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GS Paper: GS3

  • What is Index of Industrial Production (IIP)?

    Last week saw the release of the Index of Industrial Production (IIP), which recorded a contraction of 1.6% in January.

    Index of Industrial Production (IIP)

    • Index of Industrial Production data or IIP as it is commonly called is an index that tracks manufacturing activity in different sectors of an economy.
    • The IIP number measures the industrial production for the period under review, usually a month, as against the reference period.
    • IIP is a key economic indicator of the manufacturing sector of the economy.
    • There is a lag of six weeks in the publication of the IIP index data after the reference month ends.
    • IIP index is currently calculated using 2011-2012 as the base year.

    IIP Index Components:

    • Mining, manufacturing, and electricity are the three broad sectors in which IIP constituents fall.
    • The relative weights of these three sectors are 77.6% (manufacturing), 14.4% (mining) and 8% (electricity).
    • Electricity, crude oil, coal, cement, steel, refinery products, natural gas, and fertilizers are the eight core industries that comprise about 40 per cent of the weight of items included in the IIP.

    Basket of products

    There are 6 sub-categories:

    1. Primary Goods (consisting of mining, electricity, fuels and fertilisers)
    2. Capital Goods (e.g. machinery items)
    3. Intermediate Goods (e.g. yarns, chemicals, semi-finished steel items, etc)
    4. Infrastructure Goods (e.g. paints, cement, cables, bricks and tiles, rail materials, etc)
    5. Consumer Durables (e.g. garments, telephones, passenger vehicles, etc)
    6. Consumer Non-durables (e.g. food items, medicines, toiletries, etc)

    Who releases IIP data?

    • The IIP data is compiled and published by CSO every month.
    • CSO or Central Statistical Organisation operates under the Ministry of Statistics and Programme Implementation (MoSPI).
    • The IIP index data, once released, is also available on the PIB website.

    Try this PYQ:

    Q. In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?

    (a) Coal production

    (b) Electricity generation

    (c) Fertilizer production

    (d) Steel production

    Who uses IIP data?

    • The factory production data (IIP) is used by various government agencies such as the Ministry of Finance, the Reserve Bank of India (RBI), private firms and analysts, among others for analytical purposes.
    • The data is also used to compile the Gross Value Added (GVA) of the manufacturing sector in the Gross Domestic Product (GDP) on a quarterly basis.

    IIP base year change:

    • The base year was changed to 2011-12 from 2004-05 in the year 2017.
    • The earlier base years were 1937, 1946, 1951, 1956, 1960, 1970, 1980-81, 1993-94 and 2004-05.

    IIP vs ASI

    • While the IIP is a monthly indicator, the Annual Survey of Industries (ASI) is the prime source of long-term industrial statistics.
    • The ASI is used to track the health of industrial activity in the economy over a longer period. The index is compiled out of a much larger sample of industries compared to IIP.
    • The IIP essentially tracks the change in the volume of production in Indian industries.

  • What are AT1 Bonds?

    The decision of the Securities and Exchange Board of India (SEBI) to slap restrictions on mutual fund (MF) investments in additional tier-1 (AT1) bonds has raised a storm in the MF and banking sectors.

    What are AT1 Bonds?

    • AT1 Bonds stand for additional tier-1 bonds. These are unsecured bonds that have perpetual tenure. In other words, the bonds have no maturity date.
    • They have a call option, which can be used by the banks to buy these bonds back from investors.
    • These bonds are typically used by banks to bolster their core or tier-1 capital.
    • AT1 bonds are subordinate to all other debt and only senior to common equity.
    • Mutual funds (MFs) are among the largest investors in perpetual debt instruments and hold over Rs 35,000 crore of the outstanding additional tier-I bond issuances of Rs 90,000 crore.

    What action has been taken by the Sebi recently and why?

    • In a recent circular, the Sebi told mutual funds to value these perpetual bonds as a 100-year instrument.
    • This essentially means MFs have to make the assumption that these bonds would be redeemed in 100 years.
    • The regulator also asked MFs to limit the ownership of the bonds to 10 per cent of the assets of a scheme.
    • According to the Sebi, these instruments could be riskier than other debt instruments.

    Try this PYQ:

    Consider the following statements:

    1. The Reserve Bank of India manages and services the Government of India Securities but not any State Government Securities.
    2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
    3. Treasury bills offer are issued at a discount from the par value.

    Which of the statements given above is/are correct?

    (a) 1 and 2 only

    (b) 3 Only

    (c) 2 and 3 only

    (d) 1, 2 and 3

    How MFs will be affected?

    • Typically, MFs have treated the date of the call option on AT1 bonds as the maturity date.
    • Now, if these bonds are treated as 100-year bonds, it raises the risk in these bonds as they become ultra long-term.
    • This could also lead to volatility in the prices of these bonds as the risk increases the yields on these bonds rises.
    • Bond yields and bond prices move in opposite directions and therefore, the higher yield will drive down the price of the bond, which in turn will lead to a decrease in the net asset value of MF schemes holding these bonds.
    • Moreover, these bonds are not liquid and it will be difficult for MFs to sell these to meet redemption pressure.

    What’s the impact on banks?

    • AT1 bonds have emerged as the capital instrument of choice for state banks as they strive to shore up capital ratios.
    • If there are restrictions on investments by mutual funds in such bonds, banks will find it tough to raise capital at a time when they need funds in the wake of the soaring bad assets.
    • A major chunk of AT1 bonds is bought by mutual funds.

    Why has the Finance Ministry asked Sebi to review the decision?

    • The FM has sought withdrawal of valuation norms for AT1 bonds as it might lead to mutual funds making losses and exiting from these bonds, affecting capital raising plans of PSU banks.
    • The government doesn’t want a disruption in the fund mobilization exercise of banks at a time when two PSU banks are on the privatization block.
    • Banks are yet to receive the proposed capital injection in FY21 although they will need more capital to face the asset-quality challenges in the foreseeable future.
    • Fitch’s own estimate pegs the sector’s capital requirement between $15 billion-58 billion under various stress scenarios for the next two years, of which state banks account for the bulk.

  • Martian ‘Blueberries’

    In 2004, NASA’s Mars exploration rover ‘Opportunity’ found several small spheres on the planet, informally named Martian blueberries which find a resemblance to the similar formation in India’s Kutch region.

    There have been several missions to the red planet this year. Make a note of all of them.

    Martian blueberries

    • Opportunity’s mini spectrometers studied mineralogy and noted they were made of iron oxide compounds called haematites.
    • This caused excitement, as the presence of haematites suggests that there was water present on Mars.
    • The widely accepted formation mechanism of hematite concretion [hard solid mass] is precipitation from aqueous fluids.
    • Hematite is known to form in oxidizing environments hence it can be inferred that water must have played a crucial role in the formation of grey hematite on Mars.

    What makes them so special?

    • Indian researchers have been studying hematite concretions in Kutch called the Jhuran formation.
    • These formations are 145 and 201 million years old.
    • Detailed geochemistry and spectroscopic investigations of the haematite concretions in this area revealed that they resemble the ones on Mars.
    • They have similar morphology – spherical, often doublet and triplet – and similar mineralogy – a mixture of haematite and goethite.
    • Hence, several types of research have shown that the Kutch area is a potential Martian analogue locality.

  • Raman Thermometry check on health of power lines

    Researchers at IIT Madras have demonstrated that by using Raman thermometry on fibre optic cables, they can achieve the monitoring of power transmission cables.

    What is Raman Thermometry?

    • Raman spectroscopy is well known as an analytical method for identifying chemical compounds and characterizing the chemical bonding and solid-state structure of materials.
    • Perhaps less well known is the fact that one can use Raman spectroscopy to determine the temperature of the material being analyzed.

    For that, we need to get familiarized with Raman Effect

    • India’s first and so far only Nobel laureate in physics, C.V. Raman, won the prize for his discovery of the Raman Effect.
    • This consisted of experimental observations on the scattering of light.
    • In the Raman Effect, when light is scattered off an object, say a molecule, two bands are observed, with a higher and lower frequency than the original light, called the Stokes and anti-Stokes bands, respectively.
    • By studying the relative intensity of the two bands, it is possible to estimate the temperature of the object that scattered the light.
    • The anti-Stokes component of Raman scattering is strongly dependent on the temperature that the material is subjected to.

    Thus, by measuring the intensity of the anti-Stokes scattered light we can estimate the temperature. This is Raman thermometry.

    Try this PYQ:

    Q.Which Indian astrophysicist and Nobel laureate predicted rapidly rotating stars emit polarized light?

    (a) Subrahmanyan Chandrasekhar

    (b) CV Raman

    (c) Ramanujan

    (d) Amartya Sen

    What has IITM achieved?

    • The temperature measurement was performed in not just one location, but in a distributed manner using an optical fibre.
    • To achieve this, a pulse of light was launched into the optical fibre and the backscattered radiation was observed.
    • The time of flight of the backscattered radiation provided an estimate of the distance from which the light is backscattered.
    • This can go up to tens of kilometres. This technique is married to Raman thermometry to get the results for actual measurements over tens of kilometres.

    What makes this experiment special?

    • The distribution Sector considered the weakest link in the entire power sector.
    • We are much aware of Transmission and Distribution loss that is incurred to our DISCOMS.
    • This IITM technology helps analyze transmission efficiencies in a better way.
    • The present method devised by the team is both economical and provides real-time information.

  • Genetics of Eye Color

    Researchers from London have found that eye colour in Asians with different shades of brown is genetically similar to eye colour in Europeans ranging from dark brown to light blue.

    Human Eye Colour

    • Human eye colour ranges from black, brown to blue, green, and even red.
    • Eye colour is primarily determined by melanin abundance within the iris pigment epithelium, which is greater in brown than in blue eyes.
    • There are two forms of melanin – eumelanin and pheomelanin – and the ratio of the two within the iris as well as light absorption and scattering by extracellular components are additional factors that give irises their colour.
    • Absolute melanin quantity and the eumelanin–pheomelanin ratio is higher in brown irises, while blue or green irises have very little of both pigments and relatively more pheomelanin.

    Try this PYQ:

    Q.Recently, LASIK (Lasser Assisted In Situ Keratomileusis) procedure is being made popular for vision correction. Which one of the following statements in this context is not correct?

    (a) LASIK procedure is used to correct refractive errors of the eye

    (b) It is a procedure that permanently changes the shapes of the cornea

    (c) It reduces a person’s dependence on glasses or contact lenses

    (d) It is a procedure that can be done on the person of any age

    What has the research found?

    • Previously a dozen genes (mainly HERC2 and OCA2) were found to influence eye colour.
    • The researchers have now identified 50 new genes for eye colour.
    • Genetic analysis of nearly 0.2 million people across Europe and Asia helped the researchers to identify the new genes.
    • The findings collectively explain over 53% of eye colour variation using common single-nucleotide polymorphisms.

    Outcome of the research

    • Overall, the study outcomes demonstrate that the genetic complexity of human eye colour considerably exceeds previous knowledge and expectations.
    • These findings will help improve our understanding of eye diseases such as pigmentary glaucoma and ocular albinism where pigment levels play a role.

  • Need for national security shield in FDI

     

    Relaxation on Chinese FDI

    • Last April, India had subjected all Chinese FDI to mandatory government screening.
    • The aim was to curb opportunistic takeovers of Indian companies, a concern fuelled by sharp corrections in equity markets in March 2020.
    • Several economies including the US, Australia, Canada and Germany faced similar concerns.
    • They blocked specific takeover attempts, using special laws for national security screening of inward FDI.
    •  In the absence of similar legislation, India did not differentiate between investments which raised genuine national security concerns and those that did not.
    • This is a crucial shortcoming.
    • With market indices now hovering at their peaks, reportedly India may allow Chinese FDI up to 25 per cent in equity under the automatic route.

    Regulation of FDI and issues with it

    • India regulates foreign investments primarily through FEMA.
    • FEMA clearly provides two specific macro-prudential objectives — facilitating external trade and payments; and promoting orderly development and maintenance of foreign exchange markets in India.
    • Accordingly, it empowers the central government and the RBI, acting in consultation with each other, to regulate capital account transactions.
    • These regulations determine who can invest through the FDI route, in which sector and how much.
    • In practice, however, FEMA regulations have often responded to concerns not strictly related to macro-prudential objectives.
    • One such concern has been national security.

    Need for the law to scrutinise FDI from national security angle

    • Shortcoming of FEMA underscores the need for India to emulates its western peers and enact a statute specifically designed for national security screening of strategic FDI.
    • Unlike FEMA, this new statute must explicitly lay down legal principles for determining when a foreign acquisition of an Indian company poses genuine national security threats.
    • In this regard, a policy paper published by the Peterson Institute for International Economics three types of legitimate threats from foreign acquisitions.

    3 Types of threat from foreign acquisitions

    1) Dependency on foreign supplier

    • The first threat arises if a foreign acquisition renders India dependent on a foreign-controlled supplier of goods or services crucial to the functioning of the Indian economy.
    • For this threat to be credible, it needs to be further established that the industry in which the acquisition is supposed to take place is tightly concentrated, the number of close substitutes limited, and the switching costs are high.

    2) Technology transfer

    • The second threat emanates from a proposed acquisition transferring a technology or an expertise to a foreign-controlled entity that might be deployed by that entity or a foreign government in a manner harmful to India’s national interests.
    • The credibility of this threat again depends on whether the market for such technology or expertise is tightly concentrated or if they are readily available elsewhere.

    3) Threat of infiltration, surveillance or sabotage

    • The third threat arises if a proposed acquisition allows insertion of some potential capability for infiltration, surveillance or sabotage via human or non-human agents into the provision of goods or services crucial to the functioning of Indian economy.
    • This threat is particularly credible when the target company supplies crucial goods or services to the Indian government, its military or even critical infrastructure units and the switching costs are high.

    Way forward

    • The above stated 3 types of threats could provide conceptual clarity in the new statute could make national security assessments objective, transparent and amenable to the rule of law.
    • On procedure, the statute must empower only the finance minister to reject certain strategic foreign acquisitions on national security grounds.
    • Both the power and accountability mechanisms should be hardcoded into the statute itself, as is the case in some mature parliamentary democracies.
    • For instance, the Australian Foreign Acquisitions and Takeovers Act, 1975 empowers the treasurer to block certain foreign acquisitions on national security grounds.
    • Similarly, the Investment Canada Act, 1985 empowers a minister to reject certain foreign acquisitions.

    Consider the question “India needs to recognise the national security threat emanating from strategic FDI. This requires identifying threats. In lights of this, examine the types of threats and suggest the ways to deal with it.” 

    Conclusion

    Overall, India’s tryst with Chinese FDI underscores the importance of identifying specific national security threats emanating from strategic FDI and addressing them objectively. This is too sensitive a matter to be left to capital controls under FEMA. A dedicated statute for national security screening of inward FDI would be best suited for handling such issues.

  • Curbing Benzene Emission

    A joint committee appointed by the National Green Tribunal (NGT) to study air pollution in Kerala has pointed out that petrol refuelling stations were a major source of benzene emissions and volatile organic compounds (VOCs).

    Why such a move?

    • Benzene is a major constituent of evaporative emission due to its high volatility.

    Try this PYQ:

    Q.Consider the following:

    1. Carbon monoxide
    2. Methane
    3. Ozone
    4. Sulphur dioxide

    Which of the above are released into atmosphere due to the burning of crop/biomass residue?

    (a) 1 and 2 only

    (b) 2, 3 and 4 only

    (c) 1 and 4 only

    (d) 1, 2, 3 and 4

    What is Benzene?

    • Benzene is a chemical that is a colourless or light yellow liquid at room temperature. It has a sweet odour and is highly flammable.
    • It evaporates into the air very quickly. Its vapour is heavier than air and may sink into low-lying areas.
    • It dissolves only slightly in water and will float on top of the water.

    Its formation and uses

    Benzene is formed from both natural processes and human activities.

    • Natural sources of benzene include volcanoes and forest fires. Benzene is also a natural part of crude oil, gasoline, and cigarette smoke.
    • Some industries use benzene to make other chemicals that are used to make plastics, resins, and nylon and synthetic fibres.
    • It is also used to make some types of lubricants, rubbers, dyes, detergents, drugs, and pesticides.

    Benzene emission

    • The major sources of benzene exposure are tobacco smoke, automobile service stations, exhaust from motor vehicles, and industrial emissions.
    • Benzene is present in both exhaust and evaporative emissions. Motor vehicles account for approximately 85% of the total benzene emissions.
    • However, ingestion and dermal absorption of benzene can also occur through contact with contaminated water.

  • 2001 FO32: the largest asteroid passing by Earth

    On March 21, the largest asteroid predicted to pass by Earth in 2021 will be at its closest. It is called 2001 FO32.

    Try this PYQ:

    Q.Which of the following is/are cited by the scientists as evidence/evidence for the continued expansion of the universe?

    1. Detection of microwaves in space
    2. Observation of redshirt phenomenon in space
    3. Movement of asteroids in space
    4. Occurrence of supernova explosions in space

    Codes:

    (a) 1 and 2 only

    (b) 2 only

    (c) 1, 3 and 4

    (d) None of the above can be cited as evidence.

    2001 FO32

    • There is no threat of a collision with our planet now or for centuries to come.
    • Scientists know its orbital path around the Sun very accurately since it was discovered 20 years ago and has been tracked ever since.
    • It won’t come closer than 2 million km to Earth, but it will present a valuable scientific opportunity for astronomers who can get a good look at a rocky relic that formed at the dawn of our Solar System.

    Proximity to Earth

    • For comparison, when it is at its closest, the distance of 2 million km is equal to 5¼ times the distance from Earth to the Moon.
    • Still, that distance is close in astronomical terms, which is why 2001 FO32 has been designated a “potentially hazardous asteroid”.
    • The reason for the asteroid’s unusually speedy close approach is its highly eccentric orbit around the Sun, an orbit that is tilted 39° to Earth’s orbital plane.
    • This orbit takes the asteroid closer to the Sun than Mercury, and twice as far from the Sun as Mars.
    • Later, the asteroid slows after being flung back out into deep space and swinging back toward the Sun. It completes one orbit every 810 days (about 2¼ years).

    Studying the visitor

    • This asteroid will provide an opportunity for astronomers to get a more precise understanding of the asteroid’s size and albedo (i.e. how bright, or reflective, its surface is), and a rough idea of its composition.
    • When sunlight hits an asteroid’s surface, minerals in the rock absorb some wavelengths while reflecting others.
    • By studying the spectrum of light reflecting off the surface, astronomers can measure the chemical “fingerprints” of the minerals on the surface of the asteroid.

  • Seabuckthorn plantations in Himachal Pradesh

    The Himachal Pradesh government has decided to start planting Seabuckthorn in the cold desert areas.

    What is Seabuckthorn?

    • It’s a shrub that produces an orange-yellow coloured edible berry.
    • In India, it is found above the tree line in the Himalayan region, generally in dry areas such as the cold deserts of Ladakh and Spiti.
    • In Himachal Pradesh, it is locally called Himalayan chharma and grows in the wild in Lahaul and Spiti and parts of Kinnaur.
    • According to the Seabuckthorn Association of India, around 15,000 hectares in Himachal, Ladakh, Uttarakhand, Sikkim and Arunachal Pradesh are covered by this plant.

    Try this PYQ from CSP 2019:

    Q.Recently, there was a growing awareness in our country about the importance of Himalayan nettle (Girardinia diversifolia) because it is found to be a sustainable source of

    (a) anti-malarial drug

    (b) biodiesel

    (c) pulp for paper industry

    (d) textile fibre

    Benefits of the Seabuckthorn plant

    (1) Medicinal benefits

    • As a folk medicine, Seabuckthorn has been widely used for treating stomach, heart and skin problems.
    • In the last few decades, scientific research worldwide has backed many of its traditional uses.
    • Its fruit and leaves are rich in vitamins, carotenoids and omega fatty acids, among other substances, and it can help troops in acclimatizing to high-altitude.

    (2) Ecological benefits

    • Besides being an important source of fuelwood and fodder, Seabuckthorn is a soil-binding plant that prevents soil-erosion, checks siltation in rivers and helps preserve floral biodiversity.
    • In the Lahaul valley, where willow trees are dying in large numbers due to pest attack, this hardy shrub is a good alternative for protecting the local ecology.

    (3) Commercial benefits

    • Seabuckthorn also has commercial value, as it is used in making juices, jams, nutritional capsules etc.
    • But wild Seabuckthorn cannot sustainably supply raw material to the industry, and the plant needs to be cultivated on a large scale as is being done in China.

    What is the latest project?

    • The Seabuckthorn association wants the forest departments of various Himalayan states/UTs to plant Seabuckthorn on arid and marginal lands using compensatory afforestation or CAMPA funds.
    • Recently, the union ministry of environment, forest and climate change asked these states to submit proposals for taking up such plantations.
    • This is in the light of reduced water flow from Himalayan glaciers and their impact on ecology.

  • Working towards climate justice in a non-ideal world

    The new U.S. administration has renewed its commitment to climate actions by reconvening the Major Economies Forum. This has several implications for India and the developing countries. The article deals with this issue.

    Reconvening MEF and its implications for developing countries

    • The election of Joe Biden as U.S. President has catapulted climate change to the top of the global agenda.
    • Interestingly, the U.S. is not just striding back to the Obama signature achievement of the Paris Accord with its voluntary commitments but also to the Bush days [which was not necessarily voluntary].
    • This change is best evidenced by the presidential call to reconvene the Major Economies Forum (MEF).
    • The MEF, which was first convened in March 2009, originated in the Bush-era U.S. efforts to rope in major emitters.
    • It was also to push a way forward on climate change without heed to the principle of differentiated responsibilities and recognition of historical responsibilities.
    • These two are hallowed principles of the climate discourse given the decades of staying power of greenhouse gases (GHGs) in the atmosphere.

    Changing approach implications for India

    • All countries have been told to commit to net zero (GHG emissions) by 2050 with credible plans to ensure meeting this domestic target.
    • Taking a cue from the new U.S. Administration, the UN Secretary-General has even called on countries to declare national climate emergencies apart from building a coalition for a carbon-neutral world by 2050.
    • As of today, countries representing around 65% of global CO2 emissions have already agreed to this.
    • These plans and their implementation will, undoubtedly, be subject to international reviews and verification.
    • Historical responsibilities and differentiation have no place in this discourse; but neither does the level of development.
    • India can easily be in the crosshairs of such a discourse no matter its extraordinarily small carbon footprint in per-capita terms and huge development imperatives.

    Possibility of carbon border levies

    • Adding to the challenges is the distinct possibility of the EU imposing carbon border levies on those who do not take on high carbon cut-down targets and do so unilaterally if there is no global agreement.
    • While as of now the U.S. Administration appears ambivalent on these border levies, the possibility of their coming around cannot be ruled out.
    • In such a scenario, World Trade Organization rules that presently exclude the use of tariffs on environmental grounds will certainly get modified.

    A fund pay-in idea

    • To deal with the issue of climate finance, Raghuram Rajan has recently put forward a proposal for India to consider.
    • The proposal calls on countries to pay into a global fund amounts based on their carbon emissions over and above the global per-capita average of five tons.
    • This obviously disincentives coal in a big way while incentivising renewables.
    • Those above the global average would pay, while those below would receive the monies.
    • While this would suggest a certain equity, it may be unacceptable to the developed countries even though Mr. Rajan has gone along with the drumbeat to forget historical responsibility.
    • For India, such a proposal may appear attractive as India today has per capita CO2 emission of only 2 tons and is a global record setter in pushing renewables.
    • The long-term implications of such a proposal require examination in detail, quite apart from factoring in the twists and turns that negotiations could give to such an idea.
    • And then, of course, there are alternatives such as emission trading. 

    Implications for developing countries

    • The proposal of fund pay-in allows practical considerations to trump fairness by not only giving a short shrift to historical responsibility but also denying priority access to the remaining carbon space for developing countries.
    • In that sense, it double penalises them while giving developed countries a certain free pass.
    • Here it bears noting that more than 75% of the carbon space available to humankind to keep global temperature rises to 1.5° C has already been taken up by the developed world and China.

    Consider the question “As the world seeks to tackle the climate change through climate action, delivering climate justice should also be the priority. In light of this, discuss the challenges faced by the developing countries in this regard.”

    Conclusion

    Climate justice is an imperative for India, which needs to leverage its green and pro-nature commitment to ensure carbon and policy space for its developmental and global aspirations. India’s diplomatic and negotiating efforts must be quickly geared to that end.