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GS Paper: GS3

  • Why the dairy sector needs more private players

    One of India’s largest dairy cooperative societies has just raised its milk prices for consumers by Rs 2/litre and this has become national news.

    Sparking off a debate

    • Many in the media are debating how this will push up Consumer Price Index causing inflationary pressures, which may soon force the RBI to change its “accommodative stance” on monetary policy.

    Why such hues over Milk?

    Milk is an important case study for our overall agriculture sector.

    • First, milk is our biggest agri-commodity in terms of value, greater than paddy (rice), wheat, and sugarcane combined.
    • Second, India is the largest producer of milk in the world with an estimated production of about 208 million tonnes in 2020-21, way above its closest competitor, the US, whose milk production hovers around 100 million tonnes.
    • Third, our dairy sector is dominated by smallholders with an average herd size of 4-5 animals.
    • Fourth, and this is important, there is no minimum support price (MSP) for milk. It is more like a contract between the company and the farmers.

    How is the milk price determined?

    • The price of milk is largely determined by the overall forces of demand and supply.
    • Increasing costs of production enter through the supply side, but the demand side cannot be ignored.
    • As a result of all this, the overall growth in the dairy sector for the last 20 years has been between 4-5 per cent per annum, and lately, it has accelerated to even 6 per cent.

    Concerns of dairy farmers

    • For dairy farmers, this increase in milk prices is not commensurate to the increase in their feed and other costs, and they feel that their margins are getting squeezed.
    • They also feel that this price still does not count their logistics cost.

    Transformation since Op Flood

    • It is well known that “Operation Flood” (OF) that started in the 1970s transformed this sector.
    • The institutional innovation of a cooperative model, steered by Verghese Kurien, changed the structure of this sector.
    • However, even after five decades, cooperatives processed only 10 per cent of the overall milk production.
    • India needed the double-engine force of the organised private sector to process another 10 per cent.
    • The doors for the private sector were opened partially with the 1991 reforms, but fully in 2002-03 under the leadership of Vajpayee, when the dairy sector was completely de-licenced.

    Rise of dairypreneurs

    • Many start-ups “dairypreneurs” have come in promising a farm-to-home experience of milk.
    • There is one company that delivers fresh milk at the consumer’s doorstep and gives quality testing kits at home.
    • These have digitized cattle health, milk production, milk procurement, milk testing, and cold chain management.

    Effective breeding

    • Sexed semen technology helps in predetermining the sex of offspring by sorting X and Y chromosomes from the natural sperm mix.
    • This can solve the problem of unwanted bulls on Indian roads.
    • Although the current cost of sexed sorted semen is high, Maharashtra has taken a bold step in subsidizing it for artificial insemination.

    Way forward

    • The upshot of all this is that let prices be determined by market forces, with marginal support from the government or cooperatives in times of extreme.
    • The major focus should be on innovations to cut down costs, raise productivity, ensure food safety, and be globally competitive.
    • That will help both farmers and consumers alike.
    • The cooperatives did a great job during OF, and are still doing that, but the private sector entering this sector in a big way has opened the gates of creativity and competition.

  • Black Hole swallows Neutron Star

    In an entirely strange phenomenon, astronomers have spotted two neutron stars being swallowed by different black holes.

    What are Black Holes?

    • A black hole is a region of spacetime where gravity is so strong that nothing—no particles or even electromagnetic radiation such as light—can escape from it.
    • Neutron stars and black holes are among the most extreme objects in the universe. They are the fossil relics of massive dead stars.
    • When a star that is more than eight times as massive as the Sun runs out of fuel, it undergoes a spectacular explosion called a supernova.
    • What remains can be a neutron star or a black hole.

    There is no upper limit to how massive a black hole can be, but all black holes have two things in common: a point of no return at their surface called an “event horizon”, from which not even light can escape and a point at their centre called a “singularity”, at which the laws of physics as we understand them break down.

    What about Neutron stars?

    • Neutron stars are typically between 1.5 and two times as massive as the Sun but are so dense that all their mass is packed into an object the size of a city.
    • At this density, atoms can no longer sustain their structure and dissolve into a stream of free quarks and gluons: the building blocks of protons and neutrons.

    What is the news observation?

    • Gravitational waves are produced when celestial objects collide and the ensuing energy creates ripples in the fabric of space-time which carry all the way to detectors on Earth.
    • The reverberations from the two celestial objects were picked up using a global network of gravitational wave detectors.

    What makes this strange phenomenon?

    • This is the first time scientists have seen gravitational waves from a neutron star and a black hole.
    • Previous gravitational wave detections have spotted black holes colliding, and neutron stars merging but not one of each.

    Why study this?

    • Neutron star-black hole systems allow us to piece together the evolutionary history of stars.
    • Gravitational-wave astronomers are like stellar fossil-hunters, using the relics of exploded stars to understand how massive stars form, live and die.

    Answer this PYQ in the comment box:

    Q.“Event Horizon” is related to (CSP 2018):

    (a) Telescope

    (b) Black hole

    (c) Solar glares

    (d) None of the above

  • [pib] Project BOLD

    The Khadi and Village Industries Commission (KVIC) has launched the unique Project Bamboo Oasis on Lands in Drought (BOLD) in Rajasthan.

    Project BOLD

    • Project BOLD seeks to create bamboo-based green patches in arid and semi-arid land zones.
    • It is a unique scientific exercise serving the combined national objectives of reducing desertification and providing livelihood and multi-disciplinary rural industry support.
    • 5000 saplings of special bamboo species: Bambusa-Tulda and Bambusa-Polymorpha specially brought from Assam – have been planted over 25 bigha (16 acres approx) of vacant arid Gram Panchayat land.
    • KVIC has thus created a world record of planting the highest number of bamboo saplings on a single day at one location.

    Why Bamboo?

    • KVIC has judiciously chosen bamboo for developing green patches.
    • Bamboos grow very fast and in about three years’ time, they could be harvested.
    • Bamboos are also known for conserving water and reducing evaporation of water from the land surface, which is an important feature in arid and drought-prone regions.

    Significance of the move

    • The project will help in reducing the land degradation percentage of the country, while on the other hand, they will be havens of sustainable development and food security.
    • The bamboo plantation program will boost self-employment in the region.
    • It will benefit a large number of women and unemployed youths in the region by connecting them to skill development programs.

    Answer this PYQ in the comment box:

    Q. Consider the following statements:

    1. As per recent amendment to the Indian Forest Act, 1927, forest dwellers have the right to fell the bamboos grown on forest areas.
    2. As per the Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006, bamboo is a minor forest produce.
    3. The Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006 allows ownership of minor forest produce to forest dwellers.

    Which of the statements given above is/are correct? (CSP 2019)

    (a) 1 and 2 only

    (b) 2 and 3 only

    (c) 3 only

    (d) 1, 2 and 3

    Back2Basics: Bamboo in India

    • Bamboos are tall treelike grasses.
    • With an amendment in 2017 in the Indian Forest Act 1927, the Bamboo has ceased to be a tree anymore.
    • Earlier, the definition of tree in the law included palm, bamboo, brushwood and cane.
    • The move aims to promote cultivation of bamboo in non-forest areas to achieve the “twin objectives” of increasing the income of farmers and also increasing the green cover of the country.
    • Bamboo grown in the forest areas would continue to be governed by the provisions of the Indian Forest Act.

  • Failure to comply with international judicial rulings hurts India’s image as an investment destination

    The article highlights the lack of immediate compliance by the Indian government in awards involving foreign investors.

    Why honouring award is important

    • An important factor that propels investors to invest in foreign lands is that the host state will honour contracts and enforce awards even when it loses.
    • But when the host state refuses to do so, it shakes investors’ confidence in the host state’s credibility towards the rule of law, and escalates the regulatory risk enormously.
    • To an extent, this has been India’s story over the last few years
    • Last year, India lost two high-profile bilateral investment treaty (BIT) disputes to two leading global corporations — Vodafone and Cairn Energy — on retrospective taxation.
    •  India has challenged both the awards at the courts of the seat of arbitration.
    • As India drags its feet on the issue of compliance, it harms India’s reputation in dealing with foreign investors.

    Antrix-Devas agreement cancellation dispute

    • The other set of high-profile BIT disputes involve the cancellation of an agreement between Antrix, a commercial arm of the Indian Space Research Organisation, and Devas Multimedia.
    • This annulment led to three legal disputes — a commercial arbitration between Antrix and Devas Multimedia at the International Chambers of Commerce (ICC), and two BIT arbitrations brought by the Mauritius investors and German investors.
    • India lost all three disputes. 
    • The ICC arbitration tribunal ordered Antrix to pay $1.2 billion to Devas after a U.S. court confirmed the award earlier this year.
    • After the ICC award, Indian agencies started investigating Devas accusing it of corruption and fraud.
    • Last month, the National Company Law Tribunal (NCLT) ordered the liquidation of Devas on the ground that the affairs of the company were being carried on fraudulently.
    • This has led to Devas issuing a notice of intention to initiate a new BIT arbitration against India, sowing the seeds for complex legal battles again.

    Implications for investment in India

    • A closer reading of these cases reveals that whenever India loses a case to a foreign investor, immediate compliance rarely happens.
    • Instead, efforts are made to delay the compliance as much as possible.
    • While these efforts may be legal, it sends out a deleterious message to foreign investors.
    • It shows a recalcitrant attitude towards adverse judicial rulings.
    • This may not help India in attracting global corporations to its shores to ‘make for the world’.

    Consider the question “What are the factors that are leading to more Indian business disputes being settled elsewhere? What are the implications of delay by the government in honouring the awards of the disputes?” 

    Conclusion

    As India aspire to be the global destination of FDI, it needs to burnish its image on the dispute resolution front by honouring the awards.

  • Four years of GST Regime

    The Prime Minister has lauded Goods and Services Taxes (GST) on its completion of 4 years and said it has been a milestone in the economic landscape of India.

    What is GST?

    • GST is an indirect tax that has replaced many indirect taxes in India such as excise duty, VAT, services tax, etc.
    • The Goods and Service Tax Act was passed in Parliament on 29th March 2017 and came into effect on 1st July 2017. It is a single domestic indirect tax law for the entire country.
    • It is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.
    • Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central GST and State GST are charged. All the inter-state sales are chargeable to the Integrated GST.

    Answer this PYQ in the comment box:

    Q.All revenues received by the Union. Government by way of taxes and other receipts for the conduct of Government business are credited to the (CSP 2015):

    (a) Contingency Fund of India

    (b) Public Account

    (c) Consolidated Fund of India

    (d) Deposits and Advances Fund

    What are the components of GST?

    There are three taxes applicable under this system:

    1. CGST: It is the tax collected by the Central Government on an intra-state sale (e.g., a transaction happening within Maharashtra)
    2. SGST: It is the tax collected by the state government on an intra-state sale (e.g., a transaction happening within Maharashtra)
    3. IGST: It is a tax collected by the Central Government for an inter-state sale (e.g., Maharashtra to Tamil Nadu)

    Advantages Of GST

    • GST has mainly removed the cascading effect on the sale of goods and services.
    • Removal of the cascading effect has impacted the cost of goods.
    • Since the GST regime eliminates the tax on tax, the cost of goods decreases.
    • Also, GST is mainly technologically driven.
    • All the activities like registration, return filing, application for refund and response to notice needs to be done online on the GST portal, which accelerates the processes.

    Issues with GST

    • High operational cost
    • GST has given rise to complexity for many business owners across the nation.
    • GST has received criticism for being called a ‘Disability Tax’ as it now taxes articles such as braille paper, wheelchairs, hearing aid etc.
    • Petrol is not under GST, which goes against the ideals of the unification of commodities.

  • Middle income trap

    The article suggests focusing on improving productivity and thereby the manufacturing sector to avoid the middle-income trap.

    What is the middle-income trap and why it matters for India

    • This trap was first conceived by World Bank economists.
    • They found that of the 101 developing economies that could be classified as ‘middle income’ in 1960, only 13 managed to become rich nations by 2008. 
    • There is little consensus on why some countries succeed in making the transition to high-income status.
    • But a distinctive attribute of those that succeed in the transition to high income is productivity improvement.
    • India could use its demographic dividend to avoid this predicament and achieve the critical velocity needed to move into the high-income bracket.

    How can India avoid the middle-income trap

    1) Improve productivity

    • Re-allocation of labour from low-productivity agriculture to high-productivity sectors, such as manufacturing, has been a primary channel through which today’s advanced economies raised their living standards.
    • In India, growth in labour productivity has consistently declined over the past decade.
    • The annual growth rate of output per worker has dipped from 7.9% in 2010 to 3.5% in 2019, as per International Labour Organization estimates.
    • This was also a period of low growth in India’s manufacturing sector.
    • In 2020-21, it accounted for only 14.5% of India’s gross value added, down from 17.4% in 2011-12.
    • An essential first step in improving productivity would be strengthening this sector.

    2) Strengthen manufacturing sector

    • Industrial labour relations is among the most critical elements to revitalize India’s manufacturing sector especially in the context of labour productivity.
    • These labour laws created incentives for firms to remain small and uncompetitive, thereby affecting productivity.
    • The new code, once implemented, would increase the threshold relating to layoffs and retrenchment in industrial establishments to 300 workers.
    • Other countries, such as China, Vietnam and Bangladesh, with whom India competes for foreign investment and export markets do not require the approval of administrative or judicial bodies for dismissals.
    • Therefore, in spite of recent reforms, India’s labour laws stay rigid in comparison with those of its competitor countries.

    3) Technology intensive manufacturing

    • Engendering innovation in higher value-added, tech-intensive activities is important for economies before they reach that juncture.
    • If exports are taken as a proxy for the manufacturing capabilities and competitiveness of an economy, the present status of tech-intensive manufacturing in India leaves a lot to be desired.
    • As per World Bank data, high-tech exports accounted for only 10.3% of India’s manufacturing exports in 2019.
    • Rival countries had a much higher share of the same: 31% in China, 13% in Brazil, 40% in Vietnam and 24% in Thailand.
    • Low R&D spending in India, ranging from a mere 0.64% to 0.86% of gross domestic product over the past two decades, has held the country back.

    Steps to improve tech-intensive manufacturing

    • The government has introduced a production-linked incentive scheme to ensure a greater share of local value addition.
    • While this would attract foreign investments in tech-intensive manufacturing, there is also a need for greater incentives for R&D investments by firms in India.
    • A first step in this direction could be reinstating the tax exemption on R&D under Section 35 (2AB), even for companies opting for the lower corporate tax rate of 22%.

    Conclusion

    We need appropriate interventions to improve productivity—both economy-wide and within the sector. And we must do it now.

  • Rooftop rainwater harvesting for India’s water stress

    India’s rapid urban growth is expected to stress its already crumbling base of public service arrangements — especially its management of water and sanitation services, whose safe and reliable availability proved to be the first line of defence against this covid pandemic.

    Q.Discuss how Rooftop rainwater harvesting can ease India’s water woes? (150W)

    Rooftop Rain Water Harvesting

    • It is the technique through which rainwater is captured from the roof catchments and stored in reservoirs.
    • Harvested rainwater can be stored in sub-surface groundwater reservoirs by adopting artificial recharge techniques to meet the household needs through storage in tanks.
    • Capturing and storing rainwater for use is particularly important in dryland, hilly, urban and coastal areas.
    • It holds the potential to support the country’s preparedness against the incipient challenges of changing climate.

    Water stress in India

    • An appalling confusion grips our policy makers and planners.
    • While the supply-demand gap is expected to widen by 50 per cent by 2030, many are still left without access to safe and sustainable water and sanitation services.
    • At least five Indian cities are already reported to have joined the list of world’s 20 largest water-stressed cities.

    If we look at the present portfolio of water resources management for other cities, it will not be wrong to claim that many more will soon become qualified for joining this infamous list.

    Exploring the complex problems

    • Water availability in India remains at the mercy of erratic patterns of precipitation.
    • Concretization of urban landscapes, symbolic of modern town planning imaginaries as to what an exercise in urban development has led to floods worsening.
    • Illegal encroachment along stormwater drains and urban rivers also aggravates the situation, not least by opening up spaces of active political contestation and negotiations.

    A paradigm shift needed

    • In India, management of water was bundled as part of the prerogative claims of post-independent public institutions with public participation programs designed later on to serve only a placatory function.
    • This has led to the systematic exclusion of the public’s opinions in informing the design and implementation protocols of large public schemes.
    • It took the form of multi-purpose dams, irrigation canals, public water distribution systems, etc.
    • Despite this, India has now become a ‘water-stressed country.

    A newer approach

    • Rising national empathy for river rejuvenation, watershed conservation and active public participation has, on the other hand, already started scripting a new paradigm for India’s water management.
    • It prompts decision-makers to look for solutions in the collective efforts of the citizens in managing their issues locally.

    Right from the vedic times

    • Our Vedic ancestors, in their appreciation of the timeless bounty of water, always offered timely obeisance to water’s eternal gifts to mankind.
    • Their reverence to water can be found in the hymns and prayers offered to Varuna and Indra — Vedic Gods associated with water to riveting architectural gems and literary delights, each underscoring the centrality of water in our cultural revelries.
    • It is time our policies are re-designed to reflect these values.

    Empowering people

    • Rooftop rainwater structures are perfectly poised to engender a transformative wave of public engagement in water management.
    • Thus it can act as a corollary for making water management an exercise in nurturing democratic routines.
    • To ensure that the public enthusiastically purchases this concept, a country-wide behaviour change campaign can be launched along the lines of the Swachh Bharat Mission.
    • This can emphasize people’s ‘ability and ‘motivation’ to romantically welcome these structures in their private premises.
    • This should rather be a ‘do-it-yourself’ model of engagement.

  • Investors should not be tempted to ignore macroeconomic factors

    Despite gloom in the economy, financial markets are scaling new highs. The situations calls for diligence on the part of individual investors. The deals with this issue.

    What influences investors’ decision

    • Investors may not necessarily be always sensible or even capable of perceiving the larger picture.
    • Nobel laureate Daniel Kahneman argues that humans usually use the ‘first system’ of ‘fast thinking’ to hurriedly act and perceive their environment.
    • Consequently, they are susceptible to the ‘priming effect’, ‘framing bias’, ‘anchoring effect’, ‘overconfidence bias’ and ‘availability heuristic’.
    • These phenomena, thus, play their part in pervading optimistic market conditions.
    • As a result, investors often end up ignoring or overlooking uncertainties and risks involved in their decision.
    • At the same time, investors’ decision choices could be significantly influenced by ‘nudging’.
    • It is a deliberate tactics and method of behaviour modification by which it is the ‘choice architect’ that decides who does what and who does so, as argued by the Nobel laureate, Richard H. Thaler.
    • The present surge in the Indian stock market is indeed nudging individual investors to trade more.

    What makes individual investors vulnerable

    • National Stock Exchange data indicate following trends:
    • The share of the non-institutional individual investors in equity trading volume has risen to one half of the total turnover. in 2021.
    • It was around a third in 2016.
    • In contrast, the share of Foreign Institutional Investors (FIIs) in the total trading volume has shrunk to just about a tenth, it used to be one fifth in 2016.
    • Trading in the stock market, the sudden rise, the intraday moves, etc., are, thus, attributable largely to individual traders now. 
    • However, despite their large trading volumes, individual investors have actually contracted their holding of the market capitalisation.
    • The FIIs currently own around half of the free float of all Indian companies.
    • Apparently, the retail investors have constantly sold their stake to end up holding less than 20% shares now.
    • Trading, thus, seems to be the mainstay of retail investors and this is what makes them more vulnerable to the vagaries of the market.

    Market is ignoring macroeconomic factors

    • Centre for Monitoring Indian Economy Pvt. Ltd. data of the listed companies reveal a rise in their profit, due to rationalisation and cost-cutting.
    • Investors might be tempted to ignore macroeconomic factors and invest in such stock believing that it is the profit that impels the stock prices.
    •  In reality, however, share price is expected to ascend if a company declares to cut its wage bill.
    • This probably explains why stock markets around the world have been on the rise amidst the novel coronavirus pandemic; demand may have declined but profits have been least impacted.
    • At the larger economic level, however, real wages have plunged.
    • Clearly, the market has not entirely decoupled itself from the economic indicators.
    • Established wisdom suggests that corporates cannot sustain contraction in the economy for long.
    • Sustained decline in demand caused by waning disposable household income would catch them soon.
    • Robert J. Shiller attributes this phenomenon of creating a possible bubble to irrational exuberance.
    • When bubbles burst, they cause a kind of financial earthquake, in turn destabilising public trust in the integrity of the financial system.
    • Critically, as the past portrays, individual investors, with all their vulnerabilities, suffer the most devastating consequences.
    • Retail investors are as well susceptible to overreaction when negative news hits the market.

    Consider the question “What are the factors driving the financial markets up despite the weak macroeconomic foundations? What are the risks involved in such situation for the individual investors?”

    Conlcusion

    History of financial markets is replete with bubbles and bursts. Most affected in such burst are the individual investors. Informed decisions based on information and risks involved should form the basis of investment by individual investors.

  • What is the Purchasing Managers’ Index (PMI)?

    India’s manufacturing industry has slid back to a decline in June, as per the IHS Markit Manufacturing Purchasing Managers’ Index (PMI).

    Purchasing Managers’ Index

    • PMI is an indicator of business activity — both in the manufacturing and services sectors.
    • It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
    • It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
    • The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

    How is the PMI derived?

    • The PMI is derived from a series of qualitative questions.
    • Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.

    How does one read the PMI?

    • A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
    • Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
    • If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.

    What are its implications for the economy?

    • The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available.
    • It is, therefore, considered a good leading indicator of economic activity.
    • Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later.
    • Central banks of many countries also use the index to help make decisions on interest rates.

  • Global Cybersecurity Index 2020

    India has made it to the top 10 in Global Cybersecurity Index (GCI) 2020 by ITU, moving up 37 places to rank as the tenth best country in the world on key cybersafety parameters.

    Global Cybersecurity Index

    • GCI assessment is done on the basis of performance on five parameters of cybersecurity including legal measures, technical measures, organizational measures, capacity development, and cooperation.
    • The performance is then aggregated into an overall score.
    • For each of the five aspects, all the countries’ performance and commitment are assessed through a question-based online survey, which further allowed for the collection of the supporting evidence.

    India’s progress

    • As per the ranking, India has moved up by 37 places to rank as the tenth best country in the world.
    • The US topped the chart, followed by the UK and Saudi Arabia tied on the second position, while Estonia was ranked third in the index.
    • India has also secured the fourth position in the Asia Pacific region, underlining its commitment to cybersecurity.

    Its significance

    • The affirmation by the UN body of India’s efforts on cybersecurity comes just ahead of the sixth anniversary of Digital India on July 1.
    • India is emerging as a global IT superpower, asserting its digital sovereignty with firm measures to safeguard data privacy and online rights of citizens.

    Back2Basics: International Telecommunication Union

    • ITU is the United Nations specialized agency for information and communication technologies – ICTs.
    • Founded in 1865 to facilitate international connectivity in communications networks. It is Headquartered in Geneva, Switzerland.
    • It allocates global radio spectrum and satellite orbits, develops the technical standards that ensure networks and technologies seamlessly interconnect, and strives to improve access to ICTs to underserved communities worldwide.
    • Recently, India got elected as a member of ITU Council for another 4-year term – from 2019 to 2022. India has remained a regular member since 1952.