Note4Students
From UPSC perspective, the following things are important :
Prelims level: India's coal import
Mains level: Paper 3- Issues with India's power sector
Context
Across several states, the fiscal situation is becoming increasingly challenging. Yet, the common thread that runs through these deficits — state ownership and control — remains unaddressed.
State ownership: structural cause of India’s deficit
- Coal India’s inability to raise production to meet growing demand contributed to the recent power crisis.
- The state-owned power distribution companies have failed to bring down losses despite many schemes and packages.
- The state control of these critical aspects of India’s power chain is central to a higher current account deficit and growing fiscal risks at the state level.
Coal output fails to meet the demand
- From 2013-14, the Indian economy has grown by around 50 per cent (in real terms).
- But Coal India, which accounts for around 80 per cent of India’s total coal production, was able to raise its output by just 34 per cent over the same period.
- Increased reliance on imported coal: India’s coal imports (thermal and cooking) rose to a staggering 230.3 million tonnes in 2020-21, up 37 per cent from 168.5 million tonnes in 2013-14.
- Coal imports for thermal power alone have more than doubled in the first quarter, compared to the same period last year.
- To put this in perspective — the value of coal imports in just the first three months of this year is likely to be around half of what was imported in all of last year.
- Increase in current account deficit: This growing reliance on coal imports (along with crude and gold) is at the root of the country’s widening current account deficit.
- An inability to ramp up production, to forecast demand accurately, as every episode of coal shortage over the years has exposed, is the hallmark of the coal sector that is still largely the preserve of a public sector monopoly.
Problem of DISCOMS
- No improvement in financial and operational issues: Despite repeated attempts to turn around their financial and operational positions, on key metrics, the divide between the public and private sector discoms is deepening.
- In 2019-20, public sector discoms lost Rs 0.72 per unit of power sold, while private discoms made Rs 0.20 per unit.
- High AT&C losses: Similarly, in 2019-20, the AT&C losses (due to operational inefficiencies) for state discoms were pegged at 21.7 per cent, while for the private sector, losses were at 8 per cent.
- With deteriorating finances, the net worth of all public sector discoms put together stands at a negative Rs 61,757 crore, while for the private sector, it is a positive Rs 24,965 crore.
- There have been several attempts to rescue state discoms.
- In the early 2000s, the scheme for repayment of SEB dues amounted to Rs 41,473 crore.
- In 2012, the financial restructuring plan added up to Rs 1.19 lakh crore.
- In 2015, UDAY involved a transfer of Rs 2.01 lakh crore to state government balance sheets.
- Notwithstanding various schemes to turn around their finances, the total debt of all discoms put together stood at Rs 5.14 lakh crore at the end of 2019-20.
- Of this, Rs 4.87 lakh crore is owed by state discoms.
- Impact on entire power chain: A deterioration in the financial position of discoms means that their dues to power generating companies start mounting, which in turn delay payments to coal miners, affecting the financial stability of the entire power chain.
Declining cross-subsidisation
- As tariffs charged by discoms are much higher than the cost of alternatives, a sizeable part of non-agricultural sales of discoms (industrial and commercial consumers) have already shifted towards captive and solar.
- And with the ministry of power recently reducing the threshold for green energy open access, more and more consumers will increasingly opt out.
- This would mean that discom losses will rise as cross subsidisation from commercial and industrial consumers will decline, increasing their dependence on state subsidies.
- In 2019-20, the total state subsidy claimed and released was around Rs 1.1 lakh crore or 17 per cent of total discom revenue.
- This will only increase down the line, making future bailouts even more fiscally challenging.
Conclusion
Tackling these deficits requires addressing the issue of government control over critical aspects of India’s energy sector. Without shifting to market-determined prices — reforms are ultimately about price — little headway is likely to be made.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: IIBX
Mains level: Gold exchange
Prime Minister has launched India’s first International Bullion Exchange (IIBX) at the Gujarat International Finance Tec-City (GIFT City) near Gandhinagar.
What is Bullion?
- Bullion refers to physical gold and silver of high purity that is often kept in the form of bars, ingots, or coins.
- It can sometimes be considered legal tender and is often held as reserves by central banks or held by institutional investors.
When was the IIBX announced?
- During her 2020 budget speech, Finance Minister announced the setting up of India International Bullion Exchange (IIBX) at International Financial Services Center (IFSC) at GIFT City in Gandhinagar.
- The International Financial Services Centres Authority (Bullion Exchange) Regulations, 2020, was notified in December 2020 for trading of precious metals, including gold and silver.
- These regulations also cover bullion exchange, clearing corporation, depository and vaults.
What is the IIBX?
- India for the first time had liberalised gold imports through nominated banks and agencies in the 1990s.
- Now, the eligible qualified jewellers in India have been allowed to directly import gold through IIBX.
- For this, jewellers will have to become a trading partner or a client of an existing trading member.
- In addition, the exchange has set up necessary infrastructure to store physical gold and silver.
- The exchange will sell physical gold and silver and aims to be set up on the lines of the Shanghai Gold Exchange and Borsa Istanbul in order to make India a key regional hub for bullion flows.
How will it work?
- The thought process behind setting this up is to enable the trading of commodities on an exchange.
- Since this is international exchange, trading can take place in US dollars as well.
- India has positioned itself as one of the biggest trading hubs in Asia.
- Because of the competitive pricing on IIBX, international players will be happy to use our vaulting services.
- Moreover, with this being a free trade zone, no duty will be paid.
What was the practice up until now?
- Currently, gold in India is imported on a consignment model into different cities by nominated banks and agencies approved by the RBI and then supplied to traders/jewellers.
- The banks and other agencies get a fee from the gold exporter for handling, storage, etc, and also add a premium to the gold while transacting with domestic buyers.
- The buyer passes this charge on to the value chain until it reaches the end customer.
What change did IIBX bring?
- With the IIBX becoming operational today, qualified domestic buyers can, through a branch in Gift City, purchase the bars and coins.
- This purchase can be done from an international supplier who is a member of the IIBX.
What is the advantage of an exchange?
- Through the dis-intermediation by facilitating transactions through an anonymously traded exchange platform, bullion is made available across special economic zones (SEZs) at International Financial Services Centres Authority (IFSCA)-approved vaults.
- This means the growth of IIBX is not just limited to GIFT City but across jewellery manufacturing hubs nationwide.
- The qualified jeweller allowed to import gold through IIBX, or a jeweller who is a client of an IIBX member, can view the available stock and place the order.
- This shall nudge jewellers towards just-in-time inventory management.
- It will also result in greater transparency in pricing, and order sequencing, thereby removing any room for unfair preference by supplier, importing or logistics agency.
Which jewellers have come on board?
- So far, 64 big jewellers have come onboard and more applications are in the pipelines.
- Some of the big names include Malabar Gold Pvt Ltd, Titan Company Ltd, Bangalore Refinery Pvt Ltd, RBZ Jewellers Pvt Ltd, Zaveri and Company Pvt Ltd.
What are the new RBI guidelines for importing gold?
- Banks may now allow qualified Jewellers to remit advance payments for 11 days for import of gold through IIBX in compliance to the extant Foreign Trade Policy and regulations issued under IFSC Act.
- According to the RBI, all payments by qualified jewellers for imports of gold through IIBX shall be made through the exchange mechanism as approved by IFSCA.
Who can enrol on the exchange?
- Non-Resident Individual / Proprietorship Firm
- Registered Partnership Firm
- Private Limited Company
- Public Limited Company
- Qualified Jewellers
- Branches of IBU at GIFT City
- Foreign Bullion Suppliers who follow OECD guideline
- In order to become a qualified jeweller, entities require a minimum net worth of Rs 25 crore.
- And 90 per cent of the average annual turnover in the last three financial years through deals in goods categorised as precious metals.
- NRIs and institutes will also be eligible to participate in the exchange after registering with the International Financial Services Centre Association (IFSCA).
- Jewellers will be able to transact on IIBX only as trading members or as clients of a trading member.
- If one wants to become a trader, a qualified jeweller will have to establish a branch or a subsidiary in IFSC (international financial services centre) and apply to the IFSCA.
What products does IIBX offer?
- IIBX offers a diversified portfolio of products and technology services at a cost which is far more competitive than the Indian exchanges as well as other global exchanges in Hong Kong Singapore, Dubai, London and New York.
- Gold 1 kg 995 purity and gold 100 gm 999 purity with a T+0 settlement (100% upfront margin) are expected to trade at IIBX initially.
- All contracts will be listed, traded and settled in US Dollar
- The exchange will have three vaults – one operated by Sequel Global (ready and approved), the second one to be operated by Brinks India is ready and awaiting final approval and the third is under construction.
- Once the gold is imported by the authorised entities it will be deposited at one of the vaults which will issue bullion depository receipts.
- These receipts will then be traded in dollars on the exchange.
Significance of IIBX
- The IIBX shall be the “Gateway for Bullion Imports into India”, wherein all the bullion imports for domestic consumption shall be channelized through the exchange.
- The exchange ecosystem is expected to bring all the market participants to a common transparent platform for bullion trading.
- It would provide efficient price discovery, assurance in the quality of gold, and enable greater integration with other segments of financial markets.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Core Industries
Mains level: Read the attached story
India’s eight core sectors’ output growth moderated to 12.7% in June, from 18.1% in May, with all sectors except crude oil registering an uptick in production.
What are the Core Industries in India?
- The main or the key industries constitute the core sectors of an economy.
- In India, there are eight sectors that are considered the core sectors.
- They are electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilizers.
Index of Eight Core Industries (ICI) vs Index of Industrial Production (IIP)
[A] Index of Eight Core Industries
- The monthly Index of Eight Core Industries (ICI) is a production volume index.
- ICI measures collective and individual performance of production in selected eight core industries viz. Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity.
- Prior to the 2004-05 series six core industries namely Coal, Cement, Finished Steel, Electricity, Crude petroleum and Refinery products constituted the index basket.
- Two more industries i.e. Fertilizer and Natural Gas were added to the index basket in 2004-05 series. The ICI series with base 2011-12 will continue to have eight core industries.
Components covered in these eight industries for the purpose of compilation of index are as follows:
- Coal – Coal Production excluding Coking coal.
- Crude Oil – Total Crude Oil Production.
- Natural Gas – Total Natural Gas Production.
- Refinery Products – Total Refinery Production (in terms of Crude Throughput).
- Fertilizer – Urea, Ammonium Sulphate (A/S), Calcium Ammonium Nitrate (CAN), Ammonium chloride (A/C), Diammonium Phosphate (DAP), Complex Grade Fertilizer and Single superphosphate (SSP).
- Steel – Production of Alloy and Non-Alloy Steel only.
- Cement – Production of Large Plants and Mini Plants.
- Electricity – Actual Electricity Generation of Thermal, Nuclear, Hydro, imports from Bhutan.
[B] Index of Industrial Production
- The Index of Industrial Production (IIP) is an index for India which details out the growth of various sectors in an economy such as mineral mining, electricity and manufacturing.
- The all India IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period.
Difference between the two
- IIP is compiled and published monthly by the National Statistics Office (NSO), Ministry of Statistics and Programme Implementation six weeks after the reference month ends.
- However, ICI is compiled and released by Office of the Economic Adviser (OEA), Department of Industrial Policy & Promotion (DIPP), and Ministry of Commerce & Industry.
- The Eight Core Industries comprise nearly 40.27% of the weight of items included in the Index of Industrial Production (IIP).
- These are Electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilisers.
Importance of Core Industries
- The core sectors have a major impact on the Indian economy and significantly affect most other industries as well.
- Their measures help account for the physical volume of production in India.
- Their analysis offers a clearer and more realistic assessment of what’s happening in the economy
- Their progress is used by government agencies for policy-making purposes.
- They remain extremely relevant for the calculation of the quarterly and advanced Gross Domestic Product (GDP) estimates.
- The core sector is also known as Infrastructure output as they represent the basic industries that form the base of the economy.
Do you know about the Strategic Sectors?
The government has identified four strategic sectors where the presence of state-run companies will be reduced to a minimum.
- Atomic energy, space and defence
- Transport and telecommunications
- Power, petroleum, coal and other minerals and
- Banking, insurance and financial services
Try this PYQ:
Q.In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?
(a) Coal production
(b) Electricity generation
(c) Fertilizer production
(d) Steel production
Post your answers here.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Article 21
Mains level: Read the attached story
Every person on the planet has the right to live in a clean, healthy environment, as declared United Nations (UN) in a historic resolution.
Access to Clean, Healthy Environment
- The resolution recognizes the right to a clean, healthy and sustainable environment as a human right essential for the full enjoyment of all human rights and, among others.
- It calls upon States and international organizations to adopt policies and scale up efforts to ensure a clean, healthy and sustainable environment for all.
- The landmark development demonstrates that the member states can unite in the collective fight against the triple planetary crisis of climate change, biodiversity loss and pollution.
- The declaration sheds light on almost all the rights connected to the health of our environment.
- The declaration adopted by over 160 UN member nations, including India, is not legally binding.
Why such move?
- This right was not included in the Universal Declaration of Human Rights, 1948.
- So, this is a historic resolution that will change the very nature of international human rights law.
- The resolution will help to reduce environmental injustices and protection gaps.
- It can empower people, especially those in vulnerable situations, including environmental human rights defenders, children, youth, women and indigenous people.
Landmark resolution after 50 years
- Some 50 years ago, the United Nations Conference on the Environment in Stockholm concluded with a resolution placing environmental issues at the global forefront.
- Today, over 176 countries have adopted environmental framework laws on the basis of it.
- From a foothold in the 1972 Stockholm Declaration, these rights have been integrated into constitutions, national laws and regional agreements.
- In October 2021, it was recognised by the UN Human Rights Council.
What were other such developments?
- July 28, 2010, the UN general assembly recognised the right to water and sanitation through its resolution.
- It stated that clean drinking water and sanitation “are essential to the realisation of all human rights”.
- In response to this, governments across the world have changed their laws and regulations related to water and sanitation.
Issues over this declaration
- The words’ ‘clean’, ‘healthy’ and ‘sustainable’ lack an internationally agreed definition.
- The text fails to refer to the foundational principle of equity in international environmental law.
- Nevertheless, this has given more power in the hands of environmental activists to question environmentally destructive actions and policies.
Back2Basics: Right to Clean Environment in India
- The right to life has been used in a diversified manner in India.
- It includes, inter alia, the right to survive as a species, quality of life, the right to live with dignity and the right to livelihood.
- In India, this has been expressly recognised as a constitutional right under Article 21.
- It states: ‘No person shall be deprived of his life or personal liberty except according to procedures established by law.’
- The Supreme Court expanded this negative right in two ways.
- Firstly, any law affecting personal liberty should be reasonable, fair and just.
- Secondly, the Court recognized several unarticulated liberties that were implied by article 21.
- It is by this second method that the Supreme Court interpreted the right to life and personal liberty to include the right to a clean environment.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: State Assemblies for 2021 Report
Mains level: States Legislature efficiency
Kerala, which slipped to the eighth slot in holding Assembly sittings during the first wave of the COVID-19 pandemic in 2020, returned to the top spot in 2021, with its House sitting for 61 days, the highest in the country.
State Assemblies for 2021 Report
- The report on the functioning of State Assemblies for 2021 is published by the PRS Legislative Research (PRS), a New Delhi-based think tank.
How did other states fare?
- Odisha followed Kerala with 43 sitting days; Karnataka 40, and Tamil Nadu 34 days.
- But for the top three States, the average number of sittings of State legislatures would have been far lower than the present figure of 21 days.
- Of the 28 State Assemblies and one Union Territory’s legislature, 17 met for less than 20 days.
- Of them, five — Andhra Pradesh, Nagaland, Sikkim, Tripura and Delhi — met for less than 10 days.
- The figures for Uttar Pradesh, Manipur and Punjab were 17, 16 and 11, respectively.
- Andhra Pradesh with 20 ordinances and Maharashtra with 15 followed Kerala.
Why is this ranking significant?
- The National Commission to Review the Working of the Constitution (2000-02), headed by former Chief Justice of India M.N. Venkatachaliah, had prescribed the standards for working of legislatures.
- The Houses of State (/Union Territory) legislatures with less than 70 members, for example, Puducherry, should meet for at least 50 days a year and other Houses (Tamil Nadu), at least 90 days.
- The Presiding Officers’ conference, held in Gandhinagar in January 2016, suggested State legislatures hold a minimum of 60 days of sittings in a year.
- Between 2016 and 2021, the PRS points out, 23 State Assemblies met for an average of 25 days.
- As for the ordinance route, which should be, according to the Supreme Court, used under exceptional circumstances, 21 out of 28 States promulgated ordinances last year.
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