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GS Paper: GS3

  • Super-power rivalries exacerbated by coronavirus pandemic offer India an opportunity

    The article discusses three fronts on which actions are required viz- health, economy and geopolitics. How much the global economy is going to be affected? how the US-China rivalry would affect the recovery? what the lack of global coordination means? all such questioned are discussed here.  It also suggests actions that India should take to deal with the crisis.

    Many unknowns than knowns about Covid-19

    • The virus currently has many more unknowns than knowns.
    • We don’t know for sure how it spreads, whether people can get re-infected, whether it is mutating, whether the hot weather kills it, and what the real fatality rate is.
    • We don’t know for sure how far we are from an anti-viral.
    • We know that we are at least 18 months away from having a vaccine that works and is available at scale.
    • Till an anti-viral is found, economic activity will be constrained, and this will affect people, industries and countries in disparate ways.

    The extent of damage to the global economy

    • Loss of ten trillion dollars: The global economy is set to lose close to ten trillion dollars because of the “self-induced coma” it has been put into — to use Paul Krugman’s evocative phrase.
    • Loss of effectiveness of monetary policy: The preceding global financial crisis (GFC) has exhausted the efficacy of monetary tools.
    • In addition, corporates globally are leveraged to the tune of $12 trillion.
    • The slump in demand: The accompanying oil price collapse, beginning due to a spat between producers Saudi Arabia and Russia have been compounded by a precipitous slump in demand.
    • The Chinese economy can’t help as it did during the GFC, as it is hemmed in itself.
    • Even if it could, there is too much global suspicion of China to allow it to do so. So, countries will largely be on their own.

    Tensions between the US and China

    • The tensions between the US and China have escalated into a full-scale superpower crisis after the virus spread.
    • Since 2010, there has been great concern in the US about China’s rise.
    • China’s muscular foreign policy together with its aggressive stance on multiple issues, most importantly on technology and technology standards, has created conflict.
    • The coronavirus is spreading in the US in an election year and smashing its economy.
    • The virus infected over three-quarter of a million people in the country and killed more than 40,000.
    • After this, China could be seen as enemy number one in the US.

    No global coordination

    • No wonder then that at a time when the world yearns for global coordination, there is almost none — in healthcare responses and economic coordination.
    • Multilateral agencies, especially the WHO and UN, suffer a complete loss of credibility.
    • India needs to chart its own course in these turbulent times.
    • If India takes the requisite actions it may come out well.

    Following suggestions are important from the UPSC perspective. The suggestions deals with three fronts-health, economic and geopolitics.

    How India could come out of the crisis?

    • India needs to act at three levels — health, economic and geopolitical.

    1. Actions at the health level

    • The Union Ministry of Health and Family Welfare has done well to stem the spread of the infection.
    • It has sensitised the public, introduced the concept of social distancing and isolation in the most challenging situations.
    • Now it must test at scale and isolate.

    2. Actions at the economic level

    • Indians cannot afford to stay locked much longer.
    • We are too poor and too many of us live on a day-to-day basis — not even on a paycheck to paycheck basis.
    • Economic activity will be subdued in the near-term, but it must be “unlocked”.
    • The current IMF projections suggest that India will have the highest growth rate in the world this year.
    • Oil prices have collapsed, really helping our balance of payments.
    • Our food stocks are plentiful, the rabi crop has been good, and the prognosis for the monsoon is positive.
    • Low inflationary pressure: This, together with the fact that aggregate demand is down, will dampen inflationary impulses.
    • The “new RBI” has acted boldly and strongly.
    • It has taken prompt actions to reduce rates, increase liquidity, adjust prudential norms, allow moratoriums, and protect financial entities.
    • Indian is better placed: The weakened rupee will help our exports and with a debt to GDP ratio of about 73 per cent, along with better growth prospects, India is relatively better placed than several other countries.
    • We should, therefore, not unduly worry about our credit rating. This both allows and actually requires the government to act on the fiscal front.
    • The government needs to implement the following four steps to spur the economy.
    • (1) It should do so by “printing money” given the moderated inflation
    • (2) It needs to provide additional direct benefit transfers of Rs 2,000 every month for three months to Jan Dhan accounts, together with foodgrains release from the FCI, to the tune of around Rs 65,000 crore, to alleviate people’s miseries.
    • (3) It needs to protect MSMEs directly by providing them working capital (with an RBI backstop) and, like in the UK, provide 80 per cent of the salary to employees of the “GST-paying MSMEs” for six months.
    • (4) It needs to launch a massive public works programme outside the Budget as suggested by the chairman of CII’s National Committee of Infrastructure and PPP, Vinayak Chatterjee.
    • This fund should be earmarked for infrastructure and a quarter of its budget should be set aside for strengthening and upgrading primary health centres.
    • The allocation should not be less than Rs 200,000 crore.
    • Push through pending reforms: The government should take advantage of the crisis to push through much needed pending reforms in agriculture-especially those pertaining to APMC), power-pricing and discoms, banks-government ownership at 30 per cent and bad banks.
    • Revenue from private gold: Given the paucity of tax revenues, the government could also consider having the PM making an appeal for private gold from people and temples.
    • It could target 1,000 tonnes of gold worth $30 billion and offer a five per cent tax-free return repayable ($1.5 billion a year) after 10 years, in rupees or gold.

    3. Actions at the geopolitical level

    • India can come out ahead if we act now.
    • Super-power rivalries will create opportunities to replace China as a major supplier to the US and Japan.

    Conclusion

    The battle to deal with the corona disaster has to be fought on many fronts. India must form a strategy and act on various front i.e. health, economic and geopolitical- to be victorious at the end.

  • Monetary Policy Committee (MPC) to meet 5x this Fiscal

    The rate-setting Monetary Policy Committee (MPC) will be meeting five times in FY21, against seven in FY20.

    Monetary Policy tools are all-time favourites of UPSC. Kindly go through the link given in the Back2Basics section.

    Monetary Policy Committee (MPC)

    • The Monetary Policy Committee (MPC) is a committee of the RBI, which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level.
    • The RBI Act, 1934 was amended by Finance Act (India), 2016 to constitute MPC to bring more transparency and accountability in fixing India’s Monetary Policy.
    • The policy is published after every meeting with each member explaining his opinions.
    • The committee is answerable to the Government of India if the inflation exceeds the range prescribed for three consecutive months.
    • Suggestions for setting up a Monetary policy committee is not new and goes back to 2002 when YV Reddy committee proposed to establish an MPC, then Tarapore committee in 2006, Percy Mistry committee in 2007, Raghuram Rajan committee in 2009 and then Urjit Patel Committee in 2013.

    Composition and Working

    • The committee comprises six members – three officials of the RBI and three external members nominated by the Government of India.
    • The meetings of the Monetary Policy Committee are held at least 4 times a year and it publishes its decisions after each such meeting.
    • The Governor of RBI is the chairperson ex officio of the committee.
    • Decisions are taken by a majority with the Governor having the casting vote in case of a tie.
    • They need to observe a “silent period” seven days before and after the rate decision for “utmost confidentiality”.

    Back2Basics

    Monetary Policy tools and Money Supply in India

     

    Also read:

    How reverse repo rate became benchmark interest rate in the Indian economy?

  • Daporijo Bridge and its significance

    A key bridge over the Subansiri River in Arunachal Pradesh close to the Line of Actual Control (LAC) was constructed by the Border Roads Organisation (BRO) in record 27 days.

    North-East has seen the construction of a series of bridges by BRO in recent times post-Doklam standoff. Make a note of all such bridges and the corresponding rivers over which they are built.

     Daporijo Bridge

    • This Bridge is one of the two over River Subansiri which connect Daporji in North Subansiri dist. with rest of state.
    • This and the other bridge at Tamin sustaining more than 600 villages and troops strength of around 3000 personnel manning the LAC which includes disputed Areas of Asaphila and Maza.
    • All supplies, rations, constructional material and medicines pass over this bridge.
    • The new bridge now can withstand 40 tonnes of weight allowing a safe passage for heavier vehicles catering for the requirements of the Indian Army as well as future infrastructure development requirements.

    Significance

    • India has speeded up the construction of critical infrastructure in its northeast in the past half a dozen years including airports, railways and roads with an eye on China that has motorable roads right up to the border.
    • Arunachal Pradesh was the scene of the 1962 India-China border conflict that ended badly for India. China on its parts claims all of the state as “Southern Tibet.”
    • Of the 3488 km long Line of Actual Control with China 1126 lies with Arunachal Pradesh alone.
    • The two countries are yet to demarcate their border with the two sides patrolling the LAC but reporting incursions by the other side since the frontier is not clearly marked.

  • Let’s make the most of dirt-cheap oil

    For the first time in history, oil prices hovered in the negative territory recently. This article discusses how this opportunity can be utilised by India in various ways.

    Oil selling for negative price

    • In a dramatic and unprecedented turn of events on Monday, crude oil began trading in negative territory for the first time since records began.
    • The price on a futures contract for West Texas crude that was due to expire on 21 April crashed to minus $37.63 a barrel.
    • Covid effect: This is a direct result of the market mayhem caused by covid-19, which has resulted in lockdowns around the world, brought economies to a screeching halt, and crushed demand for transport fuel.
    • No space to store oil: Reports say there is so much unused oil in the US that there is no space left to store fresh supplies.
    • Storage costs money. Thus, oil producers had to pay to offload their stock.

    How did we get here?

    • Thanks to the covid-19 pandemic, multiple demand and supply shocks are wrecking economies across the globe and bringing economic activity to a standstill.
    • Assembly lines have halted, supply chains have snapped, commodity prices have fallen, the services sector has ground to a halt, financial markets are in a panic.
    • And the Great Lockdown has depressed various other economic variables and pushed the world into a deep recession.
    • Tensions among suppliers: The sudden fall in oil prices is tied not just to a demand crunch, but also tensions among the world’s major suppliers.
    • Relatively high prices over 2019 had allowed non-traditional players like US shale oil companies to thrive.
    • Meanwhile, Saudi Arabia and Russia, the most influential members of OPEC+, the Organization of Petroleum Exporting Countries that have allied with Russia on and off since 2016, had been in competition to expand their market share.
    • A flashpoint arose in early March, when Moscow refused to agree to OPEC’s desired production cuts to keep prices stable.
    • This prompted a price war with Riyadh, as both attempted to increase market share or put other competitors (particularly US shale) out of business.
    • Though a production cut has since been agreed to between Russia and Saudi Arabia, demand is estimated to have fallen far more than that.
    • Contracts for late 2020 are still going for only around $30 per barrel.
    • As a result, producers such as Kuwait, Oman, Nigeria, and Venezuela will continue to feel the strain.

    How can India maximise potential gains?

    • India imports nearly 80% of the oil it consumes, and so cheap oil is to be taken as an opportunity.
    • Under normal circumstances, such a drastic fall in oil prices would have a big positive effect on the finances of the Union government and the economy in general.
    • The current circumstances, however, are anything but normal.
    • So, India must use this low price opportunity in the following ways.

    The strategic petroleum reserves (SPRs) assumes significance in India’s energy security whenever tension rises in the region from which we import our oil. Take note of the suggestion with respect to SPRs.

    Fill up the strategic petroleum reserves (SPRs)

    • The best way to turn this situation to India’s advantage, therefore, is to grab this chance to fill up the country’s strategic petroleum reserves (SPRs).
    • Like other large consumers, India holds oil inventories for the sake of energy security during a supply cut-off or some other emergency.
    • How much are our SPRs? Our SPRs are estimated at five days’ worth of oil imports, stored in underground salt caverns, and a further 65 days’ worth held by commercial refineries.
    • Current prices provide a perfect opportunity to bolster these reserves in preparation for future shocks.
    • The government-owned agency, Indian Strategic Petroleum Reserves Limited (ISPRL), should now be focused on filling up and utilizing the existing capacity of the country’s underground caverns.
    • In fact, it should be hardwired to consider filling these up each time the price of Brent crude falls below $40.
    • Separately, in the second phase of India’s SPR plans should be fast-tracked.
    • Working with private players: This involves working with private players to design, build, finance, operate, and transfer underground oil tanks.

    Negotiate long term contracts at current prices

    • Commercial refineries, many of which are public-sector enterprises, should strike and renegotiate long-term contracts with suppliers based on current prices.
    • Other firms reliant on oil and subject to the vagaries of oil prices, such as airline companies, should also do likewise.

    Geographically diversify the SPR holdings

    • This is also an opportune time for the Indian government to geographically diversify its SPR holdings.
    • To lower transport and storage costs, and to diversify risk, Oman or Fujairah in the UAE could be contracted to hold a quantity of oil on India’s behalf.
    • These reserves can be shipped to India when needed.
    • India should also operationalize, modernize and add to its oil tank facilities in Trincomalee, Sri Lanka, which is partially owned by India.

    Conclusion

    The global energy landscape is likely to remain volatile in the near future and oil is likely to remain an important part of India’s energy needs. This is a good time to enhance the country’s energy security.

     

  • The occasion to revisit the state’s role

    The role of the state has come in the focus in the corona crisis. This article describes how the dominant role once played by the state declined over time and what implications it has for society. In the next part of the article, need to revisit the political system of the country is emphasised.

    Paradigm shift due to Covid-19

    • We are unlikely to return to pre-coronavirus homeostasis after the war against it is won.
    • No section or sector is going to remain untouched and unaltered by the devastation the novel coronavirus is now unleashing.
    • Its annihilation in the near future is not on the cards.
    • Vaccines are going to be slow in coming; therefore, its taming is not immediate.
    • The second wave of an outbreak is a realistic probability.
    • Unlike the other threats: Unlike other threats to humanity such as global warming and nuclear armageddon, this threat is now, not in the future.
    • It is here simultaneously for everyone, not for someone else and somewhere else; its casualties are around us, not in faraway battlefields or polar regions and coastal areas.
    • No country can rescue another; it is each one fending for itself.

    Possibility of a deep recession in the world

    • If the lockdown continues, the world economy will contract by as much as 6% according to the International Monetary Fund.
    • If it is not extended, the loss of human lives could be of unacceptable proportions.
    • The global community will be fortunate if it does not spiral into depression.
    • Both demand and supply contractions are likely to be severe.
    • They are not going to be short-lived. Political systems, economic architectures and cultural mores are on trial.

    Time to build a new paradigm

    • Work patterns, production and distribution practices are up for
    • Denial and wishing away unpleasant, yet probable, realities by governments, global organisations and public intellectuals will only compound economic, social, political and human costs.
    • Build a new paradigm: We must now be quick in seizing lessons from the present crisis and get ready to embark on measures to build a new paradigm of life, work and governance.

    Role of state in focus once again

    • The enlarged economic role of the state in the aftermath of the Second World War came under major assault since the 1980s.
    • Leaders who asked ‘where is society?’ rode to power on the promise of cutting down the government’s role.
    • Systems that were alternatives to capitalism fell out of favour.
    • Entrepreneurs heading unicorns and ‘soonicorns’ have become the new demigods.
    • Minimum governance became the mantra.
    • India too without much consideration joined this creed.
    • Role of state in focus: But COVID-19 is beginning to challenge the political economy of this creed.
    • Very soon the full scores of the performance of state and non-state actors in the COVID-19 stress test will be available across the globe.
    • The Indian state will also have to give answers as far as its report card is concerned.

    How the state’s role declined in India?

    • India embarked on the path of reducing the role of the state, initially, with such caveats as ‘safety net’ and ‘reform with a human face’.
    • Gradually, those caveats fell by the wayside.
    • The Indian state’s role in health care, education, creation and maintenance of infrastructure and delivery of welfare has shrunk or become nominal, half-hearted, inefficient, and dysfunctional.
    • Of course, it is true that it did not give a great account of itself in these sectors even before the 1991 departure.
    • Disappointment with the dismal performance in its economic and administrative functions in the backdrop of a changing global ideological ecosystem encouraged a sharp de facto downsizing of the Indian state’s role.
    • Acceptance among the upper section of society: Its retreat from vital functions and abdication of its social responsibility have gained acceptance and legitimacy among the articulate upwardly mobile.
    • While retreat and abdication found influential and forceful evangelists, the selective retreat had few advocates.
    • This departure, however, was not vigorously interrogated.
    • Supporters of the departure, on the other hand, had little engagement in giving shape to the new policy.
    • Nor did they worry about calibrating the architecture of the emerging role for the state.
    • As a result, ‘private sector’ became the new holy cow in place of the ‘state sector’.
    • What made matters worse is the culture of a simplistic and shallow discourse of public policy that took hold in civil society.
    • It mindlessly privileges the agenda of corporates. It transacts in the idiom of stock exchanges and international rating agencies.

    Who is affected due to declined role of the state?

    • Today, those who bear the brunt of the consequences of shrunken and unresponsive state are the farmer and farm labour, the migrant worker, the unemployed, those in the unorganised sector, the rural poor, and the small entrepreneur.
    • They are paying the highest price for the necessary but unbearable lockdown.
    • They are either stranded far away from home or confined to their homes with no work and incomes, unsupported by the state.
    • Underfunded public health systems are unable to serve them.
    • But the dominant strand of public discourse is out of its depth. It has no time for these concerns.
    • Worse, this discourse can be gamed from time to time.
    • And the alternative discourse is too feeble to draw the attention of the government to the grave implications of COVID-19 for the weak in our society.

    State’s responsibility towards the marginalised

    • The state’s first responsibility is marginalised.
    • The marginalised are also the crucial part of our economy. They lubricate its wheels and generate demand.
    • Demand-side needs to be revived: Announcing stimulus packages that address the supply side alone without beefing up the demand side will be self-defeating to corporates.
    • Prioritising the needs of corporate entities will lead to convulsions in our body politic in the wake of COVID-19.
    • The state is in danger of forfeiting legitimacy if it does not ensure the survival and revival of the marginalised sections.

    From the Mains perspective,  following points are important to highlight the importance of the state’s role in ensuring the welfare of society and why there is a need to revisit the current system owing to certain problems in it.

    Time to revisit the political economy of the Indian state and its role

    • The country should begin a vigorous discourse on redefining every aspect of its involvement in our collective political, economic and social life.
    • The relation between the state and economy, its role in allocating resources and addressing questions of inequality, its duty to provide basic human needs, the extent of the market’s role in providing services such as health, education, civic amenities needs to be revisited.
    • The responsibility of the state and private enterprise towards deprived sections need urgent attention.
    • Re-examining the political structure: We should re-examine the efficacy of our political structures too.
    • The equation between citizens and government and what its implications are for individual freedom, privacy and national security.
    • Also, the equation between the legislature and executive needs to be re-visited.
    • Financial powers: The balance of administrative and financial power between provinces and the union on the one hand and provinces and local bodies on the other should be reconsidered.
    • Election of the representatives: The way we elect our representatives to legislatures must also come under the lens.
    • The issue of weakened local authorities and enfeebled legislatures need attention.
    • For, they are at the coalface, delivering the state to the citizen.
    • The way legislatures are elected and governments are made and unmade must be scrutinised.
    • Our outrage at the power of big money in our electoral system has not arrested its growth.
    • The role of serving and retired members of higher judiciary ought to be a part of the debate.
    • We had an opportunity for intensive debate when the Justice Venkatachaliah Commission submitted its report in 2002 to review the working of the Constitution.

    Conclusion

    The opportunity that COVID-19 provides should not be squandered and must be utilised to have a fresh look at the various issues regarding our social, economic and political life. And states responsibility towards marginalised.

  • What explains crude oil prices falling below the $0 mark?

    Context

    • Recently US oil markets created history when prices of West Texas Intermediate (WTI), the best quality of crude oil in the world, fell to “minus” $40.32 a barrel in New York.
    • Not only is this the lowest crude oil price ever known the previous lowest was immediately after World War II — but also well below the zero-mark.
    • At this price, the seller would be paying the buyer of crude oil $40 for each barrel that is bought.

    Crude oil price dynamics are undergoing dramatic changes this year. The ongoing pandemic has worsened the situation further. India has ample  opportunities to get benefited from the ongoing situation.

    But how can that be? How did prices fall below zero in the first place? Let us see:

    Global fall in crude oil prices

    • The first thing to understand is that, even before the Covid-19 induced global lockdown, crude oil prices had been falling over the past few months.
    • The reason was straightforward. The price of a commodity falls when supply is more than demand.
    • The global oil pricing is by no stretch an example of a well-functioning competitive market. In fact, it’s seamless operations crucially depend on oil exporters acting in consort.

    OPEC+ failure (earlier)

    • Historically, the OPEC, lead by Saudi Arabia, which is the largest exporter of crude oil in the world (single-handedly exporting 10% of the global demand), used to work as a cartel and fix prices in a favourable band.
    • It could bring down prices by increasing oil production and raise prices by cutting production.
    • In the recent past, the OPEC has been working with Russia, as OPEC+, to fix the global prices and supply.
    • This happy accord came to an end as Saudi Arabia and Russia disagreed over the production cuts required to keep prices stable.
    • As a result, OPEC undercutting each other on price while continuing to produce the same quantities of oil.

    What it costs to a country for cutting production

    • The production cut was made worse with the growing spread of Coronavirus, which, in turn, was sharply reducing economic activity and the demand for oil.
    • It must be understood that cutting production or completely shutting down an oil well is a difficult decision because restarting it is both costly and cumbersome.
    • Moreover, if one country cuts production, it risks losing market share if others do not follow suit.

    Demand-supply mismatch got worse

    • By the time the Saudi Arabia and Russia discord was sorted out last week, under pressure from US President, it was possibly too late.
    • Oil-exporting countries decided to cut production by 6 million barrels a day — the highest production cuts — and yet the demand for oil was shrinking by 9 to 10 million barrels a day.
    • This meant that the supply-demand mismatch continued to worsen right through March and April.
    • According to reports, all possible the mismatch resulted in almost all storage capacity being exhausted.

    What led to negative oil prices: Immediate causes

    • The contracts fir this month for WTI, the American crude oil variant, was due to expire. As the deadline came near, prices started plummeting. This was for two broad reasons.
    • There were many oil producers who wanted to get rid of their oil even at unbelievably low prices instead of choosing the other option shutting production.
    • The space to store the oil too got exhausted. Trains and ships, which were typically used to transport oil, too, were used up just for storing oil.
    • They figured that it would be more costly for them to accept the oil delivery, pay for its transportation and then pay for storing it, especially when there is no storage available than to simply take a hit on the contract price.

    Future prospects

    • It is important to note that it was the WTI price for May in the US markets that went so low.
    • Crude Oil prices elsewhere fell but by not so much. Moreover, at least for now, oil prices are pegged at around $20 a barrel.
    • It is likely that this was a one-off event and will not happen as producers are forced to cut back production further.
    • But one cannot rule out such a repeat, with COVID-19 continuing to spread, demand is falling every day.
    • In the end, it would be the demand-supply mismatch (adjusted for how much can be stored away) that will decide the fate of oil prices.

  • Amendment in the FDI Policy for curbing opportunistic takeovers/acquisitions of Indian companies

    The Government of India has reviewed the extant Foreign Direct Investment (FDI) policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19.

    Context

    • The Indian policy revision is meant for sectors and enterprises other than defence, space, atomic energy and sectors and activities “prohibited for foreign investment”.
    • It was understood that the Indian decision was a response to the news of an incremental purchase of shares in HDFC by the People’s Bank of China.

    FDI is an all-season hot topic for both prelims as well as mains. Reading the newscard will make you aware of its scope. We can expect a mains question like –  Recent amendment in the FDI Policy aims for curbing opportunistic takeovers/acquisitions of Indian companies. Elucidate.

    Background

    FDI in India

    • Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA), driven by then FM Manmohan Singh.
    • There are two routes by which India gets FDI.
    1. Automatic route: By this route, FDI is allowed without prior approval by Government or RBI.
    2. Government route: Prior approval by the government is needed via this route. The application needs to be made through Foreign Investment Facilitation Portal, which will facilitate single-window clearance of FDI application under Approval Route.
    • India imposes a cap on equity holding by foreign investors in various sectors, current FDI in aviation and insurance sectors is limited to a maximum of 49%.
    • In 2015 India overtook China and the US as the top destination for the Foreign Direct Investment.

    What is the amendment about?

    • The govt. has amended para 3.1.1 of extant FDI policy as contained in Consolidated FDI Policy, 2017.
    • In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership, such subsequent change in beneficial ownership will also require Government approval.

    The present position and revised position in the matters will be as under:

    Present Position

    • A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.
    • However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route.
    • Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

    Revised Position

    • A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.

    [spot the difference]

    • However, an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the Government route.
    • Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

    In response to China

    • China accused that India’s recently adopted policy goes against the principles of the World Trade Organisation (WTO).
    • It tends to violate WTO’s principle of non-discrimination, and go against the general trend of liberalisation and facilitation of trade and investment.

    Impact

    • The amended policy brings every kind of Chinese investors to India within the ambit of government approval reducing the space for private business negotiations.
    • The decision would face difficulties, especially if the government tried to attribute nationality to venture capital funds.

    Back2Basics: Foreign Direct Investment (FDI)

    • An FDI is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.
    • It is thus distinguished from a foreign portfolio investment by a notion of direct control.
    • FDI may be made either “inorganically” by buying a company in the target country or “organically” by expanding the operations of an existing business in that country.
    • Broadly, FDI includes “mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations, and intra company loans”.
    • In a narrow sense, it refers just to building a new facility, and lasting management interest.

  • [pib] Draft Electricity Act (Amendment) Bill, 2020

    The Ministry of Power has issued a draft proposal for amendment of Electricity Act, 2003 in the form of the draft Electricity Act (Amendment) Bill, 2020.

    Draft Electricity Act (Amendment) Bill 2020

    Major amendments proposed in the Electricity Act are as follows:

    Viability of DISCOMs

    • Cost reflective Tariff: To eliminate the tendency of some Commissions to provide for regulatory assets, it is being provided that the Commissions shall determine tariffs that are reflective of  cost so as to enable Discoms to recover their costs.
    • Direct Benefit Transfer: It is proposed that tariff be determined by Commissions without taking into account the subsidy, which will be given directly by the government to the consumers.

    Sanctity of Contracts

    • Establishment of Electricity Contract Enforcement Authority:  Such an authority headed by a retired Judge of the High Court is proposed to be set-up with powers of the Civil Court to enforce performance of contracts related to purchasing or sale or transmission of power between a generating, distribution or transmission companies.
    • Establishment of adequate Payment Security Mechanism for scheduling of electricity: It is proposed to empower Load Dispatch Centres to oversee the establishment of adequate payment security mechanism before scheduling dispatch of electricity, as per contracts.

    Strengthening the regulatory regime

    • Strengthening of the Appellate Tribunal (APTEL): It proposed to increase the strength of APTEL to seven apart from the Chairperson so that multiple benches can be set-up to facilitate quick disposal of cases.
    • Doing away with multiple Selection Committees: It is proposed to have one Selection Committee for selection of Chairpersons and Members of the Central and State Commissions and uniform qualifications for appointments of Chairperson and Members.
    • Penalties: In order to ensure compliance of the provisions of the Electricity Act and orders of the Commission, section 142 and section 146 of the Electricity Act are proposed to be amended to provide for higher penalties.

    Renewable and Hydro Energy

    • National Renewable Energy Policy: It is proposed to provide for a policy document for the development and promotion of generation of electricity from renewable sources of energy. It is also proposed that a minimum percentage of purchase of electricity from hydro sources of energy is to be specified by the Commissions.
    • Penalties: It is being further proposed to levy penalties for non-fulfilment of obligation to buy electricity from renewable and/or hydro sources of energy.

    Miscellaneous

    • Cross border trade in Electricity: Provisions have been added to facilitate and develop trade in electricity with other countries.
    • Franchisees and Distribution sub licensees: It is proposed to provide that the Distribution Companies, if they so desire, may engage Franchisees or Sub-Distribution Licensees to distribute electricity on its behalf in a particular area within its area of supply. However, it will be the DISCOM which shall be the licensee, and therefore, ultimately responsible for ensuring quality distribution of electricity in its area of supply.

  • [pib] Ionospheric Electron Density (IED) and its applications

    Researchers from the Indian Institute of Geomagnetism (IIG), Mumbai, have developed a global model to predict the ionospheric electron density with larger data coverage—a crucial need for communication and navigation.

    We can gauge these days that PIB is coming with ample news which is visibly important and are focused on basic GS concept. Ionospheric Electron Density is one such concept. Its significance for prelims cannot be denied.

    Ionospheric Electron Density (IED)

    • The ionosphere exists between about 90 and 1000 km above the earth’s surface.
    • Radiation from the sun ionizes atoms and molecules here, liberating electrons from molecules and creating a space of free electron and ions.

    Studying IED

    • The ionospheric variability is greatly influenced by both solar originated processes and the neutral atmosphere origin.
    • Scientists have tried to model the ionosphere using theoretical and empirical techniques; however, the accurate prediction of electron density is still a challenging task.
    • In recent years, Artificial Neural Networks (ANNs) are showing potential to handle more complex and non-linear problems.

    What are Artificial Neural Networks (ANNs)?

    • ANNs are computing systems vaguely inspired by the biological neural networks that constitute animal brains.
    • Such systems “learn” to perform tasks by considering examples, generally without being programmed with task-specific rules.
    • For example, in image recognition, they might learn to identify images that contain cats by analyzing example images that have been manually labeled as “cat” or “no cat” and using the results to identify cats in other images.
    • They do this without any prior knowledge of cats, for example, that they have fur, tails, whiskers and cat-like faces.
    • Instead, they automatically generate identifying characteristics from the examples that they process.

    Significance of IED

    • Due to the ability of ionized atmospheric gases to refract high frequency (HF, or shortwave) radio waves, the ionosphere can reflect radio waves directed into the sky back toward the Earth.
    • Radio waves directed at an angle into the sky can return to Earth beyond the horizon.
    • This technique, called “skip” or “skywave” propagation, has been used since the 1920s to communicate at international or intercontinental distances.

  • What is Helicopter Money?

    With the coronavirus-hit economy falling deeper and deeper into a chasm with each passing day, Telangana chief minister KC Rao earlier this month has said helicopter money can help states come out of this crisis.

    Various monetary policy tools are being considered to boost consumer demand in the economy which is stricken by the coronavirus pandemic. Helicopter Money is one such tool.

    What is Helicopter Money?

    • This is an unconventional monetary policy tool aimed at bringing a flagging economy back on track.
    • It involves printing large sums of money and distributing it to the public. American economist Milton Friedman coined this term.
    • It basically denotes a helicopter dropping money from the sky.
    • Friedman used the term to signify “unexpectedly dumping money onto a struggling economy with the intention to shock it out of a deep slump.”
    • Under such a policy, a central bank “directly increases the money supply and, via the government, distributes the new cash to the population with the aim of boosting demand and inflation.”

    Is helicopter money the same as quantitative easing (QE)?

    • Quantitative easing involves the use of printed money by central banks to buy government bonds.
    • But not everyone views the money used in QE as helicopter money.
    • It sure means printing money to monetize government deficits, but the govt has to pay back for the assets that the central bank buys.
    • It’s not the same as bond-buying by central banks “in which bank-owned assets are swapped for new central bank reserves.
    • Helicopter money is also different from a central bank directly financing the debt of a government.

    Pros and cons of helicopter money

    Pros

    • Helicopter money does not rely on increased borrowing to fuel the economy, which means that it doesn’t create more debt and interest rates can remain unchanged.
    • Generally, helicopter money boosts spending and economic growth more effectively than quantitative easing because it increases aggregate demand – the demand for goods and services – immediately.
    • While government money drops that come from debt might not boost consumer spending, due to the debt needing to be repaid, it is often thought that ‘money finance’ will stimulate the economy.

    Cons

    • Unlike quantitative easing, using helicopter money as a tactic is not reversible, and many argue that it’s not a feasible solution to revive the economy.
    • A country’s central bank sets its interest rates to reach economic growth targets.
    • However, a helicopter drop means that a central bank cannot use interest rates to recover any costs, because the money is not linked to a borrowed asset (loan).
    • Instead, the money is given directly to the public. This may lead to over-inflation and cause damage to the central bank’s financials.
    • One of the main risks associated with helicopter money is that it could lead to a significant devaluation of the currency on the foreign exchange market.
    • As more money is printed and supply increases, the value of the domestic currency could significantly decrease.
    • It could also discourage speculators from buying the currency as it is less likely to perform well.