July 2021
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Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

Middle income trap

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Not much

Mains level: Paper 3- How India can avoid the middle income trap

The article suggests focusing on improving productivity and thereby the manufacturing sector to avoid the middle-income trap.

What is the middle-income trap and why it matters for India

  • This trap was first conceived by World Bank economists.
  • They found that of the 101 developing economies that could be classified as ‘middle income’ in 1960, only 13 managed to become rich nations by 2008. 
  • There is little consensus on why some countries succeed in making the transition to high-income status.
  • But a distinctive attribute of those that succeed in the transition to high income is productivity improvement.
  • India could use its demographic dividend to avoid this predicament and achieve the critical velocity needed to move into the high-income bracket.

How can India avoid the middle-income trap

1) Improve productivity

  • Re-allocation of labour from low-productivity agriculture to high-productivity sectors, such as manufacturing, has been a primary channel through which today’s advanced economies raised their living standards.
  • In India, growth in labour productivity has consistently declined over the past decade.
  • The annual growth rate of output per worker has dipped from 7.9% in 2010 to 3.5% in 2019, as per International Labour Organization estimates.
  • This was also a period of low growth in India’s manufacturing sector.
  • In 2020-21, it accounted for only 14.5% of India’s gross value added, down from 17.4% in 2011-12.
  • An essential first step in improving productivity would be strengthening this sector.

2) Strengthen manufacturing sector

  • Industrial labour relations is among the most critical elements to revitalize India’s manufacturing sector especially in the context of labour productivity.
  • These labour laws created incentives for firms to remain small and uncompetitive, thereby affecting productivity.
  • The new code, once implemented, would increase the threshold relating to layoffs and retrenchment in industrial establishments to 300 workers.
  • Other countries, such as China, Vietnam and Bangladesh, with whom India competes for foreign investment and export markets do not require the approval of administrative or judicial bodies for dismissals.
  • Therefore, in spite of recent reforms, India’s labour laws stay rigid in comparison with those of its competitor countries.

3) Technology intensive manufacturing

  • Engendering innovation in higher value-added, tech-intensive activities is important for economies before they reach that juncture.
  • If exports are taken as a proxy for the manufacturing capabilities and competitiveness of an economy, the present status of tech-intensive manufacturing in India leaves a lot to be desired.
  • As per World Bank data, high-tech exports accounted for only 10.3% of India’s manufacturing exports in 2019.
  • Rival countries had a much higher share of the same: 31% in China, 13% in Brazil, 40% in Vietnam and 24% in Thailand.
  • Low R&D spending in India, ranging from a mere 0.64% to 0.86% of gross domestic product over the past two decades, has held the country back.

Steps to improve tech-intensive manufacturing

  • The government has introduced a production-linked incentive scheme to ensure a greater share of local value addition.
  • While this would attract foreign investments in tech-intensive manufacturing, there is also a need for greater incentives for R&D investments by firms in India.
  • A first step in this direction could be reinstating the tax exemption on R&D under Section 35 (2AB), even for companies opting for the lower corporate tax rate of 22%.

Conclusion

We need appropriate interventions to improve productivity—both economy-wide and within the sector. And we must do it now.

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Delhi Full Statehood Issue

How the GNCTD (Amendment) Act affects functioning of Delhi Assembly

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Article 239AA and 239AB

Mains level: Paper 2- Effect of GNCTD (Amendment) Act on functioning of Delhi Assembly

The article highlights the implications of the Government of National Capital Territory of Delhi (GNCTD)(Amendment) Act, 2021 on functioning of Assembly and its committees.

Context

The Government of National Capital Territory of Delhi (GNCTD)(Amendment) Act, 2021 has been criticised as a retrograde law. However, what deserves equal attention is the Act’s assault on the functioning of Delhi’s Legislative Assembly.

Background of GNCTD Act

  • The GNCTD Act was enacted in 1992.
  • Under the Act, Delhi Legislative Assembly was given the power to regulate its own procedure, as well as the conduct of its business.
  • This sought to realise a delicate balance reflecting Delhi’s unique constitutional position: neither full state nor a centrally governed Union Territory.

How amendment affects functioning of Assembly

  • Its standards of procedure and conduct of business have been firmly tethered to that of the Lok Sabha, depriving Delhi’s elected MLAs of an effective say in how their Assembly should be run.
  • The Amending Act prohibits the Assembly from making any rule enabling either itself or its committees to consider any issue concerned with “the day-to-day administration of the capital” or “conduct inquiries in relation to administrative decisions”.
  • The most significant impact of this shall be on the exercise of free speech in the Assembly and its committees.
  • The amendment impeded the Assembly from performing its most basic legislative function — that of holding the executive to account by restricting its ability to freely discuss matters happening in the capital.

Impact on committees

  • The deliberations and inputs of committees often pave the way for intelligent legislative action.
  • In a way, they act as the eyes and ears for the whole House, which has neither the time nor the expertise to scrutinise issues in depth.
  • It would be impossible for committees to perform this function without the power to conduct inquiries.
  • Pre-emptively injunct a committee from conducting an inquiry “in relation to the administrative decisions” (an extremely broad exception) completely negates the ability of committees to function effectively as the Assembly’s advisors and agents.
  • The quality of legislative work emanating from the Assembly is thus ultimately bound to suffer.

Consider the question “What are the reasons for frequent disputes between Delhi government and the Lt. Governor? Would the Government of National Capital Territory of Delhi (GNCTD)(Amendment) Act, 2021 succeed in ending that trend?” 

Conclusion

The amendment deprive the Delhi Assmbly of its very basic functions and render it a ‘legislature’ in name only. Surely, Delhi’s voters deserve better than that. The Government need to reconsider the provisions of the amendment act.

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Electric and Hybrid Cars – FAME, National Electric Mobility Mission, etc.

Are solar electricity and electric vehicles really ‘clean’

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Not much

Mains level: Costs of cleaner energy alternatives

It Matters How the Electricity Is Made

  • Among the many drivers of global warming, electricity generation/consumption and transportation of people and goods have been identified as two important drivers which contribute almost 50% to the emissions load.
  • Against this backdrop, two non-food or agriculture technologies that have been projected and implemented as ‘clean alternatives’ to mitigate the global warming phenomenon are:
  1. Solar photovoltaics for electricity generation
  2. Electrification of transport

Cleanliness of these alternatives

  • There is a general propensity to push these two alternatives in terms of energy and financial return on investments but very little is being said upfront about environmental cost and effect.
  • Both these technologies indeed lead to significantly reduced emissions after they are implemented.
  • The catchphrase here, however, is after!
  • There is little information or discussion in the public domain about upfront environmental cost as it is an inconvenient truth that cannot be wished away.

Why aren’t they clean

  • Prior to their implementation, a lot of different human-made materials have to be synthesized from naturally occurring raw materials.
  • Then, these have to be put together as a functioning unit or a device for a specific purpose.
  • These processes, unfortunately, are both energy- and emissions-intensive and to realise the extent of these intensities, one needs to go behind the scene.

Critical analysis

[1] Solar energy

  • The dominant market player in the field of solar energy conversion to electricity is silicon-based modules occupying more than 90 per cent of the installed capacity.
  • These modules are made of elements as well as inorganic and organic compounds such as silicon, aluminum, copper, silver, glass, epoxy, plastics and are generally installed using steel and concrete.
  • All these materials are human-made and hence need to be synthesized utilizing naturally occurring raw materials.
  • These synthesis processes are energy- and water-consuming and emit greenhouse gasses and pollutants into the atmosphere — dark horses in the chain of realization of solar energy conversion to electricity.
  • Information regarding the environmental costs of these processes is not extensively mentioned in the public domain except for a few occasional studies.
  • These studies indicate that the CO2(e) gasses emission due to solar panel manufacturing alone is about 2,560 kg per kilowatt of installed capacity, which is quite significant.

[2] Electrification of transportation

  • This involves the substitution of current petrol, diesel and gas combustion-powered engines in automobiles with electric engines.
  • The two main components of such an automobile, therefore, are: the engine which converts electrical energy to propulsion and a battery.
  • The electric engine or motor has been known for a long time but for the above application, it needs to have high energy density along with being compact and lightweight.
  • This can be accomplished by using what is known as ‘rare earth’ magnets which require extensive mining and processing which are environmentally intensive activities.
  • A closer look at the Li-ion battery shows that it requires a 40-kilowatt-hour battery and putting together such a battery results in releasing about 3,000 Kg of CO2(e) gasses into the

The Indian scenario

After looking at the behind-the-scenes emissions scenario of the two technologies, let us put Indian goals into perspective with respect to these two technologies.

Solar energy

  • It was recently announced that India will have an installed capacity of 100 gigawatt (GW) for electricity generation by solar photovoltaics by the year 2022.
  • This will mean gaseous emissions to the tune of 0.256 GTons of CO2(e) for manufacturing of solar panels, which is a staggering amount from this activity alone.
  • It should be noted here that installation of 100 GW electrical power generation plants will actually result in only 25 GW of usable electricity at best, assuming an efficiency of 25 per cent, which itself is quite high.
  • If, on the other hand, we would like to have 100 GW of usable electrical power being generated by solar photovoltaics, it will result in emissions to the tune of 1.024 GTons of CO2(e), which is enormous.
  • This is an upfront loading of the environment with greenhouse gasses gases and excludes the embodied carbon in batteries, inverters, junction boxes, wiring and so on.

Electric automobiles

  • The Union transportation minister has recently announced that India will become the largest manufacturer of electric vehicles and Li-ion batteries will be manufactured in India within the next six months.
  • To replace about a million conventional fuel-based vehicles (a fraction of the existing vehicles), it will result in upfront loading to the tune of 3 MTons of CO2(e) greenhouse gasses, just due to the battery assembly process alone.
  • The environmental costs due to electric motor manufacturing, mining of raw materials required for the battery and generation of electricity to run these million electric automobiles will be additional.
  • In both cases, the water requirement and particulate emissions have not been included, both of which are strongly linked to ecology and the environment.

Conclusion

  • It is very clear from the two technologies and the related national goals that huge environmental, human, as well as economic costs, need to be paid upfront to realise these goals.
  • The task becomes even more daunting as the infrastructure required to make either solar grade Si or for that matter put together a million Li-ion batteries is non-existent at present.
  • In light of these facts, it becomes imperative to realign goals and prioritize steps to be taken to alleviate the problem of emissions and the associated global warming.

Way forward

  • It is important to try various less harmful alternatives.
  • On another note, it is time to legislate so that businesses will also include the costs of atmospheric pollution together with their profit and loss statements.

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Water Management – Institutional Reforms, Conservation Efforts, etc.

Rooftop rainwater harvesting for India’s water stress

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Not much

Mains level: Rooftop Rain Water Harvesting

India’s rapid urban growth is expected to stress its already crumbling base of public service arrangements — especially its management of water and sanitation services, whose safe and reliable availability proved to be the first line of defence against this covid pandemic.

Q.Discuss how Rooftop rainwater harvesting can ease India’s water woes? (150W)

Rooftop Rain Water Harvesting

  • It is the technique through which rainwater is captured from the roof catchments and stored in reservoirs.
  • Harvested rainwater can be stored in sub-surface groundwater reservoirs by adopting artificial recharge techniques to meet the household needs through storage in tanks.
  • Capturing and storing rainwater for use is particularly important in dryland, hilly, urban and coastal areas.
  • It holds the potential to support the country’s preparedness against the incipient challenges of changing climate.

Water stress in India

  • An appalling confusion grips our policy makers and planners.
  • While the supply-demand gap is expected to widen by 50 per cent by 2030, many are still left without access to safe and sustainable water and sanitation services.
  • At least five Indian cities are already reported to have joined the list of world’s 20 largest water-stressed cities.

If we look at the present portfolio of water resources management for other cities, it will not be wrong to claim that many more will soon become qualified for joining this infamous list.

Exploring the complex problems

  • Water availability in India remains at the mercy of erratic patterns of precipitation.
  • Concretization of urban landscapes, symbolic of modern town planning imaginaries as to what an exercise in urban development has led to floods worsening.
  • Illegal encroachment along stormwater drains and urban rivers also aggravates the situation, not least by opening up spaces of active political contestation and negotiations.

A paradigm shift needed

  • In India, management of water was bundled as part of the prerogative claims of post-independent public institutions with public participation programs designed later on to serve only a placatory function.
  • This has led to the systematic exclusion of the public’s opinions in informing the design and implementation protocols of large public schemes.
  • It took the form of multi-purpose dams, irrigation canals, public water distribution systems, etc.
  • Despite this, India has now become a ‘water-stressed country.

A newer approach

  • Rising national empathy for river rejuvenation, watershed conservation and active public participation has, on the other hand, already started scripting a new paradigm for India’s water management.
  • It prompts decision-makers to look for solutions in the collective efforts of the citizens in managing their issues locally.

Right from the vedic times

  • Our Vedic ancestors, in their appreciation of the timeless bounty of water, always offered timely obeisance to water’s eternal gifts to mankind.
  • Their reverence to water can be found in the hymns and prayers offered to Varuna and Indra — Vedic Gods associated with water to riveting architectural gems and literary delights, each underscoring the centrality of water in our cultural revelries.
  • It is time our policies are re-designed to reflect these values.

Empowering people

  • Rooftop rainwater structures are perfectly poised to engender a transformative wave of public engagement in water management.
  • Thus it can act as a corollary for making water management an exercise in nurturing democratic routines.
  • To ensure that the public enthusiastically purchases this concept, a country-wide behaviour change campaign can be launched along the lines of the Swachh Bharat Mission.
  • This can emphasize people’s ‘ability and ‘motivation’ to romantically welcome these structures in their private premises.
  • This should rather be a ‘do-it-yourself’ model of engagement.

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Climate Change Negotiations – UNFCCC, COP, Other Conventions and Protocols

Lowering Emissions by Accelerating Forest Finance (LEAF) Coalition

Note4Students

From UPSC perspective, the following things are important :

Prelims level: LEAF Coalition

Mains level: Not Much

At the recently concluded Leaders’ Summit on Climate in April 2021, the Lowering Emissions by Accelerating Forest Finance (LEAF) Coalition was announced.

LEAF Coalition

  • LEAF Coalition is a collective of the US, UK and Norway governments.
  • It is a public-private effort, thus supported by transnational corporations (TNCs) like Unilever plc, Amazon, Nestle, Airbnb etc.
  • It came up with a $1 billion fund plan that shall be offered to countries committed to arresting the decline of their tropical forests by 2030.
  • The LEAF coalition initiative is a step towards concretizing the aims and objectives of the Reducing Emissions from Deforestation and Forest Degradation (REDD+) mechanism.

How does this coalition work?

  • The LEAF Coalition can help reverse the trend by providing unprecedented financial support to tropical forest governments implementing forest protection, contributing to green and resilient growth through sustainable investments.
  • It empowers tropical and subtropical forest countries to move more rapidly towards ending deforestation while supporting them in achieving their Nationally Determined Contributions (NDCs) under the Paris Agreement.
  • Reductions in emissions are made across entire countries or large states and provinces (“jurisdictions”) through programs that involve all key stakeholders, including Indigenous peoples and local communities.

Why is it significant?

  • Financial impetus is crucial as it incentivizes developing countries to capture extensive deforestation and provide livelihood opportunities to forest-dependent populations.
  • The initiative comes at a crucial time when the tropics have lost close to 12.2 million hectares (mha) of tree cover year last year according to global estimates released by Global Forest Watch.
  • Most of these lost forests were located in the developing countries of Latin America, Africa and South Asia.
  • India’s estimated loss in 2020 stands at 20.8-kilo hectares due to forest fires

What lies next?

  • Implementation of the LEAF Coalition will help pump in fresh rigour among developing countries like India, that are reluctant to recognize the contributions of their forest-dwelling populations in mitigating climate change.
  • With the deadline for proposal submission fast approaching, India needs to act swiftly on a revised strategy.
  • Although India has pledged to carry out its REDD+ commitments, it is impossible to do so without seeking knowledge from its forest-dwelling population.

Answer this PYQ in the comment box:

With reference to ‘Forest Carbon Partnership Facility’, which of the following statements is/ are correct?  (CSP 2013)

  1. It is a global partnership of governments, businesses, civil society and indigenous peoples.
  2. It provides financial aid to universities, individual scientists and institutions involved in scientific forestry research to develop eco-friendly and climate adaptation technologies for sustainable forest management.
  3. It assists the countries in their ‘REDD+ (Reducing Emissions from Deforestation and Forest Degradation+)’ efforts by providing them with financial and technical assistance.

Select the correct answer using the code given below:

(a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3


Back2Basics: REDD+

  • REDD+ is a mechanism developed by Parties to the United Nations Framework Convention on Climate Change (UNFCCC).
  • It creates a financial value for the carbon stored in forests by offering incentives for developing countries to reduce emissions from forested lands and invest in low-carbon paths to sustainable development.
  • Developing countries would receive results-based payments for results-based actions.
  • REDD+ goes beyond simply deforestation and forest degradation and includes the role of conservation, sustainable management of forests and enhancement of forest carbon stocks.
  • It aims to create incentives for communities so that they stop forest degrading practices.

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G20 : Economic Cooperation ahead

OECD-G20 Inclusive Framework Tax Deal

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Global Minimum Tax, BEPS

Mains level: Global Minimum Tax Debate

India has joining the OECD-G20 framework for a global minimum tax.

Must read

What is Global Minimum Corporate Tax?

What is this tax deal?

  • The proposed solution consists of two components:
  1. Pillar One is about the reallocation of an additional share of profit to the market jurisdictions and
  2. Pillar Two consists of minimum tax and subject to tax rules
  • Some significant issues including share of profit allocation and scope of subject to tax rules, remain open and need to be addressed.
  • Further, the technical details of the proposal will be worked out in the coming months and a consensus agreement is expected by October.

Why did India join?

  • The principles underlying the solution vindicates India’s stand for a greater share of profits for the markets, consideration of demand-side factors in profit allocation.
  • There is a need to seriously address the issue of cross border profit shifting and need for the subject to tax rules to stop treaty shopping.
  • India is in favour of a consensus solution that is simple to implement and simple to comply with.
  • At the same time, the solution should result in the allocation of meaningful and sustainable revenue to market jurisdictions, particularly for developing and emerging economies.

What is Base Erosion and Profit Shifting (BEPS)?

  • BEPS refers to corporate tax planning strategies used by multinationals to “shift” profits from higher-tax jurisdictions to lower-tax jurisdictions.
  • It thus “erodes” the “tax base” of the higher-tax jurisdictions.
  • Corporate tax havens offer BEPS tools to “shift” profits to the haven, and additional BEPS tools to avoid paying taxes within the haven.
  • It is alleged that BEPS is associated mostly with American technology and life science multinationals.

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