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  • Zoonotic Diseases: Medical Sciences Involved & Preventive Measures

    [pib] Kangra Tea and its medicinal properties against the coronavirus

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

    The chemicals in Kangra tea are found to be effective in boosting immunity as they can block coronavirus activity better than anti-HIV drugs.

    It would be no surprise to expect a question based on worldwide tea production:

    Q. Among the following, which one is the largest exporter of rice in the world in the last five years? (CSP 2019)

    (a) China

    (b) India

    (c) Myanmar

    (d) Vietnam

    Kangra Tea

    • Kangra tea is a tea from the Kangra district in Himachal Pradesh, India.
    • Both black tea and green tea have been produced in the Kangra Valley since the mid-19th century.
    • After a feasibility survey in 1848 showed the area of being suitable for tea plantation, a Chinese variety of Camellia sinensis was planted across the region.
    • Kangra tea is known for its unique colour and flavour.
    • The unique characteristics of the tea are attributed to the geographical properties of the region.
    • Kangra tea was given the Geographical Indication status in 2005. Tea was first grown in the Kangra region in the mid-19th century.

    Benefits of Kangra Tea

    • Using computer-based models, the scientists screened 65 bioactive chemicals or polyphenols that could bind to a specific viral protein more efficiently than commercially available anti-HIV drugs approved for treating COVID-19 patients.
    • These chemicals might block the activity of the viral protein that helps the virus to thrive inside human cells.

    Back2Basics: Lopinavir/ Ritonavir

    • Lopinavir/ritonavir (LPV/r), sold under the brand name Kaletra among others, is a fixed-dose combination medication for the treatment and prevention of HIV/AIDS.
    • It combines lopinavir with a low dose of ritonavir.
    • It is generally recommended for use with other antiretrovirals.

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

    Hardly the 1991 moment for agriculture

    op-ed snap | Agriculture | Mains Paper 3: Transport & Marketing Of Agricultural Produce

    Reforms in agri-marketing has been long overdue. So, the government recently announced three reforms in this regard. This article examines the problems of agri-marketing. And it concludes that the said reforms are far from being the silver bullet for these problems. So, why these reforms are not going to be effective? Does demand play any role in the problems agriculture is facing currently? Read to know about these issues.

    Announcement of reforms regarding agricultural marketing

    • The announcement of reforms in agricultural marketing by Finance Minister in May, has been hailed by some as the “1991” moment for agriculture.
    • The three reforms regarding agricultural marketing were the reforms in the 1) Agricultural Produce Marketing Committee (APMC) Act, 2) the Essential Commodities Act, 3) Contract farming.
    • All of these have been in discussion for almost two decades, with the APMC Act having already seen substantial reforms in many States.
    • The first comprehensive model act on APMC was proposed during 2003, and since then, similar efforts to push for more reforms have been proposed in 2007, 2013, and as late as 2017 by the present government.

    So, let’s a look at provisions of APMC Act and issues with it

    What is the main argument against APMC Act?

    • Two main arguments against the APMC Act are-
    • 1) It creates barriers to the entry and exit of traders.
    • 2) Makes the sale and purchase of agricultural produce compulsory for farmers as well as traders.

    Different steps taken by the state governments to address the issues

    • So, as many as 17 State governments have amended the APMC Act to make it more liberal.
    • In fact, the regulations and the functioning of mandis vary a great deal across States.
    • Kerala does not have an APMC Act.
    • Bihar repealed it in 2006.
    • But several others such as Maharashtra, West Bengal, Odisha, Gujarat, and Andhra Pradesh deregulated fruits and vegetables trade, allowed private markets, introduced a unified trading licence and have introduced a single-point levy of market fee.
    • Tamil Nadu has already reformed its APMC with no market fee.
    • Several others such as Jharkhand, Himachal Pradesh, Uttarakhand, Haryana and Rajasthan have undertaken one or more of these reforms.
    • Many States have introduced direct marketing of farm produce, examples being the Uzhavar Sandhai (Tamil Nadu), the Rythu Bazaar (Andhra Pradesh and Telangana), the Raitha Santhe (Karnataka), the Apni Mandi (Punjab) and the Krushak Bazaar – (Odisha).

    So, why the mandis are still blamed for farmers’ problems?

    • Despite the above-stated reforms, APMC mandis continue to be vilified for-1)  all the ills plaguing marketing infrastructure 2) the low prices received by the farmers for their produce.
    • What is the problem? The problem with mandis is not the regulation per se and the structure of mandis but the political interference in the functioning of the markets.
    • These are more obvious in case of large mandis specialising in commercial crops and fruits and vegetables, where production is regionally concentrated.
    • But even with these deficiencies, APMC mandis continue to play an important role in providing access to the market for farmers.

    What the Bihar example teaches us?

    • Bihar repealed the APMC Act in 2006.
    • The general argument in favour of reforms is that 1) it will allow private investment in marketing infrastructure and 2) provide more choices to farmers, leading to better prices received by farmers.
    • But in the case of Bihar,  no investment came in building market infrastructure.
    • The loss of revenue due to the repeal of the APMC also led to deterioration of existing infrastructure in the State.
    • The revenue collected from the APMC earlier was used not only for the modernisation of these market yards but also for the laying of roads and construction of other infrastructure to provide farmers better access to markets.
    • But after the repeal, there have been no takers for these market yards, with no investment in creating private mandis.
    • On the other hand, it has led to proliferation of private unregulated markets which charge a market fee from traders as well as farmers, and without any infrastructure for weighing, sorting, grading and storage.
    • Even in other States where there is deregulation to allow private traders, there is hardly any investment to create market spaces let alone provide other facilities.
    • There is also no evidence that farmers have received better prices in private mandis outside the APMC.
    • While there have been instances of collusion and corruption in the running of the APMC, they continue to provide essential services to farmers.

    Inadequacies of the regulated market

    • As against the recommendation that a regulated market should be available to farmers within a radius of 5 km currently regulated markets is in the radius of 12 km.
    • There are more than 7,000 regulated markets and 20,000 rural markets when the need is at least twice these figures.
    • Most of the existing ones require investment in upgradation of infrastructure.

    Price received is more a function of demand than access to market

    • The argument that the only bottleneck for farmers not receiving remunerative prices is due to the APMC Act is flawed.
    • More than 80% of farmers, most of whom are small and marginal farmers, do not sell their produce in the APMC mandis.
    • For a majority of farmers, prices received are more a function of the demand for agricultural commodities than access to markets.

    So, let’s come to decline in demand for agriculture produce

    • For much of the period during the last two years, terms of trade have moved against agriculture.
    • Agricultural commodity price inflation had been negative for a large part of the last two years.
    • With underlying weakness in demand and obsession with inflation targeting through fiscal and monetary policies, most agricultural commodities have seen a sharp decline in demand and, consequently, prices received by farmers.
    • The argument for choice of markets is only valid as long as there are buyers with purchasing power in the market.
    • No amount of marketing reforms will lead to higher price realisation for farmers if the underlying macroeconomic conditions are unfavourable to agriculture and farmers.

    What is solution to decline in demand?

    • The primary task of the government should have been to increase fiscal spending to revive demand in the economy.
    • This has become even more necessary after the sharp decline in incomes, job losses and decline in demand following the lockdown and expected contraction in economic activity for the year ahead.
    • With international prices also showing declining trend, the urgency is to protect the farmers from the decline in commodity prices.

    Consider the question “Though the APMC Act has often been blamed for the woes of the farmers in price realisation, the act is not the sole reason for price realisation problems faced by the farmers. Critically examine.

    Conclusion

    The announced reforms are less likely to be effective if carried out without consulting the states. And on the demand side, government needs to increase fiscal spending to create demand in the economy. These two steps will go a long way in ensuring higher incomes to farmers.

    Back2Basics: Agriculture Produce Marketing Committee Regulation (APMC) Act.

    • All wholesale markets for agricultural produce in states that have adopted the Agricultural Produce Market Regulation Act (APMRA) are termed as “regulated markets”.
    • With the exception of Kerala, J & K, and Manipur, all other states have enacted the APMC Act.
    • It mandates that the sale/purchase of agricultural commodities notified under it are to be carried out in specified market areas, yards or sub-yards. These markets are required to have the proper infrastructure for the sale of farmers’ produce.
    • Prices in them are to be determined by open auction, conducted in a transparent manner in the presence of an official of the market committee.
    • Market charges for various agencies, such as commissions for commission agents (arhtiyas); statutory charges, such as market fees and taxes; and produce-handling charges, such as for cleaning of produce, and loading and unloading, are clearly defined, and no other deduction can be made from the sale proceeds of farmers.
    • Market charges, costs, and taxes vary across states and commodities.

    Essential Commodities Act 1955

    • The ECA is an act which was established to ensure the delivery of certain commodities or products, the supply of which if obstructed owing to hoarding or black-marketing would affect the normal life of the people.
    • The ECA was enacted in 1955. This includes foodstuff, drugs, fuel (petroleum products) etc.
    • It has since been used by the Government to regulate the production, supply and distribution of a whole host of commodities it declares ‘essential’ in order to make them available to consumers at fair prices.
    • Additionally, the government can also fix the maximum retail price (MRP) of any packaged product that it declares an “essential commodity”.
    • The list of items under the Act includes drugs, fertilizers, pulses and edible oils, and petroleum and petroleum products.
    • The Centre can include new commodities as and when the need arises, and takes them off the list once the situation improves.

    How ECA works?

    • If the Centre finds that a certain commodity is in short supply and its price is spiking, it can notify stock-holding limits on it for a specified period.
    • The States act on this notification to specify limits and take steps to ensure that these are adhered to.
    • Anybody trading or dealing in the commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity.
    • A State can, however, choose not to impose any restrictions. But once it does, traders have to immediately sell into the market any stocks held beyond the mandated quantity.
    • This improves supplies and brings down prices. As not all shopkeepers and traders comply, State agencies conduct raids to get everyone to toe the line and the errant are punished.
    • The excess stocks are auctioned or sold through fair price shops.

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  • Bharat Emission Standards

    [pib] L7 Quadricycle category for BS VI

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

    The Ministry of Road Transport and Highways has issued a notification regarding the emission norms for L7 (Quadricycle) category for BS-VI.

    Practice question for Mains:

    Q. What are Bharat Stage Emission Standards (BSES)? Discuss how the early implementation of BS-VI norms will help curb vehicular pollution in India.

    What is Quadricycle Vehicle verification?

    • The quadricycle is a European Union vehicle category for four-wheeled microcars, which allows these vehicles to be designed to less stringent requirements when compared to regular cars.
    • Quadricycles are defined by limitations in terms of weight, engine power and speed.
    • There are two categories of quadricycles: light quadricycles (L6e) and heavy quadricycles (L7e)

    What are the new notified norms?

    • These norms are applicable from the date of notification.
    • This notification completes the process of BS-VI for all L, M and N category vehicles in India.
    • The emission norms are in line with EU with WMTC cycle.
    • The procedure for testing is laid down in Automotive Industry Standard (AIS) 137-Part 9.

    What is the WMTC cycle?

    • The World Motorcycle Test Cycle (WMTC) is a system of driving cycles used to measure fuel consumption and emissions in motorcycles.
    • The methods are stipulated as part of the Global Technical Regulation established under the UN World Forum for Harmonization of Vehicle Regulations, also known as WP.29.

    Back2Basics:  Bharat Stage Norms

    Standard Reference Date of Implementation
    Bharat Stage II Euro 2 1 April 2005
    Bharat Stage III Euro 3 1 April 2010
    Bharat Stage IV Euro 4 1 April 2017
    Bharat Stage VI Euro 6 April 2020 with a mandate (proposed)

    Minutes of BS-VI

    • Carmakers would have to put three pieces of equipment — a DPF (diesel particulate filter), an SCR (selective catalytic reduction) system, and an LNT (Lean NOx trap) — to meet stringent BS-VI norms, all at the same time.
    • This is vital to curb both PM (particulate matter) and NOx (nitrogen oxides) emissions as mandated under the BS-VI norms.

    How is BS-VI Different from BS-IV?

    • The major difference between the existing BS-IV and forthcoming BS-VI norms is the presence of sulphur in the fuel.
    • While the BS-IV fuels contain 50 parts per million (ppm) sulphur, the BS-VI grade fuel only has 10 ppm sulphur content.
    • Also, the harmful NOx (nitrogen oxides) from diesel cars can be brought down by nearly 70%.
    • In the petrol cars, they can be reduced by 25%.
    • However, when we talk about air pollution, particulate matter like PM 2.5 and PM 10 are the most harmful components and the BS-VI will bring the cancer-causing particulate matter in diesel cars by a phenomenal 80%.

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  • Tribes in News

    [pib] Shahapur’s Katkari Tribe

    PIBSchemes | Governance | Mains Paper 2: Schemes For Vulnerable Sections

    The newscard is based on the PIB news which discusses the success story of Katkari Tribe, a PVTG in Maharashtra regarding the implementation of Van Dhan Yojana.

    Try this:

    Consider the following statements about Particularly Vulnerable Tribal Groups (PVTGs) in India:

    1) PVTGs reside in 18 States and one Union Territory.

    2) A stagnant or declining population is one of the criteria for determining PVTG status.

    3) There are 95 PVTGs officially notified in the country so far.

    4) Irular and Konda Reddi tribes are included in the list of PVTGs.

    Which of the statements given above are correct? (CSP 2019)

    (a) 1, 2 and 3

    (b) 2, 3 and 4

    (c) 1, 2 and 4

    (d) 1, 3 and 4

    Katkari Tribe

    • The Katkari is an Scheduled Tribe mostly belonging to the state of Maharashtra.
    • They are bilingual, speaking the Katkari language, a dialect of the Marathi-Konkani languages, with each other; they speak Marathi with the Marathi speakers, who are a majority in the populace where they live.
    • In Maharashtra, the Katkari has been designated a Particularly Vulnerable Tribal Group (PVTG), along with two other groups included in this sub-category: the Madia Gond and the Kolam.
    • In the case of the Katkari this vulnerability derives from their history as a nomadic, forest-dwelling people listed by the British Raj under the Criminal Tribes Act of 1871, a stigma that continues to this day.

    What are PVTGs?

    • There are certain tribal communities who have declining or stagnant population, low level of literacy, pre-agricultural level of technology and are economically backward.
    • They generally inhabit remote localities having poor infrastructure and administrative support.
    • These groups are among the most vulnerable section of our society as they are few in numbers, have not attained any significant level of social and economic development.
    • 75 such groups have been identified and categorized as Particularly Vulnerable Tribal Groups (PVTGs).

    Back2Basics: Pradhan Mantri Van Dhan Yojana (PMVDY)

    • It is a retail marketing-led value addition plan for Minor Forest Produce (MFP), meant for forest-based tribes to optimize the tribal income, locally.
    • Under the program, MFP-based tribal groups/enterprises of around 300 members are formed for collection, value addition, packaging & marketing of Minor Forest Produces (MFPs).
    • These tribal enterprises will be in the form of Van Dhan SHGs which will be a group of 15-20 members and such 15 SHG groups will further be federated into a larger group of Van Dhan Vikas Kendras (VDVKS) of around 300 members.
    • TRIFED will support the VDVKs through providing them with model business plans, processing plans & tentative list of equipment for carrying out the value-added work of MFPs.

    Also read:

    https://www.civilsdaily.com/news/pib-development-of-pvtgs-scheme/

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  • New Species of Plants and Animals Discovered

    Western Ghats yield 3 new plant species

    Species | Enviro & Biodiversity | Mains Paper 1: Geographical Features & Their Location

    A team of scientists of the Botanical Survey of India (BSI) have reported the discovery of three new plant species from the evergreen forest patches of the southern end of the Western Ghats in Kerala and Tamil Nadu.

    One may get carried away from the heavy botanical names. But UPSC is known for asking ruthless questions.

    Q. Recently, our scientists have discovered new and distinct spices of banana plant which attains a height of about 11 meters and has orange – colored form of pulp. In which part of India has been discovered? (CSP 2016)

    a) Andaman Islands

    b) Anaimalai Forests

    c) Maikala Hills

    d) Tropical rainforest of North-East

    Which are the new species?

    The three new species found are:

    1) Eugenia sphaerocarpa of the Myrtaceae or Rose apple family

    • A good population of Eugenia sphaerocarpa is growing in the Kakkayam area of the Malabar wildlife sanctuary in Kerala above 800 m.
    • The specific epithet ‘sphaerocarpa’ denotes to the large, showy lemon-yellow spherical fruit.
    • The fruits of Eugenia species are known for their palatability and many of them are harvested from the wild with some under cultivation.

    2) Goniothalamus sericeus of the Annonaceae family of custard apple

    • A small number of Goniothalamus sericeus plants has been found in the Kanyakumari wildlife sanctuary in Tamil Nadu.
    • Mature flowers with characteristic greenish-yellow to beige petals are fragrant while the fruits are very showy and an attractive golden yellow in colour.
    • The specific epithet ‘sericeus’ refers to the presence of dense silky hair on the petals.

    3) Memecylon nervosum of the Melastomataceae (Kayamboo or Kaasavu in local parlance) family

    • A small population of Memecylon nervosum was also found at the same sanctuary at an altitude between 700-900 m with more that than 10 sub-populations located along the banks of a perennial rivulet.
    • The species have showy purplish-blue flowers and mauve to purplish-red fruits.
    • The specific epithet ‘nervosum’ alludes to the presence of prominently raised lateral and intramarginal veins on the lower surface of the lamina.

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  • Foreign Policy Watch: India-Nepal

    India Nepal Border issue: Colonial legacy or the Dragon’s Power Play

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

    India – Nepal relations are having its “see saw swing” moment. At one end, lies the 1950 treaty of peace and friendship, close people to people relations and India’s aid during 2015 earthquake. But on the other end lies the economic blockade and Madhesi protest. Another entry to the later side is the Border issue.

    • The inauguration of road from Dharchula to Lipu Lekh was done with great fanfare, at least on the Indian side.
    • The metalled road is a BIG relief for pilgrims and traders on the traditional route for the Kailash-Mansarovar yatra, who otherwise were stuck for days in the arduous walk.

    So, where is the issue?

    The issue lies in Nepal’s charge claiming that the stretch passes though Nepalese territory. This was displayed by some politicized moves like-

    • Intemperate remarks by Nepal’s PM in the Nepalese Parliament.
    • Manner (airdropped to the location by helicopters) and timing(why now?) of the Deployment of armed police at Chharung, close to Kalapani, in its Sudoor Paschim.
    • Finally, Nepalese government has raised the stakes further by authorizing a new map extending its territory across an area sensitive for India’s defence.

    The very beginning: The Sugauli Treaty

    • Before the 1816 Treaty of Sugauli, the Nepalese kingdom stretched from the Sutlej river in the west to the Teesta river in the East.
    • Nepal lost the Anglo-Nepalese War and with the signing of Sugauli Treaty was brought down to its present territories.

    The Sugauli Treaty stated that “[t]he Rajah of Nipal [Nepal] hereby cedes to the Honourable [the] East India Company in perpetuity all the under-mentioned territories”, including “the whole of the lowlands between the Rivers Kali and Rapti.” It elaborated further that “[t]he Rajah of Nipal [Nepal] renounces for himself, his heirs, and successors, all claim to or connection with the countries lying to the west of the River Kali and engages never to have any concern with those countries or the inhabitants there of.”

    • The present controversy arose with Nepalese contest that the tributary that joins the Mahakali river at Kalapani is not the Kali river. Nepal now contends that the Kali river lies further west to the Lipu Lekh pass.
    • But here’s the catch!
    • The British used the Lipu Lekh pass for trade with Tibet and China.
    • Even Survey of India maps since the 1870s shows the area of Lipu Lekh down to Kalapani as part of British India.
    • Even though the areas of Nepalgunj and Kapilvastu were restituted to Nepal as a reward for the military help rendered by Jung Bahadur Rana in quelling the 1857 uprising. The British did not return any part of Garhwal or Kumaon, including the Kalapani area, to Nepal.
    • Infact, both the Rana rulers of Nepal and the Nepalese Kings accepted the boundary and did not raise any objection with the government of India after India’s Independence.
    • True that India did not existed in 1816 when the Treaty of Sugauli was concluded.
    • But many borders of the world and India are colonial legacy, which we have to work out.

    The path to peace

    • The Nepal-India Technical Level Joint Boundary Working Group was set up in 1981 to resolve boundary issues, to demarcate the international border, and to manage boundary pillars.
    • By 2007, the group completed the preparation of 182 strip maps, signed by the surveyors of the two sides, covering almost 98% of the boundary, all except the two disputed areas of Kalapani and Susta.
    • Not able to solve the border issues in these disputed areas has left us hanging.

    India has successfully resolved far more intractable border issues with Bangladesh.

    • The land boundary settlement required an exchange of territories, including the transfer of population, and a constitutional amendment to give effect to the 1974 India-Bangladesh Land Boundary Agreement.
    • The maritime boundary issue with Bangladesh involved going to the Hague-based Permanent Court of Arbitration. Despite knowing well that if the Court applied the principle of equity, India would lose up to four-fifths of the disputed area. India lost but the government of India accepted the ruling.
    • Compared to what was accomplished between India and Bangladesh, the India-Nepal border issues appear more easily solvable.

    Respecting out Ties

    • India Nepal ties are unique.
    • Historical link between the nations.
    • Spirit of maintaining India’s close and friendly bilateral relations with Nepal.
    • The people-to-people relationship between India and Nepal is unmatched.

    What lies ahead?

    • This matter can be best handled bilaterally, through quiet diplomacy.
    • The Official Spokesperson of India’s Ministry of External Affairs, Anurag Srivastava, has said recently that India and Nepal have an established mechanism to deal with all boundary matters.
    • He has affirmed that India is committed to resolving outstanding boundary issues through diplomatic dialogue.
    • The remaining issues concerning the boundary i.e Kalapani and Susta are not difficult to resolve unless they are caught up in domestic or international concerns.
    • The next steps should be approval of the strip maps by the respective governments (that of the Nepalese Government is still awaited), the resolution of the differences of opinion over Kalapani and Susta, and speeding up the erection of damaged or missing border pillars.

    Consider the question “India-Nepal ties are unique. Both countries have many things in common. Yet, recent developments over the border dispute threaten to snap these ties. Examine the border issue between the two countries. What is India’s stand on the issue? Suggest ways to resolve the issue.”

    Conclusion

    The more the trouble festers, those who stand to gain by deteriorating India-Nepal relations will benefit. There is need for the two countries to lower the temperature and defuse the issue. They must invest time and effort to find a solution. Raking up public controversy can only be counterproductive to the relationship.

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  • Cashless Society – Digital Payments, Demonetization, etc.

    Digital currency plan made in China

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

    Central banks all over the world have had mixed feelings towards cryptocurrencies. Some of them have resorted to banning them altogether. And yet, cryptocurrencies exist and have been flourishing. But China seems to be bent on taking the “road less travelled”. This article explains the various aspects underlying the China’s move. These somehow apply to all the central banks, including the RBI. Read more to know more about such aspects.

    Digital currency by China’s central bank

    • In December 2019, a pilot programme was launched in Beijing to intensively advance the trial work of fintech innovation regulation.
    • This pilot has now been expanded to include several other cities.
    • This expansion of the pilot marks the initiation of China’s central bank digital currency (CBDC).
    • Christened Digital Currency Electronic Payment (DCEP), available via a mobile wallet app.
    • It is pegged 1:1 with fiat currency, and designed to replace M0 which comprises currency issued by the PBoC less the amount held by banking institutions.
    • This is the first such serious initiative in the whole world.

    Why central banks are sceptical of cryptocurrencies?

    • Historically, monetary authorities everywhere have been sceptical of cryptocurrencies.
    • The reasons for scepticism includes following problems-
    • 1) Wild fluctuations in the value of cryptocurrencies.
    • 2) The implied challenge to the monopoly of central banks in issuing fiat currencies.
    • 3) The looming possibility of software bugs.
    • 4) The tainted shadow of the dark web.

    But some central banks have been planning to issue fiat digital currency

    • Authorities were far more intrigued by CBDCs.
    • In fact, the Basel-based Bank for International Settlement (BIS) has been conducting surveys on this issue for some time.
    • The recent survey of 2019 “Proceeding with Caution – a Survey on Central Bank Digital Currency” revealed that while in general, central banks have been proceeding cautiously towards introducing central banks digital currencies.
    • Some have been planning to issue a fiat digital currency in the short to medium term.
    • In particular, the survey revealed that nearly 25% of central banks have the required authority to issue a CBDC, while a third do not, and 40% remain unsure.

    If you cannot beat them, join them

    • So, what factors led China to release the cryptocurrency?
    • Chinese investors were always attracted to cryptocurrencies.
    • With the bearish turn in the Chinese stock market in 2015-16, bitcoins became increasingly popular as an alternative asset class in China.
    • As in media reports, in the recent past, China has emerged as the capital of the crypto ecosystem, accounting for nearly 90% of trading volumes and hosting two-thirds of bitcoin mining operations.
    • The PBoC tried hard to curtail this exuberance but achieved limited success.
    • The recent move to introduce the CBDC in China is a logical outcome of the efforts to curb and tackle its runaway cryptomarket practices.
    • Or, the philosophy of the PBoC could simply have been, if you cannot beat them, join them.

    Advantages and concerns

    • At a practical level, the benefits of CBDC are manifold.
    • First, paper money comes with high handling charges and eats up 1% to 2% of GDP.
    • Second, by acting as a powerful antidote for tax evasion, money laundering and terror financing, CBDCs can materially boost tax revenues while also improving financial compliance and national security.
    • Third, as a tool of financial inclusion, particularly in emergencies, direct benefit transfers can be instantly delivered by state authorities deep into rural areas, directly into the mobile wallets of citizens who need them.
    •  Fourth, CBDCs can provide central banks with an uncluttered view and powerful insights into purchasing patterns at the citizen scale.
    • In the long run, it is believed that CBDCs will make cross-border payments fast and frictionless.

    Concerns

    • All these salutary benefits come packaged with a deep and abiding concern about the relentless rise of a surveillance state and the concomitant erosion in citizen privacy and anonymity.
    • If face-recognition technology enables states to spy on the physical movement of citizens, will CBDCs be used to spy on every movement of their money?

    But how Central bank’s digital currency is different from private cryptocurrencies such as Bitcoin?

    • An earlier research paper by PBoC Deputy Governor favoured a two-tier CBDC model.
    • In this model instead of directly interacting with the public, the central bank would involve financial intermediaries such as commercial banks.
    • In tier 1, the central bank would interface with financial intermediaries.
    • In tier 2, the financial intermediaries would interface with the general public.
    • Advantage? Such a model is accretive in that it preserves the power of existing financial systems and extends their influence further.
    • It is believed that the DCEP uses a DLT architecture (with central controls) which preserves the primacy of the monetary authority, unlike private cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) that are truly decentralised.

    Silver bullet to slay three dragons

    • What may China be signalling with the launch of DCEP?
    • First, on the world economic stage, it may want DCEP to challenge the hegemony of the U.S. dollar as the default global reserve currency.
    • Second, in its war with American BigTech, it may want to showcase DCEP as its weapon of choice to counter FB or Facebook’s Libra, which is planning to offer a common cryptocurrency to 2 billion-plus FB users across the world.
    • Third, and still in the realm of speculation, it may wish to use the DCEP to clip the wings of AliPay and WeChatPay, gigantic fintech duopolies that control 90% of the China’s domestic digital payments, and whose ambitions may one day pose a threat to the aura and authority of the central bank.

    Consider the question “Most of the central banks have been sceptical in their attitude toward the cryptocurrencies. Yet, they persisted. Next came the Supreme Court decision lifting ban on them. In light of this, examine the advantages and concerns that come with the cryptocurrencies.”

    Conclusion

    From gold to silver to paper to digital, the march of currencies goes on. China has rolled the dice on central bank digital currencies, challenging other nations to follow. Welcome to the future of money.

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  • Coronavirus – Economic Issues

    Neglect of demand side

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

    What should the government focus on first: increasing demand or streamlining the supply side. This question is at the heart of the debate that has been going on after the government announced the stimulus package. This article argues on two lines- Inadequate size of the package and the neglect of the demand side in the package.

    Why stakeholders are not happy with the package?

    • Agriculture sector: There is relief for agriculture in the form of a concessional credit line of Rs 2 trillion, but loans are neither automatic or assured.
    •  Marketing reforms and infrastructure creation are distant promises.
    • MSME sector:  The backbone of the economy that provides 25 per cent of employment, 32 per cent of the GDP and 45 per cent of exports, is unhappy despite the Rs 3 trillion line of credit for loans without collateral.
    • In their experience, lenders are not always supportive in extending loans.
    • While buyers-central and state governments, public sector firms and the private sector- owe them as much as Rs 5 trillion.
    • What is more, most MSMEs just do not have the resources to pay wages or meet fixed costs on electricity, rent or interest during the lockdown period.
    • Corporate sector: There is nothing for the corporate sector in manufacturing or services.
    • The distressed sectors such as airlines, automobiles, hotels, restaurants, and tourism have been ignored.
    • Ironically, there is little for public health, already in a dilapidated state.
    • Even stock markets, characterised by irrational exuberance in the past month, have dropped.

    Government expenditure in the fiscal stimulus

    • The fiscal stimulus, which can be defined as government expenditure that could stimulate demand, is difficult to separate.
    • This is because the package is neither clear nor transparent about the cost to be borne by the government in each component.
    • Even so, there are 12 estimates by analysts in financial sector institutions, suggesting that the fiscal stimulus is in the range of 0.7 per cent to 1.3 per cent of the GDP.
    • The effective fiscal stimulus, in terms of extra resources provided by the government, is Rs 1.76 trillion, or 0.8 per cent of the GDP.
    • Its contribution to domestic demand will be minuscule, given that private final consumer expenditure in India is about 60 per cent of the GDP.

    Focus of the package: supply side

    • It is clear that the design of this relief package seeks to focus on the supply side.
    • Package emphasises on providing liquidity through lines of credit, where the RBI is providing as much as Rs 8 trillion.
    • Focus is not on the demand side by stepping up government expenditure.
    • This is done with the aim of minimising the cost to the government.
    • The arithmetic is obviously imaginative — as much as Rs 10 trillion of the relief package will have to be financed by sources other than the Centre and the RBI.

    So, let’s understand why focus on supply side is flawed strategy

    • This stress on the supply-side, while neglecting the demand-side, reveals a flawed understanding of economies in crisis.
    • Speed of adjustment: Even in normal circumstances, the speed of adjustment of the supply-side is slow because supply responses take time.
    • Whereas the speed of adjustment on the demand-side is fast as incomes spent raise consumption demand without any time-lag.
    • At present, if there is little or no increase in demand, supply responses will be slower than usual because producers would not wish to pile up inventories of unsold goods.
    • In terms of the chicken-and-egg parable, demand must be revived first to kickstart the economy.
    • For this reason, the fiscal stimulus should have been much larger.

    Excessive concerns over fiscal deficit

    • The decision-makers have been timid, intimidated by the prospect that, because of revenue shortfalls (2 per cent of the GDP or more), the fiscal deficit would be 5.5 per cent of the GDP.
    • Which would have exceeded the budget estimate at 3.5 per cent of the GDP.
    • The conclusion drawn, wrongly, is that there is no fiscal space.
    • The obsessive concern about the fiscal deficit is deeply embedded in government thinking.
    • In this situation, the extra fiscal stimulus should have been Rs 7-9 trillion i.e. 3-4 per cent of the GDP and that would have been modest compared to what other countries have done.

    Monetising the deficit  and issues involved in doing so

    • This enlarged fiscal deficit (3-4 % of GDP) cannot be financed by market borrowing.
    • Such market borrowing would simply drive up interest rates and nip recovery in the bud.
    • It would have to be financed by monetising the deficit — RBI buying government T-bills — printing money, now termed “helicopter money”.
    • Inflation concerns: The idea that monetised deficits will unleash inflation is blind to the reality that, at this juncture, if there is no further intervention by the government, the GDP could contract by 5 per cent in 2020-21, with lingering consequences.
    • In fact, a monetised deficit might be the only way of increasing aggregate demand to revive economic growth.
    • Rating downgrade issue: The worry about a downgrade from credit rating agencies is bizarre.
    • For one, their ethics and integrity have seen steady erosion.
    • Moreover, how many sovereign governments will they downgrade?
    • In fact, we might be better off without the footloose and volatile portfolio investment inflows.

    Consider the question- “Do you agree with the view that the focus of the supply side should be at the heart of any stimulus package announced in the financial crisis? Give reasons in the support of your agreement.”

    Conclusion

    If the government does not accept the necessity or wisdom of expansionary macroeconomic policies, it must set out its alternative plan for recovery. The relief package will not suffice.

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  • Coronavirus – Economic Issues

    Focus on supply side

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

    Whether to focus on supply side or demand side is the dilemma governments often face while deciding the measures to cure the ailing economy. This article explains using basic economics and evidence from across the world to make the case for a focus on the supply side. In doing so, it explains the problems with demand side measures such as cash transfers and tax rebets.

    Issue of neglect of demand side

    • The Union government is often criticised for its apparent neglect of the demand side and its excessive focus on the supply side.
    • Structural reforms — the COVID-19 package was no exception.
    • Low credit growth, weak inflation, and flat wage growth are the factors focused by demand-side proponents.
    • The deand side proponents suggest measures such as cash transfers, income tax cuts, and cheap credit to consumers.

    So, let’s focus on Demand vs. Supply side debate

    Low growth in credit to MSME

    • A demand shock typically leads to a rise in both volume and the price.
    • A supply shock not only hurts the volume but also leads to price rise.
    • In banking, a good proxy for the price of credit is the spread.
    • Spread is difference between lending rate and the funding rate  repo rate or deposit rates for the banks.
    • The spread reflects the risk premium banks charge to their customers.
    • The spread has consistently risen from just below 4 per cent at the start of 2018 to around 6 per cent in January 2020.
    • That means, the banks charged 4-6 per cent more on loan than it paid to its depositor or to RBI on the funds it got from them.
    • The fact that spreads are rising was highlighted by the 2019 Economic Survey as well.
    • At the same time, the credit growth — especially for public banks and to the MSME sector — has been sluggish for the previous two to three years.
    • The MSME sector witnessed sub-zero credit growth for the whole of 2017 and even now, the credit growth is very tepid at around 2 per cent Y-o-Y.
    • Rising spreads with lower credit volume provide a clear sign that credit supply is broken.

    What a paper by Nobel laureates on MSME says?

    • Paper by Nobel laureates Abhijit Banerjee and Esther Duflo examines the reasons for MSME problems.
    • The paper amply highlights the fact that the MSME sector suffers from lack of credit availability to finance investments rather than the lack of demand for credit.
    • They showed that when the government changed the definition of small firms, the firms newly covered by the priority sector lending programme used the extra credit to increase production and investment.
    • If there was no demand for credit, cheaper credit under the priority sector programme should have been used to repay the older expensive sources of borrowings.

    So, how will the recently announced package help MSEs?

    • Consistent with this view, we think that the government’s approach of guaranteeing SME credit by resolving the risk-sharing problem for banks will expand credit to credit-starved SMEs at lower credit spreads.
    • Similarly, expansion of the universe of small/medium firms will bring fresh investments from the firms, which are newly covered under priority sector programme as they will be able to get cheaper credit.

    2 Measures to increase consumer demand and issues involved

    1. Direct transfers schemes

    • No doubt that cash-transfers are superior to distortive subsidies and the “Garib Kalyan” package was a step in this direction.
    • In fact, the government has already transferred close to Rs 40,000 crore to bank accounts including Rs 10,000 crore to women under PMJDY.

    But is cash-transfers the ultimate solution to recovery?

    • In fact, the PMJDY account balance has increased.
    • The increase is from close to Rs 1,17,000 crore before the advent of COVID-19 to Rs 1,35,911 crore as of May 13 .
    • This is a massive jump of close to Rs 18,000 crore.
    • Recent research by Prasanna Tantri and co-authors shows that PMJDY account holders actively use the accounts — 1.12 transactions per quarter compared to the World Bank standard of one transaction.
    • In fact, PMJDY accounts see withdrawals when account holders are in distress, according to the study.
    • So the rise in balances is not mechanical.

    So, why are they not spending?

    • It’s not that people covered under PMJDY are comfortable financially.
    • A number of papers show that tax rebates boost demand in the short-run, but the quantum is limited.
    • For example, Sumit Agarwal and his co-authors show that the 2001 tax rebate programme in the US led to an average spending of only $60 on $500 rebate over nine months.
    • A recent study at the Kellogg Business School by Christian Borda and co-authors shows that tax rebates after the 2008 crisis in the US led to rise in spending, but by only 3.5 per cent in the first month of the rebates.
    • The crux is that no rational consumer goes on a consumption spree when he is facing job uncertainty!

    2. What about providing cheap credit to customers?

    • Trying to boost demand by providing cheap credit to consumers is not a good idea either as evidenced by the debt-financed housing boom in the US, which led to the 2008 crisis.
    • In fact, Atif Mian and Amir Sufi, using a large panel of 30 countries, uncover a more general pattern — an increase in household debt to GDP ratio leads to a sustained drop in future GDP, investments, and unemployment.
    • On the other hand, the economic cycles are much more muted when the initial growth is caused by structural reforms as pointed in a recent IMF study covering over 80 countries.

    Consider the question “Whenever governments decide on the stimulus package amid financial crises, supply side vs. demand side debate flares up. This has also been the case in India as the government announced the stimulus package recently. In light of this, examine the issues involved in demand side measures.”

    Conclusion

    To put the burden of recovery on risk-averse consumers, incentivising them to spend rather than save when there is employment uncertainty, is against any reasonable risk-sharing principle. Risk should be borne by those who have the appetite — the firms and government.

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  • Foreign Policy Watch: India-China

    How China is seeking more control on Hong Kong?

    | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    China has started pushing for an “improvement” in the Basic Law — the mini-constitution that defines ties between Hong Kong and Beijing — signalling a fundamental change in the way the highly autonomous city-state is run. The Chinese parliament is debating a controversial national security law for Hong Kong.

    Practice question for mains:

    Q. Democracy and authoritarianism cannot co-exist in the same country. Comment in context to the situation generated in Taiwan. How is the situation different from the withdrawl of special category status of Jammu and Kashmir.

    Chinese authoritarian grip on Hong Kong

    Hong Kong’s ‘Basic Law’

    • Hong Kong is a Special Administrative Region (SAR) of China.
    • It has observed a “one country, two systems” policy since Britain returned sovereignty to China on July 1, 1997, which has allowed it certain freedoms, the rest of China does not have.
    • It is governed by a mini-constitution called the Basic Law — which affirms the principle of “one country, two systems”.
    • The constitutional document is a product of the 1984 Sino-British Joint Declaration.
    • Under this, China promised to honour Hong Kong’s liberal policies, the system of governance, an independent judiciary, and individual freedoms for a period of 50 years from 1997.

    Uproar in Hong Kong

    • China accuses that the Hong Kong SAR has not acted out its constitutional duty for national security in line with China’s Constitution and the Basic Law.
    • Since the handover, Hong Kong residents have time and again taken to the streets to protect their Basic Law freedoms, with the first major pro-democracy protest taking place in 2003.
    • In 2014, over one lakh city residents took part in the ‘Umbrella Revolution’ to protest against China’s denial of democratic reforms.

    Impact of the 2019 protests

    • The largest protests since the 1997 handover took place last year in 2019 when for months tens of thousands of Hong Kongers agitated against a proposed extradition law.
    • The protest continued with pro-democracy marches even after the legislation was withdrawn.
    • These protests were seen as an affront by mainland China, which under President Xi Jinping has increasingly adopted a more hardline approach to foreign policy and internal security issues in recent years.

    Rise of Taiwanese aspirations

    • The Hong Kong unrest is also believed to have left its mark on Taiwan, another prickly issue for Beijing which considers the island state as its own.
    • In this year’s presidential election, Taiwanese voters brought to power the Democratic Progressive Party, which openly opposes joining China.

    The National Security Law

    • Under Article 23 of the Basic Law, Hong Kong has to enact a national security law “to prohibit any act of treason, secession, sedition, and subversion against the Chinese government.
    • When the Hong Kong government first tried to enact the law in 2003, the issue became a rallying point for the city-wide protests which occurred that year.
    • Since then, the government has steered clear of introducing the legislation again.
    • Beijing could now make the law applicable to Hong Kong by another route — by inserting the legislation in Annex III of the Basic Law.
    • The Chinese parliament is expected to vote on a resolution that will make way for the new law, which could be promulgated in Hong Kong.

    What could happen if such a law takes effect?

    • The new law would ban seditious activities that target mainland Chinese rule, as well as punish external interference in Hong Kong affairs.
    • Many expect a revival of the protests that rocked the city last year.
    • China, on the other hand, has sought support and understanding of India and other countries for its controversial decision as a precautionary measure.

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