Migrant workers in India: A case study of Gujarat

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Context: why in news?

  • Recent attacks on migrant labourers in Gujarat.
  • Many migrant workers have now rushed out to their home States out of fear despite several local people having been taken into custody on the charge of inciting violence against migrant workers.
  • There have been reports of an estimated 60,000 to more than a lakh workers leaving the State of Gujarat.

Gujarat: A hub for migration

  • Gujarat is one of the top States in India that receive migrant workers, largely temporary and seasonal, on a large scale.
  • In Gujarat, they work in unskilled or semi-skilled jobs in a wide range of activities such as in agriculture, brick kilns and construction work, salt pans and domestic work, petty services and trades such as food and street vending as well as in textiles and garments, embroidery and diamond cutting and polishing, small engineering and electronics and also small and big factories.
  • These workers are from Rajasthan, Madhya Pradesh, Maharashtra and even from as far as Bihar, Uttar Pradesh, Andhra Pradesh, Odisha, Jharkhand, Chhattisgarh, Assam and Karnataka.
  • Employers send contractors to distant unexplored places to gather labour at the lowest possible wage rate. For example, a new township in Gujarat being promoted by a large industrialist is to be built with workers from Assam.

What are the problems faced by migrant workers in Gujarat?

  • Lack of Data: Gujarat government has no data on/estimates of migrant workers coming to Gujarat. Informally, the figures are estimated to be between 40 lakh to one crore.
  • Exploitation of migrant labours: Segmenting the labour market and creating a separate labour market for migrant workers — who are easy to exploit — has been a common strategy of employers across India.

Conditions of work

  • They earn low wages, work very long hours without any overtime benefits, and are almost without any leave or social protection.
  • Lakhs of unskilled and migrant workers live on worksites in makeshift huts (usually made of tin sheets) or on roads, slums and in illegal settlements not served by municipalities.
  • They are neither able to save much to improve their conditions back in their home States nor save enough to live comfortably in Gujarat.
  • They go back home only once or twice to celebrate festivals. Semi-skilled workers with some education and skills such as those in diamond cutting and polishing units, power looms and factories get slightly higher wages and earn some leave.
  • However, these workers are also exploited in multiple ways and are mostly unprotected. Factory owners, employers and traders are only too happy with such a situation as they earn huge profits from wage labour exploitation.

Insider versus Outsider

  • Local workers resent the presence of migrant workers who they feel take away their jobs in factories and other places on account of being cheap labour. Those who have stayed back now live under constant fear.

Impact of exodus of workers

  • The exodus is cause for concern as it is bound to impact Gujarat’s growth and create resentment among factory owners and other employers.
  • This would also avert a crisis in the migrants’ home States which would have to cope with an army of the unemployed.
  • States are indifferent to the well being of migrant workers and their rights.
  • The Gujarat government wants normalcy to return so that migrant workers can toil for the prosperity of Gujarat, while the Bihar government, which is at its end trying to manage the sudden inflow of returning migrants, wants migration to Gujarat to continue as before.
  • Uttar Pradesh has lauded the Gujarat government for handling the situation well.

Labour laws in India

  • Under the Inter-State Migrant Workmen Act and other labour laws (for unorganised workers), migrant workers in Gujarat are legally entitled to all their basic labour rights.
  • These include minimum wages, regular wage payment, regular working hours and overtime payment, and decent working and living conditions which include taking care of the health and education of their children.
  • Under the same Act, the governments of the States from where migrant workforce originate are expected to issue licences to contractors who take workers away, register such workers and also monitor their working and living conditions in other States.
  • But most State governments remain indifferent to these laws. Gujarat has taken a few steps but these are far from adequate.
  • In the political sphere, there has been hardly any mention about protecting the legal rights of migrant workers in India.
  • The political impulse has been to maintain status quo — the continuation of the situation where migrant workers are exploited.

Preference to the locals: The case of Gujarat

  • The Gujarat government passed a rule in the 1990s making it mandatory for industries and employers in Gujarat to give 85% of jobs to local people.
  • This rule was never really implemented in reality, but watered down by the State government in its subsequent industrial policies, as new and large investors coming to the State did not like any such restrictions.
  • Now there is a move in the State to introduce a law for industries and investors in Gujarat which reserves 80% of labour jobs for State domiciles and at least 25% for local workers.
  • But those behind the idea are perhaps fully aware of the futility of such a move. As long as there are huge surpluses from the labour of migrant workers, employers will have no incentive in hiring local workers.

A way out

  • In the end, the real solution to this issue would be to enforce all relevant labour laws for migrant workers so that segmentation of the labour market becomes weak, and workers (local and migrant) get a fair and equal deal in the labour market.
  • This will also weaken unfair competition between local and migrant labour and enable migrant workers either to settle down in the place of destination or to go back home and make a good living there

Public Credit Registry (PCR)

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  • PCR is digital registry of authenticated granular credit information.
  • It will work as financial information infrastructure providing access to various stakeholders and enrich the existing credit information ecosystem.
  • It seeks to serve as single point of mandatory reporting for all material events for each loan, notwithstanding any threshold in the loan amount or type of borrower.
  • PCR will capture all details of borrowers, including wilful defaulters and also pending legal suits in order to check financial delinquencies.
  • It will also include data from entities like market regulator SEBI, Corporate Affairs Ministry, Goods and Service Tax Network (GSTN) and Insolvency and Bankruptcy Board of India (IBBI) to enable banks and financial institutions to get 360 degree profile of existing and prospective borrowers on real-time basis.


Why PCR is needed?

  • In June 2018, RBI had announced to set up PCR for India with view to address information asymmetry, foster access to credit and strengthen the credit culture in the economy.
  • This decision was taken based on recommendation of high-level task force (HTF) i.e. YM Deosthalee committee which was constituted by RBI to review current availability of information on credit, adequacy of existing information utilities, and identify gaps that could be filled by PCR.
  • Currently, there are multiple granular credit information repositories in India, with each having somewhat distinct objectives and coverage.
  • Within RBI, CRILC is borrower level supervisory dataset with threshold in aggregate exposure of Rs 5 crore.
  • Moreover, there are four privately owned credit information companies (CICs) operating in India.
  • RBI has mandated all its regulated entities to submit credit information individually to all four CICs.

MSME Outreach Programme

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As part of this programme, 12 key initiatives are unveiled which will help the growth, expansion and facilitation of MSMEs across the country. There are five key aspects for facilitating the MSME sector. These include:

  • Access to credit,
  • Access to market,
  • Technology upgradation,
  • Ease of doing business, and
  • Sense of security for employees.


MSME Outreach Programme

  • It aims to boost MSME sector
  • It will run for 100 days covering 100 Districts throughout the country.
  • Various Central Ministers will visit these districts in order to apprise entrepreneurs about various facilities being extended to MSME Sector by Union Government and financial institutions.
  • Under it, entrepreneurs will be encouraged to come forward and make best use of these facilities including access to credit and market, etc.
  • Under Access to Credit aspect of this programme, Government will launch 59 minute loan portal to enable easy access to credit for MSMEs.
  • Loans upto Rs. 1 crore will be granted in-principle approval through this portal, in just 59 minutes.
  • The link to this portal will be available at GST portal.
  • Government will give 2% interest subvention for all GST registered MSMEs, on fresh or incremental loans. For exporters who receive loans in pre-shipment and post-shipment period will get increase in interest rebate ranging from 3% to 5%.
  • All MSMEs or companies with turnover more than Rs. 500 crore will now be compulsorily brought on Trade Receivables e-Discounting System (TReDS).
  • This will enable entrepreneurs to access credit from banks, based on their upcoming receivables.
  • This will help to resolve their problems of cash cycle.
  • For access to markets for entrepreneurs, Union Government has taken number of steps and now it is mandatory for public sector companies to procure 25%, instead of 20% of their total purchases from MSMEs. Out of the 25% procurement mandated from MSMEs, 3% is reserved for women entrepreneurs.
  • It is mandatory for all PSUs of Union Government to be part of GeM.
  • For Technology Upgradation, Government will form 20 hubs and 100 spokes in the form of tool rooms will be established vital part of product design. For ease of doing business, government will establish clusters of pharma MSMEs. 70% cost of establishing these clusters will be borne by the Union Government.
  • For simplification of government procedures, the return under 8 labour laws and 10 Union regulations will be now filed only once year. Now establishments to be visited by an Inspector will be decided through computerised random allotment.
  • Air pollution and water pollution laws now have been merged, and henceforth under them single consent will be required, besides return will be accepted through self-certification.
  • Government has promulgated ordinance under which, for minor violations under the Companies Act, entrepreneur will no longer have to approach Courts, but can correct them through simple procedures.
  • For Social Security for MSME Sector Employees, government will launch mission to ensure that they have Jan Dhan Accounts, provident fund and insurance.

IL&FS Controversy

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  • A series of defaults by the IL&FS holding company and group outfits beginning in August have set off a market-wide contagion.

About IL&FS:

  • Infrastructure Leasing & Financial Services Ltd. (IL&FS) was set up in 1987 to finance and promote infrastructure projects in the country.
  • This holding company is now a financial behemoth with assets of over Rs. 1,15,000 crore and a  debt of Rs. 91,000 crore.
  • IL&FS is a holding company that operates through 169 other companies.
  • These 169 other companies are either subsidiaries, group companies or joint ventures with others. It has been in the past and is currently as well, associated with landmark projects.
  • A few among these projects include the tunnel under the Zoji La Pass, Delhi-Noida toll bridge, Gujarat International Finance Tec-City (GIFT) and a host of road, power, water and port projects.
  • Infrastructure Leasing & Financial Services Ltd. (IL&FS) is listed as “systemically important” by the Reserve Bank of India.  Thus, it is too big to fail.


  • IL&FS Finance, which is a group company of the holding IL&FS company, defaulted in late August on a commercial paper repayment. This development was followed by a default by IL&FS on repayment of a Rs. 1,000 crore deposit to Small Industries Development Bank of India (SIDBI).
  • Pursuant to this, a series of defaults by the holding company and group outfits followed. These defaults ran into the weeks leading up to the annual general meeting of IL&FS on September 29.

How did this crisis take place?

Company borrowed many times its equity. This figure is rumoured to be between 10-18 times its equity. This money was borrowed to fund its infrastructure projects, most of which bring in returns over 20-25 years.

To compound matters, IL&FS’s borrowings were all repayable in the short to medium-term of roughly 8-10 years.

The chokepoint for IL&FS came from the fact that its projects were stalling and not being completed due to various reasons. These reasons ranged from:

  1. statutory approvals not coming in
  2. problems of land acquisition and
  3. projects simply becoming unviable as it happened in the case of power plants.

Further, with returns from these projects not coming in, IL&FS was forced to borrow more. Lenders pulled the plug leading to trouble for IL&FS.

It is important to note that assets and receivables were exaggerated in the financial statements and the top managers took home large pay-outs and continued to pay dividends to shareholders despite the financial situation. An investigation has been ordered by the Serious Fraud Investigation Office.

How government responded?

  • Recently, the Centre moved to supersede the Board of Directors.
  • The decision to change the management has ushered in the appointment of experienced people. It is believed that these appointments should lend confidence to lenders and investors.
  • The Centre has explicitly stated its intent, which is to “ensure that needed liquidity is arranged for IL&FS from the financial system”.

Concluding Remarks:

  • In conclusion, there are some important questions that need to be answered.
  • If IL&FS was a systemically important company, how did its over-leveraging escape the notice of the Reserve Bank of India?
  • What did the periodic inspections of the company by RBI reveal? How did the developing situation pass the attention of shareholders? Did they look the other way since their dividends were serviced?
  • Finding answers to these questions is as important as rescuing IL&FS.
  • Finally, it is felt that there is a need for long-term finance sources for infrastructure projects.
  • Currently, the LIC and some insurance companies are the only domestic sources and they too do not lend beyond 10 to 12 years.
  • Thus, the Centre and the RBI should look at ways to deepen the debt markets where infrastructure players can borrow long-term.
  • Moreover, it also needs to be analysed as to how a company listed as “systemically important” managed to fly under the radar with misgovernance. It is important to note that the debt pile-up due to over-leveraging did not happen overnight.

Bank NPAs : DRT Changes

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  • Union Finance Ministry has doubled pecuniary limit to Rs. 20 lakh from Rs.10 lakh for filing loan recovery application in Debt Recovery Tribunals (DRT) by banks and financial institutions.
  • It means that bank or financial institution or consortium of banks or financial institutions cannot approach DRTs if pecuniary limit amount due is less than Rs 20 lakh.
  • This move is aimed at helping reduce pendency of cases in DRTs.


How Loan Recovery Works?

  • Banks and financial institutions’ recovery of dues (loans) takes place on ongoing basis through legal mechanisms, which inter-alia includes :
    • Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002;
    • Recovery of Debts to Banks and Financial Institution (DRT) Act, 1993 and
    • Lok Adalats.
  • The borrowers of such loans continue to be liable for repayment even when the loans have been removed from the balance sheet of the bank(s) concerned.
  • To make recovery tribunals more effective and to facilitate fast disposal of debt recovery cases, government has made several amendments in different laws, including SARFAESI Act.


What are Debt Recovery Tribunals (DRT)?

  • DRTs were first set up under Recovery of Debts Due to Banks and Financial Institutions Act 1993, also known as DRT Act.
  • Under it, DRTs were established to facilitate debt recovery involving banks and other financial institutions with their customers.
  • Under existing norms, DRT is supposed to dispose of matter referred to it within 180 days of receipt of application and appeal can be filed against DRT order with Debt Recovery Appellate Tribunals (DRATs).
  • There are 39 DRTs and 5 DRATs functioning at various parts of the country.

Advance Pricing Agreement : Analysis

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What is an Advance Pricing Agreement?

  • APAs are primarily aimed at avoiding transfer pricing disputes arising from cross-border transactions undertaken by MNCs.
  • Through these agreements, tax department and companies seek to resolve transfer pricing disputes in advance before the cross-border related party transaction actually takes place.
  • Its provision was introduced in Income-tax Act, 1961 in 2012 and Rollback provisions to it were introduced in 2014.


What are the benefits of such agreements?

  • APAs provide certainty to taxpayers in domain of transfer pricing by specifying methods of pricing and setting prices of international transactions in advance.
  • It gives certainty to MNCs that agree on certain principles in valuation of their cross-border transactions.
  • It also provides them with alternate dispute resolution mechanism with respect to transfer pricing.
  • It helps in determining arm’s length price of international transactions in advance for max period of 5 future years.
  • It also strengthens Government’s resolve of fostering non-adversarial tax regime.
  • It also has significantly contributed towards improving ease of doing business in India and has been appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner.


Analysis after entering into APAs:

  • Union Government has received Rs. 3,000 crore of additional tax from MNCs that have entered into advance pricing agreements (APAs) with it over last five years and also has eliminated big source of tax litigation.
  • 219 APAs signed by CBDT has resulted in MNCs accepting extra income of Rs 10,000 crore, translating into tax of Rs 3,000 crore.
  • The rate of completing APAs pacts has slowed down in FY18 compared to year ago.
  • CBDT had signed 88 APAs in FY17 and it has now come down to 67 in FY18.
  • One of the reasons for dip was increasing complexity of cases, which required more time for analysing relevant international transactions.
  • Shortage of manpower at level of additional or joint commissioners and deputy or assistant commissioners in APA teams also has slowed down processing of applications.
  • Despite slowing, India has outperformed China in finalising APAs in last five years.

Economy in 2018-2019 : Opportunities and Challenges

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  • After several quarters of low growth, there has been a strong pick-up in the last quarter of 2017-18. If this momentum is maintained, the growth rate (2018-19) will certainly be above 7%.
  • Major concerns are- External environment, reviving the banking system, Impact on the fiscal position.
  • Agricultural growth may at best be equal to what it was last year. As the monsoon has been somewhat below expectations — the overall rainfall was deficiency.
  • The services sector may perform better because public expenditure will be maintained at a high level.
  • As of the industrial sector, the data for the Index of Industrial Production (IIP) shows substantial improvement.
  • The correlation between the IIP and national income data on manufacturing is poor.
  • The problems of the goods and services tax (GST) may have been largely overcome.



External environment

  • Trade wars have already started and can get worse.
  • The U.S. has raised duties on several products such as steel and aluminum.
  • China has retaliated as duties for some of its products has been raised.
  • India has also been caught in this exchange.
  • Iran, which have a direct impact on crude oil output and prices. India benefited from the fall in crude prices earlier but this position has reversed.
  • India’s trade deficit has always remained high.
  • The fall in crude oil prices had also affected the export growth.
  • With the rising of trade deficit and some outflow of capital, the rupee has depreciated
  • Solution:
    • Improved efficiency in production and better infrastructure.
    • Make the exports competitive.
    • Maintenance of domestic stability.
    • Search for an alternative fuel.

Reviving the banking system

  • A/c to the RBI’s latest report on financial stability, shows that the gross non-performing asset (NPA) ratio of scheduled commercial banks rose.
  • The high NPA level has a dampening effect on the provision of new credit. In fact, credit to the industrial sector has slowed down considerably.
  • Solutions:
    • Recapitalization of banks.
    • Asset reconstruction companies, have been made to resolve the NPA issue.
    • Medium-term banking reforms.

Impact on the fiscal position

  • Central government’s fiscal has been within limits.
  • There are two aspects of the fiscal which need to be kept under watch. – One relates to GST. It is estimated that GST revenues are currently running behind budgetary projections.
  • The second concern relates to the impact of the proposed minimum support prices (MSPs) for various agricultural commodities. The MSPs have been raised sharply in the case of some commodities.
  • Solution to MSP (If market prices fall below MSPs)-
  • M.P. model- where the State pays the difference between market price and MSP. But this can turn out to be a serious burden if market prices fall steeply. This is apart from the administrative problems involved in implementing the scheme.
  • The other alternative is for the government to procure excess production over normal production so that market prices rise. This alternative may be less burdensome. However, this alternative will not work if the MSP is fixed at a level to which the market price will never rise. .



  • The expected growth rate of 7.3-7.4% may be reassuring. It may even be the highest in the world economy.
  • It is below of what is needed to raise job opportunities and reduce poverty.
  • It is true that the external environment is not helpful.
  • Hence a stronger push towards a much higher growth is very much the need of the hour.


Source: https://www.thehindu.com/todays-paper/tp-opinion/growth-may-pick-up-but-concerns-remain/article24683982.ece

ias4sure.com - Economy in 2018-2019 Opportunities and Challenges

Bank NPAs : Inter-Creditor Agreement (ICA)

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  • According to RBI, India’s banks had 12.5% of their total loans categorised as non-performing or restructured at the end of March 2018.
  • But RBI in February 2018 had withdrawn half dozen loan restructuring schemes and tightened rules to steer more companies to bankruptcy courts.
  • It had issued revised framework for resolution of stressed assets.
  • Besides, after recommendations of Government formed Sunil Mehta Committee, Inter-creditor Agreement was prepared under aegis of Indian Banks’ Association (IBA) to serve as platform for banks and FIs to come together and take joint and concerted actions towards resolution of stressed accounts.
Inter-Creditor Agreement (ICA)
  • ICA Framework is part of project ‘Sashakt’.
  • Under it, lead lender (having highest exposure) will be authorised to formulate resolution plan for operation turnaround of assets which will be presented to lenders for their approval.
  • It will be applicable to all corporate borrowers who have availed loans and financial assistance for amount of Rs. 50 crore or more under consortium lending or multiple banking arrangements.
  • Each resolution plan will be submitted by lead lender to Overseeing Committee.
  • The decision making under ICA framework will be by way of approval of majority lenders i.e. lenders with 66% share in aggregate exposure.
  • Once resolution plan is approved by majority lenders, it will be binding on all lenders that are party to ICA.
  • The plan formulated under ICA will be in compliance with RBI norms and all other applicable laws and guidelines.
  • Banks opposing resolution plan will have option to sell their stressed loans to company at discount or buy out loans to that entity from all other lenders at premium.
Significance of ICA framework
  • The ICA framework aims for faster facilitation of the stressed assets resolution.
  • It gives a bigger say to lead lender in consortium and allows resolution plan to be approved if 66% of the banks in the group agree to it.
  • It authorises lead bank to implement resolution plan in 180 days and leader would then prepare resolution plan.
  • If any lender dissents, the lead lender will have the right but not the obligation to arrange for buy-out of the facilities of the dissenting lenders at a value that is equal to 85 per cent of the lower of liquidation value or resolution value.
  • The dissenting lenders can exercise such right of buy-out in respect of the entire facilities held by other relevant lenders.
Why is this agreement important?
  • The disagreement between joint lenders was the biggest problem in resolving stressed assets. To overcome this issue inter-creditor agreement was introduced.
  • So, the government now hopes that the holdout problem, where the objections of a few lenders prevent a settlement between the majority lenders, will be solved through the inter-creditor agreement

Generalized System of Preferences (GSP)

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  • GSP is largest and oldest US trade preference programme introduced in 1976.
  • It is designed to promote economic development by allowing duty-free entry for thousands of products from designated beneficiary countries both developing and developed countries.
  • Under it, a wide range of industrial and agricultural products originating from certain developing countries are given preferential access to US markets.
  • India’s case, GSP enables duty-free entry of 3,500 product lines in US markets, which benefits exporters of textiles, engineering, gems and jewellery and chemical products. 
  • The total US imports under GSP in 2017 was $21.2 billion, of which India was biggest beneficiary with $5.6 billion, followed by Thailand ($4.2 billion) and Brazil ($2.5 billion).  
  • The US Congress in March 2018 had voted to renew GSP through 2020.
  • Why in news? The United States Trade Representative (USTR) has formally announced that it is reviewing eligibility of India, Indonesia and Kazakhstan in Generalized System of Preferences (GSP) based on concerns about countries’ compliance with program. The reviews are based on Trump administration’s new GSP country eligibility assessment process as well as GSP country eligibility petitions

Impact on Trade with India

  • The withdrawal of the Generalised System of Preferences from India would result in the elimination of duty-free access for about 2,000 Indian product lines.
  •  This will hurt small businesses such as jewellery.
  • This will adversely affect Indian exports to the US.
  • After the withdrawal of the Generalised System of Preferences number of goods qualifying for preferential treatment could be reduced, or the whole programme could be withdrawn.