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GS Paper: GS3

  • Inflation in India

    Context

    Inflation for the last four months has been worryingly high. This is happening at a time when demand has been down, unemployment has been high, many have lost incomes and poverty has aggravated.

    Issues with the recent inflation data

    • The shock of lockdowns not only made data collection difficult but the consumption basket for calculating CPI should have been changed.
    • Issue with the base: In April and May 2020, data on production and prices could not be collected due to the strict lockdown.
    • As such, the official inflation figures for these months in 2021 do not reflect the true picture.
    • For calculating inflation, a single number is arrived at by assigning weights to different commodities and services.
    • Issue due to different consumption baskets: For WPI, the weights in production are used; for CPI, the consumption basket is used.
    • The consumption basket is vastly different for the poor, the middle classes, and the rich.
    • Hence, the CPI is different for each of these classes and a composite index requires averaging the baskets.
    • So, in a sense, it represents none of the categories.
    • Changed consumption pattern: During lockdown and unlock in 2020, people largely consumed essentials.
    •  RBI data show that consumer confidence fell drastically from 105 in January 2020 to 55.5 by January 2021.
    • While the consumption pattern of the well-off sections may have changed little, the poor and middle classes, especially those who lost jobs and incomes, would have had to cut back on their consumption.
    • Thus, the weights in the CPI would have changed and inflation required recalculation, but this has not been done.
    • Under-representation of services: Inflation data under-represents services in the consumption basket.
    • In production, services are about 55% of the GDP but have no representation in WPI and about 40% in CPI.
    • Increased health and education cost not captured: Health costs and education costs shot up during the pandemic, but this is not captured in inflation figures.
    • Many services were not used. Eating out and travel, for instance, should have been factored out.

    Impact of the inflation

    • If the income does not increase in proportion to inflation, for the middle classes, both consumption of less essential items and savings get reduced.
    • But the poor, who hardly save, have to curtail essential consumption.
    • Decline in demand: In India, 94% work in the unorganised sector and mostly earn low incomes and have little savings.
    • By definition, they cannot bargain for higher incomes as prices rise, further, due to lockdowns, the wages of many declined, both in the unorganised and organised sectors.
    • Consequently, demand has declined not only for non-essentials but even for essentials.
    • Impact on employment generation: In a vicious cycle, this is slowing down economic recovery and employment generation.
    •  Further, this impacts the government’s revenues and tends to increase the budgetary deficit.
    • This puts pressure on the government to cut back budgetary expenditures, especially on the social sector.
    • That aggravates poverty and reduces demand further.

    Factors leading to inflation

    • Tax on fuels: Increase in tax on fuel push up the prices of all goods and services.
    • This is an indirect tax, it is regressive and impacts the poor disproportionately more.
    • It also makes the RBI’s task of controlling inflation difficult.
    • Supply bottlenecks: The lockdowns disrupted supplies and that added to shortages and price rise.
    • Prices of medicines and medical equipment rose dramatically.
    • Prices of items of day-to-day consumption also rose.
    • International factors: Most major economies have recovered and demand for inputs has increased while supplies have remained disrupted (like chips for automobiles).

    Consider the question “What are the issues with measurement of inflation data in India? How inflation in times of low demand and reduced incomes leads to a vicious cycle?”

    Conclusion

    The current official inflation rate does not correctly measure price rise since the lockdown administered a shock to the economy. The method of calculating it needed modification.

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  • Wastewater Treatment in India

    Sewage treatment plants (STPs) in India are able to treat a little more than a third of the sewage generated per day, according to the latest report of the Central Pollution Control Board (CPCB).

    What is Wastewater?

    Wastewater is used water from any combination of domestic, industrial, commercial or agricultural activities, surface runoff/ stormwater, and any sewer inflow or sewer infiltration.

    In everyday usage, wastewater is commonly a synonym for:

    • Sewage also called domestic wastewater or municipal wastewater which is wastewater that is produced by a community of people.
    • Industrial wastewater, water-borne waste generated from a variety of industrial processes, such as manufacturing operations, mineral extraction, power generation, or water and wastewater treatment.
    • Cooling water, released with potential thermal pollution after use to condense steam or reduce machinery temperatures by conduction or evaporation
    • Leachate, precipitation containing pollutants dissolved while percolating through ores, raw materials, products, or solid waste
    • Return flow, carrying suspended soil, pesticide residues, or dissolved minerals and nutrients from irrigated cropland
    • Surface runoff, the flow of water occurring on the ground surface when excess rainwater, stormwater, meltwater, or other sources, can no longer sufficiently rapidly infiltrate in the soil.
    • Urban runoff, including water used for outdoor cleaning activity and landscape irrigation in densely populated areas created by urbanization
    • Agricultural wastewater, generated from confined animal operations

    Wastewater in India

    • India generated 72,368 MLD (million litres per day) whereas the installed capacity of STPs was 31,841 MLD (43.9 per cent), according to the report.

    Treatment facilities available

    • Of this installed capacity, developed and operationalized capacity was 26,869 MLD (84 per cent).
    • Of the total operationalised capacity, 20,235 MLD (75 per cent) was the actual utilised capacity.
    • In other words, out of total 72,368 MLD sewage generated every day, only 20,235 MLD is treated.

    Skewed distribution

    • Five states and Union Territories (UT) — Maharashtra, Gujarat, Uttar Pradesh, Delhi and Karnataka — account for 60 per cent of the total installed treatment capacity of the country.
    • These, along with five other states and UTs — Madhya Pradesh, Haryana, Punjab, Tamil Nadu and Rajasthan — alone constitute 86 per cent of the total installed capacity.
    • Arunachal Pradesh, Andaman & Nicobar Islands, Lakshadweep, Manipur, Meghalaya and Nagaland have not installed sewage treatment plants.
    • There are states like Bihar which do have a small installed capacity of STPs. But on the operational front, they score a zero.
    • Chandigarh ranks first in terms of total sewage generated to what is actually treated. It generates 188 MLD of sewage and has an operational capacity to treat 271 MLD.

    Major issue: Reuse of sewage

    • The reuse of treated sewage is an issue which hasn’t assumed much importance in the policy planning of many state governments.
    • Treated sewage water can be reused for horticulture, irrigation, washing activities (road, vehicles and trains), fire-fighting, industrial cooling, toilet flushing and gardening.
    • The proportion of the reuse of treated sewage is maximum in Haryana (80 per cent) followed by Puducherry (55 per cent), Delhi (50 per cent), Chandigarh (35 per cent), Tamil Nadu (25 per cent), Madhya Pradesh (20 per cent) and Andhra Pradesh (5 per cent).

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  • WHO tightens Global Air Quality norms

    The World Health Organisation (WHO) in its first-ever update since 2005 has tightened global air pollution standards.

    Global Air Quality Guidelines (AQGs) 2021

    • WHO announces limits for six pollutant categories —particulate matter (PM) 2.5 and 10, ozone (O3), nitrogen dioxide (NO2) sulphur dioxide (SO2) and carbon monoxide (CO).

    Air quality standards in India

    • India aligns with the WHO guidelines only in the case of ozone and carbon monoxide, as these have not changed. But both NO2 and SO2 guidelines are tighter than the current Indian standard.
    • The move doesn’t immediately impact India as the National Ambient Air Quality Standards (NAAQS) don’t meet the WHO’s existing standards.
    • The government has a dedicated National Clean Air Programme that aims for a 20% to 30% reduction in particulate matter concentrations by 2024 in 122 cities, keeping 2017 as the base year.

    Significance of WHO’s AQG

    Ans. It sets the stage for eventual shifts in policy

    • WHO move sets the stage for eventual shifts in policy in the government towards evolving newer stricter standards.
    • This will soon become part of policy discussions — much like climate targets to reduce greenhouse gas emissions keep getting stricter over time.
    • Once cities and States are set targets for meeting pollution emission standards, it could lead to overall changes in national standards.

    Challenges for India

    • The current challenge in India is to meet its national ambient air quality standards in all the regions.
    • The hard lockdown phases during the pandemic have demonstrated the dramatic reduction that is possible when local pollution and regional influences can be minimised.
    • This has shown that if local action is strengthened and scaled up at speed across the region, significant reduction to meet a much tighter target is possible.
    • The influence of geo-climatic attributes is quite pronounced in all regions of India, which further aggravates the local build-up of pollution.
    • This is further worsened due to the rapid proliferation of pollution sources and weak air quality management systems.
    • India may require a more nuanced regional approach to maximise benefits and sustain air quality gains.

    Conclusion

    • Air pollution is a threat to health in all countries, but it hits people in low- and middle-income countries the hardest.
    • WHO’s new Air Quality Guidelines are an evidence-based and practical tool for improving the quality of the air on which all life depends.

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  • Centre announces uniform norms for Fortified Rice

    Days after the Prime Minister’s announcement of a rice fortification plan, the Centre has issued “uniform” parameters for fortified rice kernels (FRK) for grade ‘A’ and common rice.

    Plan for fortified rice

    • The fortified rice is to be distributed under various government schemes, including the public distribution system (PDS) and midday meals in schools, by 2024.
    • The specifications for such rice have been issued by the Ministry of Consumer Affairs, Food and Public Distribution.
    • Department of Food and Public Distribution (DFPD) under Ministry of Consumer Affairs, Food and Public Distribution for the first time issued uniform specifications for Fortified Rice Kernels (FRK).

    What are the norms announced?

    • Common Rice have in case of procurement of Fortified Rice Stocks, of which 1% of FRK (w/w) should be blended with normal rice stock.
    • These specifications as per standard practice have been issued in respect of Paddy, Rice and other coarse grains namely Jowar, Bajra, Maize, Ragi.

    What is Fortification?

    • FSSAI defines fortification as “deliberately increasing the content of essential micronutrients in a food so as to improve the nutritional quality of food and to provide public health benefit with minimal risk to health”.

    What is Fortified Rice?

    • Rice can be fortified by adding a micronutrient powder to the rice that adheres to the grains or spraying the surface of ordinary rice grains with a vitamin and mineral mix to form a protective coating.
    • Rice can also be extruded and shaped into partially precooked grain-like structures resembling rice grains, which can then be blended with natural polished rice.
    • Rice kernels can be fortified with several micronutrients, such as iron, folic acid, and other B-complex vitamins, vitamin A and zinc.
    • These fortified kernels are then mixed with normal rice in a 1:100 ratio, and distributed for consumption.

    Note: Biofortification is the process by which the nutritional quality of food crops is improved through agronomic practices, conventional plant breeding, or modern biotechnology. It differs from conventional fortification in that Biofortification aims to increase nutrient levels in crops during plant growth rather than through manual means during the processing of the crops.

    What is the plan announced by the PM?

    • Malnutrition and lack of essential nutrients in poor women and poor children pose major obstacles in their development.
    • In view of this, it has been decided that the government will fortify the rice given to the poor under its various schemes.
    • Be it the rice available at ration shops or the rice provided to children in their mid-day meals, the rice available through every scheme will be fortified by the year 2024.

    Why such a move?

    • The announcement is significant as the country has high levels of malnutrition among women and children.
    • According to the Food Ministry, every second woman in the country is anemic and every third child is stunted.
    • India ranks 94 out of 107 countries and is in the ‘serious hunger’ category on the Global Hunger Index (GHI).
    • Fortification of rice is a cost-effective and complementary strategy to increase vitamin and mineral content in diets.
    • According to the Food Ministry, seven countries have mandated rice fortification – the USA, Panama, Costa Rica, Nicaragua, Papua New Guinea, Philippines, and the Solomon Islands.

    Advantages offered

    • Health: Fortified staple foods will contain natural or near-natural levels of micro-nutrients, which may not necessarily be the case with supplements.
    • Taste: It provides nutrition without any change in the characteristics of food or the course of our meals.
    • Nutrition: If consumed on a regular and frequent basis, fortified foods will maintain body stores of nutrients more efficiently and more effectively than will intermittently supplement.
    • Economy: The overall costs of fortification are extremely low; the price increase is approximately 1 to 2 percent of the total food value.
    • Society: It upholds everyone’s right to have access to safe and nutritious food, consistent with the right to adequate food and the fundamental right of everyone to be free from hunger

    Issues with fortified food

    • Against nature: Fortification and enrichment upset nature’s packaging. Our body does not absorb individual nutrients added to processed foods as efficiently compared to nutrients naturally occurring.
    • Bioavailability: Supplements added to foods are less bioavailable. Bioavailability refers to the proportion of a nutrient your body is able to absorb and use.
    • Immunity issues: They lack immune-boosting substances.
    • Over-nutrition: Fortified foods and supplements can pose specific risks for people who are taking prescription medications, including decreased absorption of other micro-nutrients, treatment failure, and increased mortality risk.

    Adhering to FSSAI standard

    The Food Safety and Standards Authority of India (FSSAI) sets standards for food items in the country.

    • According to FSSAI norms, 1 kg fortified rice will contain iron (28 mg-42.5 mg), folic acid (75-125 microgram), and Vitamin B-12 (0.75-1.25 microgram).
    • In addition, rice may also be fortified with micronutrients, singly or in combination, with zinc(10 mg-15 mg), Vitamin A (500-750 microgram RE), Vitamin B1 (1 mg-1.5 mg), Vitamin B2 (1.25 mg-1.75 mg), Vitamin B3 (12.5 mg-20 mg) and Vitamin B6 (1.5 mg-2.5 mg) per kg.

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  • Agri exports in India

    Context

    The Indian government has been encouraging agricultural exports to meet an ambitious target of $60bn by 2022.

    India’s agri-exports

    • The Ministry of Food Processing Industries shows that the contribution of agricultural and processed food products in India’s total exports is 11%.
    • Primary processed agricultural commodities form the majority share.
    • India’s export earnings will increase by focusing more on value-added processed food products rather than primary processed agricultural commodities (Siraj Hussain, 2021).
    • From 2015-16 to 2019-20, the value of agricultural and processed food increased significantly from $17.8bn to $20.65bn.
    • The Indian agricultural economy is shifting from primary to secondary agriculture where the focus is more on developing various processed foods.

    Changes in India’s agricultural export basket

    • Traditionally, Basmati rice is one of the top export commodities.
    • However, now there is an unusual spike in the export of non-basmati rice.
    • In 2020-21, India exported 13.09 million tonnes of non-basmati rice ($4.8bn), up from an average 6.9 million tonnes ($2.7bn) in the previous five years.
    • Indian buffalo meat is seeing a strong demand in international markets due to its lean character and near organic nature.
    • The export potential of buffalo meat is tremendous, especially in countries like Vietnam, Hong Kong and Indonesia.

    Challenges in Increasing agri-export

    • Lack of comparative advantage: The export of processed food products has not been growing fast enough because India lacks comparative advantage in many items.
    •  Domestic prices of processed food products are much higher compared to the world reference prices.
    • Non-tariff measures: The exporters of processed food confront difficulties and non-tariff measures imposed by other countries on Indian exports (Siraj Hussain, 2021).
    • Some of these include mandatory pre-shipment examination by the Export Inspection Agency being lengthy and costly.
    • Compulsory spice board certification being needed even for ready-to-eat products.
    • Lack of strategic planning of exports by most State governments.
    • Lack of a predictable and consistent agricultural policy discouraging investments by the private sector.
    • Prohibition of import of meat- and dairy based-products in most of the developed countries.
    • Withdrawal of the Generalised System of Preference by the U.S. for import of processed food from India.

    Consider the question “What are the challenges facing export of processed foods from India? Suggest the way forward.”

    Way forward

    • The main objective of the Agriculture Export Policy is to diversify and expand the export basket so that the export of higher value items, including perishables and processed food, be increased
    • Support to industry: The policy needs to nurture food processing companies, ensuring low cost of production and global food quality standards, and creating a supportive environment to promote export of processed food.
    • Focus on reputed brands: Reputed Indian brands should be encouraged to export processed foods globally as they can comply with the global standard of codex.
    • Indian companies should focus on cost competitiveness, global food quality standards, technology, and tap the global processed food export market.

    Conclusion

    India has competitive advantages in various agricultural commodities which can be passed onto processed foods. It has the potential to become a global leader in the food processing sector.

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  • Rooftop Solar Scheme

    India has added 521 megawatts (MW) of rooftop solar capacity in the second quarter (Q2) of the calendar year (CY) 2021, a 53% increase than earlier quarter showing good signs of popularity.

    What is Solar Rooftop?

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

    Why rooftop?

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

    A viable alternative

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

    Question of energy storage

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

    India’s storage capacity

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

    Storage challenges

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

    Other key challenges

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

    Way forward

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

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  • Rhino Horn Reverification Exercises

    Assam will mark World Rhino Day — September 22 — with a special ceremony by burning a stockpile of nearly 2,500 horns of the one-horned rhinoceros.

    Rhino Horn Reverification

    • The public ceremony — scheduled at Bokakhat in Kaziranga National Park (KNP) has been publicized as a “milestone towards rhino conservation” aimed at “busting myths about rhino horns”.
    • It’s a loud and clear message to the poachers and smugglers that such items have no value.
    • Thus the case for the destruction of horns — a process that is in compliance with Section 39(3)(c) of the Wildlife (Protection) Act of 1972.

    Why are Rhinos poached for horns?

    • Ground rhino horn is used in traditional Chinese medicine to cure a range of ailments, from cancer to hangovers, and also as an aphrodisiac.
    • In Vietnam, possessing a rhino horn is considered a status symbol.
    • Due to demand in these countries, poaching pressure on rhinos is ever persistent against which one cannot let the guard down.

    Try this PYQ:

    Consider the following statements:

    1. Asiatic lion is naturally found in India only.
    2. Double-humped camel is naturally found in India only.
    3. One-horned rhinoceros is naturally found in India only.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

     

    [wpdiscuz-feedback id=”smpw6l0h7x” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

    (Note: Comment feature is not available on the app.)

    Back2Basics: Indian Rhino

    • The Indian rhinoceros also called the greater one-horned rhinoceros and great Indian rhinoceros is a rhinoceros native to the Indian subcontinent.
    • It is listed as Vulnerable on the IUCN Red List and Schedule I animal in the Wildlife Protection Act, 1972.
    • It once ranged across the entire northern part of the Indian Subcontinent, along the Indus, Ganges and Brahmaputra River basins, from Pakistan to the Indian-Myanmar border.
    • Poaching for rhinoceros horn became the single most important reason for the decline of the Indian rhino.

  • [pib] Kovalam & Eden Beaches gets Blue Fag Certification

     

    The international eco-label “Blue Flag”, has accorded the Blue Flag Certification for 2 new beaches this year –Kovalam in Tamil Nadu and Eden in Puducherry beaches.

    With this India now has 10 International Blue Flag beaches.

    Which are the other 8 beaches?

    1. Shivrajpur (Dwarka-Gujarat)
    2. Ghoghla (Diu)
    3. Kasarkod (Karnataka) [NOT Kasargod which is in Kerala] and
    4. Padubidri (Karnataka)
    5. Kappad (Kerala)
    6. Rushikonda (AP)
    7. Golden Beach (Odisha) and
    8. Radhanagar (A&N Islands)

    Blue Flag Beaches

    • The ‘Blue Flag’ beach is an ‘eco-tourism model’ and marks out beaches as providing tourists and beachgoers clean and hygienic bathing water, facilities/amenities, a safe and healthy environment, and sustainable development of the area.
    • The certification is accorded by the Denmark-based Foundation for Environment Education.
    • It started in France in 1985 and has been implemented in Europe since 1987, and in areas outside Europe since 2001 when South Africa joined.
    • It has 33 stringent criteria under four major heads for the beaches, that is, (i) Environmental Education and Information (ii) Bathing Water Quality (iii) Environment Management and Conservation and (iv) Safety and Services.

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  • SEBI introduces T+1 Settlement System

    The Capital markets regulator Securities and Exchange Board of India (SEBI) has introduced T+1 settlement cycle for completion of share transactions on optional basis in a move to enhance market liquidity.

    What is T+1 Settlement System?

    • T+1 means that settlements will have to be cleared within one day of the actual transactions taking place.
    • Currently, trades on the Indian stock exchanges are settled in two working days after the transaction is done (T+2).
    • In April 2002, stock exchanges had introduced a T+3 rolling settlement cycle. This was shortened to T+2 from April 1, 2003.

    What has Sebi allowed?

    • SEBI has allowed stock exchanges to start the T+1 system as an option in place of T+2.
    • If it opts for the T+1 settlement cycle for a scrip, the stock exchange will have to mandatorily continue with it for a minimum 6 months.
    • Thereafter, if it intends to switch back to T+2, it will do so by giving one month’s advance notice to the market.
    • Any subsequent switch (from T+1 to T+2 or vice versa) will be subject to a minimum period.
    • A stock exchange may choose to offer the T+1 settlement cycle on any of the scrips, after giving at least one month’s advance notice to all stakeholders, including the public at large.

    Why T+1 settlement?

    • Reduced settlement time: A shortened cycle not only reduces settlement time but also reduces and frees up the capital required to collateralize that risk.
    • Quick settlement: T+1 also reduces the number of outstanding unsettled trades at any instant, and thus decreases the unsettled exposure to Clearing Corporation by 50%.
    • Speedy recovery of assets: The narrower the settlement cycle, the narrower the time window for a counterparty insolvency/bankruptcy to impact the settlement of a trade.
    • Risk reduction: Systemic risk depends on the number of outstanding trades and concentration of risk at critical institutions such as clearing corporations, and becomes critical when the magnitude of outstanding transactions increases.

    How does T+2 work?

    • If an investor sells shares, settlement of the trade takes place in two working days (T+2).
    • The broker who handles the trade will get the money, but will credit the amount in the investor’s account only.
    • In effect, the investor will get the money only after three days.
    • In T+1, settlement of the trade takes place in one working day and the investor will get the money on the following day.
    • The move to T+1 will not require large operational or technical changes by market participants, nor will it cause fragmentation and risk to the core clearance and settlement ecosystem.

    Why are foreign investors opposing it?

    • Foreign investors operating from different geographies would face time zones, information flow process, and foreign exchange problems.
    • Foreign investors will also find it difficult to hedge their net India exposure in dollar terms at the end of the day under the T+1 system.
    • In 2020, SEBI had deferred the plan to halve the trade settlement cycle to one day (T+1) following opposition from foreign investors.

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    Back2Basics: SEBI

    • The SEBI is the regulatory body for securities and commodity market in India under the jurisdiction of Ministry of Finance Government of India.
    • It was established on 12 April 1988 and given Statutory Powers on 30 January 1992 through the SEBI Act, 1992.

    Jurisdiction of SEBI

    • SEBI has to be responsive to the needs of three groups, which constitute the market:
    1. Issuers of securities
    2. Investors
    3. Market intermediaries

    SEBI has three powers rolled into one body: quasi-legislative, quasi-judicial and quasi-executive.

    • It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity.
    • Though this makes it very powerful, there is an appeal process to create accountability.
    • There is a Securities Appellate Tribunal which is a three-member tribunal and is currently headed by Justice Tarun Agarwala, former Chief Justice of the Meghalaya High Court.
    • A second appeal lies directly to the Supreme Court.

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  • The end of the doing business rankings

    The World Bank Group has scrapped its flagship publication, the ‘Doing Business’ report.

    Doing Business Report

    • This report publishes the influential annual ranking of countries on the Ease of Doing Business (EDB) index.
    • It ranks countries by the simplicity of rules framed for setting up and conducting businesses.

    Utility of the index

    The World Bank’s decision has wide ramifications, as the index serves varied purposes.

    • Many countries showcase improved ranking to signal market-friendly policies to attract foreign investments. National leaders often set EDB rank targets.
    • This helps them measure domestic policies against global “best practices” and browbeat domestic critics.
    • India, for instance, wanted its administration to ensure that India breaks into the top 50 ranks of the EDB index.
    • Some countries seem to use their political heft to improve their rank, polish their international image and sway public opinion (as appears to be China’s case).

    Issues with the credibility of the report

    • The Group acted on its commissioned study to examine the ethical issues flagged in preparing the 2018 and 2020 editions of the EDB index.
    • It is accused of having exerted pressure on the internal team working on the Doing Business report to falsely boost China’s rank by doctoring the underlying data.
    • Similarly, tensions were also reportedly brought to bear in the case of Saudi Arabia’s rank, among others.

    EDB index rank vs economic outcomes

    • There is a disconnect between the stellar rise in EDB index rank and economic outcomes.
    • The theory underlying the EDB index could be suspect, the measurement and data could be faulty, or both.
    • For example, China’s phenomenal economic success, especially its agricultural performance (after the reforms in 1978), is perhaps the most unmistakable evidence demonstrating that lack of clarity of property rights may not be the binding constraint in a market economy.
    • What matters is economic incentives.
    • Measuring regulatory functions underlying the index could be tricky and subjective and possibly politically motivated as well, as the controversies surrounding the index seem to suggest.

    EODB in India: At what cost

    Ans. Weakening labour regulations

    • Closer home, India has weaponised the mandate to improve the rank in the EDB index to whittle down labour laws and their enforcement and bring them close to the free-market ideal of ‘hire and fire’.
    • Most States have emulated Maharashtra’s lead of administrative fiat, which renders labour laws toothless by dismantling official labour inspection systems and allowing employers to file self-regulation reports.
    • The government has farmed out critical safety regulations such as annual inspection and certification of industrial boilers to ‘third party’ private agencies.
    • The Labour Department’s inspection is now not mandated; it is optional only by prior intimation to employers.

    Implications of such moves

    • Such abdication of the government’s responsibility towards workers has reportedly affected industrial relations.
    • The workers’ strike at Wistron’s iPhone assembly factory in Karnataka last year is an example.
    • Further, severe industrial accidents are rising, damaging life and productive industrial assets.

    Why did World Bank scrap the index?

    • Investigations into “data irregularities” in preparing the EDB index, as brought out by the independent agency, seems to confirm many shortcomings repeatedly brought to light for years now.
    • The index appears motivated to support the free-market ideal.
    • It is dressed up under scientific garb and is underpinned by seemingly objective methods and data collection.
    • Strong leaders (and motivated officials) seem to have used their position to manipulate the index to suit their political and ideological ends.

    Conclusion

    • India claimed the success of its Make in India initiative by relying on its ranking on the EDB index without tangible evidence.
    • Handing over law enforcement to employers by self-reporting compliance seems to have increased industrial unrest and accidents.
    • It perhaps calls for honest soul-searching as to what havoc a questionable benchmark can wreak.

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