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GS Paper: GS3

  • Laws that have distorted agriculture and labour markets need to go

    The article suggests the two steps to ensure growth while protecting the poor. The first is the creation of social safety net and next is factor market reforms.

    Issue of farmers’ income

    • An Indian engaged in industry or any aspect of the services sector (this includes a waiter in a restaurant) earns more than an average farmer.
    • This is an anomaly.
    • So, despite all the pro-farmer laws and protection, why do farmers in India earn less?
    • A recent study by RBI showed that across all crops, the farmgate price is 40-60 per cent less than the consumer price.
    • The real challenge is how to encourage growth while protecting the poor.

    Encouraging growth while protecting the poor: 2 steps

    • 1) A social safety net needs to be created to provide direct income transfers to the vulnerable.
    • 2) Factor markets involving labour and agricultural land need to be reformed to ensure productivity-enhancing growth.
    • Only way to ensure growth which benefits the poor is through employment creating in the manufacturing and services sector.

    1) Social safety nets in India

    • Despite a narrow tax base, India has created a comprehensive social safety net, which can cushion growth-enabling market reforms.
    • Accurate targeting under India’s Food Security Act to the bottom 67 per cent through Aadhaar identification and digital ration cards paired with E-POS machines has considerably reduced the leakage of subsidised grains.
    • The National Social Assistance programme intends to provide direct income support to over 40 million elderly landless agricultural workers, poor women-headed households and families with physically-challenged children.
    • India also provides income support annually to 145 million farmers, paying out Rs 75,000 crore.
    • This benefits all farmers while MSP benefits only 6 per cent of farm produce.

    2) Factor market reforms

    • If state support for social safety net has to become sustainable, wide-ranging growth, which will broaden the tax base, is essential.
    • India’s growth itself can be designed to reduce the number of people who need state support.
    • The agriculture and labour reforms recently passed create the conditions for productivity-enhancing growth, benefiting millions of small farmers and unorganised workers.

    Let us take a look at what the farm laws achieve and how they will change the status quo

    1) Amendment to Essential Commodities Act

    • The stock limits under the Essential Commodities Act do not enable large tur or moong and rice processors to procure in bulk for their entire season’s processing requirements.
    • This restricts large-scale processing units which can run throughout the non-harvest season.
    • This draconian anti-farmer rule has now been done away with.
    • This will enable the expansion of agro-processing and supply chains.
    • A larger share of the produce procured for agro-processing increases its shelf life, enabling the farmer to retain a greater value.
    •  30-40 per cent of the post-harvest value, particularly in vegetables and fruits, is lost due to inadequate storage, processing and transportation facilities.
    • Removal of stock limits and the accompanying contract farming act will bring in investments to tap the wasted resource.

    2) APMC regulation

    • The second law, removes another distortion: Only traders registered in APMCs can buy farmers produce.
    • Even though conditions for perfect markets exist, the APMC regulation creates this bottleneck.
    • Intermediaries extract a greater share of value as they are price makers while farmers are price takers.
    • This situation is further aggravated as farmers are restricted to selling within the taluka boundaries or limits of the APMC, and if they have to sell in other APMC, they have to pay the APMC tax.
    • The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill 2020 confines the authority of the APMC to levy fees and give trader licences within the boundary of the market yard.
    • Farmers will continue to have the option to sell in APMCs but any private market/non-APMCs registered trader can also set up an agricultural market and compete with APMCs to buy the same produce.
    • Karnataka implemented the Uniform Market portal in 2014, enabling trade across taluka APMC limits without APMC fees.
    • An analysis by researchers at the MIT Sloan School of Management has shown that prices of many agricultural goods increased by 3.5 to 5.1 per cent.
    • Significantly, profit margins of small farmers increased by more than 36 per cent.

    Labour reforms

    • Apart from agriculture, the abundance of labour is the second greatest comparative advantage of India.
    • However, multiple labour laws instead of encouraging employment, have created disincentives for job creation due to high costs of compliance.
    • While India’s employment elasticity with respect to GDP growth is only 0.2, China’s is at 0.44. Even for Bangladesh, the elasticity is 0.38.
    • India’s path-breaking labour reforms leverage the true comparative advantage of the country’s factor endowments to promote growth with higher employment elasticity.
    • The old labour laws protected existing jobs at the cost of preventing new job creation through creative destruction.
    • Bangladesh has shown the way to increase formal jobs by legalising fixed-term employment and banning union activity in FDI industries.
    • Raising the threshold for seeking prior permission for laying off workers will enable capital and land locked in sunset industries to move freely to new sunrise industries.

    Consider the question “An Indian engaged in industry or any aspect of the services sector earns more than an average farmer. What are the factors responsible for this anomaly? Suggest ways to achieve growth that could ensure sustainable safety net?”

    Conclusion

    The need of the hour is to continuously communicate with those unhappy with the reforms to explain how the current status quo is hurting farmers and informal workers.

  • ‘Toolkit’ tweeted by Greta Thunberg

    The Delhi Police filed an FIR on charges of sedition, criminal conspiracy and promoting hatred against the creators of a ‘toolkit’ on farmer protests, which was shared by climate activist Greta Thunberg.

    Q.What do you mean by a social media toolkit? Discuss its potential mis-uses.

    What is a Toolkit?

    • A toolkit is essentially a set of adaptable guidelines or suggestions to get something done. The contents differ depending on what the aim of the toolkit is.
    • For example, the Department for Promotion of Industry and Internal Trade (DPIIT) has a toolkit for the implementation of Intellectual Property Rights (IPR).
    • This includes basics such as the guidelines to follow when investigating IPR violations, applicable laws, and definitions of terms such as counterfeit and piracy.
    • In the context of protests, a toolkit usually includes reading material on the context of the protest, news article links and methods of protest (including on social media).

    Why have they gained prominence?

    • While toolkits have been around for decades, the accessibility of social media has brought them into the spotlight over the past few years.
    • References to toolkits for protesters can be found in the Occupy Wall Street protests of 2011, in the Hong Kong protests of 2019, several climate protests across the world, anti-CAA protests across India.
    • During the Hong Kong protests, toolkits advised participants to wear masks and helmets to avoid being recognised and ways to put out tear gas shells.
    • During the anti-CAA protests, a toolkit suggesting twitter hashtags to use, places to hold protests, and a guide on what to do and carry with you if you are detained by the police were shared on social media.

    Toolkit tweeted by Greta Thunberg

    • The 18-year-old shared a toolkit on Twitter on the anti-farm law protests in India.
    • This came on the heels of singer-businesswoman tweeting a news article on internet curbs near protest sites in and around Delhi.
    • The toolkit tweeted by Thunberg was later deleted, with the activist saying it was being updated by people on the ground in India.
    • The toolkit asked those interested to start a ‘Twitter storm’ to share solidarity photo/video message by social media users.

    It is being speculated that the document was proof that an international conspiracy is being hatched to defame India and the central government over the ongoing farmers’ protest.

    What is the recent apprehension?

    • The police have said that during the inquiry it appears that the toolkit was created by Poetic Justice Foundation.
    • It says the prior action section delineated the action plan for January 26, when violence was seen at several areas as a group of farmers diverted from the set route and started marching towards the Red Fort.
    • The unfolding of events over the past few days, including the violence of 26th January, has revealed copycat execution of the ‘action plan’ detailed in the tool kit.
    • The intention of the creators of the tool kits appeared to be to create disharmony among various social, religious and cultural groups and encourage disaffection and ill-will against the state and the nation at large.

  • Denmark’s artificial energy island project

    The Danish government has approved a plan to build an artificial island in the North Sea as part of its effort to switch to green energy.

    The Energy Island concept provides an innovative solution for countries like India grappled with the scarcity of land required for RE projects!

    What is Energy Island?

    • An energy island is based on a platform that serves as a hub for electricity generation from surrounding offshore wind farms.
    • The idea is to connect and distribute power between Denmark and neighbouring countries.

    What is the Danish project?

    • Denmark has already entered into agreements with the Netherlands, Germany and Belgium to begin the joint analysis of connections in the energy island.
    • The project is being called the largest construction project to be undertaken in Denmark’s history with an estimated cost of DKK 210 billion.
    • In June 2020, the Danish Parliament decided to initiate the construction of two energy islands, which will export power to mainland Denmark and neighbouring countries.
    • One of these islands will be located in the North Sea and the second island, called the island of Bornholm, will be located in the Baltic Sea.
    • The artificial island will be located about 80 km into the North Sea and the majority of it will be owned by the Danish government.

  • What are Government Securities (G-Secs)?

    The RBI has said that it would allow retail investors and other small investors direct access to its government securities trading platform.

    What are G-Secs?

    • These are debt instruments issued by the government to borrow money.
    • The two key categories are:
    1. Treasury bills (T-Bills) – short-term instruments which mature in 91 days, 182 days, or 364 days, and
    2. Dated securities – long-term instruments, which mature anywhere between 5 years and 40 years

    Note: T-Bills are issued only by the central government, and the interest on them is determined by market forces.

    Why G-Secs?

    • Like bank fixed deposits, g-secs are not tax-free.
    • They are generally considered the safest form of investment because they are backed by the government. So, the risk of default is almost nil.
    • However, they are not completely risk-free, since they are subject to fluctuations in interest rates.
    • Bank fixed deposits, on the other hand, are guaranteed only to the extent of Rs 5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

    Who can invest in Corporate Bonds and Government Securities?

    • Pension Funds: Pension funds can also invest in both corporate bonds and government securities to ensure long-term stability and growth in their investment portfolio. .
    • Retail Investors: Retail investors, including individual investors, can invest in both corporate bonds and government securities.
    • Insurance Companies: Insurance companies can invest in both corporate bonds and government securities as part of their investment portfolio. The search results indicate that insurance companies often invest in a mix of low-risk and high-yield assets, with government securities providing lower risk and corporate bonds offering higher returns.

    Retail investors and G-Secs

    • Small investors can invest indirectly in g-secs by buying mutual funds or through certain policies issued by life insurance firms.
    • To encourage direct investment, the government and RBI have taken several steps in recent years.
    • Retail investors are allowed to place non-competitive bids in auctions of government bonds through their Demat accounts.
    • Stock exchanges act as aggregators and facilitators of retail bids.

    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

    Why the current proposal?

    • The g-sec market is dominated by institutional investors such as banks, mutual funds, and insurance companies. These entities trade in lot sizes of Rs 5 crore or more.
    • So, there is no liquidity in the secondary market for small investors who would want to trade in smaller lot sizes.
    • In other words, there is no easy way for them to exit their investments.
    • Thus, currently, direct g-secs trading is not popular among retail investors.

    What will the current proposal do?

    • The details are not out yet. However, the RBI’s intention is to make the whole process of g-sec trading smoother for small investors.
    • By allowing people to open accounts in RBI’s e-kuber system, it is hoping to create a market of small investors who will invest in these instruments.

    Why such a move?

    • The RBI is the debt manager for the government.
    • In the forthcoming financial year, the government plans to borrow Rs 12 lakh crore from the market.
    • When the government demands so much money, the price of money (i.e., the interest rate) will move up.
    • It is in the government’s and RBI’s interest to bring this down.
    • That can only happen by broadening the base of investors and making it easier for them to buy g-secs.

  • [pib] Hathkargha Samvardhan Sahayata (HSS) Yojana

    The Ministry of Textiles introduced the technology up-gradation scheme called Hathkargha Samvardhan Sahayata (HSS) Yojana.

    Much recently, in the budget, the Mega Investment Textiles Parks (MITRA) Scheme was launched.

    HSS Yojana

    • This scheme is introduced as an up-gradation scheme under National Handloom Development Programme (NHDP) and Comprehensive Handloom Cluster Development Scheme (CHCDS) in 2015-16.
    • It aims to provide upgraded looms/accessories to handloom weavers to improve the quality of the fabric and enhance productivity.
    • Under the scheme, the Union Govt bears 90% of the cost of looms/accessories.
    • It is designed for all the weavers, including SC/ST/OBC and women.
    • The performance of this scheme will be evaluated by independent third-party agencies.

  • [pib] Startup India Seed Fund Scheme

    Startup India Seed Fund Scheme (SISFS) has been approved for the period of next four years starting from 2021-22.

    Seed Fund Scheme

    • The scheme aims to provide financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization.
    • 945 Crore corpus will be divided over the next 4 years for providing seed funding to eligible startups through eligible incubators across India.
    • The scheme is expected to support about 3600 startups.

    Q.Discuss various inherent non-policy challenges to Start-ups in India.(150W)

    What is Seed Funding?

    • Seed funding or seed-stage funding is a very early investment which aims at helping a business grow and generating its own capital.
    • Also referred to as seed money or seed capital, investors often get an equity stake in exchange for the capital invested.
    • The investors can themselves be the founders and use their savings as seed money for their new company — also known as bootstrapping.

    Why Seed Funding matters?

    • It is a fact that starting a new business and lifting it up off the ground is a huge ask for most entrepreneurs and it only gets tougher with capital constraints.
    • Seed funding helps get things started before the business earns any revenue.
    • It is an effective solution for startups and growing businesses as it provides the much-needed early monetary support.
    • It can cover everything from infrastructure costs, marketing and development costs as well as the cost of initial hiring. Investment is the fuel of any business and seed funding is the first drop of this fuel.
    • As seed money becomes much-needed cash reserve or working capital, not having it is one of the main reasons for failure.

    Various options for Seed Funding

    • Crowdfunding
    • Corporate seed funds
    • Incubators Accelerators
    • Angel investors
    • Personal Savings
    • VC Funding
    • Angel Funds or Angel Networks

  • The reason that India cannot afford to go on a debt binge

    The article discusses the challenges associated with the Budget with a high fiscal deficit.

    Change in government’s stance

    • India’s economy has suffered more than most from the covid pandemic and so have its people.
    • Its economic contraction has put pressure on its government, like so many others, to respond.
    • Until this week, government’s response had been relatively restrained.
    • The government implied that any welfare-promoting and growth-enhancing measures had to stand on a solid macro-economic foundation.
    • The federal budget for the next financial year, 2021-22, with the fiscal deficit for the current fiscal at 9.5% of gross domestic product (GDP) has changed that optimistic narrative.
    • The government has effectively abandoned its long-term commitment to bring the deficit down to close to 3% of GDP, pitching instead for a gentle descent to 4.5%—six years from now.

    Implications of high fiscal deficit

    • Once the covid pandemic retreats, India might end up with a debt-to-GDP ratio of about 90%, compared to the low 70s at present.
    • It would be saddled with a permanently elevated fiscal deficit and a financial system bogged down by high levels of bad debt.
    • Consumer price inflation has topped the Reserve Bank of India’s target zone of 2%-6% since the covid lockdown began last year.
    • Unlike the US or China, countries in India’s position—which have neither a reserve currency nor strong growth momentum—cannot grow rapidly while exploding their debt.
    • They can’t afford to ignore rating agencies because of their supposed bias, or cock a snook at bond markets and just run the currency presses instead.
    • They need to grow in order to reduce their debt. That’s a very different dynamic.
    • India isn’t so attractive that it can expect vast sums of investment to arrive even if its macro-economic numbers look bad and its sovereign rating is junk.
    • We don’t have a history of deflation, we aren’t hitting the zero lower bound.
    • It’s quite the opposite; we have an economy prone to sustained high inflation.
    • India is not in a position in which it could build really productive assets using sustained deficit.
    • This is still a developing economy, which especially in bad times should tread carefully rather than throw caution to the winds.

    Rationale behind high spending

    • The government is hoping that increased spending will help India grow out of this predicament.
    • The only way India can pull itself out of this jam is if private investment pours into the country, financing projects that push up the country’s potential growth rate.
    • Yet the government, already monopolizing domestic financial savings, seems to want to go to war with global markets as well.

    Consider the question “Fiscal deficit figures for FY21 marks the end of India’s departure from the path of fiscal consolidation. Discuss the challenges posed by such high fiscal deficit to the Indian economy.

    Conclusion

    India’s greatest strength had been his commitment to fiscal responsibility. The path of fiscal adventurism could end up leaving India’s macroeconomy vulnerable.

  • Square Kilometre Array Observatory

    The Square Kilometre Array Observatory (SKAO) Council held its maiden meeting and approved the establishment of the world’s largest radio telescope.

    Note all important telescopes in news and their features. Some of them are – Thirty Meter Telescope, Giant Metrewave Radio Telescope, Spitzer, Chandra etc.

    SKAO

    • It is a new intergovernmental organisation dedicated to radio astronomy and is headquartered in the UK.
    • At the moment, organisations from ten countries are a part of the SKAO.
    • These include Australia, Canada, China, India, Italy, New Zealand, South Africa, Sweden, the Netherlands and the UK.

    What are radio telescopes?

    • Unlike optical telescopes, radio telescopes can detect invisible gas and, therefore, they can reveal areas of space that may be obscured by cosmic dust.
    • Significantly, since the first radio signals were detected by physicist Karl Jansky in the 1930s, astronomers have used radio telescopes to detect radio waves emitted by different objects in the universe and explore it.
    • According to NASA, the field of radio astronomy evolved after World War II and became one of the most important tools for making astronomical observations since.

    The Arecibo telescope in Puerto Rico, which was the second-largest single-dish radio telescope in the world, collapsed in December 2020.

    Significance of SKA telescope

    • The telescope, proposed to be the largest radio telescope in the world, will be located in Africa and Australia whose operation, maintenance and construction will be overseen by SKAO.
    • Some of the questions that scientists hope to address using this telescope include the beginning of the universe, how and when the first stars were born and the life-cycle of a galaxy.
    • It would explore the possibility of detecting technologically-active civilizations elsewhere in our galaxy and understanding where gravitational waves come from.
    • As per NASA, the telescope will accomplish its scientific goals by measuring neutral hydrogen over cosmic time, accurately timing the signals from pulsars in the Milky Way.

  • [pib] Ropeways and Alternate Mobility Solutions to be under MoRTH

    The Ministry of Road Transport and Highways will, from now on, also look after the development of Ropeways and Alternate Mobility Solutions (AMS).

    Q.With growing mobility and diverse terrain across the country, it is imperative that all solutions be enabled and implemented. In this light, discuss various changes adopted by the Transport Ministry in this regard.

    Ropeways

    • A ropeway is a form of naval lifting device used to transport light stores and equipment across rivers or ravines.
    • It comprises a jackstay, slung between two sheers one at either end, from which is suspended a block and tackle, that is free to travel along the rope and hauled back and forth by inhauls.
    • An amendment to the Government of India (Allocation of Business) Rules, 1961 has been notified, to enable this step.

    Impacts of the move

    • The move is expected to give a boost to the sector, by setting up a regulatory regime and facilitating research and new technology to come into this sector.
    • This means that the Ministry will have responsibility for the development of ropeway and alternative mobility solutions technology, as well as construction, research, and policy in this area.
    • Formulation of the institutional, financial, and regulatory framework for the technology will also fall under the ambit of this move.

    Expected benefits

    • Last-mile connectivity for remote locations
    • Reducing congestion on mainstream roads
    • Chance to develop world-class ropeway infrastructure
    • Setting up of an organised  and dedicated rope-way and alternative mobility solutions industry
    • New technology, like CPT – Cable Propelled Transit coming to the sector
    • Setting safety norms for unregulated ropeways
    • Allowing freight and goods at remote stations
    • Regulating tariffs structure for the technology

  • [pib] KAPILA for patent awareness

    The Government has launched a campaign namely KAPILA for Intellectual Property Literacy and creating patent awareness, informed Union Ministry for Education to the Parliament.

    Remember one thing, ‘KAPILA’ Program is related to IP awareness. It sounds much like an animal husbandry related initiative.

    KAPILA Initiative

    • KAPILA is an acronym for Kalam Program for IP (Intellectual Property) Literacy and Awareness.
    • Under this campaign, students pursuing education in higher educational institutions will get information about the correct system of the application process for patenting their invention and they will be aware of their rights.
    • The program will facilitate the colleges and institutions to encourage more and more students to file patents.

    Why in news?

    • As many as 46,556 users have registered for the Union Government’s Intellectual Property Literary project.
    • This marks the success of the campaign.