October 2018
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[op-ed snap] Avoiding the currency basket case

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Need for internationalisation of the rupee


Context

History of Indian currency

  1. The Indian rupee was once a multilateral currency, its usage prevalent across the Indian Ocean in places as varied as Java, Borneo, Macau, Muscat, Basra and Zanzibar
  2. The historic dhow trade ensured that the Gulf had a familiarity with the rupee for over five centuries
  3. The accession of George V to the throne in 1911, enshrining his rule of the British Raj, led to the issuance of a new rupee coin
  4. The colonial rupee leveraged the Mughal rupee’s popularity, facilitated by trading communities, migration and the Raj’s hegemony
  5. Even after Independence, Dubai and other Gulf states were using RBI-minted Gulf rupees until 1966

Why rupee use was discontinued?

  1. The devaluation of the Indian rupee in 1966, after the 1965 war, led to such nations switching to their own currencies
  2. Now, only Nepal and Bhutan regularly conduct bilateral trade with India in rupees

Change in value of the rupee

  1. This decline was precipitated by a variety of factors
  • wars with Pakistan and China
  • the adoption of Five Year Plans requiring foreign loans
  • political instability
  • the Oil Price Shock of 1973

Current trends influencing the value of the rupee

  1. Of late, the rupee has been declining given higher oil prices and FII outflows from stocks and bonds
  2. The ongoing U.S.-China trade war, Iran sanctions and further upward movement in oil prices will continue to test the rupee’s valuation

Options for stabilisation

  1. Overtly intervening in the forex market
  2. Selling non-resident Indian bonds (as last done in 2013)
  3. Conducting a sovereign bond issuance
  4. The rupee’s dependency on the U.S. dollar must be reduced

What can India do?

  1. India should consider formalising the rupee payment mechanism with friendly countries such as Russia, with a focus on reducing its overall current account deficit
  2. We must continue to guard against fiscal profligacy, with any slippage viewed negatively by the currency markets, further encouraging investors to flee Indian markets
  3. Industrial growth should be a priority as without having goods to sell, rupee swaps (say with Iran) will be difficult to institutionalise
  4. The formalisation of the Indian economy, by deterring black money transactions in the rupee, is also much needed

What should be India’s black money strategy?

  1. It should encourage tax rate rationalisation, reform vulnerable sectors, support a cashless economy and create effective and credible deterrence
  2. Administrative agreements with countries like the U.K. and Switzerland which can offer mutual tax sharing should be encouraged
  3. It is important to create a remittance database detailing company transfers out and NGO transfers into India, all reporting to the Financial Intelligence Unit (FIU)
  4. The Direct Tax Administration’s Directorate of Criminal Investigation should be provided the right IT training, infrastructure and funding to become an effective deterrent
  5. The audit cycles for income tax, service tax and excise tax departments should be aligned, helping the Large Taxpayer Unit (LTU) become more effective, increasing the scope of simultaneous scrutiny and examination

Need for internationalisation of the rupee

  1. The rupee is currently not even in the top 10 traded currencies
  2. While the Chinese yuan is increasingly being positioned for an alternative reserve currency through a variety of multilateral trades, institutions (the Belt and Road Initiative, the Asian Infrastructure Investment Bank) and swaps, the Indian rupee remains woefully behind in internalisation
  3. China campaigned hard for the inclusion of its currency in IMF’s benchmark currency basket in 2015, introducing a range of reforms to ensure that the yuan was considered as “freely usable”
  4. The RBI, meanwhile, has adopted a gradualist approach – allowing companies to raise rupee debt offshore, enabling the creation of “masala bonds” and allowing foreigners to invest in rupee debt onshore
  5. By these measures, the rupee has transformed from a largely non-convertible pegged currency before 1991 to a managed float

Way Forward

  1. Institutional resistance against rupee convertibility should be overturned
  2. To restore the rupee’s multilateral nature, we must unshackle its usage
Capital Markets: Challenges and Developments

[op-ed snap] Eyes on India

Note4students

Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Threat posed by China in the Asian region and how India can be helpful in countering it


Context

State of geopolitics in Asia

  1. Asia is in a state of flux
  2. China’s Belt and Road Initiative is reshaping the region’s geography, with roads and railways traversing Eurasia and new ports dotting the Indian Ocean basin
  3. Beijing’s militarisation of the South China Sea continues, despite negotiations towards a code of conduct
  4. Japan has found itself in an unexpected leadership position, resuscitating the Trans-Pacific Partnership and concluding a trade agreement with the European Union
  5. Japan, South Korea, Taiwan, and Australia have all unveiled strategies to diversify their economic interdependence, away from mainland China and towards Southeast Asia and India

Motivations behind these moves

  1. The most recent is the ongoing trade and tariff war between the U.S. and China
  2. A longer-term concern is Beijing’s use of its economic muscle for political purposes, whether in suspending rare earth metal exports to Japan in 2010 or punishing a major South Korean corporation for Seoul’s decision to install a missile defence system in 2017
  3. China’s limited market growth potential and questions of access and reciprocity are additional considerations

A new Indo Pacific strategy with a focus on India

  1. Japan’s Free and Open Indo-Pacific strategy is meant to diversify investments to more promising markets in Southeast Asia, India, and Africa
  2. South Korean President has unveiled a New Southern Policy
  3. While the policy is focussed on Southeast Asia, it also makes India Korea’s key partner for cooperation
  4. Taiwan, a G20-sized economy whose political status is disputed, has announced a New Southbound Policy with significant accompanying investments in India by Taiwanese electronics manufacturers
  5. Australia’s government has commissioned an ambitious India Economic Strategy with the goal of making India its third-largest investment destination and export destination by 2035

Way Forward

  1. The stars are aligning in Asia for the acceleration of India’s economic growth
  2. But with more protectionist sentiments taking root, a legacy of poorly-negotiated trade deals, a general election around the corner, and uneven economic liberalisation, the likelihood of India taking full advantage of these opportunities remains slim
Foreign Policy Watch: India-APEC

[op-ed snap] Augmenting life — on Nobel Prize 2018

Note4students

Mains Paper 3: Science & Technology | developments & their applications & effects in everyday life

From UPSC perspective, the following things are important:

Prelims level: Nobel prizes, Optical tweezers, Optical holography, Attosecond lasers

Mains level: Low strength of women in scientific research and the need for a better atmosphere to bring more women in research domain


Context

Links of Nobel prize to evolution

  1. The Nobel Prize for Chemistry this year is a tribute to the power of evolution
  2. The laureates harnessed evolution and used it in the laboratory with amazing results
  3. Frances H. Arnold, an American who was given one-half of the prize, used ‘directed evolution’ to synthesise variants of naturally occurring enzymes that could be used to manufacture biofuels and pharmaceuticals
  4. The other half went to George P. Smith, also of the U.S., and Sir Gregory P. Winter, from the U.K., who evolved antibodies to combat autoimmune diseases and even metastatic cancer through a process called phage display
  5. The prizes reaffirm the importance of the concept of evolution in our understanding of life as among the most profound of forces we are exposed to

Other prizes

  1. The Physiology and Medicine prize has gone to the American James P. Allison and Tasuku Honjo, from Japan, for showing how different strategies can inhibit the metaphorical ‘brakes’ acting on the immune system and thereby unleash the system’s power on cancer cells to curb their proliferation
  2. These immunologists have enhanced the power of the body’s immune system to go beyond its natural capacity
  3. Arthur Ashkin, from the U.S., has been awarded one-half of the Physics prize, for enabling us to individually hold, study and manipulate tiny bacteria and viruses using ‘optical tweezers’
  4. Optical tweezers are used to study and manipulate subcellular structures such as DNA and little molecular motors
  5. Optical holography, wherein thousands of such optical tweezers can operate together on, say, blood, to separate damaged blood cells from healthy ones could be a treatment process for malaria
  6. Gérard Mourou, from France, and Donna Strickland, from Canada, who share the other half of the Physics prize, have been honoured for their methods to generate ultra-short pulses of laser light
  7. Among its uses are in Lasik surgery in ophthalmology, and in making surgical stents
  8. Attosecond lasers have even made it possible to observe individual electrons

Use of fundamental forces

  1. The prize-winners have drawn upon the fundamental forces in science and reached out beyond human physical limitations

Need to bring more women in scientific research

  1. Two of the six laureates – Donna Strickland and Frances Arnold – are women
  2. They are only the third and fifth women Nobel laureates in Physics and Chemistry, respectively, since the inception of the Nobel prizes
  3. This statistic gives a reason for the community of scientists to introspect over what makes an enabling environment for women to practise science in
Nobel and other Prizes

[pib] Atal Innovation Mission & SIRIUS sign MoU for promotion of innovative cooperation between students of India & Russia

Note4students

Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: Atal Innovation Mission (AIM)

Mains level: India-Russia collaboration in various fields


News

Promoting innovation

  1. To promote innovative cooperation between students of India and Russia, a Memorandum of Understanding was exchanged between India’s Atal Innovation Mission (AIM) and the Russian Federation’s SIRIUS Educational Foundation
  2. The MoU hopes to
  • remove cultural and language barriers between students of Russia and India
  • share the best practices in the promotion of educational, scientific, innovative achievements
  • promote innovative cooperation
  • search and develop the talented youth of both countries fostering a knowledge-driven innovation ecosystem in both the countries

AIM-SIRIUS Innovation Festival 2018

  1. To promote a spirit of collaborative innovation, young innovators of Atal Tinkering Labs and SIRIUS Educational Foundation came together at a four-day Indo-Russian ATL innovation boot-camp from October 1st to October 4th
  2. The boot-camp was organized by Atal Tinkering Labs, Atal Innovation Mission, with support from Department of Design, IIT Delhi
  3. The innovations developed across space technology, healthcare, smart mobility, clean energy and agricultural technology were showcased

Back2Basics

Atal Innovation Mission

  1. Atal Innovation Mission (AIM) is NITI Aayog’s flagship initiative to promote a culture of innovation and entrepreneurship in India
  2. AIM has been established to create and promote an ecosystem of innovation and entrepreneurship in a holistic manner through various initiatives at school, university and industry levels
  3. The Atal Innovation Mission has thus two core functions:
  • Innovation promotion: to provide a platform where innovative ideas are generated.
  • Entrepreneurship promotion: Wherein innovators would be supported and mentored to become successful entrepreneurs at Incubation Centres

SIRIUS Educational Foundation

  1. It is a unitary, non-profit, non-standard educational organization
  2. The activities of the Foundation are aimed to identify and support children and young people who have shown outstanding abilities
  3. It provides assistance in obtaining general and additional education for such personalities, including education in the fields of arts, natural sciences, physical culture and sports
Innovation Ecosystem in India

India, Russia sign S-400 missile deal after summit

Note4students

Mains Paper 3: Internal Security | Challenges to internal security

From UPSC perspective, the following things are important:

Prelims level: Details of S-400 System

Mains level: Protecting Indian airspace against neighborhood threats.


News

Context

  1. India and Russia concluded the contract for five S-400 ‘Triumf’ missile systems, one of the biggest defence deals in recent times.
  2. The announcement of the deal could attract sanctions from the United States, was made in a joint statement issued by both sides.

No pact on frigates

  1. The two sides failed to conclude two other major deals, for stealth frigates and assault rifles that were reportedly ready citing further negotiations.
  2. Significantly, the agreement for the estimated $5.43 billion (Rs. 40,300 crore) S-400 system was not referred to by either leader in their press statements.
  3. It was also the only agreement not included with eight others exchanged.

S-400 Coming Soon

  1. Deliveries of S-400 will begin in 24 months, at the end of 2020.
  2. India would pay about 15% in advance, likely through the rupee-rouble mechanism both countries use for trade in their own currencies.

Defying fears of US Sanction

  1. The U.S. has warned the deal would invoke sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA) law.
  2. It penalizes defence purchases from Russia, Iran and North Korea, as soon as the first payment is made, unless US grants a “waiver.”
  3. Any waiver for the S-400 deal would only be considered on a “transaction-by-transaction basis
  4. The negotiations for S-400 preceded CAATSA by a long period of several years.
  5. It fulfils a certain defence requirement for India and the government has taken the decision in the national interest.

Back2Basics

S-400 Triumf

The S-400 is known as Russia’s most advanced long-range surface-to-air missile defence system, capable of destroying hostile strategic bombers, jets, missiles and drones at a range of 380-km.

Why does India need S-400?

  1. India needs to be well-equipped against neighboring threats.
  2. Pakistan has over 20 fighter squadrons, with upgraded F-16s, and inducting J-17 from China in large numbers. China has 1,700 fighters, including 800 4-Gen fighters.
  3. A shortfall of fighter squadrons has severely affected IAF’s efforts to pose a challenge to the enemies.
Foreign Policy Watch: India-Russia

[pib] Launch of Methanol Cooking Fuel Program of India

Note4students

Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Particulars of the Methanol Cooking Fuel Program

Mains level: Various initiatives for cleaner cooking fuel.


News

Methanol Cooking Fuel Program

  1. Northeast and Assam Petro-chemicals, a state-owned company is launching Asia’s first cannisters based and India’s first “Methanol Cooking Fuel Program”.
  2. 500 households inside the Assam Petro Complex will be the first pilot project, scaling it to 40,000 households in Uttar Pradesh, Maharashtra, Gujarat, Telangana, Goa and Karnataka.
  3. Assam Petrochemicals Limited has been manufacturing methanol for the last 30 years and is in the process of upgrading their 100 TPD methanol plant to 600 TPD by Dec 2019.
  4. The safe handling cannister based cooking stoves are from Swedish Technology and through a Technology transfer a large-scale cooking stove manufacturing plant will come up in India.
  5. In the next 18 months it will be producing 10 lakh Cook stoves and 1 Crore Cannisters per year.

Benefits of the Fuel

  1. This technology is very unique as it handles methanol extremely safely, does not need regulator or any piping system.
  2. The cooking medium can directly substitute LPG, Kerosene, Wood, Charcoal and any other fuel for cooking.
  3. The gaseous form, Methanol – DME, can be blended in 20% ratio with LPG.
  4. 2 litres cannisters can last for full five hours on twin burners and 8 such Cannisters as rack can last for one month for a family of three.

Fueling the North East

  1. The cost of energy equivalent of one cylinder of LPG for Methanol is Rs. 650, compared to Rs. 850 per cylinder resulting in a minimum of 20% Savings.
  2. For instance, in Manipur the cost of transportation of LPG is Rs. 200, whereas same cost for Methanol will be Rs. 12.
  3. This provides for an excellent alternative as household fuel and commercial, institutional and fuel for restaurants.
Biofuel Policy

[pib] GI Tag for Alphonso from Konkan

Note4students

Mains Paper 3: Indian Economy| Issues relating to intellectual property rights

From UPSC perspective, the following things are important:

Prelims level: Geographical Indications (GI)

Mains level: GI Indications and their importance


News

King of Mangoes gets GI tag

  1. Alphonso from Ratnagiri, Sindhudurg, Palghar, Thane and Raigad districts of  Maharashtra, is registered as Geographical Indication (GI).
  2. The king of mangoes, Alphonso, better known as ‘Hapus’ in Maharashtra, is in demand in domestic and international markets not only for its taste but also for pleasant fragrance and vibrant colour.
  3. It has long been one of the world’s most popular fruit and is exported to various countries including Japan, Korea and Europe.
  4. New markets such as USA and Australia have recently opened up.

Back2Basics

Geographical Indications in India

  1. A Geographical Indication is used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin.
  2. Such a name conveys an assurance of quality and distinctiveness which is essentially attributable to its origin in that defined geographical locality.
  3. Recently the Union Minister of Commerce and Industry has launched the logo and tagline for the Geographical Indications (GI) of India.
  4. The first product to get a GI tag in India was the Darjeeling tea in 2004. There are a total of 325productsfrom India that carry this indication.
  5. Darjeeling Tea, Mahabaleshwar Strawberry, Blue Pottery of Jaipur, Banarasi Sarees and TirupatiLaddus are some of the GIs.
  6. The Geographical Indications of Goods (Registration and Protection) Act, 1999 (GI Act) is a sui generis Act for protection of GI in India.
  7. India, as a member of the World Trade Organization (WTO), enacted the Act to comply with the Agreement on Trade-Related Aspects of Intellectual Property Rights
  8. Geographical Indications protection is granted through the TRIPS Agreement. See also the Paris Convention, the Madrid Agreement, the Lisbon Agreement, the Geneva Act.
GI(Geographical Indicator) Tags

[pib] India-China Trade

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Not Much

Mains level: The ongoing trade war between the US and China and its latent benefits for India.


News

Context

  1. Union Minister of Commerce & Industry has released a study by the Department of Commerce on India-China Trade.
  2. The report tries to analyze the magnitude, extent and plausible reasons of India’s rising trade deficit with China.

Addressing the Deficit

  1. India’s trade relationship with China is unique and no other bilateral trading relationship evokes as much interest in India as the India-China trade relationship.
  2. From being a small trading partner of India in 2001, within a span of fifteen years, China has rapidly become India’s biggest trading partner.
  3. Trade between the two countries has been expanding but India’s trade deficit with China has been growing.

Trade War Looming FTAs

  1. Most industry associations want the Government to pursue a defensive approach to Free Trade Agreements (FTAs) and raise tariffs on the doctrine of domestic markets for domestic producers.
  2. The global use of protectionist measures in 2018 was unprecedented with the trade wars looming between two of the largest economies of the world.
  3. This analysis helps in studying whether an FTA or tariff concessions by China to India can be beneficial in increasing India’s exports to China.

Why such a study?

  1. The idea behind this exercise has been to identify whether tariff concessions by China to other countries impede raising the share of India’s exports in the Chinese market.
  2. These lines can be taken up by India for negotiations with China under agreements like Asia Pacific Free Trade Agreement (APTA) in which both India and China are involved during the review exercise.
  3. Competing countries that have FTAs with China, limits the scope for Indian exports.
  4. This is due to higher tariffs faced by exporters as compared to competing nations who have secured tariff concessions under their FTAs.
  5. The study also underlines the opportunity available for India in increasing its services exports to China.

Other Parameters

  1. The imports of China from these countries as well as China’s Most Favored Nation (MFN) rates have been studied.
  2. Indices like Revealed Comparative Advantage (RCA) and Trade Complementarity Index (TCI) have been used to analyse the extent of India and China’s competiveness in this arena and the potential for the future.
  3. There is a separate section on the opportunities arising for India out of US – China trade standoff with a detailed analysis of specific tariff lines.
  4. The new tariffs that have been levied by China on the US amidst the ongoing trade war brings in the potential for India to fill the gaps left by America in the Chinese market.
Foreign Policy Watch: India-China

[pib] SEZ Policy Review Committee holds final meeting

Note4students

Mains Paper 3: Indian Economy| Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

From UPSC perspective, the following things are important:

Prelims level:  SEZ Policy (2005)

Mains level:  Reconsidering the SEZ Policy in India


News

Context

  • The SEZ Policy Review Committee has its final round of consultations with the members under the chairmanship of the Commerce Secretary.
  • The Committee was of the opinion that SEZ should now transform into “Employment and Economic Enclaves” (3Es).

Why such Policy Review?

  1. The objective of the Committee was to evaluate the SEZ policy framed in 2000 and suggest measures to make the policy WTO compatible.
  2. It is aimed to give suggestions which will encourage manufacturing and services sector and lead to maximizing utilization of vacant land in SEZs.
  3. It further aims to create seamlessness between SEZ policy and other schemes like Costal Economic Zone, Delhi-Mumbai Industrial Corridor, National Industrial Manufacturing Zone, Food Parks and Textile Parks.

Broadening the scope of SEZs

  1. The changes in the macro-economic environment in India required a re-look at the SEZ Policy framework so that focus is on enabling generation of 100 million jobs in the manufacturing sector.
  2. It will enable manufacturing competitiveness within the framework of WTO rules, bringing in services sectors like health care, financial and legal services, repair and design services under SEZs.

Back2Basics

Special Economic Zones (SEZ)

  1. SEZs are set up under Special Economic Zones Act, 2005 as duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs in India.
  2. SEZ units are deemed to be outside the customs territory of India.
  3. Goods and services coming into SEZs from the domestic tariff area or DTA are treated as exports from India and goods and services rendered from the SEZ to the DTA are treated as imports into India.
  4. The facilities at SEZ include:
  • Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
  • 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
  • Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
  • External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.
  • Exemption from Central Sales Tax.
  • Exemption from Service Tax.
  • Single window clearance for Central and State level approvals.
  • Exemption from State sales tax and other levies as extended by the respective State Governments.

Setting up an SEZ

  1. The developer submits the proposal for establishment of SEZ to the concerned State Government.
  2. The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the Board of Approval.
  3. The applicant also has the option to submit the proposal directly to the Board of Approval.
Services Sector

India, Vietnam hold joint drill in Bay of Bengal

Note4students

Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: Exercise Sahyog

Mains level: India-Vietnam Relations


News

Ex. Sahyog HOP TAC-2018

  1. The Indian Coast Guard conducted its maiden joint exercise with the Vietnam Coast Guard in the Bay of Bengal, off the coast of Chennai.
  2. The exercise was aimed at enabling the Coast Guard units of the two countries to acquaint themselves with each other’s capabilities, strengthening the working-level relationship to rescue lives at sea and refining joint operation procedures.
  3. Three Indian Coast Guard ships ICG Shaurya, Arnvesh and C-431 — and two helicopters, ICG Dornier and Chetak, took part in the search and rescue (SAR) exercise.
  4. Vietnam Coast Guard vessel, CSB 8001, arrived to take part in the joint exercise and to enhance interoperability.
  5. The joint exercise simulated a scenario involving rescue of crew from a hijacked oil tanker, interdiction of a pirated vessel, joint boarding operation and external fire-fighting to salvage burning ships.
Coastal Zones Management and Regulations