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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] Chennai–Kanyakumari Industrial Corridor (CKIC)

    The Asian Development Bank (ADB) and the Centre have signed a $484 million loan to improve transport connectivity and facilitate industrial development in the Chennai–Kanyakumari Industrial Corridor (CKIC).

    About CKIC

    • CKIC is part of India’s East Coast Economic Corridor (ECEC), which stretches from West Bengal to Tamil Nadu.
    • The project will upgrade about 590 km of state highways in the CKIC influence areas that cover 23 of the 32 districts between Chennai and Kanyakumari in Tamil Nadu.
    • It connects India to the production networks of South, Southeast, and East Asia.
    • ADB is the lead partner in developing ECEC.

    Answer this PYQ in the comment box:

    Q. With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements:

    1. AIIB has more than 80 member nations.
    2. India is the largest shareholder in AIIB.
    3. AIIB does not have any members from outside Asia.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 and 3 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

    Significance of CKIC

    • The project is part of the priority infrastructure projects identified for corridor development under the ADB-supported CKIC comprehensive development plan.
    • Enhanced connectivity of industrial hubs with hinterland and ports will particularly help increase the participation of Indian manufacturing in global production networks and global value chains.
    • The project will also strengthen road safety improvement programs through advanced technologies for road monitoring and enforcement.
    • In addition, the project will help improve the planning capacity of Tamil Nadu’s Highways and Minor Ports Department.

    Back2Basics: Asian Development Bank

    • The ADB is a regional development bank established on 19 December 1966 which is headquartered in the Ortigas Center located in the city of Mandaluyong, Metro Manila, Philippines.
    • The company also maintains 31 field offices around the world to promote social and economic development in Asia.
    • From 31 members at its establishment, ADB now has 68 members.
    • The ADB was modeled closely on the World Bank and has a similar weighted voting system where votes are distributed in proportion with members’ capital subscriptions.

  • Ordinance Factory Board corporatization gets Cabinet approval

    Addressing a long-pending reform, the Union Cabinet has approved a plan to corporatize the Ordnance Factory Board (OFB).

    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.

    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?

    • Once implemented, the OFB, the establishment of which was accepted by the British in 1775, will cease to exist.
    • 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.

    Adhering to past recommendations

    • There have been several recommendations by high-level committees in the past for corporatising it to improve efficiency and accountability.

    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.

    How would this be accomplished?

    • The 41 factories would be subsumed into seven corporate entities based on the type of manufacturing.
    • The ammunition and explosives group would be mainly engaged in producing ammunition of various calibre and explosives, with huge potential to grow exponentially.
    • Similarly, the vehicles group would mainly engage in producing defence mobility and combat vehicles such as tanks, trawls, infantry and mine protected vehicles.

  • Places in news: Sardar Sarovar Dam

    The Sardar Sarovar Dam is providing irrigation water in summer for the first time in history.

    Sardar Sarovar Dam

    • The Sardar Sarovar Narmada Dam is a terminal dam built on the Narmada river at Kevadia in Gujarat’s Narmada district.
    • Four Indian states, Gujarat, Madhya Pradesh, Maharashtra and Rajasthan, receive water and electricity supply from the dam.
    • The foundation stone of the project was laid out by Prime Minister Jawaharlal Nehru on 5 April 1961.
    • The project took form in 1979 as part of a development scheme funded by the World Bank through their International Bank for Reconstruction and Development, to increase irrigation and produce hydroelectricity
    • Called the ‘lifeline of Gujarat’, it usually has no water for irrigation during summers.

    Answer this PYQ in the comment box:

    Q.Which one of the following pairs is not correctly matched?

     

    Dam/Lake River

    (a) Govind Sagar: Satluj

    (b) Kolleru Lake: Krishna

    (c) Ukai Reservoir: Tapi

    (d) Wular Lake: Jhelum

    A successful model of river water sharing

    • River Narmada is a classic case of Integrated River Basin Planning, Development, and Management, with water storage available in all major, medium, and minor dams on the main river and its tributaries.
    • Its water is shared amongst four party states – Gujarat, Rajasthan, Madhya Pradesh and Maharashtra — in the ratio stipulated by the 1979 award of the Narmada Water Dispute Tribunal.

    How has it saved water for summers?

    • During the monsoon from July to October, the reservoir operation is well synchronized with the rain forecast in the catchment area.
    • The strategic operation of River Bed Power House (RPBH) ensures that minimum water flows downstream into the sea and maximum water is used during the dam overflow period, which is not calculated in the annual water share.
    • These measures help in maximizing the annual allocation of water share.
    • Similarly, in non-monsoon months, the measures for efficient use of the allocated share typically include minimizing the conventional and operational losses.
    • It includes: avoiding water wastage, restricting water-intensive perennial crops, adopting of Underground Pipelines (UGPL); proper maintenance and operation of canals on a rotational basis.

  • What is Global Minimum Corporate Tax?

    Global_Minimum_Corporate_Tax

    The US has anticipated support from the G7 industrial democracies for the Biden Administration’s proposed 15%-plus global minimum corporate tax.

    Multinational corporations rather monopolies don’t like to pay their fair share of taxes. They’ll do everything in their power to exploit loopholes and minimize their tax liability. Most companies simply open offices in destinations where tax rates are low or negligible. And at the end of it all, they’ll have done just enough to avoid paying billions of dollars in taxes.

    Global Minimum Corporate Tax

    • Major economies are aiming to discourage multinational companies from shifting profits – and tax revenues – to low-tax countries regardless of where their sales are made.
    • Increasingly, income from intangible sources such as drug patents, software, and royalties on intellectual property has migrated to these jurisdictions.
    • This has allowed companies to avoid paying higher taxes in their traditional home countries.
    • With a broadly agreed global minimum tax, the Biden administration hopes to reduce such tax base erosion without putting American firms at a financial disadvantage.

    How would such tax work?

    • The global minimum tax rate would apply to companies’ overseas profits.
    • Therefore, if countries agree on a global minimum, governments could still set whatever local corporate tax rate they want.
    • But if companies pay lower rates in a particular country, their home governments could “top-up” their taxes to the agreed minimum rate, eliminating the advantage of shifting profits to a tax haven.
    • The Biden administration has said it wants to deny exemptions for taxes paid to countries that don’t agree to a minimum rate.

    Back2Basics: Base Erosion and Profit Shifting (BEPS)

    • BEPS refers to corporate tax planning strategies used by multinationals to “shift” profits from higher-tax jurisdictions to lower-tax jurisdictions.
    • It thus “erodes” the “tax base” of the higher-tax jurisdictions.
    • Corporate tax havens offer BEPS tools to “shift” profits to the haven, and additional BEPS tools to avoid paying taxes within the haven.
    • It is alleged that BEPS is associated mostly with American technology and life science multinationals.

  • Semiconductor chips shortage, and how carmakers are coping

    A shortage of inputs, especially semiconductor chips, has made India-based car manufactures and premium bike makers curtail production across categories.

    Do you know?

    Electronic parts and components today account for 40% of the cost of a new internal combustion engine car, up from less than 20% two decades ago.

    Chip famine

    • The trigger point was the beginning of the Covid-19 pandemic and the subsequent lockdowns across the world that forced shut crucial chip-making facilities in countries including Japan, South Korea, China and the US.
    • A key feature in a chip shortage is that it almost always causes cascading effects, given that the first one creates pent-up demand that becomes the cause for the follow-up famine.

    Why such famine?

    • The COVID-19 pandemic caused disruptions in supply chains and logistics.
    • This is coupled with a 13% increase in global demand for PCs owing to some countries’ shift to a stay-at-home economy.
    • This has impacted the availability of key chips necessary for the manufacturing of a broad range of electronics being a necessary component of every industry.

    What is the impact of the chip famine?

    • Consumers of semiconductor chips, which are mainly car manufacturers and consumer electronics manufactures, have not been receiving enough of this crucial input to continue production.
    • There were two reasons for this: a steady decline in input prices and improvements in the processing power of chips.
    • The number of transistors mounted in IC circuit chips has doubled every two years.
    • Notably, the increase in chip consumption over the last decade is also partly attributable to the rising contribution of electronic components in a car’s bill of materials.

    How have vehicle makers responded?

    • Supply constraints are learned to have caused some output issues at notable Indian auto firms.
    • In addition to delaying vehicle deliveries, some companies have reportedly started discarding features and high-end electronic capabilities on a temporary basis.

  • [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.