Economy
Further price shocks possible as pick up in factory output not encouraging: Report
India's industrial growth will not return to a sustained and high growth path so long as excess capacity in the manufacturing sector remains and private sector investment cycle does not revive, says India Ratings and Research (Ind-Ra). 
 
A consecutive month of positive growth in the Index of Industrial Production (IIP) though encouraging, Ind-Ra says it believes that it is still too early to expect an improvement and stability in industrial growth. In addition, food inflation despite favourable monsoons could surprise on the upside and food items could be anything ranging from potato, tomato, onion, milk, egg, and pulses, as has been the case in the past, it added.
  
The retail and wholesale inflation for July 2016 at 6.07% and 3.55% came in higher than Ind-Ra's expectation of 5.83% and 1.8%, respectively. IIP maintained its second consecutive month of positive growth at 2.1% in June 2016 as against 1.1% year-on-year (yoy) in May. The IIP growth had turned positive in February and March and negative in April 2016.
 
 
Manufacturing output (75.5% weight in IIP) increased to 0.9% yoy in June 2016 from 0.6% in the previous month. "Such a marginal increase in manufacturing does not generate confidence that the downtrend in manufacturing has been reversed. The capacity utilisation in manufacturing has been hovering in the range of 70%-75% now for nearly five years," the ratings agency says.
 
'Food products & beverages', 'chemicals & chemical products', petroleum products, 'motor vehicles & trailers', non-metallic mineral products and textiles, which together have a weight of 51% in manufacturing, clocked higher growth rates in June 2016 than in the previous month. Mining and electricity grew 4.7% and 8.3% in June 2016 as against 1.4% and 4.7%, respectively, in the previous month.
 
Ind-Ra says, the disconnect between IIP and industrial gross value added data is making it increasingly difficult to discern the sectoral as well as overall industrial and manufacturing output growth trend. The base year used for IIP calculation is 2004-05, while industrial gross value added is based on 2011-12 prices. The use of 2004-05 means a lot of data relating to industrial and manufacturing output is not captured by IIP, it added.
 
 
 
At the use-base level, capital goods output continued its negative trend. Capital goods output contracted 16.5% in June 2016 against a contraction of 12.3% in May 2016. This reinforces the lacklustre investment demand in the economy, the ratings agency said. 
 
Basic and intermediate goods continued with the positive trend and clocked higher growth rates than the previous month. Consumer durables maintained the positive growth trend, although growth rate moderated to 5.6% in June from 6% in May 2016. Consumer non-durables reversed the seven months of negative growth rate and clocked 1% in June 2016 as against negative 2.3% in May 2016.
 
According to Ind-Ra, inflation, both retail and wholesale, surprised on the upside, reinforcing the upside risks to the inflation trajectory emphasised upon by the central bank in its second and third bi-monthly monetary policy reviews. Rainfall has been above normal so far and the area sown under pulses and cereals, as reported by the agriculture ministry, is larger than in the previous year. This has raised the expectation that food inflation will moderate in the coming months and bring down the overall inflation.
 
Retail price inflation rose further to 6.07% in July 2016 from 5.77% in June 2016, led by higher food price inflation. Among the various components of retail inflation, food prices rose for the fourth consecutive month in July 2016 (8.4% in July versus 7.8% in June). Vegetable prices moderated to 14.1% in July from 14.8% in June 2016; however, this was more than offset by a sharp rise in prices of sugar, cereals, egg, milk and pulses. Sugar prices increased to 21.9% in July 2016 from 16.8% in the previous month. Services inflation showed a slight uptick to 4% in July 2016 from 3.8% in June 2016, led by higher inflation in the personal care category (July: 7.3%; June: 5.9%).
 
Wholesale Price Index (WPI) inflation increased to 3.55% in July 2016 from 1.62% in the previous month, led by the sharp rise in food inflation. WPI excluding fruits, vegetables, pulses and sugar stood at 1.75% in July 2016. Although these four commodities have been the key drivers of WPI, even with the exclusion of these items WPI has picked up pace in the last two months. Core (non-food non-fuel) inflation turned positive and came in at 0.09% in July 2016 after 16 months of consecutive deflation.
 
 
Food inflation component of wholesale inflation rose to 11.82% in July from 8.18% in June 2016, once again led by a sharp rise in prices of pulses, fruits, vegetables and sugar. Prices of fruits and vegetables rose to 22.33% in July 2016 from 11% in the previous month. Food grains (cereals and pulses) and sugar prices rose to 13.57% (June: 10.90%) and 32.33% in July 2016 (June: 26.09%). Although part of the reason for price rise could be attributed to the base effect, it is time to question our current understanding of the food economy and its demand and supply dynamics.
 
Ind-Ra says, an analysis of food inflation data over the past six to seven years suggests that nothing has been able to tame food inflation. "The goal post shifts each time food inflation surprises on the upside. It has become routine to put the blame on the failure of monsoon, unseasonal rainfall, the futures market in agricultural commodities and sometimes on hoarding or black-marketing and so on," it added. 
 
"Something more structural has happened in the economy about which we talk but are still not ready to admit - shift in the income, consumption and the aspiration dynamics of people who are at the bottom of the pyramid. So long as we do not get this right, addressing food inflation on a sustained basis will remain a pipe dream," the ratings agency concluded.
 

 

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Finance Ministry spikes Gadkari's greening highways initiative
In a blow to the Green Highways Policy of Road Transport Minister Nitin Gadkari, the Finance Ministry has rejected his proposal which mandates that developers invest 1 per cent of their total project cost in a corpus fund for roadside plantations.
 
The fund was expected to hold up to Rs.1,000 crore per year to provide a green canopy along highways.
 
"Social forestry stands allocated to the Ministry of Environment, Forests and Climate Change and not to the Ministry of Road Transport and Highways," the Finance Ministry said in a communication to the Ministry of Road Transport and Highways while clarifying its decision to reject the proposal.
 
"Also, that a Compensatory Afforestation Fund Management and Planning Authority (CAMPA) is in place at present which has accumulated funds of Rs 38,000 crore already," it said.
 
"As the activities of CAMPA are very closely related to what is being proposed by the Ministry of Road Transport and Highways, establishment of a separate fund may result in overlap of responsibilities, besides unnecessary parking of funds when a large corpus is already available with CAMPA," it added.
 
Besides, CAMPA is administered by the Ministry of Environment and Forests and Climate Change.
 
The Finance Ministry noted that the government has already introduced a bill in parliament to create a fund in the Public Account and transfer the accumulated funds in this regard.
 
The "Green Highways (plantation, transplantation, beautification and maintenance) Policy, 2015" was released by Gadkari in September last year.
 
"This policy will generate employment opportunities for about five lakh people from rural areas," Gadkari said at the release ceremony here.
 
The Road Transport and Highways Ministry had said the policy envisages greening of highway corridors with participation of farmers, private sector, non government organisations and government institutions.
 
The minister had elaborated that under the policy 1,200 roadside amenities will also be established.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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India's education crisis of its own making
A recent report tabled in parliament that over 100,000 schools in India have just one teacher is an alarming wake-up call for the government and all stakeholders. However, it also offers a genuine opportunity to transform India's archaic education landscape now that a new policy is under discussion.
 
Four significant challenges confront the education system: a rapidly globalising environment driven largely by the internet revolution; a serious supply-demand constraint in terms of larger numbers of potential students and a sharp decline in the availability of teachers; the emergence of changing technologies; and an evolving marketplace that is constantly placing new demands.
 
The government is tasked not only with the right to education of its citizens but, more importantly, the right to quality education. To navigate this terrain requires a dramatic shift in mindsets and the introduction of substantive policy interventions that are innovative, disruptive and immediate.
 
For around a decade, Indians have celebrated the fact that we are a young nation. As per current statistics, around 600 million Indians are under 25. At a time when countries like China, Japan, Australia, Germany and many others are facing the uncertainty that accompanies a rapidly-aging population, India seemed to hold the key as the growth driver through its increasing reservoir of youth. We call this the demographic dividend.
 
But age alone cannot be the sole criteria for India to emerge as the global talent pool. Indeed, unless the population is employable, the demographic dividend can rapidly degenerate into a demographic liability. This requires that the quality of education is as important as the availability of education opportunities.
 
India's education system is facing a real crisis, which is entirely of our own making. Furthermore, the crisis is so severe that only transformational overhauling would address the fundamental structural and systemic constraints it faces.
 
In the prevailing situation in India, education delivery is essentially mechanical where an over-worked and over-stretched system delivers an antiquated product to a customer who is denied the right of choice. This needs to be replaced by one that is dynamic and constantly evolving and, furthermore, specifically created to cater to the needs and requirements of the customer. It is only when the "why" of education policy is understood that the "how" (or strategy) would follow. Such a fundamental shift requires clarity on what education is meant to achieve.
 
The student needs to become the starting point because at the end of the schooling period, she/he would do a job that is yet to be created. This would redefine the role of education because never before in human history have new technologies, changing market needs, rapid globalisation and consumer aspirations continuously and dramatically impacted the external landscape -- in both our social and work sphere.
 
To create the right environment for change, the significant supply constraint and the huge pressure it imposes on infrastructure need to be addressed. This is a three-fold constraint. First, even if India were to succeed in its target of 30 per cent gross enrolment rate by 2020 in the tertiary sector, 100 million qualified students would still not have places at university and, thereby, would be forced to join programmes that they would not have otherwise opted for.
 
The second supply constraint is the acute paucity of qualified teachers. Furthermore, the problem is not restricted to higher education but begins from the primary and secondary schooling stage. This combination creates the dramatic crisis where the infrastructure itself collapses.
 
Improving the functioning of our educational institutions requires that the approach towards education and consequently, its management is comprehensively recast. Without embedding efficiencies in its functioning, there would be no incentive to improve, as is currently the case. How many of our teachers, for instance, go through regular training programmes that enable them to keep up-to-date with the latest literature or teaching techniques? Choice and competition lie at the heart of improved performance.
 
By preventing outside players and platforms from entering the arena, the situation is perpetuated domestically and vested interests create their own dynamics. A rapid increase in the footprint of the delivery platforms by opening up to new partners -- especially world-class international providers and the embrace of technology, through online and MOOCs (Massive Open Online Courses) platforms, including virtual learning -- would dramatically transform the education landscape and immediately impact the supply constraint.
 
None of this would be particularly appealing to the existing players. Indeed, as was the case in the 1990s when India decided to embark on economic reforms, there would be predictable resistance from domestic constituencies which would see it as a threat to their business survival.
 
By 2020, it is also estimated that India would require 1,000 new universities to cater to the galloping demand. China faced a similar situation. Anticipating the significant challenge, the government opted for a massive programme to fund overseas education for its nationals and thereby, short-circuited the creation of new educational institutions. This has proved to be a far more efficient response financially and administratively than the expected process of constructing new universities. In addition, the experience of studying abroad enabled the Chinese to think globally. This has proved to be a game changer.
 
It is this kind of thinking outside the box that will address the crisis that confronts India in the education sector. This is not an either-or-situation -- nothing ever is -- but one where every available resource is channelled into combatting the crisis that has the potential of adversely impacting India's aspirational surge. It also requires acknowledging the urgency that confronts us.
 
History would be unforgiving if the government does not see this significant challenge as an extraordinary opportunity of changing education's DNA. As is often foretold, the future can hold promise only when we dare to seize it.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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