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GS Paper: GS3

  • Species in news: Hypnea Indica

    Two new species of seaweed have been discovered by a group of marine biologists from the Central University of Punjab, Bathinda.

    What are the species?

    • Named Hypnea indica (after India) and Hypnea bullata (because of the blisterlike marks on its body – bullate), the seaweeds are part of the genus Hypnea or red seaweeds.
    • They grow in the intertidal regions of the coast, namely the area that is submerged during the high tide and exposed during low tides.

    Do you know?

    Red Algae have great ecological importance. They form a vital part of the food chain and are also involved in producing about 40 to 60 per cent of the total global oxygen for both terrestrial habitat and other aquatic habitats.

    Details of the genus

    • The genus Hypnea consists of calcareous, erect, branched red seaweeds.
    • While Hypnea indica was discovered Kanyakumari in Tamil Nadu, and Somnath Pathan and Sivrajpur in Gujarat, Hypnea bullata was discovered from Kanyakumari and Diu island of Daman and Diu.
    • There are 61 species of which 10 were reported in India.

    Significance for the food industry

    • Species of Hypnea contain the biomolecule carrageenan, which is widely used in the food industry.
    • As the two species have been found on the west and south-east coasts of India, it suggests good prospects for their cultivation which can be put to good use economically.
    • The extensive calcareous deposit on the body that has been observed also provides room for thought.

  • [pib] Exercise Desert Flag-VI

    Exercise Desert Flag –VI has successfully culminated with the de-induction of the Indian contingent from the UAE.

    Ex Desert Flag

    • It is an annual multi-lateral large force employment exercise hosted by UAE.
    • The sixth edition of the exercise was conducted at Air Force Base Al Dhafra, UAE.
    • IAF participated in the exercise for the first time, fielding Su-30MKI fighter aircraft.
    • Six countries; UAE, USA, France, Saudi Arabia and Bahrain apart from India participated with aerial assets. Jordan, Greece, Qatar, Egypt and South Korea participated as observer forces.

    Objective of the exercise

    • The aim for the participating crew and specialist observers was to expose them to operational environment in scenarios requiring multinational forces working together.
    • A multinational exercise in UAE with friendly forces afforded a unique opportunity to gain valuable learning to all the participating forces.

    Must read:

    [Prelims Spotlight] Defence Exercises

  • Space weather preparedness is in our national interest

    The article suggests the need for space weather preparedness to protect the satellite constellations in the future.

    Satellite constellations

    • By 2030, the global space industry could add almost 50,000 new commercial satellites to the existing 5,000.
    • These would include earth-observation satellites selling commercial imagery, telecom orbiters providing 5G and next-in-line 6G data services, and meteorological ones selling weather-forecasts and datasets.
    • The increasing dependence of the digital economy on satellite constellations is spurring investment in this area.

    Risks involved

    • The most important threat to the constellation of satellites will be the collisions between satellites.
    • Such collision could result in massive free-floating space debris.
    • A 2020 Organisation for Economic Co-operation and Development report estimates that protecting satellites from space debris could cost 5-10% more per space mission.
    • Another threat to satellite constellations is that of extreme space weather events, and this cannot be addressed by space and digital players alone.
    • It demands the attention of governments.

    Improving space weather forecasting ability

    • Last October, the US Congress passed an Act that directs civilian and military agencies to reinforce national space weather forecasting abilities.
    • China transferred its meteorological, hydrological and space weather command from the People’s Liberation Army (PLA) general staff department to the PLA strategic support force, the latter being its new branch for cyber, space and e-warfare.

    Lessons for India

    • India’s economy is expected to become increasingly dependent on space- and ground-based commercial, civilian and military assets.
    • These will be vulnerable to extreme space weather events.
    • India is progressing with its capital-intensive planetary exploration and human space-flight projects.
    • we must deploy across-the-board space-weather monitoring, forecasting and response systems designed to safeguard deep-space assets and protect our gaganauts.
    • Consequently, it is imperative for the government to develop and adopt space weather forecasts before initiating outer space activities.
    • India, therefore, needs legislation like America’s to issues cross-ministerial directions.
    • The Indian scientific community operates numerous ground-based ‘sun observing’ telescopes across India, and is well connected with its international peers.
    • In the coming months India is expected to launch Aditya-L1, a space-based solar observatory, with assistance from the Indian Space Research Organisation.
    • The data generated by it will be crucial for India’s space weather monitoring ambitions.
    • But without a national policy backed by legislation, the scientific community would find it difficult to meet the strategic demands of the conjoined space and digital economies.

    Consider the question “The increasing dependence of the digital economy on satellite constellations is spurring investment in this area. But it is not risk-free. In light of this, examine the risks involved and suggest the measures to deal with the risks.” 

    Conclusion

    The enactment of a space weather law could help the country protect its digital and telecom systems that extend to outer space from destructive solar storms and intense solar and galactic radiation whiplashes.

  • Places in news: Chilika Lake

    The Chilika Lake in Odisha, Asia’s largest brackish water lake, was once part of the Bay of Bengal, a study by the marine archaeology department of the National Institute of Oceanography (NIO), Goa, has found.

    Try this PYQ:

    Q.Consider the following statements:

    1. In India, the Himalayas are spread over five States only.
    2. Western Ghats are spread over five States only.
    3. Pulicat Lake is spread over two States only.

    Which of the statements given above is/are correct?

    (a) 1 and 2 only

    (b) 3 only

    (c) 2 and 3 only

    (d) 1 and 3 only

    Chilika Lake

    • Chilika Lake is a brackish water lagoon, spread over the Puri, Khurda and Ganjam districts of Odisha.
    • It is located at the mouth of the Daya River, flowing into the Bay of Bengal, covering an area of over 1,100 km2.
    • It is the largest coastal lagoon in India and the largest brackish water lagoon in the world after The New Caledonian barrier reef.
    • It has been listed Ramsar Site as well as a tentative UNESCO World Heritage site.

    Its formation

    • The process of the formation of the Chilika might have begun in the latter part of the Pleistocene epoch, around 20,000 years ago.
    • India’s peninsular river Mahanadi carried a heavy load of silt and dumped part of it at its delta.
    • As the sediment-laden river met the Bay of Bengal, sand bars were formed near its mouth.
    • These created a backflow of the seawater into the sluggish fresh water at the estuary, resulting in the huge brackish water lake.
    • Marine archaeological studies on the Odisha coast clearly show that the Chilika once acted as a safe harbour for cargo ships bound for Southeast Asia and other parts of the world.

    Historical accounts on Chilika

    The lake has been a useful centre for maritime activities since the third millennium before the Common Era (CE).

    • Greek geographer Claudius Ptolemy (150 CE) described Palur as an important port of Kalinga and referred to it as ‘Paloura’.
    • This port was situated close to the ‘point of departure’ located outside the southern tip of the lake at Kantiagarh, from where ships used to sail directly for Southeast Asia.
    • Stone anchors and hero stones from Manikapatna, Palur and the adjoining onshore regions of the Chilika suggest that the present brackish water lagoon was in fact a part of the Bay of Bengal.
    • Chinese pilgrim Xuanzang (7th century CE) recorded ‘Che-li-ta-lo-Ching’ as a flourishing port.
    • This port was located at Chhatargarh on the banks of the Chilika.
    • The Brahmanda Purana (10th century CE approximately) says the Chilika was an important centre of trade and commerce, with ships sailing to Java, Malaya and Ceylon.
    • The famous Sanskrit poet Kalidas called the king of Kalinga ‘Madhodhipati’ or ‘Lord of the Ocean’.

  • Early bud-break genes and climate change

    Changing climate has transformed the time spring unfolds in front of us.

    Early bud-break

    • Bud-break — which is when trees leaf out — has undergone a change.
    • Several trees initiate bud-break too early or too late, which affects the harvest.
    • Spring, for example, arrived earlier than usual in Kashmir this year due to higher temperatures in February and March.
    • Gul-tour, a spring-flowering herb started blooming in mid-February in Kashmir. Its yellow flowers would usually blossom in March, heralding Spring.

    Try this PYQ:

    Q.Other than resistance to pests, what are the prospects for which genetically engineered plants have been created?

    1. To enable them to withstand drought
    2. To increase the nutritive value of the produce
    3. To enable them to grow and do photosynthesis in spaceships and space stations
    4. To increase their shelf life

    Select the correct answer using the code given below

    (a) 1 and 2 only

    (b) 3 and 4 only

    (c) 1, 2 and 4 only

    (d) 1, 2, 3 and 4

    Answer: (d)

    What causes early bud-break?

    • This is why understanding the genetics of bud-break helps scientists modify or select crop varieties that can be more resilient to the climate threat.
    • The properties of transcription factors are genes that regulate other genes by binding to deoxyribonucleic acid and giving activation instructions.
    • It helps scientists determine what other genes might be involved in a process such as a bud-break.

    EBB genes

    • Researchers of the study had earlier identified transcription factors for early bud-break 1 (EBB1) and short vegetative phase (SVL), which directly interact to control bud-break.
    • EBB1 is a positive regulator of bud-break, whereas SVL is a negative regulator of bud-break.
    • Now, the research team has identified and characterized the early bud-break 3 (EBB3) gene.

    Identified mechanism of Bud-break

    • EBB3 is a temperature-responsive, positive regulator of bud-break that provides a direct link to activation of the cell cycle during bud-break.
    • EBB3 provides a direct link through the signalling pathway for how these cells divide.
    • The analysis reveals how particular genes activate through the season or in response to specific environmental factors.

    Significance of the study

    • New approaches for accelerated tree adaptation to climate change helps ensure bud-break happens at the right time each spring.
    • Using their understanding of the genetic pathways that control bud-break, scientists hope to genetically modify crops to adapt to warmer winters and unpredictable frosts.

  • What to consider before India takes ‘net-zero’ pledge

    There are several issues with the adoption of net zero-emission targets. One of the most important being the lack of equity. This article deals with this issue.

    About net-zero emission targets

    • The “net zero” idea is inspired by an IPCC report that calls for global net emissions – GHG emissions minus removal of GHGs through various means to reach zero by mid-century.
    • This builds on a clause in the Paris Climate Agreement, calling for a balance between sources and sinks of emissions by the second half of the century.
    • It is worth underscoring that none of this implies that each country has to reach net-zero by 2050.
    • Net-zero announcements signals a progressive direction of travel and has the apparent merit of presenting a simple and singular benchmark for assessing the performance of a country.

    3 Issues with net zero targets

    • First, it potentially allows countries to keep emitting today while relying on yet-to-be-developed and costly technologies to absorb emissions tomorrow.
    • Second, its focus on long-term targets displaces attention from meaningful short-term actions that are credible and accountable.
    • Third., it calls into question concerns of equity and fairness.

    Balancing the concerns of developing and developed countries

    • The Paris Agreement, while urging global peaking as soon as possible, explicitly recognises that peaking will take longer for developing countries.
    • The Paris Agreement calls for achieving balance in developing and developed nation “on the basis of equity” and in the context of “sustainable development and efforts to eradicate poverty”.
    • Therefore, the Paris Agreement does not advocate uptake of net-zero targets across developed and developing countries, as currently being advocated by many countries.
    • Rather, the emphasis in the agreement on equity, sustainable development and poverty eradication suggests a thoughtful balancing of responsibilities between developed and developing countries.

    Factors India should consider before taking zero-emission target

    • Our first nationally determined contribution (NDC) submitted under the Paris Agreement has been rated by observers as compatible with a 2 degrees Celsius trajectory.
    • We are ahead of schedule in meeting our contribution.
    • Now, India will need to decide whether to join a growing number of countries (over 120 at last count) that have pledged to reach “net zero” emissions by 2050.
    • But it is not clear that enhancing mitigation action can definitively deliver net-zero emissions by 2050, given that our emissions are still rising, and our development needs are considerable.
    • There is a possibility that a not fully thought-through mid-century net-zero target would compromise sustainable development.
    • Moreover, such a major shift in our negotiating position will have implications for the future, including our ability to leverage additional finance and technology to help shift to low-carbon development pathways.
    • Our 2 degrees Celsius compatible NDC, bolstered by the Prime Minister’s announcement in 2019 that we would achieve 450 GW of renewables by 2030, could be strengthened.
    • Building on this track record suggests an alternate and equally, if not more, compelling, way to indicate climate ambition in the future than uncritically taking on a net-zero target.

    Way forward

    • We would benefit from taking stock of our actions and focusing on near-term transitions.
    • This will allow us to meet and even over-comply with our 2030 target while also ensuring concomitant developmental benefits, such as developing a vibrant renewable industry.
    • We can start putting in place the policies and institutions necessary to move us in the right direction for the longer-term and also better understand the implications of net-zero scenarios before making a net-zero pledge.
    • It would also be in India’s interest to link any future pledge to the achievement of near-term action by industrialised countries.
    • That would be fair and consistent with the principles of the UNFCCC.

    Consider the question “Growing number of countries have been setting net-zero emission target. In light of this, examine the issues India should consider before setting itself the net zero emission targets.”

    Conclusion

    India, like others, have a responsibility to the international community, we also have a responsibility to our citizens to be deliberate and thoughtful about a decision as consequential as India’s climate pledge.

  • Amendments to the Forest (Conservation) Act, 1980

    The Union Ministry of Environment, Forest and Climate Change has proposed several amendments to the Forest (Conservation) Act, 1980 (FCA), which may enable infrastructure projects to come up in the forest areas more easily.

    What are the amendments?

    • They propose to grant exemptions to railways, roads, tree plantations, oil exploration, wildlife tourism and ‘strategic’ projects in forests.
    • The proposal also aims to empower state governments to lease forest land to private individuals and corporations.
    • If the proposed amendments come into force, they would dilute the provisions of the landmark 1996 decision of the Supreme Court in Godavarman

    The amendments, however, propose two changes to strengthen the applicability of the FCA, according to the documents accessed:

    1. To complete the process of forest identification in a time-bound manner
    2. To enable the creation of ‘no-go’ areas, where specific projects would not be allowed

    The Forest (Conservation) Act, 1980

    The FCA is the principal legislation that regulates deforestation in the country.

    • It prohibits the felling of forests for any “non-forestry” use without prior clearance by the central government.
    • The clearance process includes seeking consent from local forest rights-holders and from wildlife authorities.
    • The Centre is empowered to reject such requests or allow it with legally binding conditions.
    • In a landmark decision in 1996, the Supreme Court had expanded the coverage of FCA to all areas that satisfied the dictionary definition of a forest; earlier, only lands specifically notified as forests were protected by the enforcement of the FCA.

    The FCA is brief legislation with only five sections of which-

    • Section 1 defines the extent of coverage of the law,
    • Section 2 restrictions of activities in forest areas and the rest deals with the creation of advisory committees, powers of rule-making and penalties.

    Key propositions of the Amendment

    The proposed amendments seek to make additions and changes to Section 1 and 2.

    (1) Concessions to survey and exploration

    • In the proposed new section 1A, a provision has been added to exempt the application of FCA on forest land that is “used for underground exploration and production of oil and natural gas through Extended Reach Drilling (ERD) originating outside forest land.”
    • The exemption is subject to terms and conditions laid down by the central government.
    • A new explanation added to Section 2 says that “survey, reconnaissance, prospecting, exploration or investigation” for future activity in the forest will not be classified as a “non-forestry activity”.
    • This means such survey works would not require any prior permission from the government.

    The only exception is if the activity falls within a wildlife sanctuary, national park or tiger reserve.

    (2) Exemptions to Railways and roads inside forests

    • Land acquired by the railways for establishing a rail line or a road by a government agency before 25.10.1980 (the day the FCA was passed) would be exempted from seeking a forest clearance — if they put the land to the same use for which it was acquired.
    • This is included in a provision in the proposed section 1A.
    • The exemption is subject to terms and conditions that the central government will lay down through guidelines, which include planting trees to compensate for the loss of forests.

    (3) Leases on forest land

    • Section 2(iii) of the FCA requires the central government’s approval before assigning forest lands on lease to any private person/corporation/organisation not owned or controlled by the central government.
    • This clause, however, has purportedly been deleted in the proposed amendment.
    • This may mean that state governments can issue leases for the use of forest land without the Centre’s prior approval.

    (4) Exemptions to plantations

    • A new explanation to Section 2 proposes to exempt plantation of native species of palm and oil-bearing trees from the definition of “non-forest purpose”.
    • Since the FCA applies to the conversion of forest land to “non-forest purpose”, this proposed amendment would effectively mean that anyone who wants to clear a natural forest to raise such plantations would not require any approval from the government.
    • The government will only impose conditions for compensatory afforestation and payment of other levies and compensations.

    (5) Exemptions to wildlife tourism, training infrastructure

    • The FCA classifies activities related to wildlife conservation as “non-forestry” purposes, which means such activities — building checkpoints, communication infrastructure, fencing, boundary, etc — which include do not need a forest clearance.
    • The proposed amendment claims to add to this list “forest and wildlife training infrastructure” and the “establishment of zoos and safaris” managed by the government or any authority under the Wildlife Protection Act, 1972.
    • It may also add ecotourism facilities approved under the Forest Working Plan or Working Scheme approved by the central government.

    (6) States may grant forest clearance for strategic / security projects

    • The proposed Section 2A may empower the central government to provide for state government approval for projects on forest land for “strategic” or security projects of “national importance”, according to the documents accessed.
    • There is no clarity on the scope of these terms, or on the determination of national importance, or illustrative examples of such projects.

    Limiting the coverage of the Supreme Court’s decision

    • The Supreme Court in Godavarman Case 1996 had held that the meaning of “forest” under the FCA would include not only statutorily recognised forests.
    • It would include any area recorded as forest in government records, regardless of ownership.
    • The restrictions in the FCA would, therefore, be applicable to both de jure and de facto

    The proposed amendment purportedly seeks to reduce the scope of this judgment by limiting the applicability of the FCA to only such land that has been:

    • Declared or notified as forest under the Indian Forest Act, 1927
    • Recorded as forest land in the government record prior to 25 October 1980, with the exception of such land if its use has been changed from forest to non-forest purpose prior to 12 December 1996
    • Identified as “forest” by a state government expert committee up to one year from the date of the amendment.

    The judgment interpreted the Act as it stood then. The addition of a specific definition thus limits the scope of the judgment. De facto forests are, therefore, excluded from the purview of the FCA.

    Creation of ‘No-Go’ areas

    • The proposed amendment inserts a new Section 2B, which will allow the central government to delineate forest areas where conversion to specific non-forest uses would not be permitted for a fixed period of time.
    • The delineation would be based on the basis of pre-defined criteria.
    • This could mean, for instance, that a certain dense forest would not be allowed to be converted to a coal mine for the next 30 years, but it could be allowed to be cleared for a thermal power plant.
    • In the Godavarman case, the Supreme Court had directed states to set up expert committees to draw up a list of forests that were not notified under the Indian Forest Act, 1927 (IFA), but deserved to be protected by the FCA.
    • Several states are yet to comply with this requirement.

    Impact

    • The proposed Section 1A(ii) excludes from the purview of the FCA those forests which were described as such in government records (but not notified under the IFA).
    • The Karnataka High Court recently dealt with a matter wherein the state government had passed several orders to de-notify lands classified as “state forest” (but not notified under IFA), and to divert them for non-forest purposes.
    • The lands were then allotted for the rehabilitation of displaced people. The state government completed this process of dereservation of reserved forests in 2017.
    • On March 4, 2021, the high court struck down actions of the state government for not taking “prior approval of the central government” as required under Section 2 of the FCA.
    • It recommended criminal action against any officers responsible for allowing non-forest use of forest land.

    What lies ahead?

    • If the proposed amendment is enacted, the insertion of Section 1A(ii) would exempt the application of the FCA to the land which was converted to non-forest use by the Karnataka government.
    • The exemption of zoos and safaris from “non-forest purpose” comes a year after the government proposed to open a zoo in Mumbai’s Aarey forest and a tiger safari in Madhya Pradesh led to objections from biologists.
    • While state governments may certainly continue to seek dilution of the FCA during enforcement, the removal of the requirement of central government approval is a step towards a dilution of restrictions on forest land use.

  • Learning economic lessons from Bangladesh

    The article examines the key driving factors of Bangladesh’s stellar economic progress and draws lessons for India.

    Overview of Bangladesh’s economic achievements

    • Bangladesh’s GDP growth in 2019 was an enviable 8.4 per cent — twice that of India’s during that year.
    • It is one of the few countries to have maintained a positive growth rate during the COVID-19 pandemic.
    • Its GDP per capita is just under $2,000 — almost the same as India’s.
    • In five years, by 2026, Bangladesh will drop its least developed country tag, and move into the league of developing countries — on a par with India.

    Parallels between Vietnam and Bangladesh’s progress

    • Vietnam instituted market and economic reforms in 1986, which enabled it to achieve rapid economic growth and industrialisation.
    • It began with the manufacturing of textiles and garments and moved into making mobiles and electronics.
    • As supply chains diversify from China, Vietnam is a beneficiary.
    • It is now the “+1” in the “China +1” strategy of multinationals.
    • Vietnam has signed trade agreements and inserting itself into global supply chains.
    • Bangladesh has followed a similar strategy.
    • Its rise is directly connected with the textiles and garments industry, which accounts for 80 per cent of the country’s exports.
    • Bangladesh also enjoys preferential trade treatments with the European Union, Canada, Australia, and Japan with negligible or zero tax.
    • With India too, Dhaka has a zero-export duty on key products like readymade garments.
    • Like Vietnam, its foreign investment regime is investor-friendly.
    • For instance, Bangladesh’s liberal FDI policy allows 100 per cent equity in local companies and no limits on repatriation of profits in most sectors. 
    • Indian companies are increasingly present in Bangladesh, and Indian products are popular — an outcome of a strong cultural affinity.

    Women in workforce and microfinance

    • The world’s most successful and pioneering microfinance organisations like Grameen and BRAC have aided small businesses in the country, and regionally.
    • Many of these schemes, over the years, were directed at women.
    • This has paid dividends not just in financial independence, but also in encouraging them to work outside the home.
    • Consequently, Bangladesh’s workforce in its textiles sector is almost all women — 95 per cent women in an industry which is 80 per cent of Bangladesh’s exports.

    Role of government schemes

    • This, along with government schemes like Pushti Apas (Nutrition Sisters) and community health clinics has helped Bangladesh in the development indices.
    • Bangladesh fares better on infant mortality, sanitation, hunger and gender equality than many countries including India.

    Key lessons for India

    • Increasing women in the workforce, liberalising internal and external trade, and making micro lending accessible, are some of the lessons.
    • But so is the goal of being a global hub for the sub region, building special economic zones which requires infrastructure, connectivity and a welcoming environment for investors both domestic and foreign.
    • both countries have suffered since 1947, without connectivity, at huge cost.
    • It is time to integrate our power systems, think about free trade, liberalise the visa regime.

    Conclusion

    India need not always carry the burden of South Asia’s development alone. It now has a partner with whom to collaborate effectively towards achieving that goal.

  • How fiscal stimulus in the U.S. will impact emerging economies

    The article highlights how the faster recovery of the U.S. economy aided by the faster vaccination and stimulus packages may pose a policy challenge to the emerging economies.

    About the fiscal stimulus in the U.S.

    • With the recent passage of Biden’s $1.9 trillion coronavirus relief package, the cumulative fiscal stimulus amounts to 25 per cent of GDP. 
    • This reliance on fiscal stimulus is in sharp contrast to the policy response in the aftermath of the 2008 global financial crisis (GFC) when monetary policy was the main tool.
    • The over reliance on fiscal measures is because of the “liquidity trap” — interest rates are already treading close to zero.

    So, what does this mean for the US and emerging economies?

    • From the US perspective, this is good news.
    • The U.S. economy is expected to converge to the pre-pandemic GDP projection after the third quarter of 2021, exceeding it by 1 per cent in the fourth quarter.
    • The impact on emerging economies is less certain.
    • A booming US economy generally bodes well for global growth as higher demand “spills over” to the rest of the world.
    • However, the sectoral contribution to US growth presents a different picture this time.
    • Private consumption of goods (tradable) is already back to pre-pandemic levels, while consumption of services remains significantly below pre-pandemic levels.
    • As the vaccination drive gathers pace in the US and the economy slowly opens up, it should be fair to assume that the non-tradable sector would be driving growth.
    • But given the expected nature of the underlying growth, the positive impact on emerging economies will perhaps be softer.
    • With smaller fiscal stimulus in emerging economies and the slower vaccine roll, the US recovery largely being led by the non-tradable sector will result in a divergence in growth between the US and emerging countries.

    Policy challenge for emerging economies which is different from GFC

    • Post-GFC, a combination of zero interest rates and quantitative easing in advanced economies led to a significant surge in capital inflows to emerging countries in search of higher yield leading to an appreciation of their currencies.
    • Now, the situation is exactly the opposite.
    • The differential rate of recoveries has already led to capital outflow from emerging economies.
    • The rise in yield in the U.S. may further fuel capital outflows in coming days leading to tighter monetary conditions in emerging markets.

    What should be India’s policy response

    • As far as India is concerned, the macro-economic fundamentals are much stronger than during the taper-tantrum days.
    • The foreign exchange reserves remain at historically high levels, the current account situation is comfortable and the inflation rate remains within the target band of the RBI.
    • In the event of capital outflows, the RBI should let the currency depreciate as the first line of defence to preserve India’s external competitiveness and intervene only to smoothen out extreme volatility.
    • It should avoid the temptation to increase interest rates at the risk of hurting the pace of economic recovery.

    Consider the question “Uneven economic recovery on the global level poses a policy challenge to India. In this context, discuss the possible impact of uneven recovery and suggest the policy measures to deal with it.”

    Conclusion

    Uneven recovery at the global level demands an unconventional policy approach. The policy approach of India should be based on this premise.

    Back2Basics: Taper Tantrum

    • The phrase, taper tantrum, describes the 2013 surge in U.S. Treasury yields, resulting from the Federal Reserve’s (Fed) announcement of future tapering of its policy of quantitative easing.
    • The Fed announced that it would be reducing the pace of its purchases of Treasury bonds, to reduce the amount of money it was feeding into the economy.
    • The ensuing rise in bond yields in reaction to the announcement was referred to as a taper tantrum in financial media.

  • Why privatising public assets is poor economics

    The article highlights the issues with government expenditure driven by the selling of public sector assets.

    How public asset selling could affects private investment decisions

    • Public sector assets are not bought by reducing consumption or investment.
    • Current investment expenditure depends on decisions taken in the past and is more or less pre-determined.
    • Investment decisions that are taken today for fructification tomorrow that may be scaled down by such a purchase.
    • However, if investment decisions taken today are scaled-down, then it results in crowding out and such a strategy should be avoided anyway.
    • This implies that selling public sector assets therefore does not release any resources from private use for government spending.

    How selling public asset has same macroeconomic effect as fiscal deficit

    • In case of fiscal deficit, the government puts its bonds in private hands; in sale of a public asset, the government puts its equity held in public sector assets in private hands.
    • The macroeconomic consequences of a fiscal deficit on the economy are no different from those of selling public assets.
    • However, finance capital, and institutions like the IMF treat the sale of public assets on a different footing from a fiscal deficit, for ideological — not economic — reasons, because they ideologically favour a dismantling of the public sector.

    How fiscal deficit leads to wealth inequality

    • In a situation of demand-constraints, where unutilised capacity and unemployed workers exist aplenty, if an appropriate monetary policy is pursued, it can have no adverse effects whatsoever, except one: It increases wealth inequality.
    • The government expenditure financed by the fiscal deficit creates additional aggregate demand that increases output and incomes until the additional savings generated out of such incomes exactly match the fiscal deficit.
    • These additional savings accrue to the savers without their having to reduce their consumption, compared to the initial situation (that is, prior to government expenditure increase).
    • Since savings represent additions to wealth, this amounts to putting extra wealth into the hands of the rich.
    • Selling public assets puts into private hands public assets, and that too at prices well below the capitalised value of earnings.
    • This increases wealth inequality for two reasons:
    • First, it does so exactly as a fiscal deficit does.
    • Second, the public asset it puts in private hands is under-priced.

    Why tax financed government spending should be preferred

    • If the same government expenditure is financed by taxation, no matter who was taxed, then there would be no addition to private wealth and hence no increase in wealth inequality.
    • Which is why tax-financed government expenditure should always be preferred to fiscal-deficit-financed government expenditure.

    What alternative government have

    • The obvious one is wealth taxation.
    • Taxing away the private wealth created by a fiscal deficit leaves private wealth inequality unchanged at its initial level; it does not exacerbate it.
    • If the government is unwilling to impose higher wealth or profit taxes, it can raise GST rates on several luxury goods.

    Consider the question “How fiscal deficit financed government spending differs in its impact on weath inequality from the tax-financed government spending?”

    Conclusion

    Thus, selling public assets to finance government spending is both undesirable and unnecessary.