💥Join UPSC 2027,2028 Mentorship (August Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

GS Paper: GS3

  • China-India: Facilitating an Asian Century

    China

    Central idea

    • China’s recent developments in steady growth, people’s well-being, opening up, and win-win cooperation, as well as its willingness to strengthen communication and coordination with India, can provide new opportunities for all countries in the world, especially neighbouring countries. importance of China-India relations and their role in facilitating an Asian Century.

    China’s focus areas of development 

    • Modernization: China is currently advancing modernization in all fronts, based on its practices, and a focus on high-quality development.
    • Overall development: The country aims to modernize its huge population, ensuring common prosperity for all, material and cultural-ethical advancement, harmony between humanity and nature, and peaceful development.
    • New opportunities: China’s development will create new opportunities for all countries, especially neighbouring countries.

    China

    The development of China in recent years

    1. Steady Growth:
    • In 2022, China’s economy grew by 3%, and the country added a total of 12.06 million urban jobs.
    • The country’s GDP increased to 121 trillion yuan (approximately $18 trillion), registering an annual growth rate of 5.2% over the past five years and an annual growth of 6.2% over the past decade, with GDP increasing by nearly 70 trillion yuan.
    • China’s economic strength is steadily reaching new heights.
    1. People’s Well-being:
    • China has historically resolved absolute poverty, with the alleviation of close to 100 million rural residents from poverty.
    • Over 70% of the government’s expenditure went toward ensuring people’s well-being.
    • Basic old age insurance covers 1.05 billion people, an increase of 140 million. Living standards continue to witness new improvements.
    1. Opening Up:
    • In 2022, China’s total volume of trade in goods exceeded 40 trillion yuan, registering an annual growth rate of 8.6%.
    • China’s actual use of foreign capital was up by 8%, and the country remained one of the top destinations for foreign investors.
    • The overall tariff level continues to fall, from 9.8% to 7.4%. China’s doors to the outside world are opening even wider.
    1. Win-Win Cooperation
    • In the period 2013-2021, China’s contribution to global economic growth averaged 38.6%, higher than that of G7 countries combined (25.7%).
    • More than 100 countries have expressed their support, and over 60 countries have joined the Group of Friends of the Global Development Initiative (GDI) since Chinese President, Xi Jinping, proposed it in a speech at the United Nations General Assembly in 2021.

    China

    China-India Relations

    • Emerged as Representatives: As neighboring and ancient civilizations, China, and India are representatives of developing countries and emerging economies.
    • National rejuvenation: Both countries are currently in the process of national rejuvenation and a crucial period of modernization where challenges need to be overcome and problems need to be solved.
    • Interests than differences: China and India have far more common interests than differences.

    China- India Trade

    • China and India are important trading partners, with bilateral trade volume reaching $135.984 billion in 2022.
    • Although there is a trade deficit, India’s import of equipment and materials from China reduces the overall cost of Made-in-India products, benefits Indian downstream industries and consumers, enhances the competitiveness of Indian exports, and in turn facilitates India’s integration into global industrial and supply chains.

    China

    Facilitating an Asian Century

    • Chinese Foreign Minister recently stated that the development and revitalization of China and India embody a boost to the force of developing countries, which will change the destiny of a third of the world’s population and have a bearing on the future of Asia and beyond.
    • This echoes what India’s External Affairs Minister S. Jaishankar had expressed in 2022 that the Asian Century will happen when China and India come together.

    Conclusion

    • China’s development and its relationship with India are important for the region and the world. Both countries are in the process of modernization and face challenges that need to be overcome. China and India are important trading partners, and their cooperation can facilitate an Asian Century and contribute to peace and stability in the region and beyond.

    Mains Question

    Q. Provide your insights on the role of China and India in shaping the destiny of the developing countries and their impact on the future of Asia and beyond

    Are you an IAS Worthy Aspirant? Get a reality check with the All India Smash UPSC Scholarship Test

    Get upto 100% Scholarship | 900 Registration till now | Only 100 Slots Left

     

  • India’s Foreign Trade Policy set to be revised from April 1

     

    trade

    Central idea: The revision of India’s Foreign Trade Policy, which has been unchanged since 2015 and due for three years, may finally be announced by the end of this month.

    What is a Foreign Trade Policy?

    • India’s Foreign Trade Policy (FTP) is a set of guidelines for goods and services imported and exported.
    • These are developed by the Directorate General of Foreign Trade (DGFT), the Ministry of Commerce and Industry’s regulating body for the promotion and facilitation of exports and imports.
    • FTPs are enforceable under the Foreign Trade Development and Regulation Act 1992.

    What is India’s Foreign Trade Policy?

    • In line with the ‘Make in India,’ ‘Digital India,’ ‘Skill India,’ ‘Startup India,’ and ‘Ease of Doing Business initiatives, the Foreign Trade Policy (2015-20) was launched on April 1, 2015.
    • It provides a framework for increasing exports of goods and services, creating jobs, and increasing value addition in the country.
    • The FTP statement outlines the market and product strategy as well as the steps needed to promote trade, expand infrastructure, and improve the entire trade ecosystem.
    • It aims to help India respond to external problems while staying on top of fast-changing international trading infrastructure and to make trade a major contributor to the country’s economic growth and development.

    Issues with FTP (2015-2020)

    • Acting on Washington’s protest, a WTO dispute settlement panel ruled in 2019 that India’s export subsidy measures are in violation of WTO norms and must be repealed.
    • Tax incentives under the popular Merchandise Exports from India Scheme (MEIS) (now renamed as RODTEP Scheme)and Service Exports from India Scheme (SEIS) programmes were among them.
    • The panel found that because India’s per capita gross national product exceeds $1,000 per year, it may no longer grant subsidies based on export performance.

    Why such a delay in Foreign Trade Policy?

    • Geopolitical uncertainty: The geo-political situation is not suitable for long-term foreign trade policy, said Union Commerce Minister.
    • Global recession: Currently, fears of a recession in major economies like the US and Europe have escalated a panic among investors.
    • Decline in USD inflows: Foreign investors have begun to pull back their money from equities.
    • Rupee depreciation: The US Dollar is at a 22-year high, while the Rupee hit a new all-time low of $81.6.
    • Huge trade deficit: The trade deficit widened by more than 2-folds to $125.22 billion (April – August 2022) compared to $53.78 billion in the same period last year.
    Are you an IAS Worthy Aspirant? Get a reality check with the All India Smash UPSC Scholarship Test

    Get upto 100% Scholarship | 900 Registration till now | Only 100 Slots Left

  • Why are India’s garbage landfill burning?

    landfill

    The Kochi landfill site has caught fire. This is a stark reminder that Indian cities need to be prepared for more such incidents as summer approaches.

    What are Landfills?

    • Garbage landfills, also known as waste disposal sites or dumps, are areas where waste materials are disposed of by burying them in the ground.
    • They are designed to contain and isolate the waste from the surrounding environment, preventing the spread of pollutants and contamination of soil and water sources.
    • Garbage landfills are commonly used for the disposal of non-hazardous municipal solid waste, such as household trash, construction debris, and yard waste.
    • However, they can also be used for the disposal of hazardous waste and other types of industrial waste, depending on the regulations and restrictions in place.

    Is landfilling best way for waste management?

    • Landfilling is not considered the best way for garbage disposal, as it can have negative environmental impacts.
    1. Landfills take up space
    2. Release harmful gases such as methane and carbon dioxide, and
    3. Contaminate groundwater and soil if not properly managed
    • Landfills can emit odours and create noise pollution, which can impact nearby communities.

    Alternative methods for garbage disposal

    • Recycling: This involves the separation of waste materials such as plastics, glass, metals, and paper from the general waste stream, and processing them into new products.
    • Composting: This is the process of breaking down organic waste materials such as food scraps, yard waste, and paper into a nutrient-rich soil amendment.
    • Waste-to-energy: This involves the conversion of waste into energy through incineration, gasification, or pyrolysis. The energy produced can be used to generate electricity or heat.
    • Landfill gas recovery: This involves the collection and use of methane gas produced by decomposing waste in landfills to generate electricity or heat.
    • Mechanical biological treatment: This is a process that combines mechanical and biological processes to separate and treat waste materials, producing compost and recyclable materials.
    • Anaerobic digestion: This is a biological process that breaks down organic waste in the absence of oxygen, producing biogas and fertilizer.

    Landfills in India

    landfill

    • Indian municipalities collect more than 95% of the waste generated in cities.
    • The efficiency of waste processing is 30-40% at best.
    • Indian municipal solid waste consists of about 60% biodegradable material, 25% non-biodegradable material, and 15% inert materials.
    • Municipalities are expected to process wet and dry waste separately and have recovered by-products recycled.

    Why do Indian landfills often catch fire in summers?

    • The rate of processing in India’s cities is far lower than the rate of waste generation.
    • Unprocessed waste remains in open landfills for long periods.
    • Openly disposed waste includes flammable material like low-quality plastics and rags and clothes.
    • In summer, the biodegradable fraction composts much faster, increasing the temperature of the heap.
    • Higher temperature and flammable material increase the chance for the landfill to catch fire.
    • Some fires have been known to go on for months.

    Is there a permanent solution?

    There are two possible permanent solutions to manage landfill fires.

    1. Completely cap the material using soil and close landfills in a scientific manner: This solution is unsuitable in the Indian context as the land can’t be used again for other purposes. Closed landfills have specific standard operating procedures, including managing methane emissions.
    2. Clear the piles of waste through bioremediation: Excavate old waste and use automated sieving machines to segregate the flammable refuse-derived fuel (RDF), such as plastics, rags, clothes, etc., from biodegradable material. The recovered RDF can be sent to cement kilns as fuel, while the bio-soil can be distributed to farmers to enrich soil. The inert fraction will have to be landfilled.

    Some immediate measures to manage landfill fires

    • Divide the site into blocks: Based on the nature of waste, separate fresh waste from flammable material and capping portions with soil to reduce the chance of fire spreading across blocks.
    • Cap the most vulnerable part of the landfill: That contains lots of plastics and cloth, with soil.
    • Provide enough moisture to the fresh-waste block: By sprinkling water and regularly turn the material for aeration to cool the waste heap.
    • Classify incoming waste: On arrival and dispose of it in designated blocks rather than dumping mixed fractions.
    • Send to kilns on time: Send already segregated and baled non-recyclable and non-biodegradable waste to cement kilns instead of allowing it to accumulate at the site.

    Way forward

    • Sites should be equipped with water tankers with sprinklers for immediate action.
    • The municipality should work with the nearest fire department and have a plan of action in advance.
    • Waste-processing workers (plant operators, segregators, etc.) should have basic fire safety and response training.
    • People around landfill sites should also be trained and equipped to safeguard themselves during fires.
    • The municipality should have routine round-the-clock video surveillance of the most flammable portion of the landfill.
    • Flammable material like chemical waste, match sticks, and lighters should not enter the site.
    • Machines at the site, like sieves and balers, should be cleaned and moved away from the flammable material.
    • On-site staff and security personnel should be housed away from the flammable portion.
    Are you an IAS Worthy Aspirant? Get a reality check with the All India Smash UPSC Scholarship Test

    Get upto 100% Scholarship | 900 Registration till now | Only 100 Slots Left

  • NSO’s New Data: India’s GDP Growth

    GDP

    Central Idea

    • The National Statistical Office (NSO) has released a new set of data on India’s annual and quarterly national income, providing a final assessment of the COVID-19 pandemic’s impact on the country’s GDP growth. The latest numbers and sector-wise performance, highlighting areas of growth and contraction.

    Recovery since pre-COVID year

    • Advance estimates: NSO’s second advance estimate (SAE) shows a contraction of (-) 5.7% in 2020-21, lower than its first advance estimate (FAE) at (-) 7.7%.
    • Benefited sectors: Manufacturing, construction, and financial sectors benefited the most in the revised estimate.
    • GDP growth: Real GDP in the COVID-19 year amounted to ₹136.9 lakh crore, higher than the earlier assessment of ₹134.4 lakh crore. GDP grew by 9.1% in 2021-22 and 7% in 2022-23.
    • Negative growth in 2020: The compound annual average growth rate between 2019-20 and 2022-23 was 3.2%. Comparison with other countries, including China, Bangladesh, and Vietnam, shows India’s negative growth rate in 2020.

    Back to basics: Advanced estimates

    • Advance estimates refer to the preliminary projections made by the government regarding the likely economic growth, inflation, or other macroeconomic indicators of a country for a given period. These estimates are usually released a few months before the actual data for the period becomes available.
    • Advance estimates are based on various economic indicators such as industrial production, agricultural output, exports, and consumption expenditure, among others. These indicators are used to extrapolate the economic activity for the full period, based on which the government makes its initial projections.

    GDP

    Sector-wise Performance

    • Overall GVA in 2022-23 is higher by 11.3% compared to 2019-20.
    • Mining and quarrying sector still shows a contraction at (-) 0.3%.
    • Trade, hotels, transport, etc., show weak growth of 4.3%.
    • Construction sector shows higher-than-average growth at 18.6%.
    • Manufacturing sector also shows robust growth at 14.8%.
    • Financial, real estate, etc., grew at 14.3%.
    • Agriculture sector grew at 12%.
    • Government final consumption expenditure (GFCE) grew at 7.4%.
    • Gross fixed capital formation and private final consumption expenditure (PFCE) increased by 17.7% and 13.1%, respectively.

    Investment and Capacity Utilization

    • Gross fixed capital formation to GDP ratio in nominal terms increased to 29.2% in 2022-23 from 28.6% in 2019-20.
    • Real investment rates increased to 34% in 2022-23 from 31.8% in 2019-20.
    • Estimated incremental capital output ratio (ICOR) decreased to 4.9 in 2022-23 from 8.5 in 2019-20.
    • Capacity utilization ratio in the manufacturing sector was only 70.3% in 2019-20, but it increased to 73.5% in the first half of 2022-23.
    • Subdued growth implies lower capacity utilization and higher ICOR.

    Quarterly Growth and Projections

    • Q3 2022-23 saw a decline in real GDP growth to 4.4% from 6.3% in Q2 and 13.2% in Q1.
    • Growth rate in Q3 and expected growth rate in Q4 are quite low.
    • High frequency indicators point towards improved economic activity.
    • PMI manufacturing in January and February 2023 remained above its long-term average.
    • PMI services increased to a near 12-year

    GDP

    Conclusion

    • the NSO’s latest data on India’s GDP growth provides a final assessment of the COVID-19 pandemic’s impact on the country’s economy. The NSO’s data shows that India’s economy is recovering, albeit at a slower pace, from the COVID-19 pandemic.
    Are you an IAS Worthy Aspirant? Get a reality check with the All India Smash UPSC Scholarship Test

    Get upto 100% Scholarship | 900 Registration till now | Only 100 Slots Left

     

  • India remains biggest Arms Importer during 2018-22: SIPRI

    arm

    Central idea

    • India is the world’s largest arms importer for the five-year period during 2018-22, according to Stockholm International Peace Research Institute (SIPRI).
    • However, India’s arms imports have dropped by 11% between 2013–17 and 2018–22.

    Top Arms Suppliers to India

    arm

    • Russia was the largest supplier of arms to India in both 2013–17 and 2018–22.
    • France emerged as the second largest supplier from 2018-22, and its share of total Indian arms imports increased significantly.
    • Among the top 10 arms exporters for the period 2018-22, India was the biggest arms export market to three countries — Russia, France and Israel and the second-largest export market to South Korea.
    • India was also the third largest market for South Africa, which was ranked 21 in the list of arms exporters.

    Arms import by Country

    • For the same period, India remained the largest arms importer followed by Saudi Arabia.
    • Russia accounted for 45% of India’s imports followed by France (29%) and the US (11%).
    • India was the third largest arms supplier to Myanmar after Russia and China, accounting for 14% of its imports.

    Reasons for India’s Arms Imports

    • Complexities with neighborhood: “India’s tensions with Pakistan and China largely drive its demand for arms imports. With an 11% share of total global arms imports, India was the world’s biggest importer of major arms in 2018–22,” says SIPRI.
    • Procurement bottlenecks: India’s slow and complex arms procurement process, efforts to diversify its arms suppliers, and attempts to replace imports with major arms that are designed and produced domestically have contributed to the decrease in arms imports.

    Russia’s position as India’s Main Arms Supplier

    • India diversifying its imports: Russia’s position as India’s main arms supplier is under pressure due to strong competition from other supplier states.
    • Self-arming for ongoing war: This is due to increased Indian arms production, and constraints on Russia’s arms exports related to its invasion of Ukraine.

    Global Arms Transfers

    • Arms imports by Pakistan increased by 14% between 2013–17 and 2018–22 and accounted for 3.7% of the global total with China supplying 77% of Pakistan’s arms imports in 2018–22.
    • While the global level of international arms transfers decreased by 5.1%, imports of major arms by European states increased by 47% between 2013–17 and 2018–22 in the backdrop of the war in Ukraine.
    • The U.S. share of global arms exports increased from 33% to 40% while Russia’s fell from 22% to 16%.

    What we can conclude from this?

    • Security concerns: India has long-standing tensions with neighboring countries such as Pakistan and China, which have led to security concerns and a perceived need for a strong military.
    • Slow and complex procurement process: India’s procurement process for arms is often slow and complex, leading to delays in acquiring weapons and equipment. This has resulted in India relying on imports to meet its defense needs.
    • Lack of domestic production: India’s domestic arms production capabilities are still limited, which makes it difficult for the country to produce high-tech weapons and equipment. This has forced India to rely on imports to meet its defense requirements.
    • Diversification of suppliers: While Russia has been the traditional supplier of arms to India, in recent years India has been diversifying its sources of weapons and equipment to countries such as France, Israel, and the United States.
    Are you an IAS Worthy Aspirant? Get a reality check with the All India Smash UPSC Scholarship Test

    Get upto 100% Scholarship | 900 Registration till now | Only 100 Slots Left

  • Rise of the Environmental, Social and Governance (ESG) Regulations

    esg

    Central idea: Regulators and corporations worldwide now measure businesses on ESG criteria. ESG criteria is crucial for investors to assess a company’s risk profile accurately. India is still in the nascent stage of ESG laws and regulations.

    What is ESG?

    • ESG Regulations are a set of standards used by investors to evaluate a company’s environmental and social impact, as well as its corporate governance practices.
    • They require companies to be transparent about their environmental and social performance, as well as their governance structure.
    • ESG factors are increasingly being used by investors to make investment decisions, and ESG ratings are becoming an important metric for companies seeking to attract investment.
    • The ESG regulations differ by country, but many require companies to disclose information on environmental and social issues, as well as on their governance practices.
    • ESG regulations are becoming increasingly important as investors and consumers demand greater transparency and accountability from companies.Top of FormBottom of Form

    Features of ESG Mechanism

    • Environmental factors: These include a company’s impact on climate change, greenhouse gas emissions, pollution, waste management, and natural resource conservation.
    • Social factors: These include a company’s impact on society, such as labor practices, human rights, community relations, customer satisfaction, and product safety.
    • Governance factors: These include a company’s management structure, board diversity, executive compensation, shareholder rights, and business ethics.
    • ESG ratings and metrics: Companies are evaluated based on ESG ratings and metrics, which can help investors assess a company’s overall sustainability and ethical impact.
    • ESG investing: ESG investing refers to investing in companies that meet certain ESG criteria, with the aim of generating financial returns while also having a positive impact on society and the environment.
    • ESG reporting: Many companies are now required to disclose their ESG performance and report on their sustainability practices, in order to meet regulatory requirements and respond to growing investor demand for transparency and accountability.Top of FormBottom of Form

    Corporate Social Responsibility: ESG-like mechanism in India

    • India has a robust corporate social responsibility (CSR) policy that mandates that corporations engage in initiatives that contribute to the welfare of society.
    • This mandate was codified into law with the passage of the 2014 and 2021 amendments to the Companies Act of 2013.

    How ESG differs from CSR?

    • ESG regulations differ from CSR regulations in their process and impact
    • For example, the U.K. Modern Slavery Act requires companies with business in the U.K. and with annual sales of more than £36 million to publish their efforts in identifying and analysing the risks of human trafficking, child labour and debt bondage in their supply chain.
    • It seeks to establish internal accountability procedures, evaluate supplier compliance, and train supply chain managers regarding these issues
    • The EU’s Sustainable Finance Disclosure Regulation requires financial market participants to disclose how they have integrated sustainability risks into their investment decision-making processes
    • There are scores of such regulations at the state, national and transnational level.

    Why is ESG relevant in India?

    Ans. Existing mechanisms serve ESG purpose

    • India has long had a number of laws and bodies regarding environmental, social and governance issues, including the Environment Protection Act of 1986.
    • It has quasi-judicial organisations such as the National Green Tribunal, a range of labour codes and laws governing employee engagement and corporate governance practices.
    • These initiatives established guidelines that emphasise monitoring, quantification and disclosure, akin to ESG requirements found in other parts of the world.

    ESG for Indian companies

    Here are some key considerations for Indian companies in relation to ESG:

    • Compliance with global ESG regulations: Compliance in the US, UK, EU and elsewhere is critical for Indian companies to take full advantage of the growing decoupling from China and play a more prominent role in global supply chains and the global marketplace overall.
    • Due diligence: This will play a key role in ESG risk management, which means going beyond questionnaires and conducting deeper assessments that may include looking at company records, interviewing former employees, and making discreet visits to observe operations to ensure that measures to comply with international ESG standards are in effect.
    • Revamp organizations: ESG due diligence should be supported within the company with detailed procedures for assessing risks and controls for assuring that no corners are cut. Companies that wish to maximise their opportunities in the global economy need to embrace these new requirements and adjust their organisations accordingly.

    Way forward

    • Encouraging and incentivizing companies: To adopt ESG practices voluntarily through education, training and awareness-raising programs.
    • Developing national guidelines and standards for ESG: To promote consistency and comparability of ESG performance data among Indian companies.
    • Tailor-made Policy catering to domestic needs: Implementing ESG regulations that are tailored to the specific needs and challenges of Indian companies, with a focus on promoting transparency, accountability and stakeholder engagement.
    • Facilitating access to capital for companies that demonstrate strong ESG performance: By establishing ESG-focused investment funds and credit facilities.
    • Promoting international collaboration and harmonization of ESG standards: To facilitate global trade and investment while ensuring that ESG risks are appropriately addressed.

    Conclusion

    • Overall, a comprehensive and collaborative approach is needed to ensure that Indian companies can effectively manage ESG risks and opportunities and contribute to sustainable development.

     

    Are you an IAS Worthy Aspirant? Get a reality check with the All India Smash UPSC Scholarship Test

    Get upto 100% Scholarship | 900 Registration till now | Only 100 Slots Left

  • India bats for Sovereign Credit Rating upgrade

    credit

    Central idea: India is seeking an upgrade to its sovereign credit rating, currently at the lowest-possible investment grade, as it believes its economic metrics have improved considerably since the pandemic.

    What are Sovereign Credit Ratings?

    • A sovereign credit rating is a measure of a country’s creditworthiness, or its ability to meet its financial obligations.
    • It is an assessment of the credit risk associated with a country’s bonds or other debt securities.
    • The rating is assigned by credit rating agencies such as Standard & Poor’s, Moody’s, and Fitch Ratings.

    India’s current ratings

    • S&P and Fitch rate India ‘BBB-‘ and Moody’s ‘Baa3’, all indicative of the lowest-possible investment grade, but with a stable outlook.

    What does BBB mean?

    • A ‘BBB’ rating indicates that expectations of default risk are currently low.
    • The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.

    What is a Rating Agency?

    • Rating agencies assess the creditworthiness or potential of an equity, debt or country.
    • Their reports are read by investors to make an informed decision on whether or not to invest in a particular country or companies in that geography.
    • They assess if a country, equity or debt is financially stable and whether it at a low/high default risk.
    • In simpler terms, these reports help investors gauge if they would get a return on their investment.

    What do they do?

    • The agencies periodically re-evaluate previously assigned ratings after new developments geopolitical events or a significant economic announcement by the concerned entity.
    • Their reports are sold and published in financial and daily newspapers.

    What grading pattern do they follow?

    • The three prominent ratings agencies, viz., Standard & Poor’s, Moody’s and Fitch subscribe to largely similar grading patterns.
    • Standard & Poor’s accord their highest grade, that is, AAA, to countries, equity or debt with the exceedingly high capacity to meet their financial commitments.
    • Its grading slab includes letters A, B and C with an addition a single or double letter denoting a higher grade.
    • Moody’s separates ratings into short and long-term definitions. Its longer-term grading ranges from Aaa to C, with Aaa being the highest.
    • Fitch, too, rates from AAA to D, with D being the lowest. It follows the same succession scheme as Moody’s and Fitch.

    Significance of such ratings

    • Access to Capital: Higher credit ratings mean that a country can access capital at a lower cost, while lower ratings indicate that borrowing costs will be higher.
    • Investment Decisions: Investors use credit ratings as a tool to evaluate a country’s creditworthiness and assess the level of risk associated with investing in that country.
    • Economic Growth: Higher credit ratings typically lead to increased foreign investment, which can create jobs, boost productivity, and stimulate economic growth.
    • International Trade: Countries with higher credit ratings are viewed as more stable and trustworthy, making them more attractive trading partners for other countries.
    • Reputation: Countries with lower credit ratings may be seen as less reliable or stable, which can negatively impact diplomatic relationships and political influence.

    Criticism of the rating agencies

    • Credibility: Popular ratings agencies publicly reveal their methodology, which is based on macroeconomic data publicly made available by a country, to lend credibility to their inferences.
    • Bias: These agencies were subjected to severe criticism for allegedly spurring the financial crisis in the United States, which began in 2017.
    • Fouled metrics: The agencies underestimated the credit risk associated with structured credit products and failed to adjust their ratings quickly enough to deteriorating market conditions.
    • Erroneous: They were charged for methodological errors and conflict of interest on multiple counts.

    Why is India seeking upgrade in its credit ratings?

    • Improved creditworthiness: These ratings are used to judge a country’s creditworthiness, often impacting its borrowing costs.
    • Stable indicators: India has series of stable parameters such as economic growth rate, inflation, general government debt and short-term external debt as a percentage of GDP, and political stability, among others.

    Measures taken to improve ratings

    • India aims to cut its fiscal deficit to 5.9% of GDP next fiscal year, from the 6.4% target for the current year that ends March 31, and to further reduce that to 4.5% in the next three years.
    • India’s Economic Survey has forecast growth of 6% to 6.8% for 2023-24, which would make it one of the world’s fastest-growing major economies.
    Are you an IAS Worthy Aspirant? Get a reality check with the All India Smash UPSC Scholarship Test

    Get upto 100% Scholarship | 900 Registration till now | Only 100 Slots Left

  • Explained: Silicon Valley Bank (SVB) Crisis

    silicon valley

    Central idea: The shutdown and takeover of Silicon Valley Bank (SVB) by US regulators has raised questions on how it impacts India’s startup industry. It was an important partner for the global startup economy.

    Silicon Valley Bank (SVB)

    • It is a financial institution that provides banking services to the technology industry and venture capital firms.
    • Founded in 1983, it has since become the go-to bank for startups and entrepreneurs in Silicon Valley and beyond.
    • It is unique in that it understands the specific needs and challenges of the tech industry, and provides a range of services that cater to startups, including loans, deposits, and investment management.
    • It has become a critical player in the startup ecosystem, providing funding and financial services to many of the world’s most successful startups, including Tesla, Uber, and LinkedIn.

    What is SVB crisis?

    • SVB Financial Group runs one of the largest American commercial banks – Silicon Valley Bank.
    • Last week, it had announced a $1.75 billion share sale programme to further strengthen its balance sheet.
    • This programme triggered a massive sell-off in the group’s shares.
    • Thereafter, market went severely bearish and bear rampage wiped out over $80 billion of its market value.
    • Alongside, the bond prices of the group collapsed and created a panic in the market.

    Reasons for SVB’s downfall

    • Downturn of tech stocks: The bank was hit hard by the downturn in technology stocks over the past year as well as the Federal Reserve’s aggressive plan to increase interest rates to combat inflation.
    • Lower bond yield due to lower interest rates: SVB bought billions of dollars’ worth of bonds over the past couple of years, using customers’ deposits as a typical bank would normally operate.
    • Mostly startups account holders: SVB’s customers were largely startups and other tech-centric companies that started becoming needier for cash over the past year.
    • Drying VC funding: Venture capital funding was drying up, companies were not able to get additional rounds of funding for unprofitable businesses.
    • Fear over deposit insurance: Since its customers were largely businesses and the wealthy, they likely were more fearful of a bank failure since their deposits were over $250,000, which is the government-imposed limit on deposit insurance.

    Immediate effects of SVB’s failure

    • Startups scramble: Many startups and other companies that relied on the bank’s services were suddenly left without access to their funds, which caused financial strain and uncertainty for these businesses.
    • Ripple effect: They now fear that they might have to pause projects or lay off or furlough employees until they could access their funds.

    Major implications for SVB

    There are two large problems remaining with Silicon Valley Bank-

    • Huge uninsured deposits: The vast majority of these were uninsured due to it’s largely startup and wealthy customer base.
    • No scope for asset reconstruction: There is no potential buyer of Silicon Valley Bank.

    Could this lead to a repeat of what happened in 2008?

    • No probability: At the moment, experts do not expect any issues to spread to the broader banking sector.
    • Diversified customer bases: Other banks are far more diversified across multiple industries, customer bases and geographies.

    Impact on Indian startups

    • Uncertainty over deposits: The failure of SVB is likely to have a ripple effect on Indian startups, many of which have significant amounts of funds deposited with the bank.
    • Hamper the funding: SVB has been a major player in the Indian startup ecosystem, providing banking services and funding to many of the country’s most successful startups, including Flipkart, Ola, and Zomato.
    • Ripple effect: This could lead to a cash crunch for many companies, which may be forced to cut costs, delay projects, or lay off employees.
    • Reduce global footprints: SVB has also been instrumental in helping Indian startups expand into the US market, by providing them with the necessary infrastructure and support to set up operations in Silicon Valley.

    How can Indian startups mitigate the impact of SVB’s failure?

    • Diversify banking relations: Indian startups that have funds deposited with SVB may want to consider diversifying their banking relationships to reduce their exposure to any one bank.
    • Alternative financing: This may involve opening accounts with multiple banks, or exploring alternative banking services such as digital banks or fintech startups.

    Back2Basics: 2008 Financial Crisis

    • The bankruptcy of Lehman Brothers was a key event in the 2008 financial crisis.
    • Lehman Brothers was one of the largest investment banks in the world, with assets of around $600 billion.
    • However, the firm had invested heavily in the US housing market, and when the housing market began to decline in 2007, Lehman’s investments began to lose value.
    • In addition, the firm had taken on a large amount of debt to finance its investments and operations.
    • As the value of Lehman’s assets declined and its debt levels increased, the firm became insolvent and was unable to meet its obligations to creditors.
    • In September 2008, Lehman Brothers filed for bankruptcy, triggering a financial panic and market turmoil.

    Its impact

    • The Lehman crisis had far-reaching consequences, including the collapse of other financial institutions, a global recession, and widespread economic and social hardship.
    • The crisis highlighted the risks of excessive leverage and the interconnectedness of financial institutions, and led to significant reforms in financial regulation and risk management practices.

     

     

    Are you an IAS Worthy Aspirant? Get a reality check with the All India Smash UPSC Scholarship Test

    Get upto 100% Scholarship | 900 Registration till now | Only 100 Slots Left

  • Rural-Urban Dichotomy And The Continuum

    Rural-Urban

    Central Idea

    • The traditional dichotomy of rural and urban, and the accordingly mandated governance structure, seems inadequate to understand and act upon poverty, undernourishment, education, health, environmental management or even development. There is a need to adopt the notion of urban catchment areas delineated along an urban-rural continuum to understand urban-rural interconnections and address issues related to environment and natural resources management.

    What is Rural-Urban Dichotomy?

    • Distinct Division: It is the perception of a clear and distinct division between rural and urban areas, which are seen as two distinct and separate entities.
    • Significant Differences: This dichotomy is based on the assumption that there are significant differences between rural and urban areas in terms of social, economic, and cultural characteristics.
    • Traditional vs modern values: It suggests that rural areas are primarily agricultural, less developed, and have traditional social and cultural values, while urban areas are more developed, industrialized, and have modern values.

    Rural-Urban

    The Rural-Urban Continuum

    • The Rural-Urban Continuum is an alternative perspective that acknowledges the existence of intermediate areas that blur the distinction between rural and urban.
    • An intermediate settlement formation exists between the two extremes where rural and urban functions coexist without distinguishable boundaries.
    • Such formations evolve due to interactions of a complex set of geographical, cultural, economic, and historical processes.
    • The transition from rural to urban follows a graded curve of development, and opportunities for social and economic development depend on one’s location along this curve.

    Importance of the Rural-Urban Continuum

    • Identification of urban catchment areas delineated along an urban-rural continuum would help understand urban-rural interconnections, which is important for making policy decisions across development sectors and for addressing issues related to environment and natural resources management.

    Studies and examples of Rural-Urban Continuum

    • The Desakota Study report:
    • A 2008 report of the Desakota Study Team, Re-imagining the Rural Urban Continuum, was based on studies in eight countries around the world including India.
    • Team’s report in 2008 emphasized understanding the changing relationship between ecosystems and livelihoods under diversified economic systems across the rural-urban continuum as it has important policy implications at all levels.
    • In India, Kerala for instance:
    • Kerala is well known for the rural-urban continuum in the coastal plain. This was noted even by Moroccan traveller Ibn Batuta in the 14th century. The trend further spread over the lowlands and adjoining midlands and highlands.
    • Geographical factors supported by affirmative public policy promoting distributive justice and decentralisation have increased rural-urban linkages and reduced rural-urban differences in major parts of Kerala.
    • The urban industrial interaction in India is spreading rapidly: The urban industrial interaction fields in India are spreading by linking rural areas and also small towns around the mega cities and urban corridors penetrating rural hinterlands.

    Rural-Urban

    Dissolving the boundaries and barriers

    • Technology and globalization led connectivity: Technology and economic globalization have increased mobility of resources and people and enhanced inter- and intra-country connectivity, promoting the rural-urban continuum.
    • Physical distance barriers are melting: The barriers due to physical distance are melting as increasing rural-urban linkages have given rise to diffused network regions.
    • Movement of goods, people and information is rising: Rural hinterlands are connected to multiple urban centers, and the movement of goods, people, information, and finance between sites of production and consumption has strengthened linkages between production and labour markets.

    Changing Ecosystems of the Rural-Urban Continuum

    • Land Use Changes: Agriculturally productive lands are being given for other uses, food security zones are being reconfigured, and areas for pollutant filtering are declining.
    • Impacts on Ecosystem Services and Local Livelihoods: There is an increase in waste dump, enhanced disaster risk, and elevated vulnerability, reducing the access of local people to water, food, fuel, fodder, and fiber from ecosystems.
    • Emergence of Intermediary Market Institutions: At the same time, intermediary market institutions are emerging to provide these goods, which has significant implications for the local people.
    • Escalating Market Value of Land and Marginalization: There is also escalation of market value of land, which further marginalizes them.

    Way ahead

    • Acknowledge the rural-urban continuum in discussions on social and economic development and environmental issues.
    • Identify challenges and opportunities for improving both urban and rural governance and enhancing access to employment, services, institutional resources, and environmental management.
    • Build rural-urban partnership by taking a systems approach, where the city and surroundings form a city region for which a perspective plan is prepared integrating rural and urban plans within a common frame.
    • Move towards a post-urban world where the rural-urban dichotomy will no longer exist.
    • Better map rural-urban linkages by using satellite-based settlement data and integrating it with Census data.

    Conclusion

    • Recognizing and addressing the interconnections between rural and urban areas along a continuum is crucial for effective policy-making and environmental management in India.

    Mains Question

    Q. The rural-urban continuum has drawn wide attention in recent years. In this light discuss the importance of Recognizing and addressing the interconnections between rural and urban areas.

    Are you an IAS Worthy Aspirant? Get a reality check with the All India Smash UPSC Scholarship Test

    Get upto 100% Scholarship | 900 Registration till now | Only 100 Slots Left

     

  • States demand that ‘Lightning’ be declared a Natural Disaster

    Central idea: A few states have requested lightning to be declared a natural disaster due to the high number of deaths caused by it in the country.

    Why discuss this?

    • Around 2,500 people die every year due to lightning.
    • Present norms consider cyclones, droughts, earthquakes, fires, floods, tsunamis, hailstorms, landslides, avalanches, cloudbursts, pest attacks, frost, and cold waves as disasters covered under the State Disaster Response Fund.
    • Deliberations are necessary as it is a policy issue.

    What is lightning?

    • Scientifically, lightning is a rapid and massive discharge of electricity in the atmosphere some of which is directed towards earth.
    • The discharges are generated in giant moisture-bearing clouds that are 10-12 km tall.
    • The base of these clouds typically lie within 1-2 km of the Earth’s surface, while the top is 12-13 km away.
    • Temperatures in the top of these clouds are in the range of –35° to –45°C.

    Its formation

    • As water vapour moves upward in the cloud, the falling temperature causes it to condense.
    • As they move to temperatures below 0°C, the water droplets change into small ice crystals.
    • They continue to move up, gathering mass until they are so heavy that they start to fall to Earth.
    • This leads to a system in which, simultaneously, smaller ice crystals are moving up and bigger crystals are coming down.
    • Collisions follow and trigger the release of electrons, a process that is very similar to the generation of sparks of electricity.
    • As the moving free electrons cause more collisions and more electrons, a chain reaction ensues.
    • This process results in a situation in which the top layer of the cloud gets positively charged, while the middle layer is negatively charged.
    • The electrical potential difference between the two layers is huge, of the order of a billion to 10 billion volts.
    • In very little time, a massive current, of the order of 100,000 to a million amperes, starts to flow between the layers.

    Types of lightning

    • Broadly, there are three forms of lightning:
    1. Inter-cloud
    2. Intra-cloud
    3. Cloud-to-ground
    • It is the cloud-to-ground form of lightning that kills humans, as well as animals and livestock, and can substantially damage property.
    • While the Earth is a good conductor of electricity, it is electrically neutral.
    • However, in comparison to the middle layer of the cloud, it becomes positively charged.
    • As a result, about 15%-20% of the current gets directed towards the Earth as well.
    • It is this flow of current that results in damage to life and property on Earth.

    How intensely does it strike?

    • A typical lightning flash is about 300 million volts and30,000 amps.
    • To put it in perspective, household current is 120 volts and 15 amps.
    • A flash of lightning is enough to light a 100-watt incandescent bulb for about three months.

    Why does lightning kill so many people in India?

    • The reason for the high number of deaths is due to people being caught unawares and more than 70% of fatalities happened due to people standing under isolated tall trees.
    • About 25 per cent of the people were struck in the open.
    • Also, lightning is the direct promulgation of climate change extremities.

    Mitigating lightning incidents

    • Lightning is not classified as a natural disaster in India.
    • But recent efforts have resulted in the setting up of an early warning system that is already saving many lives.
    • More than 96% of lightning deaths happen in rural areas.
    • As such, most of the mitigation and public awareness programmes need to focus on these communities.
    • Lightning protection devices are fairly unsophisticated and low-cost. Yet, their deployment in the rural areas, as of now, is extremely low.
    • States are being encouraged to prepare and implement lightning action plans, on the lines of heat action plans.
    • An international centre for excellence on lightning research to boost detection and early warning systems is also in the process of being set up.