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  • Stimulus package conundrum

    There are many suggestions and expectations around the stimulus package deal to revive the economy crippled post corona pandemic. While everyone agrees over the need of stimulus but there are several opinions and suggestion around the various aspects of the package like size, time, source of revenue etc. But we must be mindful of the pitfalls and constraints while thinking about the stimulus package. So, what are the suggestion and expectation and what are the limitations? Read to know!

    1. Supply-side constraints on stimulus

    • It is argued that a fiscal stimulus package has to follow the timeline.
    • But you cannot ‘stimulate’ an economy during a supply-side lockdown.
    • And that there are ‘announcement effects’ — both good and bad — that go with the stimulus.
    • So, any ‘good stimulus’ can only come into effect post lockdown and extensive consultations are on with everyone for that.

    2. What should be the size of the stimulus package?

    • While thinking about the stimulus, we cannot forget that government revenues too will be seriously hit.
    • The government revenue will be hit by 2-3% of GDP, given that disinvestment target itself is 1% of GDP and the realisation is likely to be close to zero in the current financial year.
    • So, the effective fiscal deficit is going to be somewhere around 7.5 % if you take into account all the off-balance sheet borrowings.
    • The U.S. government has set aside $2 trillion for bailouts or 9% of its GDP.
    • India’s starting point is going to be at around 7.5% of GDP fiscal deficit, then how much more can we afford on top of that?
    • On top of this is all the ‘merit expenditure’ on health and direct income support to the poor cannot be reduced.
    • Can we still formulate a stimulus package comprising 10% of GDP, to be footed by the Central government alone?

      Monetising the deficit and debt-to-GDP ratio

    • From 1947 to 1997, the Central government always routinely monetised its deficit, without leading to high rates of inflation, much less hyperinflation.
    • The Fiscal Responsibility and Budget Management (FRBM) limits are hardly a success and routinely all governments have broken the barrier.
    • Other countries with huge debt-to-GDP ratios like Japan (>200%) and U.S. (125%) get away with barely a rap on the knuckles.
    • But India is pulled up for minor slippages on a 70% debt-GDP ratio.

    3. Should we pay attention to needs and forget about affordability?

    • Some have argued that bailouts should be based on need and not affordability.
    • Can printing money be a solution out of this situation?
    • Possible dangers of printing money: The currency could plunge, inflation soar high and rating agencies could downgrade us to junk.
    • So, shouldn’t there be a more nuanced approach to what constitutes a ‘good’ stimulus?

    4. The problem of low credit flow despite high liquidity

    • There is a lot of liquidity in the economy, but limited credit is flowing due to anaemic lending.
    • Thus, another mantra being espoused is that bank managers should be incentivised to lend and the government should indemnify loans given during this period.
    • This could well lead to bogus companies springing up overnight to grab the stimulus in collusion with banks.
    • The government owes about ₹1 lakh crore on tax refunds and also had promised to make up for any difference to the States, if the GST did not grow by 14% per annum.
    • This is the time for it to transfer this to the States as a grant, for one year, to offset the revenue loss to States.

    5. Should we go to the IMF?

    • There is talk of going to the International Monetary Fund (IMF).
    • Do we really need the IMF’s bailout which comes with conditions when there is no foreign exchange crisis for financing rupee expenditure?
    • Moreover, there is a perceived global stigma attached to doing so.
    • Won’t the conditionality-led cure be worse than the disease?

    Consider the following question based on the issue “Economic crises accentuate the role of governments. Covid-19 has not been different. In light of the above statement, discuss the various issues that the government faced while coming up with a stimulus package to revive the economy. What are the sources of revenue to be tapped by the government?”

    Conclusion

    Fate is what happens to us. Destiny is what we make in spite of our fate. India’s destiny appears relatively safe, if we cast the mind’s eye around the globe. Lifting the lockdown will be the first step towards a good stimulus and one does need to un-handcuff a billion people to save their lives too.

  • Co-operative banks can use SARFAESI Act to recover dues: Supreme Court

    A five-judge Constitution Bench of the Supreme Court (SC) has ruled that all co-operative banks in the country could make use of the SARFAESI Act to make recovery against defaulting persons.

    Possible mains question:

    What is the SARFAESI Act, 2002? Discuss its various provisions and efficacy to curb Non-Performing Assets (NPAs)?

    What is Sarfaesi Act, 2002?

    • Sarfaesi is an acronym for Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest.
    • It allows banks and other financial institution to auction residential or commercial properties (of Defaulter) to recover loans.
    • The first asset reconstruction company (ARC) of India, ARCIL, was set up under this act.
    • Under this act secured creditors (banks or financial institutions) have rights for enforcement of security interest under section 13 of SARFAESI Act, 2002.

    Provisions of the Act

    • If the borrower of financial assistance makes any default in repayment of a loan or any instalment and his account is classified as NPA by secured creditor, then secured creditor may require before the expiry of a period of limitation by written notice.
    • The act does not apply to unsecured loans, loans below ₹100,000 or where remaining debt is below 20% of the original principal.
    • This law allowed the creation of asset reconstruction companies (ARC) and allowed banks to sell their non-performing assets to ARC’s (which are regulated by the RBI).
    • Banks are allowed to take possession of the collateral property and sell it without the permission of a court.

    To summarize, the SARFAESI Act empowers financial institutions to ‘seize and desist’. They should give a notice to the defaulting borrower asking to repay the amount within 60 days.

    If the debtor doesn’t comply, the bank can resort to one of the three following measures:

    1) Take possession of loan security

    2) Sell or lease or assign the right over the security

    3) Manage the asset or appoint someone to manage the same

    Ambit of the Act

    • The recent judgment said that the SARFAESI Act qualifies the test of legislative competence, as well as the definition, cannot be said to be beyond the competence of the Parliament.
    • In 2013, the Gujarat High Court had, while hearing a challenge to the amendment of Banking Regulation Act of 1949, to include cooperative societies as financial institutions, ruled it null and void.
    • The high court had then agreed with the submissions of the petitioners who had argued that Sarfaesi would not be applicable to cooperative banks formed under the state law.
    • The Delhi High Court had, on the other hand, ruled that the cooperative banks and societies were for all purposes banks and financial institutions and thus were allowed to use Sarfaesi to make recoveries against defaulters.
    • In its judgment, the apex court held that all such cooperative banks involved in the activities related to banking are covered within the meaning of ‘banking company’.

  • ‘Lost at Home’ Report by UNICEF

    More than five million people were internally displaced in India due to natural disasters, conflict and violence in 2019, constituting the highest number of new internal displacements in the world.

    Try to answer:

    ‘Environmental migrant’ is an issue that globally countries should start taking seriously. Discuss the statement with respect to India which already ranks high in climate vulnerability.

    The ‘Lost at Home’ Report

    • The report is published by the UN Children’s Fund (UNICEF).
    • It says that almost 33 million new displacements were recorded in 2019 — around 25 million were due to natural disasters and 8.5 million as a consequence of conflict and violence.
    • Of these, there were 12 million new displacements involving children, including around 3.8 million of them caused by conflict and violence, and 8.2 million due to disasters linked mostly to weather-related events.
    • The report said that natural disasters resulted in more new displacements than conflict and violence.
    • Almost 10 million new displacements in 2019 were recorded in East Asia and the Pacific (39 %) — and almost the same number in South Asia (9.5 million).
    • The report looks at the risks internally displaced children face —child labour, child marriage, trafficking among them — and the actions urgently needed to protect them.

    Displacement in India

    • India, the Philippines, Bangladesh and China all suffered from natural disasters leading to displacement in the millions, which accounted for 69% of global disaster-induced displacements.
    • These were overwhelmingly caused by extreme conditions created by dangerous storms and floods.
    • In India, the total number of new internal displacements in 2019 stood at 5,037,000 – including 5,018,000 due to natural disasters and 19,000 because of conflict and violence.

    Global Scenario

    • India is followed by the Philippines, Bangladesh and China.
    • The Philippines accounted for 4.27 million new internal displacements due to natural disasters, conflict and violence, Bangladesh 4.08 million and China 4.03 million.
    • The largest number of internally displaced children due to conflict is found in the Middle East and North Africa (MENA) and sub-Saharan Africa.
    • Internally displaced persons are concentrated in two regions — the Middle East and North Africa and West and Central Africa.
    • The MENA region recorded over 12 million IDPs as a result of conflict and violence at the end of 2019. Almost all of them lived in just three countries — Syria, Yemen, and Iraq — and around 5 million were children.

    What makes the situation worse?

    • The COVID-19 pandemic is only making a critical situation worse.
    • Camps or informal settlements are often overcrowded and lack adequate hygiene and health services.
    • Physical distancing is often not possible, creating conditions that are highly conducive to the spread of the disease, the report said.

  • Taiwan makes new push for inclusion in World Health Assembly

    Following its successful containment of coronavirus outbreak, Taiwan has made a new push for inclusion in the World Health Assembly (WHA).

    Locate the seas and straits around Taiwan using your Atlas.

    What is World Health Assembly (WHA)?

    • The WHA, composed of representatives from all 194 member states, serves as the WHO’s supreme decision-making body.
    • The WHA convenes annually and is responsible for selecting the Director-General, setting goals and priorities, and approving the WHO’s budget and activities.
    • The first meeting of the WHA the WHO’s agency’s governing body, took place on 24 July 1948.
    • Its work began in earnest in 1951 following a significant infusion of financial and technical resources.

    Why Taiwan must be included in WHA?

    • Taiwan has been praised over its handling of the pandemic, despite being just a short flight from China where the virus was first detected late last year.
    • Taiwan since then has been in a state of constant readiness to the threat of emerging infectious disease.
    • Hence, its exclusion from the upcoming World Health Assembly would harm the global response to the coronavirus pandemic.

    Issues with Taiwan’s inclusion

    • Taiwan is claimed as part of Chinese territory by Beijing, which has excluded it from the United Nations and its subsidiary organisations.
    • China’s growing influence in the U.N. has made officials wary of crossing it, even while the U.S. has withdrawn from or suspended funding for some of its bodies, including WHO.
    • Beijing’s Communist leadership has increasingly shut Taiwan out of gatherings such as the World Health Assembly as part of a diplomatic and military drive to force Taiwan’s independence-leaning tendencies.

    Also read:

    [Burning Issue] World Health Organization (WHO) And Coronavirus Handling

  • GARUD portal for fast-track approval to COVID-19 related drone operations

    Civil Aviation Ministry and DGCA have launched the GARUD (portal for providing fast track conditional exemptions to government agencies for COVID-19 related drone operations.

    Possible prelim question:

    The Garud Portal which sometimes finds mention in the news is related to-

    a) Air travel of defence personnel

    b) Airlifting of the stranded Indian citizens

    c) Registration of Remotely-piloted aircraft system (RPAS)

    d) None of these

    GARUD portal

    • GARUD is an acronym for ‘Government Authorisation for Relief Using Drones’.
    • The objective of the portal is to assist governmental entities in seeking exemption for COVID-19 related Remotely-piloted aircraft system (RPAS) operations.
    • The Civil Aviation Ministry has clarified that any violation of provisions will make the conditional exemption null and void and will lead to penal action.

  • [pib] Study of flowering plant endemism of Northern Western Ghats

    Scientists at the Agharkar Research Institute (ARI), Pune have come up with plant data of the Northern Western Ghats which indicates that plateaus, in addition to the forests, should be prioritized for the conservation of the Northern Western Ghats.

    Last year one  species from our newscard : Species in news: Hump-backed Mahseer made it into the CSP 2019.  The ‘Abutilon ranadei’ flower in the newscard creates such a vibe yet again.

    A stand-alone species being mentioned in the news for the first time often find their way into the prelims. Make a special note here.

    Why conserve Plateaus?

    • The Western Ghats of India is one of the global biodiversity hotspots owing to the endemism that is sheltered by a chain of mountains.
    • The northern part of this along with the Konkan region is considerably different from its southern and central counterparts on account of lesser precipitation and extended dry season.
    • It is the plateaus and the cliffs that harbour most of the endemic species.

    What did the study find?

    • The study found that the Northern Western Ghats has 181 local endemic plant species, including four monospecific genera.
    • They have found that a majority of the endemic species are therophytes, which complete their life cycle in a short period during monsoon.
    • A notable geographical feature of the Northern Western Ghats is the presence of plateaus and cliffs that display maximum endemic species, unlike forests.
    • It is the region of rapid diversification of specific herbaceous endemic genera like Ceropegia, Glyphochloa, Dipcadi, and Eriocaulon.

    One such specie is-

    Abutilon ranadei

    • Abutilon ranadei is a shrub, measuring 2.5-3.5 m high and bears star-shaped hairs.
    • It is a Critically Endangered endemic species from the northern Western Ghats.

    Bonus:

    Consider the following pairs:

    Wildlife Naturally found in
    1. Blue-finned Mahseer Cauvery River
    2. Irrawaddy Dolphin Chambal River
    3. Rusty-spotted Cat Eastern Ghats

    Which of the pairs given above are correctly matched?

    (a) 1 and 2 only

    b) 2 and 3 only

    c) 1 and 3 only

    d) 1, 2 and 3

  • Pathways to design a resilient economy

    The pandemic of COVID is a watershed moment in the way we look at the world. Truly, the future vocabularies will consist of ‘Pre COVID world’ and ‘Post COVID world’. Undoubtedly, the economic system shall be deeply affected by the COVID wave. The focus of this article is to redesign our economy through new 7 golden rules in the aftermath of Covid-19. As we read these ideas we also come across the faults that lie at the bottom of the present system. This is our opportunity to design a resilient and just system. So, what is the way forward to achieve this? Read to know!

    • When complex systems come to catastrophes, they re-emerge in distinctly new forms.
    • The COVID-19 global pandemic is a catastrophe, both for human lives and our complex
    • Economists cannot predict in what form the economy will emerge from it. But we can develop principles for what lies ahead.

    7 Radical ideas to build back economy

    The COVID-19 catastrophe has challenged the tenets of economics that have dominated public policy for the past 50 years.

    Here are seven radical ideas emerging as pathways to build a more resilient economy and a more just society.

    1. Time to rethink GDP as a measure of growth

    • The obsession with GDP as the measure of progress has been challenged often, but its challengers were dismissed.
    • Now, Nobel laureates in economics-Joseph Stiglitz, Amartya Sen, Abhijit Banerjee, Esther Duflo and others-are calling upon to rethink the fundamentals of economics, especially the purpose of GDP.
    • A five-point ‘de-growth’ manifesto by 170 Dutch academics has gone viral amidst the heightened Internet buzz during the lockdown.
    • Goals for human progress must be reset.

    2. Opening boundaries is not always good

    • Boundary-lessness is a mantra for hyper-globalisers. Boundaries, they say, impede flows of trade, finance, and people.
    • However, since countries are at different stages of economic development, and have different compositions of resources, they must follow different paths to progress.
    • According to systems’ theory, sub-systems within complex systems must have boundaries around them, be permeable ones, so that the sub-systems can maintain their own integrity and evolve.
    • This is the explanation from systems science for the breakdown of the World Trade Organization (WTO).
    • In WTO system, all countries were expected to open their borders.
    • Opening borders caused harm to countries at different stages of development.
    • Now COVID-19 has given another reason to maintain sufficient boundaries.

    3. Role of the government is indispensable

    • Ronald Reagan’s dictum, “Government is not the solution… Government is the problem”, has been upended by COVID-19.
    • Even capitalist corporations who wanted governments out of the way to make it easy for them to do business are lining up for government bailouts.

    4. Problems caused by marketization

    • The “market” is not the best solution.
    • Money is a convenient currency for managing markets and for conducting transactions.
    • Whenever goods and services are left to markets, those who do not have money to obtain what they need are at loss.
    • Moreover, by a process of “cumulative causation”, those who have money and power can acquire even more in markets.
    • The “marketization” of economies has contributed to the increasing inequalities in wealth over the last 50 years, which Thomas Piketty and others have documented.

    5. Focus on citizen welfare, not consumer welfare

    • In economies, human beings are consumers and producers. In societies, they are citizens.
    • Citizens have a broader set of needs than consumers.
    • Citizens’ needs cannot be fulfilled merely by enabling them to consume more goods and services.
    • They value justice, dignity, and societal harmony too.
    • Economists’ evaluations of the benefits of free trade, and competition policy too, which are based on consumer welfare alone.
    • Such evaluations fail to account for negative impacts on what citizens value.

    6. Competition Vs. Collaboration

    • Competition must be restrained: Collaboration is essential for progress.
    • Faith in “Darwinian competition”, with the survival of only the fittest, underlies many problems of modern societies and economies.
    • Blind faith in competition misses the reality that human capabilities have advanced more than other species’ have, by evolving institutions for collective action.
    • Further progress, to achieve the Sustainable Development Goals will require collaboration among scientists in different disciplines and among diverse stakeholders, and collaboration among sovereign countries.
    • Improvement in abilities to share and govern common resources have become essential for human survival in the 21st century.

    7. Public ownership of technologies

    • We are living in an era of knowledge.
    • Just as those who owned more land used to have more power before, now those who own knowledge have more power and wealth than the rest.
    • Intellectual property monopolies are producing enormous wealth for their owners, though many were developed on the back of huge public investments.
    • Moreover, powerful technologies can be used for benign or malign purposes.
    • It is imperative to evolve new institutions for public ownership of technologies and for the regulation of their use.

    How to walk the talk?

    • COVID-19 has revealed structural weaknesses in the global economy. Putting more liquidity in the system as was done in case of 2008 crisis will not be sufficient.
    • The system is in the need of paradigm change.
    • 1. Coordination among experts
    • Experts need to work together with keeping in mind the larger picture.
    • The economic system cannot be redesigned by domain experts devising solutions within their silos.
    • 2. Focus on innovation
    • Innovations are required at many levels to create a more resilient and just world.
    • Innovations will be required in business models too, not just for business survival but also to move businesses out of the 20th-century paradigm that “the business of business must be only business”. 

    The UPSC can ask a question based on the issues discussed here. Consider this question- “COVID has upended the global economy in such a way that it would need an overhaul. The basic tenets of the global economic order would undergo a revaluation. In light of the above statements examine the factors that contributed to the vulnerability of the Indian economy. Suggest the ways to make it more resilient and just.”

    Conclusion

    The redesign of economies, of businesses, and our lives, must begin with questions about purpose. What is the purpose of economic growth? What is the purpose of businesses and other institutions? What is the purpose of our lives? What needs, and whose needs, do institutions, and each of us, fulfil by our existence?

  • Opportunity to strengthen the 73rd and 74th amendment

    The article brings to the fore untapped potential held by the panchayats and municipalities. However, there is a need for devolution in letter and spirit by the states to tap this potential. The article explains how the panchayats and municipalities could contribute effectively in the fight against Covid-19.

    Cooperative federalism amid COVID-19

    • An unintended but welcome consequence of the struggle against COVID-19 is that the “confrontational federalism” is on the decline with the revival of “cooperative federalism”.
    • There is a realisation that there is no way the COVID-19 situation can be tackled except through a measure of cooperation between the Centre and the states.
    • Consultative process: The Centre is offering flexibility to states to adopt guidelines to their respective circumstances and states are accepting guidelines from the Centre.
    • A principal reason for Kerala’s amazing performance in “flattening the curve” is their robust system of effective devolution. Such devolution helped the Kudumbashree programme to function in association with the panchayats.

    The concept of 3 tier devolution: Centre-State-Panchayats

    • Article 243G provides that state legislatures “may, by law, endow the Panchayats with such powers and authority as may be necessary to enable them to function as institutions of self-government”. 
    • This means state governments cannot and must not treat panchayats as extensions of the state government but as “institutions of (local) self-government”.
    • The logic of “cooperative federalism” is that states must function not as implementation arms of the central government but as autonomous units within the federation.
    • By the same logic panchayats too must be conceived not as an extension of state governments but as “units of self-government”. 
    • It is thus that panchayats need to be brought into the three-tier devolution system envisaged in the Constitution: Centre-State-Panchayats (and municipalities).

    How could devolution help in the fight against Covid-19?

    • In line with the rising cooperation between the Centre and the states, the focus should be on further devolution in keeping with the constitutional obligations under the 73rd and 74th amendments.
    • The starting point could best be Entry 23 of the Eleventh Schedule that reads, “Health, sanitation, including hospitals, primary health centres and dispensaries”
    • Entry 23 is among the list of 29 subjects illustratively set out for devolution to the panchayats, subject to conformity legislation being enacted by state legislatures.
    • All state legislation has included this subject for devolution.
    • Therefore, empowering the panchayats in this regard with functions, finances and functionaries is now a statutory obligation under state law under Article 243G.
    • With the migrant workers returning to their native villages, it is important to fully involve village panchayats and municipalities as “institutions of self-government” – 243W in the anti-COVID-19 campaign.
    • Entry 28 of the Eleventh Schedule mentions the “public distribution system” as among the subjects for devolution.
    • There are many other entries in the Schedule that are relevant to this exercise.
    • There is an army of 32 lakh elected representatives in the panchayats and about two lakh more in the municipalities to contribute in the fight against Covid-19.
    • Well over a third of them, some 10-12 lakh, are drawn from the Scheduled Castes and Tribes and, therefore, in touch with the most destitute in every village and town.
    • There are some 14 lakh women who have established themselves by election as village leaders. 
    • Imagine a constructive role such women can play as “front-line workers” in the battle against the coronavirus.
    • The most important requirement is planning to receive the migrant labour influx.
    • Last-mile delivery can only be comprehensively ensured by empowered panchayats and municipalities reporting to their respective gram sabhas and ward sabhas mandated under Articles 243 A and 243 S.
    • Planning for withstanding the ingress of COVID-19 requires the full deployment of the mechanisms for district planning envisaged in Article 243 ZD.

    Consider the question asked by the UPSC in 2018-“Assess the importance of the Panchayat system in India as a part of local government. Apart from government grants, what sources the Panchayat can look out for financing developmental projects?”

    Conclusion

    As the cooperative federalism underlines India’s fight against Covid-19, devolution to the third tier –panchayats and municipalities would give a much needed fillip to the fight against Covid-19.

    Back2Basics: 73rd and 74th Amendments

    • 73rd and 74th Constitutional Amendments were passed by Parliament in December, 1992.
    • Through these amendments local self-governance was introduced in rural and urban India.
    • The Acts came into force as the Constitution (73rd Amendment) Act, 1992 on April 24, 1993 and the Constitution (74th Amendment) Act, 1992 on June 1, 1993.
    • These amendments added two new parts to the Constitution, namely, 73rd Amendment added Part IX titled “The Panchayats” and 74th Amendment added Part IXA titled “The Municipalities”.
    • The Local bodies–‘Panchayats’ and ‘Municipalities’ came under Part IX and IXA of the Constitution after 43 years of India becoming a republic.

    Salient Features

    • Basic units of democratic system-Gram Sabhas (villages) and Ward Committees (Municipalities) comprising all the adult members registered as voters.
    • Three-tier system of panchayats at village, intermediate block/taluk/mandal and district levels except in States with population is below 20 lakhs (Article 243B).
    • Seats at all levels to be filled by direct elections [Article 243C (2)].
    • Seats reserved for Scheduled Castes (SCs) and Scheduled Tribes (STs) and chairpersons of the Panchayats at all levels also shall be reserved for SCs and STs in proportion to their population.
    • One-third of the total number of seats to be reserved for women. Onethird of the seats reserved for SCs and STs also reserved for women. One-third offices of chairpersons at all levels reserved for women (Article 243D)
    • Uniform five year term and elections to constitute new bodies to be completed before the expiry of the term. In the event of dissolution, elections compulsorily within six months (Article 243E).

  • The evergreen debate of Food versus Fuel

    The article discusses the recent decision of the government to make alcohol from rice. The move was bound to trigger the debate over food security of the country with a population ravaged by hunger and poverty. While the 2009 biofuel policy had stressed the use of non-food resources, the 2018 updated policy allowed using excess grains. We all want to make a shift towards a green economy but is this the right time? Let’s find out.

    What decisions did the government take?

    • The National Biofuel Coordination Committee (NBCC) chaired by the Union Minister of Petroleum and Natural Gas decided to use “surplus” rice available with the Food Corporation of India (FCI) for conversion to ethanol.
    • The objective is to make alcohol-based hand-sanitisers and for the blending of ethanol with petrol. 
    • This decision is not only audacious but also an affront to the millions of people who are deeply affected by food insecurity.

    The food question

    • In 2009, the National Policy on Biofuels stressed on the use of non-food resources to avoid a possible conflict between food and fuel.

    • Take the US’s example: In 2018-19, an astounding 37.6 per cent of the corn produced in the US is used for making ethanol.

    • In addition to cereals, oilseed crops like rapeseed, soybean and sunflower were used for biofuel production.
    • Rise in food prices: Such diversion of food crops to produce biofuel was considered one of the reasons for the rise in food prices globally.

    What should be India’s strategy in this debate?

    • There is rampant poverty, hunger, and malnutrition in India.
    • India’s position in the Global Hunger Index has slipped nine places, ranking 102 among the 117 countries in 2019.
    • The National Family Health Survey (NFHS-4) 2015-16, found that 38.4 per cent of children under five years are “stunted” (height for age) and 21 per cent are “wasted” (low weight for height).
    • In fact, over a period of 10 years, wasting has increased from 19.8 per cent in NFHS-3 to 21 per cent in NFHS-4.

    The dictums of 2018 Policy

    • The 2018 National Policy on Biofuels had a target of 20 per cent blending of ethanol in petrol and 5 per cent blending of biodiesel in diesel by 2030.
    • This was to be achieved by increasing production using second-generation bio-refineries and developing new feedstock for biofuels.
    • It allowed the production of ethanol from damaged food grains like wheat and broken rice, which are unfit for human consumption.
    • The new policy allowed the use of excess food grain for ethanol in a bounty crop year, if endorsed by the Union Ministry of Agriculture.

    Possible dangers

    • The quantity of rice from which ethanol will be produced has not been announced, nor do we know the price at which such rice will be sold by the FCI.
    • About 85 per cent of rice is Kharif crop, heavily dependent on monsoon.
    • Despite the prediction of a normal monsoon, What happens if the monsoon predictions go wrong? Will we be able to import grain?
    • Less damaged grains: Despite the commonly held belief of a lakh of tonnes of rotting grains, the FCI’s storage practices are actually quite good.
    • Damaged grains as a percentage of total quantity issued by the FCI has been just about 0.01 per cent to 0.04 per cent in the last five years.
    • Hardly any ethanol can be made from such a small amount of damaged grains.
    • Making ethanol from sound quality grains deprives food to humans as well as livestock.
    • At the time when uncertainties are looming large, it is imperative that food security and food price stability be given the highest priority.

    Way forward

    • Ethanol can be produced from other ingredients such as B and C heavy molasses, sugar, sugar syrup, and sugarcane juice.
    • Ethanol has also been blessed with a low GST and enjoys relaxed conditions for inter-state movement if used for blending with petrol.
    • Since the economy faces a bleak prospect due to the impact of COVID-19, the government should first use the food grains to meet the requirement of about 10 to 20 crore people without ration cards.

    The UPSC could ask a question on the following lines “Diverting food grains for making fuels has always been a contentious issue from the food security angle. At the same time reducing India’s dependence on import for fuels is as much a serious concern. The National Policy on Biofuels-2018 sought to strike the balance between the two. Critically analyse the various provisions of National Policy on Biofuels-2018 which were different from 2009 policy.”

    Conclusion

    The government must ensure the food safety of the country first and if it still has surplus rice, it must facilitate export to friendly countries which are suffering an adverse impact of COVID-19 on their economies.

    Back2Basics: Generations of biofuels

    • There are three types of biofuels: 1st, 2nd and 3rd generation biofuels.
    • They are characterized by their sources of biomass, their limitations as a renewable source of energy, and their technological progress.
    • The main drawback of 1st generation biofuels is that they come from biomass that is also a food source.
    • This presents a problem when there is not enough food to feed everyone.
    • 2nd generation biofuels come from non-food biomass, but still compete with food production for land use.
    • Finally, 3rd generation biofuels present the best possibility for alternative fuel because they don’t compete with food.
    • However, there are still some challenges in making them economically feasible.

    Important Provision of ‘National Policy on Biofuels, 2018

    • The government aims at increasing the utilization of biofuels in the energy and transportation sectors of the country by promoting the production of biofuels from domestic feedstock in the coming decade through this policy.
    • Larger goals such as the adoption of green fuels, national energy security, fighting climate change, generating employment, etc. would be facilitated through this policy. Along with that, technological advancements in the field of biofuels will also be encouraged.
    • MNRE has set an indicative target of 20% blending of ethanol in petrol and 5% blending of biodiesel in diesel to be achieved by 2030.
    • The percentage of the same currently stands at around 2% for petrol and less than 0.1% for diesel.

  • What makes MSMEs, most vulnerable to Covid-19 disruptions?

    • The Covid-19 pandemic has left its impact on all sectors of the economy but nowhere is the hurt as much as the Medium, Small and Micro Enterprises (MSMEs) of India.
    • All anecdotal evidence available, such as the hundreds of thousands of stranded migrant workers across the country, suggests that MSMEs have been the worst casualty of lockdown.
    • A closer look at the anatomy of the MSME sector explains why MSMEs are so vulnerable to economic stress.

    Possible mains question:

    Q. Discuss how the nationwide lockdown to control the coronavirus outbreak has led to the resurfacing of inherent bottlenecks in India’s MSME Sector.

    What are MSMEs? How are they defined?

    • Formally, MSMEs are defined in terms of investment in plant and machinery.
    • But this criterion for the definition was long criticised because credible and precise details of investments were not easily available by authorities.
    • That is why in February 2018, the Union Cabinet decided to change the criterion to “annual turnover”, which was more in line with the imposition of GST.
    • According to the proposed definition, which is yet to be formally accepted, a micro-enterprise will be one with an annual turnover less than Rs 5 crore; a small enterprise with turnover between Rs 5 crore and Rs 75 crore; and a medium enterprise with turnover less than Rs 250 crore.

    How many MSMEs does India have, who owns them, and where are they situated?

    • According to the latest available (2018-19) Annual Report of Department of MSMEs, there are 6.34 crore MSMEs in the country.
    • Around 51 per cent of these are situated in rural India.
    • Together, they employ a little over 11 crore people (Chart 3) but 55 per cent of the employment happens in the urban MSMEs.
    • These numbers suggest that, on average, less than two people are employed per MSME.
    • At one level that gives a picture of how small these really are. But a breakup of all MSMEs into micro, small and medium categories is even more revealing.

    Distributions of MSMEs

    • In terms of geographical distribution, seven Indian states alone account for 50 per cent of all MSMEs.
    • These are Uttar Pradesh (14%), West Bengal (14%), Tamil Nadu (8%), Maharashtra (8%), Karnataka (6%), Bihar (5%) and Andhra Pradesh (5%).
    • This breakup provides a sense of where the pain of the MSME crisis would be felt the most.
    • Chart 4 shows, 99.5 per cent of all MSMEs fall in the micro category.
    • The medium and small enterprises — that is, the remaining 0.5% of all MSMEs — employ the remaining 5 crore-odd employees.
    • While micro-enterprises are equally distributed over rural and urban India, small and medium ones are predominantly in urban India.

    What kind of problems do MSMEs in India face?

    • No/Low Formal registration: To begin with, most of them are not registered anywhere. A big reason for this is that they are just too small. But, as it is clear in a time of crisis, it also constrains a government’s ability to help them.
    • Away from Tax norms: GST has its threshold and most micro enterprises do not qualify. Being out of the formal network, they do not have to maintain accounts, pay taxes or adhere to regulatory norms etc. This brings down their costs.
    • Lack of Financial buffer: According to a 2018 report by the International Finance Corporation (part of the World Bank), the formal banking system supplies less than one-third (or about Rs 11 lakh crore) of the credit MSME credit need that it can potentially fund (Chart 5). They don’t have the buffers of the bigger firms or access to cheap capital to help them tide over this period.

    • Bad credit history: The other big issue plaguing the sector is the delays in payments to MSMEs — be it from their buyers or things likes GST refunds etc. A key reason why banks dither from extending loans to MSMEs is the high ratio of bad loans (Chart 6).

    How has Covid-19 made things worse?

    • The MSMEs were already struggling — in terms of declining revenues and capacity utilization — in the lead-up to the Covid-19 crisis.
    • The total lockdown has raised a question mark on workers payment primarily because these firms mostly transact on cash. That explains the job losses.
    • According to a recent survey he did for “small and medium” firms in manufacturing, only 7% said they will be able to survive for more than three months with their cash in hand if their business remains closed.
    • A big hurdle to restarting now is the lack of labour availability.

    What can be done?

    • The RBI has been trying to pump money into the MSME sector but given the structural constraints, it has had limited impact.
    • There are no easy answers for the MSMEs’ sufferings.
    • However, the government can provide tax relief (GST and corporate tax), give swifter refunds, and provide liquidity to rural India (say, through PM-Kisan) to boost demand for MSME products.

    What about credit guarantees?

    • Loans to MSMEs are mostly given against property (as collateral) — because often there isn’t a robust cash flow analysis available — but in times of crisis, property values fall and that inhibits the extension of new loans.
    • A credit guarantee by the government helps as it assures the bank that its loan will be repaid by the government in case the MSME falters.
    • To the extent such defaults happen, credit guarantees are shown as a departmental expense in the Budget.

    Urgent attention required

    • Governments across the world have announced various measures ranging from wage support to direct subsidies to help these businesses tide over these difficult times.
    • But, in India, more than a month after the national lockdown was announced; there is still no blueprint of how the government intends to support these businesses during this period.

    Way forward

    • There is a strong case for urgent government intervention — the costs of intervening early on will be much less than the price of delayed action.
    • To begin with, all dues owned by governments and public sector undertakings to MSMEs can be immediately cleared. This will help ease their immediate cash flow woes.
    • Second, with banks turning risk-averse, credit flow to MSMEs is likely to be depressed as solvency concerns will dominate.
    • In such a situation, the government could step in. It could set up a credit guarantee fund that backstops loans to MSMEs.