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GS Paper: GS3-12.Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

  • Northeast India’s Struggle with Special Economic Zones (SEZs)

    sez

    Central Idea

    • The Northeast region’s journey with SEZs has been marked by challenges and missed opportunities.
    • Despite the approval of five SEZs in the region between 2007 and 2021, none have become operational.

    Overview of Unoperational SEZs in NE

    • Unrealized IT SEZs: The report underscores the delay in establishing IT SEZs in Manipur and Sikkim, both of which were approved in 2013 and 2021 respectively.
    • Nagaland’s Unfulfilled Promise: Despite approvals dating back to 2007-9, the SEZs in Nagaland remain dormant, representing a missed opportunity for economic growth.
    • Pending Agro-Products Zone: The agro-products zone approved in Tripura in 2019 is yet to materialize, indicating the need for coordinated efforts to overcome hurdles.

    What are SEZs?

    • Distinctive Zones: A Special Economic Zone is an area characterized by distinct trade and business regulations set apart from the rest of the country.
    • Economic Objectives: SEZs aim to enhance trade balance, encourage investments, generate employment, facilitate efficient administration, and amplify economic growth.
    • Favorable Financial Policies: SEZs offer tailored financial policies that encompass investment, taxation, customs, trading, quotas, and labor regulations.
    • Tax Incentives: Businesses within SEZs may benefit from tax holidays, a designated period of reduced taxation upon establishment within the zone.

    Inception of SEZs in India

    • EPZs Pioneering: India embraced the concept of Export Processing Zones (EPZs) with Asia’s inaugural EPZ established in Kandla in 1965.
    • Genesis: India’s SEZ policy was inaugurated on April 1, 2000, with the intent of bolstering foreign investments and creating a globally competitive environment for exports.
    • Objectives: The policy aimed to boost exports, level the playing field for domestic enterprises, and provide a comprehensive legal framework for SEZ development and operation.
    • Regulatory Framework: The SEZ Act of 2005 furnished the regulatory umbrella covering crucial aspects of SEZs and the units operating within them.

    Distinct Characteristics of SEZs

    • Diverse Zone Types: SEZs encompass various categories such as free-trade zones (FTZs), export processing zones (EPZs), industrial estates (IEs), free ports, and more.
    • Enhanced Foreign Investment: SEZs attract foreign direct investment (FDI) by multinational corporations (MNCs) and international businesses, spurring economic growth

    Setting up SEZs

    • Open to All: Any private, public, joint sector, state government, or its agencies can establish an SEZ.
    • Foreign Participation: Foreign agencies are also permitted to establish SEZs in India.
    • States Role: State government representatives within inter-ministerial committees on private SEZs offer consultations on proposals.
    • Infrastructure Provision: State governments must ensure the provision of essential resources like water and electricity before SEZ proposals are recommended.
    • Labor Laws: SEZs adhere to normal labor laws, enforced by respective state governments, with a focus on simplification of procedures and introducing single-window clearance.

    Benefits offered

    • Economic Boost: SEZs aim to streamline business processes, improve infrastructure, and offer tax benefits, propelling FDI and export growth.
    • Trade Growth: SEZs contribute significantly to India’s exports by providing a conducive environment for production and export-oriented activities.
    • Investor Attraction: The relaxation of regulations and access to advanced infrastructure in SEZs entices international investors seeking to capitalize on export-driven opportunities.

    Conclusion

    • The parliamentary report serves as a clarion call to address the stagnation of SEZs in Northeast India and transform the challenges into opportunities.
    • It underscores the importance of crafting a fresh industrial development scheme that is responsive to the region’s dynamics.
    • By leveraging the unique strengths of the Northeast, the government has the chance to not only rectify the current situation but also contribute to the inclusive economic growth of the entire nation.

  • China’s Deflation: A cause for concern?

    deflation

    Central Idea

    • China’s recent bout of deflation, marked by a decline in consumer prices for the first time in over two years, has sparked debates about its implications and causes.
    • This article delves into the intricacies of deflation, its potential impact on economic growth, and the unique circumstances driving deflation in China.

    Understanding Deflation

    • Deflation Defined: Deflation refers to a sustained decrease in the general price level of goods and services within an economy.
    • Historical Context: Historically, the terms “inflation” and “deflation” were linked to changes in the money supply, with “inflation” representing a rise and “deflation” a fall in money supply.

    Concerns Associated with Deflation

    • Economic Slowdown: Many economists view deflation as an indicator of dwindling demand for goods and services, potentially leading to an economic slowdown.
    • Demand-Supply Dynamics: Falling prices may prompt consumers to delay purchases, hampering demand and triggering a ripple effect throughout the economy.
    • Resource Utilization: A certain level of inflation is deemed necessary for optimal resource utilization, ensuring full economic potential is realized.

    Varied Perspectives on Deflation

    • Positive Instances: Some economies have experienced deflation during periods of robust growth. Japan witnessed increased real income levels despite persistent deflation.
    • Economic Crises: Deflation can arise during economic crises when cautious spending and resource reallocation occur.
    • Consumer Demand and Prices: Some economists argue that consumer demand dictates prices, rather than the other way around.

    China’s Deflation Scenario

    • Policy Measures: China’s central bank maintained low interest rates to stimulate demand amid the post-pandemic recovery.
    • Property Sector Turmoil: China’s pre-pandemic property sector challenges, affecting GDP contribution, may be a root cause of the current deflationary trend.
    • Complex Factors: While liquidity may not be the core issue, comprehensive analysis of money supply and monetary transmission is necessary to determine the underlying cause.

    Deflation and India

    Period Causes Impact on India
    Great Depression (1930s) Global economic downturn, reduced demand Agricultural and industrial contraction, falling prices
    Post-Independence (1950s-1960s) Supply-side constraints, monetary policy Agricultural fluctuations, efforts to control inflation
    Global Oil Crisis (1970s) Surge in oil prices, cost-push inflation Economic slowdown, increased costs, reduced demand
    Economic Reforms Era (1990s) Transition to market-oriented economy, policy measures Sectoral slowdown, reduced demand, short-term deflation
    Global Financial Crisis (2008-2009) Global financial crisis, economic slowdown Reduced consumer spending, limited deflationary impact

     

    Repercussions of Chinese Deflation

    [A] Positive Impacts:

    • Cheaper Imports: If Chinese goods become cheaper due to deflation, it could lead to lower import costs for India, benefiting consumers and businesses that rely on Chinese imports.
    • Lower Input Costs: Reduced prices for raw materials and intermediate goods from China could lower production costs for Indian industries that depend on these inputs.
    • Global Supply Chains: If Chinese deflation reduces the cost of production within global supply chains, Indian businesses integrated into these chains might experience cost savings.
    • Improved Trade Balance: Cheaper Chinese imports can contribute to a more favorable trade balance for India, especially if it leads to reduced import bills.

    [B] Negative Impacts:

    • Export Competition: Cheaper Chinese exports due to deflation could increase competition for Indian exports in international markets, potentially affecting certain Indian industries.
    • Import Dumping: A flood of cheap Chinese goods into the Indian market could harm domestic producers, leading to job losses and economic strain.
    • Investment Flows: A slowdown in China’s economy caused by deflation might lead to reduced investor confidence and affect foreign direct investment (FDI) flows to India.
    • Currency Effects: If China’s central bank devalues its currency to boost exports in response to deflation, it could lead to a stronger Indian rupee, impacting India’s export competitiveness.
    • Commodity Prices: Reduced demand for commodities from China due to deflation could lead to lower global commodity prices, affecting Indian exporters of raw materials.

    Conclusion

    • China’s encounter with deflation amidst efforts to boost demand and stabilize its economy presents a multi-faceted challenge.
    • Understanding the nuances of deflation, its interaction with demand dynamics, and China’s unique economic landscape are vital.
    • As China navigates its path forward, policymakers must consider the interplay of factors, including the property sector’s impact and broader economic goals.

    Back2Basics:

    Terminologies related to PRICE RISE
    Inflation Sustained increase in the general price level of goods and services in an economy over time, leading to reduced purchasing power of money.
    Deflation Sustained decrease in the general price level of goods and services, often resulting in reduced consumer spending and economic stagnation.
    Hyperinflation Extremely rapid and uncontrollable increase in prices, eroding the value of money and disrupting economic stability.
    Stagflation Simultaneous occurrence of stagnant economic growth, high unemployment, and high inflation, contrary to traditional economic theories.
    Creeping Inflation Gradual increase in the general price level at a rate of 1-3% annually, considered normal and manageable.
    Galloping Inflation High inflation ranging from 10% to several hundred percent per year, eroding savings and economic planning.
    Demand-Pull Inflation Rise in prices due to demand exceeding supply, often occurring during periods of strong economic growth.
    Cost-Push Inflation Increase in prices caused by higher production costs, such as rising wages or raw material expenses.
    Built-In Inflation Cycle of rising prices and wages as workers demand higher wages to match inflation, contributing to a continuous cycle.
    Structural Inflation Inflation resulting from supply and demand imbalances due to structural factors like technology changes or market conditions.
    Open Inflation When rising prices are publicly acknowledged and factored into economic decisions, including wage negotiations.
    Suppressed Inflation Prices rise but are officially reported at a lower rate due to government intervention, subsidies, or price controls.
    Repressed Inflation Artificially keeping prices low through government controls despite demand exceeding supply, leading to potential future price spikes.
    Disinflation Decrease in the rate of inflation, indicating the general price level is still rising but at a slower rate, often a transition to more stable inflation levels.

     

  • Mines and Minerals Bill 2023

    mining

    Central Idea

    • India’s Parliament recently passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2023.
    • This bill aims to encourage private sector participation in mineral exploration and mining, thus addressing import dependencies and supply chain vulnerabilities.

    Provisions of the Mines and Minerals Bill 2023

    • Expanding Exploration Rights: The Bill allows private sector engagement in the exploration of critical and strategic minerals previously reserved for government entities.
    • Exploration Licenses (EL): The Bill introduces a new type of license, EL, for private exploration activities. Exploration licenses will be granted through competitive bidding and will be issued for specified critical, strategic, and deep-seated minerals.
    • Revenue Model: ELs aim to generate revenue through a share of the premium paid by the miner after successfully auctioning a mined deposit.

    Critical Minerals and their Importance

    Critical minerals are elements that are crucial to modern-day technologies and are at risk of supply chain disruptions.

    • Recent categorization: Minerals such as antimony, cobalt, gallium, graphite, lithium, nickel, niobium, and strontium are among the 22 assessed to be critical for India.
    • Global Supply Chain Vulnerabilities: The global supply chains for various commodities, including critical minerals like lithium, cobalt, graphite, and rare earth elements, have been shown to be susceptible to shocks, leading to shortages and rising prices.
    • Impact on Various Sectors: Critical minerals are essential for manufacturing, infrastructure development, and clean energy transitions. They are crucial for electric vehicle batteries, semiconductors, wind turbines, and other technological advancements.

    Import Dependency and Vulnerabilities

    • Import Dependency: India heavily relies on imports for critical and deep-seated minerals, such as lithium, cobalt, nickel, and rare earth elements.
    • Supply Chain Disruption: The concentration of extraction and processing in a few geographical locations, like China’s dominance in cobalt and rare earth elements, can lead to supply chain vulnerabilities.
    • Projected Demand: A World Bank study anticipates a nearly 500% increase in demand for critical metals like lithium and cobalt by 2050.

    Global Initiatives for Supply Chain Resilience

    • Mineral Security Partnership (MSP): Major economies like the U.S., UK, Japan, and the EU have established the MSP to ensure supply chain resilience for critical minerals. India joined this partnership to secure access to these resources.
    • Strategic Lists: Countries are compiling lists of critical minerals based on their economic needs and supply risks, aligning with their industrial strategies. This aims to secure stable access to these resources.

    Private Sector Participation

    • Exploration and Mining: Mineral exploration is a multi-stage process, from reconnaissance to detailed exploration, before actual mining. India’s exploration efforts have been led by government agencies with limited private-sector involvement.
    • Resource Potential: India’s geological setting holds potential for mineral resources similar to mining-rich regions. However, only a fraction of its obvious geological potential has been explored.

    Challenges and Concerns

    • Incentives and Risks: Private sector involvement in exploration requires substantial investments and carries inherent risks, making it necessary to create favourable conditions and incentives.
    • Revenue Generation Delays: Private explorers’ primary revenue source is a share of auction premiums, contingent on successful mine auctioning, which can take considerable time due to government clearances.
    • Auction Process Challenges: Auctioning ELs before exploration begins raises uncertainty regarding future revenue and value estimation.
    • Supreme Court Ruling: The Supreme Court’s 2012 ruling emphasized the significance of secure utilization of explored resources, which the new policy does not guarantee.

    Conclusion

    • The recent legislation signals India’s commitment to attracting private sector investment in mineral exploration.
    • However, challenges such as revenue uncertainty, the auction method’s suitability, and the need for efficient mechanisms to incentivize private participation need careful consideration.
    • Balancing the interests of the private sector, resource availability, and the nation’s strategic goals will be pivotal for the successful implementation of these policy amendments.

  • The new restriction on Personal Computers/laptop imports: Why the move, and its potential impact

    What’s the news?

    • The central government has placed restrictions on the import of laptops, tablets, and computers with immediate effect. As per the notification, the import would be allowed under a valid license for restricted imports.

    Central Idea

    • India has imposed restrictions on the import of personal computers, laptops, and other IT hardware from China to promote domestic manufacturing and reduce dependence on Chinese imports. This move is part of the government’s efforts to boost the electronics sector and strengthen India’s self-reliance in the production of IT hardware.

    What does the notification for the restriction on imports state?

    • Restricted Categories: The notification restricts the import of personal computers, laptops, palmtops, automatic data processing machines, microcomputers and processors, and large or mainframe computers falling under the HSN code 8471.
    • Import Against a Valid License: Imports of laptops, tablets, all-in-one personal computers, and ultra-small form factor computers and servers under HSN 8741 will be allowed only against a valid license for restricted imports.
    • Exemption for Research and Development: The government has granted exemption from import licenses for imports up to 20 items per consignment used for research and development, testing, benchmarking, evaluation, repair and re-export, and product development purposes. However, these imports can only be used for the stated purposes and not for sale.
    • Exemption for Repair and Return: The license for restricted imports is not required for the repair and return of goods that were repaired abroad, as per the Foreign Trade Policy.

    China’s Dominance in IT Hardware Imports

    • Increase in Electronic Goods Imports:
    • India has witnessed a significant increase in imports of electronic goods and laptops/computers in recent years.
    • During the April-June quarter, the import of electronic goods surged to $6.96 billion, accounting for 4–7 percent of the overall imports.
    • Dominance in the Personal Computers Category:
    • Among the seven categories of restricted imports, China holds a substantial share in the personal computer segment, which includes laptops and palmtops.
    • In the April-May period, imports of personal computers from China amounted to $558.36 million, representing roughly 70–80 percent of India’s total imports in this category.
    • Surge in imports from China:
    • While there was a decline in imports from China in the previous financial year, it is crucial to address the sharp surge in imports in the two preceding years (2021–22 and 2020–21).
    • In 2021–22, imports of personal computers and laptops from China saw a year-on-year increase of 51.5 percent, amounting to $5.34 billion.
    • Similarly, in 2020–21, there was a significant year-on-year increase of 44.7 percent, with imports totaling $3.52 billion.

    Reasons behind the restrictions

    • Boosting Domestic Production: India aims to strengthen its domestic production capabilities in the electronics sector. By restricting imports, the government wants to push companies to manufacture these goods locally in India.
    • Reducing Reliance on China: India has seen a significant increase in imports of electronic goods and laptops/computers from China in recent years. By imposing restrictions, India intends to reduce its reliance on Chinese imports and diversify its sources of electronic products.
    • Supporting the PLI Scheme: The move is seen as a direct boost to the Center’s production-linked incentive (PLI) scheme for IT hardware. The restrictions aim to encourage companies to participate in the scheme and invest in local production.
    • Addressing Trade Imbalance: India has faced a trade imbalance in the electronics sector with China. By limiting imports, India aims to address this imbalance and potentially improve its trade position.
    • Strengthening the Domestic Electronics Industry: The restriction is part of India’s broader strategy to develop and strengthen its electronics manufacturing sector. By promoting domestic production, India seeks to create job opportunities and enhance its industrial capabilities.

    Conclusion

    • India’s decision to restrict IT hardware imports from China aims to reduce import reliance on a single country. With the right incentives and measures in place, this restriction could pave the way for a robust and competitive domestic IT hardware industry in India.

  • Mapping India’s Chip Design Ecosystem

    chip

    Central Idea

    • The Indian government is considering a proposal to pick an equity stake in domestic chip design-making companies as part of the second phase of the Design-Linked Incentive (DLI) Scheme for the semiconductor industry.
    • The aim behind the scheme is to establish a stable ecosystem and promote the growth of “fabless companies” in India—entities that design chips but outsource manufacturing.
    • However, this policy requires a long-term strategy due to the capital-intensive nature of the semiconductor sector and the lengthy gestation periods for setting up design and fabrication units.

    What is DLI Scheme?

    What is Design Linked Incentive (DLI) Scheme? - Civilsdaily

    • DLI scheme is a program aimed at providing financial and infrastructural support to companies establishing semiconductor manufacturing plants in India.
    • Eligible participants who set up fabrication units in the country can receive fiscal support of up to 50% of the total cost.
    • Additionally, participants building compound semiconductors, silicon photonics, and sensors fabrication plants can avail fiscal support of 30% of the capital expenditure under this scheme.
    • Companies engaged in semiconductor design for integrated circuits, chipsets, system-on-chips, systems, and IP cores will receive incentives of 4% to 6% on net sales for a duration of five years.
    • The scheme is expected to promote the growth of at least 20 such companies, achieving a turnover of more than ₹1500 crore in the next five years.

    Present Chip Dynamics

    • Long Gestation Period: Setting up design and fabrication units in the semiconductor industry involves long gestation periods before the first product is launched. Returns on investment are not immediate.
    • Capital Intensive: The semiconductor industry requires significant investment for setting up fabrication units, up-scaling manufacturing capabilities, and research.
    • Cyclic Nature: The industry’s cyclic nature and changing functional requirements of chipsets make research and development challenging.
    • Supply Chain Disruptions: Supply chain disruptions, such as those experienced during COVID-related lockdowns, can dampen investor confidence in the sector.

    Domestic Chip Industry Scenario

    • Talent Pool: India has a highly-skilled talent pool of semiconductor design engineers, making up around 20% of the world’s workforce, working for global companies like Intel, Micron, and Qualcomm, among others.
    • IP Ownership: Despite a thriving talent pool, India owns a smaller portion of the intellectual property (IP) related to chip designs, which is mostly retained by global companies.
    • DLI Scheme for Chip Designing: The DLI scheme introduced in December 2021 aimed to indigenize innovations and support the growth of chip design companies with financial incentives.
    • Changing Landscape: The scheme has led to the establishment of over 30 semiconductor design startups in India, with some already receiving government support.

    Growing market in India

    • The semiconductor industry is growing fast and can reach $1 trillion dollars in this decade. India can grow fast and reach $64 billion by 2026 from $27 billion today.
    • Mobiles, wearables, IT, and industrial components are the leading segments in the Indian semiconductor industry contributing around 80% of the revenues in 2021.
    • The mobile and wearables segment is valued at $13.8 billion and is expected to reach $31.5 billion in 2026.

    Challenges and Considerations

    • Effectiveness and Efficiency: Some experts view the government’s plan to become a venture capital firm for chip design companies as ineffective and inefficient. Companies may prefer foreign buyers for higher valuations and global ecosystem connections.
    • Venture Capital Support: The lack of venture capitalists in the private sector focused on semiconductors is a challenge for the growth of design firms.
    • Equity Stake’s Impact: Offering an equity stake can align the interests of design companies with the project’s success, ensuring shared risk and reward. It may also help in selling chip-designing services more effectively and attracting a broader client base in the market.
    • IP and Value-Added Activities: The government must consider who can keep the IP and how investments can drive more innovation and employment generation. Moving up in the value chain and enabling the ecosystem is crucial.

    Conclusion

    • The proposal to take an equity stake in domestic chip design-making companies in India’s semiconductor industry aims to promote the growth of fabless companies and ensure a stable ecosystem.
    • However, it requires a long-term strategy and careful consideration of IP ownership, venture capital support, and value-added activities in chip design.
    • The success of the scheme will depend on effective implementation and alignment of interests between the government and promising design companies.

  • Semiconductor Tech: What exactly is India going to manufacture?

    semiconductor

    Central Idea

    • Despite recent setbacks, including the withdrawal of Foxconn Technology Group from a joint venture with Vedanta, Ltd., India remains committed to its semiconductor ambitions.

    What are Semiconductors?

    • Semiconductors are a class of materials that exhibit a unique property of electrical conductivity, lying between conductors and insulators.
    • Unlike conductors, which allow electricity to flow freely through them, and insulators, which do not conduct electricity at all, semiconductors have an intermediate level of electrical conductivity.

    Key characteristics of semiconductors include:

    1. Electrical Conductivity: Semiconductors conduct electricity better than insulators but not as effectively as conductors. Their conductivity can be controlled and modified.
    2. Band Gap: Semiconductors have an energy band gap that separates the valence band, where electrons are tightly bound, from the conduction band, where electrons can move more freely. This band gap is smaller than that of insulators but larger than that of conductors.
    3. Temperature Dependency: The conductivity of semiconductors is highly temperature-dependent. As the temperature increases, their electrical conductivity also increases.
    4. Doping: Semiconductors can be intentionally doped with impurities to alter their electrical properties. Doping introduces additional charge carriers, either electrons or holes, which can enhance or diminish conductivity.

    Semiconductors and Transistors

    • Semiconductor Chip Composition: At its core, a semiconductor chip consists of transistors crafted from materials like silicon. Transistors encode information as 0s and 1s and manipulate them to create new data.
    • Three Parts of a Transistor: A transistor comprises the source, the gate, and the drain. By manipulating the gate to open or close, data is stored and manipulated in the semiconductor chip.
    • Metal Layers and Connectivity: Transistors are connected to multiple metal layers on top, forming a complex network of electrical connections that enable the chip to execute multiple tasks.

    Understanding Semiconductor Nodes

    • Naming Convention: Semiconductor nodes were historically based on two numbers: gate length and metal pitch. As transistors shrunk, this naming convention evolved.
    • Discrepancy and Progress: With advancing miniaturization, both gate length and metal pitch ceased to contribute to node names. Today’s cutting-edge 7 nm node has no physical parameter close to 7 nm.

    Importance of Legacy Nodes

    • Advantages of Legacy Nodes: While advanced nodes range from 10 nm to 5 nm, India’s current focus is around 28 nm or higher. Starting with legacy nodes offers advantages for cost-effective applications in robotics, defence, aerospace, industry automation, automobiles, IoT, and image sensors.
    • Revenue Source: Commercial fabs maintain the production of legacy nodes alongside advanced nodes, catering to various demands. The revenue from legacy nodes is still significant in the semiconductor market.

    India’s Semiconductor Journey

    • Sensible Approach: India’s choice to start with legacy nodes is strategic. It equips the country for long-term success, as demand for legacy nodes in applications like electric cars and infotainment systems increases.
    • Future Potential: With continuous improvement and development, India’s semiconductor industry has the potential to grow and become a global hub for semiconductor technology.

    Conclusion

    • India’s focus on legacy nodes lays a solid foundation for its semiconductor ambitions.
    • Embracing these nodes equips the nation for growth and positions it as a player in the global semiconductor landscape.
    • With a commitment to innovation and advancement, India has the potential to become a key player in the semiconductor world.

  • World’s Largest Office Space: Surat Diamond Bourse

    surat diamond

    Central Idea

    • The Surat Diamond Bourse (SDB), hailed as the world’s largest office space project, is set to be inaugurated by Prime Minister.

    About Surat Diamond Bourse

    • The SDB is a large-scale project located in Surat, Gujarat, India.
    • It is claimed to be the world’s biggest office space in a single project.
    • It is built to expand and consolidate the diamond trading business from Mumbai to Surat.
    • Surat is renowned as a major hub for cutting and polishing diamonds, and the development of SDB aims to bring all diamond-related activities and infrastructure under one roof.

    Key features  

    • Location: The SDB is situated at DREAM (Diamond Research and Mercantile) city in Surat.
    • Size: The bourse spans an area of 66 lakh square feet (approximately 6.6 million square feet), making it one of the largest office spaces in the world.
    • Design: The thematic landscaping of the project is based on the ‘panch tatva’ theme, representing the five elements of nature – air, water, fire, earth, and sky.
    • Infrastructure: The SDB consists of nine towers, each with ground plus 15 floors. It will accommodate over 4,200 offices with sizes ranging from 300 square feet to 7,500 square feet.
    • Security: Given the high-security nature of the diamond industry, over 4,000 CCTV cameras have been installed at different locations inside and outside the SDB.
    • Shifting from Mumbai: The bourse seeks to address the space crunch and expensive office real estate in Mumbai, where much of the diamond trading currently takes place.

    Economic significance of SDB

    • Businesses: The complex will house various diamond-related businesses, including the sale of rough and polished diamonds, diamond manufacturing machinery, diamond planning software, diamond certificate firms, lab-grown diamonds, and more.
    • Employment: The SDB is expected to generate significant employment opportunities, providing direct employment to over 1 lakh people in various roles related to the diamond industry.

  • India secures 80th rank on Henley Passport Index

    passport

    Central Idea

    • India has seen an improvement in its ranking on the Henley Passport Index 2023, climbing seven places to the 80th position from 87 last year.
    • However, despite the rise in ranking, the number of countries allowing visa-free access to Indian passport holders remains the same.

    What is Henley Passport Index?

    • The Henley Passport Index is a global ranking system that measures the strength and value of passports from different countries.
    • It is published by Henley & Partners, a global residence and citizenship advisory firm.
    • The index provides an annual ranking of passports based on the number of countries and territories their holders can travel to without requiring a visa or with visa-on-arrival access.

    How is it derived?

    • It takes into account data from the International Air Transport Association (IATA) and other reliable sources.
    • The index includes 199 passports and 227 travel destinations.
    • It assigns a “visa-free score” to each passport, which represents the number of destinations that can be visited without obtaining a visa in advance.
    • The higher the visa-free score, the stronger the passport.

    India’s Passport Performance in 2023

    • India is ranked 80th in 2023.
    • In 2014, India ranked 76th with 52 countries granting visa-free access to Indian passport holders.
    • Since then, its ranking has fluctuated, with positions of 88th (2015), 85th (2016), 87th (2017), 81st (2018), 82nd (2019 and 2020), and 81st (2021).
    • In the Henley Openness Index, which measures the number of nations allowing visa-free access, India ranked 94th out of 97 countries for permitting visa-free access to only four nations.

    Global scenario

    • Singapore Takes the Lead: Singapore has replaced Japan as the country with the most powerful passport, allowing its citizens visa-free access to 192 out of 227 travel destinations globally.
    • Other Top Countries: Germany, Italy, and Spain share the second position. The third position is shared by Austria, Finland, France, Luxembourg, South Korea, and Sweden.
    • Japan’s Position: Japan, previously holding the top position for five years, dropped to third place on the Henley Passport Index.
    • Pakistan: The country known for terrorism and the recent economic crisis has been ranked at 100 in the list. Citizens of Pakistan can travel to just 33 countries without applying for a visa.

  • India- UAE Local Currency Settlement System (LCSS)

    uae dirham rupee india lcss local currency

    Central Idea

    • India and the United Arab Emirates (UAE) signed a pact during PM Modi’s visit to Abu Dhabi.
    • It established a framework for promoting the use of the Indian rupee (INR) and UAE Dirham (AED) in cross-border transactions.

    Local Currency Settlement System (LCSS)

    • LCSS Establishment: The framework aims to establish a Local Currency Settlement System (LCSS) between India and the UAE.
    • Domestic Currency Transactions: LCSS enables exporters and importers to invoice and pay in their respective domestic currencies.
    • Foreign Exchange Market Development: LCSS facilitates the development of an INR-AED foreign exchange market.
    • Transaction Optimization: The use of local currencies optimizes transaction costs and settlement time.
    • Remittance Benefits: LCSS benefits remittances from Indians residing in the UAE.

    Interlinking of Payment Systems: UPI-IPP Linkage

    • Payment System Linkage: The Memorandum of Understanding (MoU) includes the linking of India’s Unified Payments Interface (UPI) with the UAE’s Instant Payment Platform (IPP).
    • Card Switches and Messaging Systems: It explores linking the card switches (RuPay switch and UAESWITCH) and messaging systems of both countries.
    • Efficient Cross-Border Fund Transfers: UPI-IPP linkage facilitates fast, convenient, safe, and cost-effective cross-border fund transfers.
    • Mutual Acceptance of Domestic Cards: The agreement enables the mutual acceptance of domestic cards and processing of card transactions.

    Impact of the Move

    • Trade boost: Bilateral trade between India and the UAE reached around $85 billion in FY23.
    • Exchange Rate Risk Management: The agreement helps Indian exporters’ hedge exchange rate risks in rupee-based trade.
    • Internationalization of the Rupee: It supports India’s efforts to internationalize the rupee and reduce dependence on the US dollar.
    • Interest from Other Countries: Countries in Africa, the Gulf region, Sri Lanka, and Bangladesh have shown interest in trading in rupee terms.

    Significance for Exporters

    • Denominating in Local Currencies: Denominating export contracts and invoices in local currencies minimizes exchange-rate risks and aids in competitive pricing.
    • Enhanced Cooperation: Enhanced cooperation between the banking systems of India and the UAE supports trade and economic activity.
    • Major Export Categories: Major Indian exports to the UAE include mineral fuels, pearls, precious stones, electrical machinery, and equipment.
    • Trade Growth and Destination: The UAE is India’s second-largest export destination, and India-UAE trade reached $85 billion in 2022.

    Benefits for Remittances

    • Reduced Transaction Costs: The agreement reduces high transaction costs and exchange rate margins associated with remittances.
    • Affordable and Efficient Remittances: It makes remittances more affordable and efficient, particularly for low-wage earners.
    • Increased Remittance Inflows: In 2022, India experienced a 24.4% increase in remittances to $111 billion, accounting for 3.3% of GDP.
    • Contribution of GCC Countries: Remittance inflows from Gulf Cooperation Council (GCC) countries contribute significantly to India’s total remittance inflows.

    Larger Impact

    • Reducing Dollar Dependence: The agreement promotes the use of local currencies, reducing dependence on the US dollar in international transactions.
    • Strengthening Economic Ties: Strengthened economic ties between India and the UAE encourage investments, remittances, and trade growth.
    • Rupee Internationalization: The agreement aligns with India’s goal of internationalizing the rupee and expanding its global acceptance.
    • Similar Cross-Border Efforts: Similar efforts, such as collaboration with Singapore’s PayNow, have been undertaken to facilitate cross-border transactions.

    Conclusion

    • The agreement positively impacts bilateral trade, facilitates remittances, and supports India’s goal of internationalizing the rupee.
    • By reducing transaction costs and enhancing financial connectivity, the agreement strengthens economic relations between India and the UAE, fostering trade growth and cooperation.

  • Foxconn withdraws Chip Manufacturing Deal   

    foxcon chip

    Central Idea

    • Taiwan-based Hon Hai Technology Group, commonly known as Foxconn, has announced its withdrawal from a $19.5 billion semiconductor joint venture with the Vedanta Group.
    • The decision comes as Foxconn aims to explore alternative development opportunities.

    Background and JV Details

    • The joint venture aimed to establish a semiconductor fabrication plant in Gujarat, India.
    • The plant was intended to produce 28 nanometer semiconductors.
    • The partnership was expected to boost India’s semiconductor manufacturing capabilities.

    Foxconn’s Decision to Withdraw

    • Fulfilling Technology Transfer and Investment Requirements: Reports suggested that the firms were unable to meet the government’s demands for increased technology transfer and investment from European firm STMicroelectronics.
    • Financial Constraints: Vedanta’s heavy debt burden and its ability to finance the acquisition of chipmaking technology are believed to have played a significant role in Foxconn’s decision to pull out of the joint venture.
    • Differences and Lack of Progress: Senior government officials confirm that the joint venture encountered difficulties and differences, leading to the realization several months ago that Foxconn would withdraw.
    • Diverse Development Opportunities: Foxconn cited the need to explore a wider range of development opportunities as the reason for its withdrawal from the joint venture.

    Vedanta’s response

    • Commitment from Vedanta: Vedanta stated that it will continue to pursue other partnerships and highlighted its possession of a license for production-grade technology for 40nm chips from a prominent Integrated Device Manufacturer (IDM).
    • Importance of India in Semiconductor Supply Chains: Vedanta reiterated the significance of India in global semiconductor supply chain repositioning efforts.
    • Independence and New Partners: Vedanta intends to remove the Foxconn name from the fully-owned entity and pursue partnerships with other companies to establish India’s first foundry.
    • Production Licenses: Vedanta highlights its possession of a license for production-grade technology for 40 nm chips and the forthcoming acquisition of a license for production-grade 28 nm chips.
    • Government Evaluation: The government will evaluate Vedanta’s proposal, but the absence of Foxconn may affect the progress of the application.

    Government’s position

    • Commitment to India’s Semiconductor Mission: Electronics and Information Technology Minister assured that both Foxconn and Vedanta remain dedicated to India’s semiconductor mission and the Make in India program.
    • Continuation of Semiconductor Growth: The government aims to continue developing India’s semiconductor industry and attract further investments.

    Uncertainty Surrounding Other Proposals

    • ISMC Proposal: ISMC, backed by Next Orbit and Tower Semiconductor, has requested that its proposal not be considered due to the pending merger between Intel and Tower Semiconductor. The proposal for a $3 billion semiconductor fab in Karnataka is expected to remain on hold until the merger is finalized.
    • IGSS Venture Proposal: The proposal by Singapore-based IGSS Venture did not meet the standards set by the government’s advisory committee and is currently on hold.

    Importance of Chipmaking for India

    • Strategic Sector: India has identified electronics manufacturing, including chipmaking, as a critical sector for domestic production and export growth.
    • Domestic Supply Chain: Chip manufacturing plays a crucial role in developing a domestic electronics supply chain, reducing reliance on imports, particularly from China.
    • Opportunity for India: As companies seek to diversify their manufacturing bases away from China, India has the potential to emerge as a reliable destination for semiconductor manufacturing.
    • Global Context: The US has passed the CHIPS Act, providing significant subsidies for chip manufacturing domestically, while imposing restrictions and sanctions on China’s semiconductor industry.

    Conclusion

    • Foxconn’s withdrawal and uncertainties surrounding other proposals highlight challenges in India’s semiconductor manufacturing plans.
    • Financial constraints faced by Vedanta and the need for technology acquisition pose hurdles to realizing India’s chipmaking ambitions.
    • Nonetheless, India’s focus on chip manufacturing remains a strategic priority to develop a domestic electronics supply chain and reduce dependence on imports.