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Trade Sector Updates – Falling Exports, TIES, MEIS, Foreign Trade Policy, etc.

World trade fall mustn’t stoke export pessimism

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Relation between value of rupee with export competitiveness.

Mains level : Paper 3- Why we need foreign exchange and ways to improve exports.

Context

The WTO expects a sharp drop-off in global trade in the wake of Covid-19. But India must not withdraw inwards.

Prospects of the exports

  • Impact on global trade: The World Trade Organization (WTO) predicts that global trade could fall by 13-32% this year on account of disruptions and all the turmoil.
  • At this point, we cannot even count on a quick recovery after this health emergency is past its peak.
  • A trade revival may have to wait till 2022 or later.
  • Indian exports have been in a slump for a large part of the past decade, and recent reports point to a rash of cancelled orders from abroad (except, notably, for drugs).
  • This, however, should not mean that we slip into export pessimism.
  • Opportunity in the crisis: Instead, a crisis such as this could serve as an opportunity to sharpen our competitive edge that has got blunt over the years.
  • Rupee and reform: This is best done through reforms, though a rupee on the decline vis-à-vis the US dollar should help too.

Reasons for export orientations

  • The relation between growth and exports: No country is an island unto itself, and nations will continue to exchange goods and services so long as it makes economic sense.
  • Trade partners are usually better off producing what they’re best at, for all users, and buying from the rest what others turn out better—at a lower cost and higher quality.
  • Economies that participate in this game, as the historical record has shown, tend to grow faster.
  • There is another good reason for export orientation.
  • Foreign earnings: India needs foreign earnings, not just for oil imports and suchlike, but also for overall economic stability, given our reliance on foreign capital for growth.
  • In tough times such as these, when we may need to borrow money from abroad to bridge a hugely enlarged fiscal deficit, ensuring a stream of future dollar earnings becomes even more crucial.
  • To enable the issuance of dollar bonds and raise our chances of staging a less painful return to form, we need to get our export act together.

Way forward to increase exports

  • Structural and policy changes: Export success goes by competitiveness, and for domestic businesses to achieve this, India would need to undertake several structural and policy changes.
  • We could begin with reversing the tariff barriers that have been raised in recent years.
  • Exposure to foreign competitors would force them to turn efficient and perform better.
  • Duties on inputs, especially, need to come down. So do other taxes that hold companies back. Other steps to raise productivity will help, too.
  • Good logistical backup is another big requirement.
  • The low value of rupee: The rupee’s slump is a plus for exporters, since their output is cheaper in dollar terms, but we may need to pursue a policy that does not let our currency’s value get over-inflated by inflows of foreign “hot money” (when they return).
  • Cost of capital: The cost of capital in India needs to be low, too, and this would depend on how well the government manages its finances.
  • India’s annual exports currently form less than 2% of the world’s. We should aim for 5%.

Government Budgets

A plan for the aftermath

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Fiscal deficit. Monetisation of deficit.

Mains level : Paper 3-Suggest the option to get the resources for dealing with the corona pandemic.

Context

Everyone is agreed that the whole world is hurtling towards an unprecedented economic recession. India, already facing a massive slowdown, is going to get hurt perhaps more than the others, because our economic immune system is already weak.

Three things that we must do in the present situation

  • The first is containing the spread of the virus.
  • Apart from the manpower, medicines, protective equipment for frontline workers and other methods, it will need massive resources to tackle it.
  • Second, the poor are already suffering in more ways than one, including the daily wage earners. They will have to be taken care of, again needing massive resources.
  • Third, economic activity will have to be revived as soon as conditions return to normal or near-normal, for which businesses will have to be helped, again needing massive resources; both in terms of revenue foregone and actual cash outgo.
  • The question, therefore, on everyone’s mind is how much money will be needed for all this and where will it come from?
  • What the government and the RBI have done so far is clearly awfully inadequate. Other countries have done much more. India can be no exception.

Where will the government will get resources?

  • Partly from market and partly form RBI: Broadly speaking, resources will come partly through market borrowings and partly from the RBI.
  • Manmohan Singh had decided in 1994 that in future the government of India would not monetise its deficit; in other words, would not borrow from the RBI but go to the money market and borrow from there.
  • Borrow from the RBI: In these unprecedented times, we may take leave from that very sound principle, which all governments have followed religiously since then, and borrow from the RBI.
  • What does it mean? This means printing of more currency notes with all its attendant problems including inflation.
  • Government of India will have to take the steps necessary to tackle the after-effects to the extent possible. It must ensure that the supply chains work smoothly.

How will the money be spent?

  • The Important role of states: The states will have to play a very important role in this, as much of the work will have to be done by them.
  • Responsibility of finance commission: Since the finance commission continues to be in existence and has a clear idea of the state finances, it should be immediately tasked with the responsibility of discussing this matter with the state governments and making its recommendations available within a period of one month.
  • The task force under the finance minister could work out the needs of businesses and the government of India both in the short as well as the medium term.
  • Spending money properly and efficiently: It should not be wasted and each rupee spent creates its own multiplier effect.
  • Our system leaves much to be desired. And the moment it is known that funding is not a constraint, the system can go berserk.
  • We must guard against that and ensure that rules are in place, specially at the field level to ensure the proper use of resources.

Role of banks, financial institutions and MGNREGA

  • The banks and other financial institutions will have to be provided with resources to help the private sector, especially the agricultural and MSME sectors.
  • In the rural areas, we must ensure that durable assets are created out of the funds made available.
  • The rules governing the MGNREGA scheme should be tweaked to the extent necessary in order to ensure that more material than labour is used wherever necessary.

Conclusion

India should and can come out of the present crisis with as little damage as possible if we tackle it together. We cannot control what happens in other countries, but we can surely learn from them and adopt their best practices. We must also play our role in defining the new global order because the world is more intertwined now than ever before.

Foreign Policy Watch: India-China

The new multilateralism

Note4Students

From UPSC perspective, the following things are important :

Prelims level : WHO's role.

Mains level : Paper 2- How BRICS with India and China as its members poses challenges in its success?

Context

As the major global institutions — from the WHO to the WTO — are experiencing unprecedented turmoil India needs to be pragmatic and fleet-footed.

Reorientation of India’s multilateral strategy

  • As many international institutions, including the World Health Organisation and the United Nations Security Council, come under great stress in the corona crisis, Delhi’s multilateral strategy is going through a rapid reorientation.
  • Realists in Delhi recognise that India’s engagement with the UN is not about the pursuit of some higher ideological calling, but the navigation of hardball geopolitics.

China’s growing influence and implications for India

  • China’s role on Kashmir question: China repeatedly pressed the UN to discuss the Kashmir question after Delhi changed the constitutional status of the region last August.
  • China avoiding discussion on Covid crisis: But through last month, as the rotating chair of the UNSC, China blocked any discussion of the Covid crisis.
  • Beijing insisted that the crisis was not a matter of international peace and security that the UNSC ought to bother itself with.
  • A mere internal administrative change in Kashmir, Beijing continues to insist, is a grave threat to international peace and security.
  • With its veto power, Beijing can simply prevent the UNSC from doing anything against China.

Why the credibility of the UN and WHO bureaucracy is under cloud?

  • Secretary-General Antonio Guterres, jumped quickly into the Indo-Pak arguments over Kashmir, and raised concerns over India’s Citizenship Amendment Act and the National Register of Citizens.
  • Guterres went on an extended visit to Pakistan in February and made an ostentatious public offer to mediate between Delhi and Islamabad on Kashmir.
  • But when it comes to China’s role in the spread of the coronavirus, Guterres can’t seem to find the words.
  • The situation at the WHO is a lot worse.
  • The Director-General of WHO, Tedros Adhanom Ghebreyesus warns against the dangers of “politicising” the Covid crisis.
  • Many in Europe and the US think that is exactly what Tedros has done at the WHO in the last few months.
  • Breakdown of the multilateral system: What we are witnessing is the breakdown of the multilateral system that emerged from the ashes of the Second World War amidst the deepening contestation between the world’s foremost powers — the US and China.

NEW MULTILATERALISM adopted by India

  • India’s new multilateralism — as a pragmatic response to external change — involves downplaying some past associations and strengthening new partnerships.
  • Take, for example, two innovations India has made since the end of the Cold War.
  • One was the BRICS forum with Brazil, Russia, China and South Africa and the other was the so-called Quad — a coalition of democracies with Australia, Japan and the US.
  • Actions of BRICS members with respect to India: As India reorders its multilateral priorities amid the corona crisis, the BRICS forum is losing some of its salience and the Quad is gaining traction.
  • Preventing discussion on COVID crisis: Two of India’s partners in BRICS — Russia and South Africa — had reportedly backed the efforts of a third, China, to prevent a discussion of the COVID crisis in the UNSC.
  • If Delhi were sitting in the UNSC right now as a non-permanent member, it would have had every interest in pressing for a discussion of the COVID crisis that has severely damaged India’s economic and social prospects.
  • Meanwhile, India is in regular consultations on managing the corona crisis with the “Quad Plus” grouping that draws in South Korea, Vietnam and New Zealand.
  • Neither the BRICS nor the Quad square with the conventional narrative on India’s multilateralism that was dominated in the past by the Non-Aligned Movement (NAM) and the G-77.
  • As circumstances change, India is finding new international partners to secure its interests.

Context which gave rise to BRICS

  • It started out as a triangular coalition with Russia and China in the mid-1990s.
  • India’s interest in the RIC was borne out of fear of the unipolar moment and Russia’s relentless efforts to draw it into a “strategic triangle” that would resist “American hegemony”.
  • In the early 1990s, Delhi was rather wary of the Bill Clinton Administration’s plans to relieve India of its nuclear and missile programmes.
  • What made matters worse was the Clinton Administration’s formulation that “Kashmir is the world’s most dangerous nuclear flashpoint”.
  • This was not just a description; it was accompanied by a prescription for Delhi: Resolve the Kashmir question by sitting down with Pakistan and the Hurriyat.
  • If Delhi needs any help, Washington will be happy to chip in.
  • Balancing the US pressure: Going into a political tent with Russia and China seemed a sensible bet to ward off American pressures on the nuclear and Kashmir questions.

Two decades after BRICS-Changes in circumstances

  • Two decades later, we are in a very different place.
  • Take the same two issues — Kashmir and the nuclear programme — that drove India into the BRICS.
  • China’s role on Kashmir issue: It is Beijing that wants the UNSC to take up the Kashmir question, and it is Paris and Washington that are preventing it.
  • NSG membership blocked by China: China has also resolutely blocked India’s effort to become a full member of the global nuclear order by joining the Nuclear Suppliers Group.
  • On the nuclear front too, it was France and the US that helped India break the nuclear blockade.
  • Shielding of Pakistan by China: China shields Pakistan from international pressures to end cross-border terrorism.
  • And it is India’s partners in the West and the Muslim world that are helping Delhi cope better with violent extremism.

India’s engagement with Europe

  • India has also discovered the new possibilities for engaging Europe in the multilateral arena.
  • Europe as an important partner: If India’s definition of multilateralism — Afro-Asian solidarity — immediately after Independence was defined in opposition to colonial Europe, Delhi now sees Europe as a valuable partner in rearranging the global order.
  • India has joined the “alliance for multilateralism” initiated by Germany and supported by its European partners.

Conclusion

India needs all the pragmatism it can muster to pursue its interests in a world where all the major global institutions — from the WHO to the WTO — are experiencing unprecedented turmoil and are heading towards an inevitable restructuring.

Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

Alternative Market Channel: Bypassing the Farmer Mandis

Note4Students

From UPSC perspective, the following things are important :

Prelims level : e-NAM

Mains level : Alternative Market Channels for Farmers, Limitations of e-NAM

The start of the coronavirus pandemic coincided with the peak vegetable harvesting season. As the markets were locked down, there was a threat to the crop in over 100 lakh hectares in the country.

Alternative Market Channels

  • The alternative market channel works on the principles of decentralisation and direct-to-home delivery.
  • The idea is to create smaller, less congested markets in urban areas with the participation of farmers’ groups and Farmer Producer Companies (FPCs) so that farmers have direct access to consumers.
  • It is providing a valuable option against the lockdown when efforts to avoid crowding in the wholesale markets are likely to continue.

Success in Maharashtra

  • Maharashtra is one of a handful of states where FPCs are robust.
  • The model, implemented by the state Agriculture Department and Maharashtra State Agri Marketing Board (MSAMB), requires urban and rural local bodies and other stakeholders to buy into the agricultural marketing chain.

Innovations in food supply chain management are always a hot topic in mains answers. Talk about decentralization and give examples of a successful implementation and you are all set for a good answer.

How does it work?

  • The government and MSAMB identify farmer groups and FPCs, and form clusters; local bodies choose the market sites and link the markets for direct delivery to cooperative housing societies.
  • The FPCs and farmers’ groups are allotted space for weekly markets in municipal wards or localities.
  • Some producers group park pick-up trucks loaded with fruits and vegetables at the gates of housing societies.

Why need such a mechanism?

  • The traffic of both buyers and sellers in these decentralized markets can be controlled more effectively than in wholesale mandis — a key advantage when social distancing is critical.
  • Most FPCs have minimized contact, and have taken to selling pre-packed, customised packets of vegetables.
  • This will likely help create alternative market chains that could continue even after more normal times return.

Conclusion: A boon for the farmer

  • The practices of rudimentary packing, sorting and branding are being inculcated in farmers, as they pack and send pre-ordered packets to housing societies.
  • With this, a larger numbers of vegetable growers in Maharashtra have got into direct selling to consumers thus bypassing middlemen.

Also read:

Is e-NAM portal capable of supporting farmers?

Wildlife Conservation Efforts

Know all about the National Board for Wildlife

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Wildlife Protection Act, National Board for Wildlife

Mains level : Environmental clearances: Major bottlenecks in the process

The National Board for Wildlife (NBWL) hasn’t met since 2014. Policy decisions and clearances have, meanwhile, come from a standing committee to the dismay of experts.

This newscard is all about the factoids on National Board for Wildlife. The fact that they haven’t met since 2014 makes it interesting for UPSC to quiz you on its details.

About National Board for Wildlife

  • The NBWL is constituted by the Central Government under Section 5 A of the Wildlife (Protection) Act, 1972 (WLPA).
  • It serves as an apex body to review all wildlife-related matters and approve projects in and around national parks and sanctuaries.
  • The board is advisory in nature and advises the Central Government on framing policies and measures for conservation of wildlife in the country.

Composition

  • It is chaired by India’s Prime Minister and its vice-chairman is Minister of Environment.
  • The NBWL has 47 members including the chairperson.
  • Among these, 19 members are ex-officio members.
  • Every new government constitutes a new board, based on the provisions of the WLPA, with the new PM as the chair.

Functioning

  • The primary function of the NBWL is to promote the conservation and development of wildlife and forests.
  • It has the power to review all wildlife-related matters and approve projects in and around national parks and sanctuaries.
  • No alternation of boundaries in national parks and wildlife sanctuaries can be done without the approval of the NBWL.

Working through a Standing Committee

  • The National Board may, at its discretion, constitute a Standing Committee.
  • The Committee shall consist of the MoEFCC in charge as Vice-Chairperson, Member Secretary and not more than ten members to be nominated by the Vice-Chairperson from amongst the members of the National Board.
  • The WLPA mandates that without the approval/recommendation of the NBWL, construction of tourist lodges, alteration of the boundaries of PAs, destruction or diversion of wildlife habitat and de-notification of Tiger Reserves, cannot be done.

Seeking clearances

  • Several proposals seeking statutory approvals for such projects come up before the Standing Committee.
  • Every proposal requires to be submitted by the State Government in the approved format with complete details (maps, field assessments, alternatives explored…).
  • It must also contain the clear opinion of the officer in charge of a PA, the Chief Wildlife Warden and the State Government in consultation with the State Board for Wildlife.
  • The Standing Committee will then have to consider such proposals in accordance with the provisions of the WLPA.

Back2Basics: Wildlife (Protection) Act, 1972

  • WPA provides for the protection of the country’s wild animals, birds and plant species, in order to ensure environmental and ecological security.
  • It provides for the protection of a listed species of animals, birds and plants, and also for the establishment of a network of ecologically-important protected areas in the country.
  • It provides for various types of protected areas such as Wildlife Sanctuaries, National Parks etc.
  • There are six schedules provided in the WPA for protection of wildlife species which can be concisely summarized as under:
Schedule I: These species need rigorous protection and therefore, the harshest penalties for violation of the law are for species under this Schedule.
Schedule II: Animals under this list are accorded high protection. They cannot be hunted except under threat to human life.
Schedule III & IV: This list is for species that are not endangered. This includes protected species but the penalty for any violation is less compared to the first two schedules.
Schedule V: This schedule contains animals which can be hunted.
Schedule VI: This list contains plants that are forbidden from cultivation.

 

Minimum Support Prices for Agricultural Produce

What is Market Intervention Scheme (MIS)? How does it compare with MSP

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Market Intervention Scheme

Mains level : Various price support mechanisms for farmers and issues in their implementation

Fruit and vegetable farmers are facing major losses due to obstacles in harvesting and marketing their perishable produce. The Centre has now directed all the States and UTs to implement the Market Intervention Scheme to ensure remunerative prices for perishable crops.

Market Intervention Scheme

  • MIS is a price support mechanism implemented on the request of State Governments for the procurement of perishable and horticultural commodities in the event of a fall in market prices.
  • It is implemented when there is at least a 10% increase in production or a 10% decrease in the ruling rates over the previous normal year.
  • MIS works in a similar fashion to Minimum Support Price based procurement mechanism for food grains but is an ad-hoc mechanism.
  • Its objective is to protect the growers of these horticultural/agricultural commodities from making distress sale in the event of the bumper crop.
  • Under MIS, support can be provided in some years, for a limited but defined period, in specified critical markets and by purchasing specified quantities. The initiative has to emerge from the concerned state.

UPSC Prelims can ask a question on the difference between MSP and MIP. All the agricultural and horticultural commodities for which Minimum Support Price (MSP) are not fixed and are generally perishable in nature are covered under Market Intervention Scheme (MIS).

Commodities covered

  • The MIS has been implemented in case of commodities like apples, garlic, oranges, grapes, mushrooms, clove, black pepper, pineapple, ginger, red-chillies, coriander seed, chicory, onions, potatoes, cabbage, mustard seed, castor seed, copra, palm oil etc.

Remuneration under MIS

  • MIS provides remunerative prices to the farmers in case of glut in production and fall in prices.
  • Proposal of MIS is approved on the specific request of State/UT Government, if they are ready to bear 50% loss (25% in case of North-Eastern States), if any, incurred on its implementation.
  • Further, the extent of total amount of loss shared is restricted to 25% of the total procurement value which includes cost of the commodity procured plus permitted overhead expenses.

Implementation of MIS

1) Market Intervention Price (MIP)

  • The Department of Agriculture & Cooperation is implementing the scheme.
  • Under the MIS, a pre-determined quantity at a fixed MIP is procured by NAFED as the Central agency.
  • There are other agencies designated by the state government for a fixed period or till the prices are stabilized above the MIP whichever is earlier.
  • The area of operation is restricted to the concerned state only.

2) Funds transfer

  • Under MIS, funds are not allocated to the States.
  • Instead, central share of losses as per the guidelines of MIS is released to the State Governments/UTs, for which MIS has been approved, based on specific proposals received from them.

The last 2 heads that you just read, Renumeration & Implementation, they have a lot of information on which you can be quizzed by UPSC Prelims. Make a note of the agency, %age share, state vs. center responsibility


Back2Basics: Minimum Support Price

  • Minimum support price (MSP) is one of the instruments of Agricultural Price Policy (APP).
  • The basic intent of announcing MSP before the sowing season is to help farmers take a sowing decision keeping in mind that if they are not able to get a reasonable price by selling in the market, at least they will be able to get the MSP.
  • In that sense, MSP is an assured or guaranteed price (insured price).

For additional reading on MSP, navigate to:

Price Support Mechanism under MSP Operations