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GS Paper: GS3

  • Stagflation’ in India

    Reports suggest that crude oil prices soared and touched almost $140 per barrel mark amid Russian invasion of Ukraine. This has posed a risk of causing Stagflation in India.

    What is Stagflation?

    • Stagflation is a stagnant growth and persistently high inflation. It, thus, describes a rather rare and curious condition of an economy.
    • Iain Macleod, a Conservative Party MP in the United Kingdom, is known to have coined the phrase during his speech on the UK economy in November 1965.
    • Typically, rising inflation happens when an economy is booming — people are earning lots of money, demanding lots of goods and services and as a result, prices keep going up.
    • When the demand is down and the economy is in the doldrums, by the reverse logic, prices tend to stagnate (or even fall).
    • But stagflation is a condition where an economy experiences the worst of both worlds — the growth rate is largely stagnant (along with rising unemployment) and inflation is not only high but persistently so.

    How does one get into Stagflation?

    • The best-known case of stagflation is what happened in the early and mid-1970s.
    • The OPEC (Organisation of Petroleum Exporting Countries), which works like a cartel, decided to cut crude oil supply.
    • This sent oil prices soaring across the world; they were up by almost 70%.
    • This sudden oil price shock not only raised inflation everywhere, especially in the western economies but also constrained their ability to produce, thus hampering their economic growth.
    • High inflation and stalled growth (and the resulting unemployment) created stagflation.

    Is India facing stagflation?

    • In the recent past, this question has gained prominence since late 2019, when retail inflation spiked due to unseasonal rains causing a spike in food inflation.
    • In December 2019, it was also becoming difficult for the government to deny that India’s growth rate was witnessing a secular deceleration.
    • As revised estimates, released in January end, now show, India’s GDP growth rate decelerated from over 8% in 2016-17 to just 3.7% in 2019-20.
    • However, the answer to this question in December 2019 was a clear no.
    • For one, in absolute terms, India’s GDP was still growing, albeit at a progressively slower rate.

    Why this is a cause of concern?

    • Russia is the world’s second-largest oil producer and, as such, if its oil is kept out of the market because of sanctions, it will not only lead to prices spiking, but also mean they will stay that way for long.
    • While India is not directly involved in the conflict, it will be badly affected if oil prices move higher and stay that way.
    • India imports more than 84% of its total oil demand. At one level, that puts into perspective all the talk of being Atmanirbhar (or self-reliant).
    • Without these imports, India’s economy would come to a sudden halt — both metaphorically as well as actually.

    Expected impact on Indian Economy

    • Higher inflation would rob Indians of their purchasing power, thus bringing down their overall demand.
    • In other words, people are not demanding enough for the economy to grow fast.
    • Private consumer demand is the biggest driver of growth in India.
    • Such aggregate demand — the monetary sum of all the soaps, phones, cars, refrigerators, holidays etc. that we all spend on in our personal capacity — accounts for more than 55% of India’s total GDP.
    • Higher prices will reduce this demand, which is already struggling to come back up to the pre-Covid level.
    • Fewer goods and services being demanded will then disincentivise businesses from investing in new capacities, which, in turn, will exacerbate the unemployment crisis and lead to even lower incomes.

    Back2Basics: Inflation and its impact

    • Depression: It is Economic depression is a sustained, long-term downturn in economic
    • Deflation: It is the general fall in the price level over a period of time.
    • Disinflation: It is the fall in the rate of inflation or a slower rate of inflation. Example: a fall in the inflation rate from 8% to 6%.
    • Reflation: It is the act of stimulating the economy by increasing the money supply or by reducing taxes, seeking to bring the economy back up to the long-term trend, following a dip in the business cycle. It is the opposite of disinflation.
    • Skewflation: It is the skewed rise in the price of some items while remaining item prices remain the same. E.g. Seasonal rise in the price of onions.
    • Stagflation: The situation of rising prices along with falling growth and employment, is called stagflation. Inflation accompanied by an economic recession.

     

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  • Protocols for social media

    Context

    The lack of clear systems within social media companies that claim to connect the world is appalling. It is time that they should have learned from multiple instances, as recent as the Israeli use of force in Palestine.

    Role of social media platforms in the context of conflict

    • There was no unpredictability over conflicts in the information age spilling over to social media platforms.
    • In the context of conflict, social media platforms have multiple challenges that go unaddressed.
    • Threat of information warfare: Content moderation remains a core area of concern, where, essentially, information warfare can be operationalised and throttled.
    • Their sheer magnitude and narrative-building abilities place a degree of undeniable onus on them.
    • After years of facing and acknowledging these challenges, most social media giants are yet to create institutional capacity to deal with such situations.
    • Additionally, they also act as a conduit for further amplification of content on other platforms.
    • Major social media platforms such as Facebook, Instagram, and Twitter also provide space for extremist views from fringe platforms, where the degree of direct relation to the user generating such content is blurred.

    Technology falls short

    • Misinformation and disinformation are thorny challenges to these platforms.
    • Algorithmic solutions are widely put to use to address them.
    • These include identification of content violative of their terms, reducing the visibility of content deemed inappropriate by the algorithm, and in the determination of instances reported to be violative of the terms by other users.
    • More often than not in critical cases, these algorithmic solutions have misfired, harming the already resource-scarce party.
    • The operational realities of these platforms require that the safety of users be prioritised to address pressing concerns, even at the cost of profits.

    Lessons for India

    • The lack of coherent norms on state behaviour in cyberspace as well as the intersection of business, cyberspace, and state activity is an opportunity for India.
    • Indian diplomats can initiate a new track of conversations here which can benefit the international community at large.
    • India should ensure that it initiates these conversations through well-informed diplomats.
    • Finally, it is necessary to reassess the domestic regulatory framework on social media platforms.
    • Transparency and accountability need to be foundational to the regulation of social media platforms in the information age.

    Conclusion

    It is in our national interest and that of a rule-based global polity that social media platforms be dealt with more attention across spheres than with a range of reactionary measures addressing immediate concerns alone.

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  • How to handle impact of Ukrainian crisis on India’s energy sector

    Context

    The Ukraine crisis will affect India’s energy landscape in many ways. This article analyses the impact and suggest the policy measures.

    The trajectory of oil prices

    • The inflation-adjusted price of Brent crude is $83/bbl (as of writing, the nominal price is $116 / bbl), which is lower than the peak of $145/ bbl in 2008 and the average price that year of $100/bbl.
    •  In other words, prices could rise much further and we would still not be in uncharted waters.
    • Factors affecting prices: The price trajectory will depend on the duration of the conflict, its impact on global energy demand, countervailing supply measures (for example, drawdown of strategic reserves, diversion of US LNG supplies to Europe, the Iranian nuclear deal which, if signed, could release up to 1 mbd of Iranian crude into the market) and whether in all this mayhem, the pipeline infrastructure currently feeding Russian gas into Europe remains operational.
    • Impact on India’s earnings: Our earnings from petroleum products (diesel, petrol, naphtha) will be adversely impacted.
    • In 2021, these products generated $39 billion in revenue and at 14 per cent, they accounted for the highest share of export earnings.

    Impact on India’s energy assets in Russia

    • ONGC has a 26 per cent stake in the Vankor oil field, a 20 per cent stake in the Sakhalin-1 LNG/oil export complex.
    • All these holdings have eroded substantially in value.
    • In India, Rosneft (the Russian national oil company) operates the 20 mtpa refinery in Vadinar through Nayara Energy.
    • Nayara is not sanctioned but the traders of crude/products might worry about transacting with an Indian company owned by a sanctioned Russian entity.

    Four emergent energy trends that would affect India

    • 1] Energy ties of Russia and China: Only last week, for instance, Gazprom signed off on an agreement to build a second gas pipeline to China christened “Power of Siberia 2”.
    • The “Power of Siberia 1” pipeline has been pumping gas into China since 2019.
    • 2] Emergence of US as second largest producer: The emergence of the US as the largest producer of oil in the world and potentially the largest exporter of LNG.
    • It has the capacity to blunt the impact of a supply shortfall but as it is controlled by profit-maximising private corporates.
    • 3] The ability of Saudi Arabia to swing the crude oil market: It is the one member of OPEC plus with significant spares, low cost, producible capacity (approx 3 mbd) of crude oil.
    • The US has pressured Saudi to bring this volume into the market but they have, as yet, not buckled.
    • 4] China’s dominance over rare earth metals: The chokehold of China over the rare earths, minerals and components that are required to effect the transition to a clean energy system.

    Suggestions for India

    • 1] Take into account uncertainty: Frame the polic around the expectation of continuing volatility.
    • 2] Strategic reserves: Build up strategic reserves to safeguard against the unexpected.
    • 3] Transnational pipelines: Revive conversations with Turkmenistan and Iran about a transnational gas pipeline.
    • 4] Reduce dependence on China for minerals and components required for the transition to clean energy: Fast forward efforts to decouple the supply chain dependence on China for the minerals and components required for the clean energy transition.
    •  And, finally bring in psychologists to get a better fix on the logic that drives the decisions of the energy autocrats in Russia, Saudi Arabia and China.

    Conclusion

    The Ukraine crisis throws up many learnings. But one needs particular emphasis. It is not enough to read the tea leaves of supply, demand and geopolitical trends to understand the trajectory of the energy market.

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  • Filling the physical gaps in India’s digital push

    Context

    A lot has been written about the emphasis on “digital” in the 2022 Union Budget. But one aspect that hasn’t been talked about as much is the importance given in the budget to digital public infrastructure (DPI).

    Significance of digital public infrastructure (DPI) in India

    • A global trendsetter: India is seen as a global trendsetter in the DPI movement, having set up multiple large-scale DPIs like Aadhaar, UPI and sector-specific platforms like DIGIT for eGovernance and DIKSHA for education.
    • Improvement in public service delivery: These DPIs have helped push the frontier of public service delivery.
    • Four key announcements in Budget: This year’s budget adds to the growing discourse on DPIs by making four key announcements:
    • 1] In health, an open platform with digital registries, a unique health identity and a robust consent framework;
    • 2] In skilling, a Digital Ecosystem for Skilling and Livelihood (DESH-Stack) to help citizens upskill through online training;
    • 3] a Unified Logistics Interface Platform (ULIP) to streamline movement of goods across modes of transport; and for travel,
    • 4] In mobility, an “open source” mobility stack for facilitating seamless travel of passengers.
    • Analysis by the Centre for Digital Economy Policy Research (C-DEP) estimates that national digital ecosystems could add over 5 per cent to India’s GDP.

    Suggestions

    • But important design considerations must be set right if we are to truly unlock the value of these platforms.

    1] Differentiating between tech and non-tech layer

    • We need to differente between the “tech” and “non-tech” layers of our digital infrastructure.
    • While India seems to have made significant headway on the “tech” layers, the “non-tech” layers of community engagement and governance need a lot more work.
    • The combination of these three layers is what is critical to making tech work for everyone.
    • Together, they embody what we call the open digital ecosystems (ODE) approach.

    2] Get non-tech layers right

    • To unleash the true potential of India’s ODEs, we need to get the “non-tech” layers right, by prioritising principles around data protection, universal access and accountability.
    • In this regard, three specific non-tech levers are critical.
    • 1] Data protection: Protecting the data of all users and giving them agency over how their data gets used.
    • The passage of a robust Data Protection Bill is imperative.
    • But we also need to go beyond the mere requirement of “consent”.
    • 2] Address digital divide: It is important to address the digital divide.
    • Research by ORF, for instance, shows that Indian women are 15 per cent less likely to own a mobile phone and 33 per cent less likely to use mobile internet services than men.
    • So, we need a “phygital” approach that provides services through both online and offline options and strong grievance redressal mechanisms.
    • 3] Institutional mechanism: As we push the frontier on digitisation, India must also focus on developing anchor institutions and robust governance frameworks.
    • Just as Aadhaar is anchored by UIDAI under an Act of Parliament, and the Ayushman Bharat Digital Mission is anchored by the National Health Authority, every new ODE requires an accountable institutional anchor. 
    • These institutions are critical for setting standards, ensuring a level playing field and safeguarding consumer interest.

    Consider the question “India is seen as a global trendsetter in the DPI movement, having set up multiple large-scale Digital Public Infrastructures(DPI). List the various DPIs in various sectors in India. Suggest the changes needed in the non-tech layers of these DPIs.”

    Conclusion

    From Aadhaar and UPI to DBT and CoWin, India’s tech stacks are grabbing global attention. It is now critical to bring the gaze on to the non-tech layers of the stack, so that the potential of these platforms can be unlocked for every Indian.

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  • Tiger Density in India

    Preliminary findings of a study by the Wildlife Institute of India (WII) suggest that the density of tigers in the Sunderbans may have reached the carrying capacity of the mangrove forests, leading to frequent dispersals and a surge in human-wildlife conflict.

    Tiger Density of India

    • In the Terai and Shivalik hills habitat — think Corbett tiger reserve, for example — 10-16 tigers can survive in 100 sq km.
    • This slides to 7-11 tigers per 100 sq km in the reserves of north-central Western Ghats such as Bandipur, and to 6-10 tigers per 100 sq km in the dry deciduous forests, such as Kanha, of central India.
    • The correlation between prey availability and tiger density is fairly established.
    • There is even a simple linear regression explaining the relationship in the 2018 All-India Tiger report that put the carrying capacity in the Sunderbans “at around 4 tigers” per 100 sq km.
    • A joint Indo-Bangla study in 2015 pegged the tiger density at 2.85 per 100 sq km after surveying eight blocks spanning 2,913 sq km across the international borders in the Sunderbans.

    Conflict: cause or effect

    • The consequence, as classical theories go, is frequent dispersal of tigers leading to higher levels of human-wildlife conflict in the reserve peripheries.
    • Physical (space) and biological (forest productivity) factors have an obvious influence on a reserve’s carrying capacity of tigers.
    • What also plays a crucial role is how the dispersal of wildlife is tolerated by people — from the locals who live around them to policymakers who decide management strategies.
    • More so when different land uses overlap and a good number of people depend on forest resources for livelihood.

    Why tiger corridors are not a solution?

    • But though vital for genes to travel and avoid a population bottleneck, wildlife corridors may not be the one-stop solution for conflict.
    • First, not all dispersing tigers will chance upon corridors simply because many will find territories of other tigers between them and such openings.
    • Even the lucky few that may take those routes are likely to wander to the forest edges along the way.
    • Worse, the corridors may not lead to viable forests in reserves such as Sunderbans, bounded by the sea and villages.

    Way ahead

    • Artificially boosting the prey base in a reserve is often an intuitive solution but it can be counter-productive.
    • To harness the umbrella effect of tigers for biodiversity conservation, it is more beneficial to increase areas occupied by tigers.
    • For many, the prescription is to create safe connectivity among forests and allow tigers to disperse safely to new areas.

    Try this PYQ from CSP 2020:

    Q.Among the following Tiger Reserves, which one has the largest area under “Critical Tiger Habitat” ?

    (a) Corbett

    (b) Ranthambore

    (c) Nagarjunasagar- Srisailam

    (d) Sunderbans

     

    [wpdiscuz-feedback id=”3sm90ja3rc” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

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  • Ex Vayu Shakti 2022

    The Indian Air Force (IAF) has decided to postpone its firepower demonstration, Ex Vayu Shakti, scheduled in the Pokhran ranges in Rajasthan.

    Exercise Vayu Shakti

    • It is conducted once in three years which is participated by fighters, helicopters, force enablers and support systems.
    • The aim of the exercise is to detect and identify targets and neutralise them in day, dusk and night capability demonstrations.
    • The Indian Air Force showcases repower capability of indigenously developed aircrafts and its missile arsenal in this exercise.
    • Fighter aircraft including Jaguar, Rafale, Sukhoi-30, MIG-29, light combat aircraft Tejas, MIG-21 Bison, Hawk 32, M200 participates in the exercise.

    Also read

    Various Defence Exercises in News

     

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  • Need for political will to tackle climate change

    Context

    Intergovernmental Panel on Climate Change (IPCC) report released on Monday its sixth assessment report.

    Bleak assessment of our future

    • In its sixth assessment report, titled ‘Impacts, Adaptation and Vulnerability’, the IPCC discusses the increasing extreme heat, rising oceans, melting glaciers, falling agricultural productivity, resultant food shortages and increase in diseases like dengue and zika.
    • Failed climate leadership: Antonio Guterres, the United Nations Secretary General, quoted in The New York Times, describes the IPCC report as being “an atlas of human suffering and a damning indictment of failed climate leadership.”
    • The IPCC warns that should our planet get warmer than 1.5 degrees Celsius from pre-industrial times (we are at 1.1 degrees at present), then there will be irreversible impact on “ecosystems with low resilience” such as polar, mountain and coastal ecosystems “impacted by glacier melt, and higher sea level rise”.
    • This will cause devastation to “infrastructure in low-lying coastal settlements, associated livelihoods and even erosion of cultural and spiritual values.”
    • The increased heat will lead to an increase in diseases like diabetes, circulatory and respiratory conditions, as well as mental health challenges.

    Impact on India

    • Climate “maladaptation”: The IPCC also highlights that climate “maladaptation” will especially affect “marginalised and vulnerable groups adversely, indigenous people, ethnic minorities, low-income households and informal settlements” and those in rural areas.
    • Therefore, India, with a majority of its people falling in these categories, will be especially devastated.
    • The IPCC highlights India as a vulnerable hotspot, with several regions and cities facing climate change phenomena like flooding, sea-level rise and heatwaves.
    • For instance, Mumbai is at high risk of sea-level rise and flooding, and Ahmedabad faces the danger of heat waves — these phenomena are already underway in both cities.
    • Vector-borne and water-borne diseases such as malaria and dengue will be on the rise in sub-tropical regions, like parts of Punjab, Assam and Rajasthan.
    • When the concentration of carbon dioxide in the atmosphere increases, the grains we consume, including wheat and rice, will have diminished nutritional quality.
    • Over the past 30 years, major crop yields have decreased by 4-10 per cent globally due to climate change.
    • Consequently, India, which continues to be predominantly agrarian, is likely to be especially hurt.
    • Urban India is at greater risk than other areas with a projected population of 877 million by 2050 nearly double of 480 million in 2020.
    • The concentration of population in these cities will make them extremely vulnerable to climate change.

    Conclusion

    Fighting climate change requires fiscal expenditure and policy changes fuelled by political will, which will reap results in a decade or so. Yet, our political class has no cohesive and urgent policy roadmap to combat rising emissions and our diminishing life spans.

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  • Kavach: the Indian technology that can prevent collision of Trains

    Kavach, this indigenously developed Automatic Train Protection System is earmarked for aggressive rollout on 2,000 km in 2022-23, according the Budget proposals.

    What is Kavach?

    • It is India’s very own automatic protection system in development since 2012, under the name Train Collision Avoidance System (TCAS), which got rechristened to Kavach or “armour”.
    • Simply put, it is a set of electronic devices and Radio Frequency Identification devices installed in locomotives, in the signalling system as well the tracks.
    • They connect to each other using ultra high radio frequencies to control the brakes of trains and also alert drivers, all based on the logic programmed into them.

    Key features of Kavach

    • One of its features is that by continuously refreshing the movement information of a train, it is able to send out triggers when a loco pilot jumps signal, called Signal Passed at Danger (SPAD).
    • The devices also continuously relay the signals ahead to the locomotive, making it useful for loco pilots in low visibility, especially during dense fog.
    • It includes the key elements from already existing, and tried and tested systems like the European Train Protection and Warning System, and the indigenous Anti Collison Device.
    • It will also carry features of the high-tech European Train Control System Level-2 in future.
    • The current form of Kavach adheres to the highest level of safety and reliability standard called Safety Integrity Level 4.

    What is the upgrade?

    • In the new avatar, India wants to position Kavach as an exportable system, a cheaper alternative to the European systems in vogue across the world.
    • While now Kavach uses Ultra High Frequency, work is on to make it compatible with 4G Long Term Evolution (LTE) technology and make the product for global markets.
    • Work is on to make the system such that it can be compatible with other already installed systems globally.

    How far is the rollout?

    • So far, Kavach has been deployed on over 1,098 km and 65 locomotives in ongoing projects of the South Central Railway.
    • In future it will be implemented on 3000 km of the Delhi-Mumbai and Delhi-Howrah corridors where the tracks and systems are being upgraded to host a top speed of 160 kmph.
    • Further, over 34,000 km on the High Density Network (HDN) and Highly Utilized Network (HUN) of on the Golden Quadrilateral have been included in its sanctioned plans.

     

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  • Hike in crude oil prices and its impact on India

    Context

    The Russia-Ukraine conflict will impact India’s economy through several channels. The first order impact, emanates from the negative terms of trade shock from higher commodity prices, particularly oil.

    • Crude prices have surged well past a $110/barrel and there is a growing expectation that, as the conflict gets more entrenched, crude could remain elevated for much longer and average close to $100/barrel in 2022, vis-a-vis $70/barrel in 2021.

    Why crude oil price is increasing?

    Limited Supply:

    • Major oil-producing countries had cut oil production last year amid a sharp fall in demand due to the Covid-19 pandemic.
    • Saudi Arabia pledged extra supply cuts in February and March 2020 following reductions by other members of the Organization of the Petroleum Exporting Countries (OPEC) and its allies.
    • In early January 2021, the OPEC and Russia (as OPEC+) agreed to cut back on oil production to increase prices.

    Rising Demand:

    • The production and rollout of vaccines for Covid-19 and the rising consumption post the Covid lockdowns last year have both led to a revival in international crude oil prices.

    Geopolitical reasons

    • Geopolitical tension has risen between Russia, which is the second largest oil producer in the world, and neighbouring Ukraine.
    • In January, there were drone attacks on oil facilities in UAE, another major oil producer.
    • An outage on a major oil pipeline linking Saudi Arabia and Turkey further added to the pressures.

    How it will impact India?

    • Current Account Deficit: The increase in oil prices will increase the country’s import bill, and further disturb its current account deficit (excess of imports of goods and services over exports).
      • According to estimates, a one-dollar increase in crude oil price increases the oil bill by around USD 1.6 billion per year.
    • Inflation: The increase in crude prices could also also further increase inflationary pressures that have been building up over the past few months.
      • This will decrease the space for the monetary policy committee to ease policy rates further.
      • The government had hiked central taxes on petrol and diesel by Rs. 13 per litre and Rs. 11 per litre in 2020 to boost revenues amid lower economic activity.
    • Fiscal Health: If oil prices continue to increase, the government shall be forced to cut taxes on petroleum and diesel which may cause loss of revenue and deteriorate its fiscal balance.
      • The growth slowdown in the last two years has already resulted in a precarious fiscal situation because of tax revenue shortfalls.
      • The revenue lost will erode the government’s ability to spend or meet its fiscal commitments in the form of budgetary transfers to states, payment of dues and compensation for revenue shortfalls to state governments under the goods and services tax (GST) framework.

    Why high growth impact on fiscal space leads to a greater hit to demand and growth?

    • The growth impact will manifest through constraints on fiscal space, household purchasing power being impinged and firm margins coming under pressure.
    • Why does marginal propensity to consume matter? The quantum of the growth impact will depend on how the shock is distributed across the fiscal, households and firms because of the different marginal propensities to consume.
    • For example, the excise duty cuts last November have already absorbed about one-third of the shock from oil (0.4 per cent of GDP).
    • The cost of this, however, is commensurate pressures on fiscal expenditures and growth, agnostically assuming a fiscal multiplier of 1.
    • In contrast, the marginal propensity to consume/invest out of income/earnings is typically lower than 1 for households/firms.
    • So, the greater the fraction of the shock absorbed on the fiscal, the greater the hit to demand and growth. 

    Way forward

    1] Let the rupee reach the new equilibrium

    • The widening of the CAD and associated BoP pressures will create some depreciation pressures on the rupee.
    • More fundamentally, a persistent negative terms of trade shock will argue for a weaker equilibrium real effective exchange rate.
    • Policymakers should let the rupee reach this new equilibrium – albeit in a gradual and non-disruptive manner – and not prevent this adjustment because it will facilitate the necessary “expenditure switching” to reduce imports, boost exports and help narrow an elevated CAD.

    2] Pragmatic fiscal policies

    • Cutting excise duties would buffer the impact on households and protect consumption, but potentially result in a larger hit to demand by shrinking fiscal space to spend.
    • If the government doesn’t cut duties, it has resources that can potentially be used to more directly target affected households at the bottom of the pyramid.
    • But this will mean higher retail prices that can harden inflationary expectations, increasing the challenges for monetary policy.
    • Finally, policymakers could always cut duties, not cut spending and let the deficit widen commensurately — effectively pushing out some of the terms of trade costs to the future — but negative surprises on the fiscal during periods of heightened macro uncertainty can generate significantly risk premia in markets.
    • All told, the fiscal will confront several trade-offs, and should try avoiding corner solutions.
    • What should be clear is that as soon as markets begin to stabilise, authorities must plough ahead with planned asset sales/disinvestment to create more fiscal headroom, without trying to perfectly time the market.

    3) Reduce the dependence

    • India has proposed Oil Buyer’s club. This would be a grouping of India, China, Japan and South Korea. The objective is to reduce the dependence on OPEC, have better bargains, increase the imports of crude oil imports from USA etc
    • It was put forward by Mani Shankar Ayyar in 2005
    • Create a stabilization fund or reserve account – Thailand, UK etc

    Conclusion

    A persistent adverse supply shock is complicated and challenging to respond to, and the new equilibrium will inevitably need some combination of a weaker rupee, higher rates, and judicious fiscal management.

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    Back2Basics: What is a fiscal multiplier?

    • The fiscal multiplier measures the effect that increases in fiscal spending will have on a nation’s economic output, or gross domestic product (GDP).
    • Fiscal multipliers are important because they can help guide a government’s policies during an economic crisis and help set the stage for economic recovery.

    What is Marginal Propensity to Consume?

    • In economics, the marginal propensity to consume (MPC) is defined as the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it.
    • Marginal propensity to consume is a component of Keynesian macroeconomic theory and is calculated as the change in consumption divided by the change in income.
    • MPC varies by income level. MPC is typically lower at higher incomes.

  • Egypt hikes Suez Canal transit fees for ship

    Cash-strapped Egypt increased transit fees for ships passing through the Suez Canal, one of the world’s most crucial waterways, with hikes of up to 10%.

    Suez Canal

    • The Suez Canal is an artificial sea-level waterway in Egypt, connecting the Mediterranean Sea to the Red Sea through the Isthmus of Suez; and dividing Africa and Asia.
    • Constructed by the Suez Canal Company between 1859 and 1869, it officially opened on 17 November 1869.
    • The canal was earlier controlled by British and French interests in its initial years but was nationalized in 1956 by Egypt’s then leader Gamal Abdel Nasser.
    • It extends from the northern terminus of Port Said to the southern terminus of Port Tewfik at the city of Suez.
    • Its length is 193.30 km including its northern and southern access channels.

    Its significance

    • The Suez Canal provides a crucial link for oil, natural gas and cargo being shipping from East to West.
    • About 10% of global trade, including 7% of the world’s oil, flows through the Suez Canal.
    • It provides a major shortcut for ships moving between Europe and Asia, who before its construction had to sail around Africa to complete the same journey.
    • As per a report, the canal is a major source of income for Egypt’s economy, with the African country earning $5.61 billion in revenues from it last year.

    Try this PYQ:

    Q.Between India and East Asia, the navigation time and distance can be greatly reduced by which of the following?

    1. Deepening the Malacca straits between Malaysia and Indonesia.
    2. Opening a new canal across the Kra isthmus between the Gulf of Siam and Andaman sea.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

     

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