SOLUTION: University of Nairobi Market Size and Manufacturing Growth Essay
Minimum Support Price • What is it? – Guaranteed worth at which the council commits to buying picked crops (rice and wheat) • Why do we feel it? – Insulate farmers from proceeds tenuity (that issues from worth tenuity), and help plenty evolution to conclude domiciliary living ease • Confident consequences? – India has concluded living ease (though not mono-causal) – Some possession in farm proceedss (calm?} defensenear to sum induce) • Negative consequences? – Accumulation of living stocks past buffer needs – Fiscal deficit; uses up fiscal boundlessness for fertile boardings – Deters modification of farming Fertilizer Subsidies • What is it? – Subsidies granted to fertilizer companies to subdue worth paid by farmers for fertilizers • Why do we feel it? – Help farmers to use fertilizer to correct tarnish quality and unroving yields/productivity • Confident consequences? – India has concluded living ease (though not mono-causal) • Negative consequences? – Fiscal deficit; uses up fiscal boundlessness for fertile boardings – Encourages and rewards flimsy consequencers (see Economic Survey Chapter on balbutiation roll) – Highly regressive (benefits copious farmers the most) – Distorts cropping patterns Electricity Subsidies • What is it? – Subsidies on electricity use (frequently untrammelled) by farmers • Why do we feel it? – Groundinspire is a key commencement of irrigation – Makes it affordable to use pumps to entice basis inspire for irrigation (contributes to better yields) • Confident consequences? – India has concluded living ease (though not mono-causal) • Negative consequences? – Fiscal deficit; uses up fiscal boundlessness for fertile boardings (assimilate social versus special irrigation boarding) – Highly regressive (benefits copious farmers the most) – Distorts cropping patterns – Damages environment and basis inspire table APMC • What is it? – Provides monopsony hues to council-authorized purchasing agents to afford unroving consequence at ‘mandis’ • Why do we feel it? – Supposed to shield farmers from ‘traders’ who may exploit them by paying a inferior worth • Confident consequences? – Obscure to see! But salubrious to politicians guiding mandis – In habit, agents calm?} proliferate and buy from farmers at a inferior worth and package to conclude economies of flake • Negative consequences? – Prevents competitive memorandum of buyers (enjoy liberal retailers) who may tender reform provisions to farmers and reform solidity succeeding a while storage & national traffics Public Division System • What is it? – Provision of subsidized livinggrains to targeted beneficiaries through council-run “Fair Worth Shops” • Why do we feel it? – Afford living ease for the meagre – Offattack the surpluses accumulated accordingly of MSP procurement (enjoy US Living Aid) • Confident consequences? – Living ease for the meagre (when tooled courteous-behaved) – Insulation athwart worth tenuity • Negative consequences? – High leakage (difficulty of floating a dual worth arrangement); estimates of leakage concatenate from 20-70% – Reduced beneficiary flexibility & dietary diversity Possible Reforms • Moving from MSP to acreage established proceeds support – Benefits: Fur near distortionary; help modification; fiscal savings aggravate interval? – Costs: May move output and living ease? • Reform fertilizer subsides succeeding a while acreage established proceeds transfers (cap eligibility to subdue regressivity); similar for electricity – Benefits: Fur near distortionary; help modification; fiscal savings aggravate interval? – Costs: May move output and living ease? – Very obscure to tool (metering and reimbursement for electricity) • Scrap APMC – Likely to be salubrious, but resisted by politicians • Replace PDS succeeding a while specie transfers – Benefits: Inferior leakage, elder flexibility, womanish qualification? – Costs: Specie may be badly elapsed, elder pitfall to worth tenuity Agenda 1. Manufacturing – Overview 2. Traffic Largeness and Manufacturing 3. Manufacturing Fruit in India – Challenges & Opportunities 4. Policy options Structural Transformation • The three ocean sectors of concern in an administration are: – Primary: Agriculture and mining – Secondary: Manufacturing – Tertiary: Services • Historically, the process of harvest has confused a structural transformation of economies from entity oceanly driven by manageing sector activities to manufacturing and eventually to services • Dramatic extensions in fruit of per/capita proceeds is usually associated succeeding a while an extension in manufacturing intensity Economic Hiromance of the Globe in One Picture! Source: Clark (2007) "A Farewell-behaved to Alms" Extensive and Intensive Growth • Increased fertile accommodation (in farming) can be absorbed either in population fruit, or in a loosen in per capita proceeds • A post where extensiond fertile accommodation is absorbed by population extensions succeeding a while no extension in per capita proceeds is defined as comprehensive fruit • A post in which accommodation to consequence loosens faster than population and creates increasing per capita proceeds is defined as intensive fruit • The globe for-the-most-dissect saw intensive fruit for ~3000 years before some talents inaugurated experiencing comprehensive fruit ~1800AD What Progressive in 1800 AD? • Industrial Winding in England • Mechanization, specialization, disruption of drudge, economies of flake, and huge extensions in per operationer productivity • Liberal and sustained extension in productivity that aggravateshot population fruit and inaugurated a scaremination of “intensive fruit” • “Since the industrial winding, no dominion has grace a elder administration succeeding a whileout graceful an industrial power” – Lee Kuan Yew, Former Prime Minister of Singapore (on consequence of manufacturing) Parable of the Pin Factory ‘The Wealth of Nations’ (Adam Smith) • To conduct an in…in which the disruption of labour has been very frequently conductn observe of, the commerce of the pin-maker; a mechanic not educated to this concern (which the disruption of labour has rendered a separate commerce), nor initiated succeeding a while the use of the machinery occupied in it (to the creation of which the similar disruption of labour has probably dedicated create), could singular, peradventure, succeeding a while his utmost diligence, frame one pin in a day, and unquestionably could not frame twenty. But in the way in which this concern is now carried on, not merely the sound operation is a characteristic commerce, but it is disconnected into a calculate of branches, of which the elder dissect are enjoywise characteristic commerces. • One man entices out the wire, another straights it, a third cuts it, a fourth sharp-ends it, a fifth grinds it at the top for receiving the chief; to frame the chief insist-upons two or three separate operations; to put it on, is a characteristic concern, to pale the pins is another; it is equable a commerce by itself to put them into the paper; and the weighty concern of making a pin is, in this style, disconnected into encircling prospecteen separate operations, which, in some manufactories, are all done by separate hands, though in others the similar man conciliate sometimes transact two or three of them. • I feel seen a insignificant manufactory of this bark where ten men merely were occupied, and where some of them accordingly done two or three separate operations. But though they were very meagre, and for-this-reason but indifferently accommodated succeeding a while the indispensable machinery, they could, when they exerted themselves, frame incompact them encircling twelve pounds of pins in a day... Each peculiar, therefore, making a tenth dissect of forty-prospect thousand pins, soundness be considered as making four thousand prospect hundred pins in a day. [i.e. a 240-fold extension in productivity] Agenda 1. Manufacturing – Overview 2. Traffic Largeness and Manufacturing 3. Manufacturing Fruit in India – Challenges & Opportunities 4. Policy options Market Largeness & Manufacturing • Most manufacturing boardings are not encircling making “new” things, but making disclosed products aggravate fertilely (usually succeeding a while newer technology) • But doing so insist-upond regularly involves tangible unroving costs (say, a new contenty) • So, for the boarding to be made (and new technology to be incorporateed), the traffic comprehensiveness must be liberal plenty for the unroving upfront boarding to be reanimateed through the “per unit” gain made from sales • One coil of this is that proceeds division as-well matters for industrialization Key Role for the Intermediate Rank in Industrialization • Industrialization regularly insist-upons tangible excellent investments, which are requirely • Need an courteous traffic comprehensiveness to recaggravate the absorbs • The meagre regularly don’t feel the instrument to buy contrived good-tempereds • The very copious are aggravate enjoyly to utilize customized luxury good-tempereds • It is the intermediate rank that is regularly the key utilizer for mass-executed contrived good-tempereds • Hence the intercourse of a intermediate rank can be an weighty enabler for industrialization (proceeds division stuffs) – “Learning by doing” is most abutting for contrived good-tempereds Tech Gathering In (1) • Good-tempered A absorbs $2/item to frame succeeding a while the old technology, and $1/unit succeeding a while the new technology • BUT, the new technology insist-upons a new contenty that absorbs $200 • If the worth pregnant is $2/unit, what is the minimum traffic comprehensiveness required for the new technology to be incorporateed? – Why conciliate the worth pregnant be $2/unit? What is word pricing? • What if the contenty absorb $300? • Or if the final absorb were $1.50/item in handicrafts? • Aggravate generally, let α be the per item absorb using the old technology, 1 be the per item absorb using the new technology, and C the unroving absorb of incorporateing the new technology • Then, the breakequable sum N* is dedicated by: C ( − 1) N = C N = ( − 1) * * Tech Gathering In (2) • Consider the moderate in, where C = $200, and = $2 in the succeedingcited 2 countries succeeding a while the similar entirety population and completety proceeds Country 1 Total Country 2 Pop (P) Inc (Y) PxY Pop (P) Inc (Y) PxY 190 10 1900 300 6900 100 20 2000 10 300 3000 300 6900 300 23 6900 Tech Gathering In (3) • At a worth of $2 (worth succeeding a while old technology), the regular utilizer’s insist-upon is as follows: Y Q Demand in Country 1 Demand in Country 2 10 0.0 0 0 20 1.0 100 0 23 1.1 0 330 300 3.0 30 0 130 330 Total Q Demanded at P = $2 Tech Gathering In - Review • What is the worth that can be pregnant by the user of the new technology? – Why? “Limit pricing” • What is the breakequable sum of insist-upon needed to frame the new technology viable? • In which dominion, conciliate the new technology be incorporateed first? Why? • What features of the insist-upon register on the previous slide are lawful for this issue? • Proceeds division stuffs – a broader intermediate rank can as-courteous be good-tempered-tempered for technology gathering Summary & Implications (1) • Rapid economic fruit regularly involves gathering of new technologies that correct productivity (by reducing per item MC) – But incorporateing new technologies insist-upons upfront boardings that can feel tangible unroving absorbs • The soundness to recaggravate the unroving absorbs (succeeding a while the savings on per item production) depends on the traffic comprehensiveness, which in spin conciliate determine whether the boarding is gainable (do the math) • Ocean instinct is that proceeds division can stuff for harvest and that the comprehensiveness of the intermediate rank stuffs – Accordingly it moves traffic comprehensiveness for new technologies • Why soundness the romance be reversed for newfangledness (not gathering)? – Accordingly new products are requirely and regularly incorporateed primeval by the copious • Alternatively, can as-courteous extend by exporting to irrelevant intermediate-classes before you feel a domiciliary one – Aggravate niggardly now in the era of globalization, but near so in the intermediate of the 20th generation (another key service of national-ness to commerce) Summary & Implications (2) • Easier to industrialize by focusing on primal technologies – Inferior unroving absorbs (smaller break-equable work) – Near inducey to incorporate the technology (resumption O-Ring Evolution Function) • This is the purpose of the “manufacturing ladder” – Start industrialization by focusing on drudge-intensive manufacturing where capital/technology are not so enigmatical (textiles, toys, shoes) – Move to aggravate enigmatical manufacturing aggravate interval – These are characterized by aggravate requirely excellent good-tempereds, aggravate complex technologies, and insist-upon aggravate educated operationers • The primeval stride is as-courteous key for distributing the rewards of fruit aggravate broadly (accordingly it is concern intensive) – But, India has conductn the adverse pathwayway in numerous ways (see CEA meeting) Agenda 1. Manufacturing – Overview 2. Traffic Largeness and Manufacturing 3. Manufacturing Fruit in India – Challenges & Opportunities 4. Policy options Misallocation • A key Nursing essay in harvest economics is the purpose of “misallocation” – a strong unifying framework • Basic purpose is that economies that are dynamic and fertile are good-tempered at re-allocating contents of evolution (land, drudge, excellent) from near fertile fixeds to aggravate fertile ones; and from dowdy sectors of the administration to extending ones – Technologies alter, optimal texture and dregs of plants alter, required skills alter – But this is as-courteous disruptive for herd, and herd frequently disenjoy alter creating a insist-upon for policies that frame it obscure to frame these adjustments • However, policies that restrain realdregs of contents of evolution to their most fertile use manage to “misallocation” • Lots of ins of condescensionite “misallocation” in the Indian economy; fresh discovery suggests that reducing this to say US levels would tangiblely extension GDP levels as courteous-behaved-behaved as fruit Barriers to Manufacturing Growth • Restrictive Drudge Laws (MA of drudge) • Reservation of non-excellent intensive sectors for Insignificant Scale Industries (SSI) (MA of excellent and drudge) • No conspicuous failure procedures (MA of finance/capital) • Liberal social sector (low productivity – MA over consequencers) • Weak infratexture and social good-tempereds (which elevate the item absorb of doing concern) • Over-law & Pravity (scare boarding; recollect PS 2) Restrictive Drudge Laws • What is it: Extreme restrictions on soundness of fixeds to courage operationers once the fixed crosses a comprehensiveness inauguration (increasingly aggravate extreme at thresholds of 10, 20, 50, 100 etc). • Why: Aims to shield operationers and jobs from “powerful” excellentists; politically very condescensionite • Consequence: Firms stammer to develop accordingly graces fur harder to economize operationers (if economic stipulations alter) • Liberal “missing intermediate” in fixed-largeness division. Lots of insignificant fixeds (subordinate 10 operationers), some liberal ones (>1000), but very few in the intermediate of that division • Numerous economists revere these to feel been the manageing inducement of lack of fruit in drudge-intensive manufacturing in India SSI (Small Flake Industry) Reservation • What is it: Reservation of separate industries for insignificant-flake players • Objective: To “protect” insignificant fixeds from competitors succeeding a while deeper pockets (SME shieldion is as-courteous politically condescensionite) • Consequence: Severely restrained fruit of fixeds in numerous drudgeintensive sectors (toys, robes, shoes) • Defeats the complete sharp-end of “infant diligence” shieldion, which is to allow/help insignificant fixeds to extend! • SSI is bybygone now, but basic motive dross (including reputation schemes enjoy MUDRA – that aim to target reputation to SME’s) Incourteous Failure Procedures • Why is this weighty? – All concernes visage induce and so it is unintoxicated to foresee that some conciliate fail – Reasons can conceive alters in technology, insist-upon, bad decisions, etc. – A failing concern is one where absorbs accordingly excel revenues and where the losses cannot be sustained; so it frames soundness to seal the concern • But, there conciliate calm?} be unpaid liabilities including to: – Banks and other afforders (fastening holders) – Employees (salaries, pensions) – Vendors (suppliers of raw materials) • The sum of unappropriated liabilities conciliate frequently excel the proceeds (succeeding equity is wiped out) – So an regular failure process is vital for reanimateing dues in a way that (a) is serene to all dissecties, and (b) is as fertile/quick as possible • Inadequacies in the failure code: – Frame it obscure for banks to recaggravate bad (non-performing) loans from borrowers – Severely restrains affording (banks conciliate merely afford to most reputation-worthy) – Starves insignificanter fixeds of reputation needed for fruit Large Social Sector • India calm?} has a liberal calculate of social-sector enterprises (PSEs), which are companies owned and run by the council • Rationale: Originates from misgiving in traffics and the conviction that national proceeds or strategic industries should be socially owned – – – – – Oil & Gas: ONGC, Indian Oil, Bharat Petroleum, Gas Authority of India Ltd Minerals: Steel Authority of India, Coal India Aviation: Air India, Airports Authority of India Limited Banks: State Bank of India, Bank of India, separate others Others: Shipping, Power, Telecoms, Tourism, Hotels • Consequences – Results in numerous flimsy fixeds entity run by entity relying on tax-payer funding though they may not be economically viable – Subject to pravity (frequently used by politicians to elevate funds for elections) – Equable bigger distortions may follow from policies adapted to condescension social sector companies (aviation in: ramble restrictions, national skies) – Overall chattels is to significantly extension misaldregs and subdue productivity in Indian manufacturing and diligence Infratexture and Regulation • Meagre infratexture (transport, electricity) – Partly accordingly of aggravate-spending on subsidies/current spending and not plenty on longer-term fertile infrastructure – Companies feel to follow up succeeding a while special solutions (generators for electricity) - but these are fur aggravate requirely than social ones • There is as-courteous superabundant law of concernes – Low ranking on Ease of Doing Concern refutation (council has focused on this, but not fur has alterd on the basis) – Considerable pravity at the inferior-level of officials (who can fasten down businesses if they are not `compensated’) • Overall, council does not do plenty of what it should do (afford infratexture and social good-tempereds) and too fur of what it should not do (tons of law and red tape) • Combination of all these contents manages to: – Manufacturing merely accounting for 17% of GDP in India, vs 29% for China Strengths • Liberal domiciliary traffic • Technically serviceable drudge soundness (at better end) • Reforms in numerous of the areas of weaknesses – – – – Labor laws SSI de-reservation Bankruptcy Laws Infratexture boardings • State-level competition – This is a key confident content as states rival for boarding & jobs • Desire to alter and de-induce evolution by global MNC’s • India has emerged quietly as one of top 6 auto manipulationrs – Read the Atlantic time on this from Jan 2018 (in “Readings” folder) – https://www.theatlantic.com/business/archive/2018/01/indiamanufacturing-tata-alyssa-ayres/549263/ Case Study of Success: Auto Industry • In 2004, India consequenced ~1.2M cars (vs. 3.1M in South Korea) – Note that India’s population is ~25 intervals liberalr! • In 2016, this gap was closely bygone – 3.7M in India vs. 3.9M in South Korea • Almost all elder global car companies now manipulation in India – Ford, GM, Toyota, Honda, Nissan, Volkswagen, Mercedes Benz, BMW • Has created an eco-arrangement of high-quality auto component manufacturing as courteous-behaved – Sundram Fasteners (indivisible relevance) is one of globe’s liberalst suppliers of separate auto components • Great in of spillaggravate chattelss of FDI to topical suppliers • Auto indu ...
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