly.

Nudging Forward

It is in this context that Reserve Bank of India (RBI) measures announced on July 6 assume significance. For the most part RBI’s response as well as the pace and sequencing of the measures undertaken has been as per expectations. It has refrained from using any capital flow measures until now but has tightened the policy rate twice has let the exchange rate depreciate by about 6% and has used up nearly 7% of its foreign exchange reserves to ensure an orderly adjustment of the exchange rate.

RBI also relaxed the norms to attract foreign investment into NRI deposits corporate and government bond markets and external commercial borrowings. Most of these relaxations are for a temporary period – from end-October to end-December. All these measures are reasonable and can easily be extended or made permanent based on the experience in the interregnum.

So has the exchange rate peaked?

What else can RBI do if the capital flow reversals continue?

Much would depend on the duration of the period of instability. If it lasts for a few more months the toolkit will shrink somewhat.

It’s advisable to use reserves somewhat sparingly lest the generic reserve adequacy ratios start looking somewhat unfavourable. Monetary policy tightening is widely expected to continue both in response to domestic inflationary conditions as well as for coping with the monetary policy tightening undertaken by the US and other EM economies.

However there is room for the exchange rate to depreciate further. As noted above the exchange rate depreciation in India has been more muted than in the other large EMs. Under the circumstances the exchange rate ought to be treated as an automatic stabiliser and needs to be embraced. It is quite likely that the exchange rate may overshoot – as it often does under such circumstances – and we should let it. A competitive exchange rate itself can boost both capital and current account inflows.

For now RBI should be comfortable letting it slide (gently if it so wishes) by another 5% in the coming months and even more if the external market pressure continues.

The tool of liberalisation of capital flows can be deployed further both for its signalling value as well as to materially attract new capital and to front-load the impending remittances and capital inflows. Besides the narrative of domestic reforms must continue unchecked. Inspiring confidence in domestic policy frameworks and adherence to fiscal prudence need to stay the course too. In addition we need to focus relentlessly on raising non-tax revenues to pump-prime the economy should the need arise.

Right Reaction

During past such episodes RBI has also signed or extended bilateral swap lines with Japan. Even though these swap lines are considered to be generally untested – and possibly ineffective – they may be worth considering if the period of turbulence extends beyond another 2-3 months and if the reserves decline by another 5-7% during this period.

Hopefully calm will be restored before that due to both external conditions and India’s policy response in the meantime.

The size of our labour force is constrained by the absence of women from the workforce. Only about 30% of women aged 15 and above are employed either in wage work on family farms and businesses.

The United Nations Population Division released a new set of population projections on July 11 World Population Day. These projections show that India will become the most populous country in 2023 earlier than the year 2027 as expected. However this is not because India has not successfully implemented its population policy but because China’s fertility is lower than anticipated. Following years of stringent population control restricting most couples to a single child in 2016 China relaxed its one-child policy to allow two children. Then in 2021 it was further relaxed to allow a third child. Nonetheless Chinese couples seem to have adjusted to life with a single child and the Total Fertility Rate (TFR) in China is barely 1.16.

The size of the population is intimately connected to the power dynamics shaping the relationship between nations regions and generations. It is however a double- edged sword that needs to be skillfully wielded. So what do population transformations around the globe and within India herald for challenges facing Indian public policy? The following 25 years will bring three different changes in the centre of population gravity: Between nations between states and between generations. Each will require a finely calibrated response.

First over the next 25 years as India approaches a century we will be blessed with a massive workforce that will cast a long shadow. Globally one in five working-age persons will live in India. The challenge is that a sizeable working-age population does not mean many workers. The size of our labour force is constrained by the absence of women from the workforce. Only about 30 per cent of women aged 15 and above are employed either in wage work on family farms and businesses. With sharply declining fertility and rising education many Indian women would like to work if they can find suitable jobs. Unless they can be welcomed into gainful employment we will not be able to reap the hoped-for demographic dividend.

Women are shut out of many sectors of the Indian economy. The absence of women in factories the transportation sector and skilled blue-collar work is striking.

Making these occupations female-friendly is essential if we are to reap a gender dividend.

The second aspect of the demographic centre of gravity relates to population distribution between states. With fertility transition beginning in southern states and slowly spreading to central India future workers will come from the central part of the country precisely the states that have lagged behind in fertility transition so far. As Professor P M Kulkarni projects the southern states already facing the burden of caring for a larger proportion of the population aged 65 and above will be even more stressed in years to come.

Thus the future of India rests in the hands of children growing up in UP Bihar and Madhya Pradesh today. We will need to ensure that the education system in these states is prepared to meet this challenge. With industrial growth concentrated in coastal regions and the bulk of our workers coming from central areas we will also need to figure out how to deal with interstate migration. Already Tamil workers are working in Chennai auto factories while workers from Odisha and Uttar Pradesh are working in tea and cardamom plantations of Tamil Nadu. As trains of interstate migrants during the pandemic highlight we will need better policies to integrate and support migrant workers in their new homes if we are to adjust to changing demographic realities.

The changing centre of demographic gravity is also reflected in changing inter- generational relations. UN median projections show Indian fertility stabilizing slightly below the replacement level of Total Fertility Rate (TFR) of 2. However they have a broad band of uncertainty around this estimate with some estimates falling substantially below 2. A comparison of India’s population pyramid in 2047 with the projected population pyramid for China provides a stark picture of the different challenges the two countries will face. China must cope with an enormous old-age dependency burden with no relief from successively smaller child cohorts.

However in 2047 a large proportion of the Indian population will be of working ages. This large cohort will be succeeded by somewhat smaller cohorts but not as small as those of China.

However after 2050 the older population will rise sharply; by 2100 about 30 per cent of the Indian population will be 65 and above. With small families these older parents will have two or fewer children to support them making it difficult for Indian parents to rely on their traditional mode of survival living with one or more sons. This suggests that we must develop more robust systems of old-age support.

This should include a combination of private savings public social security programmes and an increase in retirement age allowing the older population to be economically active for a longer time and save for their future. In addition sincemost of these elderly will be women we will also need to increase women’s control over family’s savings land and residence. 

We must find a way of getting comfortable with this changing centre of demographic gravity and learn to manage it. The National Population Policy of 2000 focused on promoting the small family norm. A National Population Policy of 2022is needed that adds the management of changing size and composition of the Indian population to its agenda.

The writer is Professor and Centre Director NCAER National Data Innovation Centre and President of Population Association of America. Views are personal.

NITI Aayog’s effort though creditable has loose ends. PLFS should use 2015 worker classification and probe nature of contracts.

At the outset NITI Aayog needs to be complimented for undertaking the onerous task of trying to estimate the number of gig workers. The report ‘India’s Booming Gig and Platform Economy: Perspectives and Recommendations on the Future of Work’ (IBGPE 2022) is indeed a commendable exercise especially given the data lacunae.

The Periodic Labour Force Survey (PLFS) data uses the National Classification of Occupations (NCO) 2004 where there is no classification for gig/platform workers. The NCO 2015 which was released in 2016 would allow one to tease out this information. However that has not been implemented in the PLFS as yet.

For example the occupation of ‘motor drivers’ with Code 8321 in NCO 2015 has four types of drivers. Two types namely auto-rickshaw driver and despatch rider existed in NCO 2004 too. NCO 2015 has added two more — delivery associate/two-wheeler delivery associate and motorcycle drivers (others). Theoretically one should be able to estimate the number of gig/platform workers using the National Industrial Classification Codes in conjunction with NCO 2015.

Therefore we have to search for alternative means to measure the number of gig/platform workers. The IBGPE 2022 is careful to distinguish between the gig and platform economies in its definition following the Draft Code on Social Security (DCSS) 2020.

The DCSS 2020 defines gig workers as a “person who performs work or participates in a work arrangement and earns from such activities outside of the traditional employer-employee relationship”.

The IBGPE states that “gig workers can be broadly classified into platform and non-platform- based workers. Non-platform gig workers are generally casual wage workers and own-account workers in the conventional sectors working part- or full-time.” The DCSS 2020 clearly defines platform workers as gig workers where the non-traditional work arrangement is mediated via an online platform.

Areas to reflect on

The best approach to measuring the number of gig workers is a household survey. Instead the IBGPE has used a data-centric progressive filtering (based on literature review) methodology to estimate the number of gig workers using filters which they best think describe the workers in the Indian context. Here are some issues to ponder:

First including all casual wage workers and own-account workers in the “gig economy” essentially means that we are renaming a part of the traditional informal sector as gig workers. The International Labour Organisation uses the terms gig worker and platform worker interchangeably.

Second IBGPE includes ownership of smartphones as one of the filters to estimate the number of gig workers. This means that we are measuring platform workers because online intermediation is required there. It is ambiguous as to what the IBGPE is measuring — gig or platform. The international literature defines gig work using two separate lenses — flexible work arrangements and online labour intermediation.

Flexible work arrangements have always existed in India. So what is the “new” flexible work arrangement that we are measuring? Further it is not that everyone who has a smartphone will be working in the gig/platform economy.

Third there is a debate in the literature on whether the platform/gig worker is an employee or an independent contractor. The IBGPE does not incorporate this nuance in its methodology. It may add to Indian regulatory concerns.

Fourth workers may have task- or tenure-based contracts. The key feature of a platform/gig economy is ex-ante specified paid task-based contracts. Since PLFS only measures the length of contracts all gig/platform workers would fall in the category of workers with ‘no contracts’.

In PLFS 2019-20 84 per cent of the workers (15-65 age group) were without any job contract and another 4 per cent had job contracts for less than one year. A nuance not accounted for in the IBGPE methodology.

Fifth the IBGPE states that it has included workers whose household consumption is below the 75th percentile of monthly per capita consumption expenditure. But we may be excluding consultants (example doctors) in higher percentiles who take up platform work etc.

Regulatory issues

In the 2020 article ‘Conceptualising the Gig Economy and Its Regulatory Problems’ by Koutsimpogiorgos N Slageren JV Herrmann AM and Frenken K published in Policy and Internet the authors state there are four key defining features of a gig/platform economy which raise key regulatory issues and need to be addressed by policymakers:

Labour versus capital services: Are we including only online labour platforms or capital platforms (assets) as well in the sharing economy? There is of course a continuum here like workers use their own assets like their own vehicles to deliver services.

Online/offline intermediation: Platforms act as online intermediaries between service seekers and providers. The rating systems and algorithmic management change the nature of labour relations and that is the “new” and evolving part of labour relations. But should we include offline intermediation too especially since they have existed in India previously? Notably the IBGPE does not discuss the latter.

Independent contractor versus employee: Is the gig/platform worker an independent contractor or employee? The answer lies in the detail because it will depend on the degree of autonomy the worker has to decide how where and when to produce.

Paid versus unpaid services: In the labour platforms we are looking at paid services. However in capital platforms that may not be the case in India. For example in homestays in India the whole family may pitch in to provide a service which may involve some degree of unpaid household services.

The conceptual debate really is about whether gig workers and platform workers are the same or different and their respective characteristics. Two quick recommendations are that the PLFS should implement the NCO 2015 in its annual surveys and include a question on the nature of contracts that workers have.

The writer is a Senior Fellow at NCAER. Views are personal.

All public sector banks (PSBs) should be privatised and only SBI— due to its better performance — may remain under government ownership for now, a policy paper by two influential economists has recommended.

The policy paper is to be presented at the India Policy Forum on Tuesday. It has been authored by Poonam Gupta, NCAER director general & member of the economic advisory council to the Prime Minister (PMEAC), and former Niti Aayog vice-chairman & Columbia University professor Arvind Panagariya.

“In principle, the case for privatisation we have made applies to all PSBs including SBI. But we recognise that within the Indian economic framework and political ethos, no government will want to be without a single PSB in its portfolio. Keeping this in view, the goal, whether stated explicitly or left implicit, should be to privatise all PSBs other than SBI…”

“Of course, if some years later, the circumstances turn yet more favourable to privatisation, the goalpost may be moved to include SBI in the privatisation list,” the authors argued. They said that with the bulk of banking moving into the private sector, the RBI will also feel the pressure to streamline its processes, rules, and regulations to deliver superior outcomes since the fact of three-fifths of the banking sector being outside its regulatory reach would no longer serve as an explanation for its lapses.

Opinion: Mridul Saggar:

In China, 82% of adults made a digital merchant payment using a mobile phone. In India, the figure is just 8%. In China, 38% of adults have credit cards. In India, only 5% do. Is the lower per-capita income – and, therefore, higher default risks – sufficient to explain this?

On June 29, the World Bank released its 2021 Findex Report. Launched in 2012, this database has become the most extensive source for measuring progress on financial inclusion and the barriers to it. While it may have data problems given the mammoth exercise, if used with understanding and cross-checks, it provides insights on improving financial reach of those for whom formal finance is not easily accessible.

The latest report highlights the fact that despite the pandemic disruption, financial inclusion has improved due to digital payments. However, it underplays the current underutilisation of digitalisation. In developing economies, only 18% of adults paid utility bills directly from an account. That a third of them did so for the first time after the onset of the pandemic shows the potential. 61% of 15-year-old-plus Indians who made a digital in-store merchant payment did so for the first time after Covid started. But only 7% of adults actually made digital in-store payments.

In China, 82% of adults made a digital merchant payment using a mobile phone. In India, the figure is just 8%. In China, 38% of adults have credit cards. In India, only 5% do. Is the lower per-capita income – and, therefore, higher default risks – sufficient to explain this?

The Findex Report speaks volumes of the potential to reduce supply-chain disruptions and arrest the fall in private consumption during a demand shock. No-touch payment requirements played an important role in accelerating the adoption of digital payments.

But the headline Findex number appears to show a regress in India’s financial inclusion over the last four years. The percentage of India’s adult population having a bank account has apparently dropped from 80% in 2017 to 77% in 2021 – a decrease of 8 million-odd accounts. Of this, 5 million could be accounted by the demographic shift caused by the reduction in the 65-year-old-plus population. The rest could be due to sampling and non-sampling errors, greater digitisation, use of mobile service accounts and overestimation of population due to Covid excess mortality.

But there is no cause for worry. According to data reported by banks under the Pradhan Mantri Jan Dhan Yojana (PMJDY), during 2017-21, the number of beneficiary accounts increased by 13.4 million, 11.4 million of which have been opened in rural or semi-urban branches. The deposits in PMJDY accounts have doubled in four years. RuPay debit cards have increased by over 8 million in the same period. So, financial inclusion is very much working on the deposit side.

What is lacking is the use of accounts to make deposits and credit reaching those getting financially included. Findex shows that while 45% of adults borrowed money, only 12% borrowed it from financial institutions. On the deposit side, the data shows that though 77% had an account with financial institutions, only 29% of them made a deposit in them, with 35% of accounts being inactive.

Banks in India are instructed to treat accounts as dormant if there are no transactions in the account for over two years. Efforts are made to unearth these inoperative accounts. But about ₹1.5 lakh crore of unclaimed amounts lie with financial firms. Similarly, unclaimed dividends are a problem. In the interim, they are being used to further depositor and investor awareness. The good news is that the gender gap in terms of accounts with financial institutions has vanished. 77% of adult men as well as women now have an account. In 2011, these numbers were 44% and 26%, respectively.

However, India must not fall prey to self-laudatory references on financial inclusion. There are still miles to go. Nearly 300 million adult Indians still do not have an account. Although Telecom Regulatory Authority of India (Trai) data show that 60% and 54% of the population are internet and mobile users, respectively, Findex finds that only 28% adults in India have access to the internet. Though 66% of adults own mobile phones, only 6% have a mobile money account. These numbers are distinctly lower than the average for other low middle-income countries to which India belongs.

There is a case for increasing rural tele-density in Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh and Uttar Pradesh. While the smartphone market is getting revolutionised, GoI must not lose sight of the fact that digital financial inclusion will greatly depend on producing low-cost feature phones that can still support digital payments. RBI’s National Payments Corporation of India (NPCI) and NITI Aayog should join forces to chalk out a blueprint.

The writer is former executive director, RBI, and member, Monetary Policy. Views are personal.

Published in: The Economic Times July 9, 2022