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Distribution: yearly

  • Setting agenda for G-12

    Recently, there was a call for expansion of the membership of the G-7 by the U.S. President. But the expanded group should not be seen as an anti-China gang-up. Disciplining and not isolating China is what most of the members of the group would want. And to do so, this new group needs to have new agenda. This article discusses the items that must form the part of the new agenda.

    Evolution of the G-7

    • When it started in 1975—with six members, Canada joining a year later—it represented about 70% of the world economy.
    • And it was a cosy club for tackling issues such as the response to oil shocks.
    • Now it accounts for about 40% of global gdp.
    • Since the global financial crisis of 2007-09 it has sometimes been overshadowed by the broader g20.
    • The G-7 became the G-8 in 1997 when Russia was invited to join.
    • In 2014, Russia was debarred after it took over Crimea.

    Call for expansion of the membership

    • It was the French who first flew the kite of membership expansion.
    • France had invited heads of government of several “emerging economies” for a meeting of the group at Évian-les-Bains, France, in June 2003. 
    • After 2003, G-8 host countries began organising a meeting on the sidelines of their summits with a select group of five or six developing countries.
    • India and China were invited to all those summits.
    • Now, President Trump has, however, gone a step further.
    • Rather than invite “guests” to a G-7 summit, he has suggested expanding the G-7 to a G-10 or G-11.
    • Trump has come up with an interesting list of new members — Australia, India, South Korea and, possibly, Russia.
    • Inclusion of Russia: Trump’s pragmatism in including Russia should be welcomed.
    • The advantage of getting Russia in is that the group would not be viewed merely as an anti-China gang-up but, in fact, as a club of “free market democracies”.
    • The group could easily be made the G-12 with the inclusion of Indonesia — one of the few democratic nations in the Islamic world.

    Discipline China, not isolate it

    • Trump’s motivation in expanding the G-7 to include India and Russia while keeping China out is transparent.
    • If keeping China out was not the intention, the G-7 could easily have dissolved themselves and revitalised the presently inert G-20.
    • There are, of course, good reasons why Xi Jinping’s China requires to be put on notice for its various acts of omission and commission and disrespect for international law.
    • However, disciplining China is one thing, isolating it quite another.
    • If the new group is viewed as yet another arrow in the China containment quiver it would place India and most other members of the group in a spot.
    • Everyone wants China disciplined, few would like to be seen seeking its isolation.
    • Asia needs a law-abiding China, not a sullen China.
    • Japan and Australia, have serious concerns about China’s behaviour.
    • But they may not like the new group to be viewed purely as an anti-China gang-up.
    • That may well be the case with South Korea too.
    • Indeed, even India should tread cautiously.
    • India has more issues with China than most others in the group, spanning across economic and national security issues and yet it should seek a disciplined China, not an isolated one.

    So, what should be on the agenda of the new group?

    • The proposed new group should define its agenda in terms that would encourage China to return to the pre-Xi era of global good behaviour.
    • The G-7 came into being in the mid-1970s against the background of shocks to the global financial and energy markets.
    • The G-12 would come into being against the background of a global economic crisis and the disruption to global trade caused both by protectionism and a pandemic.
    • The two items on the next summit agenda would have to be the global response to the COVID-19 pandemic, the rising tide of protectionism and mercantilism and the global economic slowdown.
    • The summit will have to come forward with some international dos and don’ts to deal with the challenge posed by these disruptions.

    New rules should apply to both the US and China

    • These new rules of international conduct would have to apply to both China and the US.
    • The G-12— have a shared interest in ensuring that both China and the US respect international law and desist from unilateralism in dealing with neighbours and global challenges.

    Widening the agenda

    • To be able to alter China’s behaviour without isolating it, the G-12 will have to widen their agenda.
    • Widening involves going beyond the purely economic issues that the G-7 originally focused on, and include climate change, health care and human rights.

    What should the “free market democracies” mean

    • In identifying themselves as “free market democracies” the G-12 must issue a new charter of respect for human rights, adherence to international law and multilateralism in trade and security.
    • This is easier said than done.
    • President Trump will have to re-assure the group’s members that he has their combined interests at heart in proposing a new group.
    • And he also has to show that he has an imagination beyond just an “America First” policy.
    • Even as the world is increasingly wary of an assertive China and of Xi Jinping’s China Dream and his version of a “China First” policy, it is also wary of Trump’s unilateralism on many fronts.

    What should the invitee nations consider before joining the group?

    • Many countries share Trump’s displeasure with China for its manipulation of the World Health Organisation.
    • But many of them are equally unhappy with the manner in which the Trump administration has treated the World Trade Organisation.
    • A G-12 cannot ignore such partisan behaviour by either the US or China.
    • If Trump does issue an invitation to the three or four new members to join the new group, they should seek clarity on the terms of membership.
    • Russia’s experience, of being invited and then disinvited and now being considered for being re-invited should be a salutary message to all others invitees.

    Consider the question- “The expanded new G-12 with India as its member, should also needs new agenda with its focus beyond China. Comment.”

    Conclusion

    As the world’s largest free market democracy India deserves to be a member of not just a G-12 but of even a new G-7. India’s political and economic credentials are certainly stronger than those of Canada, Britain and Italy.

  • Malabar Naval Exercise to include Australia

    India is prepared to expand the Malabar trilateral naval exercise involving India, the U.S. and Japan, to permanently include Australia.

    Go through the list for once. UPSC may ask a match the pair type question asking exercise name and countries involved.

    [Prelims Spotlight] Defence Exercises

    About Ex. Malabar

    • Exercise Malabar is a trilateral naval exercise involving the United States, Japan and India as permanent partners.
    • Originally begun in 1992 as a bilateral exercise between India and the United States, Japan became a permanent partner in 2015.
    • Past non-permanent participants are Australia and Singapore.
    • The annual Malabar series began in 1992 and includes diverse activities, ranging from fighter combat operations from aircraft carriers through Maritime Interdiction Operations Exercises.

    Significance of Australia’s inclusion

    • Earlier, India had concerns that it would give the appearance of a “quadrilateral military alliance” aimed at China.
    • Now both look forward to the cooperation in the ‘Indo-Pacific’ and the strengthening of defence ties.
    • This has led to a convergence of mutual interest in many areas for a better understanding of regional and global issues.
    • Both are expected to conclude the long-pending Mutual Logistics Support Agreement (MLSA) as part of measures to elevate the strategic partnership.

  • The Urban Learning Internship Program (TULIP)

    The govt. has launched the TULIP program for providing internship opportunities to fresh Graduates in all ULBs & Smart Cities.

    Possible prelims question:

    Q. The TULIP program recently seen in news is related to: HRD/Floriculture/Urban Livelihood etc.

    TULIP

    • TULIP is a portal jointly developed by the Ministry of HRD, Ministry of Housing & Urban Affairs, and All India Council for Technical Education (AICTE).
    • It will help reap the benefits of India’s demographic dividend as it is poised to have the largest working-age population in the world in the coming years.
    • It would help enhance the value-to-market of India’s graduates and help create a potential talent pool in diverse fields like urban planning, transport engineering, environment, municipal finance etc.
    • It will further the Government’s endeavours to boost community partnership and government- academia-industry-civil society linkages.
    • This launch is also an important stepping stone for the fulfillment of MHRD and AICTE’s goal of 1 crore successful internships by the year 2025.

    Why need such a program?

    • India has a substantial pool of technical graduates for whom exposure to real-world project implementation and planning is essential for professional development.
    • General education may not reflect the depth of productive knowledge present in society.
    • Instead of approaching education as ‘doing by learning,’ our societies need to reimagine education as ‘learning by doing.’

  • Dilemma for Delhi in Ladakh standoff

    Though the rest of the world is preoccupied with Covid pandemic, China is busy in raising tension over border issues with its neighbour-India. What explains such actions by China? And timing selected by China has also puzzled many. India, on its part, faces a dilemma. This article dissects the various issues related to the standoff and explains the options available with India to deal with the Chinese intimidation.

    Why the latest transgression by PLA is unprecedented?

    • There are around 400 transgressions/faceoffs each year on an average along the LAC.
    • But the recent spate of territorial transgressions by the People’s Liberation Army (PLA) is unprecedented in its scope and manner.
    • Even as independent accounts point out that Chinese troops are yet to withdraw from the transgressed territories and restore status quo ante.
    • Those territories are traditionally considered by both sides to be on the Indian side of the LAC.
    • Chinese officials have gone ahead and stated that the “Situation in China-India border is overall stable & controllable”.

    What this move by China signals?

    • The Indian government is left with two basic choices: 1) accept territorial loss as a fait accompli or 2)  force or negotiate a reversal to status quo ante, unless of course the PLA unilaterally withdraws.
    • Either way, China’s growing territorial aggression on the LAC signals the end of Beijing’s peaceful rise and its traditional desire to maintain regional status quo with India.
    • China under its President, Xi Jinping, unequivocally seeks to demonstrate that it is the preponderant power in the region. 

    Let’s analyse the aggression

    • While the timing could be explained by the global political distraction caused by COVID-19.
    • And also the international pressure on China (including by India) to come clean on the origins of the novel coronavirus could have played the role.
    • But the proximate causes could be several. Consider the following-

    1. Statement by India on Aksai Chin

    • For one, New Delhi’s terse statements about Aksai Chin following the Jammu and Kashmir reorganisation in August last year had not gone down well with Beijing.
    • While not many in India believe that New Delhi was serious about getting back Aksai Chin from Chinese control, Beijing may have viewed it as India upping the ante.
    • More pertinently, in a clear departure from the past, New Delhi has been carrying out the construction of infrastructural projects along the LAC — a long overdue activity — which is something that seems to have made China uneasy.

    2. Broader context of long-term geopolitical world view

    • The Chinese angle to the J&K conundrum deserves more attention here.
    • The aggression must also be viewed in the broader context of a long-term geopolitical world view China has for the region. Consider the following in this regard-
    • 1) China’s China–Pakistan Economic Corridor (CPEC) connectivity to Pakistan through the Karakoram and New Delhi’s criticism of it.
    • 2) The reported presence of PLA troops in Pakistan Occupied Kashmir (PoK).
    • 3) India’s new-found activism on Aksai Chin.
    • 4) The PLA’s incursions into areas in eastern Ladakh.

    3. Strategic goals

    • It is equally important to appreciate the larger Chinese strategic calculations behind its recent spate of aggressions.
    • Having given up its traditional slogan of ‘peaceful rise’, China, under Mr. Xi, is beginning to assert itself as the next superpower.
    • Over the years, Beijing has perhaps realised that India is not keen on toeing the Chinese line in the region.
    • So this is Beijing sending a message to New Delhi to fall in line.
    • A message that will not go unnoticed in the smaller capitals around China — from Colombo to Kathmandu to Hanoi.

    4. Political message

    • Given that China is currently engaged in what many analysts are describing as a new cold war with the United States, in the middle of a crackdown in Hong Kong along with fighting COVID-19 at home, one would not have expected the Chinese leadership to open another front.
    • And yet, by opening a limited military front with India on the LAC, China is signalling the U.S. that it can handle pressure.
    •  And telling India that it has the political and military wherewithal to put pressure on New Delhi notwithstanding its other preoccupations.

    Why limited scope confrontation is cost-effective and preferred option by China?

    • China’s limited scope military expeditions on the long-contested border is cost effective for the PLA.
    • This is because the ever-growing conventional military superiority that it enjoys with India.
    • Moreover, because limited fights or smaller land grabs may not provoke an all-out confrontation or nuclear use.
    • The side with conventional superiority and more border infrastructure would likely carry the day.

    India’s China dilemma

    • Picking a direct fight with India which might lead to an undesirable military escalation with India does not suit Beijing’s interests.
    • But carrying out minor military expeditions with the objective of inflicting small-scale military defeats on India is precisely what would suit the Chinese political and military leadership.
    • They are cost effective, less escalatory, and the message gets conveyed.
    • More so, India’s military response would depend a great deal on how far the regime in New Delhi is willing to acknowledge such territorial losses due to domestic political constraints.
    • If New Delhi acknowledges loss of territory, it would have to regain it, but doing so vis-à-vis a conventionally superior power would not be easy.
    • Put differently, growing conventional imbalance and domestic political calculations could prompt New Delhi to overlook minor territorial losses on the LAC.
    • But let us be clear: the more New Delhi overlooks them, the more Beijing would be tempted to repeat them.
    • These considerations lie at the heart of India’s China dilemma.

    How India could respond?

    • Yet, there are limits to China’s LAC adventurism.
    • 1) There are several places along the several thousand kilometre long LAC where the PLA is militarily weak, the Indian Army has the upper hand.
    • And, therefore, a tit-for-tat military campaign could be undertaken by New Delhi.
    • 2)  While China enjoys continental superiority over India, maritime domain is China’s weak spot, in particular Beijing’s commercial and energy interest to which the maritime space is crucial.
    • 3) Finally, and most importantly, would Beijing want to seriously damage the close to $100 billion trade with India with its military adventurism on the LAC?

    Way forward

    • In any case, for India, the age of pussyfooting around Chinese intimidation strategies is over.
    • The time has come to checkmate Beijing’s military aggression even as we maintain a robust economic relationship with our eastern neighbour.
    • It is also a reminder for us to get more serious about finalising a border agreement with China.
    • The bigger the power differential between India and China, the more concessions Beijing would demand from New Delhi to settle the dispute.

    Consider the question-“There have been growing instances of PLA aggression on India-China border. Examine the multiple objectives China’s actions seek to achieve. What are the options available with India to deal with situation?

    Conclusion

    There is little doubt that China is our neighbour and that we have to live next to the larger and more powerful China. However, India should not accept Beijing’s attempts at land grabs, or military intimidation. That China is a rising superpower located next door to us is a reality, but how we deal with that reality is a choice we must make as a nation.

  • What is Inner Line Permit (ILP) and what is its CAA context?

    The Supreme Court has declined to stay the operation of a Presidential order which petitioners claimed deprived Assam of the powers to implement the Inner Line system in its districts and limit the applicability of the Citizenship (Amendment) Act.

    Try this:

    Q. The NRC fails to resolve the illegal immigration issue in Assam. Critically Analyse.

    In light of the ongoing pandemic, the fumes of protests over NRC/CAA have somewhat vanished. However, one must not forget the fundamental linkages between the NPR/NRC/CAA/ILP etc.

    The Inner Line

    • A concept drawn by colonial rulers, the Inner Line separated the tribal-populated hill areas in the Northeast from the plains.
    • To enter and stay for any period in these areas, Indian citizens from other areas need an Inner Line Permit (ILP).
    • Arunachal Pradesh, Nagaland and Mizoram are protected by the Inner Line, and lately, Manipur was added.
    • The concept originates from the Bengal Eastern Frontier Regulation Act (BEFR), 1873.

    Its inception

    • The policy of exclusion first came about as a response to the reckless expansion of British entrepreneurs into new lands which threatened British political relations with the hill tribes.
    • The BEFR prohibits an outsider’s — “British subject or foreign citizen” — entry into the are beyond the Inner Line without a pass and his purchase of land there.
    • On the other hand, the Inner Line also protects the commercial interests of the British from the tribal communities.
    • After Independence, the Indian government replaced “British subjects” with “Citizen of India”.
    • Today, the main aim of the ILP system is to prevent settlement of other Indian nationals in the States where the ILP regime is prevalent, in order to protect the indigenous/tribal population.

    How is it connected to the Citizenship Amendment Act?

    • The CAA, which relaxes eligibility criteria for certain categories of migrants from three countries seeking Indian citizenship, exempts certain categories of areas, including those protected by the Inner Line system.
    • Amid protests against the Act, the Adaptation of Laws (Amendment) Order, 2019, issued by the President, amended the BEFR, 1873, extending it to Manipur and parts of Nagaland that were not earlier protected by ILP.

    What is the petition now?

    • The petition was against the Presidential order. It said the order took away the Assam government’s permissive power to implement the ILP.
    • This could have made the CAA inapplicable in these areas, the petition said.
    • The CAA has given fresh legs to the demand.

  • What is Superconductivity?

    On a larger scale, electric grids, such as high power lines, lose over 5 per cent of their energy in the process of transmission.

    In India, we often get to hear about the transmission losses in DISCOMS. Such losses can be zeroed with the application of superconducting cables (which is practically impossible unless we find a normal working one). The phenomena, superconductivity, however is not new to us, UPSC may end up asking some tricky statements in the prelims regarding it.

    Heat losses

    Waste heat is all around you. On a small scale, if your phone or laptop feels warm, that’s because some of the energy powering the device is being transformed into unwanted heat.

    Where does this wasted heat come from?

    • These elementary particles of an atom move around and interact with other electrons and atoms.
    • Because they have an electric charge, as they move through a material — like metals, which can easily conduct electricity — they scatter off other atoms and generate heat.

    Understanding Superconductivity

    • A superconductor is a material, such as a pure metal like aluminium or lead, that when cooled to ultra-low temperatures allows electricity to move through it with absolutely zero resistance.
    • Kamerlingh Onnes was the first scientist who figured out exactly how superconductor works in 1911.
    • Simply put, superconductivity occurs when two electrons bind together at low temperatures.
    • They form the building block of superconductors, the Cooper pair.
    • This holds true even for a potential superconductor like lead when it is above a certain temperature.

    What are Superconductors?

    • Superconductors are materials that address this problem by allowing energy to flow efficiently through them without generating unwanted heat.
    • They have great potential and many cost-effective applications.
    • They operate magnetically levitated trains, generate magnetic fields for MRI machines and recently have been used to build quantum computers, though a fully operating one does not yet exist.

    Issues with superconductors

    • They have an essential problem when it comes to other practical applications: They operate at ultra-low temperatures.
    • There are no room-temperature superconductors. That “room-temperature” part is what scientists have been working on for more than a century.
    • The amount of energy needed to cool a material down to its superconducting state is too expensive for daily applications.

    Future scope

    • In a dramatic turn of events, a new kind of superconductor material was discovered in 1987 at IBM in Zurich, Switzerland.
    • The material was a kind of ceramic. These new ceramic superconductors were made of copper and oxygen mixed with other elements such as lanthanum, barium and bismuth.
    • They contradicted everything physicists thought they knew about making superconductors.
    • Since then, curiosity regarding the superconductors has been ever increasing.

  • Extreme weather events in India

    Nineteen extreme weather events in 2019 claimed 1,357 lives, with heavy rain and flood accounting for 63 per cent of these deaths, revealed Down To Earth’s State of India’s Environment 2020 report.

    Extreme weather events:

    • Extreme weather events are out of the ordinary, unexpected, unusual climatic events which wreak havoc and disrupt everyday life.
    • Over the years, the frequency of extreme weather events has increased due to global warming and climate change.
    • Extreme weather events include hailstorm, heatwaves, dust storm, cloud bursts etc.

    Try this question:

    Q. Extreme weather events have been the biggest catastrophe in India this year. Discuss.

    Data from this newscard can be used to substantiate your mains answer with relevant data.

    Loss of lives

    • The most lives were lost in Bihar, with people dying from floods and heavy rain (306), thunderstorms (71) and heatwave (292) between May and October.
    • In Maharashtra, 136 people died from floods and heavy rain, 51 died from lightning and 44 died from the heatwave between June and September.
    • There was a 69 per cent increase in the number of heatwave days between 2013 and 2019 as well, the report said.
    • Over 5,300 people died from heatwaves in the past seven years.
    • Cold waves increased by 69 per cent within a year, between 2017 and 2018, with the latter year reported having an extremely cold winter, with the most casualties (279) in the past seven years.

    Risks of Extreme weather events in India

    • Climate change related risks will increasingly affect the Indian subcontinent, including via sea level rise, cyclonic activity and changes in temperature and precipitation patterns.
    • Rising sea levels would submerge low-lying islands and coastal lands and contaminate coastal freshwater reserves.Climate change will increase the risks of death, injury and ill-health and disrupt livelihoods in low-lying coastal zones due to cyclones and coastal and inland flooding, storm surges and sea-level rise.
    • Melting Himalayan glaciers would reduce downstream water supply in many of India’s important rivers in the dry season, impacting millions
    • A warmer atmosphere will spread tropical diseases and pests to new areas.
    • Increased river, coastal and urban floods could cause considerable loss of life and widespread damage to property, infrastructure and settlements.
    • Erratic rainfall in parts of India could lower rice yields and lead to higher food prices and living costs, while increased drought related water and food shortages linked to rising and extreme temperatures may increase malnutrition and worsen rural poverty. Over 55% of Indian rural households depend on agriculture for a living and, with fisheries and forestry,

    Systems in place to tackle extreme weather events are as follows:

    1.Meteorological predictions

    2.Contingency fund

    3.Early warning to citizens

    4.NDMA has issued an action plan for Prevention and Management of Heat Waves.

    5.Remote sensing satellites.

    Problems with accurate meteorological predictions are as follows:

    1.Meteorological predictions are considered for broad geographical areas and timeframes. It is not yet possible to predict a thunderstorm or lightning at a village or a part of a city.

    2.The exact times these events will hit, too, cannot be predicted.

    3.Alerts and warnings are in the nature of a general advisory, telling the people to expect these events, and to take precautions

    Steps taken by the State government are as follows:

    1.Rajasthan:

    • storm has been included in the category of natural disasters for the first time in the State and funds to the tune of ₹2.55 crore have been sanctioned to the affected districts.
    • The next of kin of each deceased in Rajasthan will get financial assistance of ₹4 lakh from the Chief Minister’s Relief Fund.
    • Power discoms have launched action on a war-footing to restore electricity supply in the affected areas, while the administration has ordered a survey of damaged properties.
    • In Dholpur district, relief camps have been opened for the villagers whose houses were destroyed.

    2.Uttar Pradesh:

    • The Uttar Pradesh Chief Minister has announced a compensation of up to Rs 400,000 to the families of the deceased and Rs 50,000 for each of the injured in the heavy rainfall and storm across the state.
    • contingency funds have been released to the respective district administration.

  • SWADES (Skilled Workers Arrival Database for Employment Support) Initiative

    The Union Govt. has launched a new initiative SWADES (Skilled Workers Arrival Database for Employment Support) to conduct a skill mapping exercise of the returning citizens under the Vande Bharat Mission.

    In the first go, one may get reminded of the SWADESH Darshan Scheme… Please beware! This SWADES initiative has nothing to do with the tourism sector!

    SWADES Initiative

    • SWADES is a joint initiative of the Ministry of Skill Development & Entrepreneurship (MSDE), the Ministry of Civil Aviation and the Ministry of External Affairs.
    • MSDE’s implementation arm National Skill Development Corporation (NSDC) is supporting the implementation of the project.
    • It aims to create a database of qualified citizens based on their skillsets and experience to tap into and fulfil the demand of Indian and foreign companies.
    • The collected information will be shared with the companies for suitable placement opportunities in the country.
    • The returning citizens are required to fill up an online SWADES Skills Card.
    • The card will facilitate a strategic framework to provide the returning citizens with suitable employment opportunities through discussions with key stakeholders including.

    Data on the returnees

    • Amongst the data gathered so far, the top countries from where the citizens are returning are UAE, Oman, Qatar, Kuwait and Saudi Arabia.
    • As per the skill mapping, these citizens had been primarily employed in sectors such as oil & gas, construction, tourism & hospitality, Automotive and Aviation.
    • The data also suggests that the States which have shown highest returning labour are Kerala, Tamil Nadu, Maharashtra, Karnataka and Telangana.

  • Global Economic Prospects (GEP) 2020 report by World Bank

    The World Bank has released its Global Economic Prospects (GEP) 2020 report.

    Try this PYQ from CSP 2019

    Q.) The Global Competitiveness Report is published by the-

    (a) International Monetary Fund

    (b) United Nations Conference on Trade and Development

    (c) World Economic Forum

    (d) World Bank

    Global Economic Prospects (GEP)

    • GEP is a World Bank Group flagship report that examines global economic developments and prospects, with a special focus on emerging market and developing economies.
    • It is issued twice a year, in January and June.
    • The January edition includes in-depth analyses of topical policy challenges while the June edition contains shorter analytical pieces.

    Summary of the report

    In a nutshell, the outlook for the global economy for 2020 has darkened, amid slowing activity and heightened downside risks.

    1) On poverty

    • The scope and speed with which the COVID-19 pandemic and economic shutdowns have devastated the poor around the world are unprecedented in modern times.
    • Current estimates show that 60 million people could be pushed into extreme poverty in 2020.

    2) Policy choices

    • Policy choices made today — include greater debt transparency to invite new investment, foster advances in digital connectivity, and a major expansion of cash safety nets for the poor.
    • The financing and building of productive infrastructure are among the hardest-to-solve development challenges in the post-pandemic recovery.

    3) Emerging Market and Developing Economies (EMDEs)

    • EMDEs face health crises, restrictions and external shocks like falling trade, tourism and commodity prices, as well as capital outflows.
    • These countries are expected to have a 3-8% output loss in the short term, based on studies of previous pandemics, as per the analysis.
    • Growth is likely to slow more in commodity-exporting EMDEs than in commodity-importing ones.

  • The contours of economic recovery

    This article analyses the various aspects of the stimulus package announced by the government. It gives a broad idea about the borrowing and fiscal deficit of the government. Where the fiscal deficit should be spent? Which area the announced reforms should focus on? You’ll be able to answer these questions after reading the article.

    Contraction of the Indian economy

    •  Many analysts have recently predicted a contraction for the Indian economy.
    • Goldman Sachs/ICRA and Nomura, in their recent assessments, have forecasted India’s growth to contract by (-)5.0 per cent and (-)5.2 per cent, respectively.
    • Even the RBI assesses that growth in the current year may be in the negative zone although it has not given a specific number.
    • The World Bank has predicted growth in the range of 1.5 to 2.8 per cent.
    • In order to relate budgetary magnitudes to GDP, we also need an idea of the magnitude of nominal GDP growth.
    • In the current year, this is expected to be at least 4 per cent points less than the rate of growth at 10 per cent as assumed in the 2020-21 budget.

    Let’s clear the misunderstanding about the stimulus

    • One misunderstanding about the “stimulus” must also be cleared.
    • Any increase in government expenditure over and above the base level acts as stimulus.
    • This is the traditional Keynesian approach.
    • It made no distinction between different types of expenditures.
    • It is only later studies that made a distinction based on the size of fiscal multipliers.

    How much will be the gross borrowing and fiscal deficit?

    • The Centre has already announced an increase in gross borrowing for 2020-21 from INR 7.8 lakh crore to Rs. 12 lakh crore.
    • This may lead to a fiscal deficit of about 5.7 to 5.8 per cent of GDP.
    • This may only be enough to provide for the considerable shortfall in the budgeted tax and non-tax revenues and non-debt capital receipts, which is also being estimated by a number of analysts to be in the range of Rs 18 lakh crore, implying a shortfall of Rs 4.45 lakh crore.
    • This shortfall is 2.08 per cent of GDP.
    • The Centre’s fiscal deficit will have to be further increased to accommodate the additional burden on the 2020-21 budget arising on account of the stimulus package.

    Let’s divide stimulus package into budgetary and non-budgetary part

    • The series of measures announced by the FM are a mix of i) already budgeted expenditure,ii) additional expenditure, iii) extension of credit facility with government guarantee for certain select sectors and a host of reform measures.
    • Analytically, the overall stimulus package of Rs 20.97 lakh crore can be divided into a budgetary and a non-budgetary part.

    1) Non-budgetary part

    • The non-budgetary part, accounting for nearly 85 per cent of the overall package.
    • Non-budgetary part consists mainly of liquidity enhancing measures for banks and NBFCs which may facilitate the financial sector in playing a key role to kickstart the economy.
    • The credit guarantee provided by the government under the various schemes announced recently is of central importance in this context.
    • In fact, for certain schemes, the government has come forward to provide 100 per cent guarantee, which should quicken the pace of credit sanction and delivery by banks.
    • Production of goods and services is inter-related in an economic system.
    • Once production starts, different sectors will be mutually supporting since different industries and service providers are locked in an input-output system.

    2) Budgetary part and fiscal deficits

    • The budgetary part amounts only to about 15 per cent of the overall package.
    • This can be further divided into government expenditure which was already budgeted in the 2020-21 budget and expenditures constituting genuine additionality.
    • The genuine additionality component is only 10 per cent of the package equivalent to 1 per cent of GDP.
    • Adding this to the enhanced level of 5.7 per cent of GDP, the Centre’s fiscal deficit may be close to 6.7-7 per cent of GDP.
    • This will maintain the level of budgeted expenditure while providing for the additional cost of the announced fiscal stimulus.
    • In fact, the fiscal deficit will be even higher if the current year’s GDP is lower than that of the previous year.

    Composition of government expenditure matters

    • With this high fiscal deficit, the composition of government expenditure becomes critical.
    • Some of the establishment expenditures and subsidies, especially those linked to petroleum prices like fertiliser and petroleum subsidies, may be reduced.
    • While expenditure on health-related items may be increased.
    • The central government has announced freezing of increments of DA and dearness relief components in the case of salaries and pensions respectively.
    • In fact, the government should be doing much more to relieve the plight of migrant workers.

    What is budgetary contribution for infrastructure?

    • According to the National Infrastructure Pipeline, the Centre’s budgetary contribution to infrastructure is estimated at 1.25 per cent of GDP on an annual basis.
    • This is less than 18 per cent of the estimated fiscal deficit of the Centre in 2020-21, indicating a very poor quality of fiscal deficit.
    • One dimension of expenditure restructuring should be to frontload infrastructure spending, including that on health infrastructure
    • Which will be helpful in taking advantage of the higher multiplier effects associated with capital expenditures.
    • Investment augmentation is also demand supporting and employment and income generating.

    Support to demand

    • Support to demand will come not only from the Centre but also from the states and the public sector undertakings.
    • States have been allowed to borrow an additional 2 per cent of their respective GSDPs subject to certain conditions.
    • In fact, at the present juncture, these conditions are not required since the enhancement of the borrowing limit is for one time while the reforms linked to conditions are permanent in nature.
    • In any case, states should be encouraged to support demand by going up to the full extent of the enhanced limit.

    Why the monetisation of debt is unavoidable?

    •  The combined fiscal deficit of the Centre and states alone may amount to close to 12 per cent of GDP in 2020-21.
    • Besides, the total public sector borrowing also includes the borrowing by central and state public sector undertakings.
    • Thus, the total Public Sector Borrowing Requirement may well exceed available sources of financing consisting of i) the financial savings of the household sector, ii) savings of the public sector iii) net capital inflows.
    • In this context, monetising debt has become unavoidable.
    • The Centre must be forthcoming on these issues while recognising that extraordinary situations call for extraordinary solutions.

    Reforms should be sector-specific

    • In the case of reforms, we have reached a new stage.
    • General reforms cutting across industries and sectors have been critical in the early stages.
    • The earlier regime of controls and permits had to be brought to a close.
    • But now reforms have to focus on specific sectors.
    • Applying the general principles of liberalisation to sectors such as agriculture and, more particularly, agricultural marketing, power sector, and telecom have assumed importance.
    • Labour market reforms are needed across all the states.
    • But labour reforms are introduced better when the economy is in the upswing.
    • Consensus building is critical before introducing labour reforms.
    • Land markets need to be freed up consistent with the concerns of small and marginal farmers.

    Consider the question “The fiscal stimulus and the promise of reforms announced by the government would be instrumental in bringing the Indian economy devastated by the Covid-19 pandemic back on track. Comment.”

    Conclusion

    Fiscal deficit should be used to create infrastructure ensuring that the quality of fiscal deficit is not poor. At the same time, reforms announced should be sector-specific and consensus-based in case of labour laws.

    Back2Basics: AT&C losses

    • Distribution loss consists of two parts: a. Technical loss and b. Commercial loss.
    • It is also called AT&C loss.
    • AT&C loss is nothing but the sum total of technical and commercial losses and shortage due to non-realization of billed amount.
    • AT&C Loss = (Energy input – Energy billed) * 100 / Energy input.