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GS Paper: GS3

  • Investors should not be tempted to ignore macroeconomic factors

    Despite gloom in the economy, financial markets are scaling new highs. The situations calls for diligence on the part of individual investors. The deals with this issue.

    What influences investors’ decision

    • Investors may not necessarily be always sensible or even capable of perceiving the larger picture.
    • Nobel laureate Daniel Kahneman argues that humans usually use the ‘first system’ of ‘fast thinking’ to hurriedly act and perceive their environment.
    • Consequently, they are susceptible to the ‘priming effect’, ‘framing bias’, ‘anchoring effect’, ‘overconfidence bias’ and ‘availability heuristic’.
    • These phenomena, thus, play their part in pervading optimistic market conditions.
    • As a result, investors often end up ignoring or overlooking uncertainties and risks involved in their decision.
    • At the same time, investors’ decision choices could be significantly influenced by ‘nudging’.
    • It is a deliberate tactics and method of behaviour modification by which it is the ‘choice architect’ that decides who does what and who does so, as argued by the Nobel laureate, Richard H. Thaler.
    • The present surge in the Indian stock market is indeed nudging individual investors to trade more.

    What makes individual investors vulnerable

    • National Stock Exchange data indicate following trends:
    • The share of the non-institutional individual investors in equity trading volume has risen to one half of the total turnover. in 2021.
    • It was around a third in 2016.
    • In contrast, the share of Foreign Institutional Investors (FIIs) in the total trading volume has shrunk to just about a tenth, it used to be one fifth in 2016.
    • Trading in the stock market, the sudden rise, the intraday moves, etc., are, thus, attributable largely to individual traders now. 
    • However, despite their large trading volumes, individual investors have actually contracted their holding of the market capitalisation.
    • The FIIs currently own around half of the free float of all Indian companies.
    • Apparently, the retail investors have constantly sold their stake to end up holding less than 20% shares now.
    • Trading, thus, seems to be the mainstay of retail investors and this is what makes them more vulnerable to the vagaries of the market.

    Market is ignoring macroeconomic factors

    • Centre for Monitoring Indian Economy Pvt. Ltd. data of the listed companies reveal a rise in their profit, due to rationalisation and cost-cutting.
    • Investors might be tempted to ignore macroeconomic factors and invest in such stock believing that it is the profit that impels the stock prices.
    •  In reality, however, share price is expected to ascend if a company declares to cut its wage bill.
    • This probably explains why stock markets around the world have been on the rise amidst the novel coronavirus pandemic; demand may have declined but profits have been least impacted.
    • At the larger economic level, however, real wages have plunged.
    • Clearly, the market has not entirely decoupled itself from the economic indicators.
    • Established wisdom suggests that corporates cannot sustain contraction in the economy for long.
    • Sustained decline in demand caused by waning disposable household income would catch them soon.
    • Robert J. Shiller attributes this phenomenon of creating a possible bubble to irrational exuberance.
    • When bubbles burst, they cause a kind of financial earthquake, in turn destabilising public trust in the integrity of the financial system.
    • Critically, as the past portrays, individual investors, with all their vulnerabilities, suffer the most devastating consequences.
    • Retail investors are as well susceptible to overreaction when negative news hits the market.

    Consider the question “What are the factors driving the financial markets up despite the weak macroeconomic foundations? What are the risks involved in such situation for the individual investors?”

    Conlcusion

    History of financial markets is replete with bubbles and bursts. Most affected in such burst are the individual investors. Informed decisions based on information and risks involved should form the basis of investment by individual investors.

  • What is the Purchasing Managers’ Index (PMI)?

    India’s manufacturing industry has slid back to a decline in June, as per the IHS Markit Manufacturing Purchasing Managers’ Index (PMI).

    Purchasing Managers’ Index

    • PMI is an indicator of business activity — both in the manufacturing and services sectors.
    • It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
    • It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
    • The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

    How is the PMI derived?

    • The PMI is derived from a series of qualitative questions.
    • Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.

    How does one read the PMI?

    • A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
    • Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
    • If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.

    What are its implications for the economy?

    • The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available.
    • It is, therefore, considered a good leading indicator of economic activity.
    • Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later.
    • Central banks of many countries also use the index to help make decisions on interest rates.

  • Global Cybersecurity Index 2020

    India has made it to the top 10 in Global Cybersecurity Index (GCI) 2020 by ITU, moving up 37 places to rank as the tenth best country in the world on key cybersafety parameters.

    Global Cybersecurity Index

    • GCI assessment is done on the basis of performance on five parameters of cybersecurity including legal measures, technical measures, organizational measures, capacity development, and cooperation.
    • The performance is then aggregated into an overall score.
    • For each of the five aspects, all the countries’ performance and commitment are assessed through a question-based online survey, which further allowed for the collection of the supporting evidence.

    India’s progress

    • As per the ranking, India has moved up by 37 places to rank as the tenth best country in the world.
    • The US topped the chart, followed by the UK and Saudi Arabia tied on the second position, while Estonia was ranked third in the index.
    • India has also secured the fourth position in the Asia Pacific region, underlining its commitment to cybersecurity.

    Its significance

    • The affirmation by the UN body of India’s efforts on cybersecurity comes just ahead of the sixth anniversary of Digital India on July 1.
    • India is emerging as a global IT superpower, asserting its digital sovereignty with firm measures to safeguard data privacy and online rights of citizens.

    Back2Basics: International Telecommunication Union

    • ITU is the United Nations specialized agency for information and communication technologies – ICTs.
    • Founded in 1865 to facilitate international connectivity in communications networks. It is Headquartered in Geneva, Switzerland.
    • It allocates global radio spectrum and satellite orbits, develops the technical standards that ensure networks and technologies seamlessly interconnect, and strives to improve access to ICTs to underserved communities worldwide.
    • Recently, India got elected as a member of ITU Council for another 4-year term – from 2019 to 2022. India has remained a regular member since 1952.

  • Can India avoid a telecom duopoly?

    The Indian telecom sector faces the prospect of duopoly due to the impending exit of Vodafone-Idea. This has several implications.

    India’s telecom sector: From monopoly to hyper-competition

    • India’s telecom market has seen monopoly as well as hyper-competition.
    • Twenty-five years ago, the government alone could provide services.
    • Ten years later, there were nearly a dozen competing operators. Most service areas now have four players.
    • However, the possible exit of the financially-stressed Vodafone Idea would leave only two dominant players-Airtel and Jio in the telecom sector.
    • A looming duopoly, or the exit of a global telecommunications major, are both worrying.
    • They deserve a careful and creative response.

    Why it matters

    • Competition has delivered relatively low prices, advanced technologies, and an acceptable quality of services.
    • There is a long way to go in expanding access as well as network capacity.
    • For example, India is ranked second globally—after China—in the number of people connected to the internet.
    • However, it is also first in the number of people unconnected.
    • Over 50% of Indians are not connected to the internet, despite giant strides in network reach and capacity. India tops aggregate mobile data usage.
    • However, its per capita or device data usage is low.
    • It has an impressive 4G mobile network, however, its fixed network—wireline or optical fibre—is sparse and often poor.
    • 5G deployment has yet to start and will be expensive.
    • Filling the gaps in infrastructure and access will require large investments and competition.
    • The exit of the Vodafone-Idea will hurt both objectives.
    • The closure of Vodafone Idea is an arguably greater concern than the fading role of BSNL and MTNL.
    • The government companies are yet to deploy 4G and have become progressively less competitive.
    • Vodafone Idea, on the other hand, still accounts for about a quarter of subscriptions and revenues and can boast of a quality network.

    Way out

    1) Strategic partnership with BSNL-MTNL

    • A possible way out could be to combine the resources of the MTNL and BSNL and Vodafone Idea through a strategic partnership.
    • Creative government action can save Vodafone Idea as well as improve the competitiveness of BSNL and MTNL.
    • It could help secure government dues, investments, and jobs.

    2) Develop resale market

    • Global experience suggests that well-entrenched incumbents have massive advantages.
    • New players are daunted by the large investments.
    • However, regulators and policymakers have other options to expand choice for telecom consumers.
    • Their counterparts in mature regulatory regimes—e.g., in the European Union—have helped develop extensive markets for resale. 
    • Recognising the limited influence of smaller players, regulators mandate that the incumbent offer wholesale prices to resellers who then expand choice for end-users.
    • A key barrier to resale is India’s licence fee regime which requires licence-holders to share a proportion of their revenues with the government.

    Conclusion

    It would be tragic if India’s telecom-access market was to be reduced to only two competing operators, as we have a long way to go. The government needs to consider the implications of the situation arising due to the exit of one of the major players in the sector.

    Source:

    https://www.financialexpress.com/opinion/failing-to-connect-can-india-avoid-a-telecom-duopoly/2281486/

  • What is the Human Genome Project?

    Since the release of the draft human genome sequence in 2001, sections were left unsequenced, and some sequence information was incorrect. Now, two decades later, we have a much more complete version.

    What is the human genome sequence?

    • The human genome sequence is contained in our DNA and is made up of long chains of “base pairs” that form our 23 chromosomes.
    • Along our chromosomes are the base pair sequences that form our 30,000 genes.
    • All humans share a great degree of similarity in their genome sequences – the same genes are ordered in the same manner across the same chromosomes.
    • Each of us is unique (except for identical twins) in terms of the exact base pair sequence that makes up our genes and thus our DNA/chromosomes.
    • It is this similarity that, in a genetic sense, defines us as “human” and the specific variation that defines us as individuals.

    The Human Genome Project

    • As early as the 1980s, momentum was gathering behind activities that supported, and would eventually define, the Human Genome Project.
    • Conversations had turned into workshops that likened characterization of the human genome to characterization of the human anatomy that had centuries earlier revolutionized the practice of medicine.
    • In 1990, with continued support from the US and widespread international collaboration and cooperation, the $3 billion dollar Human Genome Project was launched.
    • The project aimed to determine the sequence of the human genome within 15 years.
    • By 2000 (well ahead of schedule) a working draft of the human genome was announced.
    • This was followed by regular updates and refinements and today we all have access to a human “reference genome sequence”.

    Why did it take 20 years?

    • Much of the newly sequenced material is the “heterochromatic” part of the genome.
    • This is more “tightly packed” than the euchromatic genome and contains many highly repetitive sequences that are very challenging to read accurately.
    • These regions were once thought not to contain any important genetic information but they are now known to contain genes that are involved in fundamentally important processes such as the formation of organs during embryonic development.
    • Among the 200 million newly sequenced base pairs are an estimated 115 genes predicted to be involved in producing proteins.

    Two key factors made the completion of the human genome possible:

    1. Choosing a very special cell type
    • The new sequence was created using human cells derived from a very rare type of tissue called a complete hydatidiform mole, which occurs when a fertilized egg loses all the genetic material contributed to it by the mother.
    • Most cells contain two copies of each chromosome, one from each parent and each parent’s chromosome contributing a different DNA sequence.
    • A cell from a complete hydatidiform mole has two copies of the father’s chromosomes only, and the genetic sequence of each pair of chromosomes is identical.
    • This makes the full genome sequence much easier to piece together.
    1. Advances in sequencing technology
    • A new method called “shotgun sequencing”, involved breaking the genome into very small fragments of about 200 base pairs, cloning them inside bacteria, deciphering their sequences, and then piecing them back together like a giant jigsaw.
    • This was the main reason the original draft covered only the euchromatic regions of the genome — only these regions could be reliably sequenced using this method.
    • The latest sequence was deduced using two complementary new DNA-sequencing technologies.

    Is the genome now completely sequenced?

    • Well, no. An obvious omission is the Y chromosome, because the complete hydatidiform mole cells used to compile this sequence contained two identical copies of the X chromosome.
    • However, this work is underway and the researchers anticipate their method can also accurately sequence the Y chromosome, despite it having highly repetitive sequences.
    • Even though sequencing the (almost) complete genome of a human cell is an extremely impressive landmark, it is just one of several crucial steps towards fully understanding humans’ genetic diversity.

    What’s next?

    • The next job will be to study the genomes of diverse populations (the complete hydatidiform mole cells were European).
    • Once the new technology has matured it will be better positioned to make a more significant impact on our understanding of human history, biology and health.
    • Both care and technological development are needed to ensure this research is conducted with a full understanding of the diversity of the human genome to prevent health disparities.

    Answer this PYQ in the comment box:

    Q.With reference to the recent developments in science, which one of the following statements is not correct?

    (a) Functional chromosomes can be created by joining segments of DNA taken from cells of different species.

    (b) Pieces of artificial functional DNA can be created in laboratories.

    (c) A piece of DNA taken out from an animal cell can be made to replicate outside a living cell in a laboratory.

    (d) Cells taken out from plants and animals can be made to undergo cell division in laboratory petri dishes.

  • [pib] What are Gamma Ray Burst (GRB) Explosion?

    The emission from the most notable Gamma Ray Burst (GRB) explosion away from 4.5 billion light-years has been traced by Indian researchers.

    What are GRB Explosions?

    • GRBs are immensely energetic explosions that have been observed in distant galaxies.
    • They are the brightest and most energetic electromagnetic events known to occur in the universe.
    • Bursts can last from ten milliseconds to several hours.
    • After an initial flash of gamma rays, a longer-lived “afterglow” is usually emitted at longer wavelengths (X-ray, ultraviolet, optical, infrared, microwave and radio).
    • The intense radiation of most observed GRBs is thought to be released during a supernova or superluminous supernova as a high-mass star implodes to form a neutron star or a black hole.

    What makes GRB special?

    • The explosions are both extremely energetic (a typical burst releases as much energy in a few seconds as the Sun will in its entire 10-billion-year lifetime) and extremely rare.
    • All observed GRBs have originated from outside the Milky Way galaxy, although a related class of phenomena, soft gamma repeater flares, are associated with magnetars within the Milky Way.
    • It has been hypothesized that a gamma-ray burst in the Milky Way, pointing directly towards the Earth, could cause a mass extinction event.

    Answer this PYQ in the comment box:

    Q.Which of the following is/are cited by the scientists as evidence/evidences for the continued expansion of universe? (CSP 2012)
    1. Detection of microwaves in space
    2. Observation of red shift phenomenon in space
    3. Movement of asteroids in space
    4. Occurrence of supernova explosions in space
    Select the correct answer using the codes given below:

    (a) 1 and 2 only

    (b) 2 only

    (c) 1, 3 and 4

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

  • [pib] NATRAX: Asia’s longest and world’s fifth longest High-Speed Track

    Minister of Heavy Industries and Public Enterprises has inaugurated the 11.3 km NATRAX- the High-Speed Track (HST) in Indore which is the longest such track in Asia.

    NATRAX

    • NATRAX, developed in an area of 1000 acres of land is a one-stop solution for all sorts of high-speed performance tests for the widest categories of vehicles from 2 wheelers to heavy tractor-trailers.
    • It has multiple test capabilities like measurements of maximum speed, acceleration, constant speed fuel consumption.
    • It can conduct emission tests through real road driving simulation, high-speed handling and stability evaluation during manoeuvred such as lane change, high-speed durability testing, etc.
    • Also, it is a Centre of excellence for Vehicle Dynamics.

    Features of the HST

    • The vehicle can achieve a max speed of 375 Kmph on curves with steering control and it has less banking on ovals making it also one of the safest test tracks globally.
    • It is the one-stop solution for all sorts of high-speed performance tests, being one of the largest in the world.
    • It can cater to the widest category of vehicles; say from two-wheelers to the heaviest tractor trailers

    Its significance

    • HST is used for measuring the maximum speed capability of high-end cars like BMW, Mercedes, Audi, Ferrari, Lamborghini, Tesla and so forth which cannot be measured on any of the Indian test tracks.
    • Being centrally located in Madhya Pradesh, it is accessible to most of the major OEMs.
    • Foreign OEMs will be looking at NATRAX HST for the development of prototype cars for Indian conditions.
    • At present, foreign OEMs go to their respective high-speed track abroad for high-speed test requirements.

  • [pib] PMFME Scheme

    The centrally sponsored Pradhan Mantri Formalization of Micro food processing Enterprises (PMFME) Scheme, launched under the Aatmanirbhar Bharat Abhiyan marks the completion of its one year.

    PMFME Scheme

    • The PMFME Scheme is a centrally sponsored scheme that aims to enhance the competitiveness of existing individual micro-enterprises in the unorganized segment of the food processing industry.
    • It aims to enhance the competitiveness of existing individual micro-enterprises in the unorganized segment of the food processing industry and promote formalization of the sector,
    • It further aims to promote formalization of the sector and provide support to Farmer Producer Organizations, Self Help Groups, and Producers Cooperatives along their entire value chain.
    • The scheme envisions to directly assist the 2,00,000 micro food processing units for providing financial, technical, and business support for upgradation of existing micro food processing enterprises.

    Major component of the scheme

    One District One Product

    • Under the One District One Product (ODOP) component of the PMFME Scheme, the Ministry of Food Processing Industries approved ODOP for 137 unique products.
    • The GIS ODOP digital map of India has been launched to provide details of ODOP products of all the States and UTs.
    • The digital map also has indicators for Tribal, SC, ST, and aspirational districts.
    • It will enable stakeholders to make concerted efforts for its value chain development.

  • Appointing Army officials as advisers for anti-Maoist operations in the Home Ministry

    Doubts are often raised on the ability of CAPF whenever it suffers a setback. It is also suggested that  ex-servicemen from the Army should be inducted into the CAPF. The article argues against such suggestions.

    Experience of CAPF

    • The allegations that CAPF personnel are not well-trained falls flat when we look into the history of these paramilitary forces.
    • Border Security Force (BSF) and Central Reserve Police Force (CRPF) personnel were in the battlefront in the 1971 India-Pakistan war and won medals.
    • As part of the Indian Peace Keeping Force in Sri Lanka, CRPF personnel fought the militants there.
    • In 1965, at Sardar Post in the Raan of Kutch, a small contingent of CRPF repulsed a Brigade strength attack of the Pakistan Army.
    • In Punjab, it was the CRPF alongside the Punjab Police that brought the situation under control.
    • Credit for peace and tranquillity in the north-eastern States goes in large measure to the CAPF personnel.

    Will appointing Army officials as advisers help?

    • The Army has never fought against the Maoists.
    • It is absurd to appoint Army officials as advisers for anti-Maoist operations in the Ministry of Home Affairs.
    • What sort of advice can they be expected to render to the experts of the CAPFs in the field who have spent a major part of their lives combating insurgents and extremists?

    Versatile force

    • The Greyhounds, a specialised commando outfit of erstwhile Andhra Pradesh, was able to inflict heavy casualties on Maoists forcing them to migrate to neighbouring States.
    • The elite Commando Battalion for Resolute Action (CoBRA) has played a stellar role in killing some top Maoist leaders and continue to be dreaded by the Maoists.
    • The CAPFs have well-established training centres across the country with instructors of high calibre.

    Conclusion

    The fact that they are able to tackle terrorism in Kashmir, fight the Maoists in left wing extremism-affected States, combat insurgency in the Northeast, ensure smooth conduct of elections and control riots across the country speaks volumes about their versatility .

  • Privatisation of public sector enterprises in India

    The article suggests the privatisation of public sector enterprises by analysing their performance and devising strategy for privatisation accordingingly.

    Three categories of public sector enterprises

    1) Sick for long time and beyond redemption

    • There is the category of enterprises which have been sick for a long time.
    • Their technology, plants and machinery are obsolete. 
    • They should be closed, and assets sold.
    • The labour in these enterprises have had a political constituency which has prevented closure.

    What should be done with these enterprises?

    • The Government should close these in a time-bound manner with a generous handshake for labour.
    • After selling machinery as scrap, there would be valuable land left.
    • Prudent disposal of these plots of lands in small amounts would yield large incomes in the coming years.
    • All this would need the creation of dedicated efficient capacity as the task is huge and challenging.
    • These enterprises may be taken away from their parent line Ministries and brought under one holding company.
    • This holding company should have the sole mandate of speedy liquidation and asset sale.

    2) Financially troubled but can be turned around

    • Private management through privatisation or induction of a strategic partner is the best way to restore value of these enterprises.
    • Air India and the India Tourism Development Corporation (ITDC) hotels are good examples.

    What should be done with these enterprises?

    • Air India should ideally be made debt free and a new management should have freedom permitted under the law in personnel management to get investor interest.
    • As valuation rises, the Government could reduce its stake further and get more money.
    • If well handled, significant revenues would flow to the Government.

    3) Profitable enterprises

    • Pragmatism instead of ideology should guide thinking about them.
    • The Chinese chose to nurture their good state-owned enterprises as well as their private ones to succeed in the domestic and global markets by increasing their competitiveness in cost, quality, and technology.
    • The Chinese chose to promote both their public as well as their private sector enterprises to rise.
    • Both have made China the economic superpower that it is today.

    What should be done with profitable enterprises?

    • The Government can continue to reduce its shareholding by offloading shares and even reducing its stake to less than 51% while remaining the promoter and being in control.
    • Calibrated divestment to get maximum value should be the goal instead of being target driven to get a lower fiscal deficit number to please rating agencies.
    • In parallel, managements may be given longer and stabler tenures, greater flexibility to achieve outcomes, and more confidence to take well-considered commercial risks.

    Challenges

    • First, the number of Indian private firms which can buy out public sector firms are very few.
    • Their limited financial and managerial resources would be better utilised in taking over the large number of private firms up for sale through the bankruptcy process.
    • Then, these successful large corporates need to be encouraged to invest and grow both in brownfield and greenfield modes in the domestic as well as international markets.
    • Sale at fair or lower than fair valuations to foreign entities, firms as well as funds, has adverse implications from the perspective of being ‘Atma Nirbhar’.
    • Again, greenfield foreign investment is what India needs and not takeovers.
    • Public sector enterprises provide for reservations in recruitment.
    • With privatisation, this would end and unnecessarily generate social unrest.

    Conclusion

    Would it be in India’s interest to lose the strategic capacity that its ownership of public enterprises including financial ones provide it? It would be better to think carefully now.