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GS Paper: GS3

  • Capital Expenditure and Fiscal Consolidation

    Fiscal

    Context

    • The 2023-24 Union budget will be announced on February 1, followed by the states’ respective budgets. These budgets will set the policy tone for the rest of the year and, as such, are followed closely.

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    Situation of Capex and fiscal consolidation after pandemic

    • Rise in fiscal deficit: The overall fiscal deficit of the government has soared and we believe the next few years will be all about getting it back on track.
    • Rising interest payments: This is important because interest payments on past debt make up a whopping 50 per cent of net tax revenues for the central government, leaving very little room for other spending.
    • less room for social spending: Given the needs of the economy on various fronts like health, education and capex, it is important to lower the interest burden over time. That can only be achieved by fiscal consolidation.

    Analysing the tax revenue and expenditure of central and state Government

    • Central government tax revenues have risen faster than state revenues: Both benefitted as small and informal firms struggled with the lockdowns and lost market share to large firms, which tend to pay more taxes.
    • Disparity in revenue collection: A large chunk of the tax revenues in the early part of the pandemic period came from the “special” duty and surcharge on oil, which went primarily to the central government. To be fair, the central government subsequently cut the duty on oil (in both 2021-22 and 2022-23) and the tax share that went to the states rose somewhat.
    • Capex of centre is more: The Centre has committed to more current expenditure than the states. While it increased across the board during the pandemic, current expenditure rose more for the central government.
    • Higher spending on social schemes: This was led by higher social welfare spending (for instance, on the free food distribution scheme) and, more recently, higher subsidies (for example, fertilisers) in the face of rising commodity prices.
    • States have a moderate capex: The common perception is that states have gone all out on unsustainable current expenditure. But the data shows that it’s just a few states which have spent heavily (for example, Telangana, Assam, West Bengal and Punjab).

    Fiscal

    Analyzing the capex and fiscal deficit of central and state government

    • The central government capex has risen but state capex has contracted: Making a commendable choice, the central government used both its tax bounty as well as its ability to borrow more at a time when banking sector liquidity was loose to raise capex spending, which rose by 1.2 per cent of GDP between 2019-20 and 2021-22.
    • Cut in state capex: On the other hand, the states cut back on capex, which has fallen as a percentage of GDP over the last few years, and continues to be on a weak footing in the current year. In fact, putting the central government’s capex alongside the state and public sector capex shows that the overall public sector thrust is not any stronger than it was back in 2018-19.
    • Centre has breached the fiscal deficit target: The central government’s fiscal deficit has overshot targets while the state deficit is relatively contained. At a budgeted 6.4 per cent of GDP in 2022-23, the central government’s fiscal deficit has risen above the pre-pandemic level of 3.4 per cent in 2018-19, and is well above the 3 per cent medium-term target.
    • Sharp fall in states fiscal deficit target: Even though the state fiscal deficit rose in the first year of the pandemic (from 2.5 per cent of GDP in 2018-19 to 3.8 per cent in 2020-21), it has fallen sharply since (to 2.7 per cent in 2021-22).
    • Low borrowing by states: In fact, state government borrowing is rather low in the current year so far. If this continues, the fiscal deficit could be even lower in 2022-23 (around 2.5 per cent of GDP), which is well under the 3 per cent medium-term target, and bang in line with pre-pandemic levels.

    Fiscal

    What are the challenges?

    • Less consolidation by states: The states have less fiscal consolidation to do than the central government.
    • High quality spending: Both have a common challenge to commit to more capex, which is considered high quality spending as it “crowds in” private investment if done responsibly. And we believe investment is the only sustainable way to increase the capacity of the economy to grow and create jobs.
    • Balancing the capex and fiscal consolidation: For the central government, the challenge is to hold on to its capex push at a time of fiscal consolidation. For the states, the challenge is to start doing more.

    Fiscal

    What should be the way forward?

    • Lowering the fiscal deficit: The central government’s aim is to lower the fiscal deficit by about 2 per cent of GDP over the next three years. About half of this consolidation can come from lowering current expenditure to pre-pandemic levels.
    • Raising the tax revenue through formalization: Continued formalisation of the economy that raises tax revenues (though “organic” formalisation will likely be more sustainable than “forced” formalisation).
    • Disinvestment of PSUs: A bigger push for disinvestment by selling stakes in public-owned companies, and further tax reforms (in terms of direct taxes and the GST).
    • Capex cut is the last option: If these don’t work, the default option will be to cut capex, which is a concern as it has implications for medium-term growth.

    Conclusion

    • Fiscal consolidation and capital expenditure should go hand in hand. More government spending means more infrastructure building and more chances of growth and employment. However, this spending should be done with sound fiscal base.

  • Draft cybersecurity strategy has been formulated: Centre

    The National Security Council Secretariat (NSCS) has formulated a draft National Cyber Security Strategy, which holistically looks at addressing the issue of security of national cyberspace, the government informed the Lok Sabha.

    What is the National Cyber Security Strategy?

    Conceptualised by the Data Security Council of India (DSCI), the report focuses on 21 areas to ensure a safe, secure, trusted, resilient, and vibrant cyberspace for India.

    The main sectors of focus of the report are:

    • Large scale digitisation of public services: There needs to be a focus on security in the early stages of design in all digitisation initiatives and for developing institutional capability for assessment, evaluation, certification, and rating of core devices.
    • Supply chain security: There should be robust monitoring and mapping of the supply chain of the Integrated circuits (ICT) and electronics products. Product testing and certification needs to be scaled up, and the country’s semiconductor design capabilities must be leveraged globally.
    • Critical information infrastructure protection: The supervisory control and data acquisition (SCADA) security should be integrated with enterprise security. A repository of vulnerabilities should also be maintained.
    • Digital payments: There should be mapping and modelling of devices and platform deployed, transacting entities, payment flows, interfaces and data exchange as well as threat research and sharing of threat intelligence.
    • State-level cyber security: State-level cybersecurity policies and guidelines for security architecture, operations, and governance need to be developed.

    What steps does the report suggest?

    To implement cybersecurity in the above-listed focus areas, the report lists the following recommendations:

    • Budgetary provisions: A minimum allocation of 0.25% of the annual budget, which can be raised up to 1% has been recommended to be set aside for cyber security.
    • Ministry-wise allocation: In terms of separate ministries and agencies, 15-20% of the IT/technology expenditure should be earmarked for cybersecurity.
    • Setting up a Fund of Funds: The report also suggests setting up a Fund of Funds for cybersecurity and to provide central funding to States to build capabilities in the same field.
    • R&D, skill-building and technology development: The report suggests investing in modernisation and digitisation of ICTs, setting up a short and long term agenda for cyber security via outcome-based programs and providing investments in deep-tech cyber security innovation.
    • National framework for certifications: Furthermore, a national framework should be devised in collaboration with institutions like the National Skill Development Corporation (NSDC) and ISEA (Information Security Education and Awareness) to provide global professional certifications in security.
    • Creating a ‘cyber security services’: The DSCI further recommends creating a ‘cyber security services’ with cadre chosen from the Indian Engineering Services.
    • Crisis management: For adequate preparation to handle crisis, the DSCI recommends holding cybersecurity drills which include real-life scenarios with their ramifications. In critical sectors, simulation exercises for cross-border scenarios must be held on an inter-country basis.
    • Cyber insurance: Cyber insurance being a yet to be researched field, must have an actuarial science to address cybersecurity risks in business and technology scenarios as well as calculate threat exposures.
    • Cyber diplomacy: Cyber diplomacy plays a huge role in shaping India’s global relations. To further better diplomacy, the government should promote brand India as a responsible player in cyber security and also create ‘cyber envoys’ for the key countries/regions.
    • Cybercrime investigation: It also suggests charting a five-year roadmap factoring possible technology transformation, setting up exclusive courts to deal with cybercrimes and remove backlog of cybercrimes by increasing centres providing opinion related to digital evidence under section 79A of the IT act.
    • Advanced forensic training: Moreover, the DSCI suggests advanced forensic training for agencies to keep up in the age of AI/ML, blockchain, IoT, cloud, automation.
    • Cooperation among agencies: Law enforcement and other agencies should partner with their counterparts abroad to seek information of service providers overseas.

    What next?

    • India has to contend with the importance and necessity of cyber offences as much as cyber defence.
    • As of today, India’s primary or possibly only response measures appear to be defensive.
    • India has to also invest in more offensive cyber means as a response.

     

     

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  • What caused the great Indian Airport jam?

    airport

    As more passengers take to the skies, airports in India’s top cities—Delhi, Mumbai, and Bengaluru—are witnessing heavy traffic.

    What is causing congestion at airports?

    • There are lengthy queues at airport entry, check-in counters, security, and immigration.
    • There is crowding at baggage claim areas too.
    • This is the result of an unexpected surge in demand for air travel because of the holiday season—the last two years saw muted demand during this period because of the pandemic.
    • Air traffic has been 1-7% above pre-covid levels of 4 lakh daily flyers for the past 10 days.
    • Consequently, the personnel strength of CISF at check-in, the number of X-Ray machines and automatic trays for security, as well as baggage belts, have fallen short in handling the demand.

    Which airports are most affected?

    • The congestion is more severe at airports with maximum connectivity such as Delhi, Mumbai, Bengaluru, and Hyderabad.
    • The worst-hit is Delhi—the busiest airport in India and 10th busiest in the world.
    • Delhi handles the largest share of international as well as domestic air traffic in the country with a 27% share in international segment for the country and 20% in overall air traffic in India.
    • The airport, with three terminals, has a capacity to handle around 70 million passengers per annum.
    • Over the last 10 days, the airport has handled over 190,000 passengers daily, which is close to its full capacity.

    Is airport congestion an India-specific problem?

    • Globally, air travel continues to face disruptions.
    • Europe’s busiest airport, London Heathrow, needs to hire around 25,000 staff to manage peak hours.
    • Schiphol in Amsterdam has imposed a 20% cap on capacity to manage traffic.
    • The aviation industry laid off thousands of people during the pandemic, and expects staff strength to realign by mid-2023.

    What is being done to decongest airports?

    • The aviation ministry has recommended a reduction in the number of flights and more manpower at all check-in and baggage drop counters.
    • It has sought for increasing the number of X-ray machines and baggage trays for security check.
    • The government will also analyse manpower requirements at immigration counters and, if required, additional personnel will be deployed.
    • IndiGo, the largest airline in India, has asked fliers to report 3.5 hours early for domestic flights from Delhi.

    Easing the airport congestion  

    • There is no immediate solution, and the government’s action plan will only bring temporary relief. Increasing the number of personnel at entry, security, and immigration will take time.
    • Higher usage of the contactless travel platform—Digi Yatra—for passengers without check-in luggage is expected to ease the congestion a bit.
    • Cities like Delhi and Mumbai need additional infrastructure.
    • However, the Jewar airport in Noida and the Navi Mumbai airport are expected to be operational only by 2024.

     

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  • GI tag sought for Beypore Uru

    beypore uru

    The District Tourism Promotion Council, Kozhikode has applied for a Geographical Indication (GI) tag for the famous Beypore Uru (boat).

    Beypore Uru

    • Beypore Uru is a wooden dhow (ship / sailing boat / sailing vessel) handcrafted by skilled artisans and carpenters in Beypore, Kerala.
    • They are a symbol of Kerala’s trade relations and friendship with the Gulf countries.
    • It is purely made of premium wood, without using any modern techniques.
    • The wood used is still sawed the traditional way which requires immense expertise.
    • It takes anywhere between 1-4 years to build each Uru and the entire process is done manually.

    Its historic significance

    • Historical records show that Beypore has been a legendary maritime hub for traders from across the world since the 1st Century C.E.
    • The iconic Uru ships have been in high demand for around 2000 years.
    • The history of Khalasis, skilled natives engaged in launching the Uru boats at Beypore, dates back to 2000 years.
    • The prominent people among them are Odayis. They manage the technical matters of ship building.
    • Their family name comes from Odam (a type of small ship previously used in interactions/trade between the Malabar coast and Lakshadweep).
    • They are also referred to as Mappila Khalasis as majority of them are Mappila Muslims.

     

    Try this PYQ:

    Q.With reference to ‘Changpa’ community of India, consider the following statement:

    1. They live mainly in the State of Uttarakhand.
    2. They rear the Pashmina goats that yield fine wool.
    3. They are kept in the category of Scheduled Tribes.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 and 3 only

    (c) 3 only

    (d) 1, 2 and 3

     

    [wpdiscuz-feedback id=”jmhupo6jvk” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

    Back2Basics: Geographical Indication (GI)

    • A GI is a sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin.
    • Nodal Agency: Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry
    • India, as a member of the World Trade Organization (WTO), enacted the Geographical Indications of Goods (Registration and Protection) Act, 1999 w.e.f. September 2003.
    • GIs have been defined under Article 22 (1) of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.
    • The tag stands valid for 10 years.

     

     

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  • India-China clash: Why China has opened new front?

    China

    Context

    • There has been yet another transgression by Chinese troops across the Line of Actual Control (LAC) between India and China. That it culminated in violence, that it took place this time in the Eastern Sector of their boundary dispute, or that it should take place in the middle of winter should surprise no one. If there is one lesson that can be drawn from India’s experiences with Chinese transgressions over the last decade or so, it is that the Chinese seem to set the pace on the nature and timing of these transgressions.

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    Army’s statement about the clash

    • On December 9, 2022, People’s Liberation Army (PLA) troops contacted the LAC in the Tawang sector, which was contested by own troops in a firm and resolute manner.
    • This face-off led to minor injuries to a few personnel from both sides,” “Both sides immediately disengaged from the area.”

    China

    Events of Chinese transgressions: Need to understand the nature and timing

    • Depsang in Ladakh, 2013: Chinese troops came across the LAC, pitched tents and refused to move for several weeks until New Delhi threatened to cancel the planned visit of Premier Li Keqiang to India. This might have been a diplomatic victory for the Indian government but it also highlighted the inability of the Indian military to bring an end to the standoff or the unwillingness of the government to let the military take the lead in responding.
    • Chumar in Ladakh, Sept, 2014 in the middle of the Xi Jinping’s first visit to India: Chinese intruded at Chumar, also in Ladakh, in the middle of Chinese President Xi Jinping’s first state visit to India. This was in keeping with a reasonably long tradition of Chinese transgressions during important visits but it was also notable for confronting Indian troops in an area where they enjoyed a degree of military advantage.
    • Doklam in 2017: China provoked India with infrastructure development in a third country in Bhutan’s Doklam territory. This was a case of China trying to browbeat an Indian treaty ally.
    • Transgression across multiple locations in 2020 and Galwan valley clash: The Chinese PLA took advantage of Covid-19 and a lack of Indian military alertness to transgress across multiple locations on the LAC in eastern Ladakh. On June 15, 2020 episode when 20 Indian soldiers were killed and several others were injured in violent clashes with the PLA troops in Ladakh’s Galwan Valley.

    Why China has opened new front in Tawang?

    • Status quo along the boundary are no longer going to be limited to the Western Sector: China has traditionally been active in areas close to Ladakh given the significance of the Xinjiang-Tibet region in its domestic narrative. However, with its sights on an ageing Dalai Lama, and the issue of his succession, Beijing will want to bring into focus its claims on Tawang, and the rest of Arunachal Pradesh.
    • Huge investment in infrastructure in eastern sector: China has invested in infrastructure in the Eastern Sector over many years. This includes rail, road, and air connectivity, better telecommunications, as well as improved capacity to station and supply troops and artillery.
    • Centrality of the boundary issue in the India-China relationship: External Affairs Minister S Jaishankar has repeatedly asserted that it is no longer possible to separate the boundary question from the overall relationship and that peace and tranquillity on the LAC is the key to restoring relations. However, China is likely to keep up the pressure on the ground along the LAC, even as they continue to suggest that the two countries look beyond the differences, much like Chinese Foreign Minister Wang Yi’s comments during his March 2022 visit when he claimed that the two sides need to “inject more positive energy” into the relationship.

    China

    India’s preparedness and learnings from the incident

    • Indian Army anticipated such kind of transgression in eastern sector: The Indian Army had for long anticipated that the PLA would activate the eastern sector of the LAC, and to that extent, it is evident that steps were taken to beef up military preparedness in the region.
    • Light on what gaps to address: What the incident has effectively achieved though is the lighting up of one more section of the LAC at a time the issues in Ladakh have not yet been settled, from the point of view of India.
    • China appears not want to disengage: After 16 rounds of talks, a disengagement has taken place in eastern Ladakh, but it has not restored the status quo that prevailed in April 2020. China, for its part, appears reluctant to hold any further rounds of talks on the leftover problems in Ladakh, including its play in Depsang and Demchok areas.
    • China is only increasing the economic gap between itself and India: China has only increased the economic gap between itself and India and in the intervening years, not only built up more infrastructure in its border provinces but also tried to integrate these regions much more closely with neighbouring economies such as Pakistan and Nepal through grand projects such as the Belt and Road Initiative and pressuring Thimphu to open formal diplomatic ties with Beijing.

    Way ahead

    • India’s relationship with China has been teetering from bad to worse over the last 32 months since the standoff in Ladakh began, and it seems unlikely to improve unless Beijing’s calculus vis a vis India and the region undergoes a drastic change.
    • While Delhi’s G20 leadership may bring opportunities for engagement with Beijing, what is required first is a clear vision and a grand strategy to deal with the China challenge, instead of reacting to each crisis as it emerges.

    China

    Conclusion

    • With its sights on an ageing Dalai Lama, and the issue of his succession, Beijing will want to bring into focus its claims on Arunachal Pradesh. The border stand-off seems to have been managed for now, but Delhi needs a clear vision, grand strategy to deal with China instead of reacting to each crisis as it emerges.

    Mains question

    Q. There has been yet another transgression by Chinese troops across the Line of Actual Control (LAC) between India and China. Why China has opened new front in eastern sector? Discuss.

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  • Wildlife (Protection) Amendment Bill and the Forests rights

    Wildlife

    Context

    • Rajya Sabha passed the Wildlife (Protection) Amendment Bill, 2021. The Lok Sabha had passed the Bill in the Monsoon Session. While aspects of protecting species against wildlife trade in line with international standards have scrutinised by civil society, MPs and the Parliamentary Standing Committee, the impact of the criminal legal framework fostered by the Wildlife Protection Act (WPA) is less known.

    Wildlife

    Wildlife (Protection) Amendment Bill, 2022

    • The latest amendment invests in this conception of protected areas and species by adding to the list of protected species and augmenting the penal repercussions.
    • The Bill amends the Wild Life (Protection) Act, 1972 by increasing the species protected under the law.
    • There are 50 amendments to the Act proposed in the Bill.
    • Substituting the definition of ‘Tiger and other Endangered Species’ to ‘Wild Life’, this Bill includes flora, fauna and aqua under its protection.
    • The Bill also regulates wild life trade as per the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).

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    Criminal laws and wildlife conservation in latest amendment

    • Criminal laws remain unchallenged: The need for criminal laws to assist wildlife conservation has remained unchallenged since its conception.
    • Human- animal conflict not interpreted correctly: From regulated hunting to complete prohibition and the creation of ‘Protected Areas (PA)’ where conservation can be undertaken without the interference of local forest-dwelling communities, State and Forest Department control over forests and the casteist underpinnings of conservation would not have been possible without criminal law. In this context, pitting wildlife species against communities as human-animal conflict has eluded the true cost of criminalisation under the WPA.
    • Questionable WPA’s policing framework: The recent move to increase penalties by four times for general violations (from ₹25,000 to ₹1,00,000) and from ₹10,000 to ₹25,000 for animals receiving the most protection should raise questions about the nature of policing that the WPA engenders.

    Wildlife

    Study by the Criminal Justice and Police Accountability Project (CPA Project) in Madhya Pradesh

    • Records found says forest dwellers are majority of accused in wildlife related crimes: found that persons from oppressed caste communities such as Scheduled Tribes and other forest-dwelling communities form the majority of accused persons in wildlife-related crimes.
    • Found that forest department use threat of criminalisation for cooperation: The Forest Department was found to use the threat of criminalisation to force cooperation, apart from devising a system of using community members as informants and drawing on their loyalty by employing them on a daily wage basis.
    • Cases filed not only for serious crimes: Cases that were filed under the WPA did not pertain solely to the comparatively serious offence of hunting; collecting wood, honey, and even mushrooms formed the bulk of prosecution in PAs.
    • Cases files are still pending: Over 95% of the cases filed by the Forest Department are still pending.
    • Most cases filed were for hunting were lesser protected animals: Hunting offences that were primarily filed against Schedule III and IV animals (wild boars) which have lesser protection than tigers and elephants formed over 17.47% of the animals ‘hunted’ between 2016-20. Among the animals hunted the highest, only one in top five belonged to Schedule I (peacock). Surprisingly, fish (only certain species relegated to Schedule I) formed over 8% of the cases filed. A whopping 133 cases pertaining to fishing (incorrectly classified as Schedule V species) were filed in the last decade in Madhya Pradesh.
    • Making FRA subservient to the WPA: Forest rights, individual and collective, as part of the Forest Rights Act (FRA) were put in place to correct the injustice meted out by forest governance laws. These rights recognised forest-dependent livelihoods. But in inviolate PAs, making the FRA subservient to the WPA, thereby impeding its implementation.

    Wildlife

    What is forest rights Act, 2006?

    • Recognizing rights of forest dwelling communities: The Forest Rights Act (FRA), 2006 recognizes the rights of the forest dwelling tribal communities and other traditional forest dwellers to forest resources, on which these communities were dependent for a variety of needs, including livelihood, habitation and other socio-cultural needs.
    • Aim to balance rights and protect: It aimed to protect the marginalised socio-economic class of citizens and balance the right to environment with their right to life and livelihood.
    • Individual rights: The Act encompasses Rights of Self-cultivation and Habitation which are usually regarded as Individual rights.
    • Community forest rights: Community Rights as Grazing, Fishing and access to Water bodies in forests, Habitat Rights for PVTGs, Traditional Seasonal Resource access of Nomadic and Pastoral community, access to biodiversity, community right to intellectual property and traditional knowledge, recognition of traditional customary rights and right to protect, regenerate or conserve or manage any community forest resource for sustainable use.

    Conclusion

    • Criminal cases filed by the department are rarely compounded since they are meant to create a ‘deterrent effect’ by instilling fear in communities. Fear is a crucial way in which the department mediates governance in protected areas, and its officials are rarely checked for their power. Unchecked discretionary policing allowed by the WPA and other forest legislations have stunted the emancipatory potential of the FRA. Any further amendments must take stock of wrongful cases (as in the case of fishing) and resultant criminalization of rights and lives of forest dwelling communities.

    Mains question

    Q. Briefly explain the Wildlife (Protection) Amendment Bill, 2022. Illustrate with an example how criminal laws and wildlife conservation are working under the Wildlife Protection Act and Forest Rights Act.

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  • Urban-rural manufacturing shift: A mixed bag

    manufacturing

    Context

    • There is growing evidence to suggest that the most conspicuous trend in the manufacturing sector in India has been a shift of manufacturing activity and employment from bigger cities to smaller towns and rural areas. This ‘urban-rural manufacturing shift’ has often been interpreted as a mixed bag, as it has its share of advantages that could transform the rural economy, as well as a set of constraints, which could hamper higher growth.

    Recent data by Annual Survey of Industries for 2019-20

    • In terms of capital: The rural segment is a significant contributor to the manufacturing sector’s output. While 42% of factories are in rural areas, 62% of fixed capital is in the rural side.
    • In terms of value addition: In terms of output and value addition, rural factories contributed to exactly half of the total sector.
    • In terms of employment: In terms of employment, it accounted for 44%, but had only a 41% share in the total wages of the sector.

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    Why is this shift of manufacturing away from urban locations to rural?

    • A report on manufacturing shift brought out by World Bank: The movement of manufacturing away from urban locations was brought out by the Work Bank in a report a decade ago, “Is India’s Manufacturing Sector Moving Away from Cities? Policy Research Working Paper, World Bank).
    • Higher urban-rural cost caused this shift: This study investigated the urbanisation of the Indian manufacturing sector by “combining enterprise data from formal and informal sectors and found that manufacturing plants in the formal sector are moving away from urban areas and into rural locations, while the informal sector is moving from rural to urban locations”. Their results suggested that higher urban-rural cost ratios caused this shift.
    • Steady investment in rural areas: This is the result of a steady stream of investments in rural locations over the last two decades.
    • Input costs are relatively less in rural area: Rural areas have generally been more attractive to manufacturing firms because wages, property, and land costs are all lower than in most metropolitan areas.
    • Factory floorspace supply constraints: When locations get more urbanised and congested, the greater these space constraints are.
    • Increased capital intensity of production: The driving force behind such a shift is the continuing displacement of labour by machinery as a result of the continuous capital investments in new production technologies. In cities, factories just cannot be expanded as opposed to rural areas.

    How this trend is a welcome sign?

    • Fulfilling the need of balanced development: Given the size of the Indian economy and the need for balanced regional development, the dispersal of manufacturing activities is a welcome sign.
    • Created an opportunity for small scale industries to survive after liberalization: In the aftermath of trade liberalisation, import competition intensified for many Indian manufacturers, forcing them to look for cheaper methods and locations of production. One way to cut costs was to move some operations from cities to smaller towns, where labour costs are cheaper.
    • Source of livelihood diversification in rural area: The shift in manufacturing activities from urban to rural areas has helped maintain the importance of manufacturing as a source of livelihood diversification in rural India.
    • Make up for loss of employment: This trend helped to make up for the loss of employment in some traditional rural industries. The growth of rural manufacturing, by generating new jobs, thus provides an economic base for the transition out of agriculture

    What are the challenges ahead and a solution to it?

    • While the input cost is less but the cost of capital is high, offsetting the benefits: Though firms reap the benefits of lower costs via lower rents, the cost of capital seems to be higher for firms operating on the rural side. This is evident from the shares in rent and interest paid. The rural segment accounted for only 35% of the total rent paid, while it had 60% of the total interest payments. The benefits reaped from one source seem to be offset by the increased costs on the other front.
    • Skill shortages in rural area: There exists an issue of “skills shortage” in rural areas as manufacturing now needs higher skilled workers to compete in the highly technological global ‘new economy’. Manufacturers who need higher skilled labour find that rural areas cannot supply it in adequate quantities. Manufacturers who depend only on low-wage workers simply cannot sustain their competitive edge for longer periods as this cost advantage vanishes over time.
    • Solution to this issue lies in skill development: This suggests the need for clear solutions to the problems of rural manufacturing and the most important is the provision of more education and skilling for rural workers. A more educated and skilled rural workforce will establish rural areas’ comparative advantage of low wages, higher reliability and productivity and hasten the process of the movement out of agriculture to higher-earning livelihoods

    Conclusion

    • Given the size of the Indian economy and the need for balanced regional development, the dispersal of manufacturing activities is a welcome sign. However, the compulsions of global competition often extend beyond the considerations of low-wage production and depend on the virtues of ‘conducive ecosystems’ for firms to grow.

    Mains Question

    Q. There is growing evidence to suggest that the trend in the manufacturing sector in India has been a shift of manufacturing activity and employment from bigger cities to smaller towns and rural areas. Discuss the reasons for this trend and note down the challenges ahead.

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  • What is a Loan Write-Off?

    Banks have written off bad loans worth ₹10,09,511 crore during the last five financial years, finance minister informed the Parliament.

    What is a loan write-off?

    • Writing off a loan essentially means it will no longer be counted as an asset.
    • By writing off loans, a bank can reduce the level of non-performing assets (NPAs) on its books.
    • The bank moves the defaulted loan, or NPA, out of the assets side and reports the amount as a loss.
    • An additional benefit is that the amount so written off reduces the bank’s tax liability.
    • The loans written off by the banks are the depositors’ money.

    Why do banks resort to write-offs?

    • Recovery issues: The bank writes off a loan after the borrower has defaulted on the loan repayment and there is a very low chance of recovery. However, the chances of recovery from written-off loans are very low.
    • Provisioning: After the write-off, banks are supposed to continue their efforts to recover the loan using various options. They have to make provisioning as well.
    • Reduce tax liability: The tax liability will also come down as the written-off amount is reduced from the profit.

    Who is at the forefront of write-offs?

    • Public sector banks reported the lion’s share of write-offs at Rs 734,738 crore accounting for 72.78 per cent of the exercise.
    • Among individual public sector banks, reduction in NPAs due to write-offs in the case of State Bank of India Rs 204,486 crore in the last five years.
    • Among private banks, ICICI Bank’s reduction in NPAs due to write-offs was Rs 50,514 crore in the last five years.
    • Axis Bank wrote off Rs 49,715 crore and HDFC Bank Rs 34,782 crore during the period, according to the RBI.

    What about recovery of such loans?

    • Since the loan account is not closed in write-off, the right to recovery of the amount is not waived by the lender or the bank.
    • The bank or lender can try to recover the loan amount from the loan defaulter.

    Back2Basics: Non-Performing Assets (NPAs)

    • A NPA is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
    • Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.
    1. Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.
    2. Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
    3. Loss assets: As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”

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  • US scientists announce breakthrough in Fusion Energy

    fusion

    US announced a “major scientific breakthrough” in the decades-long quest to harness fusion, the energy that powers the sun and stars.

    What is Fusion?

    • Fusion works by pressing hydrogen atoms into each other with such force that they combine into helium, releasing enormous amounts of energy and heat.
    • This process occurs in our Sun and other stars.
    • Creating conditions for fusion on Earth involves generating and sustaining a plasma.
    • Plasmas are gases that are so hot that electrons are freed from atomic nuclei.

    How is it carried out?

    fusion

    • Three conditions must be fulfilled to achieve fusion in a laboratory:
    1. Very high temperature (on the order of 150,000,000° Celsius);
    2. Sufficient plasma particle density (to increase the likelihood that collisions do occur); and
    3. Sufficient confinement time (to hold the plasma, which has a propensity to expand, within a defined volume).
    • At extreme temperatures, electrons are separated from nuclei and a gas becomes a plasma—often referred to as the fourth state of matter.
    • Fusion plasmas provide the environment in which light elements can fuse and yield energy.

    Fusion Energy

    • The process releases energy because the total mass of the resulting single nucleus is less than the mass of the two original nuclei.
    • The leftover mass becomes energy.

    What did the US achieve?

    • The US experiment uses a process called inertial confinement fusion.
    • It involved bombarding a tiny pellet of hydrogen plasma with the world’s biggest laser.

    Why is it perceived as energy of the future?

    • Carbon free: Fusion Reactions could one day produce nearly limitless, carbon-free energy, displacing fossil fuels and other traditional energy sources.
    • Efficient: Net energy gain has been an elusive goal because fusion happens at such high temperatures and pressures that it is incredibly difficult to control.
    • Clean: Unlike other nuclear reactions, it doesn’t create radioactive waste.

    Fusion still far from reality. Why?

    • Significant though the achievement is, it does little to bring the goal of producing electricity from fusion reactions any closer to reality.
    • By all estimates, use of the fusion process for generating electricity at a commercial scale is still two to three decades away.
    • The technology used in the US experiment might take even longer to get deployed.

    India’s progress: ITER project

    • International Thermonuclear Experimental Reactor (ITER) is one of the most ambitious energy projects in the world today.
    • The idea for an international joint experiment in fusion was first launched in 1985.
    • In southern France, 35 nations* are collaborating to build the world’s largest tokamak, a magnetic fusion device that has been designed to prove the feasibility of fusion.
    • ITER is funded and run by seven member parties: China, the European Union, India, Japan, Russia, South Korea and the United States.

     

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  • What is Base Editing?

    A teenage cancer patient suffering from T-cell acute lymphoblastic leukaemia (T-ALL) has defeated her seemingly incurable cancer with the help of base editing technique.

    Base Editing

    • Bases are the language of life. The four types of base – adenine (A), cytosine (C), guanine (G) and thymine (T) – are the building blocks of our genetic code.
    • Just as letters in the alphabet spell out words that carry meaning, the billions of bases in our DNA spell out the instruction manual for our body.
    • Base editing allows scientists to zoom to a precise part of the genetic code and then alter the molecular structure of just one base, converting it into another and changing the genetic instructions.
    • The large team of doctors and scientists used this tool to engineer a new type of T-cell that was capable of hunting down and killing cancerous T-cells.

    base-editing

    What is T-Cell?

    • T (thymus) cells are type of white blood cell.
    • They are part of the immune system and develop from stem cells in the bone marrow.
    • They help protect the body from infection and may help fight cancer.
    • Also called T lymphocyte and thymocyte.

    How base editing helped this teenage cancer patient?

    • Doctors started with healthy T-cells that came from a donor and set about modifying them.
    • The first base edit disabled the T-cells targeting mechanism so they would not assault patient’s body.
    • The second removed a chemical marking, called CD7, which is on all T-cells.
    • The third edit was an invisibility cloak that prevented the cells being killed by a chemotherapy drug.
    • The final stage of genetic modification instructed the T-cells to go hunting for anything with the CD7 marking on it so that it would destroy every T-cell in patient’s body – including the cancerous ones.
    • That’s why this marking has to be removed from the therapy – otherwise it would just destroy itself.
    • If the therapy works, the patient’s immune system – including T-cells – will be rebuilt with the second bone-marrow transplant.

     

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