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

  • India’s Tenfold Path to manage Exchange Rate Volatility

    The RBI is prepared to sell a sixth of its foreign exchange reserves to defend the rupee against a rapid depreciation after it plumbed record lows in recent weeks.

    Must read:

    [Burning Issue] Global Trade in Rupees

    Is there a forex crisis underway?

    • And the way in which India has tackled foreign exchange crises over the years has been quite profound.
    • A forex crisis can be loosely defined as one where the rupee starts depreciating rapidly or when forex reserves slide precipitously.
    • Ever since India’s reforms of 1991-92, the external sector has been liberalized, with even full capital account convertibility being considered at one point.

    In the rupee’s context, let’s look at options that have been used in the last three decades or so:

    (1) Selling dollars

    • The first course of action has been selling dollars in the spot forex market.
    • This is fairly straightforward, but has limits as all crises are associated with declining reserves.
    • While this money is meant for a rainy day, they may just be less than adequate.
    • The idea of RBI selling dollars works well in the currency market, which is kept guessing how much the central bank is willing to sell at any point of time.

    (2) NRI deposits

    • The second tool used is aimed at garnering non-resident Indian (NRI) deposits.
    • It was done in 1998 and 2000 through Resurgent India bonds and India Millennium Deposits, when banks reached out asking NRIs to put in money with attractive interest rates.
    • The forex risk was borne by Indian banks.
    • This is always a useful way for the country to mobilize a good sum of forex, though the challenge is when the debt has to be redeemed.
    • At the time of deposits, the rates tend to be attractive, but once the crisis ends, the same rate cannot be offered on deposit renewals.
    • Therefore, the idea has limitations.

    (3) Let oil importers buy dollars themselves

    • The third option exercised often involves getting oil importing companies to buy dollars directly through a facility extended by a public sector bank.
    • Its advantage is that these deals are not in the open and so the market does not witness a large demand for dollars on this account.
    • It is more of a sentiment cooling exercise.

    (4) Let exporters trade in dollars

    • Another tool involves a directive issued for all exporters to mandatorily bring in their dollars on receipt that are needed for future imports.
    • This acts against an artificial dollar supply reduction due to exporter hold-backs for profit.

    (5) Liberalized Exchange Rate

    • The other weapon, once used earlier, is to curb the amount of dollars one can take under the Liberalized Exchange Rate Management System.
    • This can be for current account purposes like travel, education, healthcare, etc.
    • The amounts are not large, but it sends out a strong signal.

    (6) Forward-trade marketing

    • Another route used by RBI is to deal in the forward-trade market.
    • Its advantage is that a strong signal is sent while controlling volatility, as RBI conducts transactions where only the net amount gets transacted finally.
    • It has the same power as spot transactions, but without any significant withdrawal of forex from the system.

    (7) Currency swaps

    • The other tool in India’s armoury is the concept of swaps.
    • This became popular post 2013, when banks collected foreign currency non-resident deposits with a simultaneous swap with RBI, which in effect took on the foreign exchange risk.
    • Hence, it was different from earlier bond and deposit schemes.

    Most preferred options by the RBI

    • Above discussed instruments have been largely direct in nature, with the underlying factors behind demand-supply being managed by the central bank.
    • Of late, RBI has gone in for more policy-oriented approaches and the last three measures announced are in this realm.

    (8) Allowing banks to work in the NDF market

    • First was allowing banks to work in the non-deliverable forwards (NDF) market.
    • This is a largely overseas speculative market that has a high potential to influence domestic sentiment on our currency.
    • Here, forward transactions take place without real inflows or outflows, with only price differences settled in dollars.
    • This was a major pain point in the past, as banks did not have access to this segment.
    • By permitting Indian banks to operate here, the rates in this market and in domestic markets have gotten equalized.

    (9) Capital account for NRI deposits

    • More recently, RBI opened up the capital account on NRI deposits (interest rates than can be offered), external commercial borrowings (amounts that can be raised) and foreign portfolio investments (allowed in lower tenure securities), which has the potential to draw in forex over time.
    • Interest in these expanded contours may be limited, but the idea is compelling.

    (10) Settlement in Rupees

    • RBI’s permission for foreign trade deals to be settled in rupees is quite novel; as India is a net importer, gains can be made if we pay in rupees for imports.
    • The conditions placed on the use of surpluses could be a dampener for potential transactions.
    • But the idea is innovative and could also be a step towards taking the rupee international in such a delicate situation.
    • Clearly, RBI has constantly been exploring ways to address our forex troubles and even newer measures shouldn’t surprise us.

     

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  • Poverty reduction lessons from China

    Context

    The United Nations latest report, “Population Prospects” forecasts that India will surpass China’s population by 2023, reaching 1.5 billion by 2030 and 1.66 billion by 2050.

    Poverty eradication: Lessons from China

    • China’s story since 1978 is unique – the country has achieved the fastest decline in poverty.
    • Its experiences hold some important lessons for India, especially because in 1978, when China embarked on its economic reforms, its per capita income at $156.4 was way below that of India at $205.7.
    • Today, China is more than six times ahead of India in terms of per capita income – China’s per capita income in 2021 was $12,556, while that of India was $1,933 in 2020.
    • China started its economic reforms in 1978 with a primary focus on agriculture.
    • Contribution of agriculture: It broke away from the commune system and liberated agri-markets from myriad controls.
    • Increase in agri-GDP: As a result, during 1978-84, China’s agri-GDP grew by 7.1 per cent per annum and farmers’ real incomes grew by 14 per cent per annum with the liberalisation of agri-prices.
    • Creation of demand: Enhanced incomes of rural people created a huge demand for industrial products, and also gave political legitimacy for pushing further the reform agenda.
    • The aim of China’s manufacturing through Town and Village Enterprises (TVEs) was basically to meet the surging demand from the hinterlands.
    • Population factor: China introduced the one-child per family policy in September 1980, which lasted till early 2016.
    • It is this strict control on population growth, coupled with booming growth in overall GDP over these years, that led to a rapid increase in per capita incomes.
    • Chinese population growth today is just 0.1 per cent per annum compared to India’s 1.1 per cent per annum.

    Growth story of Indian agriculture

    • Over a 40-year period, 1978-2018, China’s agriculture has grown at 4.5 per cent per annum while India’s agri-GDP growth ever since reforms began in 1991 has hovered at around 3 per cent per annum.
    • Market and price liberalisation in agriculture still remains a major issue, and at the drop of any hint of food price rise, the government clamps down exports, imposes stock limits on traders, suspends futures markets, and pushes other measures that strangle markets.
    • Implicit taxation of farmers: The net result of all this is reflected in the “implicit taxation” of farmers to favour the vocal lobby of consumers, especially the urban middle class.

    Way forward

    •  Population control: The only way is through effective education, especially that of the girl child, open discussion and dialogue about family planning methods and conversations about the benefits of small family size in society.
    • Effective education: As per the National Family Health Survey-5 (2019-21), of all the girls and women above the age of 6 years, only 16.6 per cent were educated for 12 years or more.
    • Based on unit-level data of NFHS5 (2019-21), it is found that women’s education is the most critical determinant of the status of malnutrition amongst children below the age of five.
    • Unless a focused and aggressive campaign is launched to educate the girl child and provide her with more than 12 years of good quality education, India’s performance in terms of the prosperity of its masses, and the human development index may not improve significantly for many more years to come
    • If  government can take up this cause in sync with state governments, this will significantly boost the labour participation rate of women, which is currently at a meagre 25 per cent, and lead to “double engine” growth.
    • Nutrition interventions: The NFHS-5 data shows that more than 35 per cent of our children below the age of five are stunted, which means their earning capacity will remain hampered throughout life. They will remain stuck in a low-level income trap.

    Conclusion

    From a policy perspective, if there is any subsidy that deserves priority, it should be for the education of the girl child. This policy focus can surely bring a rich harvest, politically and economically, for many years to come.

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  • Increase in Current Account Deficit (CAD)

    The Finance Ministry has asserted that the current account deficit (CAD) could, however, deteriorate this year mainly due to rising trade deficits.

    What is Current Account Deficit (CAD)?

    • A current account is a key component of balance of payments, which is the account of transactions or exchanges made between entities in a country and the rest of the world.
    • This includes a nation’s net trade in products and services, its net earnings on cross border investments including interest and dividends, and its net transfer payments such as remittances and foreign aid.
    • A CAD arises when the value of goods and services imported exceeds the value of exports, while the trade balance refers to the net balance of export and import of goods or merchandise trade.

    Components of Current Account

    Current Account Deficit (CAD) = Trade Deficit + Net Income + Net Transfers

    (1) Trade Deficit

    • Trade Deficit = Imports – Exports
    • A Country is said to have a trade deficit when it imports more goods and services than it exports.
    • Trade deficit is an economic measure of a negative balance of trade in which a country’s imports exceeds its exports.
    • A trade deficit represents an outflow of domestic currency to foreign markets.

    (2) Net Income

    • Net Income = Income Earned by MNCs from their investments in India.
    • When foreign investment income exceeds the savings of the country’s residents, then the country has net income deficit.
    • This foreign investment can help a country’s economy grow. But if foreign investors worry they won’t get a return in a reasonable amount of time, they will cut off funding.
    • Net income is measured by the following things:
    1. Payments made to foreigners in the form of dividends of domestic stocks.
    2. Interest payments on bonds.
    3. Wages paid to foreigners working in the country.

    (3) Net Transfers

    • In Net Transfers, foreign residents send back money to their home countries. It also includes government grants to foreigners.
    • It Includes Remittances, Gifts, Donation etc

    How Current Account Transaction does takes place?

    • While understanding the Current Account Deficit in detail, it is important to understand what the current account transactions are.
    • Current account transactions are transactions that require foreign currency.
    • Following transactions with from which component these transactions belong to :
    1. Component 1 : Payments connection with Foreign trade – Import & Export
    2. Component 2 : Interest on loans to other countries and Net income from investments in other countries
    3. Component 3 : Remittances for living expenses of parents, spouse and children residing abroad, and Expenses in connection with Foreign travel, Education and Medical care of parents, spouse and children

    What has been the recent trend?

    • In Q4 FY 2021-22, CAD improved to 1.5% of GDP or $13.4 billion from 2.6% of GDP in Q3 FY 2021-22 ($22.2 billion).
    • The difference between the value of goods imported and exported fell to $54.48 million in Q4FY 2021-22 from $59.75 million in Q3 FY2021-22.
    • However, based on robust performance by computer and business services, net service receipts rose both sequentially and on a year-on-year basis.
    • Remittances by Indians abroad also rose.

    What are the reasons for the current account deficit?

    • Intensifying geopolitical tensions and supply chain disruptions leading to crude oil and commodity prices soaring globally have been exerting upward pressure on the import bill.
    • A rise in prices of coal, natural gas, fertilizers, and edible oils have added to the pressure on trade deficit.
    • However, with global demand picking up, merchandise exports have also been rising.

    How will a large CAD affect the economy?

    • A large CAD will result in demand for foreign currency rising, thus leading to depreciation of the home currency.
    • Nations balance CAD by attracting capital inflows and running a surplus in capital accounts through increased foreign direct investments (FDI).
    • However, worsening CAD will put pressure on inflow under the capital account.
    • Nevertheless, if an increase in the import bill is because of imports for technological upgradation it would help in long-term development.

     

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  • Govt. extends RoSCTL Scheme for Garment Exports

    The RoSCTL scheme will continue for export of garments/apparels, and made-ups till March 31, 2024, according to a press release from the Union Ministry of Textiles.

    What is RoSCTL Scheme?

    • RoSCTL stands for Rebate of State and Central Taxes and Levies (RoSCTL).
    • It is an export incentive in the form of transferable and sellable duty credit scrips (certificate) offered on the basis of the value of the export.
    • It replaces the Rebate of State Levies (RoSL) scheme, a monetary incentive scheme under which Customs would deposit the rebate directly into the exporter’s bank account.
    • This scheme was seen as India’s reaction to the increasing international pressure on export incentives provided by the Indian government.

    Why was this scheme introduced?

    • The US, in particular, has been very vocal, urging the discontinuation of export incentive schemes like the Merchandise Exports from India Scheme (MEIS).
    • It held that they flouted the WTO Agreement on Subsidies and Countervailing Measures.

    Why was this scheme extended to textile sector?

    • With a view to boost exports and job creation in the textile sector, the government has approved the continuation of the scheme.
    • The scheme aims to help them cut high logistics and other costs and enable them to compete globally.

     

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  • India’s imports from China rose to a record in first half of 2022

    India’s imports from China reached a record $57.51 billion in the first half of the year, according to China’s trade figures.

    India-China Bilateral Trade

    • China is India’s largest trading partner.
    • Major commodities imported from China into India were: electronic equipment; machines, engines, pumps; organic chemicals; fertilizers; iron and steel; plastics; iron or steel products; gems, precious metals, coins; ships, boats; medical, and technical equipment.
    • Major commodities exported from India to China were: cotton; gems, precious metals, coins; copper; ores, slag, ash; organic chemicals; salt, sulfur, stone, cement; machines, engines, and pumps.

    Recent measures to curb imports from China

    • Blame it on the pandemic and the border dispute, but the result is the same: some Indian businesses are boycotting China.
    • The government is now asking Indian e-commerce companies like Flipkart and Amazon India to label country of origin for all products sold on its websites.
    • The govt banned many Chinese mobile applications, including top social media platforms such as TikTok, Helo and WeChat and games such as PUBG.

    Can we completely boycott Chinese products?

    • Trade deficits are not necessarily bad: Both Indian consumers and Chinese producers are gainers through trading.
    • Will hurt the Indian poor the most: This is because the poor are more price-sensitive.
    • Will punish Indian producers and exporters: Several businesses in India import intermediate goods and raw materials, which, in turn, are used to create final goods — both for the domestic Indian market as well as the global market.
    • Pharma sector could be worst hit: For instance, of the nearly $3.6 billion worth of ingredients that Indian drug-makers import to manufacture several essential medicines, China catered to around 68 per cent.
    • Will barely hurt China: According to the United Nations Conference on Trade and Development (UNCTAD) data for 2018, 15.3% of India’s imports are from China, and 5.1% of India’s exports go to China.
    • Chinese money funds Indian unicorns: India and China have also become increasingly integrated in recent years.
    • India will lose policy credibility: It has also been suggested that India should renege on existing contracts with China.

    Way forward

    • In the long term, under the banner of self-reliance, India must develop its domestic capabilities and acquire a higher share of global trade by raising its competitiveness.
    • The government’s “Atmanirbhar” focus is expected to help ministries handhold industries where self-reliance needs to be built.
    • For the long run, a more effective strategy needs to be built to provide an ecosystem that addresses the cost disability of Indian manufacturing leading to such imports.

     

    We would love to see you attempting these questions. Post your answer snaps in the comment box.

     

    Q. India’s quest for self-reliance is still a distant dream. Critically comment in light of the popular sentiment against the Chinese imports in India.

     

    Q.“Curbing Chinese imports to India will do more harm than any good”. Analyse.

     

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  • RBI sets up system to settle International Trade in Rupees

    RBI has decided to put in place an additional arrangement of international trade for invoicing, payment, and settlement of exports / imports in INR.

    • Banks acting as authorised dealers for such transactions would have to take prior approval from the regulator to facilitate this.
    • All exports and imports under the invoicing arrangement may be denominated and invoiced in Rupee.
    • Exchange rate between the currencies of the two trading partner countries may be market determined.
    • Exporters and importers can now use a Special Vostro Account linked to the correspondent bank of the partner country for receipts and payments denominated in rupees.
    • These accounts can be used for payments for projects and investments, import or export advance flow management, and investment in Treasury Bills subject to Foreign Exchange Management Act, 1999 (FEMA).
    • Also, the bank guarantee, setting-off export receivables, advance against exports, use of surplus balance, approval process, documentation, etc., related aspects would be covered under FEMA rules.

    Nostro and Vostro Accounts

    • Nostro and vostro are terms used to describe the same bank account; the terms are used when one bank has another bank’s money on deposit.
    • They are used to differentiate between the two sets of accounting records kept by each bank.
    • Nostro comes from the Latin word for “ours,” as in “our money that is on deposit at your bank.”
    • Vostro means “yours,” as in “your money that is on deposit at our bank.”

    Why such move?

    • The rupee is at a historic low against the dollar.
    • The mechanism is meant to facilitate trade with countries under sanction.
    • Payments had become a pain point for exporters immediately after the Russia-Ukraine war broke out, especially after Russia was cut off from the SWIFT payment gateway.
    • As a result of the trade facilitation mechanism, we see easing of payment issues with Russia.
    • The move would also reduce the risk of forex fluctuation specially looking at the Euro-rupee parity.
    • We see this as a first step towards 100% convertibility of rupee.
    • It will also help stabilize rupee.

    What does the change mean for exports?

    • Several countries including Sri Lanka and some in Africa and Latin America are facing forex shortage.
    • As such, the new mechanism will help India promote its exports.
    • It will also help buy discounted crude oil from Russia, which now accounts for 10% of all imported crude.

    Will the move help narrow trade deficit?

    • The gap between India’s exports and imports widened to record highs.
    • This puts pressure on the current account deficit, which some economists estimate would nearly double to more than 3% of GDP in FY23.
    • RBI’s decision may not benefit the external account immediately, but over the medium term, demand for dollars may come down.
    • This is partly because opening of new vostro accounts between banks may take some time.

    Back2Basics: Currency Convertibility

    • Convertibility is the ease with which a country’s currency can be converted into gold or another currency through global exchanges.
    • It indicates the extent to which the regulations allow inflow and outflow of capital to and from the country.
    • Currencies that aren’t fully convertible, on the other hand, are generally difficult to convert into other currencies.
    • Having a convertible currency allows a government to pay for goods and services in a currency that may not be the buyer’s own.

    Convertibility of Rupee

    • In order to face the serious current account deficit in the balance of payments, the Government of India introduced the partial convertibility of rupee from March 1, 1992.
    • This was an inevitable move for the expeditious integration of Indian economy with that of the world.
    • Under this system, 60 per cent of the exchange earnings were convertible in rupees at market-determined exchange rate and the remaining 40 per cent were at the officially determined exchange rate.
    • Current account convertibility relates to the removal of restrictions on payments relating to the international exchange of goals, services and factor incomes.
    • Capital account convertibility refers to a similar liberalization of a country’s capital transactions such as loans and investment, both short term and long term.

     

    A bit difficult, but pls take an effort to try this PYQ from CSP 2020:

    If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India?

    1. Not depending on short-term foreign borrowings
    2. Opening up to more foreign banks
    3. Maintaining full capital account convertibility

    Select the correct answer using the code given below:

    (a) 1 only

    (b) 1 and 2 only

    (c) 2 only

    (d) 1, 2 and 3

     

    [wpdiscuz-feedback id=”3pp3us2fwp” question=”Please leave a feedback on this” opened=”1″]Post your answers here. Detailed explanation will be provided.[/wpdiscuz-feedback]

     

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  • Draft Development of Enterprise and Service Hubs (DESH) Bill

    The Centre plans to table the Development of Enterprise and Service Hubs (DESH) Bill in the monsoon session of the Parliament, which will overhaul the special economic zones (SEZ) legislation.

    What are SEZs?

    • A Special Economic Zone (SEZ) is an area in which the business and trade laws are different from the rest of the country.
    • SEZs are located within a country’s national borders, and their aims include increasing trade balance, employment, increased investment, job creation, and effective administration.
    • Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.

    SEZs in India

    • The SEZ policy in India first came into inception on April 1, 2000.
    • The prime objective was to enhance foreign investment and provide an internationally competitive and hassle-free environment for exports.
    • The idea was to promote exports from the country and realize the need for a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.
    • Subsequently, the SEZ Act 2005, was enacted to provide the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.
    • SEZ units used to enjoy 100% income tax exemption on export income for the first five years, 50% for the next five years, and 50% of the ploughed back export profit for another five years

    Why replace the existing SEZ Act?

    • The World Trade Organization’s dispute settlement panel has ruled that India’s export-related schemes, including the SEZ Scheme, were inconsistent with WTO rules.
    • India has been accused of giving tax benefits to exports through SEZs.
    • Countries aren’t allowed to directly subsidize exports as it can distort market prices.
    • SEZs also started losing their allure after the introduction of minimum alternate tax and a sunset clause to remove tax sops.

    How is the DESH legislation different?

    • The DESH legislation goes beyond promoting exports.
    • It has a much wider objective of boosting domestic manufacturing and job creation through ‘development hubs’.
    • These hubs will no longer be required to be net foreign exchange positive cumulatively in five years (i.e, export more than they import) as mandated in the SEZ regime.
    • They will be allowed to sell in the domestic area more easily. The hubs will, therefore, be WTO-compliant.
    • DESH legislation also provides for an online single-window portal for the grant of time-bound approvals for establishing and operating the hubs.

    Will there be any tax benefits at these hubs?

    • It’s not clear yet.
    • However, the draft Bill does state that states and the Centre will be allowed to give further incentives in the form of tax rebates, incentives, exemptions, and duty drawbacks.
    • Subsidy schemes may be offered for goods and services at these hubs.
    • States and the Centre may take fresh measures to speed up clearances and simplify compliance.

    Will it be easier to sell in the domestic market?

    • Companies can sell in the domestic market with duties only to be paid on the imported inputs and raw materials instead of the final product.
    • In the current SEZ regime, duty is paid on the final product when a product is sold in the domestic market.
    • Besides, there is no mandatory payment requirement in forex, unlike in the case of SEZs.
    • However, the government may impose an equalization levy on goods or services supplied to the domestic market to bring taxes at par with those provided by units outside

    What role will states play in DESH?

    • DESH is expected to play a larger role, definitely.
    • In the SEZ regime, most decisions were made by the commerce department at the Centre.
    • Now, states will be able to participate and even directly send recommendations for development hubs to a central board for approval.
    • Besides, state boards would be set up to oversee the functioning of the hubs.
    • They would have the powers to approve imports or procurement of goods, and monitor the utilization of goods or services, warehousing, and trading in the development hub.

    Way forward

    • If indeed India needs the special hubs, the govt must address the critical gaps in existing SEZ law through the DESH bill and it must be thought through before bringing it to the Parliament.
    • Effective implementation of the law could act as a lever to India’s growth.

     

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  • What are Critical Minerals?

    India and Australia have decided to strengthen their partnership in the field of projects and supply chains for critical minerals.

    What is the news?

    • Australia has confirmed that it would commit A$5.8 million to the three-year India-Australia Critical Minerals Investment Partnership”.

    What are Critical Minerals?

    • Critical minerals are elements that are the building blocks of essential modern-day technologies, and are at risk of supply chain disruptions.
    • These minerals are now used everywhere from making mobile phones, computers to batteries, electric vehicles and green technologies like solar panels and wind turbines.
    • Based on their individual needs and strategic considerations, different countries create their own lists.
    • However, such lists mostly include graphite, lithium, cobalt, rare earths and silicon which is a key mineral for making computer chips, solar panels and batteries.
    • Aerospace, communications and defence industries also rely on several such minerals as they are used in manufacturing fighter jets, drones, radio sets and other critical equipment.

    Why is this resource critical?

    • As countries around the world scale up their transition towards clean energy and digital economy, these critical resources are key to the ecosystem that fuels this change.
    • Any supply shock can severely imperil the economy and strategic autonomy of a country over-dependent on others to procure critical minerals.
    • But these supply risks exist due to rare availability, growing demand and complex processing value chain.
    • Many times the complex supply chain can be disrupted by hostile regimes, or due to politically unstable regions.
    • They are critical as the world is fast shifting from a fossil fuel-intensive to a mineral-intensive energy system.

    What is China ‘threat’?

    • China is the world’s largest producer of 16 critical minerals.
    • China alone is responsible for some 70% and 60% of global production of cobalt and rare earth elements, respectively, in 2019.
    • The level of concentration is even higher for processing operations, where China has a strong presence across the board.
    • China’s share of refining is around 35% for nickel, 50-70% for lithium and cobalt, and nearly 90% for rare earth elements.
    • It also controls cobalt mines in the Democratic Republic of Congo, from where 70% of this mineral is sourced.
    • In 2010, China suspended rare earth exports to Japan for two months over a territorial dispute.

    What are countries around the world doing about it?

    • US has shifted its focus on expanding domestic mining, production, processing, and recycling of critical minerals and materials.
    • India has set up KABIL or the Khanij Bidesh India Limited to ensure mineral security of the nation.
    • Australia’s Critical Minerals Facilitation Office (CMFO) and KABIL had recently signed an MoU aimed at ensuring reliable supply of critical minerals to India.
    • The UK has unveiled its new Critical Minerals Intelligence Centre to study the future demand for and supply of these minerals.

     

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  • Recruitment of 10 lakh people in “mission mode

    Context

    The government recently announced that 10 lakh government jobs will be provided over the next 18 months on a “mission mode”.

    Background

    • The government recently announced it would recruit 10 lakh people in “mission mode” over the next one-and-a-half years.
    • The announcement came at a time when the unemployment rate for youth (aged 15-29 years) in urban areas has been hovering at over 20 per cent for the last several quarters.
    • According to the Quarterly Bulletin of Periodic Labour Force Survey (PLFS), the youth unemployment rate, according to current weekly status, stood at 20.8 per cent in urban areas during October-December 2021.
    • The annual PLFS report too shows that the overall youth unemployment rate, according to usual status (ps+ss), was at 12.9 per cent — 18.5 per cent in urban areas and 10.7 per cent in rural areas — during July-June 2020-21.

    Three takeaways from the announcement

    • One, the creation of employment is indeed a problem and can no longer be hidden from the public discourse.
    • Two, the private sector, especially modern sectors such as the service and manufacturing sectors, which are dominated by multinational companies, have not created many jobs.
    • Even if the Information Technology sector or the modern gig economy have created jobs, these are either very high-skilled jobs or low-skilled ones.
    • Three, the government in the Nehruvian scheme of development occupied an important place in the labour market.
    • The government is now forced to step in as persistently rising inflation, unemployment and underemployment threaten to politically affect it.

    Employment data and issues with it

    • Government is at present relying on the Employees’ Provident Fund Organisation/National Pension System/Employees’ State Insurance Scheme registrations and exits as indicators of the formal labour market.
    • This could be misleading as companies may be increasing registrations to cross the threshold to become eligible to fall under any of these.
    • Formalisation: Hence, this might be more a case of formalisation rather than employment generation.
    • Second, media reports show that more than 85% of those aspiring for those 10 lakh jobs could be consumed by existing vacancies in Central government departments (8,72,243).
    • The decline in PSU jobs: Third, 241 central public sector enterprises (CPSEs) have been shedding jobs in recent years.
    • The decline in quality of jobs: Even though the labour force and workforce participation rates have increased marginally, there is a decline in the quality of jobs, viz. there is a rise in the unpaid segment of the self-employed and a rise in the share of the agricultural sector in total employment over the last three Periodic Labour Force Surveys (43% to 47%).

    Role of the private sector

    • The private sector creates jobs in response to market forces and while taking into consideration radically altering technological developments.
    • We cannot avoid placing the government at the centre of employment creation beyond a certain point.
    • Projects in the modern private sector consume a lot of capital to generate very few jobs.
    • For instance, recently, there was a report that the Adani Group has invested ₹70,000 crore (or ₹700 million) in Uttar Pradesh to create merely 30,000 jobs.
    • Foreign Direct Investment, which at any rate is highly capital-intensive, goes mostly into the non-manufacturing sectors.

    Way forward

    • The government’s role in employment generation has entered into popular discourse and discussions on policy formation.
    • The government should play a significant role soon.
    • Government as principal employment generator: The government should re-establish its role as the principal employment generator through jobs in its ministries and CPSEs and through assured employment generation programmes like MGNREGA.

    Conclusion

    Employment is not merely about numbers and growth figures.  We need to concentrate on enabling the creation of decent work and a sustainable labour market to which India is committed as a member of the United Nations and the International Labour Organization.

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  • International North–South Transport Corridor (INSTC)

    Iran started the first transfer of Russian goods to India via a new trade corridor which transits the West Asian nation, people on the Iranian side familiar with the developments told news outlets.

    The cargo will travel through the International North-South Transport Corridor (INSTC).

    What is the news?

    • The cargo ship departed St. Petersburg for the Caspian Sea port city of Astrakhan.
    • It will reach the northern Iranian port of Anzali and then will be transferred by road to the southern port of Bandar Abbas on the Persian Gulf.
    • From Bandar Abbas it will reach via ship to India at Jawaharlal Nehru Port Trust (JNPT).

    International North–South Transport Corridor (INSTC)

    • The INSTC is a 7,200 km-long multimodal transportation network encompassing sea, road, and rail routes to offer the shortest route of connectivity.
    • It was established on 12th September 2000 in St. Petersburg, by Iran, Russia and India for the purpose of promoting transportation cooperation among the Member States.
    • It links the Indian Ocean to the Caspian Sea via the Persian Gulf onwards into Russia and Northern Europe.
    • It will move freight between India, Iran, Afghanistan, Armenia, Azerbaijan, Russia, Central Asia and Europe.

    Significance of INSTC

    • Trade facilitation: INSTC is aimed at reducing the carriage cost between India and Russia by about 30 per cent and bringing down the transit time by more than half.
    • New corridor in making: It has the potential to transform the economies of countries along the corridor into specialized manufacturing, logistics, and transit hubs by facilitating access to newer markets.
    • Multimodal transit: The recent Suez Canal blockade, which cost the global economy hefty damage amounting to US$9 billion, has amplified the optimistic outlook towards the INSTC as a cheaper and faster alternative multimodal transit corridor.

    Benefits offered to India

    • Export promotion: The INSTC connects India with Central Asia, and Russia, and has the potential to expand up to the Baltic, Nordic, and Arctic regions, increasing the scope of trade multifold.
    • Ease of trade: For India, it provides a shorter trade route with Iran, Russia, and beyond to Europe, creating scope for increased economic engagement.
    • Alternative Route to Central Asia: It opens up a permanent alternative route for India to trade with Afghanistan and Central Asia, given the hurdles in the direct route through Pakistan.

     

     

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