Topic 1 : Price of distortion
Introduction: The Centre’s fertiliser subsidy bill has more than trebled from Rs 81,124 crore to Rs 2,51,339 crore between 2019-20 and 2022-23. Even the current fiscal’s budget estimate of Rs 1,75,100 crore is likely to be overshot in the final numbers.
Government’s recent decision on fertilisers
- Since November 2022, all subsidised fertilisers are being marketed under a common Bharat brand, with companies having to print this (along with the Prime Minister’s One Nation One Fertiliser scheme’s logo) on two-third space of every bag and leaving only the balance one-third for their own name, logo and other product information.
- Now, the Modi government has capped the profit margins companies can earn from sales of di-ammonium phosphate (DAP), muriate of potash (MOP) and other subsidised non-urea fertilisers.
- The maximum retail prices (MRP) of these fertilisers cannot be more than 8-12 per cent higher than their total cost of sales.
The government’s argument about the recent decision
- The government’s argument would be that when so much of taxpayer money is being spent on fertiliser subsidy, the benefits should also accrue to farmers.
- One way to ensure this is by making companies reveal their actual cost of production/imports, distribution and other expenses.
- Based on this self-assessed and duly audited cost data, they will be allowed to set MRPs that generate “reasonable” profit.
- Any unreasonable profit, in excess of 8-12 per cent, will have to be refunded with interest and adjusted against future subsidy payments.
- In short, the current detailed cost monitoring and price control regime in urea will henceforth be extended to all other subsidised fertilisers.
- While urea is a controlled fertiliser — its MRP is fixed by the government — the likes of DAP, MOP and complexes (with varying nitrogen, phosphorus, potash and sulphur content) will also practically cease to be “decontrolled” fertilisers.
Nutrient Based Subsidy (NBS) Scheme
- According to the Nutrient Based Scheme regime, farmers receive fertilizers at discounted rates based on the nutrients (N, P, K, and S) that these fertilizers contain.
- Additionally, additional subsidies are provided for fertilizers that are enriched with secondary and micronutrients like zinc and molybdenum (Mo).
What are the concerns about the recent decisions on fertilizers?
- The flip side to the Modi government’s move is that it takes the fertiliser industry back to the full-control era before the introduction of the nutrient-based subsidy (NBS) system in April 2010.
- Fertilisers are basically food for crops.
- NBS was supposed to foster product innovation, with newer and better fertilisers providing more balanced nutrition.
- That dream didn’t materialise, as urea was excluded from NBS; its fixed MRP led to over-application, worsening nutrient imbalance and declining crop yield response.
What is the way forward?
- Farmer interest is better served by freeing up MRPs, encouraging balanced nutrient use and fertiliser products customised to different crop and soil-type requirements.
- The Rs 1,00,000-1,50,000 crore annual fertilizer subsidy can be converted into a direct income support scheme, be it on a per-farmer or per-hectare basis.
- Either way — India has about 10 crore farmers and 14 crore hectares net sown area — the benefits would be more than from distorted nutrient pricing.
Conclusion: The government's move takes the fertilizer industry back to a full-control era before the introduction of a nutrient-based subsidy system in 2010. This move is not good for farmers or the fertilisers industries.
Topic 2 : Stay calm, build on strengths
Introduction: Writing in the Financial Times a few weeks ago, well-known investor and fund manager Ruchir Sharma highlighted the irreversible decline of China’s share of the global GDP. Sharma represents a growing body of opinion that believes that China has peaked economically. He reinforced the prevalent international view that we live in a “post-China world”.
Is China’s continuing rise ineluctable, or is its incipient decline irreversible?
- As Sharma points out, China’s share in the world’s GDP rose from about two per cent in 1990 (after a decade of economic reform and opening up) to about 18.4 per cent in 2021.
- It is now down to 17 per cent. Sharma estimates that China’s share will continue to decline because of several factors, including demographic decline.
- China’s share of the world’s working-age population has been falling for a decade and is about 19 per cent. In the next three decades, it will likely come down to 10 per cent.
- Chinese leader Xi Jinping’s anti-market interventions, high levels of debt and declining worker productivity are seen as other reasons for China’s relative decline.
China’s relative decline is a boon for Asian and USA’s economies
- According to Sharma, several emerging markets like India, Indonesia, Mexico, Brazil, and Poland contributed to nearly half of the expansion of the global economy last year.
- The US has grown at an impressive rate and made up most of the other half.
- Last year, the US added $1.6 trillion to its GDP, about the size of the South Korean economy (which is the 13th largest in the world).
What is the geopolitical implication of China’s relative decline?
Two important immediate implications for the world order stand out.
1. China is not catching up with the USA anytime soon
- The growing gap between the comprehensive national power of the US and China.
- The latest numbers on the world economy put the US economy in 2023 at $28 trillion and the Chinese at 18 trillion.
- In 2020, the Chinese economy was inching towards 80 per cent of America’s.
- It is now drifting down towards 60 per cent. If the present trends continue, China’s relative weight vis-a-vis the US is likely to go down further.
- The changing economic fortunes of China and the US mean we are unlikely to be a bipolar or the G2 world that never stops animating India.
- The notion of parity or symmetry between the US and China was always unrealistic given the wide coalition of Western partners that the US leads.
- America’s allies in Europe and Asia weigh far heavier than China’s friends, including Russia.
2. Asia is not going to be a Uni-polar Asia
- Until recently, the notion of a China-centred Asia seemed inevitable.
- China’s relative decline now suggests that Asia has other alternatives.
- The faster economic growth in India, Indonesia, Vietnam and the Philippines suggests that a “multipolar Asia” can be a real possibility.
- Although China will remain the most important economy in Asia and the second largest in the world for the foreseeable future, its large Asian neighbours have the potential to increase their standing in relation to China.
- Meanwhile, China’s muscular approaches to its neighbours on territorial issues had, in fact, opened up space for the US to revitalise its alliances and build new Asian partnerships in the last few years.
- An America that is regaining economic ground and is politically more confident could indeed queer the pitch for China and open up more strategic options for Beijing’s neighbours.
Chian’s decline has opened an opportunity for India
- India, for example, is unlikely to overtake the Chinese economy any time soon.
- But China’s slower growth and India’s economic acceleration will mean Delhi can steadily reduce the economic gap with Beijing.
- Even as it grows faster than Beijing and reduces the economic gap, Delhi can’t take a complacent attitude on the boundary or in its competition for influence with China in the Subcontinent and the extended neighbourhood.
- It can, however, cope with the Chinese power more confidently if it continues to build on its national capabilities and strengthens the Quad and other regional coalitions.
Is China’s decline inevitable?
- Some analysts like Ruchir Sharma think that whatever Xi Jinping does, he is not in a position to reverse China’s relative economic decline.
- Others would bet China can initiate some structural reforms in the Chinese economy to reclaim a faster growth rate.
- Some might bet on internal political change in China that could lead to more accommodative external policies and reduce some of the internal pushback against Beijing.
- It is not clear if Xi is willing or capable of making a major reversal of the policies he had initiated over the last decade.
- Xi can mend his relations with the USA, where it looks like the Bidden administration also wants the same to detangle one relation amid the global entanglement of the USA in several wars.
The overall summary
- Put simply, the time has come to rethink many of the assumptions in India about the global distribution of power and its consequences.
- For one, the US is not about decline and fade away, notwithstanding the multiple challenges confronting it today.
- Second, although China’s rise has been impressive, the limits to its power are coming into view.
- Third, the growth of China’s Asian neighbours has enhanced possibilities for a more internally balanced region.
- Finally, if it can stay calm, build on its strengths, and avoid the kind of nationalist hubris that has undermined China’s fortunes, India could thrive amid the unfolding power shift.
Conclusion: Some analysts think that whatever Xi Jinping does, he is not in a position to reverse China's relative economic decline. So for India to take advantage, it must avoid the nationalist hubris that has undermined Beijing’s fortunes.