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

Civilsdaily

Login

GS Paper: GS3

  • India’s equity market bubble

    Context

    Even as the real economy returns to the doldrums after being hit by the second wave of COVID-19 infections, the continuing bull run in India’s equity market in the April-June quarter has baffled many observers.

    V-shaped recovery of equity market

    • The benchmark BSE Sensex had nosedived to below 28,000 in March-April 2020, following the nationwide lockdown.
    • The equity market posted a sharp V-shaped recovery in 2020-21.
    • The Sensex surged beyond 50,000 in February 2021 and is currently closing on the 53,000 level.

    Factors suggesting bubble in equity market

    • There was an 81%-plus growth in the Sensex between April 2020 and March 2021 in the backdrop of real GDP growth plummeting to -7.3% during the same period.
    • While output contraction had reversed from the third quarter of 2020-21, the inflation rate also rose and remained way ahead of the real GDP growth rate in the last two quarters (Chart 1).
    • It is difficult to find any rationality behind the skyrocketing BSE Sensex in the context of such stagflation in the real economy.
    • Just like the fall in the equity prices was driven by the exit of foreign portfolio investors (FPI), the return of massive FPI inflows has driven the Indian equity bubble since then (Chart 2).
    • Net FPI inflows clocked an unprecedented ₹2.74 lakh crore in 2020-21, the previous high being ₹1.4 lakh crore in 2012-13.
    • The Reserve Bank of India (RBI)’s annual report (2020-21) to state stated that: “This order of asset price inflation in the context of the estimated 8 per cent contraction in GDP in 2020-21 poses the risk of a bubble.”

    Global factors

    • The global liquidity glut, following the expansionary, easy money policies adopted by the fiscal and monetary authorities of the OECD and G20 countries, has led to equity price inflation in several markets driven by FPIs, especially in Asia.
    • Following cues from the U.S. and the U.K., Asian equity markets in Singapore, India, Thailand, Malaysia and Hong Kong are currently witnessing price-earnings (P/E) ratios significantly above their historic means.
    • The BSE Sensex’s P/E ratio of 32 in end-June 2021 is way above its historic mean of around 20.

    What could burst the bubble?

    • Change in monetary policy: With COVID-19 vaccination and economic recovery proceeding apace in the U.S., the U.K. and Europe, fiscal and monetary policy stances will change soon.
    • Exit of FPIs: Once the U.S. Federal Reserve and other central banks start raising interest rates, the direction of FPI flows will invariably change bringing about corrections in equity markets across Asia.
    • India remains particularly vulnerable to a major correction in the equity market because of two reasons.
    • Low pace of vaccination: The pace of COVID-19 vaccination in India, given the vast population, lags behind most large countries.
    • In the absence of a substantial increase in the vaccination budget and procurement, large segments of the Indian population will remain vulnerable to a potential third wave of COVID-19, with its attendant deleterious impact on the real economy.
    • Weak fiscal stimulus: India’s economic recovery from the recession will remain constrained by the weak fiscal stimulus that has been delivered by the Central government.
    • Data from the IMF clearly show that while the total global stimulus consisted of additional public spending or revenue foregone measures amounting to 7.4% of global GDP, India’s fiscal measures amounted to 3.3% of GDP only.

    Consider the question “What are the factors driving equity market boom globally? What are the factors that could threaten such boom with a major correction?” 

    Conclusion

    With all agencies, including the RBI, downsizing India’s growth projections for 2021-22, it remains to be seen how long India’s equity bubble lasts.

    Back2Basics: P/E ratio

    • The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS).
    • The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.
    • To determine the P/E value, one simply must divide the current stock price by the earnings per share (EPS).

    P/E Ratio=Earnings per share / Market value per share

     

  • Why rooftop solar and storage offers a viable future for India

    The Union government’s target of producing 40 gigawatts of rooftop solar power by 2022 is unrealistic: The country could produce only 4.4 GW rooftop solar energy till March 31, 2021, according to the Union Ministry of New and Renewable Energy.

    What is Solar Rooftop?

    • A solar photovoltaic (PV) system mounted on a rooftop of a building is a mini-power requirement or feed into the grid.
    • The size of the installation varies significantly depending on the availability of space, amount of electricity consumed by the property and the ability or willingness of the owner to invest the capital required.

    Why rooftop?

    • Rooftop solar with a storage system is a benefit for both, end consumers as well as discoms (power distribution companies).
    • A one-kilowatt (kW) rooftop system can produce three to five units of electricity a day.
    • The combination increasingly becomes cost-effective for electricity generation compared to the traditional grid supply and diesel generators.
    • In 2021, solar and storage will be cheaper than grid supply for most commercial and industrial (C&I) customers.
    • The increase in penetration of rooftop solar in the distribution grid will have a significant impact on the stability of the grid.

    A viable alternative

    • Most housing societies in urban India rely on diesel generators for power backup. However, as power availability improves in the country, diesel generators will become redundant.
    • The operational cost of diesel generators is quite high— R16-18 per unit against Rs 5-6 a unit for solar rooftop systems. So rooftop solar power makes financial sense.Solar rooftop is also a perfect solution for commercial and institutional buildings that operate mostly during the day.
    • Their rooftops can be utilized to generate electricity, and they can, partially or completely, replace diesel generators. This would also help them reduce their electricity bills.

    Question of energy storage

    • In order to integrate rooftop solar and electric vehicles, the grid needs to be flexible and smart.
    • Energy storage systems will play a key role in providing this flexibility by acting as a load when there is a surplus generation, as well as generating sources when there is a supply shortage.
    • There are two major methods of integrating battery storage into the electric grid:
    1. Front-of-the-meter (FTM): It is implemented at the utility-scale, wherein the battery system is connected to the transmission or distribution network that ensures grid reliability. This happens on a considerably large scale (~MWh scale).
    2. Behind-the-meter (BTM): The other method is implemented at the residential and commercial/industrial level, mainly to provide backup during a power failure or to store excess locally generated energy from solar rooftop photovoltaic (PV) systems.

    India’s storage capacity

    • About 34 GW / 136 GWh of battery storage is expected to be installed by 2030, according to the Central Electricity Authority of India.
    • This capacity would be used for RE integration, demand-side and peak load management services.

    Storage challenges

    • The solar segment offers a huge market opportunity for advanced battery technologies.
    • However, manufacturers have some ground to cover in addressing technical limitations of batteries, such as charging characteristics, thermal performance and requirement of boost current to charge deep cycle batteries.
    • Since solar companies may directly procure batteries from manufacturers and require after-sale services and technical support, battery companies should have wider a presence to address these expectations.

    Other key challenges

    • Rooftop solar source doesn’t match the rise in renewable energy in India.
    • While industrial and commercial consumers account for 70% of total installed capacity residential consumers remain a big untapped potential to give the boost
    • Solar rooftops also face several challenges such as little consumer awareness, lack of innovative government policies or attention, bureaucratic hassles, and limited support from discoms.

    Way forward

    • Supportive policies and innovative technological approaches are needed for the sector to achieve its potential.
    • Indian policymakers need to plan for rooftop solar plus storage, rather than rooftop solar alone with the grid as storage (net / gross metering).
    • The declining cost of storage solutions, along with that of rooftop solar solutions, is likely to change the future of the Indian power sector.
    • Several countries such as Australia, the United States, Germany, among others have already endorsed solar power with battery storage.
    • Energy storage, therefore, represents a huge economic opportunity for India.
    • The creation of a conducive battery manufacturing ecosystem on a fast track could cement India’s opportunity for radical economic and industrial transformation in a critical and fast-growing global market.

  • What is Monkey B virus?

    China has reported the first human death case with the Monkey B virus (BV).

    What is Monkey B virus?

    • The virus, initially isolated in 1932, is an alphaherpesvirus enzootic in macaques of the genus Macaca.
    • B virus is the only identified old-world-monkey herpes virus that displays severe pathogenicity in humans.

    Answer this question from our AWE initiative:

    There is been an increase in occurance of zoonotic human infectious diseases are zoonotic . Give reasons for this. Also suggest ways to contain and decrease the frequency of such events.(250 Words)

    How is it transmitted?

    • The infection can be transmitted via direct contact and exchange of bodily secretions of monkeys and has a fatality rate of 70 per cent to 80 per cent.
    • According to the Centre for Disease Control and Prevention, Macaque monkeys commonly have this virus, and it can be found in their saliva, feces, urine, or brain or spinal cord tissue.
    • The virus may also be found in cells coming from an infected monkey in a lab. B virus can survive for hours on surfaces, particularly when moist.

    When can a human get infected with B virus?

    • Humans can get infected if they are bitten or scratched by an infected monkey.

    Symptoms

    • Symptoms typically start within one month of being exposed to B virus but could appear in as little as three to seven days.
    • The first indications of B virus infection are typically flu-like symptoms such as fever and chills, muscle ache, fatigue and headache.
    • Following this, a person may develop small blisters in the wound or area on the body that came in contact with the monkey.
    • Some other symptoms of the infection include shortness of breath, nausea and vomiting, abdominal pain and hiccups.
    • As the disease progresses, the virus spreads to and causes inflammation (swelling) of the brain and spinal cord, leading to neurologic and inflammatory symptoms.

    Is there a vaccine against B virus?

    • Currently, there are no vaccines that can protect against B virus infection.

    Who are at higher risk for infection?

    • The virus might pose a potential threat to laboratory workers, veterinarians, and others who may be exposed to monkeys or their specimens.
    • To date, only one case has been documented of an infected person spreading the B virus to another person.

  • [pib] One District One Focus Product Scheme

    ODOFP programme

    • The ODOFP programme cover products of agriculture and allied sectors for 728 districts of the country.
    • The products have been identified from agricultural, horticultural, animal, poultry, milk, fisheries, aquaculture, marine sectors across the country.
    • These identified products will be supported under the PM-FME scheme of the Ministry of Food Processing Industries, which provides incentives to promoters and micro-enterprises
    • This scheme is being implemented for a period of five years from 2020-21 to 2024-25.
    • The scheme adopts One District One Product (ODOP) approach to reap the benefits of scale in terms of procurement of inputs, availing common services and marketing of products.

    About ODOP

    • The ODOP scheme aims to identify one product per district based on the potential and strength of a district and national priorities.
    • A cluster for that product will be developed in the district and market linkage will be provided for that.
    • It is operationally merged with the ‘Districts as Export Hub’ initiative implemented by the Director-General of Foreign Trade (DGFT), Department of Commerce.
    • Under the initial phase of the ODOP programme, 106 Products have been identified from 103 districts across 27 States.

    Back2Basics: PMFME Scheme

    • A centrally sponsored scheme that aims to enhance the competitiveness of existing individual micro-enterprises in the unorganized segment of the food processing industry.
    • It aims to enhance the competitiveness of existing individual micro-enterprises in the unorganized segment of the food processing industry and promote formalization of the sector,
    • It further aims to promote formalization of the sector and provide support to Farmer Producer Organizations, Self Help Groups, and Producers Cooperatives along their entire value chain.
    • The scheme envisions directly assist the 2,00,000 micro food processing units in providing financial, technical, and business support for the up-gradation of existing micro food processing enterprises.

  • [pib] Bad Bank launched for stressed assets

    The Government has launched a Bad Bank with all the regulatory approvals in place.

    What is a Bad Bank?

    • A bad bank conveys the impression that it will function as a bank but has bad assets to start with.
    • Technically, it is an asset reconstruction company (ARC) or an asset management company that takes over the bad loans of commercial banks, manages them and finally recovers the money over a period of time.
    • Such a bank is not involved in lending and taking deposits, but helps commercial banks clean up their balance sheets and resolve bad loans.
    • The takeover of bad loans is normally below the book value of the loan and the bad bank tries to recover as much as possible subsequently.

    Global examples of Bad Bank

    • US-based BNY Mellon Bank created the first bad bank in 1988, after which the concept has been implemented in other countries including Sweden, Finland, France and Germany.
    • However, resolution agencies or ARCs set up as banks, which originate or guarantee to lend, have ended up turning into reckless lenders in some countries.

    Do we need a bad bank?

    • The idea gained currency during Rajan’s tenure as RBI Governor.
    • The RBI had then initiated an asset quality review (AQR) of banks and found that several banks had suppressed or hidden bad loans to show a healthy balance sheet.
    • However, the idea remained on paper amid lack of consensus on the efficacy of such an institution.
    • ARCs have not made any impact in resolving bad loans due to many procedural issues.

    What is the stand of the RBI and government?

    • While the RBI did not show much enthusiasm about a bad bank all these years, there are signs that it can look at the idea now.
    • Experts, however, argue that it would be better to limit the objective of these asset management companies to the orderly resolution of stressed assets, followed by a graceful exit.

    Good about the bad banks

    • The problem of NPAs continues in the banking sector, especially among the weaker banks.
    • The bad bank concept is in some ways similar to an ARC but is funded by the government initially, with banks and other investors co-investing in due course.
    • The presence of the government is seen as a means to speed up the clean-up process.
    • Many other countries had set up institutional mechanisms such as the Troubled Asset Relief Programme (TARP) in the US to deal with a problem of stress in the financial system.

  • Near-Earth Asteroid Scout Mission

    Last week, NASA announced that its new spacecraft, named NEA Scout, has completed all required tests and has been safely tucked inside the Space Launch System (SLS) rocket.

    For landing on Moon

    • NEA Scout is one of several payloads that will hitch a ride on Artemis I, which is expected to be launched in November.
    • Artemis I will be an uncrewed test-flight of the Orion spacecraft and SLS rocket.
    • Under the Artemis programme, NASA has aimed to land the first woman on the Moon in 2024 and also establish sustainable lunar exploration programs by 2030.

    What is NEA Scout?

    • Near-Earth Asteroid Scout, or NEA Scout, is a small spacecraft, about the size of a big shoebox. Its main mission is to fly by and collect data from a near-Earth asteroid.
    • It will also be America’s first interplanetary mission using special solar sail propulsion.
    • This type of propulsion is especially useful for small, lightweight spacecraft that cannot carry large amounts of conventional rocket propellant.
    • NEA Scout will use stainless steel alloy booms and deploy an aluminium-coated sail measuring 925 square feet.
    • The large-area sail will generate thrust by reflecting sunlight.
    • Energetic particles of sunlight bounce off the solar sail to give it a gentle, yet constant push.

    How will it study the asteroid?

    • NEA Scout is equipped with special cameras and can take pictures ranging from 50 cm/pixels to 10 cm/pixels.
    • It can also process the image and reduce the file sizes before sending them to the earth-based Deep Space Network via its medium-gain antenna.
    • The spacecraft will take about two years to cruise to the asteroid and will be about 93 million miles away from Earth during the asteroid encounter.

    Why should we study near-Earth asteroids?

    • Despite their size, some of these small asteroids could pose a threat to Earth.
    • Understanding their properties could help us develop strategies for reducing the potential damage caused in the event of an impact.
    • Scientists will use this data to determine what is required to reduce risk, increase effectiveness, and improve the design and operations of robotic and human space exploration.

  • Why does Mercury have such a big iron core?

    Researchers have developed a model showing that the density, mass and iron content of a Mercury’s core is influenced by its distance from the Sun’s magnetic field.

    About Mercury

    • Mercury is the first and the smallest planet in our solar system.
    • It is also the closest planet to Earth.
    • Like the other three terrestrial planets, Mercury contains a core surrounded by a mantle and a crust.
    • But unlike any other planet, Mercury’s core makes up a larger portion of the planet.
    • MESSENGER was a NASA robotic space probe that orbited the planet Mercury between 2011 and 2015, studying Mercury’s chemical composition, geology, and magnetic field.
    • It was the analysis from the MESSENGER mission that tells: Mercury’s core is solid.

    Mystery over the core

    • It has long been known that Mercury’s core composition is made of liquid metal.
    • The core itself is about 3,600 km across. Surrounding that is a 600 km thick mantle.
    • And around that is the crust, which is believed to be 100-200 km thick.
    • The crust is known to have narrow ridges that extend for hundreds of kilometres.
    • This large core has long been one of the most intriguing mysteries about Mercury.

    Why does Mercury have a large core?

    • A new study reveals that the sun’s magnetism is the reason.
    • The sun’s magnetic field influences the density, mass, and iron content of Mercury’s core.
    • The four inner planets of our solar system—Mercury, Venus, Earth, and Mars—are made up of different proportions of metal and rock.
    • A gradient in which the metal content in the core drops off as the planets get farther from the sun.
    • The researchers explain how this happened by showing that the sun’s magnetic field controlled the distribution of raw materials in the early forming solar system.

    What are the key propositions?

    • During the early formation of the solar system, when a swirling dust storm and gas encircled the sun, iron’s grain was drawn toward the centre by the sun’s magnetic field.
    • At the time of planet formation from clumps of that dust and gas, planets nearer to the sun consolidated more iron into their centres than those farther away.
    • Scientists also found that the density and proportion of iron in the planet’s core correlate with the strength of the magnetic field around the sun during planetary formation.
    • Existing models on planetary formation were used to determine the speed at which gas and dust were pulled into the centre of our solar system during its formation.
    • The magnetic field that the sun would have generated as it burst into being and calculated how that magnetic field would draw iron through the dust and gas cloud.

    Cooling led solidification

    • As the early solar system began to cool, dust and gas that were not drawn into the sun started to clump together.
    • The clumps closer to the sun would have been exposed to a stronger magnetic field and thus would contain more iron than those farther away from the sun.
    • As the clumps coalesced and cooled into spinning planets, gravitational forces drew the iron into their core.

  • What the new Ministry of Cooperation needs to achieve

    Context

    Two weeks ago, the government created a new Ministry for Cooperation. India is, perhaps, the first country to have such a ministry. The Ministry can play an important role in the transformation of cooperatives in the country.

    How 1991 economic reforms benefited agriculture

    • On July 24, 1991, India decided to unshackle the spirit of private sector entrepreneurship through the move to de-license industry and reduce tariffs on a host of commodities.
    • Trade policy changes improved the terms of trade for agriculture and benefitted millions of farmers.
    • Agri-exports increased, but this led to higher domestic prices.

    The success story of dairy sector in India

    • In 1991, Manmohan Singh, then finance minister wanted to delicense the dairy sector as well, but there was stiff opposition from Verghese Kurien.
    •  It was after 10 years in 2002 that the dairy sector was fully de-licensed.
    • The competition between cooperatives and corporate dairy players has benefitted millions of farmers around the country.
    • With the entry of the private sector, the growth of the dairy sector accelerated at double the speed.
    • Today, both procure roughly the same quantities and growth in the organised private sector is faster than in cooperatives.

    Performance of cooperative movement in India

    • India’s experience with the cooperative movement has produced mixed results — few successes and many failures.
    • There are cooperatives in the financial sector, be it rural or urban.
    • But the performance of these agencies when measured in terms of their share in overall credit, achievements in technology upgradation, keeping NPAs low or curbing fraudulent deals has been poor to average.
    • Sugar cooperatives of Maharashtra initially touted as exemplars of the movement, are in the doldrums now.
    • Many are being sold to the private sector.

    Performance of cooperatives in dairy sector

    1) Amul

    • The performance of the cooperative champion, Gujarat Cooperative Milk Marketing Federation (GCMMF) — with its poster brand, Amul — has been most successful.
    • During Operation Flood, it received a lot of capital at highly concessional terms.
    • But its success is also the result of professionalism, business and, therefore, keeping politics away.
    • But despite the grand success of Gujarat’s milk cooperatives in Gujarat, the model did not spread to other states as successfully.

    2) Karnataka Milk Federation

    • In its eagerness to please milk farmers, the Karnataka Milk Federation (KMF), which sells its products under the brand name of Nandini, gives them Rs 5 to Rs 6 extra per litre.
    • This subsidy, given by the state government, cost the exchequer Rs 1,260 crore till 2019-20.
    • KMF procures a lot of milk and then dumps it at lower prices in the market for consumers.
    • This depresses prices in adjoining states like Maharashtra, affecting the fortunes of Maharashtra milk farmers.
    • If Maharashtra and Karnataka were two different countries, Maharashtra would be challenging Karnataka at the WTO.

    Way forward

    • The new Ministry of Cooperation can work towards ironing out distortions in state price policies due to subsidization such as in Maharastra and Karnatak milk prices.
    • Cooperatives desperately need technological upgradation. 
    • The Ministry of Cooperation can give them soft loans for innovation and technology upgradation.
    • But such loans should also be extended to the private sector to ensure a level playing field.
    • The Ministry of Cooperation needs to ensure the least political interference in the operation of cooperatives.

    Conclusion

    The new Ministry of Cooperation can work towards bringing in professionalism in cooperatives and make them more competitive.

  • Skilling in India: Issues and Suggestions

    PM has yet again underscored the importance of a skilled workforce for achieving the goal of becoming Atma-nirbhar Bharat.  India still continues to be a country that faces one of the highest shortages of skilled workforce.

    Unemployment vs Skills

    • On one hand, companies in India face an acute shortage of skilled manpower and, on the other, India has millions of educated unemployed.
    • The data for this chart is for the January to April 2021 period, when the overall unemployment rate in the country was 6.83%.
    • In comparison, those with graduation (or even higher degrees) face almost three times the unemployment level.
    • At over 19% unemployment rate, one in every five Indians who graduate (or even better) is unemployed.

    What explains this contradiction?

    • The lack of skill is definitely the only answer.

    What is Skilling?

    • National Council of Applied Economic Research, 2018 — aptly titled “No time to lose”.
    • This report explains that there are three types of skills.
    1. Cognitive skills: basic skills of literacy and numeracy, applied knowledge and problem-solving aptitudes, and higher cognitive skills such as experimentation, reasoning, and creativity.
    2. Technical and vocational skills: physical and mental ability to perform specific tasks using tools and methods in any occupation.
    3. Social and behavioral skills include working, communicating, and listening to others.
    • Different levels of these three types of skills can be combined to further classify skills into foundational, employability, and entrepreneurial skills.

    What is the scale of the skilling challenge facing India?

    According to the 2018 report by NCAER, India had about 468 million people in its workforce.

    • Informal sector: Around 92% of them were in the informal sector.
    • Illiteracy: Around 31% were illiterate, only 13% had primary education, and only 6% were college graduates.
    • No vocational training: Further, only about 2% of the workforce had formal vocational training, and only 9% had non-formal vocational training.
    • Out of more than 5 lakh final year bachelors students aged 18–29 who were surveyed, around 54% were found to be “unemployable”.

    Opportunities for India

    • India has entered a demographic sweet spot that will continue for another two to three-decade.
    • There is a great opportunity for India to improve both its social and economic outcomes if a higher number of workers are productively employed.

    What is at stake?

    • If the skilling issue is not resolved, India risks forfeiting its so-called “demographic dividend”.
    • But whether this will turn into a demographic dividend or not will depend entirely on how many of those in the working-age bracket are working and becoming prosperous.
    • If they are not in well-paying jobs, the economy would not have the resources to take care of itself since with each passing year, the proportion of dependents will continue to rise after 2040.
    • To put it simply, to attain its rightful place and realize its aspirations, India must become rich before it gets old.

    The skilling paradox

    • Indians have excelled in technical expertise at the global level — be it medicine or engineering. Then what explains India’s domestic skilling paradox?
    • A big part of the trouble is the starting condition. Over 90% of India’s workforce is in the informal sector.

    India is trapped in a vicious cycle:

    1. Greater workforce informality leads to lower incentives to acquire new skills. Faced with inadequately skilled workers, businesses often choose to replace labor with machinery.
    2. That’s because “skilled labor and technology are complementary, but unskilled labor and technology are substitutes”.
    3. This, in turn, leads to still fewer formal jobs.

    What can be done to break this cycle?

    • A distinct disadvantage with India’s approach towards skilling has been to ignore and match the demands of the market.
    • For the most part, skills have been provided in a top-down fashion.
    • Given the way market demands fluctuate — for instance, how the Covid pandemic has upended supply chains — skilling efforts must try to anticipate the needs of the market.

  • RBI bars Mastercard from issuing new cards

    The Reserve Bank of India (RBI) has banned Mastercard from issuing new debit and credit cards to customers in India.

    Why such a ban?

    • According to the RBI, the US card issuer has failed to comply with the local data storage rules announced by the central bank in 2018.

    What is the RBI’s data localization policy?

    • In 2018, the RBI had issued a circular ordering card companies such as Visa, Mastercard, and American Express to store all Indian customer data locally.
    • This was aimed for the regulator to have “unfettered supervisory access”.

    Why such a policy by RBI?

    • The reason offered by the RBI was that local storage of consumer data is necessary to protect the privacy of Indian users and also to address national security concerns.

    Issues with the policy

    • Privacy: Customer privacy and national security are genuine concerns that need to be taken seriously.
    • Protectionism: However, data localization rules may sound too stringent and they could simply be used by governments as tools of economic protectionism.
    • Security: For instance, it may not be strictly necessary for data to be stored locally to remain protected.
    • Formal international laws to govern the storage of digital information across borders may be sufficient to deal with these concerns.
    • Discrimination: Governments, however, may still mandate data localization in order to favour local companies over foreign ones.

    Implications of the move

    • Indian banks that are currently enrolled in the Mastercard network are expected to make alternative arrangements with other card companies.
    • The RBI’s data localization policy, as it burdens foreign card companies, may end up favouring domestic card issuers like RuPay, which in turn can lead to reduced competition.
    • Mastercard owns about one-third of the market share in India, and the RBI’s ban is likely to significantly benefit its competitors.
    • This could mean higher costs and lower quality services for customers.

    Conclusion

    • In today’s digital economy data have turned out to be a valuable commodity, which companies, as well as governments, have tried to gain control over.
    • With no clear rules on who owns customer data and to what extent, conflicts over data ownership are likely to continue for some time.