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CO

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COPE

The Economy Observer

19 February 2021

2020: The Year of Structural Reforms

Benefits may fructify after a few years

Almost a month ago, we had released a

detailed note

listing the five areas of improvement or the structural

changes required in the Indian economy to move from the current growth rate of 4–5% to 8–9%. In this note,

we delve into the details of four key structural reforms – The Farm Bills, The Labour Codes, New Education

Policy, and the distribution of property cards under the Survey of Villages and Mapping with Improvised

Technology in Village Areas (SVAMITVA) scheme – implemented by the central government in 2020.



“No crisis should be wasted.” The Government of India (GoI) seems to have taken this advice very seriously

in 2020. Although the fiscal support to the economy is deemed highly insufficient, the GoI has shown unusual

ability to implement several bold structural reforms.



Of these four areas, farm laws have attracted attention due to the ongoing protests over the past few

months. However, other reforms are also important from an economic perspective. These are broadly aimed

at addressing the obstacles to competency in the country’s various economic and social indicators. However,

as always, execution holds the key.



These reforms may not have any major impact in the near term, and the true benefits may materialize only

after a few years. Nevertheless, the beauty of such reforms is that they disturb the existing ecosystem and

nudge the present beneficiaries to compete with new players. As a result, they would almost certainly bring

about efficiency and productivity improvements over time.



FOUR REFORMS COVERED IN THIS REPORT

The farm reforms are three acts passed by the Parliament in Sep’20 - (i) The

Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill; (ii) The

Farmers (Empowerment and Protection) Agreement on Price Assurance and

Farm Services Bill; (iii) The Essential Commodities (Amendment) Bill.

Agriculture/

Farm reforms

Labour reforms

The Ministry of Labour and Employment introduced four bills on labor codes –

Wages, Industrial Relations, Social Security and Occupational Safety, Health and

Working Conditions – to consolidate 29 central laws. While the Code on Wages

was passed in 2019, the remaining three were passed in Sep’20.

New Education Policy

The New Education Policy (NEP) 2020, a replacement of the National Policy on

Education of 1986, was approved by the Union Cabinet of Economic Affairs in

Jul’20. One of the aims is to achieve public spending on education of 6% of GDP

SWAMITVA

The scheme was announced in Apr’20 as a new initiative under the Ministry of

Panchayati Raj. It is aimed at providing rural citizens with the right to document

their residential properties so they could use their properties for economic

purposes.

Nikhil Gupta – Research Analyst

(Nikhil.Gupta@MotilalOswal.com)

Yaswi Agarwal

– Research Analyst

(Yaswi.Agarwal@motilaloswal.com)

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on

www.motilaloswal.com/Institutional-Equities,

Bloomberg, Thomson Reuters, Factset and S&P Capital.

Exhibit 1: Details of the three agricultural/farm reforms

Reforms

The Farmers'

Produce Trade and

Commerce

(Promotion and

Facilitation)

Ordinance, 2020



Key highlights

To facilitate competition



through barrier-free interstate

and intrastate trade

Farmers can sell their produce



outside the APMC markets

Market fee to be abolished for

trade ‘outside trade area’

To empower the central

government to mark



commodities as ‘essential’

Imposition of stock limit only

under extraordinary situations,

such as price rise, war, famine,

and natural calamity







Potential benefits

To increase the



availability of buyers for

farmers’ produce



To increase competition,



leading to better prices

for farmers and

consumers

Key concerns

GoI may stop paying



MSPs on select crops

Loss of revenue for states



Whether farmers will be

allowed to re-enter

APMCs at their will

Other comments

Concerns over MSPs

are unfounded

Higher competition

and better price

discovery definite

positives for economy

The Essential

Commodities

(Amendment)

Ordinance, 2020



To boost investments in



Contradictory act by



Price control by traders

storage capacities to

the government

and private corporations

reduce post-harvest loss

defeats the purpose of

through the hoarding of

of crops that leads to

the reform (Recent

ban

food produce

on onion exports).

distressed sale



Previous experiences

Proper legal framework

are not very

for dispute resolutions

encouraging

The entire amount



Private parties may have



Independent, time-

would be paid at the

the upper hand in

bound resolution of

time of delivery and a

dispute resolutions

disputes by conciliation

receipt slip would also

board would go a long

be issued

way

Potential benefits

Key concerns

Other comments

The Farmers



(Empowerment and



Agreement between a farmer

Protection)

and buyer prior to production



Agreement on Price



Agreement must provide a

Assurance and Farm

conciliation board and process

Services Ordinance,

for settlement of disputes

2020

Exhibit 2: Details of three labor reforms

Reforms

Key highlights



Higher threshold (300 workers



from 100 earlier) for lay-offs,

The Industrial

retrenchments, and closures

Relations Code, 2020



Unions with 51% workers to



be recognized for negotiations

Code on Social

Security, 2020



Unorganized workers

(including gig and platform

workers) to be covered

More discretion to



Reduced job security for



Improved efficiency

employers to manage

workers

and productivity to

the establishments



Illegal to go on a strike

have strong positive

60-day prior notice for

without 60-day prior

benefits over the long-

strikes also brings clarity

notice

term



Employee cannot ask for

a review of an order

passed regarding disputes



Lack of clarity

regarding various types

of workers may lead to

disputes



Empirical

evidence

from Rajasthan shows

increase in productivity

and factory output

when safety provisions

had to be implemented

for est. with higher

number of workers



Better social security

laws to help workers



A new factory would be

exempted from safety

provisions if it contributes to



Exemption of contract

Occupational Safety,

economic growth and



Safety of workers in

workers from engaging

Health and Working

employment

establishments with

in core activities to lead

Conditions Code,



Bill prohibits contract labor in

fewer employees is

to lesser wastage of

2020

core activities

threatened

skilled human resource



To apply to establishments or

contractors employing 50 or

more workers

Exhibit 3: Details of the New Education Policy and SVAMITVA

Reforms

Key highlights



Redesigned structure of school



curriculum



Targets higher public spending

on education (6% of GDP),

improvement in R&D, and a

higher gross enrollment ratio

(GER) of 50% by 2035

To provide rural people with



documentation of their

properties

Pilot phase would be in six

states covering ~0.1m villages;

to eventually cover 0.7m



villages

Potential benefits

Key concerns

Other comments

New Education

Policy, 2020

Higher expenditure in

education and on R&D

to lead to efficient

human resource,

creating skilled

employment in future

Increased flow of

agricultural credit as

homeowners use their

properties as collateral

for formal loans

To aid in determining

property tax



Retaining children after

primary education



Authoritative imposition

remains a challenge

of Sanskrit as a language



Spending of 6% of GDP

is unnecessary

was first targeted in

FY1964; not achieved

yet



Scheme may facilitate

ease of doing business

as unclaimed land

parcels could be easily

identified, leading to

fewer land disputes



Survey of Villages

and Mapping with

Improvised



Technology in Village

Areas (SVAMITVA)

scheme

N/A

18 February 2021

2

01

Key features of the Farm reform bills…

Earlier, agricultural marketing was largely regulated by the Agricultural Produce

Marketing Committee (APMC) acts of various state governments. The purpose of

these acts was to a) regulate agricultural trading practices, b) increase market

efficiency through reducing market charges, and c) eliminate superfluous

intermediaries and protect the interests of both the producer/seller and buyer.

Once a particular area was declared as a state “market area”, no person or agency

was allowed to freely carry on wholesale marketing activity. Agricultural producers

were thus forced to do their first sale in these markets.

The recently passed bills are intended at changing these policies.

The Farmers’

Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020,

seeks to

allow barrier-free trade of farmers’ produce outside the physical premises of the

markets notified under the various state APMC acts. The bill would prevail over the

APMC acts in areas outside of such markets. Farmers’ produce may be traded

anywhere outside of the designated markets, such as in places of production,

collection, and aggregation – including farm gates, factory premises, warehouses,

silos, and cold storages. While the bill identifies an individual farmer as a producer,

it also includes Farmer Producer Organizations (FPOs).

An important feature of the bill is that a trader transacting with a farmer must make

payments on the same day or within a maximum of three working days, after giving

the farmer a receipt on the same day. The bone of contention here is that the bill

prohibits the state governments and APMCs from levying any market fee, cess, or

any other charges on trade outside of the APMC-notified markets. Additionally, the

ordinance permits farmers to trade their produce online (via electronic trading) in

the specified e-trade area.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and

Farm Services Bill, 2020,

encourages contract farming within a legal framework.

Contract farming is

not

new in India. It involves agricultural production on the basis

of an agreement between a buyer and a farmer. What was, however, lacking in

earlier agreements was a proper legal framework for dispute resolution, which is

covered in the new bill. The act further specifies that the minimum period for an

agreement would be one crop season / production cycle and the maximum period

would be five years. Although the price to be paid by the buyer would be mentioned

in the agreement, there are provisions in place for situations where prices could

change on either side of the fixed price. As for payments, the entire agreed amount

would be paid at the time of delivery and a receipt slip would be issued with the

details of the sales proceeds. Importantly, the land of the farmer is protected – as

no action can be taken against the farmer’s agricultural land for recovery of dues.

The Essential Commodities (Amendment) Bill, 2020,

amends the Essential

Commodities Act of 1955, which empowered the central government to control

production, supply, distribution, storage, and sale of essential commodities

(including cereals, pulses, potatoes, onions, edible oilseeds, and oils). The new bill,

however, takes away this power from the government and allows it to retain this

Seeks to allow barrier-free

trade of farmers’ produce

outside the physical

premises of the markets

notified under the various

state APMC acts

What was lacking in earlier

agreements was a proper

legal framework for dispute

resolution, which is covered

in the new bill.

18 February 2021

3

The new bill takes away the

power to control

production, supply,

distribution, storage, and

sale of essential

commodities from the

government.

only under specified adverse circumstances, such as an abnormal price rise—a 100%

increase in retail price in the case of horticultural produce or 50% increase in retail

price in the case of non-perishable agricultural food items (the increase would be

calculated over price prevailing 12 months prior or average retail price of the last

five years, whichever is lower)—war, famine, or natural calamity of a grave nature.

Importantly, these provisions do not apply to the government’s Public Distribution

System (PDS).

01

…that have attracted more heat than light

i.

ii.

Farmers are apprehensive about no longer getting the government-

promised Minimum Support Price (MSP) for their produce.

They are also concerned about the upper hand huge agri-businesses and big

retailers would have in either contract farming or during price discovery

outside of the APMC-notified market yards.

Farmers are disillusioned based on the assumption that if they were to sell

their produce outside of the APMC-designated market yard, they would not

be able to re-enter the yard – even in the case of being exploited by a

private buyer. Effectively, there is no scope for trial and error.

States are concerned about the reduction/abolishment of the

mandi

tax

leading to loss of revenue receipts.

iii.

iv.

What does our analysis say?

First, we believe that the concerns related to MSPs are unfounded. The reforms

provide an alternative market to farmers over APMCs, which is certainly beneficial

for the agriculturists. In fact, Prime Minister Narendra Modi has also assured

farmers that the MSP system would remain, along with procurement by the

government.

According to the

70

th

round of NSSO

on

Key Indicators of Situational Agricultural

Households,

on average, only 15% of agricultural households that produced crops

were aware of MSP, and among them, only ~6% sold their produce at MSP –

numbers are a simple average of households that produced and sold 19 crops at

MSP between Jul’12 to Jun’13

(Exhibit 4).

The major reasons why the remaining

households did not / could not sell through the MSP mechanism despite being

aware of its existence was a) the procurement agency was not available, b) market

prices were higher than MSP, or c) due to the unavailability of local buyers.

Therefore, a large number of agricultural households are already operating in

imperfect markets, and these reforms may actually help farmers expand their

options. Going forward, it remains to be seen how free price discovery and the

expansion of the coverage area affect farmer-consumer prices.

On average, only 15% of

agricultural households

that produced crops were

aware of MSP, and among

them, only ~6% sold their

produce at MSP.

18 February 2021

4

Exhibit 4: Just ~6% of agricultural households sold their produce at MSP

50

40

30

20

10

0

13.5

1.7

3.0

4.2

16.2

1.6

3.9

0.6

0.4

1.3

1.6

1.8

0.2

1.1

1.9

3.6

6.9

0.6

% of agricultural households aware about MSP

% that sold at MSP

31.0

* Jan’13 to Jun’13 for these crops; Jul’12 to Dec’12 for remaining crops.

Source: NSSO, MOFSL

Second, contract farming is not new in India. The new acts actually attempt to

improvise by including a conciliatory board to address the potential disputes

between the concerned parties. There is no reason to believe one party would

have the upper hand over another if the board is independent and apolitical, and

disputes are resolved in a strict, time-bound manner.

The abolishment of the

mandi

tax would certainly hurt state revenues (mainly

Punjab/Haryana that levy 4%/6% fees/levy in their respective APMCs). However,

over time, as agricultural trading evolves and turns more efficient, better growth

would very likely contribute to higher taxes in certain other areas.

Lastly, the government must assuage concerns regarding the re-entry of farmers in

APMCs. We do not believe there would be an issue here as these reforms are

about providing more freedom and options to the farmers above anything else.

Nevertheless, it would be great to get such confirmation from the government.

In

May’20,

the finance ministry announced an INR1t agricultural infrastructure

fund and the commitment to create 10,000 Farmer Producer Organizations (FPOs).

Although we have limited details on when and how the fund would be created, this

space needs to be keenly tracked to see how the agricultural infrastructure

development is progressing.

The abolishment of the

mandi

tax would certainly

hurt state revenues (mainly

Punjab/Haryana that levy

4%/6% fees/levy in their

respective APMCs.

02

The Labor laws are consolidated into four reforms

The central government has stated that there are over 100 states and 40 central

laws regulating various aspects of labor. In 2019, the Ministry of Labour and

Employment introduced four bills on Labour Codes – Wages, Industrial Relations,

Social Security and Occupational Safety, Health and Working Conditions – to

consolidate 29 central laws. While the Codes on Wages, 2019 was passed earlier,

the parliament passed the remaining three bills in September 2020, primarily with

the objective of simplifying and modernizing the labor regulations.

The Industrial Relations Code, 2019

applies to all establishments except those

engaged in charitable or philanthropic work, household work, sovereign activities of

the state, and any other specially mentioned categories. It subsumes three separate

acts – The Industrial Disputes Act, 1947; the Trade Unions Act, 1926; and the

18 February 2021

5

The Bill increases the

threshold to seek prior

permission from the

government before

closures, lay-offs, or

retrenchments to 300

workers or more from 100

or more.

Industrial Employment (Standing Orders) Act, 1946. Key features of this bill are as

follows:

i.

As per previous law, an establishment with 100 workers or more had to seek

prior permission from the government before closures, lay-offs, or

retrenchments. It had to prepare standing orders on matters such as the

classification of workers; termination of employment; and manner of informing

workers about work hours, paydays, wage rates, etc. The 2020 Bill has

increased the threshold to 300 workers or more.

Moreover, GoI reserves the

right to increase, not decrease, this threshold (if necessary).

ii.

The

sole negotiating trade union

would be one with 51% membership (down

from 75% earlier). In case no trade union is eligible as the sole negotiating

union, the new bill provides that a negotiating council would be formed

comprising representatives of unions with at least 20% of workers as members

(v/s 10% earlier).

iii.

Two-week prior notice is needed for

strikes.

iv.

Any dispute in relation to the discharge, dismissal, and retrenchment of

services of a worker would be classified as an

industrial dispute.

The worker

may apply to the Industrial Tribunal for adjudication of the dispute 45 days

after applying for a reconciliation of the dispute.

Code on Social Security, 2020

subsumes nine different acts. The major ones among

them are the Employees Provident Fund Act, 1952, the Unorganized Workers’

Security Act, 2008, and the Building and Other Construction Workers’ Welfare Cess

Act, 1996. Key features are as follows:

i.

The central government would set up a

social security fund

with contributions

from the central/state government and aggregators. Aggregators include ride-

sharing services, food and grocery delivery services, content and media

services, and e-marketplaces. The contribution from aggregators would be 1%

to 2% of their annual turnover, but would not exceed 5% of the amount paid by

them to gig/platform workers.

ii.

Contrary to earlier provisions, no employee can ask for a

review of the order

passed by an authorized officer on disputes

regarding the applicability of the

provident fund (PF) and employee state insurance (ESI) to certain

establishments and determine the amounts due from employers under these

saving schemes. Additionally, even the officer cannot re-open a file after the

order has been issued (earlier provisions included permission to re-open the file

within five years, if needed).

iii.

The new bill also

relaxes penalties.

For example, the penalty charged to an

employer for unlawfully deducting its contribution from an employee’s wages

has been changed from a one-year jail sentence or fine of INR50,000 to only a

fine of INR50,000.

iv.

The new bill allows 10 central government members (from five earlier) to be a

part of the National Social Security Board for unorganized workers and 10 state

government officials (from seven) to be a part of the state boards.

v.

The central government may

defer or reduce the employer or employee’s

contributions

(under PF and ESI) for up to three months in the case of a

pandemic or any national disaster.

The central government

would set up a social

security fund with

contributions from the

central/state government

and aggregators.

18 February 2021

6

The state government is

allowed to exempt any new

factory from implementing

safety provisions if it would

lead to higher economic

activity/employment

Code on Occupational Safety, Health, and Working Conditions, 2020

subsumes 13

different acts. These include the Factories Act, 1948; Building and Other

Construction Workers (Regulation of Employment and Conditions of Service) Act,

1996; Inter-State Migrant Workmen (Regulation of Employment and Conditions of

Service) Act, 1979; and Sales Promotion Employees (Condition of Service) Act, 1976.

Key features of the bill are as follows:

i.

The state government is allowed to

exempt any new factory

from

implementing safety provisions if it would lead to higher economic

activity/employment.

ii.

The term “Factory” and the safety provisions that came along with it previously

applied to manufacturing units employing more than: (i) 10 workers – if the

process is carried out using electricity or (ii) 20 workers – if operations are

carried out without using electricity. The new Code revises this to 20 and 40

workers, respectively.

iii.

The Code would apply to establishments or contractors employing 50 or more

workers (on any day within the last year), against 20 workers earlier.

iv.

Contract labor in core activities is prohibited

(sanitation, security, courier, or

catering services; loading and unloading operations; hospital or educational

institutions; and civil or construction work, including maintenance).

v.

Only those earning up to INR18,000/month would be considered as

interstate

migrants.

vi.

The announcement of “One-Nation-One-Ration” in the Atmanirbhar Package

announced by the finance minister in May’20 has been included in this bill.

However, displacement allowance (50% of minimum wages) has been

abolished.

What does our analysis say?

The higher threshold to seek prior permission from the government or for standing

orders would effectively leave more than 80% of factories in India without any labor

laws. According to the

Annual Survey of Industries for 2017-18,

47% of factories

employ less than 20 workers and another 34% employ less than 100 workers.

However, further examination shows that ~80% of factories produce only ~20% of

total output. While establishments employing between >100 and <500 workers

produce 26% output, those with more than 500 employees contribute ~55% to total

output. Consequently, from an economic activity perspective, this change would

have a limited effect on national output. Nonetheless, factories may try to keep

their employee counts low (<300) in a bid to lessen the compliance burden, thus

reducing the scope for higher organized employment in the future.

The Economic Survey Report for FY19

illustrated

the positive impact of higher

employee thresholds implemented in Rajasthan in FY15 itself. After the threshold

for hiring, lay-offs, retrenchment, etc., had been increased to at least 300

employees from 100 and the applicability of factory codes was also increased to

establishments with more than 20 workers (using power) and 40 workers (not using

power), the average numbers of factories employing more than 100 workers, the

total output, and output per factory increased substantially in Rajasthan

(Exhibit 5).

On While establishments

employing between >100

and <500 workers produce

26% output, those with

more than 500 employees

contribute ~55% to total

output.

18 February 2021

7

Exhibit 5: Impact of deregulation of labor market in Rajasthan was substantially positive (CAGRs of all variables)

Figures show the CAGR two years before and two years after the laws changed in Rajasthan v/s no changes in rest of India

Source: Economic Survey FY19, MOFSL

In addition to the

demonetization, GST, and

other measures, bringing

unorganized workers into

the social security net

would further increase the

formalization of

employment and the

economy.

In addition to the demonetization, GST, and other measures, bringing unorganized

workers into the social security net would further increase the formalization of

employment of the economy. Since we have little idea about who the authorized

official would be to pass the orders in the case of disputes, it is difficult to

understand who would be positively/negatively impacted. If it is someone from the

workers’ union, the workers’ bargaining power would be higher and a decision

favoring the workers could be expected.

A reduction in the threshold for the number of working members needed to form

the sole negotiating council would improve the bargaining power of the employees.

However, frequent strikes could lower the productivity of the establishments. To

tackle this, a prior notice of two weeks is required for the strikes, which would

weaken the collective bargaining power of the workers.

We believe the exemption of contract workers from engaging in the core activities

of an establishment would lead to lesser wastage of human resources – as contract

employment would then be only for specifically skilled activities.

Overall, the consolidation of various archaic labor laws into four codes not only

simplifies the procedures but also attempts to balance the bargaining power

between the employer and employees.

18 February 2021

8

03

New Education Policy, 2020

The New Education Policy (NEP) 2020, a replacement of the National Policy on

Education of 1986, was approved by the Union Cabinet of Economic Affairs on 30

th

Jul’20. The main recommendations of the NEP are as follows:

i.

Redesigning the structure of the

school curriculum

to incorporate early

childhood care and education from 10+2 to a 5+3+3+4 model, comprising: a)

five years of the foundational stage (for ages 3 to 8), b) three years of the

preparatory stage (for ages 8 to 11 or classes three to five), c) three years of the

middle stage (for ages 11 to 14 or classes six to eight), and d) four years of the

secondary stage (for ages 14 to 18 or classes 9 to 12)

ii.

Enhancing the higher education

Gross Enrollment Ratio (GER)

to 50% by 2035

iii.

Improving research in higher education institutes by setting up an

Independent

Research Foundation

iv.

Targeting an

increase in public spending

in the Education sector to 6% of GDP

What does our analysis suggest?

In our view, retaining children remains a challenge for the Indian education system.

As of

2015–16,

GER was 56.2% at the senior secondary level and only 23.5% at the

higher education level v/s 99.2% at the primary level. This decline is particularly high

in the case of females and Scheduled Tribes (including both males and females)

(Exhibit 6).

India’s GER in higher education is not only a quarter of its primary

enrollment ratio but also just half the GER of other large EMs such as Brazil and

China (~50%).

Exhibit 6: GER drops substantially post secondary education in India

Gross Enrollment Ratio (%)

Primary (Grade 1 to 5)

Upper Primary (6 to 8)

Secondary (9 to 10)

Senior Secondary (11 to 12)

Higher Education

Males

97.9

88.7

79.2

56.0

25.4

Females

100.7

97.6

81.0

56.4

23.5

SCs

110.9

102.4

85.3

56.8

19.9

STs

106.7

96.7

74.5

43.1

14.2

All

99.2

92.8

80.0

56.2

23.5

India’s GER in higher

education is not only a

quarter of its primary

enrollment ratio but also

just half the GER of other

large EMs such as Brazil and

China (~50%).

Source: Educational Statistics at a glance (2018)-Ministry of Human Resource Development, MOFSL

The most prominent reasons for dropping out of higher education were

engagement in domestic activities in the case of females and engagement in

economic activities in the case of males – which explained the reason behind almost

30% each of all dropouts. Financial constraints, the lack of interest in studies, and

marriage (in the case of females) accounted for another 45–50% of dropouts.

Therefore, strengthening schemes and policies targeted at specific groups of the

population would go a long way in achieving the goal for an at least 50% GER in

higher education by 2035.

Furthermore, it is imperative for any country to develop its ability in research and

development (R&D), in any field, and India performs poorly in this segment.

Compared with the global average of 2.2% of GDP, total R&D spending in the

world’s second most populated nation was only 0.6% in 2015 – only two-fifths of the

average R&D spend in middle-income nations. The number of researchers per

18 February 2021

9

The National Education

Commission, set up in

FY1964, had aimed at

increasing public

investment in education to

6% of GDP by FY1986 from

2.9% of GDP at the time.

million people in the country was also among the lowest at 216 in India, as against

the global average of 1,478 researchers per million people and the average of 775

researchers in middle-income nations. Therefore, the government’s

recommendation to establish a national research foundation for funding and

facilitate quality research in India is a step in the right direction.

While the aim of increasing public spending on education to 6% of GDP is welcomed,

it is almost hysterical that this aim has been consistent for decades, sans

achievement. The National Education Commission, popularly known as the Kothari

Commission,

set up by the central government in FY1964, had aimed at increasing

public investment in education to 6% of GDP by FY1986 from 2.9% of GDP at the

time. Notably, total spending on education has been broadly around 3% of GDP for

the past three decades

(Exhibit 7).

Exhibit 7: Government spending on education has been ~3% of GDP for the past three decades

4.0

3.0

2.0

1.0

0.0

Education spending (% of GDP)

FY92

FY94

FY96

FY98

FY00

FY02

FY04

FY06

FY08

FY10

FY12

FY14

FY16

FY18

FY20*

* Revised estimates for States, Actual for the central government

Source: RBI, Union Budget documents, CEIC, MOFSL

03

Survey of Villages and Mapping with Improvised Technology in Village

Areas (SVAMITVA) scheme – announced by PM on 24th Apr’20

The SVAMITVA scheme was announced as a new initiative under the Ministry of

Panchayati Raj. It is aimed at providing rural citizens with the right to document

their residential properties so they could use their properties for economic

purposes. It is for surveying the land parcels in rural-inhabited areas using drone

technology. The survey is expected to be conducted across the country in a phased

manner over four years (2020–24), and the projected outlay of the scheme is

INR0.8b in FY21 for the pilot phase.

The pilot phase would extend to six states – Haryana, Karnataka, Madhya Pradesh,

Maharashtra, Uttar Pradesh, and Uttarakhand – covering approximately 0.1m

villages. About 0.7m villages in the country would eventually be covered in this

project. Furthermore, on 11

th

Oct’20, the PM launched the distribution of property

cards under this very scheme in a bid to legalize this whole process of owning

properties and avoid future disputes.

Most importantly, the scheme is intended at enabling rural household owners to use

their properties as collateral for taking loans and other financial benefits. This would

increase the flow of credit to the rural areas. Furthermore, it would aid in

determining property tax, which would accrue to the Gram Panchayats directly in

The pilot phase would

extend to six states

covering approximately

0.1m villages. About 0.7m

villages would eventually

be covered in this project

18 February 2021

10

states where they are empowered to collect such taxes. All of the property records

and maps would be available at Gram Panchayats, which would aid in the taxation

of villages, construction permits, eliminating encroachments, etc. – leading to the

formalization of rural land and, optimistically, fewer land disputes.

With the help of a property

card, a rural household

would be able to claim

exactly what it owns,

barring unclaimed property.

What does our analysis suggest?

With the help of a property card, a rural household would be able to claim exactly

what it owns, barring unclaimed property. This would allow for improved rural

planning for better industrial development by states and private companies.

Additionally, since the process would be legitimate, fewer disputes related to the

encroachment of land or property would facilitate the ease of doing business

(Exhibit 8).

Exhibit 8: Of the 27 countries mentioned below, India’s rank in ease of doing business is the eighth lowest

Ease of Doing Business Ranking

95

99

108

124

168

62

2

3

5

6

8

12

14

15

16

21

22

23

28

29

30

31

32

33

63

73

84

Source: World Bank Doing Business Ranking 2020, MOFSL

If the farm laws survive the

protests of the day, they

could eventually lead to

better realization for

farmers and improved

efficiency

Conclusion: 2020 may also be remembered as “The Year of Structural Reforms”

“No crisis should be wasted.”

The GoI seems to have taken this advice very seriously

in 2020. Although the fiscal support to the economy is deemed highly insufficient,

GoI has shown an unusual ability to implement several bold structural reforms. In

2020, it implemented a number of structural reforms in areas ranging from labor,

agriculture, to education. In this note, we delved into the details of four key reforms

– The Farm Bills, The Labour Codes, New Education Policy, and distribution of

property cards under the Survey of Villages and Mapping with Improvised

Technology in Village Areas (SVAMITVA) scheme – implemented by the central

government.

Our understanding of the farm laws, which have seen continued protest over the

past few months, is that they are intended at providing more options and freedom

to the farmers to choose their choice of markets to sell their produce. It is more

likely to weaken the monopolistic position of the APMCs rather than hurting the

farmers. If these laws survive the protests of the day, they could eventually lead to

better realization for farmers and improved efficiency in the Agricultural sector.

Furthermore, the consolidation of various archaic labor laws into four codes not

only simplifies the procedures but also attempts to balance the bargaining power

between the employer and employees. While establishments with up to 299

workers do not need prior permission to lay off / retrench workers and/or for

18 February 2021

11

closures, the threshold for the negotiating trade union has been reduced to 51%

membership. Furthermore, the expansion of the social security net to unorganized

workers (including gig and/or platform workers) may also go a long way in securing

the financial future of the workers.

The New Education Policy 2020 attempts to achieve what has not been achieved in

the past several decades. Government spending on education is targeted to reach

6% of GDP, similar to what was targeted in 1986 as well. However, it has remained

stubbornly stagnant at ~3% of GDP for the past three decades.

Lastly, the least talked about SVAMITVA is most likely to formalize a large portion

of the rural household sector, which could also help plan better industrial policies

and thus improve economic growth.

Of these four areas, farm laws have attracted attention due to the ongoing

protests in the past few months. However, other reforms are also important from

an economic perspective. These reforms are broadly aimed at addressing obstacles

to competency in the country’s various economic and social indicators. However,

as always, execution holds the key.

These reforms may not have any major impact in the near term, and their true

benefits may materialize only after a few years. Nevertheless, the beauty of such

reforms is that they disturb the existing ecosystem and nudge the present

beneficiaries to compete with new players. As a result, they are almost certain to

bring efficiency and productivity improvements over time.

Of these four areas, farm

laws have attracted attention

due to the ongoing protests.

These reforms are broadly

aimed at addressing

obstacles to competency in

the country’s various

economic and social

indicators. However, as

always, execution holds the

key.

18 February 2021

12

Explanation of Investment Rating

Investment Rating

BUY

SELL

NEUTRAL

UNDER REVIEW

NOT RATED

*In

case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30

days take appropriate measures to make the recommendation consistent with the investment rating legend.

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While calculating beneficial holdings, It does not consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.).

MOFSL also earns DP income from clients which are not considered in above disclosures.

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altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOFSL. The report is

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analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

Disclosure of Interest Statement

Companies where there is interest

Analyst ownership of the stock

No

A graph of daily closing prices of securities is available at

www.nseindia.com, www.bseindia.com.

Research Analyst views on Subject Company may vary based on Fundamental research and

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Motilal Oswal Financial Services Limited (MOFSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state

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Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by

Expected return (over 12-month)

>=15%

< - 10%

> - 10 % to 15%

Rating may undergo a change

We have forward looking estimates for the stock but we refrain from assigning recommendation

18 February 2021

13

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Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI:

ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579 ;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration

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* MOFSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company

Law Tribunal, Mumbai Bench.

18 February 2021

14