Editorial 1 : Plugging the Global Skill Gap
Context: How circular migration can help meet global skill shortage and lift Indians out of poverty
Brain Drain and India
- Brain Drain: Permanent migration from India of highly-qualified doctors and engineers.
- Until 2000, most doctors and engineers who eventually settled abroad had studied in highly subsidised institutions funded by Indian taxpayers.
- Their remittances dwindled as they settled down permanently in the destination countries.
- The total remittances originating from high-income individuals from the US, the UK, Canada and Australia amount to only 32% of the inward remittances to India. On the other hand, manual workers in Gulf countries contribute 40% of the total remittances to India.
Humans Migrate to Escape Poverty
- Historically, human migration has shaped cultures in several parts of the world.
- After the discovery of the Americas and Australia, in the absence of immigration and border controls, people from Europe quickly populated these lands.
- Thanks to the vast resources available there, Europe was able to escape poverty.
- Imperial China expanded westwards to the vast empty lands of the Gobi Desert and the Tian Shan mountains and beyond.
- But India was hemmed in by the Himalayas in the north and the ocean in the south, and its civilisation evolved by welcoming outsiders rather than colonising other lands.
Present Day Migration
- The migration of a few thousand highly qualified people from India to the developed North is only a small fraction of the 12 million people who join the workforce every year.
- It makes no dent in the job market or poverty in India.
An Opportunity at Hand
- The ageing population in Western Europe and Japan can incentivise the flow of skilled workers and caregivers from the developing world.
- The ageing demography of the developed world has created the greatest opportunity for India to enhance the quality of life of many Indians in a single generation.
Circular Economy: A win-win situation
- Circular migration is a win-win solution, with government-to-government agreements to safeguard the wages and social security of migrant workers in destination countries and their guaranteed return.
- Example: Israel has a demand for over 100,000 skilled masons, carpenters and home based-carers, who will be given an assured monthly salary of Rs 1.3 lakh and accommodation and social security by the employers.
Addressing the Skills Gap
- India has the requisite numbers but fulfilling the global skills gap is not an easy proposition.
- Language barriers are a major challenge.
- National Skill Development Corporation (NSDC) has aggregated the skill gap demand for many of India’s partner countries.
- Example: Maharashtra Institution for Transformation (MITRA) worked closely with the NSDC and the Maharashtra state departments of Labour and Employment, Skills and Entrepreneurship over the last three months to evolve SOPs and policy norms so that skilled youth could access higher wage markets.
- Selection and placement in Israel are based on physical tests as per protocols. Though Indian workers may have the requisite skills, they may not be able to demonstrate them in the pre-defined manner with the use of specific tools.
- NSDC has developed a four-day course on Recognition of Prior Learning (RPL) to upgrade the existing skills.
- 997 candidates were selected by the Israeli team after a rigorous four-day testing process.
Advantage of Circular Migration
- As part of a circular migration agreement, these workers will come back to India after five years.
- They will bring back enhanced experience of working with sophisticated construction machinery and advanced management protocols, which will benefit the Indian construction industry.
Way Forward
- Artificial, non-economic barriers to the free movement of workers, created in the 19th and 20th century, are now collapsing due to skill deficits in parts of the world with ageing populations.
- India should position itself to become the global source of human capital.
- Circular migration will ensure that the movement takes place at scale and that India also gains from the experience of returning workers.
Editorial 2 : Feeling the Heat
Context: Why heat, not rain, matters more for inflation and rural demand
Average Temperature and Food Inflation
- Average temperature and temperature volatility are on the rise.
- With an appropriate lag, the correlation between average temperatures and India’s food inflation has been rising consistently over time.
- As Earth heats up, crop yields fall.
- Researchers project that a 2.5-4.9oC increase in temperatures across the country could lead to a decrease in wheat yields of 41-52%, and a fall in rice yields of 32-40%.
- Example: Heatwave of March 2022 lowered the sugarcane crop yield by 30% and heatwave of March 2024 lead to a sharp rise in vegetable prices due to crop damage caused by heat stress.
- This is not just limited to crops. High temperatures can raise animal mortality. Therefore, the prices of dairy, poultry and fishery products are becoming increasingly sensitive to rising temperatures.
Rising Correlation between Temperature and Food Prices
- Perishable crops are short-cycle crops (e.g. Vegetables) and have traditionally been more sensitive to heat waves than others, and this sensitivity is rising.
- Average correlation between temperatures and the price of perishables has risen from 20% to 60% over a decade.
- Durable crops are long-cycle crops (e.g. Cereals) and have traditionally been less sensitive to temperatures, but their sensitivity is growing.
- Average correlation between temperatures and the price of durables and animal proteins has risen from 10% to 45% over a decade.
Role of other Variables in determining Food Prices
- Steps taken by the government to buy or sell from government granaries, import or export, and then quickly transport food items across the country have helped lower food inflation over the last decade.
- Clamping down on hoarders has helped too.
- Rains and water reservoir levels also influence food prices.
HSBC’s model of Predicting Food Inflation
- The model is robust with a R-squared of 80% and does a good job of predicting food inflation.
- Including the temperature in the model does not sit comfortably with the other variables.
- Keep the temperature variable in the model and removing the reservoir variable vastly improves the model and its forecasting power (the model’s R-squared goes up to 90%).
- This indicates that temperature variable contains all the information which the reservoir variable holds.
- Inference: Temperatures are far superior than rainfall in explaining and forecasting food inflation.
Reasons for Such Results from the Model
- Improved Irrigation: With irrigation facilities improving, the low rains have been less of a problem, especially in areas like north-western India, known as the food bowl of the country.
- High Correlation: With reservoirs and temperatures having a 50% correlation, a lot of the meaningful information contained in the reservoir variable gets picked up by temperatures.
- Non-linear relationship between temperatures and food inflation.
Predicting the Food Inflation
- The El Niño weather phenomenon from last year, typically associated with low rains and high temperatures, has made way for La Niña, associated with cooler temperatures and stronger precipitation.
- Temperatures have fallen over the last month (compared to the Mar-Jun period). If this sticks, food inflation could fall quickly, taking headline inflation close to 4%, by March 2025.
- With temperatures cooling after a severe heatwave earlier this year, RBI is expected to start easing rates in the fourth quarter of 2024.
Way Forward and Conclusion
- Rising temperatures could become a big problem for inflation management in the medium term.
- The impact of weak rains can be managed by better irrigation facilities, but there is no immediate solution to manage the impact of rising temperatures.