Category Archives: Economics

Cryptocurrencies

In Focus: Cryptocurrencies

  • About:
    • A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.
    • Many cryptocurrencies are decentralized networks based on blockchain technology.
    • A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to governmentinterference or manipulation.

  • Types of Cryptocurrency:
    • Bitcoin: Launched in 2009, the first blockchain-based cryptocurrency was Bitcoin, which still remains the most popular and most valuable. Today, the aggregate value of all the cryptocurrencies in existence is around $1.5 trillion (60% Bitcoin).
    • Others: Some of the competing cryptocurrencies spawned by Bitcoin’s success, known as “altcoins,” include Litecoin, Peercoin, Namecoin, Ethereum, Cardano and EOS.

  • Advantages of Cryptocurrency: Easier means to transfer funds, Secure, Minimal processing fee, Promotes privacy etc.
  • Disadvantages: Well suited for illegal activities, such as money laundering and tax evasion; Highly volatile; Entire ecosystem (including exchanges and wallets) is not secure; Absence of regulation etc.

News Summary:

  • The Central American country formally adopted the virtual currency (first country in the world to do so), after its Parliament approved the move announced by the President Nayib Bukele.

  • Reason behind such decision:
    • El Salvador depends heavily on remittances sent by Salvadorians from abroad (around a quarter live in the US and send more than $6 billion in remittances, making up more than 20% of the GDP).
    • A big chunk of these remittances is lost to intermediaries. By using Bitcoin, the amount received by more than a million low income families will increase.
    • It will also help increase financial inclusion in El Salvador, where 70% of the population does not have a bank account and relies on the informal economy.

  • Reaction to the decision:
    • It is seen by some as an innovative step, in a time (pandemic) when the world is looking for new ventures of economic recovery.
    • It is also seen as good news for cryptocurrencies in general, as it will improve the appeal for Bitcoin, which has witnessed major fluctuations this year.
    • However, some crypto experts have criticised the move saying that El Salvador could have looked at other crypto options, as Bitcoin’s transaction rate is too slow compared to other virtual tenders such as Bitcoin Cash or Monero.
    • The lack of a central regulating authority, potential for fraud and money laundering, high energy costs and extreme volatility, further increase skepticism about the private currency.

Understanding El Salvador’s decision in Indian context:

  • From the prism of monetary policy:
    • El Salvador has no monetary policy of its own and hence no local currency to protect. The country was officially ‘dollarized’ in 2001 and runs on the monetary policy of the US Federal Reserve.
    • In India, the Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy. By this, RBI controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth.

  • Not merely currency but technology: The overall use of Bitcoin appears less motivated by its use as a currency and much more by the image and investment boost this could give the country towards innovation.
  • Potential shift in remittances: The impact Bitcoin has on remittance inflows would be worth monitoring for India, which is home to the largest remittance market in the world.
  • Necessary oversight measures: The implication of this move for illegal activities such as money laundering is unclear at the moment. India may face challenges on this front unless there is a rapid push to put in place the necessary oversight measures.
  • The overall takeaway for India:
    • While deliberations continue in India on the monetary and financial regulations around cryptocurrency, it is important to incentivize Indian developers working on key innovations in the space.

Other countries where the use of cryptocurrencies is fast gathering pace:

  • In many parts of the world that are plagued by economic uncertainties, the use of cryptocurrencies is fast gathering pace.
  • In Cuba, virtual money is being used for making payments for utilities, cross-border transactions as well as for remittances from abroad.
  • In Mexico, where also remittances from the US form a huge source of income, the crypto market has boomed.
  • In Venezuela, which is undergoing an economic and humanitarian crisis, many are adopting crypto money as spiralling hyperinflation has harmed the official currency (Bolivar).
  • The US took a decisive step towards issuing its own central bank digital currencies (CBDC).
    • CBDCs are being touted as a means for extending financial services to those who have remained underserved by traditional banks, while mitigating the risks of unregulated private tokens such as Bitcoin.

  • Recently, China rolled out pilot testing for its home-grown digital currency and issued major curbs on private cryptocurrency transactions.
  • In India, the government has floated The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an “official digital currency”.

 Economics

About: Corporate Social Responsibility?

What is Corporate Social Responsibility?

  • It is a corporation’s initiative to assess and take responsibility for the company’s effects on environmental and social well being.
  • It helps a company be socially accountable — to itself, its stakeholders, and the public.
  • By practicing corporate social responsibility, companies can be conscious of the kind of impact they are having on all aspects of society including economic, social, and environmental.
  • The concept rests on the ideology of give and take. Companies take resources in the form of raw materials, human resources etc from the society. By performing the task of CSR activities, the companies get an opportunity to give back to the society

CSR as per Companies Act, 2013:

  • Section 135 of the Companies Act, 2013, which came into force in 2014, mandates companies to spend on CSR activities.
  • Every company, private limited or public limited, which either has a net worth of Rs 500 crore or a turnover of Rs 1,000 crore or net profit of Rs 5 crore, needs to spend on CSR activities.
    • Their CSR spend must be at least 2% of its average net profit for the immediately preceding three financial years on CSR activities.
  • Profits from any overseas branch of the company, including those branches that are operated as a separate company would not be included in the computation of net profits of a company.
  • In determining CSR activities to be undertaken, preference has to be given to local areas and the areas around where the company operates.
  • Contribution to any political party is not considered to be a CSR activity and only activities in India would be considered for computing CSR expenditure.
  • If companies do not fully spend the CSR funds, they must disclose the reasons for non-spending in their annual report.

Shortcomings in CSR activities:

  • Backward Districts: It has been observed that the CSR expenditure on the country’s most backward districts that require maximum CSR support, remains small.
  • One time activity: Instead of engaging with communities to uplift them, companies do a one-time cheque-signing exercise by transferring CSR funds to government programmes such as Prime Minister’s Relief Fund or PM-CARES.
  • Non-compliance: The Registrar of Companies serves notices on a regular basis for non-compliance with CSR expenditure.

About: Pradhan Mantri Kaushal Vikas Yojana (PMKVY)

About: Pradhan Mantri Kaushal Vikas Yojana (PMKVY)

  • It is the flagship scheme for skill training of youth being implemented by the Ministry of Skill Development and Entrepreneurship (MSDE) through the National Skill Development Corporation (NSDC).
  • The objective of the scheme is to enable a large number of Indian youth to take up industry relevant skill training that will help them in securing a better livelihood.
  • Skill training would be done based on the National Skill Qualification Framework (NSQF) and industry led standards.

PMKVY 1.0:

  • PMKVY 1.0 was launched in July 2015 with the objective of encouraging skill development for youth by providing monetary rewards for successful completion of approved training programs during the period 2015-16.
  • The National Skill Development Corporation (NSDC) was the designated implementing agency of this scheme.
  • PMKVY 1.0 was a target-based scheme, and during this pilot phase in 2015-16, about 20 lakh candidates were trained.

PMKVY 2.0:

  • After the successful implementation of pilot PMKVY 1.0 during 2015-16, PMKVY 2.0 (2016-20) was launched.
  • PMKVY 2.0 involved scaling up of the scheme both in terms of Sector and Geography and by greater alignment with other missions of Government of India.
  • It has been instrumental in bolstering the skilling ecosystem.
  • PMKVY 2.0 broadened the skill development with key components being:
    • Short Term Training (STT) at PMKVY Training Centres (TCs)aimed towards the candidates who are either school/college dropouts or unemployed
    • Recognition of Prior Learning (RPL) – Individuals with prior learning experience or skills are assessed and certified under the RPL component of the Scheme. RPL aims to align the competencies of the unregulated workforce of the country to the NSQF
    • Special Projects – This component of PMKVY envisages to encourage trainings in special areas and premises of Government bodies, corporates / industry bodies. These are the projects which mayrequire some deviation from the terms and conditions of Short-Term Training under PMKVY. 
  • The scheme was  implemented through two components:
    • Centrally Sponsored Centrally Managed (CSCM):
      • This component is implemented by National Skill Development Corporation.
      • 75% of the PMKVY 2016-20 funds and corresponding physical targets have been allocated under CSCM.
    • Centrally Sponsored State Managed (CSSM):
      • This component is implemented by State Governments through State Skill Development Missions (SSDMs).
      • 25% of the PMKVY 2016-20 funds and corresponding physical targets have been allocated under CSSM.

Other aspects:

  • Kaushal and Rozgar Melas:
    • Social and community mobilisation is extremely critical for the success of PMKVY.
    • In line with this, PMKVY assigns special importance to the involvement of the target beneficiaries through a defined mobilisation process. TPs shall conduct Kaushal and Rozgar Melas every six months with press/media coverage, they are also required to participate actively in National Career Service Melas and on-ground activities.
  • Placement Guidelines:
    • PMKVY envisages to link the aptitude, aspiration, and knowledge of the skilled workforce it creates with employment opportunities and demands in the market.
    • Every effort thereby needs to be made by the PMKVY TCs to provide placement opportunities to candidates.
  • Monitoring Guidelines:
    • To ensure that high standards of quality are maintained by PMKVY, TCs, NSDC and empanelled inspection agencies shall use various methodologies, such as self-audit reporting, call validations, surprise visits, and monitoring through the Skills Development Management System (SDMS).

News Summary:

  • In a bid to empower India’s youth with employable skills, the Ministry of Skill Development and Entrepreneurship (MSDE) has launched the third phase of Pradhan Mantri Kaushal Vikas Yojana (PMKVY) or PMKVY 3.0.
  • Aimed at supporting the local economy and towards ‘Atmnanirbhar Bharat’, PMKVY 3.0 has been designed to keep pace with changing demands, both at the global and local levels.
  • PMKVY 3.0  was launched in 717 districts in 28 States/eight UTs, making more than 300 skill courses available to the youth, making skill development more demand-driven and decentralised in its approach.

Decentralized approach:

  • PMKVY 3.0 will be implemented in a more decentralized structure with greater responsibilities and support from States/UTs and Districts.
  • District Skill Committees (DSCs), under the guidance of State Skill Development Missions (SSDM), shall play a key role in addressing the skill gap and assessing demand at the district level. 
  • PMKVY 3.0 is a step towards achieving the ‘Vocal for Local’ vision by establishing increased connect at state, district and block level.
  • It will encourage healthy competition between states by making available increased allocation to those states that perform better.

Demand-driven:

  • The government says that PMKVY 3.0 will usher in a new paradigm with focus on demand-driven skill development, digital technology and Industry 4.0 skills.
  • The new scheme will be more trainee- and learner-centric addressing the ambitions of aspirational Bharat.
  • The scheme will have additional courses that will help cater to local demand.
  • The focus will also be on bridging the demand-supply gap by promoting skill development in areas of new-age and Industry 4.0 job roles.
  • PMKVY 3.0 role will be a propagator of vocational education at an early level for youth to capitalize on industry-linked opportunities.

 Economics

Q. In spite of having several achievements, the green revolution has several defects. Examine

Model Answer

The Green Revolution in India began in the mid-1960s marking a transition from traditional agriculture in India and the introduction of high-yielding varieties of seeds and the associated agricultural techniques.

The Main achievements of the Green Revolution are:

  • Increase in Agricultural Production and productivity: The production and productivity of wheat, rice, maize and bajra has substantially increased.
  • Less Dependence on Imports: After the green revolution, India was finally on its way to self-sufficiency. There was now enough production for the population and to build a stock in case of emergencies. In fact, India was able to start exporting its agricultural produce.
  • Employment: The green revolution has created jobs in the supporting industries like Irrigation, transportation, food processing, marketing for the workforce.
  • A Benefit to the Farmers: The Green Revolution has increased the income of farmers and landless labourers. It enabled them to shift to commercial farming from only sustenance farming.

Negative Impacts of the Green Revolution are:

  • Reduction in genetic diversity: Farmers have traditionally planted a wide variety of crops with unique genotypes. The planting of fewer crop varieties for producing high yields can reduce genetic diversity among crop species in a country. This has also led to the loss of distinct indigenous crops from cultivation and also caused extinction.
  • Greater vulnerability to pests: The resistance to one species of pest due to genetic modification might invite other species of pests to attack the crop as in the case of bollworm being replaced by other pest species in the case of Bt cotton.
  • Displacement of small farmers: The Green Revolution has displaced the agricultural labourers, leading to rural unemployment. The mechanical innovations like tractors have displaced agricultural labourers.
  • Land Degradation: The overuse of chemical fertilizers to get high yield causes physical and chemical degradation of the soil by altering the natural microflora and increasing the alkalinity and salinity of the soil
  • Ground water depletion: High-yielding crop varieties can also increase irrigation requirements thus placing stresses on India’s water budget. The excessive use of groundwater for irrigation has depleted the water table in many parts of the country.
  • Ecological and health Impacts: The excessive use of pesticides increases the presence of its residues in foods and environment. There are concerns over increased chemicals being used in growing high-yielding varieties of crops and the consequent health effects.
  • Income disparity among farmers: The high yields, were possible due to the seeds being highly responsive to certain inputs such as irrigation water and fertilizers. By requiring greater investments in agricultural production, the green revolution in India has placed small and marginal farmers at a distinct disadvantage.
  • Increased Social conflicts: It led to polarisation of the rural society. It has created three types of conflicts in the rural community, namely, between large and small farmers, between owner and tenant farmer, between employers and employees on the agricultural farms.

Conclusion:

There is a need of a more comprehensive policy environment that can protect farmers, human health and the environment from the negative impacts of the green revolution in India. A balance must also be found between traditional techniques and modern farming as also with natural growth.

Q. Forest Fires pose a threat not only to the forest wealth but also to the entire regime. In view of this statement discuss the various adverse impacts of Forest Fires.

Model Answer

Fires are a major cause of forest degradation and have wide ranging adverse ecological, economic and social impacts including:

Effects of forest fire:

  • Loss of valuable timber resources: Forest fires cause indispensable loss to timber and deteriorate its quality. Valuable timber species like teak, sal, chir, deodar, sheesam, rosewood etc. are adversely affected by fire. However, the adhesive impact of forest fire varies from species to species, depending upon its susceptibility.
  • Impact of forest fire on eco- system: Forest fires pose threat not only to the forest wealth but also to the entire regime to fauna and flora seriously disturbing the bio-diversity and the ecology and environment of a region.
  • Degradation of water catchments areas resulting into loss of water: After forest fire, the chemical and physical changes in upper layer of soil make it impervious and thus reduce water infiltration. The removal of litter also decreases water holding capacity of soil and most of the rainwater is washed away removing top fertile soil of the forest resulting into loss of soil fertility.
  • Loss of wildlife habitat and depletion of wildlife: Wildfire along with killing wild animals also destroys their habitat and thus makes their survival at stake.
  • Loss of natural vegetation and reduction of forest cover: As a result of fires, millions of hectares of the forest area turn to ashes and remains of no use. Among various degradation factors, forest fire is also one of the major factors for overall loss in forest cover. The wild fires also have adverse impact on forest tree growth.
  • Global Warming: Greenhouse gases released during the combustion of vegetations lead to an increased warming of the earth or human induced global climate change.
  • Microclimate change: The changed microclimate caused by removal of litter and duff, opening of the canopy by killing over storey shrubs and trees and darkening of the soil surface by residual soot and charcoal can increase insulation causing temperature increase. As a result the changed area becomes unhealthy for living of both wild habitats and local people.
  • Health problems leading to diseases: The fires in the forest are source of smoke that cause air pollution and rise in the temperature leading to various health issues.
  • Loss of livelihood: Forest fire also adversely affect livelihood resources, especially for tribals, who are directly dependent upon collection of non-timber forest products from forest areas for their livelihood.
  • Carbon sequestration potential: Trees act as carbon sinks when they absorb carbon dioxide from atmosphere and build up the same in the form of wood. However, burning of the vegetation release hundreds of years of stored carbon dioxide into the atmosphere, and thus results into permanent destruction of important sink of carbon dioxide
  • Threat to Life and Property: Human life is at risk when fire crews fight fires either at the fire front or from conflict with animals, especially elephants. A forest fire that spreads outside the forest can consume buildings or infrastructure.
  • Reducing Tourism Values: Smoke due to fires affects the visibility and air quality which adversely affect tourism industry.

Taking into consideration the serious nature of the problem, there is urgent need to focus on key forest fire management elements like strategic fire centres, coordination among Ministries, funding, human resource development, fire research, fire management, and extension programmes.  

Q. What is Budget Transparency? Scratching its genesis, discuss the benefits associated with budget transparency as well as the ways through which it can be promoted in functioning of a government?

Model Answer

Budgets are key documents since they lay out a government’s priorities in terms of policies and programs. Opening up budgets and democratizing the budget process gives citizens a say in policy formulation and resource allocation. Budget transparency refers to the extent and ease with which citizens can access information about and provide feedback on government revenues, allocations, and expenditures.

Increased transparency in budgeting made significant advances in the late 1980s and early 1990s. This was a period associated with unfavourable budget conditions in most countries – high annual deficits and increasing levels of debt. Governments needed to institute large fiscal consolidation programmes. These were often painful and getting the public’s understanding of the problems was necessary. The most effective manner for achieving that was simply to throw open the books to the public and explaining the problem to them in order for an understanding to emerge as to the best course of action to take. This time period also coincided with increased attention being paid to good governance in general which demanded openness about policy intentions, formulation and implementation – answer to all these was Budget Transparency.

Importance Of Budget Transparency

  • Less Corruption: First, budget transparency and oversight over how resources are allocated and spent are powerful disincentives for officials to misuse or misappropriate funds since their actions are more likely to be scrutinized. This leads to less corruption.
  • Efficient Use Of Resource: Budget transparency allows citizens to provide feedback on the quality and adequacy of services and infrastructure provided. This feedback, combined with reduced corruption, results in more efficient use of resources.
  • Enhanced Trust: In many cases, perceptions of high levels of corruption, poor services and infrastructure, and opaqueness of operations lie at the heart of citizens’ distrust of their governments. The gesture of opening up government books of account is likely to lead to more trust in government.
  • Higher Revenues: Budget transparency is also instrumental in generating higher revenues for governments since citizens are more likely to pay taxes and contribute donations to local schools and health centres if they trust that their money will be well spent. In developing countries, where revenues are often inadequate to pay for needed investments in sustainable poverty reduction and development programs, this is of utmost importance.

Ways Through Which Budget Transparency Can Be Promoted

  • Release Of Budget Data: The systematic and timely release of all relevant fiscal information is what we typically associate with budget transparency. It is an absolute pre-requisite. Disclose budget documents and simplified budget information through electronic and print media as well as online portals and cell phones.
  • Effective Role For The Legislature: It must be able to scrutinise the budget reports and independently review them. It must be able to debate and influence budget policy and be in a position to effectively hold the government to account. This is both in terms of the constitutional role of the legislature and the level of resources that the legislature has at its disposal.
  • Effective Role For Civil Society Through Media And NGOs: Citizens, directly or through these vehicles, must be in a position to influence budget policy and must be in a position to hold the government to account. In many ways, it is a similar role to that of the legislature albeit only indirectly.
  • Improving Budget Literacy of parliamentarians, government officials, elected representatives, journalists, and select civil society representatives and Increasing their capacity to analyze budgets.
  • Create budget literacy manuals for capacity-building programs.

Thus, budget transparency, while not a goal in itself, is a prerequisite for public participation and accountability. Such information must be disseminated in a timely manner so that citizens can effectively provide feedback that can influence policy formulation and resource reallocation. 

Q. Insolvency and Bankruptcy Code (IBC) has become a major savior for the banking sector. In this light discuss the impact of new Code on loan recovery and also suggest remedial measures for better implementation of the Code.

Structure of the answer:

  • Background
  • Introduction (about IBC)
  • Positive impact of IBC
  • Lacunas
  • Suggestion and way forward

Model Answer

Before the passing of IBC it took an average of 4.3 years to resolve insolvency and recovery rate was 25.9% as compared to developed countries where recovery rate was 72%.

The salient features are:

  • Consolidation of various laws on insolvency.
  • The resolution process has to be completed within 330 days, including litigations and other judicial process
  • Formation of Insolvency and Bankruptcy Board of India (IBBI) for regulating Insolvency professionals.
  • Specialized agencies for adjudication in form of NCLT for Companies and LLPs and Debt recovery tribunals for others.

Positive impact of IBC:

  • Improvement in average recovery from 26% to 46%.
  • The Code has created a deterrence effect as seen from the fact that around 3,500 cases involving default of 2 lakh cr. were withdrawn suggesting creditor recovered money from debtor by threat of IBC.
  • NPA worth 40,000 to 50,000 cr. have been converted into standard assets that has freed the resources for wealth creation.
  • IBC has promoted behavioral change among promoters.
  • The Code has reduced the burden on taxpayers as otherwise taxpayers would have to foot the burden of recapitalization of banks.

Yet there are certain challenges before the existing code:

  • The Section 29A of the Code has debarred certain entities thus brought down competition in bidding thereby resulting into reduced recovery.
  • Most of the cases before the NCLT has failed to adhere to strict timeline of 180 days resulting in losses for the creditors.
  • The conflict between the rival creditors (operational and financial creditor) has added to delay and confusion. For ex- Standard Charted bank as a operational creditor challenged the resolution plan as prepared in Essar steel case.
  • Threat of vilification by investigating agencies has created problems for the banks in taking a haircut.

Way forward: Considering the above issues there is a need for:

  • Quality resolution professionals, capacity building of NCLT in terms of creation of more benches and manpower.
  • Moreover, once a resolution plan has been approved no objection should be entertained.

The principal stakeholders in insolvencies such as NCLT, Resolution Professionals, Committee of Creditors need to expedite resolution process.

Subjects : Economy

Q. Foreign direct investment (FDI) is a like double edged sword. In this light discuss the positive and negative impact of FDI in India. Also suggest suitable measures to improve FDI in India.

Structure of the answer:

  • Introduction (using data)
  • Positive impact of FDI
  • Negative impact of FDI
  • Measures to increase FDI in India

Model Answer

FDI is an investment made by a firm or an individual into business interest located in other countries. Unlike, portfolio investment the investor in FDI acquire foreign business asset, ownership or controlling interest in foreign company.

FDI equity inflow in India in 2018-19 stood at $44 billion. Further, according to UNCTAD’s World investment report, India is 10th largest recipient of FDI in world.

  • FDI has multiple benefits such as generate technology spill overs, helps human capital formation, contributes to international trade integration, create a more competitive business environment and enhances enterprise development.
  • FDI contribute to higher economic growth, which is the strongest tool to alleviate poverty in developing countries.
  • Moreover, foreign direct investment may help improve environmental and social conditions in the host country.
  • FDI brings in foreign technical expertise that is an important factor in improving the existing technical processes and advances in technology.
  • FDI has both backward and forward linkages as create demand for local goods and create jobs and increase employment in the target country.

However, some economists have also criticized FDI on various grounds due to its negative impact, such as:

  • FDI occasionally hamper domestic investment, as it focuses resources elsewhere.
  • FDI impacts exchange rates to the advantage of one country and the disadvantage of the other nation.
  • FDI creates culture of dependency on the foreign capital and may impact sovereignty of the nation.
  • The FDI has sometimes led to large outflow of capital in form of repatriation, dividend payment and royalties

Overall FDI has a positive impact on the economy therefore there is a need to adopt following steps:

  • Adopting favorable policy regime and robust business environment.
  • There is also a need for improving regulatory regime and promoting further FDI relaxation.

The best practice in form of establishing Investment Facilitation Cell like- Japan cell and Korea cell need to be further strengthened.

Q. Oceans are the major sources for multiple living and non-living resources that are useful for the growth of blue economy. In this light discuss the concept of Blue economy and its importance for India.

Structure of the answer:

  • Introduction (Blue economy)
  • Ocean as the source for various resources
  • Importance of blue economy
  • Final analysis

Model Answer

The concept of blue economy was given by Gunter Pauli. It is the sustainable use of ocean resources for economic growth, improved livelihoods and jobs and ocean ecosystem health. Thus, it advocates the greening of ocean development for purposes of higher productivity and at same time conserving ocean’s health.

The oceans are the sources for various resources such as follows:

  • Oceans contain several varieties of fishes and sea weeds that have tremendous potential to be used for industrial and human activities.
  • Minerals derived from the oceans include Petroleum gas, shale gas, Magnesium, Sulphur, Poly-metallic nodules that are useful for industrial usage.
  • Maritime Transport constitute over 80% of international trade and commerce.
  • Ocean and coastal tourism are important source for job creation and economic growth.
  • Tides in ocean release a lot of renewable energy that can be used to operate a turbine and produce electricity. For ex.-
  • Further, oceans are an important carbon sink (blue carbon) and that can help mitigate climate change.

In light of above, the importance of blue economy for India is as follows:

  • Blue economy presents India with an opportunity to meet its national socio-economic objectives as well as strengthen connectivity with neighbors.
  • Blue Economy can help in livelihood generation, achieving energy security, building ecological resilience and improving living standards of coastal communities.
  • Blue economy can reinforce and strengthen efforts of Indian government to achieve the SDGs of hunger and poverty eradication by 2030.
  • Further, marine services sector could serve as the backbone of Indian economy and help it become 10 trillion-dollar economy by 2022.
  • Moreover, international practice of the countries such as Australia, China, Mauritius is also suggestive of the fact that of use of ocean/ blue economy for meeting their development objectives.

Thus, India and world as a whole should look to adopt the Gandhian approach of balancing economic benefits derived from blue economy for meeting the broader goals of growth, employment generation, equity and protection of environment.

Q. In recent years there has been number of farmer protest around India demanding increase in Minimum support price (MSP). In this light discuss the effectiveness of MSP and need for replacing it with Price deficiency payment system.

Structure of the answer:

  • Introduction
  • Deficiencies in the MSP system
  • Importance of price deficiency payment system
  • Final analysis

Model Answer

MSP is the base price set by the Government and whenever the market prices fall below the announced MSPs, procurement agencies step in to procure the crop at the support price. In India, the MSP are recommended by the Commission for Agricultural Cost and Prices (CACP) for 23 crops based on A2+FL formula i.e. actual cost paid plus imputed value of the family labour.

However, the use of MSP as a method of agricultural pricing is criticized on various grounds such as:

  • NITI Aayog evaluation report (2016) on MSP noted that 79% farmers are not satisfied with MSP regime due to reasons such as delay in payments, distance to the procurement centers, delayed announcement of MSP rates
  • Farmers have also claimed that the prices in wholesale markets are often lower than the MSP. In such a scenario, whatever MSP the government declares might not matter much.
  • Further, only 6% of farmers are able to sell their produce at MSP. Moreover, the MSP operation is limited only to few states.
  • Lastly, the procurement is limited to few crops such as rice and wheat leading to cropping pattern distortion.
    Various PDPS schemes of states:
    • Bhavantar Bhugtan Yojana (BBY) by MP: It applies to eight kharif crops such as soybean, til, maize, urad, tur
    • Rythu Bandhu scheme of Telangana: To relieve farmers from taking loans from moneylenders the scheme provides farmers Rs 4,000 per acre for the kharif and rabi seasons.

This system will address the issue of price crash after the bumper harvest.Therefore, the states such as Madhya Pradesh and Telangana have moved to price deficiency payment system (PDPS). Under it the government simply pays the difference between the MSP and the market-determined price. This system has many advantages such as follows:

  • It will also resolve the issues involved with MSP mechanism such as lack of awareness, procurement confined to selected crops that too from selected states, distortion of the agricultural market and cropping pattern.
  • It will also resolve the issue of needless accumulation of the food stock by FCI involving maintenance cost and storage losses.
  • Such a mechanism is also needed as other risk management instrument such as crop insurance and future trading have not made much headway.

In light of the above, it will be effective and efficient to shift to the new mechanism of PDPS.

Subjects : Economy

Q. Recent international trend has been averse to the use of nuclear energy. In this light, discuss the reason inhibiting use of nuclear use energy. Also bring out the positive externalities arising from use of nuclear energy.

Structure of the answer:  

  • Introduction
  • Reason for averseness to the use of nuclear energy
  • Positive things in relation to use of nuclear energy
  • Conclusion

Model Answer

Dr. APJ Abdul Kalam described nuclear power as a gateway to a prosperous future.  However, World Nuclear Association has reported that nuclear electricity generation in 2017 was at its lowest level since 1999. Even, Germany has decided to close all its nuclear plant by 2022.

The reason for risk aversion to the nuclear energy are as follows: 

  • The cost of construction of nuclear plants is too expensive. Thus, making the production of energy unviable.
  • Nuclear reactors are an unsafe proposition as seen from Chernobyl and Fukushima The cost of clean of Fukushima was estimated to be around $200 billion.
  • Further, there are inherent issues relating to the disposal of the nuclear waste.
  • The nuclear energy is also facing uphill task considering the reduced cost of production of renewable energy like solar and wind energy.
  • The issue has further been compounded by the confusion over the provisions of Civil liability for Nuclear damage Act, 2010.
  • Lastly, the issue of non membership of NSG, problem of land acquisition, regulatory hurdles are also major irritant in the widespread adoption of nuclear energy.

However, there are important benefits in relation to nuclear energy, such as:

  • Nuclear energy has the potential to resolve the issue of India’s continuous energy poverty. About 9 crore household have no access to electricity.
  • The nuclear energy can also help India in meeting the INDC target under Paris Climate treaty.
  • Besides, nuclear power can also reduce the impact of loss of foreign exchange, volatile fossil fuel prices and consequent impact on economic growth.
  • Further, many technologies of strategic importance have been mastered by India in its quest for use of nuclear energy.
  • Lastly, India has largest reserve of Thorium in the world thereby resolving the issue of import dependence of nuclear fuel.

Thus, in light of the above analysis it can be concluded that nuclear energy has a promising benefits for India and world. However, the inherent issues relating to it must be addressed holistically. 

Q. Government has promised to double farmer’s income by 2022, in this light discuss the measures taken by government to implement the same. Also suggest suitable strategies to timely and sustainable achievement of this target.

Structure of the answer:   

  • Introduction
  • Measures taken by government
  • Suggestion
  • Way forward

Model Answer

The government has set a target of doubling farmers’ income by 2022 to overcome the distressed situation of agriculture. The situation was evident after large scale farmer’s protest in various parts of India.

The reorientation of strategy was needed due to following reasons:

  • Earlier strategy focused primarily on raising agricultural output ignoring need for income augmentation.
  • Farmer’s income remained low as compared to those working in the non-­ farm sector.
  • The need was further felt considering the large scale farmers suicides after introduction of duty free agri trade.

Government has adopted following strategy to help farmer’s cause:

  • To raise output and reduce cost of cultivation schemes such as Pradhan Mantri Krishi Sinchai Yojana, Prampragat Krishi Vikas Yojana have been started.
  • For protection against crop loss, Pradhan Mantri Fasal Bima Yojana has been implemented nationwide. .
  • Further, to address price volatility of perishable commodities Operation Green has been started.
  • To reform agricultural marketing and processing sector, PM Kisan Sampada Yojana, E-NAM portal has been started.
  • Lastly, to have sustainable development of agriculture and promote farmers income National Mission on Sustainable Agriculture has been started.

Suggestions to effectively achieve the target of doubling farmer’s income:

  • The focus must be on increasing the use of quality seed, fertiliser and power supply to agriculture.
  • The focus must also be on allied sector, wherein aim must be to improve herd quality, increasing artificial insemination
  • Further, as per experts about one third income of farmer’s can be augmented through better price realization, efficient post-harvest management, competitive value chains
  • Similarly, Farmers producer organization or Farmers Producer Company can also play big role. .

Final analysis:

  • There is also a need for mobilising States to own and achieve the goal of doubling farmers’ income.

Further, the reformative steps in agriculture must not be baby steps or incremental changes rather structural reforms are needed.

Q. To resolve the issue of unemployment, there is a need for multi-prong approach. In this light discuss the steps needed to resolve this long-standing issue and also mention the measures taken by the government in this regard.

Structure of the answer:

  • Introduction
  • Steps needed for unemployment
  • Steps taken by the government
  • Way forward

Model Answer

Unemployment is a situation where person is capable of working both physically and mentally at the existing wage rate, but does not get a job to work. As per the recent statistics unemployment rate in India rose to 7.2% in 2019.  Unemployment represent itself in various forms such as: disguised, seasonal, cyclical, frictional unemployment etc. 

To tackle the issue of unemployment following steps must be adopted:

  • There is a need for rapid industrialization so as to shift the labour forces from agriculture to manufacturing sector.
  • The curriculum at education centers should be changed to focus on learning and skill development.
  • Self-employment must be encouraged with the help of liability free loansgovernment assistance etc.
  • Incubation centers need to be promoted to cultivate original business ideas that will be financially viable.
  • Government as well as business houses should seek to invite more foreign collaboration and capital investment so as to increase avenue for employment.
  • The labour intensive manufacturing sectors such as food processing, leather and footwear need to be promoted to create employment.

Further, to increase the avenue for employment, the government has taken various steps such as:

  • Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) to provide social security by guaranteeing a minimum of 100 days paid work.
  • Pradhan Mantri Kaushal Vikas Yojana (PMKVY) with objective of enabling a large number of Indian youth to take up industry-relevant skill training.
  • Start Up India Scheme aims at developing an ecosystem that promotes and nurtures entrepreneurship.
  • Stand Up India Scheme/ MUDRA scheme to facilitate bank loans between Rs 10 lakh and Rs. 1 crore to at least one SC or ST borrower and at least one women borrower per bank branch for setting up a greenfield enterprise.

Thus, to tackle unemployment a strategy of multi prong approach need to be adopted so as to tap demographic dividend.  

Q. The suburbanisation occurring at a relatively early stage of India’s urban development is creating new challenges for Indian cities. Enumerate the reasons and suggest remedies.

Approach:

  • Brief introduction about suburbanisation phenomenon in most urbanising countries.
  • Enumerating the reasons why it is occurring at a relatively early stage of India’s urban development.
  • Highlight the challenges it is creating for Indian cities and suggest ways forward.

Model Answer

A 2013 World Bank report, “Urbanization beyond Municipal Boundaries”, found that suburban areas (or Suburbs) are generating higher economic growth and employment than the city. Although “suburbanization” is a worldwide phenomenon, it usually occurs in middle to advanced stages of development. In India, it’s happening much more quickly in India than expected.

Reasons:

  • Inadequacy of cities to provide affordable and quality options has resulted in suburbanization. 
  • Suburbs are seen as safer and cheaper place to live and raise a family due to lower population density, lower crime, and a more stable population.
  • Increasing land prices and office rents have pushed companies to suburban areas.
  • With increased incomes, people have the ability to pay more to travel and commute longer distances to work and back home.
  • Indian cities impose quite draconian land use regulations, rent control system and building height restrictions on their cities lead to excessive suburbanization.
  • Suburban municipalities can offer tax breaks and regulatory incentives to attract
  • industrial land users to their area.
  • The development of robust and sophisticated infrastructure is possible only in the peripheries of the city where land is available in plenty and the cost of acquisition is low.
  • Growth of urban agglomerations poses many economic, ecological and institutional
  • challenges which are as follows:
  • Access to – and the quality of – water, sanitation, and electricity is much worse in the urban periphery than at the core.
  • Access to quality and affordable health and education services.
  • With commercialization of agricultural land and encroachment on forest , the areas ecosystem of the region is threatened.  
  • Unplanned urbanisation and uncontrolled encroachment of natural water storage and drainage systems has spelt disaster.
  • Proponents of containing suburbanization argue that it leads to urban decay and a concentration of lower income residents in the inner city.

Solution to the woes of our cities requires a holistic approach to urban reform.

  • Steps are required to address the lacunae in the current rural-urban categorization system.
  • Provide efficient services and reform governance structures to boost overall economic development.
  • India requires robust institutional mechanism to govern land use conversion and land valuation.
  • The efforts to leverage the potential of land markets as a financing tool needs to be complemented by an integrated urban planning process.
  • Indian cities also need to improve connectivity between metropolitan cores and peripheries to ensure ease of mobility for individuals and business.

Third and fifth five year plans advised urban planning to adopt regional approach and to create metropolitan planning regions to take care of the growing areas outside administrative city limits. We need to improve existing urban amenities while simultaneously addressing the problems of suburban sprawl. 

About: Krishna Godavari basin

About: Krishna Godavari basin

  • The delta plain formed by Krishna and Godavari rivers in the state of Andhra Pradesh and the adjoining areas of Bay of Bengal is known as Krishna Godavari Basin.
  • It is a proven hydrocarbon reserve, with an inland part that covers an area of 28,000 sq. km and an offshore (located in the sea or near the coast) part that covers an area of 2 lakh sq. km.
  • Several oil and gas fields are located both on land and offshore parts of the basin.
  • The region is primarily known for the D-6 block where Reliance Industries discovered the biggest natural gas reserves in India.

In News

  • Reliance Industries Ltd (RIL) and British Petroleum (BP) have announced the start of gas production from R cluster in the Krishna Godavari D6 (KG-D6) block.
  • Located at a depth of more than two kilometres, the R Cluster is the deepest offshore gas field in Asia.
  • R Cluster is the first of three deep water gas projects in the KG-D6 block jointly developed by RIL and BP. The other two clusters are Satellites Cluster and MJ.
  • Production of gas from the R cluster was expected to start in May 2020 but was delayed due to the impact of the Covid-19 pandemic. The Satellite cluster is expected to start production in 2021.
  • RIL has a participating interest of 66.7% in the KG-D6 block and BP has a participating interest of 33.3% in the block.

Significance:

  • In FY20, demand for natural gas in India was around 153 MMSCMD and around half the demand was met through imports.
  • Increasing domestic production of natural gas is important to reduce India’s dependence on imports and improve energy security.
  • The three clusters mentioned above are a key part of the plan to boost domestic production of natural gas and to increase the share of natural gas in India’s overall energy consumption from 6.2% now to 15% by 2030.
  • The three clusters in the Krishna Godavari Basin are expected to produce around 30 MMSCMD (Million standard cubic metres per day) of natural gas or about 15% of India’s projected demand for natural gas by 2023.
  • The R cluster field alone is expected to have a peak production of 12.9 MMSCMSD or about 10% of India’s current natural gas output.

Boosted by changes to gas tariff structure:

  • Recent changes in the formula for gas transport tariffs acted as additional incentive to Reliance and BP’s investments in these three fields.
  • Earlier, the tariff was based on the distance of transportation of gas – the longer the distance, the higher the charge.
  • However, the new regulations have a two-zone tariff structure. There will be one tariff for gas transported within 300 kms and another tariff for gas transported beyond 300 kms from the source of the natural gas.
  • This will help to make the gas more affordable to customers who are far away from the source of the gas.

About: Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)

About: Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)

  • The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was enacted in 2005 providing a legal right to employment for adult members of rural households.
  • It aims at addressing causes of chronic poverty through the ‘works’ (projects) that are undertaken, and thus ensuring sustainable development.

Core objectives:

  • Providing not less than 100 days of guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work in rural areas as per demand
  • Strengthening the livelihood resource base of the poor
  • Proactively ensuring social inclusion
  • Strengthening Panchayati Raj Institutions

Features:

  • Wages: Wages must be paid according to the wages specified for agricultural labourers in the state under the Minimum Wages Act, 1948, unless the central government notifies a wage rate.
  • Time bound guarantee of work and unemployment allowance: Employment must be provided with 15 days of being demanded failing which an ‘unemployment allowance’ must be given.
  • Decentralised planning: Gram sabhas must recommend the works that are to be undertaken and at least 50% of the works must be executed by them. PRIs are primarily responsible for planning, implementation and monitoring of the works that are undertaken.
  • Transparency and accountability: There are provisions for proactive disclosure through wall writings, citizen information boards, Management Information Systems and social audits. Social audits are conducted by gram sabhas to enable the community to monitor the implementation of the scheme.
  • Funding: Funding is shared between the centre and the states. There are three major items of expenditure – wages (for unskilled, semi-skilled and skilled labour), material and administrative costs. The central government bears 100% of the cost of unskilled labour, 75% of the cost of semi-skilled and skilled labour, 75% of the cost of materials and 6% of the administrative costs.

Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS):

  • MGNREGS was created as directed in MGNREGA as the means to implement the Act so that the guarantee comes into effect.
  • The State Governments have to incorporate all features of MGNREGA in the State MGNREGS.
  • The State Governments have powers to make rules and amend the concerned State scheme, but only the central government can amend the foundational Act.
  • In 2019, an MoU was signed between the Ministry of Rural Development (MoRD) and National Remote Sensing Centre (NRSC) under ISRO for geo-tagging of the assets created under MGNREGS in each Gram Panchayat.
    • As of July 2019, 3.61 crore assets has been geo-tagged under MGNREGS.

Financial Year 2019-20 stats:

  • As per the data available on MGNREGA portal, during 2019-20:
    • A record number of 9.33 crore persons demanded work under MGNREGA, against that 9.30 crore individuals were offered jobs and 7.89 crore individuals worked.

    • 5.48 crore households worked under the rural job guarantee scheme, which is the highest since 2010-11
    • 7.89 crore individuals worked under the scheme, which is the highest since 2012-13
    • 265.36 crore personday were generated against a target of 276.76 crore.

Background:

  • As part of the Atmnirbhar Bharat Abhiyan Package, the Centre in 2020 announced 65 per cent hike for an additional additional Rs 40,000 crore for MGNREGS for FY21.
  • The Union Finance Minister said the additional funds will help generate nearly 300 crore person days during the current financial year.
  • The NREGS is a demand-based scheme and has emerged as a safety net during the pandemic for jobless migrant workers returning to their villages.

News Summary:

  • Not all gram panchayats register demand for work under NREGS every year. Their NREGS work data shows “nil person days”.
  • Data of April till November-end of this year shows that the number of gram panchayats (GPs) generating “nil person days” of work during the current financial year (FY21 from Apr’20 to Mar’21) is at an eight-year low.
    • Only a little over 9,000 GPs, ie. 3.4 per cent of the 2.68 lakh GPs across the country, generated nil person days of work.
  • This means that over 96 per cent of gram panchayats across the country have registered demand for work under NREGS from April till November-end, signalling that the rural economy is still struggling to recover from the pandemic-induced slump.

Data for FY21:

  • Over 6.5 crore households, covering 9.42 crore individuals, have availed NREGS till November during FY21, which is an all-time high.
  • The wage expenditure, too, has reached an all-time high of Rs 53,522 crore during this period.
  • Over 266 crore persondays have been generated in FY21 so far, which is higher than 265.44 crore generated in the entire FY20.
  • The rate of increase in demand in October is even higher than that of September.

Lowest GPs with nil person days this financial year:

  • The 3.4% of GPs generating nil person days of work so far in FY21 is the lowest in the recent years.
  • During FY20, the number of gram panchayats generating nil persondays was 3.91%.
  • The proportion of the GPs with nil persondays was the highest (19%) in 2013-14.
  • However, it has steadily gone down since then.

About: Foreign Exchange Reserves

About: Foreign Exchange Reserves

Foreign exchange reserves are the foreign currencies held by a country’s central bank.The reserves in India are managed by the Reserve Bank of India for the Indian government and the main component is foreign currency assets.

Reserve Bank of India accumulates foreign currency reserves by purchasing from authorized dealers in open market operations.

Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves.

The demands on forex reserves are determined by the size of the external sector to GDP ratio, the degree of openness of the economy, and liquidity requirements.


Components of India’s Foreign exchange reserves:

(1) Foreign Currency Assets (FCA)

FCA is maintained as a multi-currency portfolio comprising major currencies such as the dollar, euro, pound sterling, Japanese yen, etc, and is valued in terms of dollars.

Additionally, it also comprises investments in US Treasury bonds, bonds of other selected governments, deposits with foreign central and commercial banks.

This is the largest component of the Forex Reserves.

The variations in the FCA occur mainly on account of purchase and sale of foreign exchange by RBI, income arising out of the deployment of forex reserves, external aid receipts of the central government and changes on account of revaluation of assets.


(2) Gold

Gold reserve is the gold held by the Reserve Bank of India with the intention to serve as a guarantee to redeem promises to pay depositors, note holders (e.g. paper money), or trading peers, or to secure a currency.


(3) Special Drawing Rights (SDRs)

Special drawing rights (SDR) refer to an international type of monetary reserve currency created by the International Monetary Fund (IMF) in 1969 that operates as a supplement to the existing money reserves of member countries.

Created in response to concerns about the limitations of gold and dollars as the sole means of settling international accounts, SDRs augment international liquidity by supplementing the standard reserve currencies.

SDRs are allocated by the IMF to its member countries and are backed by the full faith and credit of the member countries’ governments.

Value of SDR:

The value of the SDR is calculated from a weighted basket of major currencies, including the U.S. dollar, the euro, Japanese yen, Chinese yuan, and British pound.

The SDR basket is reviewed every five years, and sometimes earlier if warranted. Reviews take place to ensure that the SDR reflects the relative importance of currencies in the world’s trading and financial systems.

Weightage of various currencies in SDR as determined in the 2015 review:

S. Dollar: 41.73

Euro: 30.93

Chinese Yuan: 10.92

Japanese Yen: 8.33

Pound Sterling: 8.09


(4) Reserve Tranche Position (RTP)

The primary means of financing the International Monetary Fund is through members’ quotas. Each member of the IMF is assigned a quota, part of which is payable in SDRs or specified usable currencies (“reserve assets”), and part in the member’s own currency.

The difference between a member’s quota and the IMF’s holdings of its currency is a country’s Reserve Tranche Position (RTP).

It is basically an emergency account that IMF members can access at any time without agreeing to conditions or paying a service fee. In other words, a portion of a member country’s quota can be withdrawn free of charge at its own discretion.

The reserve tranches that countries hold with the IMF are considered their facilities of first resort, meaning they will tap into them before seeking a formal credit tranche that charges interest.


Weightage of various components:

As on December 20, 2019, the proportion of various components in India’s forex reserves is:

FCA – 93% of total forex

Gold – 6%

SDR – 0.32%

RTP in the IMF – 0.8%

How Covid-19 lockdowns have impacted the global energy sector

  • The International Energy Agency (IEA) has released a report, Global Energy Review 2020, detailing the impact of Covid-19 on global energy demands and CO2

Report Summary:

Covid-19 impact on global energy demands:

  • Decline in overall Energy demand:
    • The IEA is forecasting a 6% decline in energy demand for the year.
      • In absolute terms this is the largest on record.
      • Percentage wise, it’s the steepest decline in 70 years.
      • The demand hit is expected to be seven times greater than the decline in the aftermath of the financial crisis in 2008.

    • Under a faster return-to-business scenario, the IEA said demand loss could be limited to 3.8%, while a possible second wave of the virus could cause a greater than 6% decline.
    • Countries in full lockdown: There is average decline of 25 per cent in energy demand per week
    • Countries with a partial lockdown: The fall in energy demand is about 18 per cent per week.

  • Oil:
    • Oil has also been heavily impacted.
    • Roughly 60% of global demand for crude stems from driving and flying, so with people at home and planes grounded demand has fallen off a cliff.
    • The global demand for oil could drop by nine per cent on average this year, which will return oil consumption to 2012 levels.

  • Coal:
    • Global coal demand was hit the hardest, falling by almost 8% compared with the first quarter of 2019.
    • Reasons:
      • China – a coal-based economy – was the country the hardest hit by Covid‑19 in the first quarter;
      • Cheap gas and continued growth in renewables elsewhere challenged coal;
      • Mild weather also capped coal use.

    • Coal demand could decline by eight per cent this year.
    • The report expects increase in coal demand in some markets if recoveries are faster, such as in Southeast Asia, driven by Indonesia and Vietnam

  • Electricity:
    • Electricity demand has also contracted with factories shuttered and businesses closed as people work from home.
    • For the full year, the IEA expects electricity demand to fall 5%, which would be the largest decline since the Great Depression.

  • Natural Gas:
    • Because of reduced demand in power and industry applications, the gas demand could also fall much further than in the first quarter of 2020.
    • This decline is less than the anticipated fall in oil demand, reflecting the fact that natural gas is less exposed to the collapse in demand for transportation fuels.
    • But it nonetheless represents a huge shock to a gas industry that is used to robust growth in consumption

  • Nuclear Power:
    • Nuclear power demand would also fall in response to lower electricity demand.

  • Renewable energy:
    • The only energy source expected to grow this year is renewables.
    • The demand for renewables is expected to increase because of low operating costs and preferential access for many power systems.
    • The total global use of renewable energy is expected to rise by 1 per cent by 2020.
    • Renewable sources of energy have been the “most resilient” to Covid-19 lockdown measures

Impact of slump in demand on energy markets:

  • Oil prices have slumped
  • Brent crude trading near a 21-year low
  • US oil futures being pushed into negative territory – a historic feat.
  • The resultant glut in oil has overwhelmed the world’s limited storage facilities, with ships laden with surplus oil production idling at high seas.
  • Also, the historic collapse in energy prices has also hit the global commodity markets, threatening to tip the sluggish global economy into a deep recession.

Note: The projections are based on the assumption that shelter-in-place and social distancing measures will slowly ease in the coming months, with a gradual economic recovery following.

Covid-19 impact on CO2 emissions:

  • The worldwide halt in business has resulted in the largest drop in global CO2 emissions on record.
  • The decline in CO2 emissions witnessed in 2020 is largest since the end of World War II.
    • This year saw an 8 per cent decline in coal emissions, 4.5 per cent from oil and 2.3 per cent from natural gas.
    • Overall, the emissions decline in 2020 could be 8 per cent lower than in 2019.
    • It would be the lowest level of emissions since 2010 and the largest level of emission reduction(six times larger than what was witnessed during the 2009 financial crisis) and twice as large as the combined total of all reductions witnessed since World War II.

  • The decline in CO2 emissions was more than the fall in global energy demand
  • Reason for reduced demand: The most carbon-intensive fuels saw the biggest fall in demand.
  • In the first quarter of this year, carbon emissions were five per cent lower than during the same time in 2019.
  • Emissions declined the most in regions which were impacted the highest by the diseas
    • For instance, there was an 8 per cent decline in emissions in China and Europe, and a 9 per cent decline in the US.

  • It is expected that emissions will soar once economies restart, unless governments take a conscious decision to change the sources of energy.

Covid-19 impact on India’s energy demands

  • India’s 40-day long lockdown has resulted in a 30% fall in the country’s energy demand i.e. with each additional week of lockdown, annual energy demand is reduced by 0.6%.
  • However, the impact on first quarter of 2020, energy demand in India was modest, with demand increasing by 0.3 relative to first quarter of 2019.
  • As the lockdown continues, the impact on energy demand are set to be notably larger second quarter of 2020.

Note: China and India are the largest and third-largest electricity users in the world respectively, and coal use is dominant in both these countries shaping the global demand for this fuel.

The WTO’s dispute settlements mechanism is all but dead

Headline : The WTO’s dispute settlements mechanism is all but dead

Details :

In News:

  • The World Trade Organization’s (WTO’s) dispute settlement mechanism is on the brink of collapsing.

 

About: World Trade Organisation (WTO)

  • In 1948, the General Agreement on Tariffs and Trade (GATT) came in as an ad hoc and provisional mechanism to enable international trade and to establish multilateral rules for the settlement of trade disputes.
  • More than four decades after GATT, the U.S. drove the agenda to establish the World Trade Organisation (WTO) which came into existence in 1995.
  • It’s an organization for liberalizing trade. It operates a system of trade rules.
  • It’s a forum for governments to negotiate trade agreements.
  • It’s a place for governments to settle trade disputes.

Dispute settlement at WTO:

  • Resolving trade disputes is one of the core activities of the WTO.
  • A dispute arises when a member government believes another member government is violating an agreement or a commitment that it has made in the WTO.
  • The WTO has one of the most active international dispute settlement mechanisms in the world.
  • Dispute Settlement Body:
    • Settling disputes is the responsibility of the Dispute Settlement Body, which consists of all WTO members.
    • The Dispute Settlement Body has the sole authority to establish “panels” of experts to consider the case.
    • As the panel’s report can only be rejected by consensus in the Dispute Settlement Body, its conclusions are difficult to overturn.
  • Appellate Body:
    • The appeal to the DSB ruling is heard by the Appellate Body (AB) and a report is submitted to the DSB.
    • The appeal is heard by three member panel of the permanent Appellate Body (consisting of a total  seven-members) set up by the Dispute Settlement Body and broadly representing the range of WTO membership.
    • Once the AB report is adopted by the DSB, the member concerned is obliged to implement the findings and recommendations within a reasonable period of time.
  • Enforcement of dispute settlement:
    • In case of reluctance or refusal to implement of the recommendations by a party, the affected member may seek enforcement by requesting the DSB to authorise retaliatory measures.
    • The DSB may allow retaliation in the same sector (goods, services or intellectual property rights) or even authorise cross-retaliation, but it must be at the same level as the measure complained against.
    • The process of enforcement is, thus, controlled multilaterally to ensure fairness of treatment towards all concerned.

 

Over the years, US has criticized the Appellate Body and called for changes:

  • Over the years, the US in particular found itself on the wrong side of these developments on a few occasions.
    • The US is frustrated at the AB’s rulings against its anti-dumping duties against foreign products, as well as AB’s relaxations for Chinese state-owned enterprises (SOEs).
  • The US believes the WTO is biased against it, and has criticised it for being “unfair”.
  • The US President Trump and others also believe the WTO has encouraged China — helping it to strengthen its economy at the cost of other nations including the US.

US caused AB membership to shrink:

  • The US administration, hoping to raise attention to these issues, began blocking the he appointments of new members, and the reappointments of members who had completed their four-year tenures.
  • For more than two years, the US has refused to allow vacancies at AB to be filled up.
  • As a result, the strength of the AB (which can have seven members) has already been reduced to three.

 

News Summary:

AB will be rendered disfunctional:

  • The AB will become dysfunctional as two more members retired on December 10, 2019. This leaves AB with only 1 member and the requirement of a quorum of three members can no longer be met.

What it means:

  • AB becoming disfunctional would mean that dispute resolution would not progress beyond the panel process and there would be no final decision in disputes raised before the body.
  • The importance of AB can be seen from the fact that between 1995 and 2014, around 68% of the 201 panel reports adopted were appealed.
  • It could also signal the demise of the 24-year-old WTO itself, as the system for settling disputes has been the organisation’s most important function.
  • Once the appellate body becomes non-functional, with no avenue for appeal, there could be the risk of arbitration proceedings against any member at the wrong end of the panel report.
  • Shortage of members was already impacting AB:
    • The strength of the AB has already been reduced to three in last year or two.
    • The understaffed appeals body has been unable to stick to its 2-3 month deadline for appeals filed in the last few years. The backlog of cases has prevented it from initiating proceedings in appeals that have been filed in the last year.
    • The three members have been proceeding on all appeals filed since October 1, 2018 (as minimum of three members must hear any appeal).

Impact on India:

  • India has so far been a direct participant in 54 disputes, and has been involved in 158 as a third party.
  • India has been impacted directly as a result of this situation of shortage of AB membership.
  • Case of dispute with Japan:
    • Earlier, the panel had found that India had acted “inconsistently” with some WTO agreements in a dispute with Japan over certain safeguard measures that India had imposed on imports of iron and steel products.
    • India had then notified the Dispute Settlement Body of its decision to appeal certain issues of law and legal interpretations in December 2018.
    • However, India’s appeal could not be heard due to the inability to staff the AB to hear the dispute.
  • The situation could be difficult for India, which is facing a rising number of dispute cases, especially on agricultural products.
Section : 

About: Purchasing Manager Index (PMI) and It’s significance

Headline : Manufacturing PMI improves

Details :

In News:
  • The Nikkei India Manufacturing Purchasing Managers’ Index rose in November from October, indicating an increase in manufacturing activity November.
About: Purchasing Manager Index (PMI)
  • The Nikkei India Manufacturing PMI is based on data compiled from monthly survey responses by purchasing managers in more than 400 manufacturing companies, on various factors that represent demand conditions.
  • PMI measures activity at the purchasing or input stage. It is very different from industrial production which is indicative of actual production. For example, the Index of Industrial Production (IIP) measures output
  • The PMI is constructed separately for manufacturing and services sector, but the manufacturing sector holds more importance.
  • PMI does not capture informal sector activity.
Significance:
  • The Index is considered as an indicator of the economic health and investor sentiment about the manufacturing sector.
  • PMI is also the earliest indicator of manufacturing activity and economic health, as the manufacturing PMI report for any given month comes out without any delay – either on the last day of that month or on the first day of the next month.
How it is captured:
  • The PMI is derived from survey responses from purchasing managers to a a series of qualitative questions.
  • PMI is composite index based on five individual sub-indices:
    • New orders
    • Output
    • Employment
    • Suppliers’ delivery times
    • Stock of items purchased
Reading the PMI:
  • A figure above 50 denotes expansion in business activity and anything below 50 denotes contraction.
  • Higher is the difference from this mid-point, greater is the expansion or contraction.
  • The rate of expansion can also be judged by comparing the PMI with that of the previous month data. If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.
News Summary:
  • The October Nikkei India Manufacturing Purchasing Managers’ Index, at 50.6, was a two-year low.
  • Now, in November, the Index rose to 51.2. In comparision, the survey average is 53.8.
  • This indicates that, although business conditions in the Indian manufacturing sector improved in November, the upturn remained subdued compared to earlier in the year and the survey history.
  • The rates of expansion in factory orders, production and exports remained far away from those recorded at the start of 2019. Subdued underlying demand is being seen as a major reason for this.
Performance of sub-indices:
  • Good: The Index rise was driven by a modest increase in the growth of new orders and production.
  • Bad: On the other hand, it was concerning that firms shed jobs (for the first time in 20 months) and continued to reduce input buying.
Various segments:
  • The consumer goods segment growth mainly propped up the growth in the overall manufacturing sector.
  • The intermediate goods segment also returned to expansion.
  • However, the capital goods segment reported a deterioration in the operating conditions.
Section : Economics

About: Core Industries, Index of Industrial Production (IIP), Core sectors and their weights in their 40.27% contribution to the calculation of IIP

Headline : Core sector output falls 1st time in 4 yrs

Details :

The News:

  • The eight core sectors reported their worst decline in at least eight years, shrinking 5.8% in October.
  • The fall is the sharpest since the start of the new data series using 2011-12 as the base year.

About: Index of Industrial Production (IIP)

  • Index of Industrial Production (IIP) shows the performance of different industrial sectors of the Indian economy.
  • The IIP is estimated and published on a monthly basis by the Central Statistical Organisation (CSO) of the Ministry of Statistics and Programme Implementation..
  • The base year for the current series of IIP is 2011-12.
  • It is published monthly with a time lag of six weeks from the reference month.
  • As an all India index, it gives general level of industrial activity in the economy. It is a short term indicator of industrial growth till the results from Annual Survey of Industries (ASI) and National Accounts Statistics (Example: GDP) are available.

Importance of Index of Industrial Production:

  • The IIP is used by public agencies including the Government agencies/ departments including that in the Ministry of Finance, the Reserve Bank of India etc. for policy purposes.
  • The all-India IIP data is used for estimation of Gross Value Added (GVA) of Manufacturing sector on quarterly basis.
  • Similarly, the data is also used extensively by analysts, financial intermediaries and private companies for various purposes.
  • It is crucial considering the IIP is the only measure on the physical volume of production.

 

About: Core Industries

  • The core sector is an aggregate of 8 core sectors that are fundamental to the Indian economy.
  • These are Electricity, Steel, Refinery products, Crude oil, Coal, Cement, Natural gas and Fertilisers.
  • These 8 sectors constituting the core sector are important because they account for nearly 40.27% of the overall IIP and hence have long term repercussions for corporate profit growth as well as for the overall GDP growth.
  • The growth of the country’s eight core sectors is a lead indicator of the monthly industrial performance.

Core sectors and their weights in their 40.27% contribution to the calculation of IIP

 

 

News Summary:

  • According to recent data released by the Commerce and Industry Ministry, the core sectors saw a second straight month of contraction.
  • The slump in the eight core sectors in October to 5.8% was even worse than September, when the index saw a 5.2% decline.
  • According to data shared by the Commerce Ministry, overall growth has been hit by declining production in most core sectors, especially a steep drop in electricity production.
  • Only two industries — fertiliser and refinery products — in positive terrain.
  • Negative Growth Sectors (November 2019 data):
    • Electricity: – 4 per cent
    • Coal: – 17.6 per cent
    • Crude oil: -5.1 per cent
    • Natural gas: -5.7 per cent
    • Cement: -7.7 per cent
    • Steel: -1.6 per cent
  • Positive Growth Sectors (August 2019 data):
    • Refinery Products: 0.4 per cent
    • Fertilizer: 11.8 per cent

What it signifies:

  • These sectors are lead indicators for performance of the industrial sector.
  • Contraction in these sectors of the economy in October reflects the broader slowdown facing the Indian economy.
  • The weakness in these industry groups is expected to adversely impact the index of industrial production (IIP) since the core sector has an over 40% weight in IIP calculation.
  • The decline witnessed in electricity is mainly due to lower power demand in major industrial states.
  • A part of the reason for the decline in the core sector index may have been disruption caused by rains as also fewer working days due to the festival season.
Section : Economics

India can learn agri-policy lessons from China Editorial 25th Oct’19 FinancialExpress

Headline : India can learn agri-policy lessons from China Editorial 25th Oct’19 FinancialExpress

Details :

India and China have similar challenges in agriculture:
  • India and China are the most populous countries in the world, having a population size of 1.35 billion and 1.39 billion, respectively, in 2018.
  • With limited arable land [about 120 million hectare (m ha) in China, and 156 m ha in India], both face the challenge of producing enough food, fodder, and fibre for their population.
Followed many similar methods to increase output:
  • Both have adopted similiar methods to get more food from limited land, including:
    • Modern technologies in agriculture, starting with High Yielding Variety (HYV) seeds in the mid-1960s
    • Use of more chemical fertilisers
    • Increased irrigation cover
      • China’s irrigation cover is 41% of cultivated area, and India’s is 48%.
      • As a result of this irrigation, China’s total sown area is 166 m ha compared to India’s gross cropped area of 198 m ha.
But China produces more output than India:
  • Even with much lesser land under cultivation, China produces agricultural output valued at $1,367 billion—more than three times that of India’s $407 billion.
Lessons for India from China in agriculture:
  • There are three important lessons for India, if it is to catch up to the levels achieved in China.
 
I) Increased spending on Agriculture Knowledge and Innovation Systems
  • Agriculture studies have revealed that the highest impact is from investments in agriculture Research and Education (R&E).
  • China spends more:
    • China spends a lot more on agriculture knowledge and innovation system (AKIS), which includes agri R&D, and extension.
    • China invested $7.8 billion on AKIS in 2018-19, amounting to 5.6 times the amount spent by India ($1.4 billion).
    • Presently, India invests just about 0.35% of its agri-Gross Value Added (GVA) whereas China spends 0.8%.
  • India needs to spend more:
    • For increasing total factor productivity, India needs to increase expenditure on agri-R&Dwhile making the Indian Council for Agricultural Research (ICAR) accountable for targeted deliveries.
  • Note: Better seeds that result from higher R&D expenditures generally demand more fertiliser. China’s fertiliser consumption in 2016 was 503 kg/ha of arable area compared to just 166 kg/ha for India, as per World Bank estimates. Consequently, China’s productivity in most crops is 50 to 100% higher than India’s.
II) Better incentive structure to farmers through agri-marketing reforms
  • The incentive structure, as measured by Producer Support Estimates (PSEs), is much better for Chinese farmers than Indian ones.
  • The PSE concept measures the output prices that farmers get in relation to free trade scenario, as well as input subsidies received by them.
    • The PSE concept is adopted by 52 countries that produce more than three-fourths of global agri-output.
  • China’s PSE much higher to India:
    • For Chinese farmers, PSE was 15.3% of gross farm receipts during the triennium average ending (TE) 2018-19.
    • For the same period, Indian farmers had a PSE of -5.7%.
    • In a way, this reflects that Indian farmers had been net taxed, not subsidised, despite high amounts of input subsidies.
  • Due to restrictive trade and marketing practices in India:
    • This negative PSE (support) comes due to restrictive marketing, and trade policies that do not allow Indian farmers to get free trade prices for their outputs.
    • This negative market price support is so strong that it exceeds even the positive input subsidy support the government gives to farmers through low prices of fertilisers, power, irrigation, agri-credit, crop insurance, etc.
  • China’s experience that high MSPs do not work:
    • India can take a leaf out of Chinese bad experience from high MSPs.
    • China, in fact, used to give procurement prices to farmers that were much higher than even international prices.
    • The result was massive accumulation of stocks of wheat, rice, and corn that touched almost 300 million metric tonnes (MMT) in 2016-17 (see graphic).
    • As a result, they had to incur large expenditure for withholding these stocks without much purpose.
    • Having learnt lesson, China dropped the price support scheme for corn, and in fact, have been gradually reducing support prices of wheat, and rice.
  • India should learn from China and move away from high MSPs:
    • Indian government has been trying to jack up minimum support prices (MSPs) for 23 crops.
    • As a result, India’s stock situation in July 2019 was 81 MMT as against a buffer stock norm of 41 MMT.
    • India needs to reduce the gamut of commodities under the MSP system, and keep MSPs below international prices.
    • Else, India will also suffer from the same problems of overflowing granaries as China did.
  • Marketing reforms are necessary in India:
    • To improve this situation, large-scale agri-marketing reforms (APMC and Essential Commodities Act) need to be carried out.
III) Implementation of single direct income support scheme:
Single input subsidy scheme in China:
  • China has combined its major input subsidies in a single scheme that allows direct payment to farmers on a per hectare basis, and has spent $20.7 billion in 2018-19.
  • This gives farmers freedom to produce anything, rather than incentivising them to produce specific crops.
  • Inputs are priced at market prices, encouraging farmers to use resources optimally.
India offers heavy input subsidies apart from direct benefits:
  • India spent only $3 billion under its direct income scheme, PM-KISAN, in 2018-19.
  • On the other hand, it spent $27 billion on heavily subsidising fertilisers, power, irrigation, insurance, and credit.
  • This leads to large inefficiencies in their use, and has also created environmental problems.
India needs to consolidate subsidies into a single scheme:
  • It may be better for India to also consolidate all its input subsidies and give them directly to farmers on a per hectare basis, and free up their prices from all controls.
  • This would go a long way to spur efficiency, and productivity in Indian agriculture.
Conclusion:
  • If India needs to learn these three lessons from China, i.e., to invest more in agri-R&D and innovations, improve incentives for farmers by carrying out agri-marketing reforms, and collapse input subsidies into direct income support on a per hectare basis.
  • Through this, India can benefit its farmers and put agriculture on a high growth trajectory.
Importance:
GS Paper III: Indian Economy
Section : Editorial Analysis

IMF members delay quota changes, agree to maintain funding

Headline : IMF members delay quota changes, agree to maintain funding

Details :

In News

  • Members of the International Monetary Fund (IMF) have agreed to maintain its funding at $1 trillion but postponed changes to its voting structure.

Highlights of the deal

  • The deal will allow an extension of non-permanent, supplementary sources of funds, such as the New Arrangement to Borrow (NAB) and the bilateral borrowing facility.
  • The agreement extended the bilateral borrowing facility by a year —to the end of 2020 — and a potential doubling of the NAB.
  • The agreed package will leave IMF quotas (the primary source of IMF funds), which determine voting shares, unchanged. Instead, these will be reviewed before the end of 2023.

 

About: IMF Quotas and Voting Share:

  • An important factor that helps the IMF’s functioning is the quota. This quota is basically money that a member country has to give to the IMF and as per the norms, each member has to subscribe a quota of the IMF.
  • For any member country, out of the quota, 25% should be paid in the form of foreign currency or gold (called as reserve tranche or gold tranche) to the Fund.
  • The remaining 75% in the form of domestic currency (called as credit tranche).

How the size of quota for each member country is determined:

  • When a country joins the IMF, it is assigned an initial quota in the same range as the quotas of existing members that are broadly comparable in economic size and characteristics.
  • The IMF uses a quota formula to guide the assessment of a member’s relative position, which depends on its economic importance.
  • The current quota formula (applied for 14th quota review) is a weighted average of GDP (weight of 50 percent), openness (30 percent), economic variability (15 percent), and international reserves (5 percent).
  • India’s quota is 2.76% and China’s is 6.41%, while the U.S.’s quota is 17.46 %.

Multiple purposes of Quotas:

  • Quota subscribed by the members indicates funds provided by the members to the IMF, and hence it constitute to the resource base of the IMF.
  • A member country’s loan availability depends upon size of its quota. The amount of financing a member can obtain from the IMF (called as access limit) thus depends upon its quota.

Voting Power:

  • The size of quota basically determines voting power of a member.
  • As per the IMF rules, for an important resolution to be passed, at least 85% of the votes should be secured. This means that the US, with 16.54 % of voting power, enjoys a veto power.
  • Thus, a member’s quota indicates basic aspects of its financial and organizational relationship with the Fund.

Review of Quotas:

  • Quotas are supposed to be reviewed every five years although these reviews can be delayed — as was the case with the 14th review.
  • That process, completed in 2010, needed approval of the U.S. Congress, and it was not closed out till early 2016.
  • The review’s outcomes included a doubling of the quota total and a shift in some voting rights to under-represented and emerging market countries.

 

About: Permanent Resource Base

  • Quotas are the IMF’s main source of financing, wherein each member of the IMF is assigned a quota, based broadly on its relative position in the world economy.
  • Quotas of each of the IMF’s 189 members increased to a combined SDR 477 billion (about US$668 billion) from about SDR 238.5 billion (about US$334 billion) after the 14th quota review.

About: New Arrangements to Borrow (NAB)

  • It is a renewable funding mechanism that has existed since 1998. Through the New Arrangements to Borrow (NAB) a number of member countries and institutions stand ready to lend additional resources to the IMF.
  • The NAB constitutes a second line of defense to supplement IMF resources to forestall or cope with an impairment of the international monetary system.
  • Concurrent with the quota increases under the 14th Review, the NAB was rolled back from SDR 370 billion to SDR 182 billion in February 2016.
  • The activation of NAB requires support from 85% of creditors eligible to vote

About: Bilateral Borrowing Agreements

  • The IMF had entered into Bilateral Borrowing Arrangements after the 2008 financial crisis to increase its lending ability. BBAs serve as a third line of defense after quotas and the NAB.
  • In 2016, in view of continued uncertainty in the global economy, the membership committed to maintain access to bilateral borrowing, under a revised borrowing framework.
  • The initial term was till the end of 2019 extendable for a further year with creditors’ consents.
  • Activation of the agreements requires support from 85% of creditors eligible to vote

 

Criticisms and call for governance reforms at IMF

Domination of developed countries:

  • Some IMF members are frustrated with the pace of governance reforms, as the balance of economic and geopolitical power has shifted, becoming more dispersed, particularly with the emergence of China and India.
  • Developed countries have been seen to have a more dominant role and control over less developed countries (LDCs).
  • The scholarly consensus is that IMF decision-making is not simply technocratic, but also guided by political and economic concerns.
  • The United States has historically been openly opposed to losing its “leadership role” at the IMF, and its “ability to shape international norms and practices
  • The criticism of the US-and-Europe-dominated IMF has led to what some consider ‘disenfranchising the world’ from the governance of the IMF.

Discrepancy in the calculated and actual quotas:

  • While quotas as computed by the above formula are the basic starting point in allocating shares, they serve as guidance rather than as a rigid rule, since the IMF’s Board of Governors has full discretion in decisions about shares.
  • There are significant differences between actual and calculated quotas. Notably, for Europe and the euro area, actual quotas are higher than calculated quotas.
  • For China, the actual quota, at 6.4 percent, is only about half of the calculated quota.
  • Many developing countries are up in arms that this discrepancy in particular merits quick correction.

Over reliance on non-permanent sources of funding:

  • Out of the three main financing sources, only one is a permanent feature and there has been an overreliance on non-quota sources of funding.
  • This is inconsistent with the IMF’s basic principle that quota subscriptions should be the main source of IMF resources. Hence, the reliance on alternate funding sources should be reduced.

Narrow development concerns:

  • The IMF is only one of many international organisations, and it is a generalist institution that deals only with macroeconomic issues, while its core areas of concern in developing countries are very narrow.
  • Hence, the IMF should work towards close partnerships with other specialist agencies such as UNICEF, the Food and Agriculture Organization (FAO), and the United Nations Development Program (UNDP).
Section : Economics

Explained: Why interest rates aren’t falling

Headline : Explained: Why interest rates aren’t falling

Details :

Context for the article:
  • This article explores why, despite significant repo rate cuts by the RBI, the interest rates in the banking system are not falling much.
Rate cuts by the RBI:
  • Since February, the Reserve Bank of India (RBI) has aggressively cut the repo rate.
  • Repo rate is the interest rate that the RBI charges the banks when it lends them money.
Why does RBI want lower interest rates?
  • Since February, India’s economic growth momentum has rapidly decelerated.
  • Projections of GDP growth rate have come down from roughly 7.2%-7.5% in February to 5.8%-6.0%.
  • There are two key problems in the economy – Consumption and Investment – and a lower interest rate regime is expected to help in resolving both.
  • To this end, RBI has been cutting repo rates, especially since overall retail inflation has been well within the RBI’s comfort zone of 4%.
Lower interest rates could revive consumption:
  • The main issue is that people are not consuming at a high enough rate.
  • Some economists argue that if banks reduce their lending rates, they would also have to reduce their deposit rates (the interest rate banks pay when we park our money with them in a savings bank deposits or a fixed deposit).
  • This, in turn, will incentivise people to save less and spend more.
Lower interest rates could revive private investment:
  • The other problem in the economy at present is that businesses are not investing in existing or new facilities.
  • Part of the reason is also that the interest rate charged on loans is quite high.
  • If banks reduce the interest rates on loans, more businesses are likely to be enthused to borrow new loans for investment.
  • This is particularly relevant with the recent corporate tax rate cuts done in the hope that it will boost the corporate sector’s profitability and get it thinking of investing more.
 
The ‘transmission’ of rate cuts by RBI to the banking system is not happening:
  • By cutting the repo rate, the RBI has been sending a signal to the rest of the banking system that the lending rates in the system should come down.
    • Lending rates are the interest rates that banks charge from their customers.
  • This process of repo rate cuts leading to interest rate cuts across the banking system is called “monetary policy transmission”.
  • The transmission process in India is quite inefficient:
    • For example, between February and August, the RBI cut repo rate by 110 basis points — 100 basis points make a percentage point — from 6.5% to 5.4%.
    • But, the interest rate charged by banks on fresh loans that they extended during this period fell by just 29 basis points – that is just 27% of the amount by which the repo rate came down.
To force transmission, RBI is linking bank lending rates to repo rate:
  • Concerned by the sluggish transmission, the RBI in October 2019 (after cutting the repo rate by another 25 basis points) took steps to make banks link their lending rates to the repo rate.
  • The RBI made it mandatory for all banks to link certain loans to external benchmark rates like Repo Rate, Yields on treasury bills etc.
Only few banks have cut rates:
  • For the most part, the banking system has ignored RBI’s signalling and only some banks have reduced lending rates on new loans by 10 basis points.
  • In essence, while the RBI has cut its lending rate to the banks by 135 basis points (or 1.35 percentage points) in the nine months since February, the interest rates being charged to the common consumer have come down by only about 40-odd basis points.
Why aren’t interest rates in the banking system coming down?
  • The interest rates in the banking system are not coming down despite repo rate cuts by the RBI.
  • This is because repo rates have little impact on a bank’s overall cost of funds, and reducing lending rates just because the repo has been cut is not feasible for banks.
Difference between lending and deposit rates allows banks to function:
  • For any bank to be viable, there must be a clear difference between the lending rates (interest rates it charges from borrowers on loans it provides) and the deposit rates (interest rate it gives to consumers on deposits it accepts).
  • The difference between these two sets of interest rates has to be not only positive but also big enough for the bank to make profits.
Banks can be profitable only if they cut deposit rates also:
  • To attract deposits, banks pay a high deposit rate. Such deposits make up almost 80% of all banks’ funds from which they then lend to borrowers.
  • Banks borrow only a small fraction under the repo.
  • So even sharply reducing the repo rate doesn’t change the overall cost of funds.
  • Unless banks reduce their deposit rates, they will not be able to reduce their lending rates.
Why are banks not reducing their deposit rates?
  • Others could offer better rates: That’s because if a bank were to reduce its deposit rates, depositors would shift to a rival bank that pays better interest rates or invest in small saving instruments such as public provident fund, Sukanya Samriddhi Yojana etc that pay much higher interest rates.
  • Can’t reduce rates immediately: Even if banks wanted to reduce their deposit rates, they can’t always reduce them immediately. This is because 65% of total deposits are “term” deposits (fixed for a certain duration) and take, on an average, up to two years to get repriced at fresh rates.
What hasn’t linking the lending rate to the repo rate worked?
  • This is not a viable solution for the banks.
  • The banks cannot link their lending to the repo rate because repo doesn’t determine their cost of funds.
  • For a repo-linked regime to work, the whole banking system would have to shift to that – in other words, along with banks’ lending rates, their deposit rates too must go up and down with the repo.
  • But if such a regime were in place, depositors would have earned 1.10 percentage points less interest rate on their savings account.
Is this problem of weak transmission new?
  • As per some experts, this is not a new issue.
  • Never even in the past has monetary transmission been better than 50% (that is, only half the rate cuts by RBI were passed through by the banking system).
  • The reason for weak transmission, too, has been largely the same.
Why doesn’t this happen in developed countries?
  • The slow transmission does not happen in developed countries because the financial system is far more developed and diversified.
  • Banks are not burdened to fund everyone:
    • Most importantly, the banking system there doesn’t have to bear the burden of providing loans to everyone in the economy – from farmers to small businesses to large businesses, like in India.
  • Developed bond market:
    • Most demands for big loans are directed towards the corporate bond market – wherein a company floats bonds (or IOUs) and borrows money from the public by paying whatever interest rate the market demands.
  • Better grasp of borrowing and lending dynamics:
    • Depositors there are not in the habit of getting a fixed interest rate on their savings while expecting a variable interest rate on their loans.
    • The savers there are far more willing to take risk and to invest in higher-risk instruments other than bank deposits.
    • On the other hand, at the current low levels of per capita income, Indian savers are risk averse and prefer saving in banks.
  • Government borrowing does not impact interest rates much:
    • The overall borrowing by the public sector – that is the government and government-owned institutions – is not so high so as to drive up the interest rates in the economy, as it happens in India.
Section : Economics

What impact will the thundershowers, hailstorm have on rabi crop?

Headline : What impact will the thundershowers, hailstorm have on rabi crop?

Details :

The topic

  • Recently, there was heavy rainfall and hailstorms in the many areas of northern India.
  • This articles assesses the impact of heavy rainfall and hailstorms on rabi crops.

Background

  • In early February, the National Capital Region, Punjab, Haryana, parts of Uttar Pradesh and northern Madhya Pradesh witnessed heavy rainfall and hailstorms.
  • According to the Meteorological department, the source of the thundershowers was a fresh Western Disturbance. Further fresh Western Disturbance are also expected.
  • This will affect the Rabi crops in these regions.

About Rabi crops

  • ”Rabi” is an Arabic word for “spring”.
  • Harvesting of the winter crops happens in the springtime, thus these crops are called as Rabi crops.
  • The Rabi season usually starts in November and lasts up to March or April.
  • Rabi crops are mainly cultivated using irrigation as monsoon rains are already over by November.
  • Moreover, the unseasonal showers in winter seasons can ruin the crops.
  • Wheat, barley, mustard and green peas are some of the major Rabi crops of India and different crops require different climatic conditions. For example:
    • Wheat
      • It requires cool temperatures during its growing season in the range of about 14°c to 18°c.
      • Rainfall of about 50 cms to 90 cms is most ideal.
      • However, during harvesting season in the spring, wheat requires bright sunshine and slightly warmer temperatures.
    • Mustard
      • It requires a subtropical climate to grow which is a dry and cool climate.
      • The temperature range to grow mustard is between 10°c to 25°c.
    • Therefore, the heavy rainfall and hailstorms differently impact various Rabi crops based on various stages of crop production.

Assessment of impact of rainfall and hailstorms on different Rabi crops this season

Negative impact

  • Heavy rains during this period have negative impact on the mustard, chana (chickpea) and potato crops that are about to mature or in early-harvesting stage.
  • Mustards
    • This crop that is usually planted during the first half of October, and in early February would be in the pod-filling stage (the beginning of the last stage ripening), where the flowers and seeds have already taken shape and size.
    • The kernels would have been accumulating starch, fat and protein matter.
    • Hence, rains during this time can impact the yields negatively.
    • Moreover, if the rain continues, the environment will become helpful for fungal diseases such as sclerotinia stem rot and alternaria blight.
    • Such diseases could result in the premature ripening of the crop or the pods producing dry, shrinking or discoloured seeds.
    • The rains are more likely to damage early-sown crops, sown in the last week of September, which would have been ready for harvesting.
  • Other crops:
    • Many other Rabi crops are harvested during February-March like Chana, Masur (lentil), Potato, Jeera (cumin-seed) and Dhania (coriander).
    • These might already be in its final stages of grain-filling or ripening stages.
    • The risk of rainfall and hailstorm is more for such crops.
  • In the worst scenario, experts are predicting the repeat of conditions as was in March 2015, when the winter rainfall and hailstorm affected the total area of 182 lakh hectares in North, West and central India.

Positive impact

  • The positive impact of winter rainfall can be predicted for Wheat, as this crop is sown by mid-November and currently would be in the late-tillering stage, when it produces multiple side stems.
  • Only the wheat crops sown early in the end of October may get negatively affected.
  • In fact, rains will have following benefits for the timely or late-sown wheat crops-
  • It will provide additional round of irrigation to the crops.
  • It will reduce the temperatures and prolong the winter, which is good for yields.

Section : Economics

MicroCredit Vs MicroFinance

Headline : Explained: What ails the existing microcredit model

Details :

In News

  • Studies suggest that the existing systems of microcredit have a limited impact on the long-term wellbeing of the recipients.

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About: Microcredit

  • Microcredit refers to the granting of very small loans to impoverished borrowers.

Rationale

  • Loans given as microcredit are often given to people who may lack collateral, credit history, or a steady source of income.
  • The core idea is that a small loan will provide access to the larger economy to people who live outside the mainstream economy.
  • It has an aim of enabling the borrowers to use that capital to become self-employed and strengthen their businesses.

Terms

  • Microcredit agreements generally do not require any sort of collateral.
  • At times it may not even involve a written agreement, as many recipients of microcredit are often illiterate.
  • When borrowers demonstrate success in paying their loans on time, they become eligible for loans of even larger amounts.

Applications

  • Conventionally, microcredit has been used mainly for entrepreneurs to begin production and attain self-sufficiency.
  • However, there are other, mostly unexplored paths for the utilisation of microcredit for poverty alleviation and productivity-boosting measure, like:
  • Supplement rural labourers
  • Small microcredit loans can allow rural labourers to migrate to urban areas to find work during the lean season (when there is no work on farms).
  • Those who migrated temporarily during the lean season experienced increased spending in both food and non-food areas, and increased their calories consumed.
  • Address climate shocks
  • It can also be used to reduce the effects of shocks like floods and drought.
  • It can provide people with a form of insurance that both increases production before the shock and provides a safety net after.

Example

  • An example of a microcredit institution is the Grameen Bank in Bangladesh, founded in 1976 by Mohammed Yunus. It is a pioneering institution in the realm of micro finance.
  • The bank has 8.4 million followers, 97% of whom are women, and the bank has repayment success rates between 95 to 98 percent.

 

About: Microfinance

  • Microcredit falls under the larger umbrella of microfinance.
  • Microfinance activities usually target low-income individuals, with the goal of helping them to become self-sufficient.
  • Hence, microfinance activities have an aim of poverty alleviation as well.

News Summary:

  • Microcredit has emerged as a tool for ensuring the welfare of the most impoverished in society, and boosting development alongside.
  • However, some studies claim that certain flaws in microcredit transactions has led to limited benefits, and access to microcredit made very little difference to changing the lifestyles of borrowers.
  • As per a study, indicators like Household business profits, business expenditures, consumption, consumer durables spending etc. saw only a 5% impact when microcredit was available.

Repayment schedules main reason for low impact of microcredit:

  • To lower the risk of defaulting, microcredit lenders demand an initial repayment that is almost immediate.
  • After that, borrowers are required to follow an inflexible weekly schedule for repayments.
  • Due to this, borrowers are unable to use loans on investments that may take some time for benefits to be fully realised.
  • Hence, they are forced to use the loans on short term investments that only boost production to an extent, and the overall growth of their income remains small.

 

Findings of various studies on improving impact of microcredit

Initial grace period:

  • According to a study, borrowers who received an initial grace period were more likely to have started a new business.
  • Such borrowers also reported higher profits and household incomes.
  • However, there was also an increased rate of defaulting in this group.

Monthly repayment:

  • When borrowers switched from a weekly repayment schedule to a monthly one, there was an increase in incomes without the increased rate of defaulting.
  • Under a monthly repayment schedule, borrowers scored 45% lower on the Financial Stress Index.
  • Increases in income were more than double when compared to the borrowers under a weekly repayment schedule.

Mitigation of credit risk:

  • The barriers to assessing credit risk can be mitigated by using community information.
  • Communities can be an accurate source of information about credit risk for microcredit institutions.
  • However, the implementation of such processes would require the elimination of bias and incentivising accurate information.
Section : Economics

Fintech committee recommends new legal framework for consumer protection

Headline : Fintech committee recommends new legal framework for consumer protection

Details :

In News:

  • A panel on issues related to financial technology (fintech) has recently submitted its recommendations to the Finance Ministry.
  • The committee has suggested putting in place a comprehensive legal framework to protect consumers of digital services.

What Is Financial Technology (Fintech)?

  • Financial technology (Fintech) is used to describe new technologies that seeks to improve and automate the delivery and use of financial services. ​​​
  • At its core, fintech is utilized to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones.

Background:

  • The fintech panel was announced by former finance minister Arun Jaitley in his 2018-19 Budget.

Committee on issues related to financial technology

Objectives of the committee:

  • To consider various issues relating to development of Fintech space in India with a view to make Fintech related regulations more flexible and generate enhanced entrepreneurship in an area where India has distinctive comparative strengths vis-à-vis other emerging economies. 
  • The Steering Committee also focused on how Fintech can be leveraged to enhance financial inclusion of MSMEs.

Key Recommendations of the committee:

  • Examining the suitability of virtual banking system:
    • The committee suggested the Department of Financial Services (DFS) and Reserve Bank of India to examine the suitability of ‘virtual banking system’ in the Indian context.
  • Adoption of RegTech:
    • The committee has recommended adoption of regulation technology (or RegTech) by all financial sector regulators to develop standards and facilitate adoption by financial service providers.
  • Use of Financial Technologies:
    • The committee suggested usage of fintech to improve access of financial products for MSMEs, farmers and poorer sections of the society.
  • Change in the form of RBI adopting open data access approach:
    • RBI may consider making available banking data (such as transaction and account history data) for use by the financial sector, including fintech firms, (based on consumer consent and with other appropriate safeguards)
  • Study the Potential of Open data access:
    • It also recommends that all financial sector regulators study the potential of open data access among their respective regulated entities, for enhancing competition in the provision of financial services
  • Use of drones and remote sensing technologies by Insurance companies and lending agencies:
    • The panel has also recommended that insurance companies and lending agencies be encouraged to use drone and remote sensing technology for crop area, damage and location assessments to support risk reduction in insurance/lending business.
  • Coordination among Department of Financial Services (DFS) and PSU banks:
    • The Department of Financial Services (DFS) should work with PSU banks to bring in more efficiency to their work and reduce fraud and security risks.
    • Significant opportunities can be explored to increase the levels of automation using artificial intelligence (AI), cognitive analytics and machine learning in their back-end processes.
  • Digitization of land records:
    • The committee also suggested digitisation of land records across the country on a war footing.
  • Setting up a Inter-Ministerial Steering Committee:
    • The report favoured setting up of an Inter-Ministerial Steering Committee on fintech applications in the Department of Economic Affairs (DEA) to monitor progress, including exploring and suggesting the potential applications in government financial processes and applications.
  • Common fintech platform
    • The panel suggested usage of common fintech platform for MUDRA loans, small saving schemes, pension schemes and provident fund.
    • It recommended creating a common digital platform for all micro-pension schemes and government pension schemes, including EPF, through which pension subscribers can subscribe to specific schemes seamlessly.
    • It would also reduce access barriers by allowing payments through various modes such as Jan Dhan Yojana accounts, debit card, credit card, internet banking, mobile wallets etc.
  • Explore permitting digital alternatives:
    • The government should undertake a campaign to convert all financial assets held, especially by entities under its control like post offices, in demat form as far as possible but certainly in electronic form
  • Reducing the cost of KYC:
    • The committee recommended need to reduce the costs of KYC to promote financial inclusion among the weaker sections.
    • The panel suggested that there should be no charge for uploading KYC data, while every download can be priced based on the user pays principle and this will enable Central KYC to take off early.
  • Creation of a nodal agency:
    • A nodal agency to coordinate developments across ministries and regulators in the area of financial technology (fintech).
    • A dedicated team on digital economy and fintech is being set up in the Investment Division, Department of Economic Affairs for coordination on fintech with relevant ministries.

Section : Economics

Deceleration in economy: Cyclical downswing, not a deep structural slowdown, says RBI

Headline : Deceleration in economy: Cyclical downswing, not a deep structural slowdown, says RBI

Details :

In News

  • The Reserve Bank of India has released its annual report for the year 2018-19.
  • The report confirms that several sectors are undergoing a deceleration in the economy.
  • However, it states that the deceleration could turn into cyclical downturn rather than a deep structural slowdown.

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From RBI annual report

Slowdown in growth

  • India’s real GDP growth was an average of 7.7 per cent during 2014-18 and 8 per cent in the first quarter of 2018-19, however, it has slowed down in the remaining quarters of 2018-19.
  • The growth slowed down to a five-year low of 5.8 per cent in the March quarter of 2018-19.
  • Several sectors, including auto and consumer goods, have witnessed demand slowdown, production cuts and lay-offs.

Private Consumption moderated in the second half

  • Private final consumption expenditure, accelerated in the first half of the year, supported by higher disposable income due to lower food expenses. However, the demand has seen moderation in the second half of the year.
  • The pick-up in activity in labour intensive sectors like construction provided additional push to household consumption demand.
  • Rural demand, however, was affected by moderation in agricultural growth which reflected in tractors and two wheelers sales.
  • Passenger vehicles sales were the lowest in five years on account of increase in insurance costs, volatile fuel prices, and lack of financing options due to the liquidity stress in the non-banking sector.
  • The production of consumer non-durables slumped to its lowest level in the past three years.
  • Going forward, public expenditure through the Pradhan MantriKisanSamman Nidhi (PM-KISAN) and farm loan waivers by some states are expected to sustain rural demand.

Reasons for the slowdown

  • Protectionist policies and actions like escalation of trade tensions; volatile crude prices; uncertainty over Brexit also had its effect on the slowdown in the economy.
  • Structural issues in land, labour and agricultural marketing are holding the economy back.
  • Bank credit is yet to become broad-based and flow of resources from nonbank financial intermediaries is also quite slow.
  • The delayed onset and skewed distribution of the south-west monsoon has created risks in crop production and has led to a decline in rural consumption demand.

Credit Delivery and Financial Inclusion

  • The Reserve Bank has made sustained efforts during the year to increase the penetration of formal financial services in unbanked areas.
  • Moreover it has continued with its policy of ensuring adequate flow of credit to all productive sectors of the economy.

Initiatives

  • Setting up of an expert committee/working group to examine the issues relating to credit flow to MSMEs and agriculture sectors.
  • Allowing SCBs to co-originate loans with non-deposit taking NBFCs for credit delivery to the priority sector.
  • The National Strategy for Financial Inclusion 2019-24 was prepared, besides ongoing measures to strengthen financial literacy and inclusion in the country.

Monetary Policy Operations

  • Inflationary pressures from volatile international crude oil prices, and currency depreciation in the first half of the year, reduced significantly in the second half.
  • The monetary policy committee has cut the policy repo rate by 75 basis points during February-June 2019.
  • Forex operations by the Reserve Bank increased the pressure on system level liquidity, necessitating active liquidity management.

Payment and Settlement Systems

  • The Reserve Bank has made efforts to ensure that the country has a ‘state-of-the-art’ payment and settlement systems that are not just safe and secure, but are also efficient, fast and affordable.
  • It has also continued with its emphasis on innovation, cyber security, financial inclusion, customer protection and competition.
  • Going forward, Vision 2021 aims to achieve a ‘highly digital’ and ‘cash-lite’ society to empower every citizen with an access to a variety of e-payment options.

Efforts in Financial markets

  • The Reserve Bank conducted liquidity management operations for maintaining an appropriate level of liquidity in the financial system
  • Intervention operations were conducted in the foreign exchange market to contain volatility.
  • In order to facilitate trade and payments, efforts were made to streamline regulations and align them with the current business and economic environment.
  • The external commercial borrowings regime was also rationalised during the year.

Bank NPAs

  • Several measures have led to a decline in gross non-performing assets of the banking system to 9.1% in March 2019, from 11.2% in the previous year.
  • After initial difficulties the insolvency and bankruptcy code is proving to be effective.
  • Recoveries have gradually improved and as a result, blocks in the path of the investment cycle are easing. 

Frauds in the banking system

  • Frauds in the banking system has increased by 74 per cent to Rs. 71,543 crore in compared with frauds worth Rs. 41,167 crore committed last year.
  • The average lag between the date of occurrence of frauds and its detection by banks was 22 months.
  • Public sector banks constitute the largest share of the frauds, followed by private sector banks and foreign banks.
  • Frauds related to loans constituted the majority share of the total amount involved in frauds in 2018-19.
  • Frauds relating to card/internet banking and deposits constituted only 0.3 per cent of the total value of frauds in 2018-19, the central bank’s report added.

Section : Economics

India’s water crisis: All stakeholders must come together Editorial 29th Aug’19 HindustanTimes

Headline : India’s water crisis: All stakeholders must come together Editorial 29th Aug’19 HindustanTimes

Details :

Water stress in India:

  • India is home to 17% of world’s population, but has only 4% of the world’s fresh water resources.
  • At present, 75% of Indian households do not have access to drinking water, and close to 90% of rural households have no access to piped water.
  • India is a water-stressed country, and with 1,544 cubic metre per capita annual availability, we are advancing towards becoming water-scarce.
  • Five of the world’s 20 largest cities under water stress are in India.
  • As per the Economic Survey 2018-19, by 2050, India will be extremely susceptible to water insecurity.

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Economic cost of environmental degradation:

  • There are some other aspects that pertain to the economic cost of environmental degradation that India is faced with.
  • A 2018 World Bank study pegged the cost of environmental degradation to India at approximately $80 billion per year, which amounts to around 5.7% of our GDP.
  • Further, an environment survey of 178 countries ranked India at 155.
  • This is extremely worrying, especially since among the BRIC nations, India ranked last.

Water management crucial for India’s future

  • Water and its management will determine India’s ability to achieve high economic growth, ensure environmental sustainability, and improve the quality of life.

NITI’s Composite water management index (CWMI) tracking States’ efforts:

  • State-led efforts to manage water have been assessed and shared by the NITI Aayog, which has developed the composite water management index (CWMI).
  • States are ranked on the management of water and progress in 28 indicators relating to water management.

Community management of water needed:

  • Community management of water will be crucial if India is to become water secure.
  • For local community driven initiatives, work on community engagement has begun.

Corporations can also play a key role:

  • Corporate sector has been playing a role in driving innovation in many sectors.
  • Given the magnitude of the challenges India faces, there is a growing role for leading enterprises to help meet development targets.
  • In water management, corporations must can a more active role in using their Corporate Social Responsibility (CSR) efforts towards innovation and conservation of water, along with the dissemination of proven practices that help conserve and harness water recharge.
  • Corporations should ensure that their CSR commitment and sustainability initiatives are effective and pervasive enough to make a substantial impact.

Examples of effective initiatives by corporations:

  • There are flag bearers for conservation efforts among Indian and multinational corporations, and their efforts must be emulated across the board.
  • ITC’s integrated water management:
    • ITC’s integrated water management approach has been a successful initiative.
    • Today, ITC’s integrated watershed development programme covers over one million acres spread across 15,000 water harvesting structures, benefiting over 300,000 people in 43 districts across 16 states.
    • This initiative has generated over six million person-days of employment within project villages, reducing levels of distress migration.
    • It is now extended to implement four large-scale river basin regeneration projects for achieving water balance and year-round environmental flows in select sub-basins in Maharastra, Tamil Nadu, Telangana and Madhya Pradesh.
    • Pilot programme on water use efficiency in agriculture:
      • In addition, a pilot programme at scale on “water use efficiency in agriculture” is also being promoted to enable effective demand-side management.
      • This initiative has yielded water savings of 20% to 45% in crops like sugarcane, wheat, rice and banana.
  • Tata’s Water Mission:
    • Tata’s Water Mission aims to provide better access to pure water for six million people spread across 7,000 villages in 12 states, by 2020.
    • Key focus areas are to improve access to safe water and sanitation, and to make a difference through rigorous and technologically advanced interventions.
  • Pepsico’s sustainability agenda:
    • Under its 2025 sustainability agenda, Pepsico is said to aim for a global improvement in water use efficiency in high water risk areas of its direct agricultural supply chain by 15% by 2025.
  • Mahindra Hariyali programme:
    • Mahindra too is doing extensive work under its Mahindra Hariyali programme.
    • As its climate change resistance movement, the initiative is a social upsurge where tree planting is not merely a duty, but, in fact, is termed a celebration.
    • Since 2007, this initiative has achieved a target of planting 16 million saplings. 

Corporations must make water conservation and management their top CSR concern:

  • Many of the CSR activities currently are geared towards water conservation and management.
  • But now they need to make it a top priority rather than one of the many avenues where CSR initiatives are undertaken.

Conclusion:

  • Water is a critical resource and community water management is a must.
  • This will range from corporate engagement to smaller scale community initiatives, to individual efforts.
  • Now, the entire ecosystem must work in a cooperative manner to ensure India’s water conservation efforts are forward-thinking, while leveraging synergies from the State, corporations, and the community as a whole.

Importance:

GS Paper III: EconomySection : Editorial Analysis

Supreme Court upholds homebuyers’ rights as financial creditors under IBC

Headline : Supreme Court upholds homebuyers’ rights as financial creditors under IBC

Details :

Why in News:

  • The Supreme Court has upheld the validity of an amendment to the Insolvency and Bankruptcy Code (IBC) that treats homebuyers as financial creditors, thus giving homebuyers the right to take legal recourse against developers under three key laws.

Background:

The IBC amendment in relation to homebuyers:

  • In August, 2018, the government of India has amended the Insolvency and Bankruptcy Code (IBC) to grant the status of a “financial creditor” to a homebuyer.
  • The amendment allowed home buyers, as financial creditors, to trigger bankruptcy proceedings under the Insolvency and Bankruptcy Code of 2016. It had brought the home buyers on par with the creditor banks of the property builder.
  • The Committee of Creditors (CoC), by voting, makes important decisions on the future of the bankrupt builder. These calls include what to do with his assets and who should finish the pending housing projects.
  • Thus amendments have given home buyers their “rightful place” on the (CoC).

Need of Amendments in the Act:

  • Prior to the law, the home buyers were often left in the difficult situations. They were made to wait blindly for a solution to come up, either in the form of a completed apartment or a refund.
  • Before the Amendment, the assets of the bankrupt builder were divided among his employees, creditor banks and other operational creditors. Home buyers had hardly figured, though their hard-earned savings may have provided a major chunk of the housing project.
  • It was needed to protect the rights of homebuyer, who have a huge stake in real estate projects, having invested in them.
  • The Centre said recognizing homebuyers as creditors was essential since they get duped by some real estate developers.

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Amendment challenged in the SC:

  • India’s real estate sector is witnessing a prolonged slowdown, with several developers who have been dragged to courts over project delays facing bankruptcy or insolvency.
  • Over 180 batch petitions were filed before the Supreme Court by real estate firms earlier this year, challenging the amendment to the IBC.
  • In their petitions, developers had contended that homebuyers were already given enough protection under RERA and consumer forums, and making them a part of the IBC proceedings was not required.
  • The builders argued that homebuyers can initiate proceedings on the basis of any “default”, as the definition was very vague, and the delay in completion of the project could also be due to delays in payments by the homebuyer.
  • The builders said home buyers were a large, amorphous group. Their presence in the CoC would be a nuisance.

 

Summary of SC judgment:

  • A three-judge Supreme Court has now confirmed the constitutional validity of the Insolvency and Bankruptcy Code (Second Amendment) Act of 2018, which gave home buyers the status of “financial creditors”.
  • The bench said the Real Estate (Regulation and Development) Act, or RERA, has to be read in harmony with the Consumer Protection Act and IBC and, in case of any conflict, IBC will prevail.
  • The court further directed the Centre to fill up the vacancies in the NCLT and its appellate tribunals so as to deal with the rising number of bankruptcy litigation in the real estate sector.
  • Both central and state government was ordered to file compliance affidavit in this regard within three months.

 

Points made by SC while upholding the amendment:

  • Home buyers finance from 50% to even 100% of a housing project. Their absence from the CoC and denying them a voice on future plans would be “manifestly arbitrary.
  • The judge reasoned that the IBC and the RERA operate in different spheres and can be used harmoniously for the interest of home buyers.
  • The court further reasoned that no home buyer would frivolously move the National Company Law Tribunal under the IBC. This is because ironing out a resolution plan under the IBC is a long-drawn process. Also, under the Code, home buyer may never get a refund of the entire principal, let alone interest. Thus, only that home buyer who has completely lost faith in the management of the developer, would come before the NCLT under the Code hoping that some other developer takes over and completes the project.
  • The amendment was only aimed at defaulting real estate giants. The court said there were adequate mechanisms to check misuse and only a genuine homebuyer will be able to invoke insolvency proceedings against a builder.

 

Possible impact of the judgment:

  • The judgment gains significance as many real estate builders have been under fire for incomplete projects leaving home buyers in dire straits.
  • The apex court verdict empowers homebuyers by expanding the scope of the IBC, treating them on a par with banks and institutional creditors, besides protecting their rights.
  • It will empower harassed home buyers to initiate bankruptcy proceedings against errant real estate builders. Home buyers will be given priority while recovering dues from bankrupt or insolvent real estate companies.
  • Now an aggrieved homebuyer has the option to seek relief under three laws—RERA, Consumer Protection Act and IBC.
Section : Economics

Economy: RBI has done its bit, now over to the government Editorial 9th Aug’19 HindustanTimes

Headline : RBI has done its bit, now over to the government Editorial 9th Aug’19 HindustanTimes

Details :

Rate cut by RBI:

  • Inflation is within control.
  • The economy is slowing down.  RBI has lowered its growth projections for the first half of the year sharply.
    • The RBI’s projections indicate that it expects growth to improve in the second half of the year, and will be 6.9 for the year.
  • In light of this, the Reserve Bank of India (RBI) cut the repo rate by 35 basis points, a little more than what it usually does (usually, it’s 25 basis points).

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This itself is not enough to induce higher growth rate:

  • There is only so much that a monetary policy can achieve.
  • This is because of other issues in the financial system, like a weak rate cut transmission mechanism, a stressed banking sector, and difficulties in the non-bank financial (NBFC) sector.
  • This means that other policy changes will be needed to achieve higher growth in the second half of the year.

 

Need to revive Private investment:

  • Private investment is a critical engine of growth for the economy.
  • The government neither has the capacity, nor the fiscal space, to lift investment and growth without the participation of entrepreneurs across the country.
  • The only way investment in India can pick up is if entrepreneurs are upbeat about the opportunities that the economy has to offer them to make a decent living from doing business.

Government tried some measures to achieve this:

  • Between 2014 and 2019, India took some measures to help private sector, including:
    • Enacting Insolvency and Bankruptcy Code
    • Enacting Goods and Services Tax (GST)
    • Improving ease of doing business
    • Pushing both public investment and micro, small and medium enterprises credit

But private investment has not picked up:

  • The policy initiatives already undertaken have not helped pick up the private investment.

 

India’s tax regime hurts businesses:

  • The most important department that perhaps affects the economy is the tax department or the department of revenue.
  • Its job is to increase the share of gross domestic product (GDP) that it collects as taxes.
  • To do so, it often proposes new taxes or increases in tax rates.
  • Increasing tax rate easier than increasing tax base:
    • Often, given the narrow tax base that India has, increasing revenues is easier done by increasing the tax rate or the tax burden of those already paying taxes, than by increasing compliance.
  • Lead to evasion:
    • In recent years, marginal tax rates have been increasing.  This has made trying to evade taxes more attractive.
  • Tax department increases harassment in the name of compliance:
    • To counter the subsequent loss of revenue through evasion, the tax department has been given greater powers to go after those who they feel are evading taxes.

Tax department not worried about its impact on business sentiment and investment:

  • The tax department is not expected to assess the impact of its greater powers on businesses, and the sentiment of businessmen.
    • India today has a number of taxes, like the surcharge on income and corporate tax, the Securities Transaction Tax (STT) and, now, the tax on the super-rich, where no analysis is done about the impact of the tax on the economy.
  • It is not expected to focus on the impact its proposals on new taxes and tax rates have on GDP or investment.
    • For example, what is the impact of the tax on the super-rich? What is the effect of the tax on foreign portfolio investors and stock markets? How is it going to impact investment? The department is not worried about that

Increasing the tax rates indiscriminately is counter-productive:

  • Economic theory and the Laffer curve suggest that, beyond a point, increasing the tax rate is counterproductive, even in terms of collecting more revenue.
  • Beyond a point, high tax rates can also have negative effects on incentives for investment in the country, for encouraging growth and job creation.

 

What other steps the government can take to achieve higher growth rates?

Assess potential impact of any new proposals:

  • Seeing the business environment today, there is a need for a thorough analysis of the economy-wide impact of policies before new proposals are accepted.
  • This needs to be an integral part of policymaking.
  • The finance minister has to turn down many proposals that may appear attractive in the short run, and keep tax administration under a tight leash.

Restore the role of DEA in reform and productivity growth in the economy:

  • The department of economic affairs (DEA) in the ministry of finance traditionally had the task of pushing for reform and productivity growth in the economy by looking beyond short term and sectoral issues.
  • This helped the finance ministry in the past push for lowering taxes, import tariffs, push for greater foreign investment since 1991, and liberalisation and better regulation of the financial sector.
  • While sector-specific ministries (such as aviation, railways, steel etc.) focus on their areas or sectors, they may, at times, lobby for what is good for their sector, but not for the economy as a whole.
  • The DEA’s traditional role could be restored so that it studies the investment and growth impact of policy proposals before they are accepted.

 

Conclusion:

  • The general sense of gloom in business needs to change before we can expect that growth will be higher in the second half of the year.
  • RBI has done its bit, now the government needs to do its share.

 

Importance:

GS Paper III: Economy

Section : Editorial Analysis

Economy: Dividend Tax Distribution, Long Term Capital Gain Tax (LTCG), Surcharge on FPIs

Headline : Market participants seek rollback of surcharge on FPIs, lower LTCG tax

Details :

The News:
  • In a meeting with Finance Minister, foreign portfolio investors (FPIs) and finance industry players presented a series of proposals to revive investment sentiment.
Important Terminologies:
About: Dividend Tax Distribution
  • A dividend is a return given by a company to its shareholders out of the profits earned by the company in a particular year.
  • Dividend constitutes income in the hands of the shareholders which ideally should be subject to income tax.
  • However, the income tax laws in India provide for an exemption of the dividend income received from Indian companies by the investors by levying a tax called the Dividend Distribution Tax (DDT) on the company paying the dividend.
  • Therefore, Dividend distribution tax is the tax imposed by the government on Indian companies according to the dividend paid to a company’s investors.
  • Any domestic company which is declaring/distributing dividend is required to pay DDT on the gross amount of dividend.
About: Long Term Capital Gain Tax (LTCG)
  • Profits or gains arising from transfer of a capital asset are called Capital Gains and are charged to tax under the head Capital Gains.
  • A capital asset is officially defined as any kind of property held by an assessee, excluding goods held as stock-in-trade, agricultural land and personal effects.
  • Income from capital gains is classified as “Short Term Capital Gains” and “Long Term Capital Gains”.
    • Short Term Capital Gains: If an asset is held for less than 36 months, any gain arising from selling it is treated as a short-term capital gain (STCG).
    • Long Term Capital Gains: If the asset is held for 36 months or more , any gain arising from selling it is treated as a ‘long-term’ capital gain (LTCG).
  •  Shares and equity mutual funds alone enjoy a special dispensation on capital gains tax. In their case, a holding period of 12 months or more qualifies as ‘long-term’.
Background: Surcharge on FPIs:
  • In the recent Budget, the government had raised surcharge on income tax from 15 per cent to 25 per cent on taxable income between Rs 2 crore and Rs 5 crore, and from 15 per cent to 37 per cent for income above Rs 5 crore.
  • It would also be applicable for FPIs operating as trusts or as association of persons.
  • Most of these funds would have an income of more than Rs 2 crore and Rs 5 crore and their tax burden would go up.
  • This is being seen as the key reason for the outflow of funds.
  • The tax surcharge could discourage FPIs from participating in the divestment offerings in the coming months and hence need to be urgently reviewed
News Summary:
  • The private equity players, FPIs registered as trusts and companies presented their inputs and suggestions to the government on what is required on reviving investment sentiment.
  • Key Suggestions given include:
    • Rollback of surcharge on FPIs
    • Review of dividend distribution tax
    • Abolition or lowering of long term capital gains (LTCG) tax on equities
    • Easier Know Your Customer (KYC) norms for retail and institutional investors
    • Increasing Employees’ provident fund and pension funds exposure in the stock market, which in turn would improve liquidity.
    • Liquidity injection in NBFCs: More liquidity injection into the Non-banking financial companies that would help them boost lending activity.
  • The government has taken the suggestions ‘positively’ and has hinted that it would take all possible steps to revive overseas investor interest in the Indian capital markets.
Section : Economics

About Protocol on Inland Water Transit and Trade (PIWTT), Navigable Inland Waterways, IWAI

Headline : India connects Bangladesh to Bhutan, through waterway

Details :

The News:

  • In a first-ever development, Indian waterways is being used to transport cargo between 2 countries i.e. Bhutan and Bangladesh.
  • The inland waterways vessel containing cargo from Bhutan to Bangladesh will move via River Brahmaputra ( NW 2) and the Indo Bangla Protocol Route

Telegram: https://t.me/UpscExpress

News Summary

  • The stone aggregates were transported by trucks from Phuentsholing in Bhutan which is 160 KMs from IWAI’s Dhubri jetty in Asaam.
  • The first ship carrying crushed stones from Bhutan started its journey from Dhubri river port in Assam to Narayanganj in Bangladesh
  • India’s Inland Waterways Authority of India (IWAI), which is responsible for developing and maintaining national waterways, has carried out dredging on Brahmaputra to maintain an assured draft in navigation channel.
  • At least 10 other National Waterways are under development currently.
  • India is increasingly using its rivers to transport cargo which is cheaper than transport on roads.

Significance of the development

  • The exports through Inland Waterways mode will serve as an alternate mode of transportation which will save 30% transportation cost, almost 50 per cent time and more environment friendly
  • It also offers larger shipment size as compared to road, avoiding congestion on land routes.
  • The move will facilitate Bhutan and Bangladesh trade through Brahmaputra as a part of Indo-Bangladesh protocol route.
  • This will help in promoting Inland Waterways in India.
  • It will also help India access the North-East States from Kolkata, Haldia through the inland waterways via Bangladesh.
  • This will also give an impetus to trade and tourism in these countries.

 

About Protocol on Inland Water Transit and Trade (PIWTT)

  • In 1972, India and Bangladesh signed the Protocol on Inland Water Transit and Trade (PIWTT).
  • It is a bilateral protocol connecting the inland waterways of India and Bangladesh for the transportation of goods and keeping their respective waterways navigable, while providing infrastructure facilities.
  • The protocol further states that both countries will mutually decide the proposed expenses; voyage permissions shall be taken at least four days prior to the actual journey; and the vessels shall share equal tonnage.
  • The India-Bangladesh  Protocol  Routes  include  parts  of  rivers  Ganga,  Hooghly, Brahmaputra,  and  Barak,  and  the  Sundarbans

Note: In 2018, India and Bangladesh signed an agreement for inclusion of Dhubriin India and Pangaonin Bangladesh as new Ports of Call in PIWTT.

 

About Navigable Inland Waterways:

  • A stretch of water, not part of the sea, over which craft of a carrying capacity  not  less  than  50  tonnes  can  navigate  when  normally
  • Rivers, lakes, canals, backwaters and reservoirs primarily constitute the source for inland waterways.

National Waterways:

  • National Waterways   means   an   Inland   Waterway   of   India   designated   as   a   National   Waterway by the Government.
  • In order to increase significance and efficiency of inland waterways, government has identified 10 important waterways which being given status of national waterways. Some of the declared waterways are –

About IWAI

  • The Inland Waterways Authority of India (IWAI) came into existence in 1986 for development and regulation of inland waterways for shipping and navigation.
  • The Authority primarily undertakes projects for development and maintenance of Inland Water Transport infrastructure on national waterways through grant received from Ministry of Shipping.
  • The head office of the Authority is at Noida.

 

Section : Economics

Urbanisation key to driving growth engines Editorial 3rd Aug’19 FinancialExpress

Headline : Urbanisation key to driving growth engines Editorial 3rd Aug’19 FinancialExpress

Details :

Development and urbanisation:

  • Development and urbanisation are two sides of the same coin.
  • No society in recent history remained agrarian while adequately providing for its population.
  • Urbanisation aggregates human activity—aggregation leads to specialisation, specialisation to increased productivity. This enables greater availability of goods, delivery of services, increased wages, and job opportunities.
  • Urban areas are engines of growth in any modern economy.

Example of China:

  • China is a shining example of how urbanisation drives economic growth.
  • China rapidly urbanised from 26.4% in 1990 to 59.2% today, with the impact of dramatically improved quality of life and life expectancy.
  • This also has an effect on China’s specialised workforce and productivity improvements—making China a Top 2 economy with nominal GDP of $14.1 trillion.
  • In contrast, India is at $2.7 trillion, moving towards the target of $5 trillion by 2025.

India lagging the world in urbanisation:

  • The world, on average, is at 55.3% urbanisation, whereas India lags at 34% (see graphic).
  • India has been slow to urbanise because of the fixation on being a village-based society.

Leads to inequity:

  • Most planners still look to Gandhiji’s sentiments from 1947 on this topic—‘The future of India lies in its villages’.
  • Over the last 5 decades, complexity has increased, people’s economic needs and aspirations have grown, and it is impossible to supply adequate resources to India’s six lakh villages.
  • Keeping India’s population in villages while being unable to meet their economic needs has resulted in high inequity.

Rural areas with agriculture dependency can only see little progress:

  • Rural employment is mostly in agriculture. 42.7% of India’s workforce in 2016-17 was engaged in the agriculture sector, seeing only a 3.4% growth rate and contributing only 17.3% to the GDP.
  • Meanwhile, 57.3% of the workforce was engaged in industry and services, growing at 5.5% and 7.6%, respectively.
  • The income differential is very high, with the average wages of dependents on agriculture to industry to services being in the ratio 1:3:4 .
  • Left unaddressed, this large group of agricultural dependents will always be limited to a sub-aspirational existence—with increasing distress and perpetual dependence on subsidies from the government.

Leading to urban migration:

  • Lack of opportunities is also accelerating large-scale internal migration towards India’s few urban growth engines—such as Mumbai, Bengaluru, Delhi, Hyderabad, and others.
  • 2011 Census indicates 43,324 uninhabited villages, presumably abandoned due to migration.

But our current urban areas can mostly only accommodate contract labour:

  • Employment is unable to keep up with the inflow.
  • Due to high costs, it is uncompetitive to set up industries in cities.
  • Without industries to absorb the incoming rural population, they are mostly making low wages as contract labour.
  • They can’t keep up with living costs—resulting in a growing urban population with unfavourable living conditions.

Indian urbanisation skewed towards just a few cities and towns:

  • The 2011 census indicates there are 7,933 towns/cities housing 31.16% of the population, with an average population of 47,536.
  • Of these, 465 towns have a population over one lakh and 53 cities, over ten lakh.
  • This means the remaining 7,468 towns must have significantly lesser populations than the 47,536 average.
  • The upcoming 2021 census will inform us of the current situation.

Deficit infra in these urban areas:

  • Large cities are reeling under the strain of overpopulation, with problems like inadequate infrastructure and rocketing living costs.
  • Because of the policymakers’ focus on villages, cities aren’t allocated enough to develop infrastructure to handle their rapidly expanding populations.

Need a systemic plan for urban migration:

  • A compelling solution to this unstable situation is the systematic shift of people from rural to urban areas.
  • Census data must be used to suitably identify 4,000-5,000 smaller towns all over India and develop them to absorb the rural-to-urban shift sustainably.
  • GoI’s Smart Cities initiative has identified 100 cities so far, focusing on roads, solar, water, and control centres.

While expanding to 5,000 towns, certain critical aspects must be incorporated:

  1. Infrastructure and connectivity:
  • From the planning stage, it is essential to prioritise providing infrastructure like roads and airport access, internet connectivity, and other amenities.
  • Not only is state-of-the-art infrastructure crucial for quality of life, it also provides the logistical backbone for a productive industrial environment.
  • Moreover, commissioning large-scale infrastructure development will also boost the construction sector—another means of mass employment.
  • We need strategic investments from both the central and state governments in these towns for parallelised infrastructure development.
  1. Labour-intensive industry (LII) clusters:
  • Creating many LIIs in and around the 5,000 towns is the best way to provide gainful employment to the transitioning population.
  • By focusing on the right type of industries—garments, fabrication, electronics assembly, automobiles, so on—this move will also boost India’s export capabilities.
  • With focused skilling programs, LIIs will offer excellent income opportunities to the incoming population.
  • Even a lower wage than cities will go a long way towards quality of life, especially since living costs are lower in towns.
  • Women, who cannot afford to move long distance from home, can also now find employment near their villages and towns, commute and earn a living.
  • Governments, apart from focusing investment here, must also provide incentives for the private sector to create LIIs.
  1. New sustainable technologies:
  • While urbanisation improves delivery of services, it poses several challenges like congestion, restricted mobility, high waste production, and pollution.
  • India must invest in understanding state-of-the-art technologies and implement them.
  • The newly developed towns will have the advantage of getting sustainable infrastructure integrated from the planning stage itself, including:
    • Renewables like solar panels and wind turbines
    • Planned tree cover to offset urban spread
    • Water treatment facilities based on phytoremediation and other plant-based technologies
    • Integrated recycling
    • EV infrastructure
    • Public transportation with last-mile connectivity
  • Older cities will need careful planning to incorporate new technologies into unwieldy city plans.
  1. Planning for capacity:
  • Indian policymaking has a tiresome tradition of planning projects based on latest available data—usually outdated—like the previous census.
  • By the time projects are completed 5-10 years later, they are operationally overloaded.
  • Instead, it is necessary to plan projects for sewage treatment, airports, roads, water supply, and so on with at least a 20-30-year forecast with provisions for future expansion.
  • Again, China paves the way—many major airports have received the go-ahead to build a third runway and increase seating capacity by forecasting the demand to 2030.

Conclusion:

  • Rapid urbanisation is essential to sustain India’s impressive 10-year growth trajectory and meet PM Modi’s 2025 economic target of $5 trillion.
  • The proposed network of small towns and industry clusters can become India’s engine of growth and provide jobs at scale, thus improving overall economic prosperity.
  • Sustainable urbanisation can be the force multiplier to mobilise India’s potential.

Importance:

GS Paper III: Economy

Section : Editorial Analysis

 Explained: The new debate on defence funding

Headline : Explained: The new debate on defence funding

Details :

In News

  • The Union Cabinet has amended the terms of reference (ToR) of the 15th Finance Commission (FC) to widen their scope.
  • Through the change, the government has requested the FC to look into the possibility of a separate mechanism for the funding of defence and internal security.

 

Finance Commission

  • The Finance Commission is a constitutional body that owes its existence to Article 280 of the Indian Constitution. It has a five-year term.
  • There have been fifteen commissions to date. The most recent (15th FC) was constituted in November 2017 and its recommendations will apply from 2020 to 2025. It is chaired by N. K.Singh, a former member of the Planning Commission.

 

Mandate

  • Its mandate is to determine the distribution of tax revenues between the Centre and the states, and amongst the states themselves.
  • Federal structure: In a federal structure such as India’s, powers and responsibilities are divided between the Centre and the states. While the Union collects a majority of the tax revenue, states have a greater responsibility for the delivery of public goods.
  • Thus, FCs aim to do two types of adjustments.
    • Vertical imbalance: Address the vertical imbalance between the taxation powers of the Centre and the expenditure priorities of the states.
    • Horizontal imbalance: Allay the horizontal imbalances between the states themselves with the objective of ensuring balanced regional development.
  • In the past, FCs have also dwelt on the distribution of central grants to states, as well as the flow of resources to the third tier of governance — the panchayats and the municipalities.

 

Members

  • The Chairman is selected from people with experience of public affairs.
  • The other four members should be
    • A judge of high court or one qualified to be appointed as one.
    • A person who has specialised knowledge of finance and accounts of the government
    • A person who has wide experience in financial matters and in administration.
    • A person who has special knowledge of Economics

 

  • Recommendations: The Commission submits its report to the President. He/She lays it before both the Houses of the Parliament, along with an explanatory memorandum as to the actions taken on its recommendations. The recommendations are only advisory in nature and not binding on the government.

 

Role of Terms of Reference

  • One of the reasons why FCs are reconstituted every five years is to ensure that they can take into account the changing dynamics of the political and fiscal landscape.
  • Even though the ToRs are essentially in the nature of guidelines to the FC, yet a change in ToRs over the years has reflected the changing needs of India’s overall development.

 

Current updation of ToR

  • The latest addition to the 15th FC’s ToR calls for the FC to examine the possibility of allocation of adequate, secure and non-lapsable funds for defence and internal security of India.
  • In other words, the Centre has requested the FC to examine whether a separate mechanism for funding of defence and internal security ought to be set up, and how such a mechanism could be operationalised.

 

Seventh Schedule

  • The Seventh Schedule of the Constitution lists the separate (Union List and State List) and joint (Concurrent List) responsibilities of the Centre and the states.
  • Defence is in the Union List.

 

Why is the Centre resorting to this move?

  • The Centre’s request to the FC for greater resources is rooted in its limited ability to ramp up expenditure on items in the Union list due to the limited fiscal space at its disposal.
  • The Centre’s expenditure on items in the State and Concurrent Lists has been increasing over the years.
  • Research has shown that the share of the Centre’s revenue expenditure on items in the State List has broadly grown over the years; it went up from 13.4 per cent in 2002-03 to 23.1 per cent in 2008-09, before declining to16.2 per cent in 2015-16.
  • Similarly, the Centre spent 16.4 per cent of its revenue expenditure on Concurrent List subjects in 2015-16, up from 11.8 per cent in 2002-03.
  • This increase in spending by the Centre on items in the State and the Concurrent Lists has led to a reduction in its spending on items in the Union List.

 

Are states being squeezed out of funding?

  • The added fiscal pressures of the Centre and the requirement of having to share tax revenues with states has left the Centre in a peculiar position.
  • To shore up its revenues, the Centre has, over the years, begun to rely more on cesses and surcharges.
  • In the recent Union Budget, too, it increased the special additional excise duty and road and infrastructure cess on petrol and diesel by one rupee each.
  • But the revenue from cesses and surcharges is not part of the divisible tax pool that is shared with the states. It is kept by the Centre. This leads to the states receiving a lower share of the Centre’s gross tax revenue collections.

 

Impact of the move

  • With capital spending on defence continuing to fall short of requirements, it is difficult to contest the basic premise that spending on defence needs to be bolstered.
  • However, sequestering funds for defence from the Centre’s gross tax revenues means a reduction in the overall tax pool that is shared with states.
  • This is likely to be protested by the states, several of whom are already arguing for an increase in their share in taxes collected to 50 per cent from the current 42 per cent.
Section : Economics

About: Purchasing Manager Index (PMI)

About: Purchasing Manager Index (PMI)

  • The Nikkei India Manufacturing PMI, compiled by IHS Markit, is based on data compiled from monthly survey responses by purchasing managers in more than 400 manufacturing companies, on various factors that represent demand conditions.
    • Note: It is also sometime referred to as IHS Markit India Manufacturing PMI.
  • PMI measures activity at the purchasing or input stage. It is very different from industrial production which is indicative of actual production. For example, the Index of Industrial Production (IIP) measures output.
  • The PMI is constructed separately for manufacturing and services sector, but the manufacturing sector holds more importance.
  • PMI does not capture informal sector activity.

Significance:

  • The Index is considered as an indicator of the economic health and investor sentiment about the manufacturing sector.
  • PMI is also the earliest indicator of manufacturing activity and economic health, as the manufacturing PMI report for any given month comes out without any delay – either on the last day of that month or on the first day of the next month.

How it is captured:

  • The PMI is derived from survey responses to a series of qualitative questions from purchasing managers in a panel of around 400 manufacturers.
  • PMI is composite index based on five individual sub-indices:
    • New orders
    • Output
    • Employment
    • Suppliers’ delivery times
    • Stock of items purchased

Reading the PMI:

  • A figure above 50 denotes expansion in business activity and anything below 50 denotes contraction.
  • Higher is the difference from this mid-point, greater is the expansion or contraction.
  • The rate of expansion can also be judged by comparing the PMI with that of the previous month data. If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.

The key features of Mumbai’s undersea tunnel, the first in India

The key features of Mumbai’s undersea tunnel, the first in India

Q. What is the news?

By 2023, Mumbai will be home to India’s first undersea tunnel, which will be part of the city’s Coastal Road project.

Q. Where are Mumbai’s undersea tunnels being built?

  • The twin tunnels, which have a length of 2.07 km of which a kilometre will be under the sea, are being built as part of the Mumbai Coastal Road Project, a 10.58-km stretch starting from the Marine Drive promenade to the Worli-end of the Bandra-Worli Sea Link. The road, which will comprise of land-filled roads on areas reclaimed from the sea, bridges and tunnels, is part of a plan to link South Mumbai with North with a toll-free freeway that is expected to ease up traffic in one of the most congested cities in the world. It is the first undersea road tunnel in the country which will pass through Arabian Sea near Girgaon Chowpatty. It will start from Priyadarshani Park and end at Netaji Subhash Road in Marine Drive.

Q. How deep under the sea will these tunnels be built?

  • Unlike the big undersea tunnels in the world, include the Channel Tunnel that connects England and France, the twin tunnels in Mumbai are being built at a relatively shallow depth. Mumbai’s undersea tunnel will be 20 metres below the seabed. In comparison, the Channel Tunnel at its deepest point is 75 metres below the sea bed. The Seikan Tunnel in Japan lies over 100 metres below the seabed. The Mumbai tunnel is also being built very close to the coast, where the depth of the sea is not more than 4 to 5 metres.

Q. How are the undersea tunnels being dug?

  • A 2,800 tonne tunnel boring machine, the biggest of its kind in India, has been deployed to dig these tunnels. An 18 metre shaft has been dug at Priyadarshini Park to lower the machine below the ground from where it will start boring through the strata. The machine, which is operated by a team of 30 people, has a diameter of 12.19 metres which will bore through solid rock.
  • Tunnel boring machines are used as an alternative to drilling and blasting methods in rock and conventional “hand mining”. TBMs have the advantage of limiting the disturbance to the surrounding ground and producing a smooth tunnel wall. The TBMs consist of the rotating cutting wheel which chips away at the surface. While the TBM’s cutting wheel rotates, a bentonite slurry consisting of specific clay and water mixture is sprayed with force at the mouth of the bored segment. The slurry has a strong ability to absorb water and prevents the part that has been dug from caving in. The TBM will dig one segment of the twin tunnels at a time.

Q. What are the major challenges of building the tunnel?

  • The fact that parts of it are being built under sea makes the construction a significant challenge. The two primary issues of concern are the seepage of sea water into the tunnel and the fear of the tunnel caving in due to the pressure exerted by sea water. The fact that the tunnel is very close to the coast and not in mid-sea has made things easier for engineers who say that all safety measures are being used while constructing these tunnels to ensure that the stability of the structure is maintained.

Q. What safety measures are being set in place for commuters in these twin tunnels?

  • Each of the two undersea tunnels will have two lanes each, 3-3.2 meter wide, with one emergency lane. While the two tunnels are separate, 11 cross sections tunnels are being built to help connect the twin tunnels with each other. These tunnels will be used in case of an emergency where people from one tunnel can be evacuated into the other through the cross section connections.
  • Each of the two undersea tunnels will have two lanes each, 3-3.2 meter wide, with one emergency lane.
  • The drainage system is also designed to cater to seepages. There are slotted drains along the carriageway with fire traps at every 50 metre intervals to collect any seepages, discharge from fire hydrants, and oil spillage from vehicles. The waste water is then conveyed to a shaft tank in the cross passage. The waste water will be treated by an oil separator, and the cleansed water will be discharged to the waste water storage tank by submersible pumps in the shaft tank.

Q. How will temperature be regulated inside the tunnel?

  • The tunnel is basically a confined space and requires ventilation to ensure a tenable environment for users. The fact that these tunnels are under the sea makes the dispensation of carbon monoxide which is emitted by cars a difficult proposition. High levels of carbon monoxide inside the tunl could be hazardous for commuters. To tide over the problem of flushing out these hazardous gases from inside the tunnel system, a first of its kind ventilation system called Saccardo will be installed inside the tunnel. The system monitors the emission levels inside the tunnel and shoots an air jet through large ventilation fans to drive out the fumes in the desired direction.

Q. What is the cost of building these undersea tunnels, and when will it be completed?

  • The total cost of the stretch from Priyadarshini Park to Princess Street Flyover at Marine Drive of coastal road, which mainly includes construction of tunnels and other allied works, is Rs 2,798.44 crore. Each tunnel will take about 8 to 9 months to finish. The BMC said that work for both the tunnels will be completed in about two years. Drilling for south bound traffic tunnel has started and after completion, the TBM will be removed near Marine Drive and then transported back to Priyadarshini Park for drilling second time for north bound traffic.

Effects of Globalization on Indian Culture and Society

Effects of Globalization on Indian Culture

Globalisation has affected what we eat and the way we prepare food (Mcdonaldization), what we wear , purchase etc( Walmartization).

There is trend toward homogenization of culture with similar food habits, dressing pattern, music, news , TV programs, movies etc. However, there is also increasing tendency toward Glocalization of Culture.

Glocalization refers to mixing of Global with Local. Eg Foreign TV channels like Star, Sony , Cartoon Network use Indian languages.

Other Effects:-

1. Development of Hybrid Culture– Due to increase exposure to different cultures, there emerge a 3rd culture or hybrid culture. It accept the change and preserve the tradition in social and cultural life.

2. Language– Globalization give rise to increased use of English with people becoming more bilingual and multilingual than before. On the other hand, over emphasis on English leads to decline and even extinction of various language. Eg BO

3. Religion– Globalization leads to changes in the religion and practices. Now, secular aspect of religion like honesty, non violence, brotherhood are promoted. There is also increasing commodification of various religious practices with rise of sects and cults.

4. Festivals– There is general trend toward decline in ritual aspect of culture and growth of secular festivals. Eg Father’s day.

Effects of Globalization on Indian Society

1. Marriage– With Globalization, there is increasing trend toward civil marriage over ritual marriage, love marriage over arranged marriage. Inter caste and inter religious marriages are also increasing.

2. Family– Globalization has increased the pace of transformation of families from Joint families to either Nuclear families or Extended families. Due to declining Joint family system, Elderly population suffers from isolation, powerlessness and depression.

3. Education– Globalization catalyses the rate of literacy. It also increases investment in education and global education system. However there is more and more commercialization of education.

National Agriculture Market: NAM

National Agriculture Market 

PM Modi recently launched an electronic mandi to help farmers sell their produce online and do away with the problems many farmers face in agricultural markets. National Agriculture Market (NAM) has been incorporated by the Department of Agriculture & Cooperation.

  • This e-platform aims to provide more options to farmers to sell their produce and is part of implementation of the roadmap for doubling income of the farmers by 2022.
  • In July last year, the Cabinet had approved setting up of an online national agriculture market with a budget of Rs 200 crore.

Key facts:

  • The purpose behind NAM is the creation of a common national market for agricultural commodities through an e-platform network.
  • National agricultural products market platform will integrate 585 wholesale markets across India under an online platform.
  • NAM will ensure farmers get competitive returns and consumers get stable prices and steady availability.
  • It was implemented in 3 phases covering 250, 200 and 135 mandis during 2015-16, 2016-17 and 2017-18 respectively.
  • A budgetary provision of Rs.200 crores had been made to be spent over the next three years (2015-16 to 2017-18).

National Agriculture Market (NAM) was launched on the occasion of 125 birth anniversary of BR Ambedkar.

Paramparagat Krishi Vikas Yojana (PVKY)

Organic Farming : – Paramparagat Krishi Vikas Yojana (PVKY):

  • It is one of the schemes under NMSA (National Mission for Sustainable Agriculture) to promote organic farming.
  • Under PKVY, Organic farming is promoted through cluster approach and local quality assurance systems.
  • It is proposed to develop 10,000 clusters with a size of 20 hectare so as to increase the area 2 lakh hectare in 3 years.
  • The assistance under the scheme is under different components such as: Mobilization of farmers, training, quality control, soil sample analysis, conversion practice to transit from current practices to organic farming, Custom Hiring Centres (CHCs) to hire agricultural implements, Labeling and Packaging assistance & Transport assistance; Marketing through organic fairs.

(Source: Annual Report, Ministry of Agriculture & Farmers’ Welfare)

Revolutions in Economy

  • Black Revolution – Petroleum Production
  • Blue Revolution – Fish Production
  • Brown Revolution – Leather/non-conventional(India)/Cocoa production
  • Golden Fibre Revolution – Jute Production
  • Golden Revolution – Fruits/Overall Horticulture development/Honey Production
  • Green Revolution – Food grains
  • Grey Revolution – Fertilizer
  • Pink Revolution – Meat Production – some also refer it to prawns/onion/pharmaceuticals production
  • Round Revolution – Potato
  • Silver Fiber Revolution – Cotton
  • Silver Revolution – Egg/Poultry Production
  • White Revolution (In India: Operation Flood) – Milk/Dairy production
  • Yellow Revolution – Oil Seeds production