October 15, 2019
GS Paper III
Economics Nobel for Abhijit, two others
The Royal Swedish Academy of Sciences has awarded the 2019 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, aka Nobel Prize in Economics to Dr. Abhijit Banerjee, Dr. Esther Duflo, and Dr. Michael Kremer “for their experimental approach to alleviating global poverty” that has struck a new chord in Development and Poverty Economics.
Why Nobel? Explained.
The couple, Dr Banerjee and Dr Esther have been working together since the mid-1990s, often collaborating with Dr Kremer to introduce a new approach to obtaining real and achievable remedies about the most effective ways to combat global poverty. They focused on the smaller, more manageable and measurable questions rather than the conventional method of approaching the big-picture questions that seldom provides realistic resolutions to the poorest person standing. There came into use, the scientifically designed experiments, which are called the Randomized Control Trials, which now are finding their way into Social Sciences, Psychology, etc. This approach directly targets the most poverty-stricken societies. Their study showcases that within-sector differences in the usage of new technologies and the outdated production methodologies amongst the industries occur only in developing countries.
What is their powerful tool- RCT?
Say, for example, if we had to understand whether providing a mobile vaccination van or a sack of pulses would incentivise the villagers to vaccinate their kids, under this method, they incorporate, say, four groups. Group A will be provided with the mobile vaccination van facility, Group B will be provided with a sack of food grains, Group C with both and Group D with neither. Households shall be chosen at random to ensure there would be no bias. The performance of the three treatment groups- Group A, B and C vis-à-vis the control group- Group D will be analysed as evidence for the target outcome and then aid in deducing a policy.
The breakdown of problems turns the focus on the sources that manifest poverty as a key factor in bringing them into the vicious cycle of indebtedness. For instance, if we wanted to reason out the children’s poor performance in the school-going children, it is ideally perceived that a resource crunch is a primary problem, but field results showed that neither mid-day free meals nor a provision of more textbooks helped better outcomes. Instead, in schools of Vadodara and Mumbai showed that there was a deficit in sufficing the needs of the pupils. Here, the weakest students need special teaching assistants and enrolling teachers on a short-term contract basis ensured to maintain a sufficient teacher to student ratio to tackle teacher-absenteeism as a means of providing incentives to reduce their burden.
The method of RCT aims at analyzing the incentives or a combination of them that affects the “control” and “treatment” groups to maximize the result of achieving a target, say, poverty alleviation, eradication of malnutrition, literacy, health, etc. Here, the key is to provide the right incentive to the right cause that would help the policy-makers to have enough comparable evidence and the measure of the difference it brings about from the study to choose the right policy.
Reforms on the go
The policies influenced from the practical solutions explained by the Nobel Prize Winners, is already in use in the Delhi government’s education scheme under Chunauti, which provides special focus for the weakest students, the implementation of Nyuntam Aay Yojana (NYAY), the flagship social welfare program of the Congress election manifesto 2019, where 20% families in poorest of the poor category would receive Rs 72,000 each, annually. Also, Gujarat has implemented Dr Duflo’s proposal to offer an economic incentive to the industrial units to reduce their pollution output.
- Development economics: Branch of economics that focuses on improving fiscal, economic and social conditions by adopting new technologies, a transition from agriculture-based to industry-based economy, and general improvement in living standards.
- About Nobel Prize awardees and their subject
Mains Perspectives: Poverty alleviation programmes and their economic devolution
GS Paper I, Paper III
Gujarat new port policy
What’s in the news?
- To boost infrastructure and attract investment in the port and logistics sector, the Gujarat government has revised its port policy of 1995 and removed restrictions on 33 private jetties by allowing them to bring in additional investment for handling third party cargo.
- The new policy states that the existing captive jetty holders will be permitted to handle third party cargo more than 50% of their total cargo on their jetty by paying landing and shipping fee.
- According to the Gujarat Maritime Board report, January 2017, to encourage port-based industries, private companies had been granted permission to construct captive jetties to cater to their import-export requirement. As per this model, a port-based industry creates port facilities to import their industrial raw material and exports their finished products.
GS Paper II, Paper III
Reforms in the Telecom sector in revising Spectrum prices
- The Telecom sector is currently reeling under financial stress due to high floor prices making it difficult for the telecom operators to buy spectrums to operate their networks, hence making 5G networks being tabled as unviable to the buyers.
- Some of the proposed changes are;
- Conducive regulatory environment for the telecom sector by balancing out the government revenue and the overall growth of the sector and the economy.
- To revise the reserve price recommended by TRAI that is significantly higher than the global trends.
- To improve the ease of doing business as large quantities of the spectrum are required at the right price.
- To reduce the cost of doing business, reducing levies like license fee, customs duty on imported telecom equipment and spectrum usage charges.
- Cut down on the delays between spectrum auctions so there would be a continuous inflow of spectrum to the industries especially in the budding 5G spectrum growth on account of spectrum pricing and availability.
- Clearance of almost 1 lakh crore litigation and unlocking of the GST credit.