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  • Innovations in Biotechnology and Medical Sciences

    Crystalline Rubrene for Optoelectronic Devices

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

    Indian scientists have found a new process for synthesizing crystalline rubrene for the development of optoelectronic devices and also for preparation of Electronic Skin (E-Skin).

    Note the difference between the Pyro-electric/ Piezo-electric/ Pyro-photonic effects. UPSC may shuffle the meaning of such terms in statement based prelims question.

    What is crystalline rubrene?

    • Crystalline rubrene is a polycyclic aromatic hydrocarbon-based thin film.
    • It is a water-free, solvent-free, environmentally friendly one-step plasma process.
    • It demonstrated optoelectronic properties (which detect and control light).
    • A highly uniform pin-hole-free thin film can be deposited by this process, which is useful for the fabrication of high-end devices.

    Working principle

    • Devices made of pyro-electric materials (that generate electric charge when they are heated or cooled) and piezo-electric materials (that generate electric charge under the effect of mechanical pressure), can help detect change in temperature and pressure.
    • Pyro-electric materials also show pyro-phototronic effect where pyro-electricity is associated with the change in temperature of a material when it absorbs photons.
    • Pyro-electric infrared detectors are well known for application in infrared sensing for space research, defense, remote sensing, and household appliances.

    Principle application: Human Skin

    • These kinds of materials are available in biological systems such as – human skin, plant cellulose leading to their significance in the understanding of basic science of biological systems and also in their huge application prospect.
    • The rubrene crystal has a thin amorphous oxide layer formed over the crystalline film.
    • This induces surface layer polarization effect leading to pyro-phototronic effect.

    Significance of the research

    • Since last few years, scientists from around the world are working on the synthesis of organic materials for electronic applications.
    • The conventional process for synthesis of organic electronic materials based on chemical processes provides very good quality materials, but the stability of the materials is not very good, and it requires use of solvents.
    • Moreover, multiple steps are required for material synthesis and film deposition.

    Applications

    • This novel process developed by the Indian team is useful for developing advanced optoelectronic devices and preparation of Electronic Skin (E-Skin).
    • It may prove to be useful tool for laboratory simulation of different biological systems for probing the organization and dynamics of those systems.

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  • J&K – The issues around the state

    Central Administrative Tribunal (CAT) bench for the UT of J&K and Ladakh

    PIB | Polity | Mains Paper 2: Constitutional Bodies

    The union govt. has inaugurated the 18th Bench of Central Administrative Tribunal (CAT) for the Union Territories of Jammu and Kashmir and Ladakh.

    Try this question from our AWE initiative:

    “The Central Administration Tribunal which was established for redressal of grievances and complaints by or against central government employees nowadays is exercising its powers as an independent judicial authority.” Explain. (10 Marks)

    What is Central Administrative Tribunal (CAT)?

    • The Central Administrative Tribunal had been established under Article 323 – A of the Constitution for adjudication of disputes and complaints with respect to recruitment and conditions of service.
    • It aims to provide speedy and inexpensive justice to the aggrieved public servants.
    • It adjudicates for the persons appointed to public services and posts in connection with the affairs of the Union or other authorities under the control of the Government.
    • In pursuance of Article 323-A, the Parliament has passed the Administrative Tribunals Act in 1985.
    • The act authorizes the Central government to establish one Central Administrative Tribunal and the state administrative tribunals.

    Composition of the CAT

    • The CAT is a specialist body consisting of Administrative Members and Judicial Members who by virtue of their specialized knowledge are better equipped to dispense speedy and effective justice.
    • A Chairman who has been a sitting or retired Judge of a High Court heads the Central Administrative Tribunal.
    • There are now 18 Benches and 21 Circuit Benches in the CAT all over India.

    Its functioning

    • It exercises jurisdiction only in relation to the service matters of the parties covered by the Administrative Tribunals Act, 1985.
    • The Tribunal is guided by the principles of natural justice in deciding cases and is not bound by the procedure, prescribed by the Civil Procedure Code.
    • Under Section 17 of the Administrative Tribunal Act, 1985, the Tribunal has been conferred with the power to exercise the same jurisdiction and authority in respect of contempt of itself as a High Court.

    Independence of working

    • The conditions of service of the Chairman and Members are the same as applicable to a Judge of High Court as per the Administrative Tribunals (Amendment) Act, 2006.
    • The orders of CAT are challenged by way of Writ Petition under Article 226/227 of the Constitution before respective High Court in whose territorial jurisdiction the Bench of the Tribunal is situated.

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  • Foreign Policy Watch: India-China

    Pay attention to their objectives in dealing with China and Pakistan

    op-ed snap | International Relations | Mains Paper 2: India & Its Neighborhood – Relations

    While their interests overlap, Pakistan and China diverge when it comes to their objective in Kashmir. Both want to keep the pressure on India to avoid it from changing the status quo. Extending this line of argument, the author in this article suggest that India should separate the policy response to China from Pakistan, as they differ in their objectives.

    Coordinated efforts to corner India?

    • Latest news on the Ladakh front suggests that Chinese and Indian forces have begun to disengage in select areas.
    • But this does not detract from the reality that in the past few weeks Beijing and Islamabad are making coordinated efforts to challenge India’s presence in the Kashmir-Ladakh region.
    • There is stepped-up activity on Pakistan’s part to infiltrate terrorists into the Valley.
    • China has undertaken provocative measures on the Ladakh front to assert control over disputed areas around the Line of Actual Control (LAC).

    Let’s see how Pakistan and China’s interests overlap

    • In Pakistan’s case the intensification in its terrorist activities is related in part to the dilution of Article 370. 
    • Dilution of Article 370 helps India de-link Ladakh from the Kashmir problem.
    • For China, the division of Ladakh from Jammu and Kashmir allows India a freer hand in contesting China’s claims in the region.
    • Increasing road-building activity on India’s part close to the LAC augments this perception.
    • In addition, Ladakh borders China’s most restive provinces of Xinjiang and Tibet.
    • Ladakh is also contiguous to Pakistan-occupied Kashmir (PoK), Gilgit and Baltistan, where the Chinese have invested hugely under the China-Pakistan Economic Corridor (CPEC) project.
    • External Affairs Minister S. Jaishankar’s remark last year that India expects to have “physical jurisdiction over (POK) one day” has alarmed Beijing which sees any such Indian move as threatening the CPEC project.
    • These factors demonstrate the overlapping interests that Beijing and Islamabad have regarding India in this region.

    The above factors explain why Pakistan and China would want India to be so preoccupied with taking defensive measures in Kashmir and Ladakh as to have little time and energy left to attempt to alter the status quo in POK or in Aksai Chin.

    But there are major differences in Pakistani and Chinese objectives regarding India

    • These differences are related to their divergent perceptions of their disputes and their different force equations with India.
    • For China, Ladakh is primarily a territorial dispute with strategic ramifications.
    • China also believes it is superior to the Indian militarily and, therefore, can afford to push India around within limits as it has been attempting to do in the recent confrontation.
    • For Pakistan, its territorial claim on Kashmir is based on an immutable ideological conviction that it is the unfinished business of partition and as a Muslim-majority state is destined to become a part of Pakistan.
    • Islamabad also realises that it is the weaker power in conventional terms and therefore has to use unconventional means, primarily terrorist infiltration, to achieve its objective of changing the status quo in Kashmir.
    • China is a satiated power in Ladakh having occupied Aksai Chin and wants to keep up the pressure on New Delhi to prevent the latter from trying to change the situation on the ground.

    Way forward-Pay attention to objectives while negotiating

    • China’s primary concern with regard to Kashmir is to prevent any Indian move from threatening the CPEC project.
    • It does not challenge the status quo in Kashmir.
    • Pakistan, on the other hand, is committed to changing the status quo in Kashmir at all cost.
    • It has been trying to do so since Partition not only through clandestine infiltration but also by engaging in conventional warfare.
    • Therefore, while it is possible to negotiate the territorial dispute with China on a give-and-take basis.
    • Doing the same is not possible in the case of Pakistan which considers Kashmir a zero-sum game.
    • India should, therefore, distinguish the different objectives on the part of Beijing and Islamabad and tailor its responses accordingly without conflating the two threats to its security.

    Consider the question “Policy response of India in dealing with Pakistan and China should consider differences in their objectives in relation to Kashmir. And clubbing them together just because of their tactical overlap should be avoided. Elaborate.”

    Conclusion

    Lumping the twin threats posed by Pakistan and China together because of a tactical overlap between them makes it difficult to choose policy options rationally. So, the policy response must understand the difference in their objectives and avoid clubbing them together.

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  • Foreign Policy Watch: India-China

    India-China border crisis: It is not about the U.S.

    | International Relations | Mains Paper 2: Effect Of Policies & Politics Of World On India’S Interests,India & Its Neighborhood – Relations

    India’s growing closeness to the U.S. could be the reason for China’s aggression along India’s border. This is the explanation we often come across. But is it really the case?. This article probes the same question. Example of China’s dispute with Indonesia and Philippine help us analyse the U.S. angle to Indo-China border dispute. So, what is the conclusion?

    An easy explanation to India-China border crisis

    • Why has China precipitated a fresh military crisis with India in eastern Ladakh?
    • Among the many explanations making the rounds in Delhi, there is always the easy and attractive one — it’s all about America.
    • Delhi has incurred Beijing’s wrath by moving closer to Washington, goes the argument.
    • India’s renewed enthusiasm for the US-led Quad, it is said, is encouraging China to teach a lesson to Delhi.

    But does this explanation applies to the other countries as well? Look at Indonesia

    • No!
    • This theory does not hold up in relation to other countries having problems with China.
    • Let us turn to the South China Sea, where China is on a bold and ambitious drive to expand its control over the disputed waters.
    • Let us start with gathering tensions over the territorial dispute between Beijing and Jakarta.
    • Over the last year and more, Jakarta is coping with a Chinese challenge in its waters off its Natuna Islands.
    • The Natuna are nearly 1,500 km from the Chinese mainland.
    • The Natuna themselves lie outside Beijing’s nine-dash line that claims nearly 80 per cent of the South China Sea.
    • The dispute is over the exclusive economic zone that the islands confer on Indonesia.
    • China says it has historic rights to these waters and has been dispatching its fishing fleet into these waters.

    Maybe China sees a problem with Jakarta-Washington relations: Let’s analyse

    • Jakarta did not support the US approach to the Indo-Pacific.
    • and went to great lengths to develop a concept of its own and get it endorsed by the ASEAN.
    • Indonesia is not a member of the much-maligned Quad.
    • Its foreign policy is wedded to non-alignment.
    • And as the host of the historic Bandung Conference in 1955, Indonesia is a founding member and champion of Non-aligned Movement.

    Now, let’s consider second example: Philippines

    • The story of the Philippines — one of the oldest military allies of the US in Asia — nicely complements the non-aligned Indonesia’s troubles with China.
    • When he came to power in 2016, President Rodrigo Duterte decided to distance the Philippines from the US and embraced China.
    • He had a hope of finding a reasonable settlement to the substantive maritime territorial dispute with Beijing.
    • In February this year, Manila announced the decision to terminate the agreement that lets American troops operate in the Philippines.
    • But last week, the Philippines “suspended” the decision to terminate military cooperation with the US.
    • The reason: The PLA’s relentless military pressure on the South China Sea islands claimed by Manila and including them in a new Chinese administrative district.

    So, what the two examples suggest?

    • Neither Jakarta that is scrupulously non-aligned nor Manila that was ready to break its alliance with the US has been spared from Beijing’s current muscular approach to China’s territorial disputes.
    • China has long-standing claims, right or wrong, on the territories of its neighbours.
    • The other is the dramatic shift in the regional power balance in favour of China.
    • Unlike in the past, China now has the military power to make good its claims and alter the territorial status quo, if only in bits and pieces.
    • This is what China is doing in the South China Sea.
    • And the situation may not be any different in Ladakh.

    Consider the question “The shift in the regional power balance and not the growing Indo-U.S. relations explains the assertive nature of China in India-China border issues. Elaborate.”

    Conclusion

    The real challenge for Delhi in managing its expansive territorial dispute with Beijing, then, is to redress the growing power imbalance with China. The rest is detail.

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  • Panchayati Raj Institutions: Issues and Challenges

    Taking care of finances of local governments

    op-ed snap | Polity | Mains Paper 2: Panchayats & Local Bodies

    This article makes some suggestions to improve local finance and argues that the extant fiscal illusion is a great deterrent to mobilisation.

    Advantageous position in handling disasters

    • In terms of information, monitoring and immediate action, local governments are at an advantage, and eminently, to meet any disaster such as COVID-19.
    • While increasing the borrowing limits of the state form 3.5% of GDP to 5%, there was a recognition that local governments should be fiscally empowered immediately.
    • This is a valid signal for the future of local governance.

    4 challenges posed by Covid and addressing them collectively

    • COVID-19 has raised home four major challenges:1) economic, 2) health, 3) welfare/livelihood 4) resource mobilisation.
    • These challenges have to be addressed by all tiers of government in the federal polity, jointly and severally.

    Local government empowerment: 5 critical areas

    • 1) Own revenue is the critical lever of local government empowerment.
    • But the several lacunae that continue to bedevil local governance have to be simultaneously addressed.
    • 2) The new normal demands a paradigm shift in the delivery of health care at the cutting edge level.
    • 3) The parallel bodies that have come up after the 73rd/74th Constitutional Amendments have considerably distorted the functions-fund flow matrix at the lower level of governance.
    • 4) There is yet no clarity in the assignment of functions, functionaries and financial responsibilities to local governments.
    • Functional mapping and responsibilities continue to be ambiguous in many States.
    • Instructively, Kerala attempted even responsibility mapping besides activity mapping.
    • 5) The critical role of local governments will have to be recognised by all.

    Let’s look into resource mobilisation issue: 3 Heads

    • A few suggestions for resource mobilisation are given under three heads: 1) local finance, 2) Members of Parliament Local Area Development Scheme-MPLADs, 3) the Fifteenth Finance Commission (FFC).

    1. Local finance

    • Property tax collection with appropriate exemptions should be a compulsory levy and preferably must cover land.
    • The Economic Survey 2017-18 points out that urban local governments, or ULGs, generate about 44% of their revenue from own sources as against only 5% by rural local governments, or RLGs.
    • Per capita own revenue collected by ULGs is about 3% of urban per capita income while the corresponding figure is only 0.1% for RLGs.
    • There is a yawning gap between tax potential and actual collection, resulting in colossal underperformance.
    • When they are not taxed, people remain indifferent.
    • LGs, States and people seem to labour under a fiscal illusion.
    • In States such as Uttar Pradesh, Bihar and Jharkhand, local tax collection at the panchayat level is next to nil.
    • Property tax forms the major source of local revenue throughout the world.
    • All States should take steps to enhance and rationalise property tax regime.
    • A recent study by Professor O.P. Mathur shows that the share of property tax in GDP has been declining since 2002-03.
    •  The share of property tax in India in 2017-18 is only 0.14% of GDP as against 2.1% in the Organisation for Economic Co-operation and Development (OECD) countries.
    • If property tax covers land, that will hugely enhance the yield from this source even without any increase in rates.

    Other 2 options for raising finances

    • 1) Land monetisation and betterment levy may be tried in the context of COVID-19 in India. To be sure, land values have to be unbundled for socially relevant purposes.
    • 2) Municipalities and even suburban panchayats can issue a corona containment bond for a period of say 10 years.
    • We are appealing to the patriotic sentiments of non-resident Indians and rich citizens.
    • Needless to say, credit rating is not to be the weighing consideration.
    • That the Resurgent India Bond of 1998 could mobilise over $4 billion in a few days encourages us to try this option.

    2) MPLADS

    • The suspension of MPLADS by the Union government for two years is a welcome measure. The annual budget was around ₹4,000 crore.
    • The Union government has appropriated the entire allocation along with the huge non-lapseable arrears.
    • MPLADs, which was avowedly earmarked for local area development, must be assigned to local governments, preferably to panchayats on the basis of well-defined criteria.

    3) Fifteenth finance commission-FFC

    • A special COVID-19 containment grant to the LGs by the FFC to be distributed on the basis of SFC-laid criteria is the need of the hour.
    • The commission may do well to consider this.
    • The local government grant of ₹90,000 crore for 2020-2021 by the FFC is only 3% higher than that recommended by the Fourteenth Finance Commission.
    • Building health infrastructure and disease control strategies at the local level find no mention in the five tranches of the packages announced by the Union Finance Minister.

    Suggestions related to grants

    • The ratio of basic (i.e. with no conditions) to tied (with condition)grant is fixed at 50:50 by the commission.
    • In the context of the crisis under way, all grants must be untied  for freely evolving proper COVID-19 containment strategies locally.
    • The 13th Finance Commission’s recommendation to tie local grants to the union divisible pool of taxes to ensure a buoyant and predictable source of revenue to LGs (accepted by the then Union government) must be restored by the commission.

    Consider the question “The stable source of revenue for the local government bodies whether from their own sources or in the form of grants should lie at the heart of efforts to empower them. Comment.”

     Conclusion

    COVID-19 has woken us up to the reality that local governments must be equipped and empowered. Relevant action is the critical need.

    B2BASICS:

    73rd and 74th Amendment Acts, 1993

    • It’s been 25 years since decentralized democratic governance was introduced in India by the 73rd and 74th Constitution Amendments, which came into force on April 24 and June 1, 1993, respectively.
    • The 73rd Amendment to the Constitution (Part IX) has given constitutional status to the Panchayats, and has provided it with a substantial framework. It envisions the Panchayats as the institutions of local self-governance and also the universal platforms for planning and implementing programmes for economic
      development and social justice.
    • The creation of lakhs of “self-governing” village panchayats and gram sabhas, with over three million elected representatives mandated to manage local development, was a unique democratic experiment.
    • Article 243A gives constitutional recognition to the Gram Sabha as a body consisting of persons registered in the electoral rolls relating to a village comprised within the area of the Panchayat at the village level.
    • The 74th Amendment Act provided for the constitution (Part IXA) of three types of municipalities in urban areas depending upon the size and area.
    • The Constitution provides for a complete institutional mechanism including reservation for women and formation of State Finance Commissions (SFCs) for local democracy.

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  • Coronavirus – Economic Issues

    Who is afraid of monetisation of deficit?

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

    Rating agencies influence the decisions of investors. So, when any economy is downgraded by them, it’s certainly a cause for concern. But to restart the economic engines, governments need to spend more by borrowing. This article suggests the way to achieve both: avoiding downgrade and increasing spending. How? Read to know…

    To worry or not to worry: Issue of downgrading by rating agencies

    • Some economists urged the government amid covid pandemic to go out and spend without worrying about the increase in public debt.
    • They said the rating agencies would understand that these are unusual times.
    • If they did not and chose to downgrade India, we should not worry too much about it.
    • Well, the decision of the rating agency, Moody’s, to downgrade India from Baa2 to Baa3 should come as a rude awakening.
    • The present rating is just one notch above the ‘junk’ category.
    • Moody’s has also retained its negative outlook on India, which suggests that a further downgrade is more likely than an upgrade.
    •  The downgrade, Moody’s says, has not factored in the economic impact of the pandemic.
    • Any further deterioration in the fundamentals from now on will push India into ‘junk’ status.

    Here is why we should be worried about a downgrade

    •  Whatever the failings of the agencies, in the imperfect world of global finance that we live in, their ratings do carry weight.
    • Institutional investors are largely bound by covenants that require them to exit an economy that falls below investment grade.
    • If India is downgraded to junk status, foreign institutional investors, or FIIs, will flee in droves.
    • The stock and bond markets will take a severe beating.
    • The rupee will depreciate hugely and the central bank will have its hands full trying to stave off a foreign exchange crisis.
    • That is the last thing we need at the moment.

    So, what is the way out? Try for an upgrade!

    • We have to put our best foot forward now to prevent a downgrade and bring about an upgrade instead.
    • To do so, we need to note the key concerns that Moody’s has cited in effecting the present downgrade to our rating: slowing growth, rising debt and financial sector weakness.
    • These concerns are legitimate.

    Bleak prospects

    • Many economists as also the Reserve Bank of India (RBI) expect India’s economy to shrink in FY 2020-21.
    • The combined fiscal deficit of the Centre and the States is expected to be in the region of 12% of GDP.
    • Moody’s expects India’s public debt to GDP ratio to rise from 72% of GDP to 84% of GDP in 2020-21.
    • The banking sector had non-performing assets of over 9% of advances before the onset of the pandemic.
    • Weak growth and rising bankruptcies will increase stress in the banking sector.

    Fiscal deficit and growth: two concerns of rating agencies

    • The government’s focus thus far has been on reassuring the financial markets that the fisc will not spin out of control.
    • It has kept the ‘discretionary fiscal stimulus’ down to 1% of GDP.
    • That 1%  figure is most modest in relation to that of many other economies, especially developed economies.
    • ‘Discretionary fiscal stimulus’ refers to an increase in the fiscal deficit caused by government policy as distinct from an increase caused by slowing growth, the latter being called an ‘automatic stabiliser’.
    • Keeping the fiscal deficit on a leash addresses the concerns of rating agencies about a rise in the public debt to GDP ratio.
    • But it does little to address their concerns about growth.
    • The debt to GDP ratio will worsen and financial stress will accentuate if growth fails to recover quickly enough.
    • The government’s stimulus package relies heavily on the banking system to shore up growth.
    • But there is only so much banks can do.
    • More government spending is required, especially for infrastructure.

    So, government need to increase fiscal stimulus without increasing public debt

    • We need to increase the discretionary fiscal stimulus without increasing public debt.
    • The answer is monetisation of the deficit, that is, the central bank providing funds to the government.
    • These fears are based on misconceptions about monetisation of the deficit and its effects.

    What monetisation of debt mean?

    • A common misconception is that it involves ‘printing notes’.
    • But that is not how central banks fund the government.
    • The central bank typically funds the government by buying Treasury bills.
    • As proponents of what is called Modern Monetary Theory point out, even that is not required.
    • The central bank could simply credit the Treasury’s account with itself through an electronic accounting entry.
    • What is base money? When the government spends the extra funds that have come into its account, there is an increase in ‘Base money’, that is, currency plus banks’ reserves.
    • So, yes, monetisation results in an expansion of money supply.
    • But that is not the same as printing currency notes.

    But expansion of money supply leads to inflation, what about that?

    • It could be that the expansion is inflationary.
    • This objection has little substance in a situation where aggregate demand has fallen sharply and there is an increase in unemployment.
    • In such a situation, monetisation of the deficit is more likely to raise actual output closer to potential output without any great increase in inflation.

    No difference in borrowing from banks or RBI directly:MMT

    • Exponents of the Modern Monetary Theory (MMT) make a more striking point.
    • They say there is nothing particularly virtuous about the government incurring expenditure and issuing bonds to banks instead of issuing these to the central bank.
    • The expansion in base money and hence in money supply is the same in either route.
    • The preference for private debt is voluntary.
    • MMT exponents say it has more to do with an ideological preference for limiting government expenditure.
    • Central banks worldwide have resorted to massive purchases of government bonds in the secondary market in recent years, with the RBI joining the party of late.
    • These are carried out under Open Market Operations (OMO).
    • The impact on money supply is the same whether the central bank acquires government bonds in the secondary market or directly from the Treasury.

    So why the shrill clamour against monetisation of public debt?

    • OMO is said to be a lesser evil than direct monetisation because the former is a ‘temporary’ expansion in the central bank’s balance sheet whereas the latter is ‘permanent’.
    • But we know that even so-called ‘temporary’ expansions can last for long periods with identical effects on inflation.
    • What matters, therefore, is not whether the central bank’s balance sheet expansion is temporary or permanent but how it impacts inflation.
    • As long as inflation is kept under control, it is hard to argue against monetisation of the deficit in a situation such as the one we are now confronted with.

    Way forward

    • We now have a way out of the constraints imposed by sovereign ratings.
    • The government must confine itself to the additional borrowing of ₹4.2 trillion which it has announced.
    • Further discretionary fiscal stimulus must happen through monetisation of the deficit.
    • That way, the debt to GDP ratio can be kept under control while also addressing concerns about growth.

    Consider the question “Examine the issues involved in the direct monetisation of the debt by the government to fund the spending in  the wake of covid pandemic.”

    Conclusion

    The rating agencies should be worrying not about monetisation per se but about its impact on inflation. As long as inflation is kept under control, they should not have concerns — and we need not lose sleep over a possible downgrade.

    Back2Basics: Automatic stabiliser

    • Automatic stabilisers refer to how fiscal instruments will influence the rate of growth and help counter swings in the economic cycle.
    • Automatic stabilisers will influence the size of government borrowing.

    Discretionary fiscal policy

    • Keynesian Perspective: Keynes noted that in a recession, confidence falls and the private sector cut back on spending and investment.
    • Therefore, we see a rise in private savings and a fall in aggregate demand. This can worsen the recession.
    • This is why Keynes advocated government borrowing – to make use of these surplus savings.
    • Keynes argued that automatic stabilisers may not be enough, and the government should specifically find public sector projects to inject money into the circular flow.
    • This is known as discretionary fiscal policy.

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

    India’s rising Forex Reserves

    | Economics | Mains Paper 3: Indian Economy

    India’s foreign exchange reserves are rising and are slated to hit the $500 billion mark soon. In the last month, it jumped by $12.4 billion to an all-time high of $493.48 billion.

    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

    Rising above the 1991 crisis

    • Unlike in 1991, when India had to pledge its gold reserves to stave off a major financial crisis, the country can now depend on its soaring Forex reserves to tackle any crisis on the economic front.
    • The level of Forex reserves has steadily increased by 8,400 per cent from $5.8 billion as of March 1991 to the current level.

    What are 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.

    Why is Forex rising despite the slowdown in the economy?

    1.Rise in  FPIand  FII

    • The major reason for the rise in forex reserves is the rise in investment in foreign portfolio investors in Indian stocks and foreign direct investments (FDIs).
    • Foreign investors had acquired stakes in several Indian companies in the last two months.
    • Forex inflows are set to rise further and cross the $500 billion as Reliance Industries subsidiary, Jio Platforms, has witnessed a series of foreign investments totalling Rs 97,000 crore.

    2.Crash in oil prices

    • On the other hand, the fall in crude oil prices has brought down the oil import bill, saving the precious foreign exchange.

    3.Fall in overseas remittances and foreign travel

    • Similarly, overseas remittances and foreign travels have fallen steeply – down 61 per cent in April from $12.87 billion.

    What’s the significance of rising forex reserves?

    • The rising forex reserves give a lot of comfort to the government and the RBI in managing India’s external and internal financial issues at a time when the economic growth is set to contract by 1.5 per cent in 2020-21.
    • Provides Cushion: It’s a big cushion in the event of any crisis on the economic front and enough to cover the import bill of the country for a year.
    • Appreciation of Rupees: The rising reserves have also helped the rupee to strengthen against the dollar.
    • The forex reserves to GDP ratio is around 15 per cent.
    • Provides confidence to Market: Reserves will provide a level of confidence to markets that a country can meet its external obligations, demonstrate the backing of domestic currency by external assets, assist the government in meeting its US dollar needs and external debt obligations and maintain a reserve for national disasters or emergencies.

    What does the RBI do with the forex reserves?

    • The RBI functions as the custodian and manager of forex reserves and operates within the overall policy framework agreed upon with the government.
    • The RBI allocates the dollars for specific purposes. For example, under the Liberalized Remittances Scheme, individuals are allowed to remit up to $250,000 every year.
    • The RBI uses its forex kitty for the orderly movement of the rupee. It sells the dollar when the rupee weakens and buys the dollar when the rupee strengthens.

    Where are India’s forex reserves kept?

    • The RBI Act, 1934 provides the overarching legal framework for the deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, issuers and counterparties.
    • As much as 64 per cent of the foreign currency reserves is held in the securities like Treasury bills of foreign countries, mainly the US.
    • 28 per cent is deposited in foreign central banks and 7.4 per cent is also deposited in commercial banks abroad.
    • In value terms, the share of gold in the total foreign exchange reserves increased from about 6.14 per cent as at end-September 2019 to about 6.40 per cent as at end-March 2020.

    Is there a cost involved in maintaining forex reserves?

    • The return on India’s forex reserves kept in foreign central banks and commercial banks is negligible.
    • While the RBI has not divulged the return on forex investment, analysts say it could be around one per cent, or even less than that, considering the fall in interest rates in the US and Eurozone.
    • There was a demand from some quarters that forex reserves should be used for infrastructure development in the country. However, the RBI had opposed the plan.
    • Several analysts argue for giving greater weightage to return on forex assets than on liquidity thus reducing net costs if any, of holding reserves.
    • Another issue is the high ratio of volatile flows (portfolio flows and short-term debt) to reserves which are around 80 per cent. This money can exit at a fast pace.

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  • Gairsain to be Uttarakhand new Summer Capital

    Prelims Only | Polity | Mains Paper 2: Federalism

    The Uttarakhand Governor has given her assent for declaration of Bhararisen (Gairsain) in Chamoli district as its summer capital.

    Practice question:

    Q. Discuss the feasibility of having multiple administrative capitals for some states in India.

    Gairsain

    • Gairsain is situated at the eastern edge of the vast Dudhatoli mountain range, located almost at the centre of the state, at a distance of approximately 250 kilometres from Dehradun.
    • It is easily accessible from both the Garhwal and the Kumaon divisions, and in a way, acts as the bridge between the two regions.
    • The state Assembly is located in Dehradun, but sessions are held in Gairsain as well.

    Why Gairsain is held as summer capital?

    • Gairsain was best suited to be the capital of the mountainous state as it was a hilly region falling on the border of Kumaon and Garhwal regions.
    • Even when Uttarakhand was carved out as a separate state from UP on November 9, 2000, statehood activists had contended that Gairsain was best suited to be the capital.
    • But it was Dehradun in the plains that were named the temporary capital. The issue is largely political.

    What are the other examples of multiple capital cities?

    • Several countries in the world have implemented the concept.
    • In Sri Lanka, Sri Jayawardenepura Kotte is the official capital and seat of the national legislature, while Colombo is the de facto seat of the national executive and judicial bodies.
    • Malaysia has its official and royal capital and seat of the national legislature at Kuala Lumpur, and Putrajaya is the administrative centre and seat of the national judiciary.
    • Among Indian states, Maharashtra has two capitals– Mumbai and Nagpur (which holds the winter session of the state assembly).
    • Himachal Pradesh has capitals at Shimla and Dharamshala (winter).
    • The former state of Jammu & Kashmir had Srinagar and Jammu (winter) as capitals (remember Darbar Move).

    Also read:

    https://www.civilsdaily.com/news/concept-of-three-capitals-in-andhra-pradesh/

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

    Shapes of Economic Recovery

    | Economics | Mains Paper 3: Indian Economy

    Predicting recovery graphs, economists have added cool shapes for our information.

    The types of graphs mentioned here are the possible indicators of macro-economic recovery. They are the potential hotspots for a prelim question. UPSC can puzzle you with the type of graphs and associated macroeconomic situation.

    Try to mirror! How would our economy grow?!

    Types of graphs

    The shape of economic recovery is determined by both the speed and direction of GDP prints. This depends on multiple factors including fiscal and monetary measures, consumer incomes and sentiment.

    • The best scenario is a V-shaped recovery in which the economy quickly recoups lost ground and gets back to the normal growth trend-line.
    • A pipe graph is a V graph with a longer tail — the recovery isn’t one that happens quickly over one quarter but over two-three quarters.
    • The pipe is different from the Swoosh because in the latter the economy bears the pain for longer.
    • A Z–shaped recovery is when a post-lockdown spending surge is so fierce that growth is lifted above the trendline and then after a party settles down to trend. The Z-shaped recovery is the most-optimistic scenario in which the economy quickly rises like a phoenix after a crash.
    • A U-shaped recovery — resembling a bathtub — is a scenario in which the economy, after falling, struggles and muddles around a low growth rate for some time, before rising gradually to usual levels.
    • A W-shaped recovery is a dangerous creature — growth falls and rises, but falls again before recovering yet again, thus forming a W-like chart. The double-dip depicted by a W-shaped recovery is what some economists are predicting if the second wave of COVID comes along and the initial rebound flatters to deceive.
    • The L-shaped recovery is the worst-case scenario, in which growth after falling, stagnates at low levels and does not recover for a long, long time.
    • Then, there is the J-shaped recovery, a somewhat unrealistic scenario, in which growth rises sharply from the lows much higher than the trend-line and stays there.
    • There is also the Swoosh shaped recovery, similar to the Nike logo — in between the V-shape and the U-shape. Here, after falling, growth starts recovering quickly but then, slowed down by obstacles, moves gradually back to the trend-line.
    • Finally, say hello to the Inverted square root shaped In this, there could a rebound from the bottom, the growth slows and settles a step-down.

    Why is it important for India?

    • The Indian economy was slowing down even before COVID hit, and the trouble has now been amplified manifold because of the lockdowns.
    • Experts predict a fall of up to 5 per cent in the GDP in FY-21.
    • This is clearly a crisis situation, and our getting out of the hole will depend a great deal on the shape of the economic recovery that will hopefully follow.
    • A Z- or at least V-shaped recovery would be the most preferable. If not, we should at least have a U-shaped recovery or a Swoosh to get back on our feet in a couple of years.
    • A W-shape will bring in much pain before the eventual gain, while an L-shape or the Inverted-square root will make a wreck of the growth train.

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

    International Convention for the Prevention of Pollution from Ships (MARPOL)

    PIB | Enviro & Biodiversity | Mains Paper 3: Infrastructure: Energy, Ports, Roads, Airports, Railways Etc.

    The Ministry of Shipping has informed about the steps taken for prevention and control of pollution arising from ships in the sea and in the inland waterways under the MARPOL Convention.

    Aspirants must note the following things:

    1. If the convention is a subsidiary to the United Nations/IMO,

    2. Whether it is Legally binding?

    3. If India is a signatory or not …..

    MARPOL Convention

    • MARPOL is the main international convention aimed at the prevention of pollution from ships caused by operational or accidental causes.
    • The Protocol of 1978 was adopted in response to a number of tanker accidents in 1976–1977.
    • It is one of the most important international marine environmental conventions.
    • It was developed by the IMO with an objective to minimize pollution of the oceans and seas, including dumping, oil and air pollution.
    • The Convention includes regulations aimed at preventing and minimizing pollution from ships – both accidental pollution and that from routine operations – and currently includes six technical Annexes.
    • India is a signatory to MARPOL.
    • It has six annexes (I to VI) and it deals with prevention of (1) Pollution from ships by Oil, (2) Noxious liquid substances, (3) Dangerous goods in packaged form, (4) Sewage, (5) Garbage and (6) Air pollution from ships respectively.

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