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GS Paper: GS3

  • India must commit to net zero emissions

    Context

    The United Nations Climate Change Conference (COP26) in November in Glasgow is shaping up to be the most important climate meeting since the Paris Agreement in 2015.

    What are net-zero emissions?

    Carbon neutrality refers to achieving net-zero carbon dioxide emissions. This can be done by balancing emissions of carbon dioxide with its removal or by eliminating emissions from society.

    Increase in pace and scale of climate action

    • Over 50% of the global economy is already committed to net zero emissions by 2050.
    • Over 100 countries have already committed to net zero emissions by 2050, with more expected at COP26.
    • The pace and scale of climate action are only set to increase, with the recent IPCC report unequivocal on the need for urgent and stronger responses.
    • It is not only governments that are increasing climate action. The business world is too, not just to protect themselves against the risks of climate change but also to take advantage of the massive opportunities arising as the global economy shifts to net-zero emissions.

    Why India should commit to a net-zero target

    • National interest due to vulnerability: India itself has a national interest in ambitious global and national climate action.
    • It is among the most vulnerable countries to climate change and, therefore, should be among the more active against the threats.
    • Influence as a rising power: Second, as a rising power, India naturally seeks stronger influence globally.
    • Being an outlier on the global challenge facing our generation does not support this aim.
    • Drag on international diplomacy: India’s reluctance to commit to net-zero will become a significant drag on India’s international diplomacy.
    • This applies not just to key relationships like with the U.S., but also with much of the Group of 77 (G77) states, who are increasingly concerned to see climate action, and in multilateral groupings such as the United Nations and ASEAN-APEC.
    • Interconnected with the economy: There is no longer a trade-off between reducing emissions and economic growth.
    • For example, the U.K. has reduced emissions by over 40% and grown its economy by over 70% since 1990.
    • Solar energy costs have fallen 90% in recent years, providing the cheapest electricity in India ever seen.
    • Also, given the negative impacts, addressing climate change in India’s economic development is now central to success, not an added luxury to consider.
    • The transition of the global economy to net zero emissions is the biggest commercial opportunity in history.
    • In just the energy sector alone, an estimated $1.6 to $3.8 trillion of investment is required every year until 2050.

    India’s climate actions

    • India is set to significantly exceed its Paris Agreement commitment of reducing the emissions intensity of its GDP by 33-35% below 2005 levels by 2030.
    • Emphasis on renewable: India is impressing the world with its leading roll-out of renewable energy and target for 450GW by 2030, linked to its leadership on the International Solar Alliance and recent national hydrogen strategy.
    • Corporates: Indian corporates are also stepping up, with the Tata Group winning awards on sustainability, Mahindra committing to net-zero by 2040, and Reliance by 2035.
    • Notwithstanding reasonable arguments about historical responsibility, per capita emissions, and equity, India’s national interests in climate action are now engaged in ways that go significantly beyond waiting for donor support to drive ambition.

    The way forward: International cooperation

    • The world needs to work together for success in the form of stronger political engagement, policy support in areas of mutual challenge such as energy policy, carbon markets, and economic recovery.
    • Practical support and cooperation in areas like renewable energy and integrating it with the national grid, zero-emissions transport, decarbonising hard to abate sectors like steel, cement, and chemicals, and decarbonising agriculture offer significant scope to raise ambition.
    • As does working with India on innovative green financing for decarbonizing investment.

    Conclusion

    India’s tryst with destiny rests in its own remarkable hands, as it always has been. In a land where the earth is called mother, and Mahatma Gandhi, major religions, and the Constitution enshrine environmental care, commitment to net zero emissions by 2050 should almost be foretold.

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  • Gauging household income key for microfinance clients

    Context

    The Reserve Bank of India’s (RBI) recently released a Consultative Document on Regulation of Microfinance in June 2021.

    Consultative document makes household income a critical variable

    • Following the Malegam Committee Report, which is a decade old now, the current document looks to reassess and realign the priorities of the sector.
    • Some of the key regulatory changes proposed in the document take household income as a critical variable for loan assessment
    • Definition of microfinance: The definition of microfinance itself is proposed to mean collateral-free loans to households with annual household incomes of up to ₹1,25,000 and ₹2,00,000 for rural and urban areas respectively.
    • Household income assessment: The document requires all Regulated Entities to have a board-approved policy for household income assessment.
    • Cap on repayment: It caps loan repayment (principal and interest) for all outstanding loans of the household at 50% of household income.
    • Therefore, measuring household income accurately becomes critical for the effective implementation of these norms.

    Challenges in measuring the income of Low-Income-Household (LIH)

    • Seasonal and volatile: Low-Income Households (LIHs), who typically form the customer base for Microfinance Institutions (MFIs), often also have seasonal and volatile income flows. 
    • Measuring expenditure doesn’t reflect their income: Since income for LIHs is seasonal and volatile, there have been attempts to understand their inflows by measuring their expenditure.
    • But, given the rotational debts they avail to fund a consumption expenditure here and a loan repayment obligation there, expenditure also does not truly reflect the household’s income.
    • Not separate personal expenditure: Moreover, for most LIHs, their expenditure on income-related activity is not separate from their personal expenses.
    • Therefore, it is difficult to separate the household’s personal expenses from that of their occupational pursuits.
    • Given these complexities, we need to understand and accept that for the bulk of LIHs, household finance is not just personal family finance, but their business finance as well.

    3 ways to measure household income for microfinance client

    • Structured survey approach: A structured survey-based approach could be used by Financial Service Providers (FSPs) to assess a household’s expenses, debt position and income from various sources of occupation and seasonality of income.
    • Template-based approach: A template-based approach could be used wherein FSPs could create various templates for different categories of households (as per location, occupation type, family characteristics, etc.).
    • These templates could then be used to gauge the household income of a client matching a particular template.
    • Centralised database: FSPs could also form a consortium to collect and maintain household income data through a centralised database.
    • This would allow for uniformity in data collection across all FSPs and, over time, can be used to validate the credibility of any new client’s reported income.
    • Such a database would also enable FSPs to track the changes in household income over time.

    Way forward

    • Use technology: Finding cost-effective yet accurate ways of capturing this information becomes crucial.
    • Creating new technology to document and analyze cash flows of LIHs would not only facilitate credit underwriting but also innovation in the standard microcredit contracts through customized repayment schedules and risk-based pricing, depending on a household’s cash flows.

    Conclusion

    Eventually, an accurate assessment of household-level incomes would avoid instances of over-indebtedness and ensure the long-term stability of the ecosystem.

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  • Govt. tells utilities to ship in coal as demand surges

    The govt. has urged utilities to import coal despite having the world’s fourth-largest reserves, with several power plants on the verge of running out of fuel due to a surge in power demand.

    Coal Mining in India

    • Coal in India has been mined since 1774 and is now the second fastest mined in the world, producing 716 million metric tons (789 million short tons) in 2018.
    • Due to high demand and poor average quality, India imports coking coal to meet the requirements of its steel plants.
    • Dhanbad city is the largest coal-producing city and is called the Coal Capital of India.
    • State-owned Coal India had a monopoly on coal mining between its nationalization in 1973 and 2018.

    Consumption

    • Coal-fired power accounts for more than 70% of India’s electricity generation. Electricity generation makes up three-fourths of India’s coal consumption.

    Quality of coal

    • The ash chemistry of Indian coal is such that it is high in silica and alumina.
    • The ash is also highly abrasive because of its high quartz content, which can lead to erosion of the syngas cooling system when it gets fused.
    • Indian coal’s sulfur content is low, about 0.5 percent.
    • So, from a gas clean-up perspective, the flue gas desulphurization (removal of SOx gases) and NOx removal system is not economically justifiable and, therefore, not important.
    • Also, in the Indian context, this is unnecessary to meet emission norms.

    Coal reserves

    • India has the fourth-largest coal reserves in the world. It is the second-largest producer of coal in the world, after China.
    • Coal deposits are primarily found in eastern and south-central India.
    • Jharkhand, Odisha, Chhattisgarh, West Bengal, Madhya Pradesh, Telangana, and Maharashtra accounted for 98.09% of the total known coal reserves in India.
    • As of 31 March 2019, Jharkhand and Odisha had the largest coal deposits of 25.88% and 24.76% respectively.

    Imports

    • Coking Coal is being imported by the Steel Authority of India Limited (SAIL) and other Steel manufacturing units mainly to bridge the gap between the requirement and indigenous availability and to improve the quality.
    • Coal-based power plants, cement plants, captive power plants, sponge iron plants, industrial consumers, and coal traders are importing non-coking coal.
    • Coke is imported mainly by Pig-Iron manufacturers and Iron & Steel sector consumers using mini-blast furnaces.

    Try answering this PYQ:

    Which of the following is/are the characteristics/ characteristics of Indian coal?

    1. High ash content
    2. Low Sulphur content
    3. Low ash fusion temperature

    Select the correct option using the codes given below:

    (a) 1 and 2 only

    (b) 2 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

     

    [wpdiscuz-feedback id=”0tm49llrlj” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

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  • Ladakh adopts State Animal and Bird

    Ladakh has adopted two endangered species, snow leopard and black-necked crane, as State animal and State bird, two years after it was carved out as a separate Union Territory (UT) from the erstwhile State of J&K.

    Snow Leopard

    • The snow leopard (Panther unica) and black-necked crane (Grus nicricollis).
    • Snow leopard, whose numbers are dwindling worldwide, has been categorized as “vulnerable” in the International Union for Conservation of Nature Red List.
    • In total, there are about 7,500 snow leopards left in the world, out of which 500 are in India.
    • However, experts state that the population of snow leopards is between 200-300 in Ladakh alone.

    Black-necked Crane

    • The black-necked crane is found in eastern Ladakh’s high-altitude wetlands and marshes.
    • It is mostly listed as Near Threatened on the International Union for Conservation of Nature (IUCN) red list.
    • Considered loyal couples, they are only found in Ladakh’s Changthang region. They arrive in March for breeding and migrate by October end or early November.
    • It was the State bird of J&K before August 5, 2019.

    About Ladakh

    • Ladakh was established as a union territory of India on 31 October 2019, following the passage of the Jammu and Kashmir Reorganization Act.
    • Prior to that, it was part of the Jammu and Kashmir state. Ladakh is the largest and the second least populous union territory of India.
    • It extends from the Siachen Glacier in the Karakoram range to the north to the main Great Himalayas to the south.
    • The eastern end, consisting of the uninhabited Aksai Chin plains, is claimed by the Indian Government as part of Ladakh and has been under Chinese control since 1962.
    • The largest town in Ladakh is Leh, followed by Kargil, each of which headquarters is a district.
    • The Leh district contains the Indus, Shyok and Nubra river valleys. The Kargil district contains the Suru, Dras and Zanskar river valleys.

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  • Exercise ZAPAD 2021

    A contingent of 200 Army personnel will participate in the multinational Exercise ZAPAD 2021 being held at Nizhniy, Russia.

    ZAPAD 2021

    • ZAPAD is one of the theatre-level exercises of Russian armed forces and will focus primarily on operations against terrorists.
    • The NAGA Battalion group participating in the exercise will feature an all arms combined task force.
    • The exercise aims to enhance military and strategic ties amongst the participating nations while they plan and execute this exercise.
    • In all, 17 countries have been invited by Russia for the exercise. Of these nine are Participating countries which include Mongolia, Armenia, Kazakhstan, Tajikistan, Kyrgyzstan, Serbia, Russia, India, and Belarus.
    • The other eight countries are Observers which include Pakistan, China, Vietnam, Malaysia, Bangladesh, Myanmar, Uzbekistan, and Sri Lanka.

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    Must read:

    [Prelims Spotlight] Various Defence Exercises in News

  • Managing natural resources

    Context

    A project in Meghalaya empowers communities to take informed action pertaining to their environment.

    Depletion of natural resources in Meghalaya

    • In recent years, many parts of Meghalaya have witnessed the loss of forest cover and natural resources have rapidly deteriorated.
    • The State, known to have spots designated as the ‘wettest places’ on earth, is now facing a severe water crisis.
    • Natural resource management becomes critical in this context.

    Challenges in natural resource management

    • Traditional practices on sustainable use of natural resources have been passed down from one generation to another.
    • Overexploitation: This indigenous knowledge began to slowly fade, however, owing to population growth,  the quest for unsustainable developmental activities, and indiscriminate exploitation of natural resources.
    • Inaccessibility of knowledge: Another roadblock to natural resource management was knowledge inaccessibility among rural communities.

    Providing knowledge: Landscape Management Project

    • The government wanted to see if, when provided with the correct knowledge, solutions to problems can be devised and even implemented by community members themselves.
    • The World Bank-supported Meghalaya Community-Led Landscape Management Project seeks to reactivating the community’s connection to natural resources and enabling them to tackle the resource crisis.
    • How the project worked: cross-functional teams with diverse expertise were set up.
    • The Mahatma Gandhi National Rural Employment Guarantee Scheme became the main scheme channelizing resources to impact poor households so that there was systematic convergence of all line departments such as agriculture, horticulture, soil, and water conservation.
    • The programme leverages technology and the youth population.
    • Leveraging technology, more than 2,000 village community facilitators have already been trained and are working towards climate change reversal.
    • Autonomy: To build autonomy, simple tools are used.
    • They have been designed keeping in mind many things: creating community agency, building the capacities of all persons in the programme, and ensuring frequent interactions among them.
    • Leveraging technology: Technology empowers them with real-time data, which in turn results in better programme governance, transparency, and accountability.
    • Communities are now able to articulate the complexities of their problems through a scientific lens and create their own natural resource management plans.
    • To carry forward this momentum, there is a plan to launch a Centre of Excellence in Meghalaya, a one-stop centre for natural resources management.

    Conclusion

    The project intends to empower thousands of village community facilitators and enable them to articulate the complexities of their problems through a scientific lens and create their own natural resource management plans.

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  • West Nile Virus outbreak in Russia

    Russia warned of a possible increase in West Nile virus infections this autumn as mild temperatures and heavy precipitation create favorable conditions for the mosquitos that carry it.

    West Nile virus (WNV)

    • WNV is mainly transmitted through mosquito bites and can lead to fatal neurological diseases in humans, although most people infected never develop any symptoms.
    • Cases of WNV occur during mosquito season, which starts in the summer and continues through fall.

    Its origin

    • Originally from Africa, the WNV has spread to Europe, Asia, and North America.
    • It was first isolated in a woman in the West Nile district of Uganda in 1937.
    • It was identified in birds in the Nile delta region in 1953.
    • Before 1997, WNV was not considered pathogenic for birds.
    • Human infections attributable to WNV have been reported in many countries for over 50 years.

    Symptoms

    • Infected persons usually have no symptoms or mild symptoms.
    • Some of the symptoms include fever, headache, body aches, skin rash, and swollen lymph glands.
    • They can last a few days to several weeks and usually, go away on their own.
    • Prolonged illness may cause inflammation of the brain, called encephalitis, or inflammation of the tissue that surrounds the brain and spinal cord, called meningitis.

    Treatment

    • There is no vaccine against the virus in humans although one exists for horses, the WHO says.

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  • Nationally Determined Contributions

    Context

    Despite accomplishments, global pressures are intensifying on India to commit more towards the Conference of the Parties (COP26), scheduled for November 2021 in Glasgow.

    India’s accomplishments

    • At the fifth anniversary of the Paris Agreement on Climate Change (December 2020), India was the only G20 nation compliant with the agreement.
    • India has been ranked within the top 10 for two years consecutively in the Climate Change Performance Index.
    • The Unnat Jyoti by Affordable LEDs for All (UJALA) scheme is the world’s largest zero-subsidy LED bulb programme for domestic consumers.
    •  India provided leadership for setting up the International Solar Alliance, a coalition of solar-resource-rich countries, and the Coalition for Disaster Resilient Infrastructure.

    Why it is unfair to pressure India on climate action

    We can attempt to answer the question by comparing the achievements of other countries vis-à-vis India’s performance.

    • Historical perspective: World Bank data for CO2 emissions (metric tons per capita) over two decades since the Kyoto protocol informs that at the current rate, both China and the U.S. could emit five times more than India in 2030.
    • The U.K.’s emission levels could be more than 1.5 times that of India.
    • Brazil, with its dense forests, may end up at similar levels.
    • Latest efforts: Last year, China, the world’s largest GHG emitter, joined the ‘race to zero’ and targets carbon neutrality by 2060.
    • Interestingly, it hopes to peak CO2 emissions by 2030 for bending the emissions curve.
    • Recently, the U.S. rejoined the Paris Agreement and committed to reducing emissions by 50%-52% in 2030 and reaching net-zero emissions economy-wide by 2050.
    • The French government, during the novel coronavirus pandemic, set green conditions for bailing out its aviation industry.
    • However, the analysts say that no baseline for reducing emissions from domestic flights was fixed.
    • In Australia, complicated domestic politics prevented them from addressing the problem, despite the country being vulnerable, and stretches of the famous Great Barrier Reef having died in recent years.

    India’s performance

    • Exceeding the NDC commitment: India is on track (as reports/documents show) to meet and exceed the NDC commitment to achieve 40% electric power installed capacity from non-fossil fuel-based sources by 2030.
    • Reduction in emission intensity of GDP: Against the voluntary declaration for reducing the emission intensity of GDP by 20%-25% by 2020, India has reduced it by 24% between 2005-2016.
    • More importantly, we achieved these targets with around 2% out of the U.S.$100 billion committed to developing nations in Copenhagen (2009), realised by 2015.
    • Renewable energy expansion: India is implementing one of the most extensive renewable energy expansion programmes to achieve 175 GW of renewable energy capacity by 2022 and 450 GW by 2030.
    • Investment in green measures: As part of the fiscal stimulus after the pandemic, the Government announced several green measures, including:
    • a $26.5-billion investment in biogas and cleaner fuels,
    • $3.5 billion in incentives for producing efficient solar photovoltaic (PV)
    • and advanced chemistry cell battery, and $780 million towards an afforestation programme.
    •  India’s contribution to global emissions is well below its equitable share of the worldwide carbon budget by any equity criterion.

    Conclusion

    To sum up, India has indeed walked the talk. Other countries must deliver on their promises early and demonstrate tangible results ahead of COP26.

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  • The National Monetisation Pipeline may not help realise the best value for assets

    Context

    The Government has launched a National Monetisation Pipeline, or NMP  to sell the revenue streams of public assets over the next four years.

    About NMP

    • Financing infrastructure: As outlined in the Union Budget, the NMP aims to mobilize resources for financing infrastructure.
    • Type of assets: The pipeline mostly includes railway stations, freight corridors, airports, and renovated national highway segments amounting to ₹6-lakh crore, or 3% of GDP in 2020-21.
    • The other two methods of raising resources are: setting up a development finance institution (DFI) and raising the share of infrastructure investment in the central and State Budgets.

    Concerns

    1) Not different from Disinvestment-Privatisation (D-P)

    • Asset monetization as defined in NMP is the same as the net present value (NPV) of the future stream of revenue with an implicit interest rate (whether it is a sale or lease of the asset).
    • Missed targets: Since D-P proceeds (revenues) have seriously missed the targets almost every year, how believable are the NMP targets? And how are they likely to perform differently?
    • If the NMP attempt to shore up public finances, such distress (fire) sale would find it difficult to obtain a “fair value” for public assets.
    • Would the market not factor in the dire state of the economy in beating down the prices, as in any distress sale?
    • The NMP document seems silent on how to overcome past mistakes.

    2) PPP mode of implementation

    • The NMP outlines mainly two modes of implementing monetization: public-private partnership (PPP) and “structured financing” to tap the stock market.
    • PPP in infrastructure has been a financial disaster in India, as evident from what happened after the economic boom of 2003-08.
    • After the 2008 financial crisis, many PPP projects failed to repay bank loans leading to the piling up of non-performing assets (NPAs) of banks.
    • Further, the bulk of the lending was too politically connected to corporate houses and firms.
    •  India is still reeling from the legacy of that period without any easy and credible solutions in sight.

    3) Stock market crash threatens the success of InvIT

    • An Infrastructure Investment Trust (InvIT) is being mooted as an alternative means of raising finance from the stock market.
    • In principle, InvIT is much like a mutual fund, whose performance is largely linked to stock prices.
    • The disinvestment process began in 1991 in which the bundles of shares of public sector enterprises (PSEs) were sold by UTI in the booming secondary stock market to realize the best price.
    • However, as the market crashed in the wake of the Harshad Mehta scam, stalling and discrediting the disinvestment process for almost the entire decade.
    • Hence, it may be worth learning the lessons from the historical missteps before exploring the idea all over again by the current stock market boom
    • At present, the U.S. Fed committed to reducing its assets purchase program (known as quantitative easing), the “hot money” inflow that has fuelled Indian stock prices may dry up throwing up nasty surprises.

    Thus, it seems unwise to anchor the acutely needed investment revival strategy on a discredited PPP model or on fickle Foreign Institutional Investors (FII) investment in a frothy stock market.

    Suggestion: Monetise debt

    • With the financial system flush with liquidity with no takers for bank credit, finance the proposed investment — as envisaged in the Budget — by government borrowing.
    • With a negative 0.4% real interest rate (real interest rate is nominal interest rate minus inflation rate), domestic borrowing in home currency is a steal.
    • No Crowding out: Chances of crowding-out private investments are remote with a liquidity overhang in the market.
    • Low inflation risk: Inflation risk is also limited with little aggregate demand pressures (barring temporary bottlenecks due to localized lockdowns).
    • Rating downgrade risk:  If the debt is productively used to expand GDP (the denominator), rating downgrade risk due to the rising Debt-GDP ratio seems minimal.
    •  Moreover, rising external debt by fickle portfolio investors perhaps carries a greater risk to external instability.

    Consider the question “How the National Monetisation Pipeline seeks to implement the asset monetisation? What are the challenges in asset monetisation?”

    Conclusion

    If reviving investment demand quickly is the real goal, debt monetisation seems a better option than asset monetisation.

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  • India becomes 4th largest forex reserves holder globally

    India’s foreign exchange reserves rose by $835 million to touch a record high of $612.73 billion in the week ended July 16, 2021, the Reserve Bank of India (RBI) data showed.

    Forex Reserves

    India’s forex reserves cover:

    • Foreign Currency Assets (FCAs) (rose by $463 million to $568.748 billion)
    • Special Drawing Rights (SDRs) (up by $1 million at $1.548 billion)
    • Gold Reserves (up by $377 million to $37.333 billion)
    • Reserve position with the International Monetary Fund (IMF) (up by $1 million at $1.548 billion)

    (Note the descending order of the shares of various components of forex reserves. UPSC can go factual here.)

    What is Foreign Exchange Reserve?

    • Foreign exchange reserves are important assets held by the central bank in foreign currencies as reserves.
    • They are commonly used to support the exchange rate and set monetary policy.
    • In India’s case, foreign reserves include Gold, Dollars, and the IMF’s quota for Special Drawing Rights.
    • Most of the reserves are usually held in US dollars, given the currency’s importance in the international financial and trading system.
    • Some central banks keep reserves in Euros, British pounds, Japanese yen, or Chinese yuan, in addition to their US dollar reserves.

    Countries with the highest foreign reserves

    Currently, China has the largest reserves followed by Japan and Switzerland. India has overtaken Russia to become the fourth largest country with foreign exchange reserves.

    1. China – $3,349 Billion
    2. Japan – $1,376 Billion
    3. Switzerland – $1,074 Billion
    4. India – $612.73 Billion
    5. Russia – $597.40 Billion

    Why are these reserves so important?

    • All international transactions are settled in US dollars and, therefore, required to support India’s imports.
    • More importantly, they need to maintain support and confidence for central bank action, whether monetary policy action or any exchange rate intervention to support the domestic currency.
    • It also helps to limit any vulnerability due to sudden disturbances in foreign capital flows, which may arise during a crisis.
    • Holding liquid foreign currency provides a cushion against such effects and provides confidence that there will still be enough foreign exchange to help the country with crucial imports in case of external shocks.

    Initiatives taken by the government to increase forex

    • To increase the foreign exchange reserves, the Government of India has taken many initiatives like AatmaNirbhar Bharat, in which India has to be made a self-reliant nation so that India does not have to import things that India can produce.
    • Other than AatmaNirbhar Bharat, the government has started schemes like Duty Exemption Scheme, Remission of Duty or Taxes on Export Product (RoDTEP), Nirvik (Niryat Rin Vikas Yojana) scheme, etc.
    • Apart from these schemes, India is one of the top countries that attracted the highest amount of Foreign Direct Investment, thereby improving India’s foreign exchange reserves.

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