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

  • [pib] Hallmarking of Gold Jewellery

    Hallmarking of Gold Jewellery is set to begin from 15th June 2021.

    What is Hallmark Gold?

    1. The process of certifying the purity and fineness of gold is called hallmarking.
    2. Bureau of Indian Standards, the National Standards Body of India, is responsible for hallmarking gold as well as silver jewellery under the BIS Act.
    3. If you see the BIS hallmark on the gold jewellery/gold coin, it means it conforms to a set of standards laid by the BIS. Hallmarking gives consumers assurance regarding the purity of the gold they bought.
    4. That is, if you are buying hallmarked 18K gold jewellery, it will actually mean that 18/24 parts are gold and the rest is alloy.
    5. At present, only 30% of Indian Gold Jewellery is hallmarked.

    Here are the four components one must look at the time of buying gold (they are mentioned in the laser engraving of a hallmark seal):

    1. BIS Hallmark: Indicates that its purity is verified in one of its licensed laboratories
    2. Purity in carat and fineness (corresponding to given caratage KT)
    • 22K916 (91.6% Purity)
    • 18K750 (75% Purity)
    • 14K585 (58.5% Purity)
    1. Assaying & Hallmarking Centre’s mark
    2. Jeweler’s unique identification mark

    Answer this PYQ from CSP 2017 in the comment box

    Q.Consider the following statements:

    1. 1. The Standard Mark of the Bureau of Indian Standards (BIS) is mandatory for automotive tyres and tubes.
      2. AGMARK is a quality Certification Mark issued by the Food and Agriculture Organisation (FAO).

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

    Why need hallmark?

    • Hallmarking will enable Consumers/Jewellery buyers to make the right choice and save them from any unnecessary confusion while buying gold.
    • It will enhance the credibility of gold Jewelry and Customer satisfaction through third-party assurance for the marked purity/fineness of gold, consumer protection.
    • This step will also help to develop India as a leading gold market center in the World.

  • Explained: Cryptocurrency Market Crash

    The cryptocurrency market saw a big correction with prices of major currencies, including Bitcoin, Ethereum, BNB, and others crashing as much as 30% within 24 hours.  This came in the backdrop of Chinese regulators announcing a crackdown on cryptocurrencies.

    Try this question from our AWE initiative:

    What is a cryptocurrency? What benefits and challenges do cryptocurrencies pose? (250 Words)

    Crackdown on Crypto Market

    • China has barred financial institutions and payment companies from providing any services related to cryptocurrency transactions.
    • This means that banks and online payment channels must not offer clients any service involving cryptocurrencies, such as registration, trading, clearing, and settlement.
    • China had issued such a ban in 2017 as well, but compared with the previous ban, the new rules have expanded the scope of prohibited services, and surmise that “virtual currencies are not supported by any real value”.

    Other reason behind this crash: The Tesla story

    • Tesla recently announced that it wouldn’t favor Bitcoin on ‘environmental’ concerns because Bitcoin mining requires electricity which is mostly generated using fossil fuels.
    • However, this seems to be motivated and raises a few questions like – didn’t the Tesla management already know about Bitcoin mining before diversifying into it?

    What does this fall imply?

    • A crackdown by one of the world’s biggest economy notwithstanding, those in the ecosystem has termed this decline as a short-term correction.
    • A nearly 40% dip in the bitcoin price from its all-time high looks dramatic but is normal in many volatile markets, including crypto, especially after such a large rally.
    • Such corrections are mainly due to short-term traders taking profits.
    • Long-term value investors might call these lower prices a buying opportunity.

    Back2Basics: Cryptocurrencies

    • A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerized database.
    • It uses strong cryptography to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership.
    • It typically does not exist in physical form (like paper money) and is typically not issued by a central authority.
    • Cryptocurrencies typically use decentralized control as opposed to centralized digital currency and central banking systems.

  • Towards digital Atmanirbharta

    We need a comprehensive FDI policy on trade to take care of the needs of all the stakeholders. The article highlights the issues faced by the e-commerce sector in relation to the FDI policy.

    E-commerce as an enabler

    • With their efficient, quick and reliable logistics network, e-commerce platforms have nudged consumer behaviour patterns from an offline to an online shopping mode.
    • During the pandemic, e-commerce emerged as an enabler in ensuring the availability of essentials to the masses.
    • E-commerce is going to be increasingly important in the future of retail shopping in India and the world over.
    • It is estimated to become a $100 billion industry by 2024, which was at $38.5 billion until 2017.
    •  The trend will continue to grow with the government’s impetus on digital literacy, also supported by the increasing penetration of internet and smartphone users.
    • However, what the sector lacks is the bandwidth of operation.

    Issues with FDI policy for e-commerce

    • In addition to the FDI Policy/FEMA, other laws such as IT Act, Consumer Protection Act, and those pertaining to IP and copyright, regulate the e-commerce sector in India.
    • Of these, the FDI policy plays an important role as massive investments are needed to build and strengthen the entire ecosystem of the e-commerce sector in the country.
    • FDI policies on trade have evolved over time as policy-making was done from time to time mostly responding to the needs of the market coupled with political feasibility.
    • Thus, FDI policy in cash and carry or wholesale B2B operations is different (100 per cent FDI allowed under automatic route) compared to highly restrictive FDI policy on retail B2C trade.
    • Similarly, an artificial distinction was created between single-brand retail and multi-brand retail as opposition to multi-brand retail was strong: 100 per cent FDI is allowed under automatic route in single-brand retail whereas FDI regime in multi-brand retail is quite restricted.
    • E-commerce is not allowed under FDI policy in multi-brand retail.
    • The FDI policy on e-commerce is quite different as e-commerce platforms are allowed to work only as a marketplace with permission to provide certain specified services to sellers and buyers.
    • However, FDI is allowed in the inventory model when these platforms sell fresh farm produce made in India.
    • There is no specific policy on FDI in e-commerce for exports.

    Need for comprehensive FDI policy for trade

    • The rapid expansion of the retail, organised retail as well e-commerce sector in India in the coming years will create huge opportunities for all.
    • The policies that have evolved over time need a relook to balance the interests of all in a win-win policy.
    • Today, our small businesses employing an exceptionally large number of workers need to use e-commerce more and more to augment their sales.
    • E-commerce provides them with the means to access a much bigger market without having to overly invest in marketing. This should include more and more foreign markets.
    • Consumers have benefited enormously from e-commerce.
    • Also, the harmonious working of online and offline retailers is essential.
    • With GST and the drive towards digitisation, more small traders need to be enabled to make the transition and take advantage of the expanding opportunities.

    Consider the question “Why e-commerce sector is important for the economy of a country? What are the issues the sector faces in India?” 

    Conclusion

    Public policy on e-commerce needs to place an equal premium on the views and interests of all the stakeholders in the ecosystem to strengthen our domestic businesses and create many more jobs and livelihood opportunities in the country to fulfil the dreams of Atmanirbhar Bharat.

  • Sudarshan Sen Committee

    The Reserve Bank of India (RBI) constituted a committee to evaluate the role of asset reconstruction companies (ARCs) in stressed debt resolution and review their business model.

    About the committee:

    • It is a six-member committee that will be headed by Sudarshan Sen, former executive director, Reserve Bank of India (RBI).

    Mandate:

    • To review the existing legal and regulatory framework and recommend measures to improve the efficacy of ARCs.
    • It will also review their role in stressed asset resolution under the Insolvency and Bankruptcy Code (IBC), and suggest means to improve liquidity and trading of security receipts.
    • It has also been asked to review the business models of ARCs.
    • The committee will submit its report within three months from the date of its first meeting.

  • India invokes peace clause again as rice subsidies exceed 10% cap

    India has invoked the peace clause at the World Trade Organization (WTO), for the second time, for exceeding the 10 per cent ceiling on support it offered its rice farmers.

    • India had earlier invoked the clause for 2018-19, when it became the first country to do so.
    • India informed the WTO that the value of its rice production in 2019-20 was $46.07 billion while it gave subsidies worth $6.31 billion, or 13.7 per cent as against the permitted 10 per cent.

    What is Peace Clause?

    • The peace clause protects India’s food procurement programmes against action from WTO members in case the subsidy ceilings – 10 per cent of the value of food production in the case of India and other developing countries – are breached.

    What does India told to WTO?

    • India’s breach of commitment for rice arises from support provided in pursuance of public stockholding programmes for food security purposeswhich were in existence as on the date of the Bali Ministerial Decision on Public Stockholding for Food Security Purposes.
    • India said that under its public stockholding programmes for food security purposes, rice, wheat, coarse cereals and pulses, among others, are acquired and released in order to meet the domestic food security needs of the country’s poor and vulnerable population, and “not to impede commercial trade or food security of others. For these reasons only the breach of the de minimis limits for rice is covered by the peace clause.
      Government does not undertake exports on a commercial basis from public stockholdings. Additionally, open market sales of food grains from public stockholding are made provided the buyer gives an undertaking of not exporting from such purchase.
    • The peace clause can’t be challenged and because of this flexibility, distribution of food grains to the poor can be done for free which is crucial during the pandemic.
    • India ensures food security through the minimum support price (MSP) programme, and Public Distribution System and National Food Security Act, 2013.

    Subsidies of WTO:

    • In WTO terminology, subsidies in general are identified by “boxes” which are given the colours of traffic lights: green (permitted), amber (slow down — i.e. need to be reduced), red (forbidden).
    • In agriculture, things are, as usual, more complicated.
      • The Agriculture Agreement has no red box.
      • Domestic support exceeding the reduction commitment levels in the amber box is prohibited
      • There is a blue box for subsidies that are tied to programmes that limit production.
    • There are also exemptions for developing countries (sometimes called an “S&D box” or “development box”, including provisions in Article 6.2 of the Agreement).

    Amber Box:

    • Nearly all domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box, which is defined in Article 6 of the Agriculture Agreement as all domestic supports except those in the blue and green boxes.
    • These include measures to support prices, or subsidies directly related to production quantities.
    • These supports are subject to limits: “de minimis” minimal supports are allowed (generally 5% of agricultural production for developed countries, 10% for developing countries); 32 WTO members that had larger subsidies than the de minimis levels at the beginning of the post-Uruguay Round reform period are committed to reduce these subsidies.
    • The reduction commitments are expressed in terms of a “Total Aggregate Measurement of Support”.

    Blue Box:

    • This is the “amber box with conditions” — conditions designed to reduce distortion.
    • Any support that would normally be in the amber box, is placed in the blue box if the support also requires farmers to limit production (details set out in Paragraph 5 of Article 6 of the Agriculture Agreement).
    • At present there are no limits on spending on blue box subsidies.

    Green box:

    • The green box is defined in Annex 2 of the Agriculture Agreement.
    • In order to qualify, green box subsidies must not distort trade, or at most cause minimal distortion.
    • They have to be government-funded (not by charging consumers higher prices) and must not involve price support.
    • They tend to be programmes that are not targeted at particular products, and include direct income supports for farmers that are not related to current production levels or prices. They also include environmental protection and regional development programmes.
    • Green box” subsidies are therefore allowed without limits, provided they comply with the policy-specific criteria set out in Annex 2.

  • ECLGS ambit widened to cos with loan dues up to 60 days

    To provide relief to stressed companies, the Finance Ministry expanded the scope of a government-guaranteed credit facility to healthcare and stressed sector companies that have loan dues for up to 60 days (or SMA-1 accounts),as against 30 days earlier (SMA-0).

    Key highlights:

    • This has been expected to provide partial relief to stressed firms facing fresh uncertainty and business risks due to fresh lockdowns and restrictions being imposed by states.
    • SMA-1 borrowers in the healthcare sector and 26 other high stress sectorsare now eligible under ECLGS 2.0.
      • Companies from hospitality, travel & tourism, and leisure & sportingsectors are expected to benefit from the relaxation in the scheme.
    • Accounts that are classified as non-performing assets or where overdueshave crossed 60 days (SMA-II) are not eligible.
    • Companies that had loan dues up to 30 days (Special Mention Accounts or SMA-0) as on February 29, 2020, were being provided additional credit of 20 per cent outstanding under the scheme, which will now be given to SMA-1 accounts as well.
    • The government has recently extended the ECLGS till June 2021, as against March 31, 2021 earlier.

    About the ECLGS scheme:

    • The Finance Ministry unveiled a Rs. 20 Lakh Crore comprehensive package, known as the Emergency Credit Line Guarantee Scheme (ECLGS), in view of the economic distress caused by the COVID-19 pandemic.
    • This package is in aid of MSME sector, addressing working capital needs, operational liabilities and restart business impacted due the COVID-19 crisis.
    • Borrowers with up to Rs. 25 Crore outstanding as on Feb 29, 2020 and up to Rs. 100 Crore annual turnover for FY 2020 are eligible for this scheme.
    • Business Enterprises, MSMEs constituted as Proprietorship, Partnership, registered company, trusts and Limited Liability Partnerships (LLPs) shall also be eligible.
    • Borrower accounts which had NPA or SMA-2 status as on Feb 29, 2020 shall not be eligible under the scheme.
    • 20% of the total outstanding credit of borrowers can be sanctioned as a loan under the Guaranteed Emergency Credit Line (GECL), for those who having a loan as on Feb 29, 2020.

    Special Mention Accounts:

    • SMAs are those assets/accounts that shows symptoms of bad asset qualityin the first 90 days itself or before it being identified as NPA.
    • The classification of Special Mention Accounts (SMA) was introduced by the RBI in 2014, to identify those accounts that has the potential to become an NPA/Stressed Asset.
    • Logic of such a classification is because some accounts may turn NPA soon.
      • An early identification will help to tackle the problem better.
      • There are four types of Special Mention Accounts – SMA-NF, SMA 0, SMA1 and SMA 2.
    • The Special Mention Accounts are usually categorized in terms of duration.
    • For example, in the case of SMA -1, the overdue period is between 31 to 60 days.
      • On the other hand, an overdue between 61 to 90 days will make an asset SMA -2.
    • But some ‘Special Mention’ assets are identified on the basis of other factors that reflect sickness/irregularities in the account (SMA -NF).
    • In the case of SMA -NF, non-financial indications about stress of an asset is considered.

  • Harmonized System of Nomenclature Code

    It has been made mandatory for a GST taxpayer having a turnover of more than Rs 5 crore in the preceding financial year, to furnish 6 digits HSN Code (Harmonized System of Nomenclature Code). This comes into effect from April 1.

    HSN code

    • The Harmonized System, or simply ‘HS’, is a six-digit identification code developed by the World Customs Organization (WCO).
    • Called the “universal economic language” for goods, it is a multipurpose international product nomenclature.
    • Over 200 countries use the system as a basis for their customs tariffs, gathering international trade statistics, making trade policies, and monitoring goods.
    • The system helps in harmonizing customs and trade procedures, thus reducing costs in international trade.

    What makes the 6 digit code?

    • A unique six-digit code has numbers arranged in a legal and logical structure, with well-defined rules to achieve uniform classification.
    • Of the six digits, the first two denote the HS Chapter, the next two give the HS heading, and the last two give the HS subheading.
    • The HS Code for pineapple, for example, is 0804.30, which means it belongs to Chapter 08 (Edible fruit & nuts, peel of citrus/melons), Heading 04 (Dates, figs, pineapples, avocados, etc. fresh or dried), and Subheading 30 (Pineapples).

  • What is the 2008 Lehman Crisis?

    The fire sale of about $20 billion of Archegos assets, comprising Chinese and US stocks, has sent jitters in the global financial markets, raising worries that the event could be a possible “Lehman moment”.

    What is the Lehman Crisis?

    • The bankruptcy of Lehman Brothers on September 15, 2008, was the climax of the subprime mortgage crisis.
    • After the financial services firm was notified of a pending credit downgrade due to its heavy position in subprime mortgages, the Federal Reserve summoned several banks to negotiate to finance for its reorganization.
    • These discussions failed, and Lehman filed a petition that remains the largest bankruptcy filing in US history, involving more than US$600 billion in assets.

    Note: The subprime mortgage crisis occurred when the real estate market collapsed and homeowners defaulted on their loans.

    What defines the moment?

    • It signalled a limit to the government’s ability to manage the crisis and prompted a general financial panic.
    • Money market mutual funds, a key source of credit, saw mass withdrawal demands to avoid losses, and the interbank lending market tightened, threatening banks with imminent failure.
    • The government and the Federal Reserve system responded with several emergency measures to contain the panic.

    Other terminologies:

    Margin Call

    • Typically, a margin call occurs when the value of an investor’s margin account falls below the broker’s required amount during a market correction or sell-off.
    • As the margin account contains securities bought with borrowed money, a margin call occurs when lenders demand that an investor deposit additional money or securities into the account so that it is brought up to the minimum value.
    • A margin call is usually an indicator that the securities held in the margin account have decreased in value.
    • When a margin call occurs, the investor must choose to either deposit more money in the account or sell some of the assets held in their account.
    • If the investor fails to pay up the margin amount, the lender will resort to the sale of assets lying in the investor’s account.

  • Remission of Duties and Taxes on Export Products (RODTEP) Scheme

    The notification of benefit rates payable to exporters under the Remission of Duties and Taxes on Export Products (RODTEP) scheme is expected to take more time as it is facing ‘teething issues’.

    Try this PYQ:

    Q.Among the following, which one is the largest exporter of rice in the world in the last five years? (CSP 2019)

    (a) China

    (b) India

    (c) Myanmar

    (d) Vietnam

    RODTEP Scheme

    • RoDTEP is a scheme for Exporters to make Indian products cost-competitive and create a level playing field for them in the Global Market.
    • It has replaced the current Merchandise Exports from India Scheme, which is not in compliance with WTO norms and rules.
    • The new RoDTEP Scheme is a fully WTO compliant scheme.
    • It will reimburse all the taxes/duties/levies being charged at the Central/State/Local level which are not currently refunded under any of the existing schemes but are incurred at the manufacturing and distribution process.

    Why need such a scheme?

    • The scheme was announced last year as a replacement for the Merchandise Export from India Scheme (MEIS), which was not found not to be compliant with the rules of the World Trade Organisation.
    • Following a complaint by the US, a dispute settlement panel had ruled against India’s use of MEIS as it had found the duty credit scrips awarded under the scheme to be inconsistent with WTO norms.

    Back2Basics: Merchandise Exports from India Scheme (MEIS)

    • MEIS was launched with an objective to enhance the export of notified goods manufactured in a country.
    • This scheme came into effect on 1 April 2015 through the Foreign Trade Policy and will be in existence till 2020.
    • MEIS intended to incentivize exports of goods manufactured in India or produced in India.
    • The incentives were for goods widely exported from India, industries producing or manufacturing such goods with a view to making Indian exports competitive.
    • The MEIS covered almost 5000 goods notified for the purpose of the scheme.

  • Vehicle scrapping policy will help Indian steel reduce GHG emissions

    The article explains the advantages of the vehicle scrapping policy announced in the Budget FY22.

    Greenhouse gas contribution  steel industry

    • Steel industry uses carbon as the main reducing agent as also as a fuel for steel production.
    • GHG emissions of the Indian steel industry is 2.0-2.8 tonnes of CO2 per tonne of crude steel, against global average of 1.8 tonne of CO2.

    Scrapping policy

    • Two seminal announcements have been made in Budget FY22, viz. introduction of vehicle scrapping policy and doubling ship-breaking capacity to 9 million tonnes per year.
    • This will minimise dependence on import of scrap and cause a reduction of the GHG footprint of iron & steel.

    Producing steel using scrap

    • Most steel-producing countries are trying to bring down emissions by shifting from iron-ore-based production to scrap-based production.
    • This route can bring CO2 emissions down to below 0.5 tonne of CO2 per tonne of steel.
    • Although most steel-producing countries are using Electric Arc Furnaces (EAF) for scrap-based production, in India, both EAF and Induction Furnaces (IF) are used.
    • The main CO2 load in EAF-based steel production doesn’t come from the off-gas but from producing the electricity used in melting of the scrap.
    • Thus, this can be further reduced if renewable power is used as a source of electricity.

    Saving in forex spending

    • Availability of ferrous scrap in India is very limited—around 25 million tonnes annually from domestic sources.
    • In 2018-19 and 2019-20, the country imported nearly 6.5 million tonnes of scrap each year and thus large forex spending was incurrred.
    • With the announcement of vehicle scrapping policy, steel industry can expect enhanced indigenous availability of ferrous scrap.

    Strengthening the resource efficiency and circular economy

    • The quality of the steel produced is dependent upon the quality of input material and hence any improvement made in ensuring quality of scrap will have marked influence on the steel produced.
    • This shall strengthen the process of resource efficiency & circular economy as considerable natural resources shall be conserved with significant reduction in emission and it will help in moving towards a sustainable steel industry.

    Consider the question “Discuss the advantages of vehicle scrapping policy announced by the government in Budget FY 22.”

    Conclusion

    The announcement of the vehicle scrapping policy couldn’t have come at a better time for steel industry in India, as well since the country lacks desired quality of coking coal and natural gas is also imported.