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

  • No restriction on Laptop Imports: Centre

    Central Idea

    • In August, the centre announced its intention to subject laptops, tablets, computers, and related products to a licensing regime starting from November 1.
    • However, it has now clarified that India will not impose licensing requirements on laptop and computer imports but will instead monitor their inbound shipments.

    Lapop Import Restrictions: A Backgrounder

    • Import Restrictions: In August, India imposed import restrictions on various IT hardware products to promote domestic manufacturing and reduce imports, particularly from countries like China.
    • Industry Concerns: The IT hardware industry expressed concerns following the initial licensing announcement.
    • Security and Domestic Manufacturing: The government cited security concerns and the desire to stimulate domestic manufacturing as the reasons for the licensing conditions.

    Import Statistics

    • Import Values: India imports approximately $7-8 billion worth of IT hardware products annually.
    • Recent Trends: Import values for personal computers, including laptops, decreased from $7.37 billion in 2021-22 to $5.33 billion in 2022-23. Imports of certain data processing machines also saw a decline.
    • Production-Linked Incentive Scheme: In May, the government approved the Production Linked Incentive Scheme 2.0 for IT Hardware with a budgetary outlay of ₹17,000 crore. A similar scheme for IT hardware was approved in February 2021.

    India’s Dependency on China

    • Critical Dependency: According to a report by the Global Trade Research Initiative (GTRI), India has significant dependency on China for various products, including laptops and mobile phones.
    • Government Initiatives: To reduce this dependency, the government has introduced measures such as the production-linked incentive scheme and increased customs duties on electronic components.

    Conclusion

    • India’s decision to shift from a licensing regime to monitoring for laptop and computer imports aims to balance its goals of reducing import dependency and promoting domestic manufacturing.
    • However, there is a need to ensure smoother transition for businesses and trade.

  • New Royalty Rates for Strategic Minerals, Lithium and REEs

    minerals

    Central Idea

    • The Centre has approved royalty rates of 3% each for lithium and niobium and 1% for Rare Earth Elements (REEs).
    • These changes enable competitive royalty rates for these strategically vital minerals (critical minerals) and open the doors to private sector participation through concession auctions.

    What are Critical Minerals?

    • Critical minerals are elements that are crucial to modern-day technologies and are at risk of supply chain disruptions.
    • These minerals are used in making mobile phones, computers, batteries, electric vehicles, and green technologies like solar panels and wind turbines.
    • Minerals such as antimony, cobalt, gallium, graphite, lithium, nickel, niobium, and strontium are among the 22 assessed to be critical for India.
    • Many of these are required to meet the manufacturing needs of green technologies, high-tech equipment, aviation, and national defence.

    Implications of the Amendment

    • Alignment with Global Benchmarks: The amendments, involving specifying new royalty rates, bring India’s royalty rates in line with global standards. This is crucial to attract bidders’ in future mineral auctions.
    • Competitive Royalty Rates: The Second Schedule of the Mines and Minerals (Development and Regulation) Act, 1957, previously set a 12% royalty rate for unspecified minerals, which was significantly higher than international benchmarks. The revised rates are 3% for lithium and niobium, and 1% for REEs, based on price benchmarks, enhancing the attractiveness of mining in India.
    • Domestic Mining Promotion: Lower royalty rates and commercial exploitation opportunities aim to encourage domestic mining, reduce imports, and stimulate related industries like electric vehicles (EVs) and energy storage solutions.
    • Energy Transition Commitment: Access to critical minerals is integral to India’s commitment to energy transition and achieving net-zero emissions by 2070, aligning with global environmental goals.

    Economic significance of the move

    (A) Lithium

    • Import Dependence: India currently imports all its required lithium. The government’s push for lithium mining extends beyond Jammu & Kashmir to explore lithium extraction from Rajasthan and Gujarat’s brine pools, as well as Odisha and Chhattisgarh’s mica belts.
    • Economic Offensive: This initiative is part of India’s economic strategy to reduce dependency on China for lithium-ion energy storage products, given China’s dominant position in the market.
    • EV Growth: With EVs on the cusp of disruption, securing a lithium supply chain is strategically vital. The global lithium battery market has seen significant growth in recent years.

    (B) Rare Earth Elements

    • Global Supply Challenges: Rare earth elements, primarily sourced from or processed in China, pose challenges in the EV supply chain. Securing supplies can be difficult, and China’s dominance has raised concerns.
    • Usage in Motors: Rare earth elements are crucial in EV motors, particularly permanent magnet motors. Elements like neodymium, terbium, and dysprosium are used in magnets for generating a constant motor flux, enhancing motor efficiency.
    • Environmental Concerns: Mining rare earth elements often involves environmentally damaging open-pit operations, raising environmental and ecological concerns.

    (C) Niobium for Industry

    • Corrosion Resistance: Niobium, known for its resistance to corrosion due to a surface oxide layer, is used in various industries. It strengthens alloys, particularly stainless steel, making them ideal for applications in aerospace, construction, and pipelines.
    • Superconducting Properties: Niobium’s superconducting properties find applications in magnets for particle accelerators and MRI scanners.
    • Global Sources: The main source of niobium is the mineral columbite, found in several countries, including Canada, Brazil, Australia, and Nigeria.

    Conclusion

    • India’s decision to amend mining laws for strategic minerals is a significant step toward aligning with global standards, promoting domestic mining, and securing supplies for emerging industries like EVs and energy storage.
    • It underscores India’s commitment to sustainable energy transition and reduced import dependency while addressing environmental concerns in mining rare earth elements.

  • Manufacturing PMI eased to 5-month low

    Central Idea

    • India’s manufacturing sector experienced a slowdown in September, reaching a five-month low, according to the seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI).
    • The PMI eased to 57.5 from August’s 58.6. A reading of 50 reflects no change in activity levels.

    Purchasing Managers’ Index (PMI)

    • PMI is an indicator of business activity — both in the manufacturing and services sectors.
    • It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
    • It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
    • The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

    How is the PMI derived?

    • The PMI is derived from a series of qualitative questions.
    • Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.

    How does one read the PMI?

    • A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
    • Higher the difference from this mid-point greater 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.

    Analysis and Outlook

    • Mild Slowdown: The manufacturing industry in India showed mild signs of a slowdown in September, primarily due to a softer increase in new orders, which tempered production growth.
    • Positive Outlook: Despite the slowdown, both demand and output saw significant improvements, and manufacturers maintained a strongly positive outlook for production.
    • Job Creation and Input Stocks: Upbeat forecasts continued to drive job creation efforts and initiatives to replenish input stocks, indicating a favourable trajectory for the Indian manufacturing industry.
    • Concerns: However, the solid increase in output charges, despite easing cost pressures, could limit sales in the coming months, prompting caution.

  • Circular migration

    What’s the news?

    • Circular migration gained prominence in the wake of globalization and technological advancements, facilitating easier mobility. As the world grapples with migration challenges, circular migration emerges as a balanced approach.

    Central idea

    • Circular migration, characterized by the cyclical movement of people between their country of origin and a destination country in search of seasonal employment, has gained significance in the global context. It offers unique opportunities and challenges in the realm of migration policy and development.

    Defining Circular Migration

    • Philippe Fargues defines circular migration based on specific criteria, including temporary residence, multiple entries into the destination country, freedom of movement between origin and destination, legal rights for migrants, protection of their rights, and a demand for temporary labor in the destination country.
    • A key aspect is the completion of at least two loops between two countries, signifying repeated movement.
    • For instance, if a migrant moves from country A to B and back to A, they are considered a return migrant. However, if they continue to country B again, they have completed two loops, earning them the label of a circular migrant.

    Circular Migration as Public Policy

    • For countries of origin: Remittances from circular migrants boost the domestic economy, fostering infrastructure development and improving living standards. However, it also poses the risk of losing skilled individuals to other nations.
    • For destination countries: Circular migration provides a source of low-skilled labor while minimizing permanent population growth

    The Advantages of Circular Migration in India

    • Rural to Urban Migration:
    • The growth of jobs in sectors like manufacturing, construction, and services has driven a substantial flow of migrants from rural areas to urban cities.
    • This trend has been particularly pronounced between 2004–2005 and 2011–2012 when the construction sector witnessed a significant increase in employment, especially for rural males.
    • This movement has provided rural populations with access to urban employment opportunities.
    • Inter-State Migration:
    • Uneven development following liberalization policies has led to inter-State migration. States like West Bengal, Odisha, and Bihar have witnessed high rates of out-migration.
    • While Delhi was historically a prominent destination, recent trends indicate an increased flow of migrants to southern States as well.
    • Economic Benefits:
    • Migrants often transition from agricultural jobs in their home states to low-skill jobs in destination states.
    • This shift typically results in increased income, with daily wage laborers in Kerala earning substantially more compared to their counterparts in states like West Bengal.
    • Household Welfare: Circular migration contributes to better household welfare through remittances sent back by migrants. These funds support improved nutrition, enhanced access to education and healthcare, and an overall increase in the standard of living for migrant families.
    • Empowerment of Women: The absence of male family members due to migration often leads to increased autonomy and decision-making power for women in migrant households. This shift in gender dynamics can have positive social and cultural implications.

    Challenges

    • Exploitation and Unsafe Conditions: Migrants, especially in southern States, often find themselves vulnerable to exploitation by middlemen or brokers. They may be subjected to unhygienic and unsafe working conditions, often without protective equipment.
    • Language Barriers: Language differences pose a significant obstacle for migrants, particularly when migrating to regions where the local language differs from their native tongue.
    • Resentment and Wage Disputes: Indigenous wage groups and labor unions may resent circular migrants, viewing them as competitors willing to work for lower wages. This can lead to wage disputes and conflicts.
    • Subsistence Migration: Many circular migrants engage in subsistence-level employment, with limited opportunities for savings or asset creation. Jobs are often seasonal and irregular, contributing to economic precarity.
    • Return Migration during Crises: The COVID-19 pandemic highlighted the vulnerability of circular migrants. When a lockdown was imposed in 2020, many migrants embarked on long journeys back to their hometowns due to the lack of job opportunities in the host States.

    The Way Forward: Measures to fully unlock the potential of circular migration

    • Ensuring Migrant Rights: Robust protection of migrant rights is crucial to address exploitation and abuse.
    • Skills Training: Providing migrants with skills training and language proficiency programs can enhance their employability and integration into host communities.
    • Safety Nets: Establishing social safety nets for circular migrants during times of crisis, such as the pandemic, is essential to prevent humanitarian disasters.
    • Integration Efforts: Encouraging integration initiatives in destination areas can help migrants feel more included and less marginalized.
    • Data Collection and Research: Governments should invest in data collection and research to better understand the extent and dynamics of circular migration.

    Conclusion

    • Circular migration presents a viable pathway to balance the needs of development and individual economic advancement. As circular migration continues to shape the global landscape, it is imperative that governments and policymakers adapt their strategies to harness its potential for the greater good.

  • Purchasing Managers’ Index (PMI) reaches 31-month high

    pmi manager

    Central Idea

    • Surge in PMI to 31-month high: The S&P Global India Manufacturing PMI soared to 58.7 in May, the highest level in 31 months.

     

    Service Sector

    The service sector, also known as the tertiary sector, includes a wide range of economic activities that are focused on providing intangible goods and services to customers.

    Some examples of activities that fall under the service sector include:

    1. Hospitality and tourism: This includes activities such as hotels, restaurants, travel agencies, and tour operators.
    2. Retail and wholesale trade: This includes businesses that buy and sell goods, such as supermarkets, department stores, and online retailers.
    3. Financial services: This includes banks, insurance companies, and investment firms.
    4. Professional and business services: This includes activities such as legal services, accounting, consulting, and advertising.
    5. Information and communication technology: This includes activities such as software development, telecommunications, and data processing.
    6. Healthcare and social assistance: This includes activities such as hospitals, clinics, nursing homes, and social services.
    7. Education and training: This includes activities such as schools, colleges, universities, and vocational training.
    8. Transportation and logistics: This includes activities such as shipping, warehousing, and distribution.

    Purchasing Managers’ Index (PMI)

    • PMI is an indicator of business activity — both in the manufacturing and services sectors.
    • The S&P Global India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies.
    • It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
    • It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.

    How is the PMI derived?

    • The PMI is derived from a series of qualitative questions.
    • Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.

    How does one read the PMI?

    • A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
    • Higher the difference from this mid-point greater 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.

    Key insights of recent trend

    • Fastest factory order growth: Factory orders rose at the fastest pace since January 2021.
    • Unprecedented accumulation of inputs: Producers accumulated inputs at an unprecedented pace due to lower costs.
    • Improvement in operating conditions: The index reflects a substantial improvement in operating conditions, with a significant increase from 57.2 in April.
    • Strong growth in order books and exports: Order books grew for the 23rd consecutive month, supported by a rise in export deals.
    • Highest output levels in 28 months: Output levels reached the highest point in 28 months.
    • Increased hiring: Pressure on capacities led firms to increase hiring, reaching a six-month high.

    Reasons behind this rise

    • Rise in selling prices: Producers raised selling prices at a solid and quicker rate in May, the highest in a year.
    • Mild input costs but adjusted charges: Input costs remained historically mild, but producers adjusted their charges due to sustained cost increases and a supportive demand environment.
    • Improved business confidence: Business confidence about growth improved, reaching a five-month high.
    • Public faith in economy: Factors such as publicity and demand resilience contributed to the optimistic outlook.

     

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  • Extension to the RoDTEP Scheme

    Central Idea

    • In light of a continuous seven-month decline in goods exports until August, the government has taken action to bolster outbound shipments.
    • The Remission of Duties and Taxes on Exported Products (RoDTEP) scheme’s applicability has been extended for nine more months, now in effect until June 30, 2024.

    About RoDTEP Scheme

    Objective To refund central, state, and local duties or taxes on exported products.

    The rebate does not apply to duties and taxes that have already been exempted, remitted, or credited.
    Launch Date Introduced in January 2021.

    Replacement for the Merchandise Export Scheme, which was deemed non-compliant with WTO Rules.
    Rates of Tax Refund Tax refund rates under RoDTEP vary from 0.5% to 4.3% across different sectors.
    Claim Process Exporters can claim the rebate as a percentage of the Freight On Board (FOB) value of their exports.
    Issuance of Rebates Rebates are issued in the form of transferable duty credits or electronic scrips (e-scrips).
    Significance of the Scheme Enhances the competitiveness of Indian products in global markets by refunding various taxes.

    Expected to have a substantial impact on India’s trade volumes, export figures, and competitiveness.

    Enables Indian exporters to meet international export standards and access GST refunds efficiently.

     

  • India vs. China in Smartphone Manufacturing

    china mobile

    Central Idea

    • India’s smartphone manufacturing industry has reached a noteworthy milestone with the production and launch of the iPhone 15.
    • This development raises the question of whether India is on the path to becoming a rival to China in smartphone manufacturing.
    • While India has made substantial progress, certain factors still set it apart from China.

    Why discuss this?

    • India has become the second largest mobile-producing nation as locally made mobile phone shipments crossed the 2 billion cumulative mark in the 2014-2022 period, registering a 23% growth compounded annually, according to a new report.
    • The ramp up in local manufacturing came on the back of huge internal demand, increasing digital literacy, and government push.

    A Shift in iPhone Manufacturing

    (1) Historical Context:

    • iPhones have been assembled in India since 2017.
    • Previously, India’s assembly lines lagged behind global launches.

    (2) The iPhone Breakthrough:

    • India’s Foxconn plant in Chennai produced the iPhone 15 a month before its global launch.
    • This signifies India’s transition into a parallel manufacturing market alongside China.

    Comparing India and China

    (1) Not Yet Equals:

    • India’s achievement is commendable, but it hasn’t completely caught up with China.
    • Base iPhone 15 assembly takes place in India, while Pro iPhones are still produced elsewhere.
    • Established supply chains in China pose a challenge for India.

    (2) The Challenge of Supply Chains:

    • Supply chain operations in India aren’t as seamless as in China.
    • Bridging this gap is expected to take at least two more years.

    Understanding Smartphone Manufacturing in India

    (1) High-Level Assembly:

    • Key components like cameras, displays, and chips are imported.
    • India primarily serves as a high-level assembly destination.
    • In contrast, China’s fabs (chip and display plants) provide a manufacturing advantage.

    (2) Skill Development:

    • Smartphone manufacturing has become highly automated.
    • India’s workforce is being upskilled to operate sophisticated assembly lines.
    • Supply chain considerations impact Apple’s decision to not assemble Pro iPhones in India.

    Pricing Dynamics and Future Prospects

    (1) Pricing Paradox:

    • India isn’t inherently a cheaper manufacturing destination compared to China.
    • Apple’s iPhone sales in India are growing, potentially by nearly 40%.
    • Apple doesn’t need to lower prices due to continued growth.

    (2) Potential Price Revisions:

    • India experiences a pricing disparity compared to the US and UAE.
    • Price revisions may become necessary once iPhone shipments exceed 10 million units annually.

    India’s lacunae

    (1) High-End Manufacturing:

    • India aspires to host high-end smartphone and electronics manufacturing.
    • However, this goal is distant due to the country’s limited volume in this segment.
    • To make this transition viable, firms would need to export around 500 million units annually, a target that seems distant.

    (2) Semiconductor Fabrication:

    • Semiconductor fabrication, a critical aspect of electronics manufacturing, remains outside India’s grasp.
    • Moving semiconductor fabrication to India isn’t currently feasible for companies due to the lack of scale and infrastructure.

    Conclusion

    • India’s ascent in smartphone manufacturing, exemplified by the production of the iPhone 15, is a significant achievement.
    • While challenges remain, such as supply chain scale and workforce upskilling, India’s progress underscores its potential to compete with China in the future.
    • As smartphone sales continue to surge, pricing dynamics and local manufacturing may undergo further transformations, benefiting both the industry and consumers.

  • India’s shift away from Diesel: Implications and Policy Proposals

    diesel

    Central diIdea

    • Recent remarks by Road Transport Minister have sparked discussions about India’s transition away from diesel-powered vehicles and the potential imposition of an additional 10% GST as a “pollution tax.”
    • While these remarks have stirred concerns in the automotive sector, the government’s commitment to reducing air pollution and greenhouse gas emissions remains a key driving force in this shift.

    India’s Pushback against Diesel

    • Policy Shift: Minister’s comments align with a broader policy shift aimed at reducing India’s reliance on diesel. The government aims to produce 40% of the country’s electricity from renewables and achieve net-zero emissions by 2070.
    • Diesel Consumption: Diesel currently accounts for approximately 40% of India’s petroleum products consumption, with the transport sector being a significant consumer.
    • High Taxation: The government already imposes a 28% tax on diesel cars, coupled with additional cess based on engine capacity, resulting in a nearly 50% tax rate.

    Impact on Diesel-Run Cars

    • Industry Response: Several automakers have scaled back their diesel portfolios. Maruti ceased diesel vehicle production in 2020, citing the high cost of upgrading to meet BS-VI emission norms.
    • Emissions Concerns: Diesel engines emit higher levels of oxides of nitrogen (NOx), contributing to environmental concerns. The Volkswagen scandal in 2015 further tarnished diesel’s reputation globally.
    • Fuel Economy: While diesel engines offer better fuel economy and torque, the price difference between diesel and petrol has diminished since the decontrol of fuel prices in 2014.

    Reasons for Individual Diesel Preference

    • Fuel Efficiency: Diesel engines offer higher energy content per liter and inherent efficiency, making them preferred for heavy vehicles and haulage.
    • Cost Consideration: Historically, diesel was significantly cheaper than petrol, driving a preference for diesel-powered vehicles. However, this price gap has narrowed.

    Reasons for Carmakers’ Retreat from Diesel

    • Emissions Challenges: Diesel engines tend to emit higher levels of oxides of nitrogen (NOx), making them environmentally less favourable compared to petrol engines.
    • Volkswagen Scandal: The 2015 Volkswagen emissions scandal, where the company manipulated emissions controls during lab tests, tarnished diesel’s reputation globally, affecting perceptions in India as well.
    • BS-VI Emission Norms: The rollout of the BS-VI emission norms from April 1, 2020, posed a significant challenge for diesel vehicles. Meeting these stringent standards required complex and costly upgrades.
    • Economic Viability: Upgrading diesel engines to comply with BS-VI norms involved installing three crucial components: a diesel particulate filter, a selective catalytic reduction system, and an LNT (Lean NOx trap). This technological overhaul resulted in high costs for car manufacturers, making diesel options economically unviable.

    Impact on Diesel Buyers

    • Changing Economics: The historical price advantage of diesel over petrol has diminished since the decontrol of fuel prices in 2014. The price difference now stands at approximately Rs 7 per liter, significantly reducing the economic incentive for diesel vehicles.
    • Consumer Shift: Diesel cars, once preferred by Indian consumers, have seen their market share decline steadily, accounting for less than 20% of overall passenger vehicle sales in 2021-22.

    Policy Implications

    • Phasing Out Diesel: Globally, many countries are moving towards phasing out diesel vehicles in alignment with environmental goals.
    • Challenges in India: Implementing a total ban on diesel vehicles in India poses challenges due to substantial investments made by carmakers and oil companies in transitioning to BS-VI standards. Additionally, the commercial vehicles segment heavily relies on diesel, making an immediate ban disruptive.
    • Alternative Fuels: Experts emphasize the importance of technology-agnostic policies that prioritize stringent operational standards, including emissions norms. Transitioning to alternative fuels like liquefied natural gas (LNG) and exploring electric vehicles (EVs) can play a pivotal role in reducing greenhouse gas emissions.
    • Hydrogen Potential: The Energy Transition Advisory Committee report highlights the potential of hydrogen as a motive fuel, which could reduce emissions and transform the logistics market.
    • Environmental Initiatives: Oil marketing companies have taken steps to reduce the environmental footprint of diesel, including lowering sulphur levels and introducing biodiesel specifications.

    Conclusion

    • India’s transition away from diesel is driven by environmental concerns, emissions reduction goals, and changing fuel economics.
    • While a pollution tax on diesel vehicles remains speculative, it reflects the government’s commitment to cleaner and greener alternatives.
    • This shift has implications for both the automotive industry and individual vehicle owners, emphasizing the need for cleaner and more sustainable transportation options.

  • Greshams Law: What happens when governments fix Currency Exchange Rates?

    gresham's law

    Central Idea

    • The law, named after English financier Thomas Gresham, came into play most recently during the economic crisis in Sri Lanka last year.
    • The Central Bank of Sri Lanka has fixed the exchange rate between the Sri Lankan rupee and the U.S. dollar

    About Gresham’s Law

    • Thomas Gresham: The law is named after Thomas Gresham, an English financier who advised the English monarchy on financial matters. It extends beyond paper currencies and applies to commodity currencies and various goods.
    • Bad money drives out good: This maxim illustrates a phenomenon that occurs when government-fixed exchange rates diverge from market exchange rates, causing undervalued currency to be withdrawn from circulation.
    • Arbitrarily Fixed Prices: Gresham’s Law operates whenever governments arbitrarily set prices, causing a commodity to become undervalued compared to its market exchange rate. This undervaluation drives the commodity out of the formal market.
    • Black Market: In such scenarios, the only way to acquire the undervalued commodity is through the black market, as it is no longer available through official channels.
    • Goods Outflow: Countries can also experience the outflow of certain goods when their prices are forcibly undervalued by the government.

    Application to Commodity Money

    • Gold and Silver Coins: Gresham’s Law is particularly evident when a government fixes the exchange rate of commodity money, like gold and silver coins, well below their market value. In response, people may hoard or melt these coins to obtain their intrinsic value, which is higher than the government-set rate.

    Recent Example in Sri Lanka

    • Economic Crisis in Sri Lanka: Gresham’s Law was observed during the economic crisis in Sri Lanka, where the central bank fixed the exchange rate between the Sri Lankan rupee and the U.S. dollar.
    • Rupee Overvaluation: The government mandated that the price of the U.S. dollar should not exceed 200 Sri Lankan rupees, even though the black market rate indicated a higher value. This overvaluation of the rupee led to a decline in the supply of dollars and pushed the U.S. dollar out of the formal foreign exchange market.
    • Black Market Transactions: Individuals seeking U.S. dollars for foreign transactions were compelled to purchase them from the black market at rates exceeding 200 Sri Lankan rupees per dollar.

    Conditions for Gresham’s Law to Apply

    • Government-Imposed Fixed Rates: Gresham’s Law operates when government authorities establish and enforce fixed exchange rates between currencies.
    • Effective Implementation: Effective enforcement of these rates by authorities is essential for the law to take effect.

    Anti-thesis Concept: Thiers’ Law

    • “Good Money Drives Out Bad”: In the absence of government-imposed exchange rate fixes, the opposite phenomenon occurs. People tend to abandon currencies they perceive as of lower quality in favour of those they consider better, leading to the dominance of “good money.”
    • Thiers’ Law: This concept, known as Thiers’ Law and named after French politician Adolphe Thiers, complements Gresham’s Law.

  • Circular Economy and E-Waste

    Central Idea

    • The Indian Cellular and Electronics Association (ICEA) recently released a report titled ‘Pathways to Circular Economy in Indian Electronics Sector.’
    • This report, developed in collaboration with NITI Aayog, explores the possibilities of harnessing electronic waste (e-waste) to create a circular economy in India’s electronics sector.
    • It highlights the significant market potential, estimated at $7 billion that could be unlocked through effective e-waste management.

    Current State of E-Waste Management in India

    • Predominantly Informal: E-waste management in India is primarily informal, with approximately 90% of e-waste collection and 70% of recycling handled by a competitive informal sector.
    • Role of Informal Sector: The informal sector excels in salvaging components from older devices and profiting from repairs. Industrial hubs like Moradabad witness the extraction of precious metals like gold and silver from printed circuit boards (PCBs).
    • Government Efforts: The Union Government introduced the E-Waste (Management) Rules, 2022, to digitize and provide visibility into e-waste movement. However, the informal sector remains a dominant force in e-waste management.

    Significance of a Circular Economy

    • Growing Demand: The demand for electronics is increasing across all price segments, resulting in resource-intensive production and high emissions.
    • Circular Economy Philosophy: A circular economy aims to reintroduce discarded electronics, their components, and precious metals back into the electronics ecosystem, reducing waste and promoting resource efficiency.
    • Wealth Creation: Viewing materials as resources rather than waste can lead to wealth creation.ry.

    Recycling E-Waste

    • Public-Private Partnerships: The ICEA report suggests public-private partnerships to establish a comprehensive “reverse supply chain.” This chain would involve collecting devices, wiping personal data, and further processing and recycling.
    • Auditable Database: Creating an auditable database of materials collected through this process and forming geographical clusters for device disassembly are proposed.
    • High Yield Recycling Centers: Incentivizing high-yield recycling centers is recommended to extract maximum value from electronic products.
    • Promoting Repair: Encouraging repair and extending product lifespans, possibly through support for a right-to-repair by users, can reduce the environmental impact of e-waste.

    Challenges in E-Waste Management

    • Informal Sector: The large and competitive informal sector is difficult to track and regulate, making adherence to environmental norms challenging.
    • Device Stockpile: An estimated 200 million devices remain unused in consumers’ homes, as people are concerned about their personal data when recycling devices.
    • Capital Intensive: Establishing large-scale recycling plants requires substantial capital investment, with challenges in securing stable materials.
    • Material Scarcity: Securing materials to stabilize recycling plants is a complex issue, as materials are scattered and supply chains are unpredictable.
    • Transition from Informal to Formal: Replicating the success of the informal sector in a formalized and reliable manner remains a significant challenge.

    Conclusion

    • The transformation of e-waste management into a circular economy is a promising venture for India’s electronics sector.
    • While the informal sector currently dominates this landscape, there is a growing need to formalize and regulate e-waste management.
    • The challenges are substantial, but with the right policies, public-private collaborations, and incentives, India can harness the $7 billion market opportunity and promote resource efficiency in its electronics sector.