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  • Port Infrastructure and Shipping Industry – Sagarmala Project, SDC, CEZ, etc.

    National Authority of Ship Recycling (NASR)

    The Central government has notified the Director-General of Shipping as the national authority for recycling of ships under the Recycling of Ships Act, 2019.

    The ‘Hong Kong Convention’ is the odd man out here. Read more about the convention at:

    https://www.civilsdaily.com/news/pib-hong-kong-international-convention-for-safe-recycling-of-ships-2009/

    About NASR

    • The national authority of ship recycling will be set up in Gandhinagar, Gujarat.
    • The location of the office will benefit the ship recycling yard owners situated in Alang, Gujarat which is home to the largest ship recycling industry in the world.
    • DG Shipping is authorized to administer, supervise and monitor all activities relating to ship recycling in the country.
    • DG Shipping will oversee the sustainable development of the ship recycling industry, monitoring the compliance to environment-friendly norms and safety and health measures for the stakeholders.
    • DG Shipping will be the final authority for the various approvals required by the ship-recycling yard owners and state governments.

    Recycling of Ships Act, 2019

    • Under the Ship Recycling Act, 2019, India has acceded to the ‘Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships’.
    • This was adopted by the International Maritime Organization (IMO).
    • DG Shipping is a representative of India in the IMO and all the conventions of IMO are being enforced by DG Shipping.
  • Trade Sector Updates – Falling Exports, TIES, MEIS, Foreign Trade Policy, etc.

    Nudge towards formalisation of MSMEs

    The lack of formalisation has several implications for MSMEs. Registering them could help them in various ways. The article deals with the issue of formalisation.

    Please read the link shared below for issues related to MSME

    The missing large in MSMEs

    Steps taken by Government to Formalize MSME

    • UAM: In 2015, the government notified the Udyog Aadhaar Memorandum (UAM), an online filing system for MSMEs.
    • As of January, 86 lakh MSMEs had registered on the UAM portal.
    • In 2016, the government notified rules under which MSMEs had to furnish information relating to their enterprises, online, in an MSME databank.
    • As of January, only 1.6 lakh units registered on it.
    • A new process of classification and registration for small businesses took off on July 1 called as “Udyam”.
    • As of October 1, the MSME ministry has confirmed that only 7 lakh registrations have taken place using the new system.Nudge by the government
    • In an attempt to nudge more enterprises to become lifetime Udyam, the government has integrated the system with the Trade Receivables Electronic Discounting System (TReDS) and the Government e-Marketplace (GeM).
    • In its updated Priority Sector Lending (PSL) guidelines, the RBI has established that for the purposes of PSL, MSMEs will be identified as per the gazette notification laying down the new process of classification and registration.

    Addressing the concerns

    • While the Udyam initiative holds more promise, it is important to assess if this will be detrimental to accessing formal finance.
    • To this end, the government and RBI should consider whether the registration requirement can be exempted for units with investment and turnover that falls in the lower end of the criteria.
    • In 2018, the International Finance Corporation estimated that the overall supply of finance from formal sources met only one-third of the credit demand of the MSME sector.
    • Enabling strategies such as PSL could provide a fillip to priority sectors including MSMEs which require increased formal financing.

    Conclusion

    The costs of formalisation and compliance are high and onerous in many states in India. In such an ecosystem, there are perverse incentives to remaining small and informal. Governments’ efforts towards formalisation should be directed towards addressing these issues.

  • Coronavirus – Health and Governance Issues

    Growing salience of multilateralism

    Multilateralism faces several challenges at the time when it is needed the most. The article highlights the need for more of it in the face of global challenges.

    Lack of international collaboration to deal with Covid

    • As COVID-19 recognises no boundaries, one would have expected that countries with technological and financial capabilities, would agree to pool their resources together to work on an effective and affordable anti-virus vaccine.
    • Instead, there are several parallel national efforts underway even as the World Health Organization (WHO) has put together a Covax alliance for the same purpose.
    •  Active collaboration would have enhanced our collective ability to overcome what has become a public health-cum-economic crisis.
    • But we live in an era when nationalist urges, fuelled by a political opportunism, diminish the appeal of international cooperation.
    • The post-pandemic world will have the awful dilemma of global integration without solidarity.

    Trends in the global order that suggests the need for multilateralims

    1) Global food crisis

    • The World Food Program has been awarded this year’s Noble Peace Prize.
    • The award is sending a message to the world — that we need multilateralism as an expression of international solidarity.
    • According to the WFP, 132 million more people could become malnourished as a consequence of the pandemic.
    • To the 690 million people who go to bed each night on an empty stomach, perhaps another 100 million or more will be added.
    • The Nobel Prize to the WFP will hopefully nudge our collective conscience to come together and relieve this looming humanitarian crisis.

    2) Despite issues, U.N. is still important

    • The United Nations is at the centre of multilateral institutions and processes and kept alive the notion of international solidarity and cooperation.
    • But it suffers from several disabilities due to the fault of its most powerful member countries.
    • They have deprived the UN of resources.
    • They have resisted efforts to institute long-overdue reforms.
    • Its structure no longer reflects the changes in power equations that have taken place and country such as India continues to be denied permanent membership of the Security Council.
    • And yet, the UN is now an essential part of the fabric of international relations for two reasons:
    • 1) The salience of global issues has expanded.
    • 2) The need for multilateral approaches in finding solutions has greatly increased.

    3) Multilateral institutions have become platform for contestation

    • In the network of multilateral institutions, several belong to the UN system, others are inter-governmental, still others may be non-governmental of a hybrid character.
    • This network performs two important tasks:
    • 1) Enable governance in areas which require coordination among nation-states.
    • 2) Set norms to regulate the behaviour of states so as to avoid conflict and to ensure both equitable burden-sharing and, equally, a fair distribution of benefits.
    • While there are multilateral institutions they have become platforms for contestations among their member states.
    • There is recognition of the need to cooperate but this is seen as a compulsion rather than desirable.

    4) Globalisation driven by technology will remain here

    • Globalisation may have stalled, but as we become increasingly digitised, there will be more, not less, globalisation.
    • The pandemic has triggered galloping globalisation in the digital economy.
    • Globalisation is driven by technology and as long as the technology remains the key driver of economic growth, there is no escape from globalisation.
    • In the contemporary world, the line separating the domestic from the external has become increasingly blurred.
    • In tackling domestic challenges deeper external engagement is often indispensable. This is certainly true of climate change.
    • The pandemic originated in a third country but soon raged across national borders.
    • If there had been a robust and truly global early warning system, perhaps it could have been contained.

    5) Interconnectedness of challenges

    • We must also take into account the inter-connectedness among various challenges, for example, food, energy and water security are inter-linked with strong feedback loops.
    • Enhancing food security may lead to diminished water and energy security.
    • It may also have collateral impact on health security.
    •  It is in recognition of these inter-connections that the international community agreed on a set of Sustainable Development Goals (SDGs).
    • The SDGs are cross-domain but also cross-national in character, and hence demand greater multilateral cooperation in order to succeed.

    6) Need for more democratic world

    • The lack of cooperation from even a single state may frustrate success in tackling a global challenge.
    • A fresh pandemic may erupt in any remote corner of the world and spread throughout the globe.
    • Prevention cannot be achieved through coercion, only through cooperation. It is only multilateralism that makes this possible.

    Conclusion

    It is a paradox that precisely at a time when the salience of cross-national and global challenges has significantly increased, nation-states are less willing to cooperate and collaborate in tackling them. So, there is a need for more of multilateralism to deal with the issues of global level.

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

    Comparison between India- Bangladesh per capita GDP

    In IMF’s latest Economic Outlook, Bangladesh has overtaken India in GDP per capita. This has caught everyone’s attention.

    Do you know?

    • In the 2019 edition of Transparency International’s rankings, Bangladesh ranks a low 146 out of 198 countries (India is at 80th rank; a lower rank is worse off).
    • In the latest gender parity rankings, out of 154 countries mapped for it, Bangladesh is in the top 50 while India languishes at 112.

    Bangladesh surpasses India

    • Typically, countries are compared on the basis of GDP growth rate, or on absolute GDP.
    • For the most part since Independence, on both these counts, India’s economy has been better than Bangladesh’s.
    • This can be seen from Charts 1 and 2 that map GDP growth rates and absolute GDP — India’s economy has mostly been over 10 times the size of Bangladesh, and grown faster every year.
    • However, per capita income also involves another variable — the overall population — and is arrived at by dividing the total GDP by the total population.

    What made India lag behind?

    There are three reasons why India’s per capita income has fallen below Bangladesh this year:

    • The first thing to note is that Bangladesh’s economy has been clocking rapid GDP growth rates since 2004.
    • Secondly, over the same 15-year period, India’s population grew faster (around 21%) than Bangladesh’s population (just under 18%).
    • Lastly, the most immediate factor was the relative impact of Covid-19 on the two economies in 2020. While India’s GDP is set to reduce by 10%, Bangladesh’s is expected to grow by almost 4%.

    How has Bangladesh managed to grow so fast and so robustly?

    • Freshly start: In the initial years of its independence with Pakistan, Bangladesh struggled to grow fast. However, moving away from Pakistan also gave the country a chance to start afresh on its economic and political identity.
    • Diverse labour participation: As such, its labour laws were not as stringent and its economy increasingly involved women in its labour force. This can be seen in higher female participation in the labour force.
    • Textile boom: A key driver of growth was the garment industry where women workers gave Bangladesh the edge to corner the global export markets from which China retreated.
    • Less dependence on Agriculture: It also helps that the structure of Bangladesh’s economy is such that its GDP is led by the industrial sector, followed by the services sector. Both of these sectors create a lot of jobs and are more remunerative than agriculture.
    • Better social capital: Bangladesh improved a lot on several social and political metrics such as health, sanitation, financial inclusion, and women’s political representation.

    Retaining the lead

    • The IMF’s projections show that India is likely to grow faster next year and in all likelihood again surge ahead.
    • But, given Bangladesh’s lower population growth and faster economic growth, India and Bangladesh are likely to be neck and neck for the foreseeable future in terms of per capita income.
  • Disasters and Disaster Management – Sendai Framework, Floods, Cyclones, etc.

    The Human Cost of Disasters Report (2000-2019)

    The UN Office for Disaster Risk Reduction (UNDRR) recently published its report titled “The Human Cost of Disasters”.

    The report holds much significance for prelims as well as mains. Just for the sake of information, we must be aware of the report.

    Highlights of the report

    • 7,348 major disaster events had occurred between 2000 and 2019, claiming 1.23 lives, affecting 4.2 billion people and costing the global economy some $2.97 trillion.
    • Of this, China (577 events) and the US (467 events) reported the highest number of disaster events followed by India (321 events).
    • Climate change is to be blamed for the doubling of natural disasters in the past 20 years says the report.
    • There had also been an increase in geophysical events like earthquakes and tsunamis that are not related to climate but are particularly deadly.

    Back2Basics: UN Office for Disaster Risk Reduction

    • The UNDRR was established in 1999 as a dedicated secretariat to facilitate the implementation of the International Strategy for Disaster Reduction (ISDR).
    • It is headquartered in Geneva, Switzerland.
    • It is mandated to serve as the focal point in the UN system for the coordination of disaster reduction and to ensure synergies among the disaster reduction activities.
    • It has a vision to substantially reduce disaster risk and losses for a sustainable future with the mandate to act as the custodian of the Sendai Framework to which India is a signatory.
  • Trade Sector Updates – Falling Exports, TIES, MEIS, Foreign Trade Policy, etc.

    Next Generation Treasury Application (NGTA)

    In a bid to improve its functioning, the RBI has decided to move to the Next Generation Treasury Application (NGTA) for managing the country’s foreign exchange and gold reserves.

    Aspirants must make a note here:

    1.Authority managing FOREX in India

    2.Components of FOREX

    3.IMF’s SDRs

    4.Emergency use of FOREX

    What is NGTA?

    • The NGTA, according to the RBI, would be a web-based application providing scalability, manoeuvrability and flexibility to introduce new products and securities, besides supporting multi-currency transactions and settlements.
    • It would be supporting various transactions in asset classes like Fixed Income (FI), Forex (FX), Money Market (MM) and Gold.
    • It would be used for managing the foreign exchange reserves in a more efficient way, mitigate risk, achieve operational efficiencies, dealing in various asset classes and reporting.

    Objectives of NGTA

    The objectives of the proposed system include:

    • dealing in various asset classes (like Fixed Income Securities, Forex, Money Market, Gold);
    • portfolio management; workflow management; reserve management;
    • integration with various third-party and in-house systems; and dashboards, reports, widgets.

    Features of NGTA

    • The NGTA shall automatically fetch all the relevant details of a security/contract from a trading platform.
    • It shall support all internationally accepted conventions pertaining today count, interest computation, holiday logic, shut period-dividend, ex-dividend, cash flows, and odd coupon.
    • With respect to transactions in gold, the NGTA shall support purchase, sale, deposit (including rollover and premature withdrawal).
    • On maturity of a gold deposit, there can be exact, under or over delivery.

    Back2Basics: Forex Reserves

    • Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves.
    • RBI accumulates foreign currency reserves by purchasing from authorized dealers in open market operations.
    • The Forex reserves of India consist of below four categories:
    1. Foreign Currency Assets
    2. Gold
    3. Special Drawing Rights (SDRs)
    4. Reserve Tranche Position
    • The IMF says official Forex reserves are held in support of a range of objectives like supporting and maintaining confidence in the policies for monetary and exchange rate management including the capacity to intervene in support of the national or union currency.
    • It will also limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.
  • Contention over South China Sea

    Places in news: Taiwan Strait

    A U.S. warship sailed through the Taiwan Strait in what the American military described as a “routine” passage on but enraging China, which claims sovereignty over the island and surrounding seas.

    Try this PYQ:

    Q.Which one of the following can one come across if one travels through the Strait of Malacca?

    (a) Bali

    (b) Brunei

    (c) Java

    (d) Singapore

    Taiwan Strait

    • The Taiwan Strait, also known as the Formosa Strait, is a 180 km wide strait separating Taiwan and mainland China.
    • The strait is currently part of the South China Sea and connects to the East China Sea to the north. The narrowest part is 130 km wide.
    • The entire strait is on Asia’s continental shelf.
    • Historically both the People’s Republic of China (PRC) and Taiwan espoused a One-China Policy that considered the strait part of the exclusive economic zone of a single “China”.

    Tap to read more about One China Policy at:

  • Intellectual Property Rights in India

    [pib] KAPILA Program

    Union Education Ministry has launched ‘KAPILA’ Kalam Program for IP Literacy and Awareness Education campaign to bring awareness towards the patenting of inventions.

    Remember one thing, ‘KAPILA’ Program is related to IP awareness. It sounds much like an animal husbandry related initiative.

    ‘KAPILA’ Program

    • KAPILA is an acronym for Kalam Program for IP (Intellectual Property) Literacy and Awareness.
    • Under this campaign, students pursuing education in higher educational institutions will get information about the correct system of the application process for patenting their invention and they will be aware of their rights.
    • The program will facilitate the colleges and institutions to encourage more and more students to file patents.
  • Electronic System Design and Manufacturing Sector – M-SIPS, National Policy on Electronics, etc.

    Issues in the Phased Manufacturing Policy

    The Production Linked Incentive Scheme, though ambitious in its goal suffers from several fundamental issues. The article discuses such issues.

    Background of the Phased Manufacturing Policy

    • The Phased Manufacturing Programme (PMP) incentivised the manufacture of low value accessories initially, and then moved on to the manufacture of higher value components.
    • This was done by increasing the basic customs duty on the imports of these accessories or components.
    • The PMP was implemented with an aim to improve value addition in the country.
    • Recently, 16 firms in the mobile manufacturing sector were approved for the Production Linked Incentive (PLI) scheme to transform India into a major mobile manufacturing hub.
    • The PLI comes on the back of a phased manufacturing programme (PMP) that began in 2016-17.

    Issues to consider

    1) More imports and less value addition in India

    • Firms such as Apple, Xiaomi, Oppo, and OnePlus have invested in India, but mostly through their contract manufacturers.
    • As a result, production increased from $13.4 billion in 2016-17 to $31.7 billion in 2019-20.
    • But factory-level production data from the Annual Survey of Industries (ASI) shows that more than 85% of the inputs were imported.
    • UN data for India, China, Vietnam, Korea and Singapore (2017-2019), show that except for India, all countries exported more mobile phone parts than imports.
    • More export than import by these countries indicate the presence of facilities that add value to these parts before exporting them.
    • India, on the other hand, imported more than it exported.
    • Therefore, while the PMP policy increased the value of domestic production, improvement in local value addition remains low.
    • The new PLI policy offers an incentive subject to thresholds of incremental investment and sales of manufactured goods.
    • Thus, focus remains on increasing value of domestic production, and not local value addition.

    2) Shift from China unlikely

    • India produced around 29 crore units of mobile phones for the year 2018-19; 94% of these were sold in the domestic market.
    • This implies that much of the incremental production and sales under the PLI policy will have to be for the export market.
    • Recently, a study by Ernst & Young showed that if the cost of production of a mobile phone is say 100 (without subsidies), then the effective cost (with subsidies and other benefits) of manufacturing mobile phone in China is 79.55, Vietnam, 89.05, and India (including PLI), 92.51.
    • So, it may be premature to expect a major chunk of mobile manufacturing to shift from China to India.

    3) PLI doesn’t strengthen the current export competitiveness

    • India’s mobile phone exports grew from $1.6 billion in 2018-19 to $3.8 billion in 2019-20, but per unit value declined from $91.1 to $87, respectively.
    • This shows that our export competitiveness seems to be in mobiles with lower selling price.
    • However, for foreign firms chosen under the PLI policy, the incentive will be at and above ₹15,000 ($204.65).
    • So, it is clear that the PLI policy does not strengthen our current export competitiveness in mobile phones.

    4) Absence of domestic firms

    • Domestic firms have been nearly wiped out from the Indian market.
    • So, their ability to take advantage of the PLI policy and grab a sizeable domestic market share seems difficult.
    • Domestic firms may have the route of exporting cheaper mobile phones to other low-income countries.
    • However, their performance in the last couple of years has not been promising.

    5) Importance of supply chain colocation

    • The six component firms that have been given approval under the ‘specified electronic components segment’do not complete the mobile manufacturing ecosystem.
    • For example, when Samsung set up shop in Vietnam, it relied heavily on its Korean suppliers which co-located with it to produce intermediate inputs, so much so that 63 among Samsung’s 67 suppliers then were foreign.
    •  Though Samsung is invested hugely in India, it has not colocated its supply chain in the country.
    • So, the foreign firms chosen under the PLI policy should be encouraged to colocate their supply ecosystems in the country.

    6) Complaint at WTO against PMP

    • In September 2019, Chinese Taipei contested the raise in tariffs under the PMP.
    • If the PMP is found to be World Trade Organization (WTO) non-compliant, then we may be flooded with imports of mobile phones.
    • This might make the local assembly of mobile phones unattractive.
    • This will affect the operations of the mobile investments done under the PMP.

    Conclusion

    The PMP policy, since 2016-17 has barely been helpful in raising domestic value addition in the industry even though value of production expanded considerably.

    B2BASICS

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

    What is Debt-to-GDP Ratio?

    India’s public debt ratio, which remarkably remained stable at about 70% of the GDP since 1991, is projected to jump by 17 percentage points to almost 90% a/c to IMF.

    Try this PYQ:

    Q.Consider the following statements:

    1. Most of India’s external debt is owed by governmental entities.
    2. All of India’s external debt is denominated in US dollars.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

    Why such a spike?

    • The increase in public spending, in response to COVID-19, and the fall in tax revenue and economic activity, will make public debt jump by 17 percentage points to almost 90% of GDP.

    What is Debt-to-GDP Ratio?

    • The Debt-to-GDP ratio is the ratio between a country’s government debt and its gross domestic product (GDP).
    • It measures the financial leverage of an economy.
    • A country able to continue paying interest on its debt-without refinancing, and without hampering economic growth, is generally considered to be stable.
    • A country with a high debt-to-GDP ratio typically has trouble paying off external debts (also called “public debts”), which are any balances owed to outside lenders.
    • In such scenarios, creditors are apt to seek higher interest rates when lending. Extravagantly high debt-to-GDP ratios may deter creditors from lending money altogether.
    • A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt.
    • Geopolitical and economic considerations – including interest rates, war, recessions, and other variables – influence the borrowing practices of a nation and the choice to incur further debt.

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