💥UPSC 2026, 2027, 2028 UAP Mentorship (March Batch) + Access XFactor Notes & Microthemes PDF
Talk to mentor

Civilsdaily

Login

Archives: News

  • Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

    Perils of profits based economic recovery

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    The economies across the world are showing recovery driven by profits. However, one cannot neglect the implication of such recovery for the long term growth given the pressure such recovery has been exerting on the labour markets. The article deals with this issue.

    3 Ways to look at GDP

    • The first is what they tell us about the past.
    • Here, the news has generally been better-than-expected.
    • The US and India saw a much stronger recovery last quarter than previously envisioned.
    • The second is sectoral, production side-agriculture, manufacturing, services- and the functional, expenditure side consumption, investment, net exports.
    • But there’s a third way — the income side.
    • Value addition must ultimately accrue to the different factors of production.
    • On the income side, therefore, GDP is simply the sum of profits, wages and indirect taxes.

    Profit-driven growth and impact on employment

    • The economic recovery in many parts of the world is driven disproportionately by capital than labour.
    • In India, the net profits of listed companies grew 25 per cent (in real terms) last quarter. This despite revenues shrinking.
    • Revenue shrank because firms aggressively cut costs, including employee compensation.
    • This implies that if listed company profits are growing 25 per cent, and yet GDP contracted 7.5 per cent, it reveals (by construction) significant pressure on profits of unlisted SMEs, wages and employment.
    • Labour market pressures are evident in India too.
    • Household demand for MGNREGA remains very elevated, suggesting significant labour market slack.
    • The employment rate in some labour market surveys still reveal about 14 million fewer employed compared to February, and nominal wage growth across a universe of 4,000 listed firms has slowed from about 10 per cent to 3 per cent over the last six quarters.

    Why this matters

    • It may be rational for any one firm to boost profits by cutting employee compensation.
    • But if every firm pursued that strategy, that simply reduces future aggregate demand and profitability for all firms.
    • This is quintessential fallacy of composition that Keynes enumerated.
    • Weak demand, in turn, disincentivises re-hiring, reinforcing the risks of settling into a sub-optimal equilibrium.

    Need to remain vigilant about labour market

    • Remaining vigilant about labour markets is particularly important for India.
    • Private consumption was increasingly financed by households running down savings and taking on debt pre-COVID-19.
    • Consequently, if job-market pressures induce households into perceiving this shock as a quasi-permanent hit on incomes, households will be incentivised to save, not spend in the future.

    Way forward for fiscal consolidation

    • While economic momentum is expected to slow as pent-up demand wears off, the level of output will progressively reach pre-COVID levels as the economy normalises.
    • The question is what will drive growth after that?
    • India’s fiscal response has been restrained thus far, with the Centre’s total spending similar to last year and state capex under pressure.
    • It’s therefore important for the Centre to step up spending in the remaining months.
    • More importantly, public investment, and a large infrastructure push, must be the leitmotif of the next budget.
    • This will be crucial to boost demand, create jobs, crowd-in private investment and improve the economy’s external competitiveness.
    • If higher infrastructure spending is financed by higher asset sales, the headline fiscal deficit (which matters for bond markets and interest rates) can be slowly reduced, even as the underlying fiscal impulse (which matters for growth and jobs) remains positive.
    • This is the only way to undertake fiscal consolidation without incurring a fiscal drag.
    • Monetary policy has led the charge in 2020. But with inflation continuing to remain sticky and elevated, the RBI has fewer degrees of freedom going forward.

    Conclusion

    The stronger-than-expected GDP print is very encouraging. But this is the start of a long journey back. Much, therefore, remains to be done. The excitement around the vaccine shouldn’t obscure this fundamental premise.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Health Sector – UHC, National Health Policy, Family Planning, Health Insurance, etc.

    UN removes Cannabis from ‘Most Dangerous Drug’ Category

    IOCR | International Relations | Mains Paper 2: Health & Education

    The United Nations Commission on Narcotic Drugs (CND) voted to remove cannabis and cannabis resin from Schedule IV of the 1961 Single Convention on Narcotic Drugs, decades after they were first placed on the list.

    Q. Too much de-regulation of Cannabis could lead to its mass cultivation and a silent economy wreaking havoc through a new culture of substance abuse in India. Critically analyse.

    What is Cannabis?

    • Cannabis, also known as marijuana among other names, is a psychoactive drug from the Cannabis plant used primarily for medical or recreational purposes.
    • The main psychoactive component of cannabis is tetrahydrocannabinol (THC), which is one of the 483 known compounds in the plant, including at least 65 other cannabinoids, including cannabidiol (CBD).
    • It is used by smoking, vaporizing, within the food, or as an extract.

    UN’s decision and India

    • Currently in India, the Narcotic Drugs and Psychotropic Substances (NDPS) Act, 1985, illegalizes any mixture with or without any neutral material, of any of the two forms of cannabis – charas and ganja — or any drink prepared from it.
    • The WHO says that cannabis is by far the most widely cultivated, trafficked and abused illicit drug in the world. But the UN decision could influence the global use of medicinal marijuana,
    • India was part of the voting majority, along with the US and most European nations.
    • China, Pakistan and Russia were among those who voted against, and Ukraine abstained.

    Cannabis in India

    In India, cannabis, also known as bhang, ganja, charas or hashish, is typically eaten (bhang golis, thandai, pakoras, lassi, etc.) or smoked (chillum or cigarette).

    Under international law

    • The Vienna-based CND, founded in 1946, is the UN agency mandated to decide on the scope of control of substances by placing them in the schedules of global drug control conventions.
    • Cannabis has been on Schedule IV–the most dangerous category– of the 1961 Single Convention on Narcotic Drugs for as long as the international treaty has existed.

    Fuss over Cannabis

    • Cannabis has various mental and physical effects, which include euphoria, altered states of mind and sense of time, difficulty concentrating, impaired short-term memory and body movement, relaxation, and an increase in appetite.
    • But global attitudes towards cannabis have changed dramatically, with many jurisdictions permitting cannabis use for recreation, medication or both, despite it remaining on Schedule IV of the UN list.
    • Currently, over 50 countries allow medicinal cannabis programs, and its recreational use has been legalized in Canada, Uruguay and 15 US states.

    Impact of the decision

    • The reclassification of cannabis by the UN agency, although significant, would not immediately change its status worldwide as long as individual countries continue with existing regulations.
    • The decision would add momentum to efforts for decriminalizing cannabis in countries where its use is most restricted, while further legalizing the substance in others.
    • Scientific research into marijuana’s medicinal properties is also expected to grow.
    • Legalising and regulating cannabis will “undermine criminal markets” as well as its smuggling and cultivation.

    Risks of Legalizing Cannabis

    (1) Health risks continue to persist

    • There are many misconceptions about cannabis. First, it is not accurate that cannabis is harmless.
    • Its immediate effects include impairments in memory and in mental processes, including ones that are critical for driving.
    • Long-term use of cannabis may lead to the development of addiction of the substance, persistent cognitive deficits, and of mental health problems like schizophrenia, depression and anxiety.
    • Exposure to cannabis in adolescence can alter brain development.

    (2) A new ‘tobacco’ under casualization

    • A second myth is that if cannabis is legalized and regulated, its harms can be minimized.
    • With legalization comes commercialization. Cannabis is often incorrectly advertised as being “natural” and “healthier than alcohol and tobacco”.
    • Tobacco, too, was initially touted as a natural and harmless plant that had been “safely” used in religious ceremonies for centuries.

    Way ahead

    • It’s important to make a distinction between legalization, decriminalization and commercialization.
    • While legalization and decriminalization are mostly used in a legal context, commercialization relates to the business side of things.
    • For India to liberalise its policy on cannabis, it should ensure that there are enough protections for children, the young, and those with severe mental illnesses, who are most vulnerable to its effects.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Capital Markets: Challenges and Developments

    What are Municipal Bonds?

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

    Bonds issued by the Lucknow Municipal Corporation (LMC) got listed on the Bombay Stock Exchange. It’s the ninth city in the country to raise capital through municipal bonds.

    Find out the rest eight cities issuing Municipal Bonds in India. Do let us know in the comment box.

    What are Municipal Bonds?

    • A municipal bond or muni bond is a debt instrument issued by municipal corporations or associated bodies.
    • These local governmental bodies utilise the funds raised through these bonds to finance projects for socio-economic development through building bridges, schools, hospitals, providing proper amenities to households, et al.
    • Such bonds come with a maturity period of three years, whereby municipal corporations provide returns on these bonds either from property and professional tax collected or from revenues generated from specific projects or both.
    • The Securities and Exchange Board of India (SEBI) revised the guidelines related to the issuance of municipal bonds in 2015 in an attempt to enable ULBs or local government bodies to raise finances from such sources.
    • Following this measure, different cities have capitalized on the new guidelines to fund initiatives such as Atal Mission for Rejuvenation and Urbanisation Transformation (AMRUT) and Smart Cities Mission.

    Their types

    There are primarily two types of municipal bonds in India, categorised as per their usage. These are –

    (1) General Obligation Bonds

    • These are issued to raise finances for general projects such as improving the infrastructure of a region.
    • Repayment of the bond, along with interest, is processed through revenue generated from different projects and taxes.

    (2) Revenue Bonds

    • These are issued to raise finance for specific projects, such as the construction of a particular building.
    • Repayment of such bonds (principal and accrued interest) shall be paid through revenues explicitly generated from the declared projects.

    Advantages of such Bonds

    There are multiple advantages of investing in municipal bonds which include –

    (1)Transparency

    Municipal bonds that are issued to the public are rated by renowned agencies such as CRISIL, which allows investors transparency regarding the credibility of the investment option.

    (2)Tax benefits

    In India, municipal bonds are exempted from taxation if the investor conforms to certain stipulated rules. In addition to such conformation, interest rates generated on such investment tools are also exempt from taxation policy.

    (3) Minimal risk

    Municipal bonds are issued by municipal authorities, implying involvement of minimal risk with these securities.

    Their limitations

    The disadvantages of municipal bonds are enumerated below –

    (1) Long maturity period

    • Municipal bonds come with a lock-in period of three years, imposing a burden on the liquidity requirements of investors.

    (2) Low-interest rates

    • Even though interest rates on municipal bonds, in some cases, are higher than other debt instruments, these rates are considerably low when compared to returns from market-linked financial instruments such as equity shares.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Nuclear Energy

    HL-2M Tokamak: The Artificial Sun of China

    Prelims Only | Science Tech | Mains Paper 3: Awareness in various sc and tech fields

    China successfully powered up its “artificial sun” nuclear fusion reactor for the first time marking a great advance in the country’s nuclear power research capabilities.

    Scratch your school basics to answer this PYQ:

    Q.The known forces of nature can be divided into four classes, viz, gravity, electromagnetism, weak nuclear force and strong nuclear force.

    With reference to them, which one of the following statements is not correct? (CSP 2012)

    (a) Gravity is the strongest of the four

    (b) Electromagnetism act only on particles with an electric charge

    (c) Weak nuclear force causes radioactivity

    (d) Strong nuclear force holds protons and neutrons inside the nuclear of an atom.

    HL-2M Tokamak

    • The HL-2M Tokamak reactor is China’s largest and most advanced nuclear fusion experimental research device.
    • The mission is named Experimental Advanced Superconducting Tokamak (EAST).
    • Located in Sichuan province and completed late last year, the reactor is often called an “artificial sun” on account of the enormous heat and power it produces.
    • It uses a powerful magnetic field to fuse hot plasma and can reach temperatures of over 150 million degrees Celsius- approximately ten times hotter than the core of the sun.
    • Scientists hope that the device can potentially unlock a powerful clean energy source.

    Back2Basics: Nuclear Fusion

    • Nuclear fusion is a reaction in which two or more atomic nuclei are combined to form one or more different atomic nuclei and subatomic particles (neutrons or protons).
    • Fusion is the process by which the sun and other stars generate light and heat. It is a nuclear process, where energy is produced by smashing together light atoms.
    • It is the opposite reaction of fission, where heavy elements like Uranium and Thorium are split apart.

    Nuclear Fusion Reaction

    • For a nuclear fusion reaction to occur, it is necessary to bring two nuclei so close that nuclear forces become active and glue the nuclei together.
    • Nuclear forces are small-distance forces and have to act against the electrostatic forces where positively charged nuclei repel each other.
    • This is the reason nuclear fusion reactions occur mostly in high density, high-temperature environment (millions of degree Celsius) which is practically very difficult to achieve under laboratory conditions.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Health Sector – UHC, National Health Policy, Family Planning, Health Insurance, etc.

    [pib] The Cancer Genome Atlas (TCGA)

    PIB | Science Tech | Mains Paper 3: Awareness in various sc and tech fields

    The Ministry of Science & Technology has inaugurated the 2nd Cancer Genome Atlas (TCGA) 2020 Conference.

    Do you know?

    According to the World Cancer Report by the WHO, one in 10 Indians develops cancer during their lifetime and one in 15 dies of the disease!

    The Cancer Genome Atlas

    • The Cancer Genome Atlas (TCGA) is a landmark project started in 2005 by the US-based National Cancer Institute (NCI) and the National Human Genome Research Institute (NHGRI).
    • The idea was to make a catalogue of the genetic mutations that cause cancer.
    • This meant collecting tumour samples and blood samples (known as the germline) from patients and processing them using gene sequencing and bioinformatics.
    • The TCGA is a continuing effort even after fifteen years and has generated over 2.5 petabytes of data for over 11,000 patients.
    • This data is available to researchers all around the world and has been used to develop new approaches to diagnose, treat and prevent cancer.

    Indian Cancer Genome Atlas (ICGA)

    • On similar lines, the establishment of an ICGA has been initiated by a consortium of key stakeholders in India led by CSIR in which several government agencies, cancer hospitals, academic institutions and private sector partners.
    • It is aimed at improving clinical outcomes in cancer and other chronic diseases.

    Why need such Atlas?

    • Diverse molecular mechanisms- including genetic and lifestyle factors contribute to cancer, posing significant challenges to treatment.
    • Therefore, it is necessary to better understand the underlying factors- patient by patient.
    • In this context, it is important to create an indigenous, open-source and comprehensive database of molecular profiles of all cancer prevalent in Indian population.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Indian Navy Updates

    Operation Trident and its significance

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

    Every year, India celebrates December 4 as Navy Day to commemorate Operation Trident – a key offensive during the 1971 India-Pakistan War. This year, it is the 50th anniversary of the victory in the 1971 War.

    This newscard is crucial for the CAPF aspirants. It hardly holds any importance for CS prelims. But the grit, glory and honour of our armed forces is a matter of pride that every CS aspirants should know.

    Operation Trident

    • The India-Pakistan War of 1971 had begun on December 3, when the Pakistan Air Force launched pre-emptive strikes on airfields in Western India.
    • Following the Battle of Longewala, the Indian Navy inflicted heavy damage on Pakistani vessels in Karachi harbour.
    • India responded by formally declaring war in the wee hours of December 4.
    • On December 4, under Operation Trident, the Indian Navy sank three vessels near the Pakistani port city of Karachi.
    • The Indian Air Force also played a crucial role, when Karachi’s Kemari oil tanks were strafed by the IAF on the same day in an independent operation which it did not claim.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Rohingya Conflict

    Places in news: Bhashan Char Island

    India Mapping | International Relations | Mains Paper 2: India & Its Neighborhood – Relations

    Bangladesh has transported more than 1,600 Rohingya refugees to a low-lying island in the first phase of a controversial planned relocation of 1,00,000 people.

    Can you see, what the so-called champions of tolerance and human rights doing to the refugees in their own country!

    Bhashan Char Island

    • Bhasan Char also known as Char Piya, is an island in Hatiya, Bangladesh.
    • Located 34 kilometres (21 miles) from the mainland, its name in Bengali means “floating island.”
    • The island was formed with Himalayan silt in 2006 spanning 40 square kilometres.
    • It is underwater from June to September annually because of the monsoon, and it has no flood fences.
    • In June 2015, the Bangladeshi government suggested resettling Rohingya refugees on the island under its Ashrayan Project.
    • The proposal was characterized by the UN Refugee Agency as “logistically challenging”.

    Extraditing to another hell

    • Bhashan Char is a flood-prone island that emerged from the sea 20 years ago.
    • The refugees had been coerced into going to this flood-prone island which is also vulnerable to frequent cyclones.
    • This compact island is too small to occupy and nurture the Rohingya population and there is chronic overcrowding in camps.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

    In farmers’ protests, the core is procurement

    | Agriculture | Mains Paper 3: Food Processing & Related Industries In India,PDS, Buffer Stock & Food Security

     

    Context

    • Farmers’ protests have erupted once again in north India, their main worry is about a possible withdrawal of the Minimum Support Price (MSP) and a dismantling of the public procurement of grains.

    Why farmers in Punjab and Haryana are protesting

    • Farmers in Punjab and Haryana are heavily dependent on public procurement and assured price through MSP.
    • Nearly 88% of the paddy production and 70% of the wheat production in Punjab and Haryana (in 2017-18 and 2018-19) has been absorbed through public procurement [Food Grains Bulletin and Agricultural Statistics at a Glance, Government of India].
    • In contrast, in the other major paddy States such as Andhra Pradesh, Telangana, Odisha and Uttar Pradesh, only 44% of the rice production is procured by public agencies.
    •  In the major wheat States of Madhya Pradesh and Uttar Pradesh, only 23% of the production is procured by public agencies.

    Government needs to continue procurement

    • If farmers of Punjab and Haryana need the procurement system, the government needs it even more.
    • This is because of its obligations under the PDS and the National Food Security Act (NFSA).
    • Support under the NFSA is a legal and rights-based entitlement.
    • There are nearly 80 crore NFSA beneficiaries and an additional eight crore migrants who need to be supported under the PDS.
    • In the last three years, nearly 40% of the total paddy production in the country and 32% of wheat production has been procured by public agencies to supply the PDS.
    • Thus, the government has little option but to continue its procurement from these States in the foreseeable future.

    Way forward

    • Therefore, it is imperative that the government reaches out to the farmer groups and assures them of the indispensability of MSP-procurement system.
    • The government needs to start this initiative immediately to allay their legitimate concerns.
    • Two of the major limitations in the laws that need to be addressed immediately:
    • 1) The absence of a regulatory mechanism to ensure fair play by private players vis-à-vis farmers.
    • 2) The lack of transparency in trade area transactions.

    Conclusion

    The severe trust deficit that resulted from the way the Farm Bills have been rushed through needs to be addressed by adopting a conciliatory approach towards farmers and the States.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Important Judgements In News

    Personal choices, the Constitution’s endurance

    op-ed snap | Polity | Mains Paper 2: Indian Constitution – historical underpinnings, evolution, features, amendments, significant provisions and basic structure

    The order delivered by the Allahabad High Court underlines the most cherished values of our Constitution. The order examines the scope of individual choice and personal liberty on the touchstone of constitutional values.

    Background

    • The Allahabad High Court declared last month that religious conversions, even when made solely for the purposes of marriage, constituted a valid exercise of a person’s liberties.
    • The petitioners had approached the High Court seeking orders to quash a First Information Report (FIR) that was lodged against them.
    • The petitioners claimed that they were both adults competent to contract a marriage, and had, in fact, wedded in August 2019, as per Muslim rites and ceremonies, only after the girl had converted to Islam.
    • The State argued that petitioner’s partnership had no sanctity in the law, because a conversion with a singular aim of getting married was illegitimate.
    • In making this argument, the government relied on a pair of judgments of the Allahabad High Court, in particular on the judgment in Noor Jahan v. State of U.P. (2014).
    • There, the High Court had held that a conversion by an individual to Islam was valid only when it was predicated on a “change of heart” and on an “honest conviction” in the tenets of the newly adopted religion.
    • Additionally, the High Court had ruled that the burden to prove the validity of a conversion was on the party professing the act.

    Major takeaways from the High Court order

    • The Allahabad High Courtruled that the freedom to live with a person of one’s choice is intrinsic to the fundamental right to life and personal liberty.
    • It order recognises that a person’s freedom is not conditional on the caste, creed or religion that her partner might claim to profess.
    • And also that every person had an equal dominion over their own senses of conscience.
    • The High Court’s order makes it clear that it is neither the province of the state nor any other individual to interfere with a person’s choice of partner or faith.
    • By invoking the Supreme Court’s judgment in Puttaswamy, the High Court held that an individual’s ability to control vital aspects of her life inheres in her right to privacy.
    • Term privacy includes the preservation of decisional autonomy, on matters, among other things, of “personal intimacies, the sanctity of family life, marriage, procreation, the home, and sexual orientation”.
    •  It Court that the judgment in Noor Jahan was incorrectly delivered.
    • Marriage, the High Court said, is a matter of choice, and every adult woman has a fundamental right to choose her own partner. 

    Freedom of conscience under Article 25

    • Article 25 of the Constitution expressly protects the choices that individuals make.
    • In addition to the right freely to profess, practise and propagate religion, it guarantees to every person the freedom of conscience.
    • The idea of protecting one’s freedom of conscience goes beyond mere considerations of religious faith.

    Conclusion

    When we fail to acknowledge and respect the most intimate and personal choices that people make — choices of faith and belief, choices of partners — we undermine the most basic principles of dignity. Our Constitution’s endurance depends on our ability to respect these decisions, to grant to every person an equal freedom of conscience.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Trade Sector Updates – Falling Exports, TIES, MEIS, Foreign Trade Policy, etc.

    Trade-offs for growth revival: Why India’s policymakers need a new roadmap

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    The article weighs in the policy options with the Indian policymakers to revive the India economy. This leads to the trilemma of managing the exchange rate, controlling the inflation and maintaining the capital account open all at the same time.

    A brief overview of 1991 economic reforms

    • The crisis in 1991 was centred on the balance-of-payments.
    • Allowing the Indian rupee to fall from an artificially high level  was a key part of the solution.
    • Since the reforms, the Indian rupee has steadily depreciated, roughly according to a market-determined equilibrium.
    • Extraordinarily high tariff barriers were reduced, allowing for welfare gains from greater international trade.
    • Reforms of the domestic economy that increased market orientation was, in some sense, opportunistically combined with these externally-oriented measures.

    What should be India’s foreign economic policy

    • In terms of connections to the rest of the world, however, it is less clear what the right policy mix should be.
    • We can think of three types of international flows: labour, goods and services, and capital.

    1) Internation flow of Indian labour

    • India has benefited from being able to send workers with a variety of skills to different types of economies: construction workers and nurses in the Persian Gulf, software engineers in the US, and so on.
    • Direct benefits came from large remittances back to India.
    • The pandemic and US immigration policy, have had some major impacts on this international connectivity, but new vaccines and a change in the US president are likely to reverse these shocks.
    • In any case, there is not much that Indian policymakers can do or need to do on this front.

    2) Trade in Goods and Service

    • India has been able to grow its exports, both in a variety of agricultural and manufactured commodities and in services, from software services to tourism.
    • It has been reasonably competitive in a range of goods and services.
    • It was only in the last few years, even before the pandemic, have Indian exports struggled to register growth.
    • Whereas the export powerhouses of East Asia consistently ran surpluses on the current account of the balance of payments, India has mostly run deficits, albeit manageable ones.

    3) Capital Flow: Area where policymakers have option

    • Current account deficits have to be covered somehow, though various forms of foreign capital.
    • Whereas economic theory and economic policymakers mostly agree on the benefits of international trade in goods and services there is less of a consensus on the benefits of international capital flows.
    • Capital flows can raise fears of instability if they are reversed, or make exports less competitive if they push up the value of the rupee. 
    • The country is a relatively attractive destination for foreign capital, both FDI and portfolio investment.
    • But, these flows can make Indian exports less competitive if the rupee appreciates too much, requiring domestic demand to do more of the work of absorbing increased output.

    Lesson from Japan

    • Right now, India is trying to build its manufacturing capacity by raising tariffs, in an old-style push for import substitution.
    • It is also providing direct incentives, such as the new scheme rewarding increases in production.
    • Arguably, this did work in Japan in the 1960s, but it is not clear if India is well-off enough to sustain that domestic strategy.
    • In addition, the lack of competitive discipline exporting can hinder the achievement of acceptable quality levels.

    Way forward

    • Capital controls to some extent can help mitigate the risk in this situation.
    • The Reserve Bank of India do more to keep the rupee at competitive levels, by accumulating foreign exchange reserves.

    Consider the question “In terms of links with the rest of the global economy, it is less clear what the right policy mix should be. Do you agree with the view that focus on simultaneously managing the exchange rate and domestic inflation while maintaining an open capital account would help in the revival of India’s economic growth

    Conclusion

    Lurking under the surface of these issues is the trilemma of being unable to simultaneously manage the exchange rate and domestic inflation while maintaining an open capital account, although foreign exchange reserves provide a way of softening the trade-offs. These are not new challenges, but they will need to be a focus for India’s policymakers as they seek renewed economic growth.

    Source:-

    https://www.financialexpress.com/opinion/trade-offs-for-growth-revival-why-indias-policymakers-need-a-new-roadmap/2142900/

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

Join the Community

Join us across Social Media platforms.