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GS Paper: GS3

  • [pib] Periodic Labour Force Survey (2019 –2020)

    The Periodic Labour Force Survey (PLFS) Annual Report for July, 2019 to June 2020 was recently released by the National Statistical Office (NSO).

    Periodic Labour Force Survey

    • Considering the importance of the availability of labor force data at more frequent time intervals, National Statistical Office (NSO) launched PLFS in April 2017.
    • The objective of PLFS is primarily twofold:
    1. to estimate the key employment and unemployment indicators (viz. Worker Population Ratio, Labour Force Participation Rate, Unemployment Rate) in the short time interval of three months for the urban areas only in the Current Weekly Status (CWS).
    2. to estimate employment and unemployment indicators in both ‘Usual Status’ and CWS in both rural and urban areas annually.

    Various dimensions of the survey

    The PLFS gives estimates of Key employment and unemployment Indicators:

    • Labour Force Participation Rate (LFPR): LFPR is defined as the percentage of persons in the labor force (i.e. working or seeking or available for work) in the population.
    • Worker Population Ratio (WPR): WPR is defined as the percentage of employed persons in the population.
    • Unemployment Rate (UR): UR is defined as the percentage of persons unemployed among the persons in the labor force.
    • Activity Status- Usual Status: When the activity status is determined on the basis of the reference period of the last 365 days preceding the date of the survey, it is known as the usual activity status of the person.
    • Activity Status- Current Weekly Status (CWS): The activity status determined on the basis of a reference period of the last 7 days preceding the date of the survey is known as the CWS of the person.

    Highlights of the third report

    • The Labour force participation ratio has increased to 40.1% in 2019-20 from 37.5% and 36.9%, respectively, in the last two years.
    • Worker population rate improved to 38.2% in 2019-20 compared with 35.3% in 2018-19 and 34.7% in 2017-18.
    • The unemployment rate fell to 4.8% in 2019-20. In 2018-19, it stood at 5.8% and 6.1% in 2017-18.

  • Challenges in withdrawing stimulus measures

    Context

    Economic-policy discussions increasingly revolve around the question of when and how quickly central banks should pull back the uber-stimulus measures implemented last year in response to the pandemic.

    Why withdrawal is challenging?

    • Uncertainties: Both parts of the question (when and how) call for finely balanced judgment to account for uncertainties that are in play.
    • Policy changes by major central banks can have far-reaching implications for economic and financial well-being, affecting not just those directly involved but also the many nations.
    • To answer the question, an assessment of three current issues is required:
    • The labor market.
    • The surge in inflation.
    • The risk of not being able to recover quickly in the event of a policy mistake.

    Let’s look into these three issues

    1) Labour market puzzle

    • Despite massive demand, the labor market is unable to match unemployed workers to jobs.
    • The situation is particularly stark in the US.
    • Job data for April show that there are a record number of job openings in the US—more than nine million—labor-force participation remains stubbornly low, and unemployment high, compared to pre-pandemic levels.
    • The labor market’s persistent malfunctioning—particularly employers’ struggle to find employees—is likely to lead to higher wage growth, a possibility that fuels concern about the second issue-inflation.

    2) Inflation: Is it transitory or long-lasting?

    • There is a view that the current uptick in inflation will sharply reverse itself.
    • As the year progresses, it is expected that the base effect will wash out together with the supply and demand mismatches.
    • However, there is a possibility of supply bottlenecks, changes in supply chains, and lasting inventory management challenges.

    3) Policy challenges: To act or not to act

    • Policymakers must be mindful of the risks associated with any given course of action—including inaction.
    • In the face of such uncertainty, it is wise to ask not just what could go wrong but also what the consequences of a policy mistake would be.
    • Under the current conditions, a wrong move could have far-reaching, lasting effects.
    • Those favoring a continuation of loose monetary policies argue that central bankers still have tools to overcome inflation should it persist.
    • But as the opponents are quick to point out, those tools have become increasingly ineffective and difficult to calibrate.
    • The risk of inaction (or inertia) in this case may be larger than that of acting early.

    Options with systemically important central banks

    • In the case of the US, economic growth is buoyant, fiscal policy is also extremely expansionary, and businesses and households alike have significant accumulated savings that they will now be spending down.
    • The conditions are now ripe for the Fed to start reducing—gradually and carefully—its bond-buying program from its current rate of $120 billion per month.
    • The European Central Bank, however, is in a different position.
    • While eurozone growth is picking up, the level of financial support is not as strong as in the US, and the private-sector recovery is not as advanced.
    • The hardest case to call in the UK.
    • With growth, fiscal support, and the private sector’s prospects more finely balanced.
    • Other central bankers around the world also have an important role to play.
    • Central bankers elsewhere should be running their own scenario analyses and formulating appropriate response plans.

    Conclusion

    There is nothing wrong with hoping that three systemically important central banks will get to their destination smoothly. But the journey is far from over, and the risk of someone slipping is not negligible.

    Back2Basics: Labour force participation rate

    • The labor force participation rate is a measure of an economy’s active workforce.
    • The formula for the number is the sum of all workers who are employed or actively seeking employment divided by the total noninstitutionalized, civilian working-age population.
    • Used in conjunction with the unemployment numbers, it offers some perspective into the state of the economy.

    Source:

    https://www.financialexpress.com/opinion/withdrawal-symptoms-central-banking-fast-and-slow/2295940/

  • RBI working towards ‘phased introduction’ of Digital Rupee

    The Reserve Bank of India (RBI) is working toward a “phased implementation strategy” of a Central Bank Digital Currency (CBDC).

    Do you know?

    China’s digital RMB was the first digital currency to be issued by a major economy.

    Central Bank Digital Currency (CBDC)

    • The phrase CBDC has been used to refer to various proposals involving digital currency issued by a central bank.
    • They are also called digital fiat currencies or digital base money.
    • The present concept of CBDCs was directly inspired by Bitcoin, but a CBDC is different from virtual currency and cryptocurrency.
    • Cryptocurrencies are not issued by a state and lack the legal tender status declared by the government.

    Why India needs a digital rupee?

    • Online transactions: India is a leader in digital payments, but cash remains dominant for small-value transactions.
    • High currency in circulation: India has a fairly high currency-to-GDP ratio.
    • Cost of currency management: An official digital currency would reduce the cost of currency management while enabling real-time payments without any inter-bank settlement.

    Features of CBDC

    • High-security instrument: CBDC is a high-security digital instrument; like paper banknotes, it is a means of payment, a unit of account, and a store of value.
    • Uniquely identifiable: And like paper currency, each unit is uniquely identifiable to prevent counterfeit.
    • Liability of central bank: It is a liability of the central bank just as physical currency is.
    • Transferability: It’s a digital bearer instrument that can be stored, transferred, and transmitted by all kinds of digital payment systems and services.

    Various benefits offered

    • It is efficient than printing notes (cost of printing, transporting, and storing paper currency)
    • It reduces the risk of transactions
    • It makes tax collection transparent
    • Prevents money laundering

  • Species in news: Great Indian Bustards

    The Environment Ministry has informed the Parliament that there were no Great Indian Bustards (GIB) left in Kutch Bustard Sanctuary (KBS) in Gujarat’s Kutch district.

    Great Indian Bustards

    • GIBs are the largest among the four bustard species found in India, the other three being MacQueen’s bustard, lesser florican, and the Bengal florican.
    • GIBs’ historic range included much of the Indian sub-continent but it has now shrunken to just 10 percent of it. Among the heaviest birds with flight, GIBs prefer grasslands as their habitats.
    • GIBs are considered the flagship bird species of grassland.

    On the brink of extinction

    • The GIB population in India had fallen to just 150.
    • Pakistan is also believed to host a few GIBs and yet openly supports their hunting.

    Protection accorded

    • Birdlife International: uplisted from Endangered to Critically Endangered (2011)
    • Protection under CITES: Appendix I
    • IUCN status: Critically Endangered
    • Protection under Wildlife (Protection) Act: Schedule I

    Threats

    • Overhead power transmission
    • Poor vision: Due to their poor frontal vision, can’t detect powerlines in time and their weight makes in-flight quick maneuvers difficult.
    • Windmills: Coincidentally, Kutch and Thar desert are the places that have witnessed the creation of huge renewable energy infrastructure.
    • Noise pollution: Noise affects the mating and courtship practices of the GIB.
    • Changes in the landscape: by way of farmers cultivating their land, which otherwise used to remain fallow due to frequent droughts in Kutch.
    • Cultivation changes: Cultivation of cotton and wheat instead of pulses and fodder are also cited as reasons for falling GIB numbers.

    Supreme Court’s intervention

    • The Supreme Court has ordered that all overhead power transmission lines in core and potential GIB habitats in Rajasthan and Gujarat should be undergrounded.
    • The SC also formed a three-member committee to help power companies comply with the order.

    Conservation measures

    • In 2015, the Central government launched the GIB species recovery program.
    • Under the program, the WII and Rajasthan Forest departments have jointly set up conservation breeding centers where GIB eggs are harvested from the wild.
    • They have been incubated artificially and hatchlings raised in a controlled environment.

    Answer this PYQ in the comment box:

    Q.Consider the following pairs:

    Protected Area :: Well-known for

    1. Bhiterkanika, Odisha — Salt Water Crocodile
    2. Desert National Park, Rajasthan — Great Indian Bustard
    3. Eravikulam, Kerala — Hoolock Gibbon

    Which of the pairs given above is/are correctly matched? (CSP 2014)

    (a) 1 only

    (b) 1 and 2

    (c) 2 only

    (d) 1, 2 and 3

  • Nord Stream 2 Pipeline Project

    The US, which had previously imposed sanctions to prevent the completion of a major new gas pipeline between Russia and Germany, has now signaled its approval for the project.

    Nord Stream 2 Pipeline

    • It is a system of offshore natural gas pipelines running under the Baltic Sea from Russia to Germany.
    • It includes two active pipelines running from Vyborg to Lubmin near Greifswald forming the original Nord Stream, and two further pipelines under construction running from Ust-Luga to Lubmin termed Nord Stream 2.
    • In Lubmin the lines connect to the OPAL line to Olbernhau on the Czech border and to the NEL line to Rehden near Bremen.
    • The first line Nord Stream-1 was laid and inaugurated in 2011 and the second line in 2012.
    • At 1,222 km in length, Nord Stream is the longest sub-sea pipeline in the world, surpassing the Langeled pipeline.

    Why is the pipeline controversial?

    • The US believed that the project would increase Europe’s dependence on Russia for natural gas.
    • Currently, EU countries already rely on Russia for 40 percent of their gas needs.
    • The project also has opponents in eastern Europe, especially Ukraine, whose ties with Russia have seriously deteriorated in the aftermath of the Crimean conflict in 2014.
    • There is an existing land pipeline between Russia and Europe that runs through Ukraine.
    • The country feels that once Nord Storm 2 is completed, Russia could bypass the Ukrainian pipeline, and deprive it of lucrative transit fees of around $3 billion per year.
    • Ukraine also fears another invasion by Russia once the new pipeline is operational.

  • Microplastics Pollution in Ganga

     

    The Ganga is heavily polluted with microplastics at Varanasi, Haridwar, and Kanpur, Delhi-based non-profit Toxics Link claimed.

    What are Microplastics?

    • Microplastics are plastics that are less than 5 mm in size but are a major source of marine pollution.
    • Untreated sewage from many cities along the river’s course, industrial waste, and religious offerings wrapped in non-degradable plastics pile pollutants into the river as it flows through several densely populated cities.
    • The plastic products and waste materials released or dumped in the river break down and are eventually broken down into microparticles.
    • The rivers finally transport significantly large quantities downstream into the ocean, which is the ultimate sink of all plastics being used by humans.

    Microplastics in Ganga

    • They are non-degradable plastics that often entered the Ganga through industrial waste or packaging of religious offerings, its research found.
    • The density of population in the three cities also added to the problem because a large chunk of pollutants got directly discharged into the river by people living on the banks.
    • Among the three cities, the Toxics Link’s study found that sites at Varanasi showed the maximum load of microplastics in the water of the Ganga, as compared to the other two cities.
    • This might be due to cumulative downstream pollution as well as industrial and human activities.

    On a global high

    • The researchers tried to compare the microplastics concentration in Ganga water with similar studies on other rivers across the globe.
    • It included the Rhine in Europe, the Patapsco, Magothy, Rhode in North America, and the Elqui, Maipo, Biobio, and Maule in South America.
    • They found the Ganga microplastics pollution was much higher.
    • This was in spite of a higher per capita consumption of plastic in the European countries, North and South America, as compared to India.

    How does it impact people?

    • The Ganga is a source of water for not just drinking and bathing purposes but also for irrigation to a large extent.
    • Microplastics in river water, if ingested in humans or other organisms, can cause toxicity through various means.
    • Not only are these microplastics toxic themselves, they also have a tendency to absorb various toxins present in water, including harmful chemicals.
    • Although some of the effects of microplastics on public health are understood, a lot still needs to be done.

    Answer this PYQ in the comment box:

    Q. Why is there a great concern about the ‘microbeads’ that are released into the environment? (CSP 2019)

    (a) They are considered harmful to marine ecosystems.

    (b) They are considered to cause skin cancer in children.

    (c) They are small enough to be absorbed by crop plants in irrigated fields.

    (d) They are often found to be used as food adulterants.

  • [pib] India improves score in Ease of Cross-Border Trade

    As per the latest UN Global Survey on Digital and Sustainable Trade Facilitation, India’s rank moved up from 78.49% in 2019 to 90.32% in 2021.

    About the Survey

    • The Global Survey on Digital and Sustainable Trade Facilitation is conducted every two years by UNESCAP.
    • The 2021 Survey includes an assessment of 58 trade facilitation measures covered by the WTO’s Trade Facilitation Agreement.
    • The Survey is keenly awaited globally as it evidences whether or not the trade facilitation measures being taken have the desired impact and helps draw comparison amongst countries.
    • A higher score for a country also helps businesses in their investment decisions.

    Global performance

    • Among developed countries, Australia, New Zealand, Netherlands, Japan, and Belgium have scored more than 93%.
    • In South Asia, Bangladesh and Sri Lanka were behind India with a score of 64.5% and 60.2%, the survey showed.

    India’s improvement

    • India has scored 90.32% in United Nation’s Economic and Social Commission for Asia Pacific’s (UNESCAP) latest Global Survey on Digital and Sustainable Trade Facilitation.
    • The Survey hails this as a remarkable jump from 78.49% in 2019.

    India’s significant improvement in the scores on all 5 key indicators, as follows:

    1. Transparency:100% in 2021 (from 93.33% in 2019)
    2. Formalities: 95.83% in 2021 (from 87.5% in 2019)
    3. Institutional Arrangement and Cooperation: 88.89% in 2021 (from 66.67% in 2019)
    4. Paperless Trade: 96.3% in 2021 (from 81.48% in 2019)
    5. Cross-Border Paperless Trade: 66.67% in 2021 (from 55.56% in 2019)
    • The Survey notes that India is the best-performing country when compared to the South and southwest Asia region (63.12%) and the Asia Pacific region (65.85%).
    • The overall score of India has also been found to be greater than many OECD countries including France, UK, Canada, Norway, Finland etc. and the overall score is greater than the average score of EU.
    • India has achieved a 100% score for the Transparency index and 66% in the “Women in trade” component.

  • [pib] Bhartiya Prakritik Krishi Padhati (BPKP)

    The Union Minister of Agriculture has provided useful information regarding the Bhartiya Prakritik Krishi Padhati (BPKP).

    Bhartiya Prakritik Krishi Padhati (BPKP)

    • Natural farming is promoted as BPKP under a centrally sponsored scheme- Paramparagat Krishi Vikas Yojana (PKVY).
    • The scheme mainly emphasizes the exclusion of all synthetic chemical inputs and promotes on-farm biomass recycling.
    • It stresses biomass mulching; use of cow dung-urine formulations; plant-based preparations and time to time working of soil for aeration.
    • Under BPKP, financial assistance of Rs 12200/ha for 3 years is provided for cluster formation, capacity building, and continuous handholding by trained personnel, certification, and residue analysis.

    About Paramparagat Krishi Vikas Yojana

    • “PKVY” is an elaborated component of Soil Health Management (SHM) of the major project National Mission of Sustainable Agriculture (NMSA).
    • Under PKVY Organic farming is promoted through the adoption of the organic village by cluster approach and PGS certification.

    The Scheme envisages:

    • Promotion of commercial organic production through certified organic farming.
    • It will raise farmer’s income and create a potential market for traders.

    Program implementation

    • Fifty or more farmers will form a cluster having 50 acres of land to take up the organic farming under the scheme.
    • In this way, during three years 10,000 clusters will be formed covering a 5.0 lakh acre area under organic farming.
    • There will be no liability on the farmers for expenditure on certification.
    • Every farmer will be provided Rs. 20,000 per acre in three years for the seed to harvesting crops and to transport produce to the market.
    • Organic farming will be promoted by using traditional resources and organic products will be linked with the market.
    • It will increase domestic production and certification of organic produce by involving farmers.

    Answer this PYQ in the comment box:

    Q.With reference to organic farming in India, consider the following statements:

    1. ‘The National Programme for Organic Production (NPOP) is operated under the guidelines and directions of the Union Ministry of Rural Development.
    2. ‘The Agricultural and Processed Food Products Export Development Authority (APEDA) functions as the Secretariat for the implementation of NPOP.
    3. Sikkim has become India’s first fully organic State.

    Which of the above statements is/are correct? (CSP 2018)

    (a) 1 and 2 only

    (b) 2 and 3 only

    (c) 3 only

    (d) 1, 2 and 3

  • Open Network for Digital Commerce could disrupt India’s e-commerce space

    Context

    The Department for Promotion of Industry and Internal Trade (DPIIT) recently issued orders appointing an advisory committee for its Open Network for Digital Commerce (ONDC) project.

    About ONDC project

    • The Open Network for Digital Commerce (ONDC) project aims to make e-commerce processes open-source.
    • In simple terms, it aims at creating a platform that can be utilised by all online retailers.
    • This is another effort by the government to facilitate the creation of shared digital infrastructure, as it has previously done for identity (Aadhaar) and payments (Unified Payments Interface).
    • It will digitise e-commerce value chains, standardise operations, promote inclusion of suppliers, and derive efficiencies in logistics.

    What are its advantages?

    • Level playing field: When done well, this approach can level the playing field and create value for users. 
    • Curb monopoly: The market is dominated by a few players who are facing investigations for unfair trade practices in many countries.
    • Prevent market failure: The sector is characterised by many small players who individually do not have the muscle to have an equitable bargain with e-commerce companies.
    • Economists call this a “market failure”, and it presents a legitimate case for intervention.

    The three layers of an open digital ecosystem and their conceptual framework for adoption and safeguards

    1) Tech layer

    • The “tech layer” should be designed for minimalism and decentralisation.
    • The government should restrict its role to facilitating standards and protocols that provide open access, and in getting them adopted organically.
    • Building an entire tech platform should happen only if a standards-based approach doesn’t suffice.
    • If built, the platform should be built on “privacy by design” principles.
    • It should collect minimal amounts of data (especially personal data) and store it in a decentralised manner.
    • Tools like blockchain could be used to build technical safeguards that cannot be overridden without active consent.

    2) Governance layer

    • Avoid excessive government intervention: The “governance layer” around this should allay business fears of excessive state intervention in e-commerce.
    • Legal provision: Any deployment of standards or tech should be accompanied by law or regulation that lays out the scope of the project.
    • Independent regulator for personal data: If collection of any personal data is required, passing the data protection bill and creating an independent regulator should be a precondition.
    • Handling by independent society: To assure the industry of fairness, the government could hand over the stewardship of the standards or platform to an independent society or non-profit.

    3) Community layer

    • A community layer can foster a truly inclusive and participatory process.
    • This may be achieved by making civil society and the public active contributors and seeking wide feedback on drafts of the proposal.
    • Once the framework is implemented, ensuring quick and time-bound redressal of grievances will help build trust in the system.

    Concerns with government creating shared digital infrastructure

    • This approach also comes with risks and we should tread with caution.
    • In general, governments should intervene in markets only when there is a clearly identifiable market failure or massive societal benefits from creating shared infrastructure.

    Way forward

    • The government’s championing of open-source technology for digital commerce is commendable.
    • It should also push the envelope on the other principles of the open-source movement — transparency, collaboration, release early and often, inclusive meritocracy, and community.
    • Even if we do all things right, an infrastructure-led approach may not be sufficient.
    • Therefore, we need to supplement infrastructure with tightly-tailored regulation.
    • We need to explore the concept of interoperability, that is, mandating that private digital platforms like e-commerce firms enable their users and suppliers to solicit business on other platforms.
    • To drive the adoption of an open e-commerce platform in a sector with entrenched incumbents we need to create “reference applications”, and financial or non-financial incentives.
    • Useful learnings can be drawn from the adoption of UPI: The government supported the rollout of BHIM as a reference app, and offered incentives.

    Consider the question “How the Open Network for Digital Commerce project can help deal with the issues with the e-commerce sector? Suggest the approach the project should adopt to make it a success.”

    Conclusion

    It is timely that India is exploring innovative ways to bridge the gaps in e-commerce markets. But the boldness of this vision must be matched by the thoughtfulness of the approach.

    Back2Basics: What is ‘Privacy by Design?

    • Privacy by design is a concept that integrates privacy into the creation and operation of new devices, IT systems, networked infrastructure, and even corporate policies.
    • Developing and integrating privacy solutions in the early phases of a project identifies any potential problems at an early stage to prevent them in the long run.

  • For Cairns dispute, international arbitration is not the way forward

    Context

    The recent move by Cairn to seize India’s sovereign assets in order to enforce its arbitration award has brought into focus the dispute and the related issues.

    Utility of Bilateral Investment Treaties (BIT)

    • After the World Wars, as more countries gained sovereignty, they tended to look at foreign investments as a form of neo-colonialism.
    • Bilateral investment treaties became the primary tool to forge relationships between developed and developing countries.
    • The BITs help to adopt standards for prompt, adequate and effective compensation in case of expropriation.
    • With the advent of globalisation, BITs became the means for foreign investment in developing countries.
    • Although the impact of investment agreements on foreign investments remains highly contextualised and inconclusive, these came to govern international investment relations.
    • The BITs retained the old-world construct that allowed international arbitration.
    • However, many developing countries view arbitration of tax matters as a breach of their sovereign right to tax.

    The Cairn Energy case

    • In 2012, explanations were added to the Income Tax Act 1961 — these provisions were deemed as having a retrospective effect.
    • This was more in response to the Supreme Court’s decision in the Vodafone case which denied the income tax department’s assertion of tax claims arising from the offshore transfer of interest that substantially derived their value from India.
    • The 2012 explanations to the IT Act indeed sought to fix tax avoidance. 
    • Looking into the details of the Cairn case, one can see the series of reorganisations that tip-toed around tax laws of multiple jurisdictions, resulting in the non-payment of tax. 
    • Taxing offshore indirect transfers — a structuring device to gain tax advantage from the indirect sale of assets — is not unique to India (336 tax treaties contain such an article).
    • It is also possible to see that the underlying assets of the subsidiaries were immovable assets in India.
    • The UK-India tax treaty allowed for taxation of capital gains as per Indian law.
    • India challenged the admissibility of the case before the arbitration tribunal.
    • However, the case rests on a distinction between tax and tax-related investment.
    • Surely, all investments have tax implications and the acceptance of such a distinction could create problems even where tax is explicitly carved out from the bilateral investment treaties.
    • The option of arbitration upon an unsuccessful Mutual Agreement Procedure (MAP) resolution is not available in India.
    •  For this reason, over the years, there has been a rising trend in tax disputes involving BITs.
    • The Cairn case is one such instance where arbitration was invoked especially since MAP was not an option.

    Way forward

    • The case raises many questions that administrators must address through reform.
    • India’s model BIT introduced in 2016 rectifies the issue of the distinction between tax dispute and investment-related taxation dispute through the specific exclusion of taxation.
    •  The recognition of a tax-related investment dispute, distinct from a tax dispute, should not undermine such a carve-out.

    Conclusion

    It is also important to note even if the award is enforced, the matter of tax avoidance stands pending before the High Court. Given the complexity, the only reasonable solution would be a negotiated settlement. Even if there’s a resolution in the Cairns case, questions of law would remain.