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Coronavirus – Economic Issues

Recovery from COVID-19 is an opportunity to create economies that are more resilient and fair

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Creating economy that is resilient and fair.

This article discusses the three principles which could form the basis for recreation of the economy devastated by the Covid-19. The first is adopting the economies of “scope” instead of economies of scale. The second is about governance and focus on bottom-up approach. And third is about empowering the people.

Impact of Covid-19 on the ideology of globalisation

  • The history of the globalisation has turned out to be very brief.
  • In 2020, the global COVID-19 pandemic has forced millions of Indians to return to their villages.
  • Jetsetters have been locked in their gated communities.
  • Global supply chains have been broken apart.
  • People are scrambling for essentials from local suppliers.
  • The ideology of globalisation has hit realities on the ground.

Recovery from COVID-19 is an opportunity to create economies that are more resilient and fair. The following three architectural principles must apply.

1. Replace economies of scale by the economies of scope

  • COVID-19 has settled, for now, the debate between free-trade evangelists and advocates of industrial policy.
  • The vulnerability of global supply chains: A complex global economy in which local producers obtain scale (and lower costs) by supplying products for global markets is vulnerable to shutdowns anywhere.
  • The resilience of local economies: Local economies that have a variety of capabilities within them, albeit on smaller scales, are more resilient.
  • Therefore, local economic webs must be strengthened, in preference to global supply-chains.
  • “Make in India,” which was dismissed by free traders as a reversion to pre-1991 economic policies, has become a necessity.
  • Make in India is necessary to maintain supplies of essentials and to create employment for the hundreds of millions of Indians with fragile incomes who have been badly shaken by the lock-down of the Indian economy.

2. Local systems solution to global problems

  • Local systems solutions are essential for global systemic problems.
  • Privatisation: Garrett Hardin had coined the expression, “The Tragedy of the Commons”, in 1968.
  • The Tragedy of the Commons is a term for the proposition that a resource that belongs to everybody will not be cared for by anybody.
  • This supported policies to privatise public property, ostensibly for the benefit of everybody and became the dominant school of economics from the 1970s onwards.
  • A different explanation: Elinor Ostrom, who was awarded the Nobel Prize for economics in offered a different explanation for the tragedy of the commons.
  • She argued that common resources are well-managed when those who benefit from such resources the most are in close proximity to them.
  • For her, the tragedy occurred when external groups exerted their power (politically, economically or socially) to gain a personal advantage.
  • Bottom-up approach: She was greatly supportive of the “bottom-up” approach to issues: Government intervention could not be effective unless supported by individuals and communities.
  • The world is facing challenges of ecological sustainability and persistent inequalities, which seem to get worse with the prevailing paradigm of economic growth.
  • These challenges are described in the 17 Sustainable Development Goals (SDGs).
  • They cut across national boundaries.
  • They also span several domains of expertise and institutional mandates.
  • The final, 17th goal states the principle by which all the goals will be achieved — “partnerships”.

Actions theory Vs. Systems thinking

  • Action theory: The prevalent action theory, used by governments, businesses and philanthropic organisations to solve complex problems, focuses on breaking complex problems into components and then tackling the components in separate silos.
  • Problems caused by the actions theory: This widely prevalent theory of action has contributed greatly to causing the systemic, interconnected problems the SDGs now aim to address.
  • What is systems thinking: Effective action to address multiple challenges together requires “systems thinking” — that is, a systemic vision spanning across the problems.
  • Systems thinking is essential, amongst experts at the top and amongst partners on the ground.
  • Several organisations are promoting collaborative action with systems thinking on the ground in India.
  • Kudumbashree in Kerala has proven the power of community action.
  • The Foundation for Ecological Security, guided by Elinor Ostrom’s ideas, is working in many Indian states.
  • Dainik Bhaskar is promoting “SDG chaupals” in Indian villages.

3.  Empowering the people

  • The third principle for the new economy is, empower the people, the fundamental requirement for genuine democracy.
  • India’s Constitution seeks self-governance in India’s towns and villages.
  • These are not being implemented by governments and policy experts who do not want to give up power to the people.
  • India lives in its villages, Mahatma Gandhi had said. Most of India still does.
  • And many, who had migrated to cities looking for jobs, are returning, shaken by the pandemic.
  • Gandhi was a systems thinker. For Gandhi, the global village was an abstract concept.
  • This cannot be realised until local villages and towns become harmonious communities, where people live in harmony with each other and with nature around them.

The corona crisis has laid bare some of the problems associated with globalisation. It has forced a rethink of the economic policies and model adopted by the world. Against this backdrop, a question can be asked by the UPSC that demands the analysis of problems that have surfaced and solutions. For ex. “Covid-19 pandemic has brought into a sharp focus some inherent problems associated with the globalisation. In this context suggest the ways to make the Indian economy resilient to such shocks and fair to all the sections of society”

Conclusion

COVID-19 marks the end of the economics’ paradigm of the Washington Consensus. New models of economies, and new rules of global governance, must be bottom-up, not top-down. That’s how the whole world can move from relief, to recovery, and into resilience.


Back2Basics: What was the Washington Consensus?

  • The Washington Consensus refers to a set of free-market economic policies supported by prominent financial institutions such as the International Monetary Fund, the World Bank, and the U.S. Treasury.
  • A British economist named John Williamson coined the term Washington Consensus in 1989.
  • The ideas were intended to help developing countries that faced economic crises.
  • In summary, The Washington Consensus recommended structural reforms that increased the role of market forces in exchange for immediate financial help.
  • Some examples include free-floating exchange rates and free trade.

Foreign Policy Watch: India-SAARC Nations

Common problems of South Asia call for collective efforts against Covid-19

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 2- Poor health infrastructure of SAARC countries and other common problems.

The article discusses the various common features shared by the South Asians countries. One of them is the poor public healthcare infrastructure. So, the pandemic offers an opportunity to make the required policy changes. It also offers the opportunity for cooperation among the regional countries in dealing with Covid-19. These issues are discussed in the article.

South Asian countries: Common features, common problems

  • South Asia, one of the world’s most populous regions, is also affected by the COVID-19 pandemic.
  • Both Karachi and Mumbai, among the world’s most densely populated cities, where we live and work, are being overwhelmed by cases.
  • While the death rate in these places may not be as alarming as in Europe and the U.S., the collateral damage of the lockdown is taking its own toll.
  • Common features of South Asia: While there are many differences amongst the countries of the region, there are also common features which impact the health of its people, some of them a result of our shared cultural and geopolitical history.
  • The collective experience of dealing with COVID-19 may provide important lessons, which transcend national boundaries.

Poor healthcare system: a common problem

  • South Asian countries have invested very little in health.
  • This is reflected in our abysmally low health parameters.
  • It is interesting that Britain, which formulated our health policies before independence, went on to form one of the world’s strongest public health systems, the National Health Service.
  • Whereas its South Asian colonies chose to stray from that path.
  • This resulted in a dysfunctional public healthcare
  • Governments have also relinquished what ought to have been their primary duty, of health care provision, to the private sector.
  • Having become an industry, the focus of healthcare in the private sector is on profit rather than on people’s needs.
  • High treatment costs in private sector: Whilst privatisation has brought in advanced technology and expertise, the high costs of treatment in the private sector have resulted in impoverishment as most of the population has no insurance or third-party coverage, and pays out of pocket.
  • The sector has also been poorly regulated.
  • The result is that it is responsible for several excesses in its quest for profit.

Other common features of the region

  • Hunger, malnutrition, poor sanitation and large-scale migration are features of this region.
  • Existing infectious diseases like TB, HIV and malaria have been worsened by emerging ones like dengue, chikungunya, healthcare-associated infections and antimicrobial resistance.
  • The region is also an epicentre of an epidemic of lifestyle diseases.
  • Conflicts and expenditure on defence: Constant internal and external conflicts in South Asia not only consume a large portion of national budgets but also divert the attention of the public and policymakers from healthcare needs.
  • Defence budgets take the largest share of national budgets, and obviously adversely impact social sector spending.
  • Underfunded public health is going to hinder region’s capacity to fight COVID-19.
  • The central role of religion: Religion continues to occupy a central space in the society and politics of the region.
  • Though it offers succour to many, religious dogma can impact health policy and health-seeking behaviour.
  • The refusal of devotees across Pakistan to avoid religious congregations during Ramadan despite the government’s orders has significantly fed the community spread of the virus.

Opportunity for policy changes to address healthcare problems

  • COVID-19 has forced us to seriously reflect on our healthcare system.
  • This is welcome if it results in policy change.
  • Healthcare professionals and bodies must seize this opportunity to push our respective governments to address it seriously and not just as a pre-election strategy.
  • A long-term commitment to universal health care, with not only a national but also a regional and global focus, is needed.

A question on this theme could be asked by the UPSC, for instance, “South Asian countries share the common problem of poor public healthcare infrastructure, which increases their vulnerability to the pandemic. But corona pandemic also offers an opportunity to improve the shortcoming in the health infrastructure and cooperation among the SAARC countries. Comment.”

Regional strategy and cooperation needed

  • The SAARC heads of state have already offered help to one another.
  • A regional strategy has a better chance of controlling the pandemic than isolated national-level efforts.
  • The pooling of resources and sharing data may not only help flatten the curve but perhaps even develop into longer-term efforts towards effective treatment.
  • It is being speculated that our populations are behaving differently; that the BCG vaccine may be a protective influence.
  • Joint research into such areas can be a unifying point for SAARC.

Conclusion

It is in our collective interest to look at health security and not just national security. By the accident of their birth, South Asians have endured a lot. They merit better.

 

Coronavirus – Economic Issues

It will take fiscal boldness now to relieve financial distress

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Money multiplier.

Mains level : Paper 3- Government spending to sustain the economy hit by the corona crisis.

The article discusses the fiscal response of the government to deal with the corona crisis. Fiscal response to the 2008 financial crisis was higher in terms of GDP percentage. Also, a comparison with emerging peer economic indicates that India might be running the tighter fiscal policy in the time of crisis. The article suggests higher spending by going beyond the traditional fiscal space.

A possible explanation for moderate fiscal response by the government

  • The Indian government has till now come up with an insipid fiscal response to the ongoing economic crisis.
  • Long battle: One view is that the government does not want to fire all its bullets in what threatens to be a long battle. It wants to time its interventions.
  • Weak public finances: The other possible explanation for this fiscal timidity is that India has entered this crisis with weak public finances.

Comparison with finances at the 2008 financial crisis

  • The combined official fiscal deficit of the Union plus state governments was at its lowest level in many decades.
  • The economic boom of the preceding four years had led to higher tax collections pouring into the treasury.
  • The massive increase in spending announced in the budget of February 2008 was with an eye on the national election scheduled a year later, rather than in anticipation of a coming storm.
  • Then followed the second wave of fiscal expansion after the North Atlantic financial crisis hit Indian shores seven months later.
  • Back then, India’s effective fiscal stimulus over two years was a substantial 4.3% of gross domestic product (GDP).
  • In 2020, the crisis-driven spending plan announced by the government so far is less than 1% of GDP.
  • There could yet be a big fiscal push in the coming days.

Tighter fiscal policy in crisis compared to other emerging economies

  • Some of the budget estimates released a few days ago by the International Monetary Fund are telling.
  • In 2018, the total fiscal deficit of the Indian government as a proportion of GDP was 2.4 percentage points higher than the average for Asian emerging markets.
  • India is expected to end 2020 with a total fiscal deficit that will be 2.5 percentage points lower than Asia’s average.
  • In other words, India ran a looser fiscal policy compared to the rest of Asia in normal times, but is likely to run a tighter fiscal policy than its regional peers in a crisis year.
  • Something similar can be seen in estimates for public debt.
  • Asian public debt as a proportion of GDP is expected to go up by nine percentage points in 2020.
  • The comparable figure for India is 2.9 percentage points. (These estimates are being cited with full knowledge that forecasting models break down during extreme events.)

Funding extra expenditure through money creation

  • Lack of traditional fiscal space should not hold the government back in a crisis situation.
  • There are many options outside the consensus macro playbook.
  • Money creation: A commonly cited option right now is funding extra expenditure through money creation rather than borrowing.
  • The size of the Reserve Bank of India (RBI) balance sheet as a percentage of nominal GDP is close to its 35-year average.
  • There is scope for printing more money right now.
  • Lower inflationary pressure: And the inflationary consequences are likely to be muted because of the lower velocity of money amid a demand collapse.
  • Public finances in the future: Getting public finances back on track is a battle that lies in the future.
  • A rapid recovery in economic activity would be the best solution.
  • Otherwise, history tells us that countries have brought down their public debt numbers through some combination of financial repression, austerity, higher taxes and inflation.
  • Some element of capital controls could also be back in play.

Need for increasing discretionary government spending

  • The collapse in tax revenues as the economy is shut down will automatically lead to a rise in India’s fiscal deficit.
  • However, there is a need for an increase in discretionary government spending as well.
  • Economists have shown that spending multipliers are higher than tax multipliers in India.
  • In other words, the increase in economic output for every unit increase in the fiscal deficit is higher when the government spends rather than changes tax rates.
  • State’s spending Vs. Union spending: Spending by states gives more bang for the buck than equivalent spending by the Union government.

“Below the line measures” to support the economy

  • Also, there are options other than direct spending to support the economy.
  • Countries such as Germany, the UK, Italy, France and South Korea have complemented traditional fiscal expansions with “below the line” measures such as loans and guarantees to companies.
  • In an excellent recent study, analysts estimate that more than half of Indian corporate balances sheets will be unable to meet expenses with zero revenues.
  • They are careful to point out that their analysis is based on extreme assumptions that there is no fall in their wage bills, no revenues, and no access to fresh credit.

One of the common suggestions we have been coming across is the spending by the government by printing money. In this article, the second important suggestion is below the line measures. Take note of these measures and options available with the government.

Way forward

  • The poor need income support for their very survival. That should be at the top of any democratic government’s list of
  • However, protecting Indian companies from a financial collapse also matters, because otherwise, the economy will see a reduction in its capital stock, which will be needed both for a rapid recovery as well as job creation once the worst is over.
  • There are contagion risks in financial markets as well, going by what has happened to some mutual funds that were invested in bonds.

Conclusion

These are extraordinary times that require extraordinary measures. The danger from a delayed fiscal programme is that hysteresis may set in, as companies run out of money and supply chains are broken, damaging our economic prospects in the medium term.

 

 

Defence Sector – DPP, Missions, Schemes, Security Forces, etc.

‘Trends in World Military Expenditure’ Report, 2019

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Highlights of the report

The annual report ‘Trends in World Military Expenditure, 2019’ was released by the Stockholm International Peace Research Institute (SIPRI), a Swedish think tank.

Military expenditure across the World

  • The global military expenditure rose to $1917 billion in 2019 with India and China emerging among the top three spenders, according to the report.
  • In 2019, the top five largest spenders — U.S. ($732 bn), China, India, Russia ($65.1 bn) and Saudi Arabia ($61.9 bn) — accounted for 62% of the global expenditure.
  • China’s military expenditure reached $261 billion in 2019, a 5.1% increase compared with 2018, while India’s grew by 6.8% to $71.1 billion.
  • In Asia and Oceania, other than India and China, Japan ($47.6 bn) and South Korea ($43.9 bn) were the largest military spenders.

What drives India’s military spending?

  • India’s tensions and rivalry with both Pakistan and China are among the major drivers for its increased military spending.
  • While India’s defence spending excluding pensions, which constitute a significant part, has been growing in absolute terms, it has been going down as a percentage of its GDP as noted by the report.

Significant rise

  • India’s expenditure in 2019 was 6.8% more than that in 2018.
  • It grew by 259% over the 30-year period of 1990–2019, and by 37% over the decade of 2010–19.

The Defence expenditure in India is increasing every year in absolute terms, implying higher spending while there has been very selective modernisation of the armed forces. Critically analyse.

Terrorism and Challenges Related To It

Global Terrorism Index (GTI) 2019

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Need for a global consensus on Terrorism

A report compiled by NITI Aayog has questioned the methodology adopted by an Australian based institute to rank India as the seventh-worst terrorism affected country.

Despite of being a global threat, there is yet no consensus on the definition of terrorism. Despite the considerable discussion, the formation of a comprehensive convention against international terrorism by the United Nations has always been impeded by the lack of consensus on a definition.

Global Terrorism Index (GTI)

  • GTI is a report published annually by the Institute for Economics and Peace (IEP).
  • The index provides a comprehensive summary of the key global trends and patterns in terrorism since 2000.
  • It produces a composite score in order to provide an ordinal ranking of countries on the impact of terrorism.
  • It is an attempt to systematically rank the nations of the world according to terrorist activity.
  • The index combines a number of factors associated with terrorist attacks to build an explicit picture of the impact of terrorism, illustrating trends, and providing a data series for analysis by researchers and policymakers.

Its database

  • The GTI is based on data from the Global Terrorism Database (GTD).
  • The GTD is collected and collated by the National Consortium for the Study of Terrorism and Responses to Terrorism (START) at the University of Maryland.
  • It has codified over 190,000 cases of terrorism.
  • The GTI covers 163 countries, covering 99.7% of the world’s population.

India’s ranking

  • India has moved to the seventh position from the previous years eighth in the annual Global Terrorism Index (GTI) 2019.
  • India has ranked ahead of conflict-ridden countries such as the Democratic Republic of Congo, South Sudan, Sudan, Burkina Faso, Palestine and Lebanon.

Why such ranking matters?

  • The positioning in the global indices impacted investments and other opportunities.
  • The purpose was to see which of the indices can be used to drive reforms or which of these would require some amount of engagement with the publishing agency to make the indices more relevant.

Issues with GTI

  • The GTD was based solely on “unclassified media articles, with more than 100 structured variables such as each attack’s location, tactics and weapons, perpetrators, casualties and consequences etc.
  • The large diversity in definitions of terrorism amongst countries, and the lack of a universally accepted definition of terrorism, leads to a great deal of ambiguity in calculating and understanding GTI reports.
  • IEP’s economic impact of terrorism model does not account for costs for countering violent extremism and long-term economic impacts on business activity, production and investment.
  • Indeed, the GTI 2019 report itself states that a great majority of property damage values from terrorist incidents are coded in the GTD as ‘unknown,’ resulting in 1 out 4 parameters scoring nil for most countries.
  • Similarly, the definition of mass shootings used in the GTI is limited to ‘indiscriminate rampages in public places resulting in four or more victims killed by the attacker,’ leaving out lone-wolf attacks.

Highly irrelevant data

  • The absence of a robust data collection and analysis methodology, and any engagement with Governments facing the scourge of terrorism, means that the GTI has low direct value for policymakers.
  • It cannot be used as an aid to understand and alleviate challenges to countries from domestic and cross border terrorism.

Global Geological And Climatic Events

New list of names of tropical cyclones over north Indian Ocean

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Naming of Tropical Cyclones

Mains level : Tropical Cyclones

The India Meteorological Department (IMD) has released a new list containing 169 names of future tropical cyclones that would emerge in the Bay of Bengal and the Arabian Sea.

When is the name of a Tropical Cyclone declared?

  • Names are declared when TCs are diagnosed with maximum sustained surface wind-speed of 34 knots (62 kmph) or more as per Global Data Processing and Forecasting System (GDPFS) Manual of WMO.
  • Panel Members’ names will be listed alphabetically country-wise.

We can expect a statement based prelim question like – Which of the following criterion are followed while naming a tropical cyclone?

Who is involved in the naming of Tropic Cyclone?

  • Worldwide there are six regional specialised meteorological centres (RSMCs) and five regional Tropical Cyclone Warning Centres (TCWCs) mandated for issuing advisories and naming of tropical cyclones.
  • IMD is one of the six RSMCs to provide tropical cyclone and storm surge advisories to 13 member countries under WMO/ESCAP Panel.
  • The panel countries include Bangladesh, India, Iran, Maldives, Myanmar, Oman, Pakistan, Qatar, Saudi Arabia, Sri Lanka, Thailand, United Arab Emirates and Yemen.
  • RSMC, New Delhi is also mandated to name the Tropical Cyclones developing over the North Indian Ocean (NIO) including the Bay of Bengal and the Arabian Sea.

Since when did naming begin?

  • The WMO/ESCAP Panel on Tropical Cyclones (PTC) at its twenty-seventh Session held in 2000 in Muscat, agreed in principle to assign names to the tropical cyclones in the Bay of Bengal and the Arabian Sea.
  • After long deliberations among the member countries, the naming of the tropical cyclones over the north Indian Ocean commenced from September 2004.
  • This list contained names proposed by the eight member countries of WMO/ESCAP PTC, viz., Bangladesh, India, Maldives, Myanmar, Oman, Pakistan, Sri Lanka and Thailand.

Why name Cyclones?

The naming of Tropical Cyclones (TC) helps the scientific community, disaster managers, media and general masses to-

  • identify each individual cyclone.
  • create awareness of its development.
  • remove confusion in case of simultaneous occurrence of TCs over a region
  • remember a TC easily
  • rapidly and effectively disseminate warnings to a much wider audience

Major criteria adopted for naming

  • The proposed name should be neutral to (a) politics and political figures (b) religious believes, (c) cultures and (d) gender
  • The name should be chosen in such a way that it does not hurt the sentiments of any group of the population over the globe
  • It should not be very rude and cruel in nature
  • The maximum length of the name will be eight letters
  • The Panel reserves the right to reject any name if any of the criteria above are not satisfied
  • The names of tropical cyclones over the north Indian Ocean will not be repeated. Once used, it will cease to be used again.

Back2Basics

Explained: Naming of cyclones

Festivals, Dances, Theatre, Literature, Art in News

Raja Ravi Varma, the painter who helped Indians bring their gods home

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Europeanized school of painting in India

Mains level : NA

April 29 is the birth anniversary of the famed Indian painter Raja Ravi Varma (1848-1906), remembered for giving Indians their western, classical representations of Hindu gods and goddesses.

Raja Ravi Varma

  • Varma was born into aristocracy at Kilimanoor in the erstwhile Travancore state of present-day Kerala and was closely related to its royal family.
  • At the age of 14, Varma was patronised by Ayilyam Thirunal, the then ruler of Travancore, and went on to receive training in watercolours from Ramaswamy Naidu, the royal painter.
  • Later, Varma studied oil painting with the British painter Theodore Jensen.
  • Apart from Travancore, Varma also worked for other wealthy patrons such as the Gaekwad of Baroda.

Major works

  • A prolific artist, Varma is believed to have made around 7,000 paintings before his death.
  • Varma worked on both portrait and landscape paintings and is considered among the first Indian artists to use oil paints.
  • Apart from painting Hindu mythological figures, Varma also made portraits of many Indians as well as Europeans.
  • His most famous works include Damayanti Talking to a Swan, Shakuntala Looking for Dushyanta, Nair Lady Adorning Her Hair, and Shantanu and Matsyagandha.

His legacy

  • He continues to be regarded as the most important representative of the Europeanized school of painting in India.
  • His 1873 painting, Nair Lady Adorning Her Hair, won Varma prestigious awards including Governor’s Gold Medal when it was presented in the Madras Presidency and Certificate of Merit at an exhibition in Vienna.
  • In 1904, the British colonial government awarded Varma with the Kaiser-i-Hind Gold Medal.
  • In 2013, a crater on the planet Mercury was named in his honour.