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

  • Customs Duty Waiver on Edible Oil Imports

    The Union Commerce Minister has announced that the government has decided to waive customs duty on import of crude sunflower, palm and soyabean oil, a move aimed at controlling their prices.

    Edible Oil Imports and India

    • Given the heavy dependency on imports, the Indian edible oil market is influenced by the international markets.
    • Of the 20-21 million tonnes of edible oil that India consumes annually, around 4-15 mt is imported.
    • India is second only to China (34-35 mt) in terms of consumption of edible oil.
    • Crude and food-grade refined oil is imported in large vessels, mainly from Malaysia, Brazil, Argentina, Indonesia etc.
    • Home-grown oilseeds such as soyabean, groundnut, mustard, cottonseed etc find their way to domestic solvent and expellers plants, where both the oil and the protein-rich component is extracted.

    Do you know?

    Palm oil (45%) is the largest consumed oil, mainly used by the food industry for frying namkeen, mithai, etc, followed by soyabean oil (20%) and mustard oil (10%), with the rest accounted for by sunflower oil, cottonseed oil, groundnut oil etc.

    Prices and politics

    • Prices of edible oil have been rising across the country since few months.
    • Most edible oils are trading between Rs 130-Rs 190/litre.
    • Also, the festive season will see increased buying of edible oils.

    Impact of the move

    • Consumers might not see a drastic reduction immediately in prices of edible oil.
    • The reduction in duty is expected to affect the earnings of oilseed growers across the country.

    Long-term implications

    • Over the last few years, the government has taken a series of steps to remove India’s import dependency on pulses, and tried to do the same for oilseeds through national missions.
    • However, frequent market interventions that ultimately bring down prices would backfire on the government and veer farmers away from growing oilseeds.
    • We need continuity in prices to help farmers stick to oilseeds or pulses.

    Back2Basic: Customs Duty

    • Customs duty refers to the tax imposed on goods when they are transported across international borders.
    • In simple terms, it is the tax that is levied on import and export of goods.
    • Custom duty in India is defined under the Customs Act, 1962, and all matters related to it fall under the Central Board of Excise & Customs (CBEC).
    • The government uses this duty to raise its revenues, safeguard domestic industries, and regulate movement of goods.
    • The rate of Customs duty varies depending on where the goods were made and what they were made of.

    Types of custom duty

    1. Basic Customs Duty (BCD): It is the duty imposed on the value of the goods at a specific rate at a specified rate of ad-valorem basis.
    2. Countervailing Duty (CVD): It is imposed by the Central Government when a country is paying the subsidy to the exporters who are exporting goods to India.
    3. Additional Customs Duty or Special CVD: It is imposed to bring imports on an equal track with the goods produced or manufactured in India.
    4. Protective Duty: To protect interests of Indian industry
    5. Safeguard Duty: It is imposed to safeguard the interest of our local domestic industries. It is calculated on the basis of loss suffered by our local industries.
    6. Anti-dumping Duty: Manufacturers from abroad may export goods at very low prices compared to prices in the domestic market. In order to avoid such dumping, ADD is levied.

     

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  • India retains 3rd position in RE Investment Attractiveness Index

    India has retained the third rank in the Renewable Energy Country Attractiveness Index released by consultancy firm EY.

    RE Country Attractiveness Index (RECAI)

    • The RECAI ranks the world’s top 40 markets on the attractiveness of their renewable energy investment and deployment opportunities.
    • The rankings reflect assessments of market attractiveness and global market trends.

    India’s performance

    • India remained at the third position since three consecutive years.
    • India’s thriving renewable energy market conditions, inclusive policy decisions, investment and technology improvements focusing on self-reliant supply chains have pushed the transition.
    • RECAI highlights that corporate power purchase agreements (PPAs) are emerging as a key driver of clean energy growth.
    • A new PPA Index – introduced in this edition of RECAI – focuses on the attractiveness of renewable power procurement and ranks the growth potential of a nation’s corporate PPA market.
    • India is ranked sixth among the top 30 PPA markets.

    Global scenario

    • The US, mainland China and India continue to retain the top three rankings and Indonesia is a new entrant to the RECAI.
    • The top-performing markets have held their ground in this latest issue – with no movement into or out of the top eight.
    • France (fourth position, up by one) and the UK (fifth position, down by one), while Germany (sixth position, up by one) has edged back ahead of Australia (seventh position, down by one).

     

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  • [pib] Indian Space Association

    The PM has launched the Indian Space Association (ISpA), an industry body consisting of various stakeholders of the Indian space domain.

    Indian Space Association (ISpA)

    • The ISpA is a premier industry association of space and satellite companies, which aspires to be the collective voice of the Indian space industry.
    • It will be headed by retired Lieutenant General AK Bhatt, who will be its Director General.
    • It will target to undertake policy advocacy and engage with all stakeholders in the Indian space domain. It will engage with the government and all its agencies.

    Why is the formation of ISpA significant?

    • Million-dollar industry: Governments across the world have poured millions of dollars to push the envelope in term of exploring the edges of the space.
    • Collaborated research: With time, governments and government agencies collaborated to explore newer planets and galaxies in search of life forms that exist outside Earth.
    • Private players involvement: In the recent past, private sector companies such as Elon Musk’s SpaceX, Richard Branson’s Virgin Galactic, and Jeff Bezos’ Blue Origin have taken the lead in spaceflight.
    • Easing workload on ISRO: Though India too has made significant strides in space exploration over time, state-run ISRO has been at the centre and front of this progress.

    What does ISpA aim to achieve?

    • Supplementing space research: One of the main goals of the organisation is to supplement the government’s efforts towards making India a global leader in commercial space-based excursions.
    • Commercial space exploration: ISpA said it would engage with stakeholders across the ecosystem for the formulation of an enabling policy framework which fulfills the government vision of leading commercial space exploration.
    • Establishing global linkages: ISpA will also work towards building global linkages for the Indian space industry to bring in critical technology and investments into the country to create more high skill jobs.

    Who are the stakeholders in this organisation? How will they contribute?

    • ISpA will be represented by leading domestic and global corporations that have advanced capabilities in space and satellite technologies.
    • It has taken off with several Indian and international companies betting on it as the next frontier to provide high-speed and affordable Internet connectivity to inaccessible areas as well.
    • This includes SpaceX’s StarLink, Sunil Bharti Mittal’s OneWeb, Amazon’s Project Kuiper, US satellite maker Hughes Communications, etc.
    • OneWeb, for example, is building its initial constellation of 648 low-earth orbit satellites and has already put 322 satellites into orbit.

    Why is satellite-based Internet important in India?

    • The expansion of the Internet in India is crucial to the Modi government’s dream of a digital India where a majority of government services are delivered directly to the customer.
    • The government aims to connect all villages and gram panchayats with high-speed Internet over the next 1000 days through BharatNet.
    • However, internet connectivity in hilly areas and far-flung places of Northeast India are still a challenge.
    • To overcome this, industry experts suggest that satellite Internet will be essential for broadband inclusion in remote areas and sparsely populated locations where terrestrial networks have not reached.
    • Satellite communications remain limited to use by corporates and institutions that use it for emergency use, critical trans-continental communications and for connecting to remote areas with no connectivity.

     

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  • Air India Disinvestment Deal

    After 68 years, Air India is all set to return to the Tata fold.

    What is the deal?

    • The Tatas will own 100% stake in Air India, as also 100% in its international low-cost arm Air India Express and 50% in the ground handling joint venture, Air India SATS.
    • Apart from 141 planes and access to a network of 173 destinations including 55 international ones, Tatas will also have the ownership of iconic brands like Air India, Indian Airlines and the Maharajah.

    History of Air India

    • Prominent industrialist JRD Tata founded the airline in 1932 and named it Tata Airlines.
    • As India gained Independence, the government bought 49% stake in AI.
    • In 1946, the aviation division of Tata Sons was listed as Air India, and in 1948, the Air India International was launched with flights to Europe.
    • In 1953, Air India was nationalised and for the next over four decades it remained the prized possession for India controlling the majority of the domestic airspace.

    Why was Air India sold?

    • End of Monopoly: With economic liberalisation and the growing presence of private players, this dominance came under serious threat.
    • Govt running an airline: Ideologically too, the government running an airline did not quite gel with the mantra of liberalisation.
    • Continuous losses: By 2007, AI (which flew international flights) was merged with the domestic carrier, Indian Airlines, to reduce losses.
    • Wastage of taxpayers money: But it is the mark of how poorly the airline was run that it has never made a profit since 2007.

    Why wasn’t it sold earlier?

    Ans. Fear over Operational Freedom

    • The first attempt to reduce the government’s stake — disinvestment — was made in 2001 under the then NDA government.
    • But that attempt — to sell 40% stake — failed.
    • In 2018, the government made another attempt to sell the government stake — this time, 76%. But it did not elicit even a single response.
    • In the latest attempt started in January 2020, the government has been able to finally conclude the sale.

    So how was it managed this time?

    • Govt gives up stakes: The mere fact that the government retained a partial stake. In other words, as long as the government kept a certain shareholding of AI, private players did not seem interested.
    • Operational freedom: That’s because the mere idea of government ownership, even if it was as little as 24%, made private firms wonder if they would have the operational freedom needed.
    • Debt sharing: In the past, the government expected the bidders to pick up a certain amount of the debt. This time, the government let the bidders decide the amount of debt they wanted to pick up.

    Significance of the deal

    [A] From the government’s perspective: A success

    • Disinvestment: It underscores govt commitment to reducing the its role in the economy.
    • Easing burden on taxpayers: This claims to have saved taxpayers from paying for daily losses of AI.
    • Economic reforms: Given the historical difficulties in AI’s disinvestment, or any disinvestment at all this is a significant achievement.

    [B] Business perspective: Still a failure

    • Missing the target: Purely in terms of money, the deal does not result in as big a step towards achieving the government’s disinvestment target of the current year.
    • Unresolved bankruptcy: The assets left with the government, such as buildings, etc., will likely generate Rs 14,718 crore. But that will still leave the government with a debt of Rs 28,844 crore to pay back.

    [C] Value perspective: Success for Tatas

    • Business success: From the Tatas’ perspective, apart from the emotional aspect of regaining control of an airline that they started, AI’s acquisition is a long-term bet.
    • Investment boost: The Tatas are expected to invest far more than what they have paid the government if this bet is to work for them.

    Conclusion

    • Complete liberalization: The privatisation of Air India is a message from the Government to the markets and global investors that it has the political will to bite the reform bullet.
    • Roadmap for economic reforms: The govt had to shed the “over-conservatism” that is typical of bureaucracy.
    • Future disinvestments: A transaction as “tough and complex” as Air India’s in an open, transparent and competitive bidding process, will boost future privatisation.

    Way forward

    • Other loss-making PSUs continue to drain taxpayers’ hard-earned money and get abused and fleeced in the name of social welfare.
    • The govt should imbibe this experience gained in future disinvestment biddings.

     

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  • [pib] Industrial Park Ratings System (IPRS) Report

    The Department for Promotion of Industry and Internal Trade (DPIIT) has released the Industrial Park Ratings System Report.

    Industrial Park Ratings System (IPRS)

    • The IPRS pilot exercise was launched in 2018 with an objective of enhancing industrial infrastructure competitiveness and supporting policy development for enabling industrialization across the country.
    • The IPRS report is an extension of the India Industrial Land Bank which features more than 4,400 industrial parks in a GIS-enabled database.
    • It seeks to help investors identify their preferred location for investment.
    • With this report, the investors can even remotely refer to this report to identify the suitable investable land area, as per the various parameters of infrastructure, connectivity, business support services and environment and safety standards.

    Highlights of the report

    • 41 Industrial Parks have been assessed as “Leaders” in the Industrial Park Ratings System Report released by DPIIT.
    • 90 Industrial Parks have been rated as under the Challenger category while 185 have been rated as under “Aspirers”.
    • These ratings are assigned on the basis of key existing parameters and infrastructure facilities etc.

     

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  • India’s Current Account Balance sees a spike

    India’s current account balance saw a far lower surplus of $6.5 billion (0.9% of GDP) in the first quarter compared with a surplus of $19.1 billion (3.7% of GDP) a year earlier.

    What is External Sector?

    • The external sector is the portion of a country’s economy that interacts with the economies of other countries.
    • In the goods market, the external sector involves exports and imports.
    • In the financial market it involves capital flows.

    Various terminologies related:

    [A] Balance of Payment (BoP)

    • BoP is the difference between all money flowing into the country in a particular period of time (e.g., a quarter or a year) and the outflow of money to the rest of the world.
    • These financial transactions are made by individuals, firms and government bodies to compare receipts and payments arising out of trade of goods and services.
    • It consists of two components: the current account and the capital account.
    • The current account reflects a country’s net income, while the capital account reflects the net change in ownership of national assets.

    (1) Current Account

    • Current account of BoP consists of all transactions relating to goods, services and income, it is functionally classified into merchandise and
    • Current account deficit is the situation where payments on the country are more than the payments into the country.
    • In current account surplus, there is a net inward payment into the country on the current.

    (2) Capital Account

    • The capital account records the net flow of investment transaction into an economy.
    • Investments (FDI and FII) and borrowings (ECB) are part of the capital account.

    [B] Balance of Trade

    • Trade “balance” of a country shows the difference between what it earns from its exports and what it pays for its imports.
    • If this number is in negative – that is, the total value of goods imported by a country is more than the total value of goods exported by that country – then it is referred to as a “trade deficit”.
    • If India has a trade deficit with China then China would necessarily have a “trade surplus” with India.

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  • [pib] National Export Insurance Account (NEIA) Scheme

    The Centre has approved the contribution of Grant-in-aid (Corpus) of â‚č1,650 Crore to the National Export Insurance Account (NEIA).

    National Export Insurance Account Scheme

    • NEIA Trust was established in 2006 to promote project exports from India that are of strategic and national importance.
    • The NEIA Trust promotes Medium and Long Term (MLT) /project exports.
    • It extends (partial/full) support to covers issued by ECGC (ECGC Ltd, formerly known as Export Credit Guarantee Corporation of India Ltd.) to MLT/project export and to Exim Bank for Buyer’s Credit (BC-NEIA) tied to project exports from India.

    Benefits offered

    • The capital infusion in NEIA Trust will help the Indian Project Exporters (IPE) to tap the huge potential of project exports in focus market.
    • Support to project exports with Indian content sourced from across the country will enhance the manufacturing in India.
    • In addition, assuming an average 75% Indian content in the projects, it is estimated that around 12000 workers will move into formal sector.

    Performance highlights

    • Since inception, NEIA has extended 213 covers, with a consolidated project value of Rs. 53,000 crores, to 52 countries as of 31st August 2021.
    • Its impact in enabling project exports has been most significant in Africa and South Asia.

     

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  • Defence Ministry issues order for OFB dissolution

    The Defence Ministry has issued an order for the dissolution of the Ordnance Factory Board (OFB) with effect from October 1.

    Ordnance Factory Board (OFB)

    • OFB consisting of the Indian Ordnance Factories is a government agency under the control of the department of defence production (DDP).
    • It is engaged in research, development, production, testing, marketing and logistics of a product range in the areas of air, land and sea systems.
    • OFB comprises 41 ordnance factories, nine training institutes, three regional marketing centres and four regional controllers of safety, which are spread all across the country.

    Take a look at this timeline

    1712 – Establishment of the Dutch Ostend Company’s Gun Powder Factory at Ichhapur

    1775 – Establishment of the Board of Ordnance at Fort William, Kolkata.

    1787 – Establishment of the Gun Powder Factory at Ishapore.

    1935 – Indian Ordnance Service was introduced to administer the whole Defence Production Industry of India.

    1954 – Indian Ordnance Service (IOS) renamed to Indian Ordnance Factories Service (IOFS).

    1979 – Ordnance Factory Board is established on 2 April.

    Why are OFBs significant?

    • OFB is the world’s largest government-operated production organization and the oldest organization in India.
    • It has a total workforce of about 80,000.
    • It is often called the “Fourth Arm of Defence” and the “Force Behind the Armed Forces” of India.
    • OFB is the 35th largest defence equipment manufacturer in the world, 2nd largest in Asia, and the largest in India.

    Why corporatization?

    • It is a major decision in terms of national security and also make the country self-sufficient in defence manufacturing as repeatedly emphasized by PM.
    • This move would allow these companies autonomy and help improve accountability and efficiency.
    • This restructuring is aimed at transforming the ordnance factories into productive and profitable assets, deepening specialization in the product range, enhancing competitiveness, improving quality and achieving cost efficiency.

    What about employees?

    • All employees of the OFB (Group A, B and C) belonging to the production units would be transferred to the corporate entities on deemed deputation.
    • The pension liabilities of the retirees and existing employees would continue to be borne by the government.

    Significance of the move

    • With OFB dissolution, its assets, employees and management would be transferred to seven newly constituted defence public sector undertakings (DPSUs).
    • This would mean the end of the OFB, the establishment of which was accepted by the British in 1775.

     

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  • What are Electronic Gold Receipts?

    The board of the Securities and Exchange Board of India (SEBI) has approved the framework for a gold exchange as well as for vault managers. This approval paves the way for gold exchanges to be set up for trading in ‘Electronic Gold Receipt’ (EGR).

    What is EGR?

    • SEBI’s concept paper proposes issuing an electronic gold receipt in exchange pf physical gold (similar to equity shares), deposited with a vault manager (like a depositary participant) and this receipt can then be traded.
    • The government wants India’s outsized influence in the physical market for gold to be visible in the financial market for gold as well.

    Why need EGRs?

    • EGI is a way of getting people to not hoard gold, by creating an exchange that provides transparent pricing and liquidity (to cash or back to gold).
    • India is a net importer of gold. We are price takers and not price setters. The whole idea is to move from being price takers to be price setters.
    • Price discovery at the exchanges will thus lead to transparency in gold pricing.
    • The gold exchanges would provide transparent price discovery, investment liquidity and assurance in the quality of gold.

    What is the SEBI regulation?

    • SEBI has also proposed a regulatory framework for setting up a gold exchange.
    • Existing stock exchanges will be allowed to provide the platform for trading of EGRs.
    • The denomination for trading of EGR and conversion of EGR into gold will be decided by the stock exchange with the approval of SEBI.
    • The clearing corporation will settle the trades executed on the stock exchanges by way of transferring EGRs and funds to the buyer and seller, respectively.

    How will EGR work?

    • EGR holders, at their discretion, can withdraw the underlying gold from the vaults after surrendering the EGRs.
    • SEBI-accredited vault managers will be responsible for the storage and safekeeping of gold deposits, creation of EGRs, withdrawal of gold, grievance redressal and periodic reconciliation of physical gold with the records of depository.
    • The vault manager will have a networth of at least â‚č50 crore.

    Back2Basics: Securities and Exchange Board of India (SEBI)

    • The SEBI is the regulatory body for securities and commodity market in India under the jurisdiction of Ministry of Finance Government of India.
    • It was established on 12 April 1988 and given Statutory Powers on 30 January 1992 through the SEBI Act, 1992.

    Jurisdiction of SEBI

    • SEBI has to be responsive to the needs of three groups, which constitute the market:
    1. Issuers of securities
    2. Investors
    3. Market intermediaries

    SEBI has three powers rolled into one body: quasi-legislative, quasi-judicial and quasi-executive.

    • It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity.
    • Though this makes it very powerful, there is an appeal process to create accountability.
    • There is a Securities Appellate Tribunal which is a three-member tribunal and is currently headed by Justice Tarun Agarwala, former Chief Justice of the Meghalaya High Court.
    • A second appeal lies directly to the Supreme Court.

     

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  • What is a Cartel?

    Last week, the Competition Commission of India (CCI) has slapped a penalty on a cartel of beer companies for hiking the prices.

    What is a Cartel?

    • According to CCI, a “Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”.
    • The International Competition Network, which is a global body dedicated to enforcing competition law, has a simpler definition.
    • The three common components of a cartel are:
    1. an agreement
    2. between competitors
    3. to restrict competition

    What is Cartelization?

    • Cartelization is when enterprises collude to fix prices, indulge in bid rigging, or share customers, etc.
    • But when prices are controlled by the government under a law, that is not cartelization.
    • The Competition Act contains strong provisions against cartels.
    • It also has the leniency provision to incentivise a party to a cartel to break away and report to the Commission, and thereby expect total or partial leniency.
    • This has proved a highly effective tool against cartels worldwide.
    • Cartels almost invariably involve secret conspiracies.

    How do they work?

    • According to ICN, four categories of conduct are commonly identified across jurisdictions (countries). These are:
    1. price-fixing
    2. output restrictions
    3. market allocation and
    4. bid-rigging
    • In sum, participants in hard-core cartels agree to insulate themselves from the rigours of a competitive marketplace, substituting cooperation for competition.

    How do cartels hurt?

    • While it may be difficult to accurately quantify the ill-effects of cartels, they not only directly hurt the consumers but also, indirectly, undermine overall economic efficiency and innovations.
    • A successful cartel raises the price above the competitive level and reduces output.
    • Consumers choose either not to pay the higher price for some or all of the cartelised product that they desire, thus forgoing the product, or they pay the cartel price and thereby unknowingly transfer wealth to the cartel operators.

    In other words, by artificially holding back the supply or raising prices in a coordinated manner, companies either force some consumers out of the market by making the commodity (say, beer) more scarce or by earning profits that free competition would not have allowed.

    Are there provisions in the Competition Act against monopolistic prices?

    • There are provisions in the Competition Act against abuse of dominance.
    • One of the abuses is when a dominant enterprise “directly or indirectly imposes unfair or discriminatory prices” in purchase or sale of goods or services.
    • Thus, excessive pricing by a dominant enterprise could, in certain conditions, be regarded as an abuse and, therefore, subject to investigation by the Competition Commission if it were fully functional.
    • However, it should be understood that where pricing is a result of normal supply and demand, the Competition Commission may have no role.

    How might cartels be worse than monopolies?

    • It is generally well understood that monopolies are bad for both individual consumer interest as well as the society at large.
    • That’s because a monopolist completely dominates the concerned market and, more often than not, abuses this dominance either in the form of charging higher than warranted prices or by providing lower than the warranted quality of the good or service in question.

    How to stop the spread of cartelisation?

    • Cartels are not easy to detect and identify.
    • As such, experts often suggest providing a strong deterrence to those cartels that are found guilty of being one.
    • Typically this takes the form of a monetary penalty that exceeds the gains amassed by the cartel.
    • However, it must also be pointed out that it is not always easy to ascertain the exact gains from cartelisation.
    • In fact, the threat of stringent penalties can be used in conjunction with providing leniency — as was done in the beer case.

    Try this PYQ:

    One of the implications of equality in society is the absence of:

    (a) Privileges

    (b) Restraints

    (c) Competition

    (d) Ideology

     

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    Back2Basics: Competition Commission of India (CCI)

    • The CCI is the chief national competition regulator in India.
    • It is a statutory body within the Ministry of Corporate Affairs.
    • It is responsible for enforcing The Competition Act, 2002 in order to promote competition and prevent activities that have an appreciable adverse effect on competition in India.

     

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