 Good evening, Esperance. Welcome to the Hindu newspaper analysis brought to you by Shankarae's Academy for the late 20th of January 2022. Displayed here are the list of news articles chosen for today's discussion. See today we have taken three economic topics in which one will be discussed on both mains and prelims perspective and the other two will be exclusively on the prelims perspective. Now without wasting much time, let's get into that discussion. Now look at this first article. This editorial article focuses mainly on the nature of informalization in India and the reason for the continued existence of the informal economy in India. See the authors of this article also give some suggestions to increase formalization of the Indian economy. If I focus only on the points given in the article, this discussion would be incomplete. So what I am going to do is, first we will discuss about the official definition of the informal sector. Then we will discuss the issues faced by the informal sector followed by the answer for why the informal sector continues to exist at such a large scale in the Indian economy even after so many government initiatives and finally we will see steps that could be taken to address this problem. This is the general structure of how this discussion is going to be. While following this structure, I will include the points mentioned by the authors of this editorial in the discussion. See by following this we can cover this topic holistically. Before starting the discussion, here is a syllabus that we will cover through this discussion and look at this mains question from the year 2016 GS3 paper of UPSC mains. You can clearly see that this topic is going to be more relevant to the mains. So just pay attention to this discussion and extract maximum out of it. Now let us start our discussion. First, what is an informal economy or informal sector? According to the international labour organization that is ILO, the informal sector consists of all private and incorporated enterprises owned by individuals or households that are not separate legal entities. The people working in this sector are called informal sector workers. See actually, informal sector workers are a broader concept. It not just includes people working in the informal sector but also the people working in the formal sector who are not covered by the social security benefits. In India on the other hand, according to the report of the task force on employment statistics from the Ministry of Labour and Employment in the year 2017, a job that offers access to at least one social security benefit is defined as the formal job. See the national sample survey organization which is now a part of the national statistical office which conducted the periodic survey of the informal sector defined this informal sector like this. First, in the case of the manufacturing sector, the enterprises not covered under the animal survey of industries are included as a part of the unorganized informal sector. Then in the case of service sector, all enterprises except those run by the government that is central state or local body and the corporate sector were regarded as the unorganized informal sectors. See the government of India in 2004 set up the national commission for enterprises in the organized sector. For what purpose they set up this commission? They set up this commission to review the status of the unorganized or informal sector in India. So according to the commission, the unorganized or the informal sector includes all the unincorporated private enterprises owned by individuals or households that are engaged in the sale and production of goods and services which are operated on a proprietary or partnership basis and with less than 10 total workers. See the commission also defines the informal worker or informal employment according to the commission the unorganized or informal workers consist of those working in the unorganized sector or households and the workers in the formal sector without any employment and social security benefits provided by the employers. Note that disguised unemployment is one part of informal sector. Remember it is only a part. See what is this disguised unemployment? Disguised unemployment means that more people are engaged in a job which can be done with less people normally seen in agriculture where whole family is involved. It means extra people can be removed without affecting the productivity that is their marginal productivity is zero. Okay. Now by looking at all these examples itself you can understand that even in the definition stage of the informal sector there is no one proper consensus. Am I right? See this is the first issue faced by the informal sector. Having seen the definition of the informal sector so far now let us see the issues faced by the informal sector. First is the credit crunch. The informal sector units due to their small size are not able to access credit from the formal financial institutions. They have to rely on informal credit to run their business. This further complicates their problem. Second is the poor physical infrastructure. This is also an effect of the credit crunch. Since they have to rely on informal credit they have to pay huge interest. This affects their capital formation. Due to poor capital formation there is poor investment in the infrastructure. This leads to the presence of poor physical infrastructure in the informal sector. Next is that the informal sector is marked by very low productivity. Finally no violability of skilled workforce. In India all the skilled workforce tends to move towards the formal sector. So there is a lack of availability of skilled workers for the informal sector. See these are the issues faced by the informal sector. Now we will see the issues faced by the informal sector workers. Firstly the workers of the informal sector have no social security coverage. Means no healthcare benefits or any allowances for health or children's education etc. The workers are not provided with minimum wage. The workers working in the informal sector are subject to exploitation. Their wage rate is very low compared to the counterparts working in the organized sector. Then the workers face lack of job security. The nature of their employment is highly seasonal. Mostly they work as casual workers and contractual laborers. Most enterprises in the informal sector do not follow safety standards. So the health of the workers is hugely affected. They also face the issue of long working hours. Due to lack of proper implementation of minimum wage legislations workers in the informal sector are usually subject to indepness and bondage as their very low income is not sufficient to meet the requirement of livelihood. Finally the workers in the informal sector are not allowed to organize themselves. That is they cannot form unions and fight for their rights. See with the pandemic induced lockdowns the issues faced by the informal sector actually increased. This you can see according to Oxfam's latest global report which says out of total 122 million who lost their jobs in 2020 75 percent were lost in the informal sector. This coupled with the fact that the informal sector workers have no social security coverage. The owes or the difficulties faced by the informal sector workers increased during the pandemic. The pain and the difficulty faced by the displaced informal workers like the migrant workers trying to get back to their home is also still fresh in our memories. To address these issues the government introduced various programs and measures. Before seeing the steps taken by the government let us see the status of informal sector workers in India. According to the periodic labour force survey that is PLFS over 90 percent of workers in India are informal workers. In this informal workers in rural areas are far higher than those in the urban areas. Also the PLFS data shows that 75 percent of informal workers are self-employed and casual wage workers with average earnings lower than regular salaried workers. Now look at this table the table shows the change in the share of informal sector employment. If you go through the table you can find that though the share of informal employment in total employment is decreasing the share of informal employment in the formal sector is increasing. This is really worrying. This is due to the casualization of the workforce in the formal sector. See this is a separate issue of its own so we'll discuss this aspect that is casualization of workforce in the formal sector in detail in later discussion okay. Now having seen the status of informal sector employment in India we'll see some steps taken by the government. Firstly the introduction of GST. The mechanism of GST has helped in checking the fraud related to payment of tax and has put an end to tax evasion and has introduced more tax compliances thus resulting in the formalization of the economy. Secondly the simplification of labour codes. See one of the major hindrances to formalization is the increased government regulation of the formal sector. The informal sector stays informal because they worry that if they enter the formal sector they might face excessive government regulation. So to address this the government has simplified various labour codes this will help formalization of the unorganized sector. Thirdly take the Udayam registration portal. This portal is maintained by the ministry of micro small and medium enterprises that is MSME and this portal offers a free and paperless registration process for the MSME sector. The units registered with the portal are eligible for the credit linked capital subsidy scheme. This will help in the formalization of the sector. Now take the Ishram portal. This portal developed and maintained by the ministry of flavour and employment will help create a national database of unorganized workers. This will help create better policy for the unorganized workers. It will also help ensure the last mile coverage of the government social security measures to the unorganized sector workforce. Now take the Atmanirbar Bharat Abhyan. This scheme aims to create employment opportunities and also to boost employment in the formal sector. The scheme is being implemented through the Employees Provident Fund Organization that is EPFO. Under the Atmanirbar Bharat scheme the government of India is bearing both the employee share that is 12 percentage of wages and employer share which is another 12 percentage of wages of contribution payable or only the employee share depending on employment strength of the EPFO registered establishments. This will help boost employment in the formal sector as it reduces the financial burden of the employers of various sectors or industries including MSME. Lastly take the Pradhan Mantri Ishram Yogi Mandan. The central sector scheme of the ministry of labour and employment aims to provide pension to 42 crores unorganized sector workers. This will provide them with a social security net. See these are some of the steps taken by the government to increase formalization of the economy. Despite these steps the formalization of the Indian economy is still low. Actually the editorial mainly deals with the issue with the government policies in formalizing the economy. So now we will see some points mentioned in the editorial in this regard. See the government believes that simplifying registration process, easing rules for business conduct and lowering the standards of protection of formal sector workers will bring informal enterprises and their workers into the fold of formality. But if you look at the schemes and measures taken by the government everything falls into these categories. Am I right? But international evidence such as that the persistence of informality is in fact a sign of underdevelopment. See there is an inverse relationship between informality and per capita income. That is as the per capita income increases the informality in the economy decreases. Look at this graph this shows the relationship between GDP per capita and percentage of the labour force that is self-employed. Here self-employed is considered as a measure of the informal workforce. See for a country like Singapore whose GDP per capita is high the percentage of the labour force in the informal sector is low. The reverse is applicable in a country like Chad. Now look at the relationship between GDP and the informalization among the Indian states. Look at this graph from this graph you can understand that for a state like Tamil Nadu with higher net state domestic product per capita the share of the informal workforce is low. While for a state like UP the inverse is applicable. So according to the editorial persistence of a high share of informal employment in total employment seems nothing but a lack of adequate growth or continuation of underdevelopment. Informality is not mainly due to strict labour laws or difficult registration process. See mere registration is not sufficient. The government claims that registration of informal workers through portals like Ishram will help in the formalization process. Actually the mere registration of workers on the Ishram portal is no indicator of formalization of jobs unless the worker is able to get all the social security benefits listed on the portal as a matter of right. See increasing digitalization and registration in official records is neither a necessary nor sufficient condition for any enterprise or worker to be classified as formal. So the government must go beyond just registration and actually provide the service. See they should promote natural formalization instead of forced to formalization. See according to a research by the SBA that is state bank of India which reported the economy formalized rapidly during the pandemic year of 2020 to 2021. With the informal sector's GDP share shrinking to less than 20 percent from about 50 percent a few years ago. This does not indicate that the inefficient informal has transformed to efficient ones through positive structural changes according to the editorial. See the increase in formalization is a forced phenomenon. If you look at all the government measures we discussed every single thing aims at forcing the informal sector to formalize. This will not be sustainable in the long run. So the government must focus on policy changes that will help small and informal firms grow over time into medium or large formal sector firms. This will be more sustainable according to the authors of this editorial. See these are some of the reasons for the editorial sides and the reason for the continued existence of the huge informal sector in the Indian economy despite the government measures. Having discussed the reasons for the failure of government policy now let us see the suggestion given by the authors of the editorial to increase the formalization process. Firstly in addition to simplifying the registration process easing rules for business conduct and lowering the standards of production of formal sector workers the government should make policies that help the informal sector transform naturally. The government must ensure easy access to credit to the informal sector and focus on the skilling of the force. Here Mudra loans and startup India schemes are a welcome step. Secondly the government must focus on ensuring social security of the unorganized sector worker. More funding and implementation of schemes like atal pension eugena, PM Jyoti eugena and Rastri Swastia Bhima eugena can actually improve the condition of the informal sector workers. Thirdly the government must work with the informal sector and government must understand what formalization really means to the members of the informal enterprises. See this bottom-up approach will help the government form better policy that will help in the organic transformation of the informal sector into the formal sector. That's all about this article. So we discussed about the official definitions of the informal sector then we saw the issues faced by the sector then we saw why informal sector continues to exist at such a large scale in the Indian economy even after so many government initiatives and finally we saw the steps that could be taken to address this problem. Also we discussed the points mentioned without those of this article. So you utilize these points to enrich your main sciences which are related to the informal Indian economy and how this informal Indian economy could be transformed to formal economy. So with these key points in mind let us move on to the next article discussion. Now look at this news article this is with reference to the line of actual control. See this news article states that China has opposed to any third-party involvement in the India-China border dispute. The China-India border issue is a matter between China and India and both sides have expressed their opposition to the third-party involvement. This is the crux of the article. In this context we will learn about the line of actual control in Prelims perspective. See line of actual control is a demarcation that separates India control territory from the Chinese control territory. Note that the length of Sino-Indian border is 3488 kilometer. See the border traverses the Union territory of Ladakh and the states Himachal Pradesh, Shudhakant, Sikkim and Arunachal Pradesh. The line of actual control in its wider sense is an effective border between India and China. It covers the western sector which includes the Union territory of Ladakh and the middle sector which includes Himachal Pradesh and Uttarkhand. It also covers the Mech Mohan line in the east which covers Sikkim and Arunachal Pradesh. See India climbs that China occupies more than 38,000 square kilometer in the erstwhile state of Jammu and Kashmir in the Ladakh region. This region is known as Akshechan. So you can see in this image all the disputed areas between India and China. See India recognizes the Mech Mohan line and considered it to be the actual line of control between India and China. While China does not recognize the Mech Mohan line. You can see the Mech Mohan line in this image clearly. See we have discussed the line of actual control which is the effective boundary between India and China. But there is no commonly delineated line of actual control between India and China. There are areas along the border where India and China have differing perceptions of the LAC. Due to both sides undertaking patrolling up to their respective perceptions of the line of actual control, transgressions do occur. See government regularly takes up any transgressions with the Chinese side through established mechanisms. See in 2013 both countries signed a Border Defense Cooperative Agreement. It aims to facilitate ways and means to implement Border Defense Corporation. It provides measures to facilitate contacts and to enhance understanding and cooperation between the Border Defense Forces as well as the procedures to be followed where there is no common understanding of the line of actual control. But even then we have been hearing news of Chinese transgressions into Indian territory. See that's all regarding this news article. With these key points in mind go through the maps that I have provided in this article which will be very much useful for handling any map oriented prelims questions. Now we will move on to the next news article discussion. Look at this news article. This news article states that Indian rupee struck a one month low on Thursday that is 27 January 2022. This is due to the prediction of US Federal Reserve that the interest rate in US is likely to increase in March. See in this context we will learn about depreciation and appreciation of rupee and how this depreciation is caused and then we will also discuss how the value of rupee is affected by the Federal Reserve's and oil prices. Okay now let's start our discussion. See basically depreciation of currency refers to a fall in the value of a currency in a floating exchange rate system. What is this floating rate system? See in the floating rate system demand and supply determines the value of the currency. Here rupee depreciation refers to the fall in the value of Indian rupee against the US dollar. It means that the rupee has become less valuable and weaker against the US dollar. For example let the value of one US dollar be equal to rupee 70 but this month the value of one US dollar is equal to rupee 75. What has happened here? Only if we pay rupee 75 we are getting one dollar now which means we are paying more but getting less. This is called as depreciation of rupee. Okay on the other hand appreciation of currency refers to an increase in the value of a currency. It means that the rupee has become more valuable and strengthening against the dollar. For example let the value of one dollar be equal to rupees 80 but this month the value of one dollar is equal to rupees 50. What has happened here? Just by paying rupees 50 we are getting one dollar which means we are paying less but getting more. This is called as appreciation of rupee. Okay see the values that I have taken is just for you to show how the appreciation and depreciation occurs. It is not the actual values. Okay now let's take what are all the causes for this depreciation. See the expansionary monetary policy and high inflation are two main causes of currency depreciation. Take this expansionary monetary policy. It is nothing but the expansion of money supply by lowering interest rates. When interest rates are lowered more money chases the highest yield which is the bond in this case. Okay when more people start to invest in bonds there will be less availability of currency in circulation which again leads to money supply by lowering interest thus making this as a vicious cycle. Hence the currency value depreciates. Secondly take inflation. What does this inflation mean? Yes your right inflation is a measure of the rate of rising price of goods and services in an economy. See the inflation can occur due to many reasons. For example increase in production costs such as raw materials and wages causes price rise. One good example you can take here for an understanding is the increase in the car price due to the increase in the price of parts or raw materials involved in the making of a car. See during inflation no the central bank will increase the interest rates. Why? Because too much inflation can lead further currency depreciation which means we are paying more and more money but getting only less products for that money. Additionally know that this inflation can lead to higher input cost for the exports because we are getting the raw material itself at high cost so the product that we manufacture will also be priced high am I right? This is a reason for our nation's export becoming less competitive in the global market. So this will widen the rate deficit of the country and again cause the currency to depreciate. So now you would have understood the two major causes for the depreciation. Now we will see how the change of interest rate in the federal reserve in US is affecting the Indian rupee. See the value of rupee is impacted mainly by three factors. First thing is the US dollar. US dollar will strengthen whenever there is higher interest rates of dollar denominated securities. This will make the rupee to depreciate. The second factor is the foreign portfolio investment. If the foreign portfolio investments continue to pull money out of the stock and bond markets it will weaken the rupee too. For example if interest rate in US increase more people will pull money out of Indian government securities and invest in US. Therefore RBI will have to raise the interest rates in India to prevent the foreign portfolio investment outflows from the Indian bond market. And the third factor is when global risk aversion increases. See the term risk aversion describes the investor who chose the preservation of capital over the potential for a higher return. So money is typically pulled out of riskier assets such as emerging market assets like India and where they are taken back it is taken into safe havens such as gold and US treasury instruments. This will also negatively impact rupee. See another major factor influencing the value of rupee is the crude oil. An increase in crude oil price due to the demand supply disruption was also cited as an important reason for the fall in rupee. The crude has traditionally been a big determinant of the way the rupee moves. This is because India is a world's third largest importer and consumer of crude oil. It is noted that India imports almost 80 percentage of its oil requirements. Look at this graph to just understand how far India is importing crude oil. Thus it leads to higher outflow of money from India causing depreciation of rupee. Why? Because money supply in India decreases leading to the same vicious cycle that we discussed earlier. So we saw two major causes that is the federal reserve and the crude oil price which are impacting the value of rupee. See that's all about this article. So we had discussed in detail about an economic topic that is money appreciation depreciation and also its causes. These points can be utilized for both your problems as well as your means. So these key points in mind let's move on to the next article discussion. Now look at this news article. See this news article mentions about the possible budget allocation for certain sectors by the Indian government. As you are aware, Union budget for financial year 2022-2023 will be submitted in the coming week and it is speculated that government spending on the infrastructure will rise and we could also expect another 25% increase in capital expenditure. So in this backdrop let us understand Union budget and revise the constitutional provisions related to it. When we say budget it refers to an estimate of income and expenditure for a set period of time. For example, every household has a budget generally for a month. They will calculate what was the income last month and how much of it was spent. Particularly they will note down where the money was spent. For instance, it could have been spent for buying groceries and vegetables or the children's tuition fees or for traveling and for several other purposes. When families write down these expenses and incomes they will have a wholesome picture of how much money is needed for the next month. Also they will know how much money have been saved. Now based on these estimates they will calculate estimates for the next month also. That is beforehand they will calculate the estimated income for that month along with the estimated expenses. This makes sure that their money is spent for necessary or essential purposes so that they can take care of the family. In a similar manner our government is also like a big household. So it also needs to see where its money is coming from and where it is going. This is written down in a document which is what is called as Union budget. It is a budget of the big household called Government of India. This budget is prepared for a whole year that is for the next financial year. So we can call it colloquially as India's annual budget also. A financial year runs from 1st of April to the next year's 31st of March. So Union budget is a most comprehensive report of the government's finances. It gives a complete picture of the estimated receipts and expenditure of the government. That is it mentions revenues from all sources and outlays for all the activities. Now this is prepared for the upcoming financial year based on the budget figures for the past two years. So it gives the actual figures for the proceeding year along with the budget figures and revised figures for the current year. Here the estimates of the government's account for the next financial year is called as budget estimates. See the budget estimates mentions the amount of money allocated in the budget to any ministry or scheme for the next financial year. Now why Union budget is prepared? This is due to constitutional requirements under Indian Constitution. Here three articles assume importance. They are article 112, article 113 and article 110 clause 1A of the Indian Constitution. According to the article 112, a document containing the statement of the estimated receipts and expenditure of the government of India for every financial year has to be presented before the parliament. This document is called as the annual financial statement. See the annual financial statement shows the estimated receipts and expenditure of the government of India for the next financial year in relation to estimates for last financial year. Along with this, it also provides actual expenditure for the previous financial year before the last one. For example, assume the budget is for 2021 to 2022. So this will provide estimates for the year 2021 to 2022 in relation to estimates for 2020 to 2021 and the actual expenditure for the year 2019 to 2020. So this annual financial statement constitutes the main budget document of the government. Therefore, generally the annual financial statement is the union budget. But remember, along with the annual financial statement document, government also presents other documents as a part of the budget as you can see here. Now, according to this article, the budget must distinguish expenditure on the revenue count from other expenditures. Therefore, the budget comprises of two main components namely the revenue budget and the capital budget. This could be further divided into these. We will discuss these terminologies when budget is presented in the next week. You should also note that the receipts and disbursements of government of India are shown under three parts in which government accounts are kept. That is under the Consolidated Fund of India, the Condigency Fund of India and the Public Accounts of India. Now, according to article 113 of the Constitution, the estimates of expenditure from the Consolidated Fund of India that are included in the annual financial statement and required to be voted by the Lok Sabha have to be submitted in the form of demands for grants. See, the demand for grants are presented to the Lok Sabha along with the annual financial statement. Generally, one demand for grant is presented in respect of each ministry or department. For these two, a financial bill is also presented. See, a financial bill is a money bill. It is presented in the fulfillment of the requirement of article 110 clause 1A of the Indian Constitution. So, this provision deals with the imposition, abolition, remission, alteration or regulation of taxes proposed in the budget. So, these are the basics you need to know about the budget and elaborate analysis will be followed up in the next week's news analysis. So, with these key points in mind, let's move on to our prelims practice question, answer discussion. Now, take this first prelims question, which is from 2013 UPSZ prelims. See, this is relevant to our first news article discussion in which we spoke about the informal sector of the Indian economy. The question here is, disguised unemployment generally means what and they had given four options. See, what is actually disguised unemployment, it means that more people are engaged in a job which can be done with less people. Normally, it is seen in the agriculture where whole family is involved. It means extra people can be removed without affecting the productivity that is their marginal productivity will be zero. Now, come back to the question. Look at the options. So, the disguised unemployment generally means the marginal productivity of the labor is zero. The remaining option talks about the various other types of unemployment. Now, take the second question. See, it is regarding the depreciation of rupee. It is a two statement type question. So, we have to go through both the statements. First statement, it says the depreciation of rupee can be caused by widening the trade deficit. Yes, it is correct because whenever the trade deficit increases, which means the country's export is becoming less competitive in the global market and there is an increase of the import. Now, look at the second statement. The depreciation of rupee can be caused by inflow of foreign portfolio investment. No, the statement is absolutely incorrect because only outflowing of the foreign portfolio investment can cause currency depreciation and not the inflow because inflow is actually leading to appreciation and not depreciation. Okay. Now, read the full question. It is demanding for correct statement. So, our answer here will be option A. One only is the correct statement. Now, look at the third question. Which of the following statement about the line of actual control is correct? Now, read the first option. LAC is a demarcation that separates India-controlled territory from the Pakistan-controlled territory. It is wrong. Am I right? Because LAC is a demarcation that separates India-controlled territory from the China-controlled territory and not Pakistan. Now, move on to the next option. LAC covers the western sector only. Whenever you have the world only in the option, be careful. It is incorrect because LAC covers western, middle and eastern sectors. Do you remember we saw in the discussion in western side you had union territory of Ladakh and in the middle you had Imachal Pradesh and Uttar Khand and in the eastern side you had Arnachal Pradesh and Sikkim. Now, moving on to the third option. The LAC has been agreed upon by both the bordering countries. It is absolutely incorrect because the issue today we took and discussed itself said there is a disagreement between both the countries in relation to the line of actual control. So, the answer here will be option D. None of the above is correct regarding LAC. Now, moving on to the next question. See, this is regarding our last article discussion that is budget. It is also what two statements question. So, we are going to read both the statements. First statement says the term budget is mentioned in the constitution. No statement one is absolutely incorrect because the term budget is not mentioned in the constitution but we can find the term annual financial statement. Okay. So, now moving on to the second statement. The annual financial statement is presented only to the Lok Sabha. See here also the word only is present. So, be careful whenever the word only appears in this statement. Okay. It is also incorrect. Why? Because the annual financial statement is presented before the parliament that is before Lok Sabha as well as the Raj Sabha. This is mandated by the article 112 class 1. Now, look at the question. The question is demanding for correct statement. So, the answer here will be option D neither one nor two because both statements are incorrect. Displayed here are the main practice questions. One question is from previous year which I displayed during the discussion itself and the other one is also related to our first article discussion. Interested aspirants, please go through it and write your answers and post it in the comment section. If you like this video, do like, share and comment and don't forget to subscribe to our Shankar IAS Academy YouTube channel. Thank you.