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

    Amendment to the Multi-State Cooperatives Act, 2002

    | Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth

    The Union Home and Cooperation Minister has announced the decision to amend the Multi-State Cooperative Societies (MSCS) Act, 2002 to plug the loopholes in the Act.

    What is MSCS Act?

    • Cooperatives are a state subject, but there are many societies such as those for sugar and milk, banks, milk unions etc whose members and areas of operation are spread across more than one state.
    • The MSCS Act was passed to govern such cooperatives.
    • For example, most sugar mills along the districts on the Karnataka-Maharashtra border procure cane from both states.

    What are Multi-State Cooperatives?

    • They draw their membership from two or more states, and they are thus registered under the MSCS Act.
    • Their board of directors has representation from all states they operate in.
    • Administrative and financial control of these societies is with the central registrar, with the law making it clear that no state government official can wield any control on them.

    Why does the government plan to amend the Act?

    (1) Issues with Central Registrar

    • The exclusive control of the central registrar, who is also the Central Cooperative Commissioner, was meant to allow smooth functioning of these societies.
    • The central Act cushions them from the interference of state authorities so that these societies are able to function in multiple states.
    • What was supposed to facilitate smooth functioning, however, has created obstacles.
    • For state-registered societies, financial and administrative control rests with state registrars who exercise it through district- and tehsil-level officers.

    (2) Multiple checks and balances

    • Thus if a sugar mill wishes to buy new machinery or go for expansion, they would first have to take permission from the sugar commissioner for both.
    • Post this, the proposal would go to the state-level committee that would float tenders and carry out the process.
    • While the system for state-registered societies includes checks and balances at multiple layers to ensure transparency in the process, these layers do not exist in the case of multistate societies.
    • Instead, the board of directors has control of all finances and administration.

    (3) Lack of govt control

    • There is an apparent lack of day-to-day government control on such societies.
    • Unlike state cooperatives, which have to submit multiple reports to the state registrar, multistate cooperatives need not.
    • The central registrar can only allow inspection of the societies under special conditions — a written request by one-third of the members of the board.
    • Inspections can happen only after prior intimation to societies.

    (4) Lack of infrastructure

    • The on-ground infrastructure for central registrar is thin — there are no officers or offices at state level, with most work being carried out either online or through correspondence.
    • For members of the societies, the only office where they can seek justice is in Delhi, with state authorities expressing their inability to do anything.

    (5) Ponzi schemes functioning as MCS

    • There have been instances across the country when credit societies have launched ponzi schemes taking advantage of these loopholes.
    • Such schemes mostly target small and medium holders with the lure of high returns.
    • Fly-by-night operators get people to invest and, after a few instalments, wind up their operations.

    What kind of amendments can be expected?

    • The Centre is holding extensive consultations with experts from various fields: bankers, sugar commissioners, cooperative commissioners, housing societies federations etc.
    • The centre might increase their manpower, first in Delhi and then in the states, to ensure better governance of the societies.
    • Also, technology will be used to bring in transparency.

     

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  • Capital Markets: Challenges and Developments

    SEBI suspends Futures Trading in key farm crops

    Prelims Only | Economics | Mains Paper 3: Indian Economy

    Market regulator Securities & Exchange Board of India (SEBI) has issued an order suspending futures trading in paddy (non-basmati), wheat, Bengal gram (chana dal), mustard seeds and its derivatives, soyabean and its derivatives, crude palm oil and green gram (moong dal) for a year.

    What are Derivatives?

    • A derivative is a contract between two parties which derives its value/price from an underlying asset.
    • The value of the underlying asset is bound to change as the value of the underlying assets keep changing continuously.
    • Generally, stocks, bonds, currency, commodities and interest rates form the underlying asset.

    Types of Derivatives

    The most common types of derivatives are futures, options, forwards and swaps:

    (1) Futures

    • Futures are standardized contracts that allow the holder to buy/sell the asset at an agreed price at the specified date.
    • The parties to the futures contract are under an obligation to perform the contract. These contracts are traded on the stock exchange.
    • The value of future contracts is marked to market every day.
    • It means that the contract value is adjusted according to market movements till the expiration date.

     (2) Options

    • Options are derivative contracts that give the buyer a right to buy/sell the underlying asset at the specified price during a certain period of time.
    • The buyer is not under any obligation to exercise the option.
    • The option seller is known as the option writer. The specified price is known as the strike price.

    (3) Forwards

    • Forwards are like futures contracts wherein the holder is under an obligation to perform the contract.
    • But forwards are unstandardized and not traded on stock exchanges.
    • These are available over-the-counter and are not marked-to-market.
    • These can be customized to suit the requirements of the parties to the contract.

    (4) Swaps

    • Swaps are derivative contracts wherein two parties exchange their financial obligations.
    • The cash flows are based on a notional principal amount agreed between both parties without the exchange of principal.
    • The amount of cash flows is based on a rate of interest.
    • One cash flow is generally fixed and the other changes on the basis of a benchmark interest rate.
    • Swaps are not traded on stock exchanges and are over-the-counter contracts between businesses or financial institutions.

    What are Agri-Futures?

    Like equity, currency or interest rate futures, they allows to buy or sell an underlier at a preset price on a future date. All agri contracts end in compulsory delivery.

    • Agri products available for trade include wheat, sugar, chana, soyabean, castor, chilli , jeera futures, etc. Edible oil seeds and oils, spices and items like guar are among the more liquid contracts.
    • An objective of futures trading is gains reaching farmers, by establishing an efficient price-discovery platform.
    • This has been achieved to a large extent on NCDEX, in products such as castor, chana, soy complex, mustard, guar, cumin, etc.

    National Commodity & Derivatives Exchange Limited (NCDEX) is an Indian online commodity and derivative exchange. It is under the ownership of Ministry of Finance.

    What are the reasons for this ban?

    (1) To cool off Food Inflation

    • India’s retail inflation rose to a three-month high of 4.91 % in November from 4.48 % in the previous month primarily because of a rise in food inflation to 1.87 % from 0.85 % over this period.

    (2) Double Digits WPI

    • Wholesale Price Index-based inflation has remained in double digits for eight consecutive months beginning in April, mainly because of the surging prices of food items.
    • In November, the wholesale price-based inflation surged to a record high of 14.23 % amid the hardening of prices of mineral oils, basic metals, crude petroleum, and natural gas.

    (3) To insulate future Price Shock

    • In view of Rabi Output that might be affected morbidly because of fertilizer shortage faced in many parts of the country.
    • By banning future’s trade, the government is trying to insulate any price shock the market might feel in the days to come in case the production is not up to par.

    What will be the impact?

    (1) The imports in such commodities, especially edible oils, would reduce in the short term as traders will not have a hedging platform.

    • Hedging, which is speculative in nature, has been made difficult.
    • This will lead to the release of blocked local produce supplies into the market, which should cool the prices.
    • Imports of commodities for speculative gains will be discouraged.

    (2) It is believed that speculators have a role in jacking up prices and this needed to be discouraged to curb inflation and support growth as the economy is recovering from the COVID-19 impact.

    (3) India is the world’s biggest importer of vegetable oil and this measure will make it difficult for edible oil importers and traders to transact business since they use Indian exchanges to hedge their risk.

    (4) Agri-futures, driven mainly by NCDEX, have a checkered history with bans often pushing NCDEX back.

    • Such frequent bans are not a good development for the market as it affects confidence levels.
    • Often, a contract that is banned may not return to the table, which were very effective in price-discovery.
    • Even when the contracts are restored, traders hesitate because of the fear of bans.
    • As it involves losses for market participants with open positions as they must square off contracts before maturity.

    What are the other steps taken?

    • Supply-side interventions by the Government had limited the fallout of continuing high international edible oil prices on domestic prices.
    • The Union Government substantially reduced taxes on imports of palm, soy and sunflower oil.
    • Union and State Governments had also recently reduced excise duty and VAT on petrol and diesel, aimed at bringing down inflation.
    • It has both direct effects as well as indirect effects operating through fuel and transportation costs.

    Way Forward

    • The ban is expected to be lifted by March when the next mustard crop starts hitting the market and prices cool down.
      • If the weather remains benign in the coming weeks, India is on course to harvest a bumper 11 million tonnes of mustard in 2021-22, up from 8.5 million tonnes in 2020-21.
    • The way out is not to ban any contract, but make sure to correct any serious aberration through a combination of higher margins so that if at all the price is getting distorted due to market manipulation, the correction takes place immediately.
    • Further, talking to potential wrongdoers is another way out, provided trading patterns noticed by the exchange reveal such tendencies.
      • Position limits can be changed to ensure undue influence is not exerted by any set of traders.

     

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  • Can India become a technology leader?

    | Economics | Mains Paper 3: Indian Economy

    Context

    Every time a technology giant chooses an India-born techie as its leader, there is a justifiable swelling of pride in the country, but also some disappointment.

    Why is India still not a major player in technology?

    • Inability to use opportunities: The popular narrative is that India’s failures are linked to its inability to make use of market-driven growth opportunities.
    • Brain drain: Indeed, as of 2019, there were 2.7 million Indian immigrants in the U.S.
    • They are among the most educated and professionally accomplished communities in that country.

    Role of the state

    • Example of the US: An invisible hand of the US government has been there to prop up each of the so-called triumphs of enterprise and the free market in the US.
    • Introduction of new generation technologies: Research by Mariana Mazzucato shows that the state has been crucial to the introduction of the new generation of technologies, including the computers, the Internet, and the nanotech industry.
    • Public funding: Public sector funding developed the algorithm that eventually led to Google’s success and helped discover the molecular antibodies that provided the foundation for biotechnology.
    • The role of the government has been even more prominent in shaping the economic growth of China, which is racing with the U.S. for supremacy in technology.
    • Even while being hailed as the ‘factory of the world’, China had been stuck at the low value-adding segments of the global production networks, earning only a fraction of the price of the goods it manufactured.
    • However, as part of a 2011 government plan, it has made successful forays into ‘new strategic industries’ such as alternative fuel cars and renewable energy.
    • China’s achievements came not because it turned ‘capitalist’, but instead by combining the strengths of the public sector, markets and globalisation.
    • China’s state-owned enterprises (SOEs) were seen as inefficient and bureaucratic.
    • However, rather than privatising them or letting them weaken with neglect, the Chinese state restructured the SOEs.
    • On the other, SOEs strengthened their presence in strategically important sectors such as petrochemicals and telecommunication as well as in technologically dynamic industries such as electronics and machinery.

    What went wrong in India’s case?

    • When India inaugurated planning and industrialisation in the early 1950s.
    • Public sector funding of the latest technologies of the time including space and atomic research and the establishment of institutions such as the Indian Institutes of Technology (IITs) were among the hallmarks of that effort.
    • Many of these institutions have over the years attained world-class standards.
    • The growth of information technology and pharmaceutical industries has been the fastest in Bengaluru and Hyderabad.
    • Poor education: However, the roadblocks to progress have been many, including India’s poor achievements in school education.
    • Missed opportunity to strengthen technological capabilities: In 1991, when India embraced markets and globalisation, it should have redoubled efforts to strengthen its technological capabilities.
    • Low spending on research and development: Instead, the spending on research and development as a proportion of GDP declined in India from 0.85% in 1990-91 to 0.65% in 2018.
    • In contrast, this proportion increased over the years in China and South Korea to reach 2.1% and 4.5%, respectively, by 2018.

    Positives for India

    • Higher enrollment for tertiary education: The number of persons enrolled for tertiary education in India (35.2 million in 2019) is way ahead of the corresponding numbers in all other countries except China.
    • More graduates from STEM: Further, graduates from STEM (Science, Technology, Engineering and Mathematics) programmes as a proportion of all graduates was 32.2% for India in 2019, one of the highest among all countries (UNESCO data).

    Way forward

    • Increase spending on education: India needs to sharply increase its public spending to improve the quality of and access to higher education.
    • An overwhelming proportion of tertiary students in India are enrolled in private institutions: it was 60% for those enrolled for a bachelor’s degree in 2017, while the average for G20 countries was 33%, according to OECD.
    • Improve technological capabilities: The ‘Make in India’ initiative will have to go beyond increasing the ‘ease of business’ for private industry.
    • Indian industry needs to deepen and broaden its technological capabilities.
    • India — which will soon have twice the number of Internet users as in the U.S. — is a large market for all kinds of new technologies.
    • While this presents a huge opportunity, the domestic industry has not yet managed to derive the benefits.
    • This will happen only if universities and public institutions in the country are strengthened and emboldened to enter areas of technology development for which the private sector may have neither the resources nor the patience.
    • Strengthen the public sector: PSUs should be valued for their potential long-term contributions to economic growth, the technologies they can create, and the strategic and knowledge assets they can build.
    • A strengthened public sector will create more opportunities for private businesses and widen the entrepreneurial base. Small and medium entrepreneurs will flourish when there are mechanisms for the diffusion of publicly created technologies, along with greater availability of bank credit and other forms of assistance.

    Conclusion

    The next big story about Indian prowess does not have to be from the U.S., but could come from thousands of such entrepreneurs in far-flung corners of the country.

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  • Minimum Support Prices for Agricultural Produce

    MSP for all crops is fiscally unfeasible

    op-ed snap | Agriculture | Mains Paper 3: Agriculture and related issues

    Context

    Many political parties are demanding to make the minimum support prices (MSP) a legal instrument.

    Background of MSP

    • MSP regime had its genesis in 1965 when India was hugely short of basic staples and living in a “ship-to-mouth” situation.
    • Indicative price: It was an indicative price (not a legal price) and procurement of rice and wheat was done to support farmers when they were adopting new seeds (HYV technology) and domestic procurement was to feed the PDS.
    • The government declares MSP for 23 crops: Seven cereals (paddy, wheat, maize, bajra, sorghum, ragi and barley), five pulses (tur, moong, chana, urad and masur), seven oilseeds (soybean, groundnut, rapeseed-mustard, sesamum, safflower, sunflower and nigerseed) and four commercial crops (sugarcane, cotton, jute and copra).

    Need to rethink procurement policy

    • But now with granaries overflowing with rice and wheat, there is a need to rethink and redesign the procurement policy.
    • In the crop year 2020-21, about 60 million metric tonnes (MMTs) of rice and 43 MMTs of wheat were procured by the Food Corporation of India (FCI) and NAFED procured about 0.66 MMTs of pulses.

    The increasing cost of PDS

    • The main procurement by the government happens largely for rice and wheat to feed the public distribution system (PDS).
    • The PDS issue prices of rice and wheat are subsidised by more than 90 per cent of their economic cost to the government.
    • In 2020-21, the food subsidy bill was almost 30 per cent of the net tax revenue of the central government, reflecting clearly a huge consumer-bias in the system.
    • Way forward: Unless this PDS is reformed either by restricting this to say the bottom 30 per cent of the population, or raising the issue prices to say half the economic cost of rice and wheat, giving a better deal to farmers is likely to blow up the fiscal position of the central government.

    The cost of legal MSP

    • Assuming that only 10 per cent of the production of remaining crops (excluding sugarcane) is procured, it will cost the government about Rs 5.4 lakh crore annually to procure these other MSP crops.
    • This cost is estimated on the basis of economic costs of operation that are usually about 30 per cent higher than the MSP (in case of rice and wheat it is 40 per cent).
    • But it appears that despite this, market prices may stay below MSP, especially during the harvest time.
    • It also raises the question why only these MSP crops, why not other agri-produce, say milk, the value of which is more than the value of rice, wheat and sugarcane combined.

    Way forward

    • PDP: One may use price deficiency payments (PDP), implying that the government pays to farmers the gap between the market price and MSP, whenever market prices are below MSP.
    • Income support instead of price support: It may be better to use an income policy on a per hectare basis to directly transfer money into farmers’ accounts without distorting markets through higher MSPs or PDPs.

    Consider the question “What are the challenges in providing the legal backing to the Minimum Support Price to the agriculture produce? Suggest the way forward.”

    Conclusion

    There is no easy substitute to “getting the markets right”. Government need to apply an innovative approach to solve the conundrum of the MSP.

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  • Police Reforms – SC directives, NPC, other committees reports

    Disability in india

    op-ed snap | Governance | Mains Paper 2: Laws, Institutions & Bodies Constituted For The Vulnerable Sections

    Context

    The Draft Accessibility Standards/Guidelines recently released by the Ministry of Home Affairs (MHA) for built infrastructure under its purview (police stations, prisons and disaster mitigation centres) and services associated with them assume significance.

    What are the provisions under the Standards?

    • Models for police stations: The Standards set out models for building new police stations as well as improving upon existing police stations and prisons that are modern, gender sensitive and accessible.
    • The Standards speak to the need to make the websites and institutional social networks of police stations accessible, ensuring that persons with disabilities accused of committing any crimes are treated appropriately, having disabled-friendly entrances to police stations and disabled-friendly toilets.
    • Inclusive police force: the Standards state that the police staff on civil duty could be persons with disabilities.
    • Equal protection during natural disasters: Acknowledging that persons with disabilities must receive equal protection as others in such situations, the Standards provide direction on disability inclusion in disaster mitigation, preparedness, response and recovery efforts.
    • They also stress on disability inclusive training for persons involved in disaster relief activities, data aggregation, use of information and communication technology (ICT) and enforcing accessible infrastructure models for schools, hospitals and shelters following the principle of universal design.
    • Accessibility norm: The Standards introduce accessibility norms for services associated with police stations and prisons.
    • These norms promote the use of ICTs to facilitate communication, development of police websites, app-based services for filing complaints, making enquiries, etc., as well as encouraging the use of sign language, communication systems such as Braille, images for persons with psycho-social disabilities, and other augmentative and alternative modes of communication.

    Shortcomings of the Standards/norms

    • Accessibility of signage not ensured: The Standards call for the deployment of directional signage regarding accessibility features in the MHA’s physical infrastructure as well as to indicate the location of accessible toilets.
    • However, they do not require that such signage itself be accessible to the visually challenged, such as through auditory means.
    • Certain accommodations merely recommendatory: The Standards characterise several reasonable accommodations that are necessary for the disabled as being merely recommendatory.
    • These include having trained police personnel in every police station to assist persons with disabilities and placing beepers at all entrances to enable the visually challenged/blind to locate themselves.
    • Lack of detail on human assistance: In the case of Patan Jamal Vali, the Court suggested connecting special educators and interpreters with police stations to operationalise the reasonable accommodations embodied in the Criminal Law (Amendment) Act, 2013.
    • While the standards do require developing a mechanism to provide human assistance to the disabled such as sign language interpreters, they are short on specifics on this count.
    • Lack of representation: Interestingly, the Standards state that the police staff on civil duty could be persons with disabilities.
    • This is inconsistent with the Office Memorandum issued by the Department of Empowerment for Persons with Disabilities on August 18, 2021, according to which the Centre has exempted posts in the Indian Police Service; the Delhi, Andaman and Nicobar Islands, Lakshdweep, Daman and Diu and Dadra and Nagar Haveli Police Service; as well as the Indian Railway Protection Force Service from the mandated 4% reservation for persons with disabilities in government jobs.

    Conclusion

    In sum, the Standards, when enacted into law, will mark a huge step forward in making our law enforcement apparatus more disabled-friendly. Bolstering the Standards further, by incorporating the suggestions flowing from well- thought-out public comments, will take us closer to the aim of ensuring that India’s disabled citizens truly have the police they deserve.

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  • Indian Missile Program Updates

    Explained: India’s Missile Capability

    | Security Issues | Mains Paper 3: Various Security Forces, Agencies & Their Mandates

    The Defence Minister has encouraged scientists to work towards developing hypersonic missile technology after China’s successful demonstration of hypersonic glide vehicles (HGV).

    Try this question:

    Q. Hypersonic missiles are nothing but weapons of deterrence. Critically comment in context of arms race development for hypersonic missiles.

    History of Missile Technology in India

    (1) Pre-Independence

    • Before Independence, several kingdoms in India were using rockets as part of their warfare technologies.
    • Mysore ruler Hyder Ali started inducting iron-cased rockets in his army in the mid-18th century.
    • By the time Hyder’s son Tipu Sultan died, a company of rocketeers was attached to each brigade of his army, which has been estimated at around 5,000 rocket-carrying troops.

    (2) Post-Independence

    • At the time of Independence, India did not have any indigenous missile capabilities.
    • The government created the Special Weapon Development Team in 1958.
    • This was later expanded and called the Defence Research and Development Laboratory (DRDL), which moved from Delhi to Hyderabad by 1962.
    • In 1972, Project Devil, for the development of a medium-range Surface-to-Surface Missile was initiated.
    • By 1982, DRDL was working on several missile technologies under the Integrated Guided Missiles Development Programme (IGMDP).

    What kind of missiles does India have?

    • India is considered among the top few nations when it comes to designing and developing missiles indigenously.
    • However, it is way behind the US, China and Russia in terms of range.
    • DRDO is working on multiple varieties of missiles:

    [A] Surface-launched Systems

    ANTI-TANK GUIDED MISSILE:

    • Nag has already been inducted into the services. Nag is the only fire-and-forget ATGM meeting all weather requirements for its range (around 20 km).
    • Recently Heli-Nag was tested, which will be operated from helicopters and will be inducted by 2022.
    • There is also a Stand-off Anti-Tank (SANT) missile, with a range over 10 km.

    SURFACE-TO-AIR MISSILE

    • Short-range SAM system: Akash has already been inducted in the Army and the Air Force.
    • For Akash 1, which has a seeker, the Army has already got the Acceptance of Necessity from the government.
    • For Akash (New Generation), the first tests were conducted in July this year and a couple more trials are to be done.
    • Medium-Range SAM: Production of MRSAM systems for the Navy is complete, and it is placing its order.

    [B] Air-launched Systems

    AIR-TO-AIR:

    • Astra, India’s Beyond Visual Range Air-to-Air Missile (BVRAAM), has been completely tested and is under induction.
    • It has a range of around 100 km, and DRDO is trying to now induct it with more IAF platforms, including the domestically developed light combat aircraft Tejas.
    • A long-range Astra is also being developed, for which initial tests have been conducted.
    • The missile uses solid fuel ramjet technology, which enhances speed, and will have an indigenously-built seeker.

    AIR-TO-GROUND:

    • Rudram, a New Generation Anti-Radiation Missile (NGRAM), has cleared initial tests and some more tests will be conducted soon.
    • With a maximum range of around 200 km, the missile mainly targets communication, radar and surveillance systems of the adversary, and was tested from the Sukhoi-30MKI fighter jet last year.
    • BrahMos, which India developed jointly with Russia, is already operational.
    • It has a 300 km to 500 km range, and is a short-range, ramjet-powered, single warhead, supersonic anti-ship or land attack cruise missile.

    India’s crucial missile systems

    The two most important are Agni and Prithvi, both being used by the Strategic Forces Command.

    • Agni (range around 5,000) is India’s only contender for an inter-continental ballistic missile (ICBM), which is available in only a few countries.
    • Prithvi, although a short-range surface-to-surface missile with a 350 km range, has strategic uses. India also tested an anti-satellite system in April 2019.
    • A modified anti-ballistic missile named Prithvi Defence Vehicle Mk 2 was used to hit a low-orbit satellite.
    • It put India only behind the US, Russia and China in this capability.

    What about Hypersonic Technology?

    • India has been working on this for a few years, and is just behind the US, Russia and China.
    • DRDO successfully tested a Hypersonic Technology Demonstrated Vehicle (HSTDV) in September 2020, and demonstrated its hypersonic air-breathing scramjet technology.
    • India has developed its own cryogenic engine and demonstrated it in a 23-second flight.
    • India will try to make a hypersonic cruise missile, using HSTDV.
    • Only Russia has proven its hypersonic missile capability so far, while China has demonstrated its HGV capacity.
    • India is expected to be able to have a hypersonic weapons system within four years, with medium- to long-range capabilities.

    What makes India good in missile technology?

    • Missile technology is one field in which India has made very positive and substantial progress.
    • Under the IGMP then headed by A P J Abdul Kalam, later India’s President, first came Prithvi, then Agni.
    • BrahMos, at 2.5-3 times the speed of sound, was among the fastest in the world when developed.
    • After the nuclear blast in 1998, cryogenic etc were not given to us by developed countries. Kalam and others, they made it a point that they developed it within the country.

    Where do China and Pakistan stand compared to India?

    • While China is ahead of India, a lot of things about China are psychological.
    • China may have either achieved parity or even exceeded the US in land-based conventional ballistic and cruise missile capabilities.
    • China’s missile development is definitely a concern for us, but we will definitely evolve.
    • It has given the technology to the irresponsible hands of Pakistan. But getting technology and really using it, and thereafter evolving and adopting a policy is totally different.

    Must read:

    Agni V vs China’s Hypersonic Missile

     

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  • Monetary Policy Committee Notifications

    Why policymakers prefer targeting of Retail Inflation over Wholesale Inflation?

    | Economics | Mains Paper 3: Indian Economy

    The wholesale inflation in India has grown by double digits. This is the highest year-on-year increase recorded in any month since the start of the 2011-12 data series.

    Context

    • It is surprising policymakers are not looking as concerned as the inflation figures show.
    • The Finance Ministry has largely focused on the trend in retail inflation — or the inflation rate at the level of retail consumers.
    • It is not just the policymakers within the government who prefer to focus on retail inflation but also the RBI.

    Wholesale and Retail (Consumer) Inflation

    • The wholesale and retail (consumer) inflation rates are based on the wholesale price index (WPI) and the consumer price index (CPI), respectively.
    • In other words, we make two separate indices — one each for wholesale prices and retail prices — and see how the index values have gone up in a particular month as against the same month last year.
    • The percentage change is the rate of inflation.
    • The CPI-based inflation data is compiled by the Ministry of Statistics and Programme Implementation (or MoSPI) and the WPI-based inflation data is put together by DPIIT.

    The tables alongside detail how the two indices — WPI and CPI — differ in their composition. There are two key differences.

    [A] Wholesale Price Index

    Component Weight (in %) Inflation rate (in %);

    Nov 2021
    All Commodities 100.00 14.23
    Primary Articles 22.62 10.34
    Fuel & Power 13.15 39.81
    Manufactured Products 64.23 11.92

    [B] Consumer Price Index

    Component Weight (in %) Inflation rate (in %); 

    Nov 2021
    General Index 100.00 4.91
    Food and beverages 45.86 2.60
    Pan, tobacco and intoxicants 2.38 4.05
    Clothing and footwear 6.53 7.94
    Housing 10.07 3.66
    Fuel and light 6.84 13.35
    Miscellaneous (services) 28.32 6.75

    A Comparison

    (1) Manufactured Goods Vs. Food Items

    • WPI is dominated by the prices of manufactured goods while CPI is dominated by the prices of food articles.
    • As such, if the year-on-year increase in the prices of food articles is subdued, as is the case at present, chances are that the overall (also called headline) retail inflation will be within reasonable bounds.
    • In WPI, if manufactured products are getting costlier at the wholesale level then that would likely spike wholesale inflation regardless of how food prices are doing at the wholesale level.

    (2) Accounting Service

    • Two, WPI does not take into account the change in prices of services. But CPI does.
    • If services such as transport, education, recreation and amusement, personal care etc. get significantly costlier, then retail inflation will rise but there will be no impact on wholesale price inflation.

    Why do policymakers prefer targeting retail inflation instead of wholesale inflation rate?

    • RBI’s limitations: RBI is the monetary authority that has little ability to control food and fuel prices. Ex: raising the repo rate (rate at which RBI lends money to banks) is unlikely to contain the price of vegetables if any disruptions have led to a sudden spike.
    • Non-commodity Inflation: Wholesale inflation does not capture price movements in non-commodity-producing sectors like services, which constitute close to two-thirds of economic activity in India.
    • Large revisions in WPI: Movements in WPI often reflect large external shocks and as such, the wholesale inflation rate is often subject to large revisions.

    Arguments in favour of CPI-based inflation targeting

    • Commodity basket: A crucial reason why CPI-based inflation could not be ignored is the fact that it has almost 57% dominance of food and fuel prices.
    • Affecting general public: Since most people use retail inflation as a way to arrive at their real earnings, and use it for wage negotiations etc., it makes more sense for policymakers,
    • Public faith: The choice of CPI establishes ‘trust’ viz., economic agents note that the monetary policy maker is targeting an index that is relevant for households and businesses.
    • Inflation affecting people: True inflation that consumers face is in the retail market. It is for this reason that almost all central banks in big economies use CPI as their primary price indicator.

    Impact of Wholesale inflation on Retail

    • The Urjit Patel committee analysed the relationship between WPI and CPI based on monthly data from January 2000 to December 2013 — a total of 14 years.
    • When they looked at the impact of an increase in WPI-food inflation on CPI food inflation, they found it to be “significant”.
    • It stated that higher food inflation in wholesale markets leads to an increase in retail food inflation “till two months”.
    • An increase in retail food inflation leads to a corresponding increase in WPI-food inflation.

     

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  • Electoral Reforms In India

    Election Commission

    | Polity | Mains Paper 2: Governance, Transparency & Accountability, Citizens Charters

    The “informal interaction” of the CEC and two other Election Commissioners with the Prime Minister’s Principal Secretary has raised questions about the neutrality of the Commission, especially when elections to crucial States are around the corner.

    About Election Commission of India

    • The ECI is a constitutional authority whose responsibilities and powers are prescribed in the Constitution of India under Article 324.
    • In the performance of its functions, the Election Commission is insulated from executive interference.
    • It is the Commission that decides the election schedules for the conduct of elections, whether general elections or by-elections.
    • ECI decides on the location of polling stations, assignment of voters to the polling stations, location of counting centers, arrangements to be made in and around polling stations and counting centres and all allied matters.

    Litigations against EC

    • The decisions of the Commission can be challenged in the High Court and the Supreme Court of India by appropriate petitions.
    • By long-standing convention and several judicial pronouncements, once the actual process of elections has started, the judiciary does not intervene in the actual conduct of the polls.

    Issues with PMO meeting

    • Executive interference: ECs are expected to maintain distance from the executive — a constitutional safeguard to insulate the commission from external pressure and allow it to continue as an independent authority.
    • Violating official channels: The EC’s communication with the Government on election matters is through the bureaucracy — either with its administrative ministry — the Law Ministry or the Home Ministry.
    • Breach of protocol: The Law Ministry spells the fine print on law for the country and is expected not to breach the constitutional safeguard provided to the commission to ensure its autonomy.

    Recent incidence of criticisms

    Ans. Partiality in Elections

    • Over the last couple of years, several actions and omissions of the commission have come in for criticism.
    • Nearly 66 former bureaucrats in a letter addressed to the President, expressed their concern over the working of the Election Commission.
    • They felt was suffering from a credibility crisis, citing various violations of the model code of conduct during the 2019 Lok Sabha Elections.

    Importance of ECI for India

    • Conduction of Election: The ECI has been successfully conducting national as well as state elections since 1952.
    • Electoral participation: In recent years, however, the Commission has started to play a more active role to ensure greater participation of people.
    • Discipline of political parties: It had gone to the extent of disciplining the political parties with a threat of derecognizing if the parties failed in maintaining inner-party democracy.
    • Upholds federalism: It upholds the values enshrined in the Constitution viz, equality,
      equity, impartiality, independence; and rule of law in superintendence, direction, and control over electoral governance.
    • Free and fair elections: It conducts elections with the highest standard of credibility, freeness, fairness, transparency, integrity, accountability, autonomy and professionalism.

    Issues with ECI

    • Flaws in the composition: The Constitution doesn’t prescribe qualifications for members of the EC. They are not debarred from future appointments after retiring or resigning.
    • No security of tenure: Election commissioners aren’t constitutionally protected with security of tenure.
    • Partisan role: The EC has come under the scanner like never before, with increasing incidents of breach of the Model Code of Conduct in the 2019 general elections.
    • Political favor: The opposition alleged that the ECI was favoring the ruling party by giving clean chit to the model code of conduct violations made by the PM.
    • Non-competence: Increased violence and electoral malpractices under influence of money have resulted in political criminalization, which ECI is unable to arrest.

     

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  • Mother and Child Health – Immunization Program, BPBB, PMJSY, PMMSY, etc.

    Risks of mandatory Iron Fortification

    Prelims Only | Governance | Mains Paper 2: Health & Education

    Many things have been said about the necessity for mandatory iron fortification of foods in India.

    Iron fortification

    • Iron fortification of food is a methodology utilized worldwide to address iron deficiency.
    • A critical problem in some food fortification programs is the lack of bioavailability of iron compounds.

    Why need iron fortification?

    Ans. Prevalence of Anaemia

    • Iron deficiency anaemia is due to insufficient iron.
    • National Family Health Survey (NFHS)-5 provides insights into anaemia prevalence in the country, indicating that 57.2% of women ages 15 to 49 are anaemic, up from 49.7% in NFHS-4.
    • Without enough iron, the body can’t produce enough of a substance in red blood cells that enables them to carry oxygen (hemoglobin).
    • Severe anemia during pregnancy increases your risk of premature birth, having a low birth weight baby and postpartum depression.
    • Some studies also show an increased risk of infant death immediately before or after birth.

    Concerns over iron fortification

    Ans. Fear of diabetes and heart ailments

    • Iron increases the risk for many non-communicable diseases like diabetes, hypertension and even high blood cholesterol.
    • A US based survey shows that high ferritin level had a four-fold higher risk of having diabetes.
    • The Comprehensive National Nutrition Survey of Indian adolescents to resulted in such scary outcomes.
    • There was a clear and significant risk for each of these conditions as serum ferritin increased.

    India’s vulnerability

    Ans. India is world capital of diabetes and hypertension

    • No less than 50% of Indian children, aged 5-19 years, already had a biomarker of either high blood sugar or high blood lipids, even when thin or stunted.
    • Thus, the risk of chronic disease is already very high in our children.
    • Thus mandatory cereal fortification has severe hazards for India.

    Why mandatory fortification is not a feasible option?

    • Occurrence of deficiencies: We do not even know if anaemia is as rampant to warrant such mandatory measures.
    • Manipulating food choices: When mandatory fortification is enforced in parts of the population that do not need this, it removes their choice of foods, or autonomy.
    • Morbidities due to excess: It could even be unethical if the risk of other morbidities is increased.
    • No successful example: Rice fortification has not been shown to work in a combined analysis.

    Conclusion

    • Food fortification is not a magic bullet.
    • It should be viewed as a complementary strategy for the prevention and control of micronutrient deficiencies.
    • As dietary patterns and deficiency states change, monitoring and periodic evaluation will be essential in helping to make necessary changes.

     

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  • Wildlife Conservation Efforts

    After 50 years, Gharials return to Beas Conservation Reserve

    Species | Enviro & Biodiversity | Mains Paper 3: Conservation, Environmental Pollution & Degradation, Eia

    Gharial ( Gavialis gangeticus ) have been successfully reintroduced the in the Beas River of Punjab where it had become extinct half a century ago.

    One may often get confused between the Mugger, Gharial and the Saltwater Crocodile. Note the differences about their IUCN status, habitat (freshwater/saltwater) etc..

    Gharials

    • The Gharial is a fish-eating crocodile is native to the Indian subcontinent. They are a crucial indicator of clean river water.
    • Small released populations are present and increasing in the rivers of the National Chambal Sanctuary, Katarniaghat Wildlife Sanctuary, Son River Sanctuary.
    • It is also found at the rainforest biome of Mahanadi in Satkosia Gorge Sanctuary, Orissa.
    • Gharials are ‘Critically Endangered’ in the IUCN Red List of Species.
    • The species is also listed under Schedule I of the Wild Life (Protection) Act, 1972.

    Into the wild

    • A major chunk of gharials in India is found in the Chambal River, which has about 1,000 adults.
    • The Ghaghara acts as an important aquatic corridor for gharials in Uttar Pradesh. The river is a major left-bank tributary of the Ganges.
    • Like Uttar Pradesh, Bihar too is releasing gharials in the Valmiki Tiger Reserve as part of restocking the wild population. Unlike crocodiles, gharials do not pose any danger to humans.

    Ambitious project in Punjab

    • The gharial reintroduction in the Beas Conservation Reserve is an ambitious programme of the Punjab government.
    • The reptiles were commonly sighted in the Beas River till the 1960s but later became extinct.

    Back2Basics:

    Mugger

    • The mugger is a marsh crocodile which is found throughout the Indian subcontinent.
    • It is a freshwater species and found in lakes, rivers and marshes.
    • IUCN Status: Vulnerable

    Saltwater Crocodile

    • It is the largest of all living reptiles.
    • It is found along the eastern coast of India.
    • IUCN Status: Least Concerned

     

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