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GS Paper: GS3

  • Respecting wealth creators

    The article deals with the recent acknowledgement of the private sector by the Prime Minister in the development of the country.

    Respecting wealth creators

    • In his recent speech in Parliament, the Prime Minister openly acknowledged the contribution and role of the private sector as an important engine of growth and employment in India.
    • The creation of wealth is essential for growth, employment and the reduction of poverty.
    • India’s successes in many fields in the last three decades are linked to the private sector.
    • The industries that have created growth, jobs, buzz and hope in the last three decades, the vast majority have been driven by private enterprise.

    Steps taken to promote business

    • India has been making commendable strides in the “Ease of Doing Business”.
    • It is easier to start a business in India than it was a decade ago.
    • We seem to have broken the shackles of a chained belief that business is bad.
    • The success of the Mudra Yojana and Start-up India are living testimony to this fact.
    • And that India is daring to look at sectors we were otherwise hesitant to — space, defence, aeronautics.
    • Some areas need work, but a government willing to listen gives a good head start to solving those problems.
    • Work on faceless tax assessment and PLI schemes are moves that have received encouraging responses far and wide.
    • The India stack has revolutionised the fintech sector.
    • The digital health stack will likely do the same for healthtech.

    Conclusion

    The recent Union budget has made clear the intent of this government to pursue economic reform and go for growth — whether it is the willingness to live with a higher fiscal deficit or to aggressively pursue divestment of public sector enterprises. Large spending on infrastructure is good news too.

  • Being petroleum independent

    The article discusses the steps taken by the government to improve fuel efficiency standards and the for the transition to clean sources of energy.

    Reducing energy import dependence

    • Speaking on the increase in petrol and diesel prices, Prime Minister emphasised the need for clean sources of energy.
    • Expanding and diversifying energy supply is good, but if India is to reduce its energy import dependence, it must look towards first managing the demand for petroleum products.
    • It is worthwhile to reflect on measures taken by the previous governments as well as this government in this context.

    Steps taken

    National Electric Mobility Mission Plan

    • The UPA-2 administration formulated fuel efficiency standards for passenger vehicles that are now in effect.
    • It also constituted the National Electric Mobility Mission Plan (NEMMP).
    • While well-intended, both these actions fell short in terms of ambition.
    • India’s 2022 fuel efficiency standards for passenger cars are nearly 20% less stringent than the European Union’s standards.
    • The NEMMP primarily focused on hybrid electric vehicles.
    • Most of the incentives under the NEMMP went towards subsidising mild hybrids instead of electric vehicles.

    Multiple fuel pathways

    • Recently, the government has encouraged multiple fuel pathways in the transport sector including natural gas.
    • The Faster Adoption and Manufacturing of Electric Vehicles (FAME-II) scheme now focuses largely on electric vehicles.
    • The government has also provided several additional fiscal and non-fiscal incentives to encourage a transition to electric vehicles.

    Steps need to be taken

    • There are many things that the government can and should do to
    • First, the government should formulate a zero-emissions vehicle (ZEV) programme that would require vehicle manufacturers to produce a certain number of electric vehicles.
    • At present, the electric mobility initiative in India is driven largely by new entrants in the two- and three-wheeler space.
    • A ZEV programme would require all manufacturers to start producing electric vehicles across all market segments.
    • The government should also strengthen fuel efficiency requirements for new passenger cars and commercial vehicles.
    • Two-wheelers, which consume nearly two-third of the petrol used in India, are not subject to any fuel efficiency standards.
    •  Adopting stringent fuel efficiency standards and a ZEV programme by 2024 can result in India’s petroleum demand peaking by 2030.
    • The FAME should be extended not only to all passenger cars and commercial vehicles but also to agricultural tractors.

    Conclusion

    As the economy recovers from the pandemic, the demand for petroleum products will rise, as will prices. But the government can save money for the consumer while enhancing long-term energy security by wielding the regulatory tools at its disposal.

     

  • A changing fiscal framework

    The article examines the changes in government’s fiscal policy stance which supports the debt-financing and apparent contradiction displayed by increased excise duty.

    Increase in excise duty

    • Well before India began to globalise there was a time when each Union Budget announced sales tax increases on tobacco products.
    • The rise in tax was expected to be a shot in the arm for the revenue-starved government of our poor country.
    • India is less poor now, having risen to the rank of an emerging market economy.
    • Yet, COVID-19 has wreaked havoc.
    • As opposed to a Budget estimate of 3.5% for fiscal deficit, the revised estimates show a 2.7 times larger deficit of 9.5% for FY 2020-21. 
    • A comparison of the government’s revised Budget estimates with the original Budget estimates reveals a fall in receipts from every source of taxation except excise.
    • The revised Budget shows a rise of ₹94,000 crore on account of excise duties alone.
    • Presumably, the increase comes from the much-debated excise duty increases on petroleum and diesel.
    • The excise duty rise will hardly compensate for the huge falls in other tax revenues.
    • The larger excise duty collection is not large enough to have significantly reduced the inflated fiscal deficit figure.

    Implications of hike in excise duty

    • Given the nature of the products on which the excise duty has gone up, prices of commodities will rise in general.
    • With annual output shrinking by an estimated 7.7%, it is straightforward to conclude that unemployment has risen significantly.
    • The accompanying price rise will be the unemployed persons’ worst nightmare.
    • The result will be severe inequality.

    Change in economic policy framework

    • The Economic Survey 2020-21 considers Olivier Blanchard’s prescription that a fiscal deficit automatically transformed to government debt.
    • Such debts along with their servicing liabilities have a tendency to magnify over the years where present borrowings keep increasing to repay past borrowings and service charges.
    • This leaves little room for growth-enhancing expenditure and reduces a government’s creditworthiness in the eyes of lenders.
    • Debt-financed fiscal spending could well be a driver of growth.
    • It can improve the standard of living of the entire population, without necessarily removing inequality.
    • A government’s fiscal expenditure, Professor Blanchard points out, has stronger multiplier effects during recessions than during booms
    • The inequality, however, could well be benignant, for even though the rich will grow richer, the poor will escape out of poverty.

    Condition for debt-financed fiscal spending

    • Debt or the fiscal deficit constitutes the government’s spendable resources.
    • What will prevent the government from sinking into a debt trap?
    • Professor Blanchard shows that the debt-to-GDP ratio can be prevented from exploding if the rate of growth of GDP happens to be higher than the sovereign rate of interest.
    • This is the case in developed economies.
    • In such economies, debt financed government expenditure will create a positive primary surplus out of which interest payments can be made to keep the debt-GDP ratio under control.
    • There will, of course, be a maximum value that this ratio can attain, a value that is higher the larger is the excess of the growth rate over the interest rate.

    Contradiction in fiscal policy and fiscal regime

    • According to the Economic Survey, India’s average interest rate and growth rate over the last 25 years (leaving out FY 2020-21) have been 8.8% and 12.8% respectively.
    • Hence, Professor Blanchard’s condition is satisfied.
    • This, of course, is not to support excise duty increases, for it goes against the very principle of the Blanchard argument.
    • Therefore, there appears to be a contradiction between the government’s announced fiscal policy stance and the fiscal regime it is actually running.

    Consider the question”The Economic Survey 2020-2021 calls for the debt-financed fiscal spending. Do you think that this view is suitable for India economy? What are the risks involved?”

    Conclusion

    The government must consider the implications of increased excise on the economy and should focus on removing the contradiction in its fiscal policy and fiscal regime.

  • Animal Husbandry Infrastructure Development Fund (AHIDF)

    Importance of animal husbandary and dairy sector

    • As an allied industry of agriculture, the animal husbandry and dairy sector collectively employs more than 100 million people.
    • Since the bulk of establishments in this sector is concentrated in rural India, the socio-economic relevance of this sector cannot be overstated.
    • the Central government unveiled a string of measures to cushion the economy, as a part of which the Animal Husbandry Infrastructure Development Fund (AHIDF) was announced.

    More about AHIDF

    • The AHIDF has been set up with an outlay of ₹15,000 crore.
    • As per the provisions of AHIDF, a project will be eligible for a loan amount that covers up to 90% of the estimated cost –
    • There will be interest subvention of 3% for all eligible entities.
    • Applicants can submit the proposal with a complete Detailed Project Report through the Udyami Mitra Portal.
    • The fund includes a diverse set of stakeholders such as FPOs, private dairy players, individual entrepreneurs, and non-profits within its ambit.

    Strengthening dairy value chain

    • There is a pressing need to enhance chilling infrastructure at collection centres by setting up bulk milk coolers.
    • If the infrastructure needs for milk processing and distribution are included, then the overall potential investment opportunity is to the tune of ₹1,40,000 crore across the dairy value chain.
    • There is also considerable potential to increase the productivity of cattle, especially by enhancing the quality of animal feed.
    • With this in mind, the AHIDF has been designed to support the establishment of animal feed plants of varying capacities.
    • The infrastructure gap of 10-18 MMT in the production and supply of affordable compound cattle feed translates into an investment potential of around ₹5,000 crore.

    Boosting the poultry industry

    • There are not only economic but nutritional benefits to boosting the poultry segment’s output, efficiency and quality.
    • India is the fourth largest chicken meat producer and the second largest egg producer in the world.
    • India is well-positioned to help mitigate rampant malnutrition given that chicken meat provides the cheapest source of protein per unit.
    • With eggs being introduced as part of the mid-day meal within several anganwadis in the country, an upgradation in poultry infrastructure would be closely intertwined with social justice outcomes too.
    • Macro benefits regarding climate change and employment are linked to this sector.
    • Enhanced infrastructure can make processing units more energy-efficient and help mitigate their carbon footprint.

    Consider the question ” As an allied industry of agriculture, the animal husbandry and dairy sector are important for rural area and the socio-economic relevance of this sector cannot be overstated. In light of this, examine the role Animal Husbandry Infrastructure Development Fund (AHIDF) could play in transforming rural economy.”

    Conclusion

    The AHIDF also has the potential to create over 30 lakh jobs, even as it overhauls domestic infrastructure towards giving greater prominence to India’s dairy and livestock products in the global value chain.

     

  • [pib] SFURTI Scheme

    Union Minister for MSME has inaugurated 50 artisan-based SFURTI clusters, spread over 18 States.

    SFURTI is an off-track scheme compared to other HRD schemes with Hindi acronyms. Similar is the SPARSH scheme for philately.

    SFURTI Scheme

    • Scheme of Fund for Regeneration of Traditional Industries (SFURTI) is an initiative by the Ministry of MSME to promote Cluster development.
    • Khadi and Village Industries Commission (KVIC) is the Nodal Agency for the promotion of Cluster development for Khadi.
    • Under the Scheme, the MSME Ministry supports various interventions including the setting up of infrastructure through Common Facility Centers (CFCs), procurement of new machinery, design intervention, improved packaging and marketing etc.

    Types of clusters

    • SFURTI clusters are of two types i.e., Regular Cluster (500 artisans) with Government assistance of up to Rs.2.5 crore and Major Cluster (more than 500 artisans) with Government assistance up to Rs.5 crore.
    • The scheme focuses on strengthening the cluster governance systems with the active participation of the stakeholders so that they are able to gauge the emerging challenges and opportunities and respond to them.

  • PSBs should operate like proper banks if they can’t be privatized

    The article deals with the stark differences in the performance of the public sector banks (PSBs) and private banks and suggests ways to deal with the issues.

    Comparing PSBs with private banks

    • The performance of PSBs over the years hasn’t been worth the money that the government has invested in them.
    • As the Economic Survey of 2019-20 pointed out that over ₹4.3 trillion of taxpayer money is invested as government’s equity in PSBs.
    • In 2019, every rupee of taxpayer money invested in PSBs, on average, lost 23 paise.
    • In contrast, every rupee of investor money invested in New Private Banks—banks licensed after India’s 1991 liberalization—on average gained 9.6 paise.
    • The combined market value of HDFC Bank’s shares is ₹8.56 trillion (as of 18 February), whereas the market capitalization of all PSBs is around ₹6.41 trillion (excluding IDBI Bank, which is now categorized as a private bank).
    • Of course, if we add up the assets of PSBs, they are a lot bigger than HDFC Bank’s.

    Dual regulation

    • The private banks are regulated by the Reserve Bank of India (RBI).
    • PSBs are regulated both by RBI and the department of financial services under the finance ministry.
    • The P.J. Nayak Committee report of May 2014 had pointed out this issue of dual regulation.
    • This is primarily because PSBs are used by the government to fulfil its social obligations and pump-prime the economy when it’s not doing well.
    • The stock market discounts these factors while valuing them.

    Way forward

    • The policies for regulating and promoting industrial growth do not have any social content in them.
    • Hence, PSBs should be run as proper banks irrespective of whether they are privatized or not.
    • If they are not privatized, the government’s stake in these banks needs to come down to 33%, something which would help them raise more capital.
    • Once investors see PSBs being run as proper banks their market capitalization will start to go up.
    • Once PSBs are properly valued by the stock market, the government can sell some of its stake in them every year, and use that money to fund its social objectives.
    • It can also use some of that money to incentivize all banks, not just PSBs, to deliver some of its social objectives.

    Conclusion

    The government should take these steps to let the PSBs realise their potential. At the end of the day, nothing improves service delivery more than some good competition.

  • A year of cautious optimism on economic front

    The article argues that we are less likely to witness high growth next year rather it is going to be the year of consolidation.

    Year of consolidation

    • The Economic Survey, the Union budget, and the RBI credit policy attest that the economy is on the recovery path.
    • The fourth quarter will register a positive growth rate, and as a consequence, the contraction for the full year will be between 7.5-8 per cent.
    • The contraction sets the pace for growth in 2021-22 which is now going to be critical as it is the foundation for the fructification of the budget revenue targets.
    • But consider this: GDP in 2019-20 was Rs 146 lakh crore, which has come down to Rs 134 lakh crore in 2020-21.
    • Hence, a 10 per cent growth will take the Indian economy to Rs 147 lakh crore — when compared to Rs 145 lakh crore, this reflects modest growth.
    • Therefore, expectations should be tempered when we talk of growth next year.
    • There will be a revival in economic activity on all ends which will probably bear fruit in 2022-23 — FY 2021-22 will be a year of consolidation.

    Policy architecture

    • The government has brought in a cogent policy framework right from the time of the Atmanirbhar announcements, culminating in the budget.
    • There is a focus on infrastructure as well as providing incentives to investment through the Production Linked Incentive (PLI) scheme.
    • Real estate, power and construction saw several policy reforms last year.
    • There is a strong capex push by the government and there will more action taken here.

    RBI policies

    • The RBI has promised to continue accommodative policies, which sends a signal of managing liquidity considering the large borrowing programme of the government of Rs 12.8 lakh crore.
    • RBI will carry out more open market operations, and long-term repo operations during the year to ensure that interest rates remain stable.
    • However, there will be concern around state government borrowings too, which will exert pressure on the availability of funds.
    • Hence, there will be more central bank intervention in the market to ensure that funds are available.

    Inflation concerns

    • Inflation is a concern as global commodity prices have already started going up and this has led to core inflation rising.
    • Given that the monsoon has been good in the last four years, there is a possibility of an adverse season this time which can affect food prices. 
    • In India, too, we have seen that the price of petrol and diesel is rising sharply.
    • Add to this rising manufactured goods inflation witnessed of late, and there is a possibility of inflation rising above the MPC’s tolerance levels.

    Lack of consumption growth

    • For growth to take place, consumption growth has to be real and rapid.
    • Consumption growth has been affected by the absence of commensurate job creation.
    • Consumption growth is unlikely too soon as consumption is dependent on job creation.
    • Jobs get created when growth is high and hence there is circular reasoning here.
    • Income has been affected in 2020 due to the pandemic which has led to job losses as well as salary cuts.
    • This has affected the sustainability of the pent-up demand seen in October and November.

    Falling investment

    • Investment has lagged with gross fixed capital formation falling to a low of 24.2 per cent in 2019-20 from 34.3 per cent in 2011-12.
    • Reversing this decline will be challenging because the demand for such projects has slowed down and banks have been wary of lending for infrastructure.
    • There is also surplus capacity in industry with the capacity utilisation rate being 63.3 per cent in the second quarter of 2020-21.
    • Therefore, private investment will rise only gradually and the onus is on governments to manage their targets.
    • Private investment will follow, but at a slower pace and realistically speaking, will fire more in 2022-23 rather than 2021-22.

    Consider the question “Growth has to be driven by two engines- consumption and investment. India has been facing challenges on both fronts. In light of this, suggest the measures India needs to adopt to move forward on both fronts.

    Conclusion

    The year 2021-22 will be one of cautious optimism. Growth will trend upwards, but it has to be interpreted with caution, keeping a check on the consumption while pushing the investment while arresting the inflation.

  • Regulate but do no ban Bitcoin

    The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 seeks to ban cryptocurrencies. Banning cryptocurrencies would have several implications for India. This article deals with this issue.

    Soaring value of Bitcoin

    • Recently, Tesla announced that it will soon accept cryptocurrency as legitimate payment for its cars.
    • Mastercard followed by announcing that it will incorporate ‘select cryptocurrencies’ on its global payment network.
    • BNY Mellon, incidentally the US’s oldest bank, announced holding and transferring digital currencies for asset management clients.
    • JP Morgan and Goldman Sachs announced executive positions to look at cryptocurrencies.
    • All of this resulted in a soaring value of Bitcoin, and its younger sibling, Ethereum.

    India’s governments stand on cryptocurrencies

    • India’s government sought to ban cryptocurrency through a proposed legislation, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.
    • The Bill also provides to also set up a legal structure for an “official digital currency”.
    • The Bill promises to “allow for certain exceptions to promote the underlying technology of cryptocurrency (blockchain) and its uses.”
    • The way the technology is built, an ownerless, consensus-driven, distributed ledger like a blockchain needs cryptocurrency to grease its wheels.
    • India tried to ban cryptocurrency once before, in 2018, before it was reversed by the Supreme Court.

    Implications of banning cryptocurrencies

    • The banning will kill innovation.
    • India has more than 30,000 blockchain innovators and practitioners.
    • These innovators will now be looking at moving out to friendlier regimes like the US, Switzerland, Singapore and Estonia.
    • International tech companies will freeze blockchain and crypto-exchange investments in India and the step will undermine India’s reputation as a technology hub.
    • India is the second-largest Bitcoin trading nation in Asia, and all those trades will move to overseas exchanges.
    • China has large crypto trading and mining operations, and an Indian ban on Bitcoin will leave that space open for it.

    Consider the question “What is cryptocurrency? What would be the implications of banning it?”

    Conclusion

    No doubt, there are many problems with cryptocurrency—it is volatile, sucks energy, and is often abused by criminals. But the answer is not to ban it, but regulate it.

     

  • Australia vs Facebook Row

    The social media giant Facebook is locked in a battle with Australia over legislation that would require FB, Google to pay for news outlets.

    Row over the news on social media

    • Australia had proposed a law called the News Media and Digital Platforms Mandatory Bargaining Code Bill 2020.
    • It seeks to mandate a bargaining code that aims to force Google and Facebook to compensate media companies for using their content.

    Imagine if the case arises in India where tons of news channels and impulsive journalists are dying off hard to gather TRPs!

    Response from the ‘giants’

    • Google had threatened to make its search engine unavailable in Australia in response to the legislation, which would create a panel to make pricing decisions on the news.
    • Facebook responded by blocking users from accessing and sharing Australian news.

    Why countries are bringing such legislation?

    • Australia has launched a global diplomatic offensive to support its proposed law to force Internet giants Facebook and Google to pay media companies.
    • Google accounts for 53% of Australian online advertising revenue and Facebook for 23%.
    • The legislation sets a precedent in regulating social media across geographies and is being closely watched the world over.

    What is happening in other countries?

    • Australia’s proposed law would be the first of its kind, but other governments also are pressuring Google, Facebook and other internet companies to pay news outlets and other publishers for the material.
    • In Europe, Google had to negotiate with French publishers after a court last year upheld an order saying such agreements were required by a 2019 EU copyright directive.
    • France is the first government to enforce the rules, but the decision suggests Google, Facebook and other companies will face similar requirements in other parts of the 27-nation trade bloc.

    The ‘doubted’ reluctance

    • Last year, Facebook announced it would pay US news organizations including The Wall Street Journal, The Washington Post and USA Today for headlines.
    • In Spain, Google shut down its news website after a 2014 law required it to pay publishers.

    Why does this matter?

    • Developments in Australia and Europe suggest the financial balance between multibillion-dollar internet companies and news organizations might be shifting.
    • Australia is responding to complaints by news reports, magazine articles and other content that appears on their websites or is shared by users.
    • The government acted after its competition regulator tried and failed to negotiate a voluntary payment plan with Google.
    • The proposed law would create a panel to make binding decisions on the price of news reports to help give individual publishers more negotiating leverage with global internet companies.

    Not losing out revenue gain

    • Google’s agreement means a new revenue stream for news outfits, but whether that translates into more coverage for readers, viewers and listeners is unclear.
    • The union for Australian journalists is calling on media companies to make sure online revenue goes into newsgathering.

  • Life deep beneath Antarctica’s ice shelves

    Researchers have accidentally discovered living under the ice shelves of the Antarctic — in extremely cold and harsh conditions.

    Life beneath the Antarctic

    • Scientists have discovered sessile sponges — a pore bearing multicellular organism and other alien species — attached to the sides of rock beneath the ice sheets.
    • The unidentified species are estimated to be related to sponges, ascidians (sea squirts), hydroids, barnacles, cnidarian or polychaete. All of these look like bristle worms.
    • Scientists are yet to discover how these organisms access food.
    • They would use Environment Deoxyribonucleic acid (e-DNA) technology in future to identify the organisms.

    Organisms discovered

    Sponges

    • Sponges are the members of the phylum Porifera.
    • They are multicellular organisms that have bodies full of pores and channels allowing water to circulate through them, consisting of jelly-like mesohyl sandwiched between two thin layers of cells.

    Ascidians

    • Ascidians, or sea squirts, are invertebrate chordates that belong to the earliest branch in the chordate phylum.
    • Ascidians are found all over the world, usually in shallow water with salinities over 2.5%.

    Hydroids

    • Hydroids are a life stage for most animals of the class Hydrozoa, small predators related to jellyfish.
    • Some hydroids such as the freshwater Hydra are solitary, with the polyp attached directly to the substrate.

    Barnacles 

    • Barnacles are a highly specialized group of crustaceans.
    • A barnacle is a type of arthropod related to crabs and lobsters.

    Cnidarians

    • Cnidarians, also called coelenterate, any member of the phylum Cnidaria (Coelenterata), a group made up of more than 9,000 living species.
    • Mostly marine animals, the cnidarians include the corals, hydras, jellyfish, Portuguese men-of-war, sea anemones, sea pens, sea whips, and sea fans.

    Now take this chance to revise your biology basics on various phyla. It will be beneficial for state PSC exams. UPSC has also begun puzzling us on core biology questions.

    Defying old theories

    • The discovery has left many of them baffled for it contradicts earlier theories of non-survival of life in such extreme conditions.
    • Until now, scientists believed that sea life decreased with an increase in the depth of the Antarctic ice floor.