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GS Paper: GS3

  • Issues with Free power

    Context

    With elections around the corner in many States, political parties are competing with one another in promising free power.

    Problems with free power

    • Supported by state subsidy, electricity tariff to agriculture is low in most States – often less than ₹1/unit – and is free in some States such as Punjab, Tamil Nadu and Karnataka.
    • There is inefficient use of electricity and water, neglect of service quality by the distribution companies leading to frequent outages and motor burn outs, and high subsidy burden on the State governments.
    • Inflated consumption estimates: Since nearly three-fourth of the agriculture connections in the country are unmetered, consumption estimates are often inflated by distribution companies to increase subsidy demand and project low distribution losses.
    • Any metering effort faces resistance as it is perceived as the first step towards levying charges.
    • Opting-out schemes are being made but do not seem to have uptake.
    • Difficulty in implementing DBT: Free power provision along with issues of metering make implementation of Direct Benefit Transfer difficult.
    • All this leaves farmers, distribution companies and State governments frustrated.
    • Subsidy burden on Governments: Due to free power in Delhi, the total state subsidy amounts to 11% of the total expenses.
    • In Tamil Nadu, where free power is available to households, half of the total subsidy is earmarked for this.
    • If there is further increase in number and consumption limits of free power, the subsidy burden on State governments will substantially increase.
    • Low adoption of solar power: Roof-top solar and energy efficiency are good environment-friendly options for homes but providing free power to well-off households will discourage them from taking these up.

    Way forward

    • Free or low-tariff power is at best a short-term relief, which should be provided to those who desperately need it.
    • Give fixed rebate: A fixed rebate of up to ₹200/month for residential consumers can be provided in the electricity bill.
    • As the rebate is delinked from consumption, distribution companies won’t have an incentive to inflate consumption.
    • Rebate for adopting energy-efficient appliances: There can be additional rebates for adopting energy-efficient appliances like refrigerators, combined with State-level bulk procurement programmes to reduce the cost.
    • Addressing mutual mistrust: The atmosphere of mutual mistrust between small consumers and distribution companies has to change.
    • There should be quick resolution of arrears and one-time offers for settlements.

    Conclusion

    There is a need to question the wisdom of broad-brush promises such as free power, which cannot be sustained in the long run.

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  • The sanctions cloud over India-U.S. ties

    Context

    The delivery of the S-400 Triumf air defence systems from Russia is expected according to schedule. In response, U.S. Deputy Secretary of State Wendy Sherman hoped that both the U.S. and India could resolve the issue.

    Background of the CAATSA

    • The Countering America’s Adversaries through Sanctions Act (CAATSA) was passed when the U.S. sought to discourage trade in the defence and intelligence sectors of Russia.
    • The Act mandates the President to impose at least five of the 12 sanctions on persons engaged in a “significant transaction” with Russian defence and intelligence sectors.
    • These sanctions include suspending export licence, banning American equity/debt investments in entities, prohibiting loans from U.S. financial institutions and opposing loans from international finance institutions.
    • The Act also built in a safety valve in the form of a presidential waiver.
    • The “modified waiver authority” allows the President to waive sanctions in certain circumstances.
    • There are a few more provisions including one that allows for sanctions waivers for 180 days, provided the administration certifies that the country in question is scaling back its ties with Russia.

    Implications of CAATSA sanctions against India and scope for waiver

    • Impact on bilateral relationship: Sanctions have the tremendous potential of pulling down the upward trajectory of the bilateral relationship between the U.S. and India, which now spans 50 sectors, especially in the field of defence.
    • India turned sullen over the manner in which the U.S. negotiated the exit deal with the Taliban.
    • Quad engagement: Yet, on the strategic plane, India remained on course by agreeing to the upgrading of the Quadrilateral Security Dialogue and sharing the same vision as the U.S. on the Indo-Pacific construct.
    • The U.S.’s apprehension is that bringing India under a sanctions regime could push New Delhi towards its traditional military hardware supplier, Russia.
    • The U.S. Sanctions can stir up the latent belief in India that Washington cannot be relied upon as a partner.
    • While the administration will have to do the heavy lifting, the role of Indian-Americans should be significant just as they rallied around to support the Civil Nuclear Deal in the face of stiff resistance from Democrats opposed to nuclear proliferation.
    • Decrease in imports from Russia: India’s import of arms decreased by 33% between 2011-15 and 2016-20 and Russia was the most affected supplier, according to a report by the Stockholm-based defence think-tank SIPRI.
    • In recent years, though, there have been some big deals worth $15 billion including S400, Ka-226-T utility helicopters, BrahMos missiles and production of AK-203 assault rifles.
    • Increase in defence import from US: On the other hand, over the past decade, government-to-government deals with the U.S. touched $20 billion and deals worth nearly $10 billion are under negotiation.

    Conclusion

    The CAATSA test will determine the course of the India-U.S. strategic partnership. Whether the Biden administration sail through opposition within his party remains to be seen.

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  • Reforms-based and Results-linked, Revamped Distribution Sector Scheme: Ensuring sustainable turnaround in financial health of discoms

    Context

    In its budget 2021-22, the Union government had announced the launch of a “reforms-based and results-linked” scheme for the distribution sector.

    Precarious financial condition of discoms

    • Their overall debt burden, despite the implementation of the UDAY scheme, is estimated to increase to around Rs 6 lakh crore in the ongoing financial year.
    • Moreover, their annual cash losses are estimated to be about Rs 45,000-50,000 crore (excluding UDAY grants and regulatory income).
    • Due to highly subsidised nature of power tariffs towards agriculture and certain sections of residential consumers, the overall subsidy dependence is likely to be roughly Rs 1.30 lakh crore this year at the all-India level.

    Revamped Distribution Sector Scheme

    • In its budget 2021-22, the Union government had announced the launch of a “reforms-based and results-linked” scheme for the distribution sector.
    • Subsequently, the Revamped Distribution Sector Scheme was notified in July with an overall outlay of Rs 3.03 lakh crore. 
    • Under the scheme, AT&C losses are sought to be brought down to 12-15 per cent by 2025-26, from 21-22 per cent currently.
    • Operational efficiencies of discoms are to be improved through smart metering and upgradation of the distribution infrastructure, including the segregation of agriculture feeders and strengthening the system.
    • The scheme has two parts — Part A with an outlay of Rs 3.02 lakh crore, pertains to the upgradation of the distribution infrastructure and metering related works.
    • Part B, with an outlay of Rs 1,430 crore, is for training and capacity building, besides other enabling and support activities.
    • Discoms and their state governments will have to sign a tripartite agreement with the central government in order to avail benefits under the scheme.
    • Only those discoms that meet all the pre-qualifying criteria will be eligible for the release of funds.
    • A loss-making discom will not be eligible unless it draws up plans to reduce its losses, approved by the state government and filed with the central government.
    • As far as the agricultural sector is concerned, the use of solar power projects to supply electricity to these consumers through the agriculture feeder route is likely to result in savings.
    • This is because of a combination of high tariff competitiveness offered by solar power, lower technical losses due to proximity to load centres, and the ability to meet demand during the day when sunlight is available.
    • In addition, the delicencing initiative proposed by the central government can effect significant changes in the distribution segment, facilitating competition and placing emphasis on the quality and reliability of power supply and consumer services.

    Issue of tariff determination

    • A continuing area of concern affecting discom finances is the significant delay in the process of tariff determination in many states.
    • As of now, only 19 out of 28 states have issued tariff orders for 2021-22, indicating sluggish progress.
    • Further, there is upward pressure on the cost of power supply for distribution utilities, considering the dominant share (around 70 per cent) of coal in the fuel mix for energy generation, the strengthening of imported coal prices and the possibility of domestic coal price revisions by Coal India.
    • As a consequence, a cost-reflective tariff determination process, coupled with the timely pass-through of power purchase costs, remains critical for the utilities.

    Consider the question “Examine the factor that explains the continuing financial woes of state-owned discoms despite implementing several schemes. How Revamped Distribution Sector Scheme seeks to address the issue?”

    Conclusion

    On the whole, while the focus on improving the operational efficiency, and ensuring the financial sustainability of discoms is indeed welcome, timely implementation of the reforms is critical to achieving the milestones.

     

  • Extended Producer Responsibility (EPR) for Plastic Waste Collection

    The Environment Ministry has issued draft rules that mandate producers of plastic packaging material to collect all of their produce by 2024 and ensure that a minimum percentage of it be recycled as well as used in subsequent supply.

    What is EPR?

    • Extended Producer Responsibility (EPR) means the responsibility of a producer for the environmentally sound management of the product (plastic packaging) until the end of its life.
    • India had first introduced EPR in 2011 under the Plastic Waste (Management and Handling) Rules, 2011 and E-Waste Management and Handling Rules, 2011.

    What are the new EPR rules for Plastic Waste?

    (A) Plastic packaging

    • The new EPR guidelines covers three categories of plastic packaging including:
    1. Rigid plastic
    2. Flexible plastic packaging of single layer or multilayer (more than one layer with different types of plastic), plastic sheets and covers made of plastic sheet, carry bags (including carry bags made of compostable plastics), plastic sachet or pouches
    3. Multi-layered plastic packaging which has at least one layer of plastic and at least one layer of material other than plastic.
    • It has also specified a system whereby makers and users of plastic packaging can collect certificates — called Extended Producer Responsibility (EPR) certificates — and trade in them.

    (B) Ineligible plastics for EPR

    • Only a fraction of plastic that cannot be recycled will be eligible to be sent for end-of-life disposal such as road construction, waste to energy, waste to oil and cement kilns.
    • Only methods prescribed by the Central Pollution Control Board will be permitted for their disposal.

    Targets for recycling

    • In 2024, a minimum 50% of their rigid plastic (category 1) will have to be recycled as will 30% of their category 2 and 3 plastic.
    • Every year will see progressively higher targets and after 2026-27, 80% of their category 1 and 60% of the other two categories will need to be recycled.
    • If entities cannot fulfil their obligations, they will on a “case by case basis” be permitted to buy certificates making up for their shortfall.

    Effects on non-compliance

    • Non-compliance, however, will not invite a traditional fine.
    • Instead, an “environmental compensation” will be levied, though the rules do not specify how much this compensation will be.

    Challenges in mandatory EPR

    There are several challenges faced by both producers and bulk consumers that hinder proactive participation.

    • Consumer awareness: Waste segregation has been the greatest challenge in India owing to lack of consumer awareness.
    • Lack of compliance: The plastic producers do not wish to engage in the process holistically and take the effort to build awareness.
    • Large scale involvement: The EPR doesn’t take into account the formalization of informal waste pickers, aggregators and dismantlers.
    • Lack of recycle infrastructure: These challenges range from lack of handling capacity to illegitimate facilities in the forms of multiple accounting of waste, selling to aggregators and leakages.

    Way forward

    • Tracking mechanism: What India needs is to develop tracking mechanisms and provide oversight of waste compliance, in order to ensure that the mechanism of waste disposal is streamlined.
    • Strict enforcement: While enforcement strictness is of paramount importance, it is also vital to build an incentive structure around this to ensure better complicity by the producers.
    • Innovation: The time is ripe for innovators to come up with an alternative for plastics and the strong will of the Government to rid the toxic waste in a sustainable and safe manner.

    Try answering this PYQ:

    Q.In India, ‘extended producer responsibility’ was introduced as an important feature in which of the following?

    (a) The Bio-medical Waste (Management and Handling) Rules, 1998

    (b) The Recycled Plastic (Manufacturing and Usage) Rules, 1999

    (c) The e-Waste (Management and Handling) Rules, 2011

    (d) The Food Safety and Standard Regulations, 2011

     

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    Also read:

    [Burning Issue] Ban on Single Use Plastics

     

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  • Amendments to the Forest Conservation Act, 1980

    The Ministry for Environment, Forests and Climate Change (MoEFCC) has published proposed amendments to the Forest Conservation Act, 1980.

    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.

    Why is the Act being amended now?

    • The current definition of forests has locked land across the country; even private owners cannot utilise their own property for non-forestry purposes.
    • The pressure for forest land diversion has been coming from — Ministries such as Rail and Roads.
    • Under the Act, any diversion of any forest land for any purpose, including assignment of leases, needs prior approval of the Centre.

    What defines ‘Forest’ under this act?

    • Previously, the Act had applied largely to reserve forests and national parks.
    • In 1996, ruling in T N Godavarman Thirumulpad v Union of India Case, the Supreme Court had expanded the definition and scope of forest land.
    • It would thus include all areas recorded as forest in any government record, irrespective of ownership, recognition and classification.
    • The court also expanded the definition of forests to encompass the “dictionary meaning of forests”.
    • This would mean that a forested patch would automatically become a “deemed forest” even if it is not notified as protected, and irrespective of ownership.
    • The Act would also be applicable over plantations in non-forest land.

    What are the proposed amendments?

    (A) Exemptions for Road and Railways

    • The MoEFCC has proposed that all land acquired by the Railways and Roads Ministries prior to 1980 be exempted from the Act.
    • Once the lands had been acquired for expansion, but subsequently, forests have grown in these areas, and the government is no longer able to use the land for expansion.
    • The Ministries will no longer need clearance for their projects, nor pay compensatory levies to build there.

    (B) Relaxation

    • It distinguishes individuals whose lands fall within a state-specific Private Forests Act or comes within the dictionary meaning of forest as specified in the 1996 Supreme Court order.
    • The government proposes to allow the “construction of structures for bona fide purposes’’ including residential units up to 250 sq m as a one-time relaxation.

    (C) Defense and other projects

    • Defence projects near international borders will be exempted from forest clearance.
    • Oil and natural gas extraction from forested lands will be permitted, but only if technologies such as Extended Reach Drilling are used.
    • Strip plantations alongside roads that would fall under the Act will be exempted.

    What are the concerns?

    • Legalizing private ownership of forests: The rules will facilitate corporate ownership.
    • Deforestation: The exemption of forests on private land will lead to the disappearance of large tracts of forests.
    • Fragmentation: Exemption for private residences on private forest will lead to fragmentation of forests, and open areas such as the Aravalli mountains to real estate.
    • Tribal concerns: The amendments do not address what will happen to tribals and forest-dwelling communities over the cleared lands.
    • Threat to wildlife: Exemption for roads and railways on forest land acquired prior to 1980 will be detrimental to forests as well as wildlife – especially elephants, tigers and leopards.

    Positives with the amendment

    • It has proposed making forest laws more stringent for notified forests, making offences non-bailable with increased penalties including imprisonment of up to one year.
    • It has disallowed any kind of diversion in certain forests.
    • It has attempt to define and identify forests once and for all — something that has been often ambiguous.

     

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  • James Webb: The most powerful space telescope

    On Dec 18, 2021, after years of delays, the James Webb Space Telescope is scheduled to launch into orbit and usher in the next era of astronomy.

    James Webb Space Telescope

    • JWST is a joint NASA–ESA–CSA space telescope that is planned to succeed the Hubble Space Telescope as NASA’s flagship astrophysics mission
    • It is the most powerful space telescope ever built.
    • It will enable a broad range of investigations across the fields of astronomy and cosmology, including observing some of the most distant events and objects in the universe,
    • It would help understand events such as the formation of the first galaxies, and detailed atmospheric characterization of potentially habitable exoplanets.

    Its significance

    • Some have called JSWT the “telescope that ate astronomy.”
    • It is said to look back in time to the Dark Ages of the universe.

    What does the ‘Dark Ages’ of the universe mean?

    • Evidence shows that the universe started with an event called the Big Bang 13.8 billion years ago, which left it in an ultra-hot, ultra-dense state.
    • The universe immediately began expanding and cooling after the Big Bang.
    • One second after the Big Bang, the universe was a hundred trillion miles across with an average temperature of an incredible 18 billion F (10 billion C).
    • Around 400,000 years after the Big Bang, the universe was 10 million light-years across and the temperature had cooled to 5,500 F (3,000 C).
    • Throughout this time, space was filled with a smooth soup of high-energy particles, radiation, hydrogen and helium.
    • There was no structure. As the expanding universe became bigger and colder, the soup thinned out and everything faded to black.

    This was the start of what astronomers call the Dark Ages of the universe.

    How will JWST study this?

    Ans. Looking for the first light

    • The Dark Ages ended when gravity formed the first stars and galaxies that eventually began to emit the first light.
    • Astronomers aim to study this fascinating and important era of the universe, but detecting first light is incredibly challenging.
    • Compared to massive, bright galaxies of today, the first objects were very small and due to the constant expansion of the universe, they’re now tens of billions of light years away from Earth.
    • Also, the earliest stars were surrounded by gas left over from their formation and this gas acted like fog that absorbed most of the light.
    • It took several hundred million years for radiation to blast away the fog. This early light is very faint by the time it gets to Earth.

    Try this PYQ:

    Consider the following phenomena:

    1. Light is affected by gravity.
    2. The Universe is constantly expanding.
    3. Matter warps its surrounding space-time.

    Which of the above is/are the predictions of Albert Einstein’s General Theory of Relativity, often discussed in media?

    (a) 1 and 2 only

    (b) 3 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

     

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  • [pib] Nutrient Based Subsidy (NBS) for P&K Fertilizers

    The Cabinet Committee on Economic Affairs has approved the proposal of the Department of Fertilizers for fixation of Nutrient Based Subsidy Rates for P&K Fertilizers for the year last quarter of the year 2021-22.

    An aspirant from rural agrarian background is quite habitual to hear about NPK 10-26-26, 20-20-0-13 & 12-32-16. They often get to find the plastic gunny bags mentioning this!

    Nutrient Based Subsidy (NBS)

    • The NBS Scheme for fertilizer was initiated in the year 2010 and is being implemented by the Department of Fertilizers.
    • Under the scheme, a fixed amount of subsidy decided on an annual basis is provided on each grade of subsidized P&K fertilizers, except for Urea based on the nutrient content present in them.
    • It is largely for secondary nutrients like N, P, S and K and micronutrients which are very important for crop growth and development.
    • In India, urea is the only controlled fertilizer and is sold at a statutory notified uniform sale price.

    What is NPK?

    • So now that you know what the numbers on fertilizer mean, you need to know why NPK is important to your plants.
    • All plants need nitrogen, phosphorus, and potassium to grow. Without enough of any one of these nutrients, a plant will fail.
    1. Nitrogen (N): It is largely responsible for the growth of leaves on the plant.
    2. Phosphorus (P): It is largely responsible for root growth and flower and fruit development.
    3. Potassium (K): It is a nutrient that helps the overall functions of the plant perform correctly.
    • Knowing the NPK values of fertilizer can help you select one that is appropriate for the type of plant you are growing.

    What NBS provides?

    • Fixing MRP of NPK fertilizers: The scheme allows the manufacturers, marketers, and importers to fix the MRP of the Phosphatic and Potash fertilizers at reasonable levels.
    • Maintaining stock level: The MRP will be decided considering the domestic and international prices of P&K fertilizers, inventory level in the country and the exchange rates.
    • Inflation control: The NBS ensures that an adequate quantity of P&K is made available to the farmers at a statutory controlled price.

    Issues with NBS

    • Leaves urea: Urea which the most widely used, is left-out in the scheme and hence it remains under price control as NBS has been implemented only in other fertilizers.
    • Cost on exchequer: Fertilizer subsidy is the second-biggest subsidy after food subsidy.
    • Costs on Economy and Environment: The NBS policy is not only damaging the fiscal health of the economy but also proving detrimental to the soil health of the country.
    • Black marketing: Subsidised fertilizers is getting diverted to bulk buyers/traders or even non-agricultural users such as plywood and animal feed makers.

    Back2Basics: Soil Health Card (SHC)

    • Soil Health Card (SHC) scheme is promoted by the Department of Agriculture & Co-operation under the Ministry of Agriculture and Farmers’ Welfare.
    • An SHC is meant to give each farmer soil nutrient status of his/her holding and advice him/her on the dosage of fertilizers and also the needed soil amendments, that s/he should apply to maintain soil health in the long run.
    • SHC is a printed report that a farmer will be handed over for each of his holdings.
    • It will be made available once in a cycle of 2 years, which will indicate the status of soil health of a farmer’s holding for that particular period.
    • The SHC given in the next cycle of 2 years will be able to record the changes in the soil health for that subsequent period.

    Parameters of SHC:

    • N, P, K (Macro-nutrients)
    • Sulfur (S) (Secondary- nutrient)
    • Zn, Fe, Cu, Mn, Bo (Micronutrients)
    • pH, EC (Electrical conductivity) , OC (Organic content)

    Try this PYQ:

    The nation-wide ‘Soil Health Card Scheme’ aims at:

    1. expanding the cultivable area under irrigation.
    2. enabling the banks to assess the quantum of loans to be granted to farmers on the basis of soil quality.
    3. checking the overuse of fertilizers in farmlands.

    Which of the above statements is/are correct?

    (a) 1 and 2 only

    (b) 3 only

    (c) 2 and 3 only

    (d) 1, 2 and 3

     

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  • RBI’s monetary policy statement

    Context

    The Monetary Policy Committee of the RBI kept the benchmark policy rates unchanged, and retained the accommodative stance in its October review.

    Factors playing part in monetary policy decisions

    • It’s important to remember that monetary policy these days is influenced by both local macroeconomic developments and the global monetary policy direction, with the former playing a dominant role.
    • Locally, after the second wave of the pandemic, a variety of indicators such as the Purchasing Managers Index (manufacturing and services), mobility indicators, government tax collections, exports and imports are pointing at an improvement in economic activity.
    • Then there is the good news on the monsoon front. With a late pick-up in rains, the cumulative deficiency in this monsoon season has come down to just 1 per cent of the long-period average (LPA).
    • Since the MPC’s August 2021 policy review, Covid-19 cases have trended down and there has been admirable progress on the vaccination front.
    • Also, despite high year-on-year growth numbers, the level of economic activity this fiscal will only be 1.5 per cent above 2019-2020.

    Trends emerging from the economic recovery

    • Role of government: Capital expenditure of both the Centre and states is on track to meet the budgetary commitment, supported by healthy tax collections.
    • Large companies on recovery path: Large companies in industrial sectors such as steel, cement, non-ferrous metals are operating at healthy utilisation levels, and have deleveraged their balance sheets.
    • Policy support for smaller companies: The going is not so good for the smaller ones.
    • Clearly, smaller companies need policy support. The extension of the Emergency Credit Line Guarantee Scheme is a recognition of that.
    • Private consumption is not broad-based either.
    • Even in goods consumption, which is faring better than services, the nature of demand seems skewed towards relatively higher-value items such as cars and utility vehicles.
    • This probably reflects the income dichotomy spawned by the pandemic.
    • Inflation: Its fall to 5.3 per cent in August offers only limited comfort for two reasons.
    • One, core and fuel inflation, which have 54 per cent weightage in CPI, remain stubbornly high.
    • Second, food prices have nudged down overall inflation.
    • Domestic growth-inflation dynamics suggest that the RBI has little option but to remain more tolerant of persistent price pressures, and hope that these will eventually prove transitory because they have been primarily driven by supply shocks caused by the pandemic.

    Global monetary policy environment

    • Globally, the monetary policy environment is veering towards normalisation/tapering/interest-rate rise largely due to an upward surprise in inflation, or because some central banks feel the objectives of quantitative easing have been met.
    • Central banks in advanced economies such as Norway, Korea and New Zealand have recently raised rates.
    • The two systemically important central banks — the US Federal Reserve (Fed) and the European Central Bank (ECB) — view the current spike in inflation as fleeting and have communicated greater tolerance for it for a longer period.

    Conclusion

    The process of mopping up excess liquidity will slowly gain pace over the next few months, followed by a policy rate hike sometime around early 2022. By then, there should be enough clarity on the third wave and the stance of the Fed and the ECB.

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  • Economics Nobel for Natural Experiments

    The 2021 Nobel Prize in Economic Sciences was awarded to three US-based economists.

    Do you know?

    The Nobel Prize is officially called as Sveriges Riksbank Prize!

    Who are the awardees?

    • Nobel Committee awarded half the Prize to David Card for his “empirical contributions to labour economics”
    • Other half to Guido Imbens and Joshua Angrist “for their methodological contributions to the analysis of causal relationships”

    What makes this year’s award special?

    • This is the first time the economic prize has been divided in this fashion with one half going to one awardee and other half divided across two awardees.
    • In the past, prize money was divided equally between the awardees even if the prize was for different topics as is the case this time around.
    • It may appear that the Nobel Prize has been given for two different contributions, but there is a common theme: “natural experiments.”

    What are Natural Experiments?

    • Economists are often interested in causal questions such as the impact of education on incomes, impact of COVID-19 on poverty and so on.
    • They are also interested is understanding the direction of causality.
    • Economists have used two kinds of experiments to study these causality and direction of causality questions: random experiments and natural experiments.

    (I) Random experiments

    • Under randomized experiments, the researchers allocate say medicines to a treatment group and compare the effect of the medicine with the control group which is not given the medicine.
    • In 2019, the Nobel Committee gave awards to three scholars for their contribution to the field of randomized experiments.
    • However, one cannot randomize experiments to study issues such as why certain people and regions are more unequal or have fewer educational opportunities and so on.

    (II) Natural experiments

    • In natural experiments, economists study a policy change or a historical event and try to determine the cause and effect relationship to explain these developments.
    • The trio used such natural experiments to make some landmark contributions to economic development.
    • Natural experiments are more difficult for two reasons. The first is to identify what will serve as a natural experiment.
    • Second, in a random experiment, the researcher knows and controls the treatment and control groups which allows them to study the cause and effect of medicine.
    • But in natural experiments, such clear differentiation is not possible because people choose their groups on their own and even move between the two groups.
    • Despite the limitations, the researchers could use the natural setting to answer some big policy questions.

    Natural experiments conducted by David Card

    • One question of interest for policymakers is to understand the impact of higher minimum wages on employment.
    • Earlier studies showed that increasing minimum wages leads to lower unemployment.
    • Economists were also not sure of the direction of causation between minimum wages and employment.
    • Say a slowdown in the economy leads to higher unemployment amid lower income groups.
    • This could lead to lower income groups demanding higher minimum wages. In such a case, it is higher unemployment which leads higher minimum wages.

    Contribution of Angrist and Imbens

    • Angrist and Imbens showed how natural experiments can be used to identify cause and effect precisely.
    • We have discussed above how natural experiments make it difficult to separate control and treatment groups. This makes it difficult to establish causal relations.
    • In the 1990s, the duo developed a methodology – Local Average Treatment Effect (or LATE) – which uses a two-step process to help grapple with these problems of natural experiments.
    • Say, one is interested in finding the impact of an additional year of schooling on the incomes of people.
    • By using the LATE approach, they showed that effect on income of an additional year of education is around 9%.
    • While it may not be possible to determine individuals in the group, one can estimate the size of the impact.

    What is the importance of the award today?

    • Earlier it was difficult to identify natural experiments and even if one identified them, it was difficult to generate data from these experiments.
    • With increased digitalization and dissemination of archival records, it has not just become easier to identify natural experiments but also get data.
    • Economists have been using natural experiments to help us understand the impact of past policies.
    • As the 2020 pandemic struck, economists used the natural experiments approach extensively to analyse how previous pandemics impacted different regions and tried to draw policy lessons.

    India context

    • The methodology date back to the early and mid-90s and they have already had a tremendous influence on the research undertaken in several developing countries such as India.
    • For instance, in India, too, it is commonly held that higher minimum wages will be counterproductive for workers.
    • It is noteworthy that last year, in the wake of the Covid-induced lockdowns, several states, including UP, had summarily suspended several labour laws.
    • This included the ones regulating minimum wages, arguing that such a move will boost employment.
    • The main learning is that minimum wages can be increased in India without worrying about reducing employment.

     

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  • [pib] Indian Space Association

    The PM has launched the Indian Space Association (ISpA), an industry body consisting of various stakeholders of the Indian space domain.

    Indian Space Association (ISpA)

    • The ISpA is a premier industry association of space and satellite companies, which aspires to be the collective voice of the Indian space industry.
    • It will be headed by retired Lieutenant General AK Bhatt, who will be its Director General.
    • It will target to undertake policy advocacy and engage with all stakeholders in the Indian space domain. It will engage with the government and all its agencies.

    Why is the formation of ISpA significant?

    • Million-dollar industry: Governments across the world have poured millions of dollars to push the envelope in term of exploring the edges of the space.
    • Collaborated research: With time, governments and government agencies collaborated to explore newer planets and galaxies in search of life forms that exist outside Earth.
    • Private players involvement: In the recent past, private sector companies such as Elon Musk’s SpaceX, Richard Branson’s Virgin Galactic, and Jeff Bezos’ Blue Origin have taken the lead in spaceflight.
    • Easing workload on ISRO: Though India too has made significant strides in space exploration over time, state-run ISRO has been at the centre and front of this progress.

    What does ISpA aim to achieve?

    • Supplementing space research: One of the main goals of the organisation is to supplement the government’s efforts towards making India a global leader in commercial space-based excursions.
    • Commercial space exploration: ISpA said it would engage with stakeholders across the ecosystem for the formulation of an enabling policy framework which fulfills the government vision of leading commercial space exploration.
    • Establishing global linkages: ISpA will also work towards building global linkages for the Indian space industry to bring in critical technology and investments into the country to create more high skill jobs.

    Who are the stakeholders in this organisation? How will they contribute?

    • ISpA will be represented by leading domestic and global corporations that have advanced capabilities in space and satellite technologies.
    • It has taken off with several Indian and international companies betting on it as the next frontier to provide high-speed and affordable Internet connectivity to inaccessible areas as well.
    • This includes SpaceX’s StarLink, Sunil Bharti Mittal’s OneWeb, Amazon’s Project Kuiper, US satellite maker Hughes Communications, etc.
    • OneWeb, for example, is building its initial constellation of 648 low-earth orbit satellites and has already put 322 satellites into orbit.

    Why is satellite-based Internet important in India?

    • The expansion of the Internet in India is crucial to the Modi government’s dream of a digital India where a majority of government services are delivered directly to the customer.
    • The government aims to connect all villages and gram panchayats with high-speed Internet over the next 1000 days through BharatNet.
    • However, internet connectivity in hilly areas and far-flung places of Northeast India are still a challenge.
    • To overcome this, industry experts suggest that satellite Internet will be essential for broadband inclusion in remote areas and sparsely populated locations where terrestrial networks have not reached.
    • Satellite communications remain limited to use by corporates and institutions that use it for emergency use, critical trans-continental communications and for connecting to remote areas with no connectivity.

     

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