Date:18-11-21
Targeting food
Gujarat civic bodies’ unjustifiable action on vendors selling non-veg fare must be rolled back
TOI Editorials
Street food vendors are an essential part of the urban landscape. Acknowledging it, GoI in June 2020 designed a customised microcredit scheme to help them with working capital. Clearly, some civic officials in Gujarat have read GoI’s strong emphasis on street vending wrong. Four of the state’s urban civic bodies, including that in Ahmedabad, have targeted vendors selling non-vegetarian food on utterly unreasonable and absurd grounds. These include comments by officials on “smell” and “hygiene”. It is deeply concerning that we are adding olfactory intolerance to the increasingly long list of intolerances in India. And as for hygiene, officials surely should have their plates full – why not clean up hospitals, for example.
The sequence of events, as made clear by TOI reports, is also troubling. Ahmedabad civic body’s town planning committee announced a drive against non-vegetarian street food vendors. The committee’s chairman said food carts targeted will be ones on arterial roads and those near schools or religious places. Ahmedabad’s civic agency officials attributed the drive to complaints from some residents. But Gujarat CM Bhupendra Patel clarified that state policy did not intrude on food choices as long as relevant guidelines are followed. Notwithstanding that, on Tuesday, about 40,000-50,000 vendors of the city’s 1.1 lakh were estimated by their association to have stayed away. Civic officials are now claiming encroachment as a reason.
This salad bowl of unconvincing justifications suggests civic authorities have manufactured reasons to push some vendors into less-visible parts of the city. The move also raises questions about the CM’s assurance. Note that Gujarat state BJP chief also made similar comments. In some urban centres of states like Haryana, local actions have enforced a ban on meat shops during festivals despite there being no state-level directions on the issue. These are dangerous trends, with real potential consequences for harmonious coexistence.
There is also, most immediately, the issue of inequity. Food vendors are a subset of the self-employed workforce, a vulnerable group that was badly hit by Covid’s economic fallout. Gujarat has a relatively high share of such employment. GoI’s June 2020 employment data showed that 37.8% of urban households in the state are self-employed, as compared to the national average of 30.7%. Taking some food vendors from their corners and pushing them into smaller roads has a direct impact on their livelihoods. Before this unjustifiable action gets even worse, Gujarat’s senior-most BJP leaders must help in restoring status quo ante.
Date:18-11-21
Why We Must Trade Freely
Five reasons India should review its current protectionist policy
Arvind Panagariya, [ The writer is Professor of Economics at Columbia University ]
In view of India’s turn to import substitution and protection, it is worth asking why economists view trade openness as one of the most critical elements in a country’s development policy. There are at least five sources through which free trade contributes to a country’s development.
- First, we have the conventional trade theory rooted in the principle of comparative advantage. Freeing up trade moves a country towards specialisation in products in which its production costs in terms of output foregone of other products are the lowest and away from products in which its production costs are the highest compared to its trading partners. It then exchanges a part of its output of low-cost products for high-cost products. This brings gains from efficient specialisation and exchange.
- Second, we have the insights from the New Trade Theory for which economist Paul Krugman was awarded the Nobel Prize in Economic Sciences in 2008. When production activity is subject to economies of scale, trade allows each country to specialise in a handful of products. In doing so, it allows each country to take advantage of scale economies and lower the costs of production of products it continues to produce. It can then benefit by selling a part of the output of these products for those it ceases to produce.
- Third, trade serves as the conduit for access to the most productive technology worldwide. Sometimes, this technology may be embodied in machines that must be imported. At other times, it may be embodied in imported products and can be accessed by reverse engineering. Given that new technologies are being developed continuously by countries around the world, engaging in trade freely offers the best avenue to accessing them.
- Fourth, engagement in the global economy exposes a country’s entrepreneurs to competition against the best in the world. Such intense competition keeps them continuously on their toes and offers an opportunity to learn from their peers. This is not unlike the game of cricket in which international competition in Test matches and T20 games helps produce more and more world-class players.
- Finally, free trade benchmarks the economy against the best in the world. If the country is then unable to compete effectively in the world markets, it is a sign that its domestic policies, regulations and infrastructure require tweaking. In effect, exposure to the best in the world is an effective instrument of exposing domestic-policy distortions and poor infrastructure. In contrast, protection hides these weaknesses.
Two relatively recent mutually reinforcing developments have made free trade even more critical than in the past. One, as a result of advances in transportation and communication technologies, costs of moving goods and information over long distances have come crashing down. And two, technological advances have given rise to more complex products of mass consumption while also making it possible to break down the production processes of old and new products more finely than in the past.
These two developments have meant that it is now possible to specialise production activity not by product but by components and activities. Product innovation, product design and production and assembly of the numerous components can all take place in different locations based on cost advantage. This phenomenon had existed in the past as well – for example, production of clothing could be broken down into fiber, fabric, design, cutting and stitching – but its scale has grown manifold in recent years. For example, the iPhone is made of some 1,600 components, which are supplied by 200 firms located in 43 different countries.
This development has serious implications for the efficient pattern of specialisation. In the past, high transport costs allowed countries to minimise production costs by specialising in entire products such as clothing and trading them for other products such as steel. But today, cost minimisation mandates specialisation in specific components of different products or their assembly by different countries.
If a country is abundant in labour and assembly of products is a labourintensive activity, it must specialise in this activity across a large number of products rather than targeting 100% domestic value added in a few of them until it turns labour scarce. Likewise, a country which is rich in human capital is better off focussing on innovation and design, leaving manufacturing of components and assembly to countries that have a cost advantage in those activities.
This reasoning reveals the folly of policies such as India’s phased manufacturing programme, tried even in the prereform era with disastrous consequences. To be sure, by erecting high enough custom duties on components and an even higher custom duty on the fully assembled smartphone, any country can indigenise the product in its entirety.
But what good is such100% indigenisation if it makes the smartphone so costly that only a few captive domestic consumers with sufficient income would buy it? Is the country not better off capturing a large slice of the massive world market in the assembly or a few selected components in which it is the most cost effective? China has understood this principle well. Even with 10% value added per Apple device, 100 million plus devices it produces contain a lot of total value added of Chinese origin.
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