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GS Paper: GS3

  • Eat Out to Help Out Scheme

    Since the lockdown began in India, different bodies representing the country’s hospitality sector have repeatedly asked the government for financial assistance to help tide over the crisis. UK’s popular Eat Out to Help Out (EOHO) Scheme can be an example of the kind of intervention in India.

    Note: The ‘Eat Out to Help Out’ Scheme recently seen in news is related to Hospitality. One may get confused over Poverty and Hunger.

    What is the EOHO Scheme?

    • The EOHO Scheme is an economic recovery measure by the UK government to support hospitality businesses as they reopen after the lockdown.
    • The scheme was announced as part of the Plans for Jobs summer economic update.
    • Under the EOHO Scheme, the government would subsidise meals (food and non-alcoholic drinks only) at restaurants by 50 per cent.
    • There is no minimum spending and no limit on the number of times customers can avail the offer, since the whole point of the scheme is to encourage a return to dining in restaurants.

    Why was this scheme deemed necessary?

    • All over the world, the food services sector is one of the worst affected by the pandemic.
    • The top two concerns were customers avoiding restaurants for fear of contracting the virus and customers having less disposable income for dining out.
    • Instead of delivering a financial package to operators, it makes eating out more affordable for consumers directly and helps restore demand.
    • Restoring consumer demand is being seen as crucial to the UK’s economic recovery.

    Can India benefit from such a scheme?

    • The main problem confronting the restaurant industry, following Unlock 1.0 in June, has been consumer fear, even as the government has remained silent about specific recovery packages aimed at the hospitality industry.
    • The government needs to work on the demand side.

  • New umbrella entities (NUEs) for retail payments.

    Context

    • Last week the Reserve Bank of India (RBI) released a document setting out the framework it plans to adopt to authorize the establishment of new umbrella entities (NUEs) for retail payments.

    What are NUEs

    • Once established, these newly authorized entities will be able to operate their own clearing and settlement systems.
    • establish new standards and technologies; and develop innovative new payment systems that enhance customer access, convenience and safety.
    • All NUEs will have to be interoperable with the National Payments Corporation of India (NPCI).
    • NPCI would also be allowed to set themselves up as for-profit entities, and they will themselves be able to participate in RBI’s payment and settlement systems.
    • The NPCI is at the epicentre of the digital payments in the country.

    If NPCI is doing its job well, then why NUE?

    • Between the UPI, IMPS, Aadhaar-enabled payments, Bharat BillPay, and all the other payment systems that it manages, 48% of all electronic retail payments in the country pass through the NPCI infrastructure.
    • NPCI is the fulcrum around which everything digital revolves.
    • Perhaps RBI’s concern stems from having the operations of so much of the country’s payment system concentrated in one entity.

    Are the concerns of RBI valid?

    • There is nothing wrong with having all digital transactions flow through a single entity—so long as that entity is neutral.
    • If RBI’s concern is technical, we could build sufficient redundancy into NPCI’s technical architecture to ensure that there is no single point of failure in the system.
    • Creating multiple umbrella entities is not the answer to this problem, as NUEs would be allowed to establish themselves as profit-oriented entities.
    • There is also the question of whether the trade-off is even worth it as replicating the NPCI infrastructure will require heavy investments to make participants in one NUE can seamlessly interact with those in every other.
    • Ensuring interoperability while still maintaining the security of the underlying infrastructure is going to be difficult and expensive.
    • There is the cost of the additional regulatory burden that RBI will have to shoulder, now that the banking-sector regulator will have to manage not just one but multiple umbrella entity.

    Issues with NPCI

    • There would be consequences to letting NPCI only entity in handling the payment system.
    • Any sort of monopoly results in market inefficiencies.
    • Of we have just one umbrella regulator, we will never be sure if transaction costs are as low as they could be, or if the variety of product offerings available to us could be better.
    • Problem is that the NPCI is expected to both manage the digital payments industry as well as come up with the frameworks necessary to foster innovation.
    • When NPCI had just small products in its portfolio it was able to perform both functions efficiently.
    • The effort of just keeping the system working seems to be taking a toll on NPCI’s ability to develop the protocols and standards that are needed to encourage innovation in this boom sector.

    What is the solution to issues faced by NPCI

    • One possible solution might be to create a separate and independent standards-setting body.
    • Such body would come up with the protocols and standards required to foster innovation in the digital payments space.
    • This is how most successful digital infrastructure systems work. Take the World Wide Web, for example.
    •  Any new standard that this body creates will have to first be approved by the NPCI, but then it can be rolled out throughout the digital payments ecosystem.

    Consider the question “Examine the role played by the NPCI in revolutionising the payment system in India.”

    Conclusion

    By establishing a neutral and independent standards-setting body, we can make sure that the system as a whole in our country evolves in the best traditions of digital infrastructure adopted anywhere in the world.

  • The idea of Central Bank Digital Currency in India

    The article discusses the idea of digital currency supported by the RBI and its advantages.

    Purpose of NUE

    • RBI recently released the framework for the establishment of a new umbrella entity (NUE) for retail payments.
    • NUE would help reduce payments concentration risk with Unified Payments Interface (UPI) facilitating over 1.5 bn transactions a month.
    • Given the sticky adoption and only a few payments apps dominating the UPI market, RBI intends to create a parallel retail system.

    5 requirements payment systems should fulfil

    • 1) The payments system should reduce the cost and time for government support to reach unbanked and underbanked people.
    • 2) It should ensure ease of access to credit for small and medium businesses.
    • 3) Improve the effectiveness of the implementation of monetary policy.
    • 4) The new payment system should effectively counter risk from unregulated new digital currencies like Bitcoin.
    • 5) It should discourage money laundering and tax evasion.

    CBDC: Solution to the above 5 requirements

    • CBDC is the digital form of fiat money, a digital equivalent of banknotes and coins.
    • A Central Bank Digital Currency (CBDC) could potentially solve the above problems.
    • Retail CBDCs can be issued directly by the central bank to people without going through traditional banks.
    • Individuals would have CBDC accounts directly on the central bank core ledger.
    • CBDC can reduce the cost and time for government support to reach people during desperate times (like pandemic).
    • CBDC can also enable many financial entities to settle directly with RBI.
    • In the current set up only a few large banks can settle directly with RBI.
    • With a digital currency, the settlement can be instantaneous and, as a result, more payments services providers like NBFCs could connect with RBI, thereby, reducing credit and liquidity risk.
    • CBDC lending would build MSMEs history and make further lending easier.
    • For India to be a $5 tn economy, businesses need credit, and that can happen when we have more banks.
    • India had 97 banks in 1947; today we are still at 95!
    • Interest bearing CBDCs can also improve monetary policy effectiveness by enabling real-time pass-through of the policy rate to the lending markets.
    • CBDCs can also allow for direct deposits into accounts of low-income households, senior citizens dependent on pensions and help cushion their purchasing power from the low-level interest rates during the times of economic downturn.
    • CBDC can thwart some competition against privately issued foreign currency-denominated digital currencies.

    Roles and responsibility of RBI with respect to CBDC

    • In terms of managing roles and responsibilities, RBI would only hold the accounts and implement monetary policies as it does now.
    • Fintech companies can become the channel for retail CBDC transmission and manage client relationships.
    • Fintechs can complement the commercial banks and can draw small businesses/poor households into the formal economy.
    • These companies could leverage their data to estimate customers’ creditworthiness and share their findings to banks for more efficient allocation of credit.

    Consider the question “A digital currency backed by the central bank could transform the retail payment landscape in India. Discuss.”

    Conclusion

    India has been at the forefront of the fintech revolution, and other developed countries have been following its path. While the world watches the melee between the Greenback and the Renminbi, it is time India also lays the foundation for a strong currency. CBDC may just be one of the ways to do it.

  • Boosting manufacturing

    The article analyses the issues of increasing manufacturing in India while dealing with the constraints faced by it. It also suggests the important role States can play.

    Why companies are expected to exit China

    • In the aftermath of the pandemic manufacturing companies are expected to exit China due to three primary reasons.
    • 1) Realisation that relying heavily on China for building capacities and sourcing manufacturing goods is not an ideal business strategy due to supply chain disruptions in the country caused by COVID-19.
    • 2) Fear of Chinese dominance over the supply of essential industrial goods.
    • 3) The growing risk and uncertainty involved in operating from or dealing with China in the light of geopolitical and trade conflicts between China and other countries, particularly the U.S.

    Where India stands in comparison with China

    • China ranks first in contribution to world manufacturing output, while India ranks sixth.
    • Against India’s target of share of manufacturing in Gross Domestic Product (GDP) to 25% by 2022, its share stood at 15% in 2018, only half of China’s figure.
    • Industry value added grew at an average annual rate of 10.68% since China opened up its economy in 1978, India’s grew at 7% after India opened up its economy.
    • Next to the European Union, China was the largest exporter of manufactured goods in 2018, with an 18% world share.
    • India is not part of the top 10 exporters who accounted for 83% of world manufacturing exports in 2018.

    Constraints faced by manufacturing sector in India

    India faces numerous constraints in promoting the manufacturing sector.

    • They chiefly include infrastructure constraints, a disadvantageous tax policy environment, restrictive trade policies, a non-conducive regulatory environment, rigid labour laws.
    • Constraints also include high cost of industrial credit, poor quality of the workforce, Low R&D expenditure, delays and constraints in land acquisition, and the inability to attract large-scale foreign direct investment into the manufacturing sector.

    What role States can play?

    • They  can  contribute land: Federal government system in India demands the participation of States for the lasting solution to the constraints on the sector.
    • An important requirement for the development of the manufacturing sector is the availability of land area.
    • This could be one of the reasons why manufacturing activity is mainly concentrated in Maharashtra, Gujarat, Tamil Nadu, Karnataka and Uttar Pradesh.
    • However, what is of concern is that some States that also have large land area contribute disproportionately little in manufacturing GSDP.
    • These states include Andhra Pradesh, Bihar, Chhattisgarh, Madhya Pradesh, Odisha, Rajasthan, Telangana, and West Bengal.

    Way forward

    • Identify reasons: The reasons for less manufacturing activity in these States have to be carefully examined.
    • State-specific industrialisation strategies: Based on such reasons, State-specific industrialisation strategies need to be devised and implemented in a mission mode with active hand-holding by the Central government.
    • State specific reforms: Policy actions on the part of individual States would improve India’s overall investment climate, thereby boosting investments, jobs, and economic growth.
    • Policy actions of the Centre and the States should  be well coordinated: Strategy Group consisting of representatives from the Central and State governments along with top industry executives to instil teamwork and leverage ideas through sharing the best practices of the Centre and States could be formed.

    Consider the question “What are the constraints faced by the manufacturing sector in India? Suggest the ways to deal with these constraints highlighting the important role States can play in boosting manufacturing.”

    Conclusion

    Both the States and the Central government needs to work in tandem to boost the manufacturing in India and transform the economic landscape of India.

  • Dismantling INS Viraat

    Decommissioned aircraft carrier INS Viraat is set to be scrapped at a ship breaking yard at Alang in Gujarat soon.

    In rarest case we would see a question based on this in CSP. However, we can expect a question based on INS Viraat in the CAPF exam very well.

    INS Viraat

    • Viraat, a Centaur class aircraft carrier weighing 27,800 tonnes, served in the British Navy as HMS Hermes for 25 years from November 1959 to April 1984.
    • It was commissioned into the Indian Navy in May 1987 after refurbishment and had operated Harrier fighter jets.
    • It was decommissioned from in March 2017, and the Navy had been incurring expenditure since then on its upkeep, such as the provision of electricity and water, and repairs.
    • In 2018, the Maharashtra Cabinet approved a proposal to convert the carrier into a museum and hospitality centre on a PPP basis and had invited bids. But there were no takers.

  • What is Biochar?

    A new research has shown that Biochar application is more effective in promoting pulses growth and yield in Ghana.

    Try this PYQ:

     

    Q.In the context of which one of the following are the terms ‘pyrolysis and plasma gasification’ mentioned? (CSP 2019)

    (a) Extraction of rare earth elements

    (b) Natural gas extraction technologies

    (c) Hydrogen fuel-based automobiles

    (d) Waste-to-energy technologies

    What is Biochar?

    • Biochar is a high-carbon, fine-grained residue that is currently produced through modern pyrolysis processes (direct thermal decomposition of biomass in the absence of oxygen and preventing combustion).
    • It produces a mixture of solids (the biochar proper), liquid (bio-oil), and gas (syngas) products.
    • Biochar may increase soil fertility of acidic soils (low pH soils), increase agricultural productivity, and provide protection against some foliar and soil-borne diseases.

    Its benefits

    • Carbon Sink: The burning and natural decomposition of biomass releases large amounts of carbon dioxide and methane to the Earth’s atmosphere. The biochar production process also releases CO2 (up to 50% of the biomass); however the remaining carbon content is stable indefinitely.
    • Soil Amendment: Biochar is recognized as offering a number of soil health benefits. The extremely porous nature of biochar is found to be effective at retaining both water and water-soluble nutrients. Its presence in the earth can improve water quality, increase soil fertility, raise agricultural productivity, and reduce pressure on old-growth forests.
    • Water retention: Biochar is hygroscopic. Thus it is a desirable soil material in many locations due to its ability to attract and retain water.

    ————————-//———————-

    Back2Basics

    What is Pyrolysis?

    • Pyrolysis is the thermal decomposition of materials at elevated temperatures in an inert atmosphere.
    • It involves a change in chemical composition. The word is coined from the Greek-derived elements pyro “fire” and lysis “separating”.
    • It is most commonly used in the treatment of organic materials. It is one of the processes involved in charring wood.
    • It is considered as the first step in the processes of gasification or combustion.

    How does it work?

    • In general, pyrolysis of organic substances produces volatile products and leaves a solid residue enriched in carbon, char.
    • Extreme pyrolysis, which leaves mostly carbon as the residue, is called carbonization.
    • The process is used heavily in the chemical industry, for example, to produce ethylene, many forms of carbon, and other chemicals from petroleum, coal, and even wood, to produce coke from coal.

  • ASTROSAT Satellite

    ASTROSAT, India’s first multi-wavelength satellite observatory, has detected an extreme ultraviolet (UV) light from a galaxy which is 9.3 billion light-years away from Earth.

    Try out:

     

    Consider the following statements regarding the AstroSat:

    1)AstroSat is India’s multi-wavelength space telescope.
    2)ASTROSAT mission is that enables the simultaneous multi-wavelength observations of various astronomical objects with a single satellite.
    3)ASTROSAT observes the universe in the optical and high energy X-ray regions of the electromagnetic spectrum.

    Which of the following above statements is true?

    a.1 and 2
    b.2 and 3
    c.1 and 3
    d.1, 2 and 3

    AUDFs01

    • AstroSat has detected extreme-UV light from a galaxy, called AUDFs01, 9.3 billion light-years away from Earth.
    • The galaxy is located in the Hubble Extreme Deep field, through AstroSat.
    • This is a very important clue to how the dark ages of the universe ended and there was light in the universe.

    About ASTROSAT

    • AstroSat is India’s first dedicated multi-wavelength space telescope. It was launched on a PSLV-XL on 28 September 2015.

    It is the first dedicated Indian astronomy mission aimed at studying celestial sources in X-ray, optical and UV spectral bands simultaneously.

    ————–//—————-

    Find some time to scroll through recent ISRO missions and discoveries.

    ISRO Missions and Discoveries

  • Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme

    The outlay for the RoDTEP scheme is expected to be “much higher” than the NITI Aayog’s much-curtailed estimate of Rs 10,000 crore a year.

    Overt allocation

    • The central government had envisaged an annual allocation of about Rs 50,000 crore under the RoDTEP scheme to make exports zero-rated.

    Try this PYQ:

    Q. Among the following, which one is the largest exporter of rice in the world in the last five years? (CSP 2019)

    (a) China

    (b) India

    (c) Myanmar

    (d) Vietnam

    RoDTEP Scheme

    • RoDTEP is a scheme for the Exporters to make Indian products cost-competitive and create a level playing field for them in the Global Market.
    • It has replaced the current Merchandise Exports from India Scheme, which is not in compliance with WTO norms and rules.
    • The new RoDTEP Scheme is fully WTO compliant scheme.
    • It will reimburse all the taxes/duties/levies being charged at the Central/State/Local level which are not currently refunded under any of the existing schemes but are incurred at the manufacturing and distribution process.

    Back2Basics: Merchandise Exports from India Scheme (MEIS)

    • MEIS was launched with an objective to enhance the export of notified goods manufactured in a country.
    • This scheme came into effect on 1 April 2015 through the Foreign Trade Policy and will be in existence till 2020.
    • MEIS intends to incentivise exports of goods manufactured in India or produced in India.
    • The incentives are for goods widely exported from India, industries producing or manufacturing such goods with a view to making Indian exports competitive.
    • The MEIS covers almost 5000 goods notified for the purpose of the scheme.

  • River Ropeway over Brahmaputra

     India’s ‘longest’ river ropeway across the Brahmaputra River was unveiled in Guwahati.

    Navigate to this page for more readings on Brahmaputra River systems:

    Brahmaputra River System

    Brahmaputra Ropeway

    • The 1.82 km bi-cable jig-back ropeway connects the southern bank of the Brahmaputra and a hillock behind the Doul Govinda temple in North Guwahati on the other.
    • It passes over the mid-river Peacock Island that houses Umananda, a medieval Shiva temple.
    • It thus cuts travel time between the two banks to 8 minutes.
    • The current travel options between the two banks are by ferry (30 minutes or more, depending on current and season) or by road through a bridge that usually takes over an hour in the traffic.

  • The missing large in MSMEs

    MSMEs in India has huge untapped potential. This article suggest the ways to tap it and make the MSMEs major contributor to India’s growth.

    What is an issue with MSMEs

    • Despite MSME contributing 20% of the GDP and employing about 110 million workers,  we have failed to make bold policy-moves to make it more productive and competitive.
    •  MSMEs are not becoming ‘larger’ and more dynamic, with 99% of the estimated 60 million being micro-enterprises with limited aspirations.
    • At the core of this lack of competitiveness is a structural issue.

    Addressing the structural challenges

    Size

    • Consider  India’s largest textile cluster vs Bangladesh’s largest.
    • More than 70% of the units in Tirupur are micro-enterprises with less than 10 employees while only 20% of the units in Narayanganj in Bangladesh have less than 10 employees.
    • This factor makes the cluster in Bangladesh more competitive and helping Bangladesh’s exports grow faster than India’s.
    • Though  Bangladesh has other advantages also, but this structural difference is critical.

    Relation between size and productivity

    • Productivity data from manufacturing MSMEs in OECD show that the productivity of medium firms (50-250 people) could be as much as 80-100% higher than that of micro firms (<9 employees).
    • Growth in scale allows them to invest in people to improve skills, in better technology & processes, and in innovation.
    • The most-competitive of them grow from their small beginnings to become world-beaters.
    • This push to grow and improve capabilities and productivity is central to dynamism of any country’s industrial structure.
    • This dynamism of micro-enterprises has been one of the less-reported policy levers behind China’s rise as an industrial powerhouse.

    What stops MSMEs in India from growing?

    • Our policy-legacy of highly restrictive asset-based definition which has only recently been relaxed, coupled with a mindset, and, policies, to support the ‘small is beautiful’ narrative.
    • Overly complex regulatory regime doesn’t differentiate enterprises on their scale, other than the really tiny ones, in terms of compliance needs.
    • For example, if a unit has more than six employees, the trade union law becomes applicable, If a unit has more than 10 employees, the Factories Act is applicable.
    • Small enterprises thus face the same multitude of regulatory requirements as larger ones, and end up having compliance costs account for a higher percentage of revenue.
    • For the tiny/micro units, there is simply no incentive to grow and enter the formal economy.

    Policy intervention needed

    1) Getting MSMEs into formal credit system

    • To do this, we need to adopt an approaches that can help banks and NBFCs move away from asset-backed lending, towards some form of cash-flow-based lending.
    • Small retailers are outside the formal credit system, unable to invest, modernise and grow, given they lack fixed ‘assets’.
    • But, all of them are linked to, and sell, brands of well-known, large companies.
    • If banks and NBFCs work with these companies and use anonymised data on sales and credit-performance to develop credit-scores for lending to them?
    • Similar innovative ways could help cover other micro-unit segments.

    2) Simplified tax and regulatory regime

    • The second policy intervention needed is to de-average and implement a simplified tax and regulatory regime for MSMEs.
    • This would also reduce the cost of compliance.

    3) Development of digital platform

    • The third intervention, appropriate for digital era, is to develop a comprehensive ‘digital platform’ for the sector.
    • This will call for a mandatory, unique identifier for all.
    • The platform will have to be linked to different relevant databases.

    Consider the question “MSMEs in India continues to play an important role in India’s development yet it suffers from structural challenges which hinders it from fueling India’s growth. In light of this, examine the challenges MSMEs faces and suggest the policy interventions.” 

    Conclusion

    As India launches the Atmanirbhar Bharat Abhiyan to reignite growth of the economy for a post-COVID world, building such a globally-competitive MSME has to become one of the initiative’s core pillars. Only then can our industry improve and sustain its global competitiveness.

    Source-

    https://www.financialexpress.com/opinion/the-missing-large-in-msmes-a-globally-competitive-indian-mittelstand-is-the-need-of-the-hour/2063155/