Note4Students
From UPSC perspective, the following things are important :
Prelims level: Impact of funding surge on economy
Mains level: Paper 3- PE funding in India
Human traits driving financial markets
- To imitate and to conform — do what others around us are doing — are common and very powerful human tendencies.
- In financial markets, “herd behaviour” is a warning sign: When markets are doing well, people invest for no other reason than their neighbours having become wealthier (and vice versa).
- There is another human trait that affects markets — success increases risk appetite.
- If someone’s financial investments work, they are very likely to invest more, and ignore safety measures.
Factors driving the private equity investments
- Better physical infrastructure (rural roads, electrification, phone penetration, data access).
- Several layers of innovation (universal bank account access, surging digital payments on the “India Stack”).
- 45 lakh software developers (largest in the world).
- Maturing industries (for example, as research budgets of Indian pharmaceutical manufacturers have grown 10 times in the last 15 years.
- The ecosystem can take on more challenging projects now, versus just generic filings a decade back).
- Strong medium-term economic growth prospects create fertile ground for private equity investments.
- Investors with patient capital (knowing that the businesses will not make money for several years) are now betting on and financing a faster transition to electric vehicles than was earlier anticipated.
- In financial services, innovative methods of lending, insurance underwriting and wealth management are being experimented with, which are likely to only expand the market meaningfully.
- An army of Software-as-a-Service (SaaS) firms have been funded in the hope of revolutionising the development and distribution of software.
- There are also new-age distribution and logistics companies, education technology firms, and branded consumer goods suppliers, in addition to “normal” e-commerce, gaming and food-delivery startups.
Risks involved in a rapid infusion of capital
- Allocation inefficiency: Theoretically, an economy India’s size is capable of absorbing the $52 billion of PE funding seen over the last 12 months, but in practice, such a rapid surge creates allocation inefficiency.
- As investors rush to deploy ever-larger sums of money, they appear to be running out of companies to invest in that can productively deploy this capital.
- The result is companies’ valuations rising manifold within months and small firms getting more capital inflows than they can deploy, often resulting in wasteful business plans.
- When investors rush to deploy funds, the risk of fraud rises — inadequate disclosures and weak due diligence are compounded by incentives to misrepresent financial data.
- The discovery of any such frauds would likely freeze funding for the industry for a few quarters.
Why now?
- India has never lacked entrepreneurs, but lacked risk capital given the low per capita wealth.
- As savers like pension and insurance funds in the developed world responded to record-low interest rates by allocating more to PE as an asset class, private funding markets have grown rapidly in the last 15 years globally.
- In India, PE funding has exceeded public-market fund-raising every year in the past decade.
- While earlier, only a few business groups could muster sizeable amounts of risk capital to establish new businesses and disrupt old ones, entrepreneurs can now lay hands on hundreds of millions of dollars if the idea makes sense.
Conclusion
For now, this flow of funds is a welcome booster for the economy as it recovers from the scars of the pandemic-driven lockdowns. While valuations can be volatile in the near term, we are in the early stages of this reshaping of India’s corporate landscape.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Adaptation Gap Report
Mains level: Paper 3- Climate finance
Context
In the run-up to the 26th UNFCCC media reports have claimed that developed countries are inching closer to the target of providing $100 billion annually. This view has been bolstered by the Organisation for Economic Co-operation and Development (OECD), which claimed that climate finance provided by developed countries had reached $78.9 billion in 2018.
Issue of climate financing and claim of reaching the target of $100 billion
- These claims reaching the target of $100 billion annually is erroneous.
- First, the OECD figure includes private finance and export credits.
- Public finance: Developing countries have insisted that developed country climate finance should be from public sources and should be provided as grants or as concessional loans.
- However, the OECD report makes it clear that the public finance component amounted to only $62.2 billion in 2018, with bilateral funding of about $32.7 billion and $29.2 billion through multilateral institutions.
- Nature of finance: Significantly, the final figure comes by adding loans and grants. Of the public finance component, loans comprise 74%, while grants make up only 20%.
- The report does not say how much of the total loan component of $46.3 billion is concessional.
- Non-concessional loans: From 2016 to 2018, 20% of bilateral loans, 76% of loans provided by multilateral development banks and 46% of loans provided by multilateral climate funds were non-concessional.
- Between 2013 and 2018, the share of loans has continued to rise, while the share of grants decreased.
- The OECD reports on climate finance have long been criticised for inflating climate finance figures.
- In contrast to the OECD report, Oxfam estimates that in 2017-18, out of an average of $59.5 billion of public climate finance reported by developed countries, the climate-specific net assistance ranged only between $19 and $22.5 billion per year.
- The 2018 Biennial Assessment of UNFCCC’s Standing Committee on Finance reports that on average, developed countries provided only $26 billion per year as climate-specific finance between 2011-2016.
Broken commitments from the US on climate financing
- U.S. President Joe Biden recently said that the U.S. will double its climate finance by $11.4 billion annually by 2024.
- It is Congress that will decide on the quantum after all.
- The U.S. also has a history of broken commitments, having promised $3 billion to the Green Climate Fund (GCF) under President Barack Obama, but delivering only $1 billion.
- The future focus of U.S. climate finance is the mobilisation of private sector investment.
- The bulk of the money coming in would be through private funds, directed to those projects judged “bankable” and not selected based on developing countries’ priorities and needs.
Finance skews toward mitigation
- Climate finance has also remained skewed towards mitigation, despite the repeated calls for maintaining a balance between adaptation and mitigation.
- The 2016 Adaptation Gap Report of the UN Environment Programme had noted that the annual costs of adaptation in developing countries could range from $140 to $300 billion annually by 2030 and rise to $500 billion by 2050.
- Currently available adaptation finance is significantly lower than the needs expressed in the Nationally Determined Contributions submitted by developing countries.
Conclusion
Delivering on climate finance is fundamental to trust in the multilateral process. Regrettably, while developing countries will continue to pressure developed countries to live up to their promises, the history of climate negotiations is not in their favour.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Taiwan straight, South China Sea
Mains level: Taiwan as a new global flashpoint
Recently China flew over 100 fighter jets into Taiwan’s air defence identification zone setting off alarm around the world that it was preparing to take over the island by force.
Taiwan: the Republic of China (RoC)
- Taiwan, earlier known as Formosa, a tiny island off the east coast of China, is where Chinese republicans of the Kuomintang government retreated after the 1949 victory of the communists.
- It has since continued as the Republic of China (RoC).
- Although largely unrecognized by other countries as such, self-ruled Taiwan sees itself as no less than an independent nation.
- Its leaders, have vowed to defend its sovereignty against the Chinese goal of “reunification”.
Chinese claims over Taiwan
- Since its establishment in 1949, the PRC has believed that Taiwan must be reunified with the mainland, while the RoC claim to be an independent country.
- The RoC became the non-communist frontier against China during the Cold War, and was the only ‘China’ recognised at the UN until 1971.
- That was when the US inaugurated ties with China through the secret diplomacy under President Richard Nixon.
Independence politics by Taipei
- In 1975, Taiwan got its first democratic reforms. Trade ties with PRC were established.
- As the British prepared to exit Hong Kong in 1999, the “One China, Two Systems” solution was offered to Taiwan as well, but it was rejected by the Taiwanese.
- In 2004, China started drafting an anti-secession law aimed at Taiwan; trade and connectivity, however, continued to improve.
Hurdles for Taiwanese independence
- Taiwan now has massive economic interests, including investments in China, and pro-independence sections worry that this might come in the way of their goals.
- Inversely, the pro-reunification sections of the polity, as well as China, hope that economic dependence and increasing people-to-people contacts will wear out the pro-independence lobbies.
Global significance of Taiwan
- The island is located in the East China Sea, to the northeast of Hong Kong, north of the Philippines and south of South Korea, and southwest of Japan.
- What happens in and around Taiwan is of deep concern to all of East Asia.
Geopolitics: US ties with Taiwan
- Officially, the US has subscribed to PRC’s “One China Policy” which means there is only one legitimate Chinese government.
- The most serious encounter was in 1995-96, when China began testing missiles in the seas around Taiwan, triggering the biggest US mobilization in the region since the Vietnam War.
- Now, the US backs Taiwan’s independence, maintains ties with Taipei, and sells weapons to it.
- Taiwan is entirely dependent on the US for its defense against possible Chinese aggression.
- This is why every spike in military tensions between China and Taiwan injects more hostility into the already strained relationship between Washington and Beijing.
Challenge for the US
- The Biden Administration has declared “rock-solid” commitment to Taiwan after an incursion by Chinese warplanes.
- As tensions rise, the world is watching the US, which is face-saving after exiting from Afghanistan.
- In East and Southeast Asia, several countries including Japan, South Korea, and the Philippines, which are sheltered under the Protective umbrella of the US, are reading the situation.
- The US has also agreed to abide by the “Taiwan Agreement”, under which US support for the “One China Policy” is premised on Beijing not invading Taiwan.
Recent initiatives against China
- The AUKUS pact among the US, UK, and Australia, under which Australia will be supplied with nuclear submarines, has imparted a new dimension to the security dynamics of the Indo-Pacific.
- Taiwan has welcomed the pact, while China has denounced it as seriously undermining regional peace.
Implications for India
- With India facing its own problems with China at the LAC, there have been suggestions that it should review its One China Policy.
- It has in any case long stopped reiterating this officially — and use not just the Tibet card, but also develop more robust relations with Taiwan to send a message to Beijing.
- India and Taiwan currently maintain “trade and cultural exchange” offices in each other’s capitals.
India-Taiwan Ties: A backgrounder
- India and Taiwan both do not maintain any official diplomatic relations.
- India recognizes only the People’s Republic of China (in mainland China) and not Taiwan’s claims of being the legitimate government of Mainland China, Hong Kong, and Macau.
- However, India’s economic and commercial links, as well as people-to-people contacts with Taiwan, have expanded in recent years.
- Major Taiwanese exports to India include integrated circuits, machinery, and other electronic products.
India’s interest
Ans. Semiconductor economy
- Taiwan’s position as a semiconductor superpower opens the door for more intensive strategic-economic cooperation between Delhi and Taipei.
- The talks with Taipei are ongoing to bring a $7.5-billion semiconductor or chip manufacturing plant to India.
- Chips are used in a range of devices from computers to 5G smartphones, to electric cars and medical equipment.
Way forward
- Delhi must begin to deal with Taiwan as a weighty entity in its own right that offers so much to advance India’s prosperity.
- Delhi does not have to discard its “One-China policy” to recognise that Taiwan is once again becoming the lightning rod in US-China tensions.
Conclusion
- As Taiwan becomes the world’s most dangerous flashpoint, the geopolitical consequences for Asia are real.
- Although Delhi has embraced the Indo-Pacific maritime construct, it is yet to come to terms with Taiwan’s critical role in shaping the strategic future of Asia’s waters.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Kunming Declaration, CBD
Mains level: Not Much
The Kunming Declaration was adopted by over 100 countries at the first part of the ongoing virtual 15th meeting of the Conference of the Parties to the United Nations Convention on Biological Diversity.
Kunming Declaration
- It calls upon the parties to “mainstream” biodiversity protection in decision-making and recognise the importance of conservation in protecting human health.
- The theme of the declaration is Ecological Civilization: Building a Shared Future for All Life on Earth.
- By adopting this, the nations have committed themselves to support the development, adoption and implementation of an effective post-2020 implementation plan for the Cartagena Protocol on biosafety.
- Signatory nations will ensure that the post-pandemic recovery policies, programs and plans contribute to the conservation and sustainable use of biodiversity.
About Convention on Biological Diversity (CBD)
- The CBD (wef 1993) known informally as the Biodiversity Convention, is a multilateral treaty.
- The convention has three main goals:
- the conservation of biodiversity
- the sustainable use of its components
- the fair and equitable sharing of benefits arising from genetic resources
- Its objective is to develop national strategies for the conservation and sustainable use of biological diversity, and it is often seen as the key document regarding sustainable development.
- It has two supplementary agreements, the Cartagena Protocol and Nagoya Protocol.
(1) Cartagena Protocol
- It is an international treaty governing the movements of living modified organisms (LMOs) resulting from modern biotechnology from one country to another.
(2) Nagoya Protocol
- It deals with Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization (ABS).
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From UPSC perspective, the following things are important :
Prelims level: ISA, OSOWOG
Mains level: Solar Energy
The Union Minister for Power and New and Renewable Energy (MNRE) has addressed the Ministerial session of the Green Grids Initiative-One Sun One World One Grid (OSOWOG) Northwest Europe Cooperative Event.
One Sun, One World, One Grid
- The mega plan of OSOWOG calls for trans-national electricity grid supplying solar power across the globe.
- It will connect 140 countries through a common grid that will be used to transfer solar power.
- The idea was first floated by PM Modi in 2018 during the first assembly of the International Solar Alliance (ISA).
- The vision behind the OSOWOG mantra is “the Sun never sets” and is a constant at some geographical location, globally, at any given point of time.
With India at the fulcrum, the solar spectrum can easily be divided into two broad zones viz:
- Far East: It would include countries like Myanmar, Vietnam, Thailand, Lao, Cambodia and
- Far West: It would cover the Middle East and the Africa Region
Implementation phases of the plan
The plan is divided into three phases:
- Phase 1: It will connect the Indian grid with the Middle East, South Asia and South-East Asian grids to share solar and other renewable energy resources
- Phase 2: It will connect the first phase nations with the African pool of renewable sources
- Phase 3: It will be the concluding step of global interconnection
How novel is the idea?
(1) Scale of the program
- Not limited by national boundaries, it can tackle global challenges linked to energy.
- It will tackle access for underserved people and communities the world over.
- It will enable 3 billion people to access clean drinking water (via solar pumps), give 2 billion women access to clean cooking and bring light to the homes of 750 million people.
(2) Pivotal moment in India’s energy history
- Going back even further, almost a decade ago, the price of solar energy (then INR 15 a unit) had raised question marks about its commercial feasibility.
- Today OSOWOG envisions dispatching surplus electricity at near-zero cost as India produces the cheapest solar-powered electricity anywhere in the world.
(3) Sustainability
- OSOWOG directly tackles two key problems that are emerging as energy systems try to deliver both energy sustainability and access to underserved populations.
- Countries like Singapore or Bangladesh simply may not have enough empty land to generate solar energy.
- Many nations’ policies also prioritise food security (i.e., devoting land to farming) over solar energy. These countries can still benefit from the solar energy dispatched to them via OSOWOG.
(4) India extending leadership
- Having international associations is not a new trend for the energy sector which already has a strong geopolitical organisation such as OPEC.
- Several countries including China have initiated infrastructure projects in other countries, which is seen as a sign of asserting supremacy by several policy experts.
- While India is a partner nation with most trade associations, with ISA and OSOWOG, it is planning to take a leadership position.
Significance of OSOWOG
- Successful ambitious project: It is obviously a very grand and ambitious project with a looming success.
- Pathbreaking idea: It is also clear that a new energy sector paradigm is needed as we are facing a huge inflection point in electricity generation and consumption.
- Green benefits: Potential benefits include widespread scale up in energy access, abatement in carbon emissions, lower cost and improved livelihoods.
- Energy alternative: With battery and storage technology becoming cheaper, electricity consumption at source end is a more feasible idea for solar power.
Limitations of OSOWOG
- Low financial benefits: This may sound a geopolitically a clever strategy. However, it is to be seen if this makes sense, technology-wise and in terms of financial benefits.
- Cost-sharing challenge: The mechanism of cost-sharing will be challenging, given the varied priorities of participating countries depending on their socio-economic orders.
- Pace of progress: The OSOWOG will turn out to be an expensive, complex and very slow progress project.
- Geopolitical issue: Any disruption caused due to any bilateral/multilateral issues can potentially affect critical services in multiple continents and countries.
- Grid parameters: There is a difference in voltage, frequency and specifications of the grid in most regions. Maintaining grid stability with just renewable generation would be technically difficult.
Way forward
- While India has taken baby steps with ISA, a major investment drive is still missing. This is planned to be achieved through OSOWOG.
- India will need a strong coalition of international partners to realise this vision.
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Back2Basics: International Solar Alliance
- Officially announced during UN Climate Change Conference in Paris in 2015, the ISA is a partnership of solar-resource rich countries.
- Currently, there are 121 countries that have agreed to be members for ISA.
- Most of these are countries with large participation from Africa, South-east Asia and Europe.
- Pakistan and China are not a part of ISA.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: RE Country Attractiveness Index (RECAI)
Mains level: Renewable Energy in India
India has retained the third rank in the Renewable Energy Country Attractiveness Index released by consultancy firm EY.
RE Country Attractiveness Index (RECAI)
- The RECAI ranks the world’s top 40 markets on the attractiveness of their renewable energy investment and deployment opportunities.
- The rankings reflect assessments of market attractiveness and global market trends.
India’s performance
- India remained at the third position since three consecutive years.
- India’s thriving renewable energy market conditions, inclusive policy decisions, investment and technology improvements focusing on self-reliant supply chains have pushed the transition.
- RECAI highlights that corporate power purchase agreements (PPAs) are emerging as a key driver of clean energy growth.
- A new PPA Index – introduced in this edition of RECAI – focuses on the attractiveness of renewable power procurement and ranks the growth potential of a nation’s corporate PPA market.
- India is ranked sixth among the top 30 PPA markets.
Global scenario
- The US, mainland China and India continue to retain the top three rankings and Indonesia is a new entrant to the RECAI.
- The top-performing markets have held their ground in this latest issue – with no movement into or out of the top eight.
- France (fourth position, up by one) and the UK (fifth position, down by one), while Germany (sixth position, up by one) has edged back ahead of Australia (seventh position, down by one).
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Ethanol Blended Petrol (EBP) Programme
Mains level: Not Much
The Ministry of Road Transport and Highways (MoRTH) has notified mass emission standards for E 12 (12% Ethanol with Gasoline) and E15 (15% Ethanol 12 with gasoline) fuels.
What is the news?
- The ministry has notified test standards for vehicles compliant with ethanol-blended fuel variants E12 and E15.
- The ministry made it mandatory for all automobile manufacturers to put “clearly visible stickers” on every vehicle informing about its compatibility to the level of ethanol blend (E12, E15, E20).
- Currently, India is using E10 fuel (petrol blended with 10% ethanol).
Ethanol Blended Petrol (EBP) Programme
- Ethanol Blended Petrol (EBP) programme was launched in January, 2003 for supply of 5% ethanol blended Petrol.
- The programme sought to promote the use of alternative and environment-friendly fuels and to reduce import dependency for energy requirements.
- OMCs are advised to continue according priority of ethanol from 1) sugarcane juice/sugar/sugar syrup, 2) B-heavy molasses 3) C-heavy molasses and 4) damaged food grains/other sources.
- At present, this programme has been extended to whole of India except UTs of Andaman Nicobar and Lakshadweep islands with effect from 01st April, 2019 wherein OMCs sell petrol blended with ethanol up to 10%.
Why ethanol blending?
- Agricultural waste management: Ethanol blending will solve the problem of agricultural waste as well as sugar rates due to excess production, therefore providing security to sugarcane farmers.
- Reducing emission: It can help accomplish dual goal of strengthening energy security with low carbon emission.
- Enhanced participation: It will enable local enterprises and farmers to participate in the energy economy.
- Reducing import bill: It is another significant benefit. India imports 85% of crude oil.
- Fuel efficiency: Ethanol blending increases octane number thereby increasing fuel quality in terms of anti-knocking tendency (engine sound)
Also read:
[RSTV ARCHIVE] Ethanol Blending: Significance & Road Ahead
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From UPSC perspective, the following things are important :
Prelims level: FAO
Mains level: Paper 3- Reorienting agri-food systems
Context
There is an urgent need for reorientation of the long-term direction of agri-food systems to not only enhance farm incomes but also ensure better access to safe and nutritious foods.
Challenge of malnutrition in India
- The findings from the first round of the Fifth National Family Health Survey suggest that nutrition-related indicators have worsened in most States.
- In addition, findings from the Comprehensive National Nutrition Survey (2016-18) have highlighted the role of micro-nutrient malnutrition.
- Pathways for nutritional security consist of improving dietary diversity, kitchen gardens, reducing post-harvest losses, making safety net programmes more nutrition-sensitive, women’s empowerment, enforcement of standards and regulations, improving Water, Sanitation and Hygiene, nutrition education, and effective use of digital technology.
Agri-food system: Significance and challenges it faces
- The agri-food systems are the most important part of the Indian economy.
- India produces sufficient food, feed and fibre to sustain about 18% of the world’s population (as of 2020). Agriculture contributes about 16.5% to India’s GDP and employs 42.3% of the workforce (2019-20).
- A sustainable agri-food system is one in which a variety of sufficient, nutritious and safe foods are made available at an affordable price to everyone, and nobody goes hungry or suffers from any form of malnutrition.
- However, the country’s agri-food systems are facing new and unprecedented challenges, especially related to economic and ecological sustainability, nutrition and the adoption of new agricultural technologies.
- The edifice of India’s biosecurity remains vulnerable to disasters and extreme events.
Way forward: Reorienting agri-food systems
- There is an urgent need for reorientation of the long-term direction of agri-food systems to not only enhance farm incomes but also ensure better access to safe and nutritious foods.
- Additionally, the agri-food systems need to be reoriented to minimise cost on the environment and the climate.
- This need is recognised by the theme of World Food Day 2021: ‘Our actions are our future. Better production, better nutrition, a better environment and a better life’.
- FAO’s support for the transformation of agri-food systems is rooted in agro-ecology.
- The more diverse an agricultural system, the greater its ability to adapt to shocks.
- Different combinations of integrated crop-livestock-forestry-fishery systems can help farmers produce a variety of products in the same area, at the same time or in rotation.
- In January this year, FAO in collaboration with NITI Aayog and the Ministry of Agriculture convened a National Dialogue to evolve a framework for the transition to a more sustainable agri-food systems by 2030 and identify pathways for enhancing farmers’ income and achieving nutritional security.
Consider the question “What are the challenges facing agri-food systems in India? Suggest the pathways to transform the agri-food system to enhance farm income and ensure food and nutrition security.”
Conclusion
Food systems can help combat environmental degradation or climate change. Sustainable agri-food systems can deliver food security and nutrition for all, without compromising the economic, social and environmental bases.
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