Note4Students
From UPSC perspective, the following things are important :
Prelims level: Taper Tantrum, Rupee depreciation impacts
Mains level: Read the attached story
The Indian rupee breached the psychologically significant exchange rate level of 80 to a US dollar in early trade.
Free fall of Indian Rupee
- Since the war in Ukraine began, and crude oil prices started going up, the rupee has steadily lost value against the dollar.
- There are growing concerns about how a weaker rupee affects the broader economy.
- Certainly it presents challenges to policymakers, especially since India is already grappling with high inflation and weak growth.
What is the rupee exchange rate?
- The rupee’s exchange rate vis-à-vis the dollar is essentially the number of rupees one needs to buy $1.
- This is an important metric to buy not just US goods but also other goods and services (say crude oil) trade in which happens in US dollars.
Benefits of Rupees fall
- Broadly speaking, when the rupee depreciates, importing goods and service becomes costlier.
- But if one is trying to export goods and services to other countries, especially to the US, India’s products become more competitive.
- Depreciation makes these products cheaper for foreign buyers.
How bad is it for the rupee?
- If the rupee depreciates at a rate faster than the long-term average, it goes above the dotted line, and vice versa.
- In the last couple of years, the rupee has been more resilient than the long-term trend.
- The current fall has brought about a correction.
Rupee’s exchange rate against the dollar
- Another thing to note is that, at least as of now, the rupee is still more resilient (against the dollar) than it was in some of the previous crises such as the Global Financial Crisis of 2008 and the Taper Tantrum of 2013.
- Moreover, the US dollar is just one of the currencies Indians need to trade.
- If one looks at a whole basket of currencies, then data suggests the rupee has become stronger (or appreciated against that basket).
- In other words, while the US dollar has become stronger against all other major currencies including the rupee, the rupee, in turn, has become stronger than many other currencies such as the euro.
Is it a cause of worry?
- It is important to remember that it is more of a story of the dollar strengthening than the rupee weakening.
- This suggests that as things stand, India is still not facing an external crisis.
- Take for instance the issue of external debt.
- Long-term data shows that India is in a relatively comfortable position.
Can we be comfortable with this free-fall?
- While India is fine as of now, trends suggest things are getting worse.
- For instance, forex reserves have fallen by over $50 billion between September 2021 and now.
- In these 10 months, the rupee’s exchange rate with the dollar has fallen 8.7%, from 73.6 to 80. For context, historically the rupee depreciates by about 3% to 3.5% in a year.
- What’s worse, many experts expect the rupee to weaken further in the coming 3-4 months and fall to as low as 82 to a dollar.
Why are the rupee-dollar exchange rate and forex reserves falling?
- To understand movements on these variables, one must understand India’s Balance of Payment (BoP)
- The BoP is essentially a ledger of all monetary transactions between Indians and foreigners. Here it is shown in US dollar terms.
- If a transaction leads to dollars coming into India, it is shown with a positive sign; if a transaction means dollars leaving India, it is shown with a minus sign.
How did BoP come to the picture?
- The BoP has two broad subheads (also called “accounts”) — current and capital — to slot different types of transactions.
- The current account is further divided into the trade account (for export and import of goods) and the invisibles account (for export and import of services).
- So if an Indian buys an American car, dollars will flow out of BoP, and it will be accounted for in the trade account within the current account.
- If an American invests in Indian stock markets, dollars will come into the BoP table and it will be accounted for under FPI within the capital account.
- The important thing about the BoP is that it always “balances”.
India’s vulnerability on the external debt front
- In 2021-22, India had a trade deficit of $189.5 billion.
- That is, the country imported more goods (such as crude oil) than it exported, and the net effect was negative.
- At the end of the year, the BoP was at a surplus of $47.5 billion — that is, the net effect of all transactions on current and capital accounts was that $47.5 billion came into India.
What may happen ahead?
Now, two things can happen from here:
(1) Huge BoP surplus would lead to the rupee appreciating
- This will bring about a change in people’s buying and investing preferences.
- For instance, India’s exports will become costlier and import cheaper. Over time, the trade deficit will alter (will reduce or turn into a surplus) to “balance” the BoP.
(2) RBI swoops in and removes all the surplus dollars
- RBI purchases dollars to increase its forex reserves.
- In 2021-22, for instance, India’s forex reserves went up by $47.5 billion.
- The RBI keeps monitoring the BoP every week and keeps intervening in such a manner which ensures that the rupee’s exchange rate does not fluctuate too much.
What will be the effect on the economy?
- Since a large proportion of India’s imports are dollar-denominated, these imports will get costlier.
- A good example is the crude oil import bill.
- Costlier imports, in turn, will widen the trade deficit as well as the current account deficit, which, in turn, will put pressure on the exchange rate.
- On the exports front, however, it is less straightforward.
- For one, in bilateral trade, the rupee has become stronger than many currencies.
Should policymakers prevent the fall?
- It is neither wise nor possible for the RBI to prevent the rupee from falling indefinitely.
- Defending the rupee will simply result in India exhausting its forex reserves over time because global investors have much bigger financial clout.
- Most analysts believe that the better strategy is to let the rupee depreciate and act as a natural shock absorber to the adverse terms of trade.
What should policymakers do?
- The RBI (which is in charge of monetary policy) should focus on containing inflation, as it is legally mandated to do.
- The government (which is in charge of the fiscal policy) should contain its borrowings.
- Higher borrowings (fiscal deficit) by the government eat up domestic savings and force the rest of the economic agents to borrow from abroad.
- Policymakers (both in the government and the RBI) have to choose what their priority is: containing inflation or being hung up on exchange rate and forex levels.
- If they choose to contain inflation (that is, by raising interest rates) then it will require sacrificing economic growth. So be prepared for that.
Conclusion
- We can conclude that the rupee’s exchange rate and forex reserves levels are two sides of the same coin.
Back2Basics: Taper Tantrum
- After the 2007-2009 global financial crisis and recession, the US Federal Reserve started a bond-buying program (known as quantitative easing) to infuse liquidity.
- With these funds, the investors started investing in global bonds and stocks.
- In 2013, the US Federal Reserve decided to reduce (taper) its quantum of a bond-buying program which led to a sudden sell-off in global bonds and stocks.
- As a result, many emerging market economies, that received large capital inflows, suffered currency depreciation and outflows of capital.
- This was called globally a ‘taper tantrum‘.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Citizenship of India
Mains level: Brain drain from India
Over 1.6 lakh Indians renounced their citizenship in 2021, highest in the past five years, according to information provided by the Ministry of Home Affairs (MHA).
Destination US
- Over 78,000 Indians acquired the US citizenship, the highest among all other countries.
- India does not allow dual citizenship (Pakistan does allow).
- As many as 362 Indians living in China also acquired Chinese citizenship.
Citizenship in India
- Citizenship is in the Union List under the Constitution and thus under the exclusive jurisdiction of Parliament.
- The Constitution does not define the term ‘citizen’ but gives, in Articles 5 to 11, details of various categories of persons who are entitled to citizenship.
- Unlike other provisions of the Constitution, which came into being on January 26, 1950, these articles were enforced on November 26, 1949 itself, when the Constitution was adopted.
Various provisions for Indian Citizenship
Article 5
- It provided for citizenship on the commencement of the Constitution.
- All those domiciled and born in India were given citizenship.
- Even those who were domiciled but not born in India, but either of whose parents was born in India, were considered citizens.
- Anyone who had been an ordinary resident for more than five years, too, was entitled to apply for citizenship.
Article 6
- Since Independence was preceded by Partition and migration, Article 6 laid down that anyone who migrated to India before July 19, 1949, would automatically become an Indian citizen if either of his parents or grandparents was born in India.
- But those who entered India after this date needed to register themselves.
Article 7
- Even those who had migrated to Pakistan after March 1, 1947 but subsequently returned on resettlement permits were included within the citizenship net.
- The law was more sympathetic to those who migrated from Pakistan and called them refugees than to those who, in a state of confusion, were stranded in Pakistan or went there but decided to return soon.
Article 8
- Any Person of Indian Origin residing outside India who, or either of whose parents or grandparents, was born in India could register himself or herself as an Indian citizen with Indian Diplomatic Mission.
Various Amendments for Citizenships
- According to Article 11, Parliament can go against the citizenship provisions of the Constitution.
- The Citizenship Act, 1955 was passed and has been amended four times — in 1986, 2003, 2005, and 2015.
- The Act empowers the government to determine the citizenship of persons in whose case it is in doubt.
- However, over the decades, Parliament has narrowed down the wider and universal principles of citizenship based on the fact of birth.
- Moreover, the Foreigners Act places a heavy burden on the individual to prove that he is not a foreigner.
(1) 1986 amendment
- The constitutional provision and the original Citizenship Act gave citizenship on the principle of jus soli to everyone born in India.
- However, the 1986 amendment to Section 3 was less inclusive as it added the condition that those who were born in India on or after January 26, 1950 but before July 1, 1987, shall be an Indian citizen.
- Those born after July 1, 1987 and before December 4, 2003, in addition to one’s own birth in India, can get citizenship only if either of his parents was an Indian citizen at the time of birth.
(2) 2003 amendment
- The then government made the above condition more stringent, keeping in view infiltration from Bangladesh.
- Now the law requires that for those born on or after December 4, 2004, in addition to the fact of their own birth, both parents should be Indian citizens or one parent must be Indian citizen and other should not be an illegal migrant.
- With these restrictive amendments, India has almost moved towards the narrow principle of jus sanguinis or blood relationship.
- This lay down that an illegal migrant cannot claim citizenship by naturalization or registration even if he has been a resident of India for seven years.
(3) Citizenship (Amendment) Act, 2019
- The amendment proposes to permit members of six communities — Hindus, Sikhs, Buddhists, Jains, Parsis and Christians from Pakistan, Bangladesh and Afghanistan — to continue to live in India if they entered India before December 14, 2014.
- It also reduces the requirement for citizenship from 11 years out of the preceding 14 years, to just 6 years.
- Two notifications also exempted these migrants from the Passport Act and Foreigner Act.
- A large number of organisations in Assam protested against this Bill as it may grant citizenship to Bangladeshi Hindu illegal migrants.
Losing of Indian Citizenship
- The Citizenship Act, 1955 also lays down the three modes by which an Indian citizen may lose his/her citizenship.
- It may happen in any of the three ways: renunciation, termination and deprivation.
(1) Renunciation
- An Indian Citizen of full age and capacity can renounce his Indian citizenship by making a declaration to that effect and having it registered.
- But if such a declaration is made during any war in which India is engaged, the registration shall be withheld until the Central Government otherwise directs.
- When a male person renounces his citizenship, every minor child of him ceases to be an Indian citizen.
- Such a child may, however, resume Indian citizenship if he makes a declaration to that effect within a year of his attaining full age, i.e. 18 years.
(2) Termination
- If a citizen of India voluntarily acquires the citizenship of another country, he shall cease to be a citizen of India.
- During the war period, this provision does not apply to a citizen of India, who acquires the citizenship of another country in which India may be engaged voluntarily.
(3) Deprivation
- Deprivation is a compulsory termination of citizenship of India.
- A citizen of India by naturalization, registration, domicile and residence, may be deprived of his citizenship by an order of the Central Government if it is satisfied that the Citizen has:
- Obtained the citizenship by means of fraud, false representation or concealment of any material fact
- Shown disloyalty to the Constitution of India
- Unlawfully traded or communicated with the enemy during a war
- Within five years after registration or neutralization, been imprisoned in any country for two years
- Ordinarily resident out of India for seven years continuously
Try this PYQ:
Q.With reference to India, consider the following statements:
- There is only ‘one citizenship and one domicile’.
- A citizen by birth only can become the Head of State.
- A foreigner once granted the citizenship cannot be deprived of it under any circumstances.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) 1 and 3 only
(d) 2 and 3 only
Post your answers here.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: MICA, Stablecoins
Mains level: Read the attached story
The Markets in Crypto-Assets (MiCA) law of European Parliament is the first comprehensive regulation for cryptos, and some expect it to become a trendsetter for crypto regulation globally.
What is MiCA Legislation?
- The MiCA law seeks to address concerns like money-laundering, protection of consumers and investors, accountability of crypto firms, stablecoins and the environmental footprint of crypto mining.
- It would regulate the “wild west” of crypto assets and provide legal certainty for those issuing crypto assets, while ensuring high standards for investors and consumers.
- It also excludes non-fungible tokens, but the EU may make a horizontal legislation for NFTs in 18 months, after a separate assessment.
How will MiCA regulate stablecoins?
- The efficacy of stablecoins, which claim to be less volatile that other cryptos, came into question after the crash of some crypto-currencies.
- The MiCA would mandate that stablecoin issuers maintain minimum liquidity to provide for sudden large withdrawals by users, and the reserves must also be protected from insolvency.
- The European Banking Authority (EBA) has been brought in to supervise stablecoins, and the law asks stablecoin issuers to provide claims to investors free of charge.
- In addition, large coins which are used as a means of payment will be capped at €200 million worth of transactions per day.
How will the new law regulate money laundering?
- MiCA requires the EBA to maintain a public register of non-compliant crypto asset service providers (CASPs).
- Additional checks will be required, in line with the EU Anti-Money-Laundering (AML) framework.
How does it address green concerns?
- Under MiCA, crypto companies will be required to declare their environmental and climate footprint.
- The European Securities and Markets Authority will develop regulatory technical standards on methodologies, content and presentation of such information.
- The EC will also have to provide a report on the impact of crypto assets on environment.
- It would introduce mandatory minimum sustainability standards for mining mechanisms, especially the proof-of-work system which raises overall computing power.
Will it affect Indian regulations?
- India’s crypto regulations seem to have taken a back seat at the moment.
- Industry executives and experts say the government and industry are more concerned about taxation.
- India levied a 30% tax on income from transfer of cryptos from April, and added a 1% tax deduction at source from 1 July.
- This, along with the overall bear market, has depressed trading volumes, and revenues of crypto exchanges.
- Indian regulators are also expected to consider rules being developed in the US before taking concrete decisions.
Back2Basics: Stablecoins
- Stablecoins are cryptocurrencies where the price is designed to be pegged to a cryptocurrency, fiat money, or to exchange-traded commodities (such as precious metals or industrial metals).
- Advantages of asset-backed cryptocurrencies are that coins are stabilized by assets that fluctuate outside of the cryptocurrency space, that is, the underlying asset is not correlated, reducing financial risk.
- Bitcoin and altcoins are highly correlated, so that cryptocurrency holders cannot escape widespread price falls without exiting the market or taking refuge in asset backed stablecoins.
- Furthermore, such coins, assuming they are managed in good faith, and have a mechanism for redeeming the asset(s) backing them, are unlikely to drop below the value of the underlying physical asset, due to arbitrage.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Curtailing unparliamentary expressions
Context
The Lok Sabha secretariat recently released a booklet of unparliamentary words that will henceforth be banned and if used, will be expunged, it created an uproar among the opposing parties.
Historical Background
- In the early days of parliamentary functioning in England, members would challenge one another to a duel if they felt dishonoured by another member’s speech.
- It led to the Speaker of the House of Commons removing the offending words from the written proceedings.
- In 1873, the constitutional theorist Erskine May started recording words and expressions that the Speaker considered unparliamentary in an eponymous guide to parliamentary procedure.
- Later editions of the book laid down the principle of parliamentary language.
Who decides the nature of a word
- MPs have freedom of speech in Parliament.
- But the presiding officers of Parliament have the final authority on what gets recorded in the day’s proceedings.
- MPs can also draw attention to any unparliamentary words and urge the chair to delete them.
- Any reporting of the parliamentary discussion that includes the deleted portion is a breach of parliamentary privilege and invites the ire of the House.
- Deleted words are then added by the parliament secretariat to its compilation of unparliamentary expressions.
- Why context is important? In any language, the context in which an individual uses a word is critical.
- “Context” means how the word is said, the circumstances in which it is said and when it is said.
Issues with addition of unparliamentary words
- Effectiveness of measure: The first issues about the list is its effectiveness in maintaining decency in parliamentary debates.
- Impact on the debate: The second that that needs to be considered is the effectiveness of such a list help in promoting or stifling discussion.
- Role of technology: Technological advances have ensured that Parliament can no longer control how its proceedings are recorded and disseminated.
- As a result, even if Parliament edits its record, the unparliamentary expression will be available online.
- In such a scenario, a compilation of the words classified as unparliamentary will not deter an MP from using them.
Conclusion
Parliament is all about the cut and thrust of debate. And in a political discussion, a restriction of unparliamentary expression, without considering context, will unnecessarily stifle the voices of MPs.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Environmental Impact Assessment
Mains level: Paper 3- Climate change and its impact on India
Context
In the absence of COVID-19, climate change-induced disasters would have been India’s biggest red alert in recent years.
India’s vulnerabilities
- Temperatures over the Indian Ocean have risen by over 1°C since the 1950s, increasing extreme weather events.
- India is the fourth worst-hit in climate migration.
- Heat waves in India have claimed an estimated 17,000 lives since the 1970s.
- Labour losses from rising heat, by one estimate, could reach ₹1.6 lakh crore annually if global warming exceeds 2°C, with India among the hardest hit.
- Extreme heat waves hit swathes of India. Heatwaves are aggravated by deforestation and land degradation, which also exacerbate fires.
- Agriculture, being water-intensive, does not do well in heat wave-prone areas.
Way forward
- Two part approach: India needs a two-part approach:
- Adaptation: one, to adapt to climate impacts by building resilience against weather extremes, and
- Mitigation: to mitigate environmental destruction to prevent climate change from becoming more lethal.
- Climate resistant agriculture: Agricultural practices which are not water-intensive and to support afforestation that has a salutary effect on warming.
- Financial transfers can be targeted to help farmers plant trees and buy equipment — for example, for drip irrigation that reduces heavy water usage.
- Crop diversification: Climate-resilient agriculture calls for diversification — for example, the cultivation of multiple crops on the same farm.
- Climate-resilient agriculture calls for diversification — for example, the cultivation of multiple crops on the same farm
- Managing vulnerable regions in coastal zones: Floods and storms are worsened by vast sea ingress and coastline erosion in the low-lying areas in the south.
- It is vital to map flood-risk zones to manage vulnerable regions.
- Environment Impact Assessments must be mandatory for commercial projects.
- Design changes: Communities can build round-shaped houses, considering optimum aerodynamic orientation to reduce the strength of the winds.
- Roofs with multiple slopes can stand well in strong winds, and central shafts reduce wind pressure on the roof by sucking in air from outside.
- Moving away from fossil fuels: Adaptation alone will not slow climate damages if the warming of the sea level temperatures is not confronted.
- Leading emitters, including India, must move away from fossil fuels.
- Expanding and protecting forest cover: a big part of climate action lies in protecting and expanding forest coverage.
- India gains from being part of the Glasgow declaration on forest protection that 141 countries signed in 2021.
- Management of dams: Nearly 295 dams in India are more than 100 years old and need repairs.
- In stemming landslides in Uttarakhand, regulations must stop the building of dams on steep slopes and eco-fragile areas, as well as the dynamiting of hills, sand mining, and quarrying.
- Climate financing: India’s share in disaster management should be raised to 2.5% of GDP.
- Climate finance is most suited for large-scale global funding from the World Bank, the International Monetary Fund, and the Asian Development Bank.
- But smaller-scale financing can also be vital.
Conclusion
For public pressure to drive climate action, we need to consider climate catastrophes as largely man-made.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: I2U2
Mains level: Paper 2- Geopolitics in the Middle East
Context
The US President’s visit to Saudi Arabia and Israel highlights not only some new trends that are reshaping the region but also eternal truths about international politics that are lost in the din of public discourse about the Middle East.
What is the significance of the visit
1] The US is not abandoning the Middle East
- Contrary to the popular perception in the US, the region, and India, the US is not about to abandon the Middle East.
- Many in the US political class believed that given America’s oil independence from the Middle East no longer needed the region.
- American withdrawal from Afghanistan last year intensified these concerns and the region looked for alternative means to secure itself.
- But as in the Indo-Pacific and Europe, the Biden Administration has concluded that it can’t cede its regional primacy in the Middle East and is ready to reclaim its leadership.
- But as in the Indo-Pacific and Europe, the Biden Administration has concluded that it can’t cede its regional primacy in the Middle East and is ready to reclaim its leadership.
2] No direct involvement
- While the US will stay put in the Middle East, it is certainly changing the manner in which it acts.
- In the past, the US saw itself as the sole provider of regional security and was ready to send its troops frequently into the region.
- While the US does not want to be drawn directly into the region’s wars, it is determined to help its partners develop capabilities to secure themselves.
- Arab-Israel reconciliation: Efforts are also being taken to produce greater reconciliation among Arabs and Israel and create stronger networks within and beyond the region to strengthen deterrence against adversaries.
- The current effort to craft a Middle East Air Defence coalition is an example of this,
- The I2U2 signals that the US no longer views the Middle East in isolation from its neighbourhood.
3] Setting aside the differences on democracy vs autocracy debate
- Biden had to modify his sweeping rhetoric about the “conflict between democracies and autocracies” as the principal contradiction in the world.
- To sustain the US position in the region, Biden had no option but to sit with leaders of monarchies and autocracies that are America’s long-standing partners.
4] Nation above identities
- Biden’s focus on national interest found an echo in the Middle East, which is learning to put nation above other identities such as ethnicity and religion.
- In the past, the region seemed immune to nationalism as it focused on transcendental notions of “pan Arabism” and “pan Islamism”.
- Although the idea of Arab solidarity on the Palestine issue endures, many Arab leaders are not willing to let that come in the way of normalisation of relations with Israel.
- A critical section of the Arabs, long seen as irreconcilably opposed to Israel, are now joining hands with the Jewish state to counter threats to their national security from Iran.
- Many Gulf kingdoms, including Saudi Arabia and the UAE, are now consciously promoting a national identity among their peoples.
- Despite shared religion, Turkey’s leader Recep Erdogan has in recent years sought to undermine many of the Arab regimes.
- Qatar has often found itself closer to non-Arab Turkey and in opposition to its Gulf Arab neighbours.
Conclusion
Delhi, whose Middle East policy today is imbued with greater realism, can hopefully discard the inherited ideological inertia, avoid the temptation of seeing the Middle East through a religious lens, and strive hard to realise the full possibilities awaiting India in the region.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Forest landscape restoration
Context
This month is time for Van Mahotsav, which literally means “celebrate the forest”.
Why tree planting matters
- According to the International Union for Conservation of Nature (IUCN), deforestation and forest degradation contribute around 12% of global greenhouse gas emissions.
- The total area occupied by primary forests in India has decreased by 3.6%.
- Tree planting comes with varied environmental and ecological benefits.
- Forests are integral in regulating ecosystems, influencing the carbon cycle and mitigating the effects of climate change.
- Annually, forests absorb roughly 2.6 billion tonnes of carbon dioxide.
- This absorption includes nearly 33% of the carbon dioxide released from burning fossil fuels.
- Livelihood: Forests are a boon for local communities and their livelihoods by functioning as a resource base for goods and services.
- Enrich soil fertility: According to academics from the World Resources Institute, forest ecosystems enrich soil fertility and water availability, enhancing agricultural productivity, and in turn the rural economy.
- Prevents erosion and flooding: Tree planting prevents erosion and stems flooding.
- Sustainable forest crops reduce food insecurity and empower women, allowing them to gain access to more nutritional diets and new income streams.
- Agroforestry lessens rural-to-urban migration and contributes to an increase in resources and household income.
- Planting trees is deeply linked to the ‘wholistic’ well-being of all individuals, the community, and the planet.
Afforestation through forest landscape restoration
- Typically, governments have relied on afforestation and reforestation as a means of establishing trees on non-treed land. These strategies have now evolved.
- Focus on forest landscape restoration: The focus is now on forest landscape restoration — the process of regaining ecological functionality and improving human welfare across deforested or degraded forest landscapes.
- Community participation: Forest landscape restoration seeks to involve communities in the process of designing and executing mutually advantageous interventions for the upgradation of landscapes.
- Nearly two billion hectares of degraded land in the world (and 140 million hectares in India) have scope for potential restoration as forest land.
- Ensuring diversity of species: A crucial aspect of this process is to ensure the diversity of the species while planting trees.
- Natural forests with diverse native tree species are more efficient in sequestering carbon than monoculture tree plantations.
- Planting diverse species is also healthier for local communities and their livelihoods.
- An international study published earlier this year in the journal, Science, found that diversifying species in forest plantations has a positive impact on the quality of the forests.
Programs and initiative for forest restoration
- The span 2021-2030 is the UN Decade on Ecosystem Restoration, emphasising efforts to restore degraded terrestrial ecosystems including forests.
- Bonn Challenge: In 2011, the Bonn Challenge was launched with a global goal to restore 150 million hectares of degraded and deforested landscapes by 2020 and 350 million hectares by 2030.
- India joined the Bonn Challenge in 2015, pledging to restore 26 million hectares of degraded and deforested land by 2030.
- An additional carbon sink of 2.5 billion-3 billion tonnes of carbon dioxide equivalent through forest and tree cover is to be created by 2030.
- There are a myriad government programmes such as Compensatory Afforestation, the National Afforestation Programme, the National Mission for a Green India (Green India Mission), the Nagar Van scheme and the Forest Fire Prevention and Management Scheme to name a few.
- The Green Skill Development Programme is for the youth who aspire to attain employment in the environment and forest sectors.
Challenges
- Forest restoration in India faces hurdles in terms of the identification of areas for restoration, a lack of importance accorded to research and scientific strategies in tree planting, stakeholders’ conflicts of interest, and financing.
Way forward
- To be successful, forest landscape restoration must be implemented proactively, bolstering landscapes and forest ecosystems to be durable and adjustable in the face of future challenges and societal needs.
- Involvement of stakeholders: It also needs the involvement and the alignment of a host of stakeholders including the community, champions, government and landowners.
- Participatory governance: The restoration of natural forest ecosystems can be strengthened through participatory governance by engaging stakeholders.
- Taking into account socio-economic context: Vulnerable forest-dependent communities should be factored in, and any effort should be tailored to the local socio-economic context and landscape history of a region.
Conclusion
In today’s world, forests need to be celebrated more than ever before. Simultaneously, more forests need to be created and restored.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: IMF
Mains level: Pakistan economic crisis, Debt trap
The latest IMF press release maintains it would consider an extension of the current Extended Fund Facility (EFF) to end June 2023 and augment the fund amount to $7 billion for Pakistan.
Pakistan seeks IMF bailout
- Surprisingly, it took five months to reach the staff-level agreement.
- The total disbursement under the current EFF to Pakistan has now been $4.2 billion.
- The talks were originally aimed at releasing a tranche of $900 million.
What is Extended Fund Facility (EFF)?
- The EFF was established by the IMF to provide assistance to countries experiencing serious payment imbalances because of structural impediments or slow growth and an inherently weak balance-of-payments position.
- An EFF provides support for comprehensive programs including the policies needed to correct structural imbalances over an extended period.
What was the Pakistani EFF?
- The 39-month EFF between the two was signed in July 2019 to provide funds amounting to Self-Drawing Rights (SDR) — $4,268 million.
- The EFF was signed by Pakistan to address the medium-term balance of payment problem, and work on structural impediments and increase per capita income.
Why did the talks take longer to conclude?
- The IMF placed demands (all of which seem impossible for Pakistan) includes :
- Fiscal consolidation to reduce debt and build resilience
- Market-determined exchange rate to restore competitiveness
- Eliminate ‘quasi-fiscal’ losses in the energy sector and
- Strengthened institutions with transparency
- Ousted Pakistani PM eased fuel prices. This was considered a major deviation under the EFF benchmarks.
- Then govt gave tax amnesties to the industrial sector, impacted the tax regime and a structural benchmark for fiscal consolidation.
- The IMF insisted on its demands before approving any release of the tranche.
How important is the IMF support to Pakistan?
- Pakistan’s economic situation is dire.
- According to the Economic Survey of Pakistan 2022, the fiscal deficit in FY 22 was $18.6 billion, and the net public debt at $252 billion, which is 66.3% of the GDP.
- The power sector’s circular debt is $14 billion.
Why have the Pakistan-IMF relations remained complicated?
- Structural reforms require long-term commitment, which have been sacrificed due to Pakistan’s short-sighted political goals.
- Hence the urge to go to the IMF for fiscal stability has been repeated over time.
Risks posed by a failed Pakistan
- There is also a narrative that Pakistan has the fifth largest population with nuclear weapons that cannot be allowed to fail.
- A section within Pakistan also places the geo-strategic location of the country would provide an edge for cooperation, rather than coercion.
- Hence, this section believes, the IMF would continue to support.
- Given the IMF’s increased assertion, Pakistan’s political calculations and the elections ahead, the relationship between the two is likely to remain complicated.
What lies ahead for Pakistan and the IMF?
- Despite the latest agreement, the road ahead for the IMF and Pakistan is not an easy one.
- Political calculations and the elections ahead will play a role in Pakistan’s economic decision-making.
- However, one thing is eminent Pakistan will certainly collapse someday badly like Sri Lanka.
Try this PYQ from CSP 2022
“Rapid Financing Instrument” and “Rapid Credit Facility” are related to the provisions of lending by which one of the following?
(a) Asian Development Bank
(b) International Monetary fund
(c) United National Environment Programme Finance initiative
(d) Word bank
Post your answer here.
Back2Basics: Special Drawing Rights (SDRs)
- SDRs, created by the IMF in 1969, are an international reserve asset and are meant to supplement countries’ reserves.
- Adding SDRs to the country’s international reserves makes it more financially resilient.
- Providing liquidity support to developing and low-income countries allows them to tide over the balance of payments (BOP) situations like the one India has been experiencing due to the pandemic and the one it faced earlier in 1991.
- SDRs being one of the components of foreign exchange reserves (FER) of a country, an increase in its holdings is reflected in the BOP.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Religious and linguistic minorities
Mains level: Not Much
The minority status of religious and linguistic communities is “State-dependent”, said the Supreme Court.
What did the Supreme Court say?
- Every person in India can be a minority in one State or the other.
- One can be a minority outside his/her State.
- Similarly, a Kannada-speaking person may be in minority in States other than Karnataka.
What was the petition about?
- The court was hearing a petition complaining that followers of Judaism, Bahaism and Hinduism are the real minorities in Ladakh, Mizoram, Lakshadweep, Kashmir, Punjab and the North-East States.
- However, they cannot establish and administer educational institutions of their choice because of the non-identification of ‘minority’ at the State level.
- Religious communities such as Hindus here are socially, economically, politically non-dominant and numerically inferior in several States.
Various states on Minorities
- The Centre gave the example of how Maharashtra notified ‘Jews’ as a minority community within the State.
- Again, Karnataka notified Urdu, Telugu, Tamil, Malayalam, Marathi, Tulu, Lambadi, Hindi, Konkani and Gujarati as minority languages within the State.
Who are the Minorities?
- Muslims, Sikhs, Christians, Buddhists, Jain and Zoroastrians (Parsis) have been notified as minority communities under Section 2 (c) of the National Commission for Minorities Act, 1992.
- As per the Census 2011, the percentage of minorities in the country is about 19.3% of the total population of the country.
- The population of Muslims are 14.2%; Christians 2.3%; Sikhs 1.7%, Buddhists 0.7%, Jain 0.4% and Parsis 0.006%.
- Minority Concentration Districts (MCD), Minority Concentration Blocks and Minority Concentration Towns, have been identified on the basis of both population data and backwardness parameters of Census 2001 of these areas.
Defining Minorities
- The Constitution recognizes Religious minorities in India and Linguistic minorities in India through Article 29 and Article 30.
- But Minority is not defined in the Constitution.
- Currently, the Linguistic minorities in India are identified on a state-wise basis thus determined by the state government whereas Religious minorities in India are determined by the Central Government.
- The Parliament has the legislative powers and the Centre has the executive competence to notify a community as a minority under Section 2(c) of the National Commission for Minorities Act of 1992.
Article 29: It provides that any section of the citizens residing in any part of India having a distinct language, script, or culture of its own, shall have the rights of minorities in India to conserve the same. Article 29 is applied to both minorities (religious minorities in India and Linguistic minorities in India) and also the majority. It also includes – rights of minorities in India to agitate for the protection of language.
Article 30: All minorities shall have the rights of minorities in India to establish and administer educational institutions of their choice. Article 30 recognizes only Religious minorities in India and Linguistic minorities in India (not the majority). It includes the rights of minorities in India to impart education to their children in their own language.
Article 350-B: Originally, the Constitution of India did not make any provision with respect to the Special Officer for Linguistic minorities in India. However, the 7th Constitutional Amendment Act, 1956 inserted Article 350-B in the Constitution. It provides for a Special Officer for Linguistic Minorities appointed by the President of India. It would be the duty of the Special Officer to investigate all matters relating to the safeguards provided for linguistic minorities under the Constitution.
Try this PYQ:
Which one of the following categories of Fundamental Rights incorporates protection against untouchability as a form of discrimination?
(a) Right against Exploitation
(b) Right to Freedom
(c) Right to Constitutional Remedies
(d) Right to Equality
Post your answers here.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: MSP system, Crop Seasons in India
Mains level: Legal backing for MSP
The Centre has finally constituted a committee headed by former Union Agriculture Secretary Sanjay Agrawal here to look into the issues of Minimum Support Price (MSP), as promised to protestant farmers after the repeal of three farm laws.
Panel on MSP: Terms of reference
- The panel will consist of representatives of the Central and State governments, farmers, agricultural scientists and agricultural economists.
- This panel will be constituted:
- To promote zero budget-based farming,
- To change crop patterns keeping in mind the changing needs of the country
- To make MSP more effective and transparent
- It also says that the committee will discuss methods to strengthen the Agricultural Marketing System as per the changing requirements of the country
- It would ensure higher value to the farmers through remunerative prices of their produce by taking advantage of the domestic output and export.
- On natural farming, the committee will make suggestions for programs and schemes for value chain development, protocol validation, and research for future needs.
- It would support area expansion under the Indian Natural Farming System through publicity and through the involvement and contribution of farmer organizations.
What is MSP?
- The MSP assures the farmers of a fixed price for their crops, well above their production costs.
- MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidized grains through the PDS, isn’t an entitlement for farmers.
- They cannot demand it as a matter of right. It is only a government policy that is part of administrative decision-making.
- The Centre currently fixes MSPs for 23 farm commodities based on the Commission for Agricultural Costs and Prices (CACP) recommendations.
Fixing of MSPs
- The CACP considered various factors while recommending the MSP for a commodity, including the cost of cultivation.
- It also takes into account the supply and demand situation for the commodity; market price trends (domestic and global) and parity vis-à-vis other crops; and implications for consumers (inflation), environment (soil and water use) and terms of trade between agriculture and non-agriculture sectors.
What changed with the 2018 budget?
- The Budget for 2018-19 announced that MSPs would henceforth be fixed at 1.5 times of the production costs for crops as a “pre-determined principle”.
- Simply put, the CACP’s job now was only to estimate production costs for a season and recommend the MSPs by applying the 1.5-times formula.
How was this production cost arrived at?
- The CACP projects three kinds of production cost for every crop, both at the state and all-India average levels.
- ‘A2’ covers all paid-out costs directly incurred by the farmer — in cash and kind — on seeds, fertilizers, pesticides, hired labor, leased-in land, fuel, irrigation, etc.
- ‘A2+FL’ includes A2 plus an imputed value of unpaid family labor.
- ‘C2’ is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets, on top of A2+FL.
How much produce can the government procure at MSP?
- The MSP value of the total production of the 23 crops worked out to around Rs 10.78 lakh crore in 2019-20.
- Not all this produce, however, is marketed. Farmers retain part of it for self-consumption, the seed for the next season’s sowing, and also for feeding their animals.
- The marketed surplus ratio for different crops is estimated to range differently for various crops.
- It ranges from below 50% for ragi and 65-70% for bajra (pearl millet) and jawar (sorghum) to 75% for wheat, 80% for paddy, 85% for sugarcane, 90% for most pulses, and 95%-plus for cotton, soybean, etc.
- Taking an average of 75% would yield a number of just over Rs 8 lakh crore.
- This is the MSP value of production that is the marketable surplus — which farmers actually sell.
Nature of MSP
- There is currently no statutory backing for these prices, nor any law mandating their enforcement.
Farmers demand legalization
- Legal entitlement: There is a demand that MSP based on a C2+50% formula should be made a legal entitlement for all agricultural produce.
- Private traders’ responsibility: Some says that most of the cost should be borne by private traders, noting that both middlemen and corporate giants are buying commodities at low rates from farmers.
- Mandatory purchase at MSP: A left-affiliated farm union has suggested a law that simply stipulates that no one — neither the Government nor private players — will be allowed to buy at a rate lower than MSP.
- Surplus payment by the govt.: Other unions have said that if private buyers fail to purchase their crops, the Government must be prepared to buy out the entire surplus at MSP rates.
- Expansion of C2: Farm unions are demanding that C2 must also include capital assets and the rentals and interest forgone on owned land as recommended by the National Commission for Farmers.
Government’s position
- The PM has announced the formation of a committee to make MSP more transparent, as well as to change crop patterns — often determined by MSP and procurement.
- The panel will have representatives from farm groups as well as from the State and Central Governments, along with agricultural scientists and economists.
Issues with legal backing
- Demand-supply dynamics: Economic theory, as well as experience, indicates that the price level that is not supported by demand and supply cannot be sustained through legal means.
- States responsibility: The Centre has suggested that the States are free to guarantee MSP rates if they wish, but also offers two failed examples of such a policy:
[I] Sugar FRP
- In the sugar sector, private mills are mandated to buy cane from farmers at prices set by the Government.
- Faced with low sugar prices, high surplus stock, and low liquidity, mills failed to make full payments to farmers, resulting in an accumulation of thousands of crores worth of dues pending for years.
[II] Withdrawal of traders
- The other example is a 2018 amendment to the Maharashtra law penalizing traders with hefty fines and jail terms if they bought crops at rates lower than MSP.
- As open market prices were lower than the (legalized) MSP levels declared by the State, the buyers withdrew from the market and farmers had to suffer.
Will a legal backing for MSP solve all the ills that plague the Agriculture sector?
- Only one side of the coin: Actually, no. Remunerative price or MSP is only one part of the problems farmers face. Farmers face many other issues other than price, which itself is not guaranteed given the influence of politicians and cartels in mandis.
- Information deficit: They lack information on which crop to grow, when to sow, apply plant nutrients and which pest is attacking their crop.
- Lack of technology: Farmers are also short of post-harvest technologies to ensure a better shelf life for their produce.
- Irrigation and storage problem: They do not get adequate facilities to irrigate their lands, with nearly 50 percent of the land being rain-fed and lacking ample warehouses to store their produce at the village level, besides proper roads to connect them to the mandis.
- Threat of new loopholes: Legal backing for the MSP could also lead to the danger of the trade keeping away from places where the law is implemented vigorously.
Fiscal cost of making the MSP legally binding
- The MSP value of the total output of all the 23 notified crops worked out to about Rs 11.9 lakh crore in 2020-21.
- Taking an average of 75% yields a number – the MSP value of production actually sold by farmers – just under Rs 9 lakh crore.
- The government is further, as it is, procuring many crops. The MSP value of the 89.42 mt of paddy and 43.34 mt of wheat alone bought during 2020-21 was around Rs 253,275 crore.
- All in all, then, the MSP is already being enforced, directly or through fiat, on roughly Rs 3.8 lakh crore worth of produce.
- Providing a legal guarantee for the entire marketable surplus of the 23 MSP crops would mean covering another Rs 5 lakh crore or so.
Conclusion
- A growing consensus among economists for guaranteeing minimum “incomes”, as against “prices”, to farmers.
- That would essentially entail making more direct cash transfers either on a flat per-acre (as in the Telangana government’s Rythu Bandhu scheme) or per-farm household (the Centre’s PM-Kisan) basis.
- The resource requirement of such interventions will be so huge that no government will be left with resources to help farmers through other means like investment in public infrastructure, irrigation, and other incentives.
- The danger of over-reliance on MSP is already visible in the state of Punjab. Agriculture has reached an almost static stage there.
- The state is unable to diversify away from crops like paddy, which is destroying its natural resources and environment, marring long-term prospects of farming.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: NA
Mains level: India's defence exports
Our defence exports have increased seven times in the last eight years, informed the Prime Minister. We had achieved defence exports worth ₹13,000 crore and of this 70% was from the private sector.
Why in news?
- The Indian Defence sector, the second largest armed force is at the cusp of revolution.
India’s Defence Exports
- India has put out a range of military hardware on sale which includes various missile systems, Light Combat Aircraft (LCA), helicopters, warship and patrol vessels, artillery guns, tanks, radars etc.
- From 2016-17 to 2018-19, the country’s defence exports have increased from ₹1,521 crore to ₹10,745 crore, a staggering 700% growth.
Steps taken by the Centre to boost defence production
- Licensing relaxation: Measures announced to boost exports since 2014 include simplified defence industrial licensing, relaxation of export controls and grant of no-objection certificates.
- Lines of Credit: Specific incentives were introduced under the foreign trade policy and the Ministry of External Affairs has facilitated Lines of Credit for countries to import defence product.
- Policy boost: The Defence Ministry has also issued a draft Defence Production & Export Promotion Policy 2020.
- Indigenization lists: On the domestic front, to boost indigenous manufacturing, the Government had issued two “positive indigenization lists” consisting of 209 items that cannot be imported.
- Budgetary allocation: In addition, a percentage of the capital outlay of the defence budget has been reserved for procurement from domestic industry.
- Defence Industrial Corridors: The government has also announced 2 dedicated Corridors in the States of TN and UP to act as clusters of defence manufacturing that leverage existing infrastructure, and human capital.
- Long-term vision: The vision of the government is to achieve a turnover of $25 bn including export of $5 bn in Aerospace and Defence goods and services by 2025.
- Push for self-reliance: The govt has identified the Defence and Aerospace sector as a focus area for the ‘Aatmanirbhar Bharat’ or Self-Reliant India initiative.
Issues retarding defence exports
- Excess reliance on Public Sector: India has four companies (Indian ordnance factories, Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL) and Bharat Dynamics Limited (BDL)) among the top 100 biggest arms producers of the world.
- Policy delays: In the past few years, the government has approved over 200 defence acquisition worth Rs 4 trillion, but most are still in relatively early stages of processing.
- Lack of Critical Technologies: Poor design capability in critical technologies, inadequate investment in R&D and the inability to manufacture major subsystems and components hamper the indigenous manufacturing.
- Long gestation: The creation of a manufacturing base is capital and technology-intensive and has a long gestation period. By that time newer technologies make products outdated.
- ‘Unease’ in doing business: An issue related to stringent labour laws, compliance burden and lack of skills, affects the development of indigenous manufacturing in defence.
- Multiple jurisdictions: Overlapping jurisdiction of the Ministry of Defence and Ministry of Industrial Promotion impair India’s capability of defence manufacturing.
- Lack of quality: The higher indigenization in few cases is largely attributed to the low-end technology.
- FDI Policy: The earlier FDI limit of 49% was not enough to enthuse global manufacturing houses to set up bases in India.
- R&D Lacunae: A lip service to technology funding by making token allocations is an adequate commentary on our lack of seriousness in the area of Research and Development.
- Lack of skills: There is a lack of engineering and research capability in our institutions. It again leads us back to the need for a stronger industry-academia interface.
Way forward
- Reducing import dependence: India was the world’s second-largest arms importer from 2014-18, ceding the long-held tag as the largest importer to Saudi Arabia, says 2019 SIPRI report.
- Security Imperative: Indigenization in defence is critical to national security also. It keeps intact the technological expertise and encourages spin-off technologies and innovation that often stem from it.
- Economic boost: Indigenization in defence can help create a large industry which also includes small manufacturers.
- Employment generation: Defence manufacturing will lead to the generation of satellite industries that in turn will pave the way for a generation of employment opportunities.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Fast Radio Burst (FRB)
Mains level: Not Much
A strange radio signal (called Fast Radio Bursts) has been detected in a galaxy several billion light-years from Earth, a recent study claimed.
What is an FRB?
- The first FRB was discovered in 2007, since when scientists have been working towards finding the source of their origin.
- Essentially, FRBs are bright bursts of radio waves (radio waves can be produced by astronomical objects with changing magnetic fields).
- Its durations lie in the millisecond scale, because of which it is difficult to detect them and determine their position in the sky.
Who discovered it?
- The X-ray portion of the simultaneous bursts was detected by several satellites, including NASA’s Wind mission.
- Further, a NASA-funded project called Survey for Transient Astronomical Radio Emission 2 (STARE2) also detected the radio burst.
Why are they significant?
- First noticed in 2018 by the Canadian observatory the waves have created ripples across the globe for one reason — they arrive in a pattern.
- This gave birth to theories that they could be from an alien civilization.
- Initially, it was believed that the collision of black holes or neutron stars triggers them.
- But the discovery of repeating FRBs debunked the theory of colliding objects.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Agri-GDP
Context
The United Nations latest report, “Population Prospects” forecasts that India will surpass China’s population by 2023, reaching 1.5 billion by 2030 and 1.66 billion by 2050.
Poverty eradication: Lessons from China
- China’s story since 1978 is unique – the country has achieved the fastest decline in poverty.
- Its experiences hold some important lessons for India, especially because in 1978, when China embarked on its economic reforms, its per capita income at $156.4 was way below that of India at $205.7.
- Today, China is more than six times ahead of India in terms of per capita income – China’s per capita income in 2021 was $12,556, while that of India was $1,933 in 2020.
- China started its economic reforms in 1978 with a primary focus on agriculture.
- Contribution of agriculture: It broke away from the commune system and liberated agri-markets from myriad controls.
- Increase in agri-GDP: As a result, during 1978-84, China’s agri-GDP grew by 7.1 per cent per annum and farmers’ real incomes grew by 14 per cent per annum with the liberalisation of agri-prices.
- Creation of demand: Enhanced incomes of rural people created a huge demand for industrial products, and also gave political legitimacy for pushing further the reform agenda.
- The aim of China’s manufacturing through Town and Village Enterprises (TVEs) was basically to meet the surging demand from the hinterlands.
- Population factor: China introduced the one-child per family policy in September 1980, which lasted till early 2016.
- It is this strict control on population growth, coupled with booming growth in overall GDP over these years, that led to a rapid increase in per capita incomes.
- Chinese population growth today is just 0.1 per cent per annum compared to India’s 1.1 per cent per annum.
Growth story of Indian agriculture
- Over a 40-year period, 1978-2018, China’s agriculture has grown at 4.5 per cent per annum while India’s agri-GDP growth ever since reforms began in 1991 has hovered at around 3 per cent per annum.
- Market and price liberalisation in agriculture still remains a major issue, and at the drop of any hint of food price rise, the government clamps down exports, imposes stock limits on traders, suspends futures markets, and pushes other measures that strangle markets.
- Implicit taxation of farmers: The net result of all this is reflected in the “implicit taxation” of farmers to favour the vocal lobby of consumers, especially the urban middle class.
Way forward
- Population control: The only way is through effective education, especially that of the girl child, open discussion and dialogue about family planning methods and conversations about the benefits of small family size in society.
- Effective education: As per the National Family Health Survey-5 (2019-21), of all the girls and women above the age of 6 years, only 16.6 per cent were educated for 12 years or more.
- Based on unit-level data of NFHS5 (2019-21), it is found that women’s education is the most critical determinant of the status of malnutrition amongst children below the age of five.
- Unless a focused and aggressive campaign is launched to educate the girl child and provide her with more than 12 years of good quality education, India’s performance in terms of the prosperity of its masses, and the human development index may not improve significantly for many more years to come
- If government can take up this cause in sync with state governments, this will significantly boost the labour participation rate of women, which is currently at a meagre 25 per cent, and lead to “double engine” growth.
- Nutrition interventions: The NFHS-5 data shows that more than 35 per cent of our children below the age of five are stunted, which means their earning capacity will remain hampered throughout life. They will remain stuck in a low-level income trap.
Conclusion
From a policy perspective, if there is any subsidy that deserves priority, it should be for the education of the girl child. This policy focus can surely bring a rich harvest, politically and economically, for many years to come.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: 74th Constitutional Amendment Act
Mains level: Paper 2- Municipal finances
Context
Recently, the Indian Institute for Human Settlements (IIHS) analysed data from 80 urban local bodies (ULBs) across 24 States between 2012-13 and 2016-17 to understand ULB finance and spending, and found some key trends.
Health of municipal finances
- The 74th Constitution Amendment Act was passed in 1992 mandating the setting up and devolution of powers to urban local bodies (ULBs) as the lowest unit of governance in cities and towns.
- Constitutional provisions were made for ULBs’ fiscal empowerment.
- Challenges in fiscal empowerment: Three decades since, growing fiscal deficits, constraints in tax base expansion, and weakening of institutional mechanisms that enable resource mobilisation remain challenges.
- Revenue losses after implementation of the Goods and Services Tax (GST) and the pandemic have exacerbated the situation.
Analysing the trends in municipal finances
Recently, the Indian Institute for Human Settlements (IIHS) analysed data from 80 ULBs across 24 States between 2012-13 and 2016-17 to understand ULB finance and spending, and found some key trends.
1] Own sources of revenue less than half of total revenue
- Key sources of revenue: The ULBs’ key revenue sources are taxes, fees, fines and charges, and transfers from Central and State governments, which are known as inter-governmental transfers (IGTs).
- Important indicator of financial health: The share of own revenue (including revenue from taxes on property and advertisements, and non-tax revenue from user charges and fees from building permissions and trade licencing) to total revenue is an important indicator of ULBs’ fiscal health and autonomy.
- The study found that the ULBs’s own revenue was 47% of their total revenue.
- Of this, tax revenue was the largest component: around 29% of the total.
- Property tax, the single largest contributor to ULBs’ own revenue, accounted for only about 0.15% of the GDP.
- Figures for developing countries: The corresponding figures for developing and developed countries were significantly higher (about 0.6% and 1%, respectively) indicating that this is not being harnessed to potential in India.
2] High dependence on IGTs
- Most ULBs were highly dependent on external grants — between 2012-13 and 2016-17, IGTs accounted for about 40% of the ULBs’ total revenue.
- Transfers from the Central government are as stipulated by the Central Finance Commissions and through grants towards specific reforms, while State government transfers are as grants-in-aid and devolution of State’s collection of local taxes.
3] Tax revenue is largest revenue for larger cities, while smaller cities are more dependent on grants
- here are considerable differences in the composition of revenue sources across cities of different sizes.
- Class I-A cities (population of over 50 lakh) primarily depend on their own tax revenue, while Class I-B cities and Class I-C cities (population of 10 lakh-50 lakh and 1 lakh-10 lakh, respectively) rely more on IGTs.
- Own revenue mobilisation in Class I-A cities increased substantially.
- It was primarily driven by increases in non-tax revenue
4] Increasing operations and maintenance (O&M) expenses
- Operations and maintenance (O&M) expenses are on the increase but still inadequate.
- While the expenses were on the rise, studies (such as ICRIER, 2019 and Bandyopadhyay, 2014) indicate that they remained inadequate.
- For instance, O&M expenses incurred in 2016-17 covered only around a fifth of the requirement forecast by the High-Powered Expert Committee for estimating the investment requirements for urban infrastructure services.
- O&M expenses should ideally be covered through user charges, but total non-tax revenues, of which user charges are a part, are insufficient to meet current O&M expenses.
- The non-tax revenues were short of the O&M expenditure by around 20%, and this shortfall contributed to the increasing revenue deficit in ULBs.
Way forward
- Improving own revenue: It is essential that ULBs leverage their own revenue-raising powers to be fiscally sustainable and empowered and have better amenities and quality of service delivery.
- Stability in IGT: Stable and predictable IGTs are particularly important since ULBs’ own revenue collection is inadequate.
- O&M expenses: Increasing cost recovery levels through improved user charge regimes would not only improve services but also contribute to the financial vitality of ULBs.
- Measures need to be made to also cover O&M expenses of a ULB for better infrastructure and service.
- Tapping into property taxes, other land-based resources and user charges are all ways to improve the revenue of a ULB.
Conclusion
The health of municipal finances is a critical element of municipal governance which will determine whether India realises her economic and developmental promise.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: National Coal Index
Mains level: Paper 3- Need for increasing the domestic production of coal
Context
With inflation at unprecedented levels in many countries, concerns over energy security have gained centre stage.
National Coal Index to factor in the increased price of imported coal
- This index was created to provide a benchmark for revenue-sharing contracts being executed after the auctions for commercial mining of coal.
- The NCI had to be introduced as the wholesale price index (WPI) for coal has no component of imported coal.
- For the last six months, the WPI for Coal has been stable at around 131.
- Over the same period, the NCI has jumped from about 165 to about 238 reflecting the sharp increase in international coal prices.
Needs to increase domestic coal production
- High prices of coal and coal-based generation will only encourage imported coal and expose the country to price risks from international energy prices.
- The domestic coal industry has responded to increasing internation prices with an increase of over 30 per cent in coal production from April to June this year.
- Anticipating these problems, a big effort toward permitting commercial mining has been made to get the private sector to produce more coal.
- Gradual transition: Looking at coal from a singular focus on GHG emissions will give a myopic view of energy requirements for a growing economy like India.
- The path to achieving 500 GW of renewables needs to be gradual, ensuring an orderly transition as coal is unavoidable in the near future.
- Reducing coal imports and increasing domestic production of coal needs focused attention
Suggestions to increase domestic production of coal
1] Sensitising the financial community
- The financial community has to be sensitised to the need of increasing domestic coal production to meet the growing energy demand.
- The draft National Electricity Policy released in May 2021, recognised the need to increase coal-based generation.
- This policy has not yet been finalised.
- It should clearly articulate the importance of domestic coal-based generation.
- Holistic approach in ESG criteria: Apart from the government, the industry should also take up this issue with the financial community in adopting a more holistic approach toward environmental, social, and governance (ESG) criteria.
2] The regulator needs to facilitate greater role of private sector
- There is the need for a regulator to address the issues arising from a greater role of the private sector.
- The current arrangements were put in place at a time when the public sector dominated.
- There are several issues where new private commercial miners would need help.
- Single point of contact: A single point of contact for the industry in the form of a dedicated regulator would give great comfort to private players and would help to overcome problems that could arise in due course.
3] Diversifying the production base
- Increasing domestic production of coal and diversifying the production base are both needed.
- This must be complemented with efforts to improve the quality of the coal produced.
4] Remove financial burden due to cross subsidies
- The undue financial burden on the coal sector due to various cross subsidies needs attention.
- The regime needs to be reformed.
Conclusion
Action on the issues discussed above will only help to deepen and strengthen these reforms which are needed to overcome the challenges that have resurfaced over the past few months.
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From UPSC perspective, the following things are important :
Prelims level: Treaty of Friendship
Mains level: India-Bhutan Relations
After over two years of the COVID-19-induced lockdown, Bhutan will open its doors to tourists on September 23 with a new expensive policy for Indians and other foreign tourists.
India-Bhutan Relations: A backgrounder
- India and Bhutan have had long-standing diplomatic, economic and cultural relations
- Bhutan and India relations are governed by a friendship treaty that was renegotiated only in 2007, subjecting the Himalayan nation’s security needs to supervision.
- Treaty of Friendship in 2007, which brought into the India-Bhutan relationship “an element of equality.”
- The Treaty provides for perpetual peace and friendship, free trade and commerce, and equal justice to each other’s citizens.
What is the Treaty of Friendship?
- On August 8, 1949, Bhutan and India signed the Treaty of Friendship, calling for peace between the two nations and non-interference in each other’s internal affairs.
- India re-negotiated the 1949 treaty with Bhutan and signed a new treaty of friendship in 2007.
- The new treaty replaced the provision requiring Bhutan to take India’s guidance on foreign policy with broader sovereignty and not require Bhutan to obtain India’s permission over arms imports.
- Under the 2007 India-Bhutan Friendship Treaty, the two sides have agreed to “cooperate closely with each other on issues relating to their national interests.”
- Neither Government shall allow the use of its territory for activities harmful to the national security and interest of the other
Various facets of ties
(1) Commercial Relations
- India is Bhutan’s largest trading partner.
- India and Bhutan have signed an Agreement on Trade, Commerce and Transit on in 2016, which provides for a free trade regime between the two countries.
- Tourism is another point of convergence.
(2) Energy Cooperation
- A scheme titled “Comprehensive Scheme for Establishment of Hydro-meteorological and Flood Forecasting Network on rivers Common to India and Bhutan” is in operation.
- The network consists of 32 Hydro-meteorological/ meteorological stations located in Bhutan and being maintained by the Royal Government of Bhutan with funding from India.
- The data received from these stations are utilized in India for formulating flood forecasts.
Significance of Bhutan to India
- Buffer to China: Bhutan is a buffer state between India and China. Bhutan shares a 470 km long border with China.
- Vital connectivity through chicken’s neck: The Chumbi Valley is situated at the tri-junction of Bhutan, India and China and is 500 km away from the “Chicken’s neck” in North Bengal.
- Security in North-East: Bhutan has in the past cooperated with India and helped to flush out militant groups in NE.
- Chinese inroad in Bhutan: China is interested in establishing formal ties with Thimphu, where it does not yet have a diplomatic mission.
China factor in ties: China predates on small neighbours
- Bhutan is strategically important for both India and China. Chinese territorial claims in western Bhutan are close to the Siliguri Corridor.
- Beijing is reportedly insisting on Bhutan establishing trade and diplomatic relations as a quid pro quo for a border settlement.
- Bhutan is currently India’s only neighbour who has stayed away from joining China’s Belt and Road Initiative (BRI), but that may change if India can’t make itself an attractive ally and neighbour.
Why does India need Bhutan?
- Bhutan has always been India’s most trusted ally in South Asia and has often put India’s security at the forefront.
- Come to think of it, in December 2003, Bhutan’s fourth king personally led the army to throw out Indian militants living in Bhutan’s jungles.
- Bhutan was also the only South Asian country besides India not to attend China’s Belt and Road Initiative forum in May 2017.
- In other words, land-locked Bhutan has held its end of the bargain.
Various cooperation developments
- Maitri Initiative: Bhutan is the first country to receive the Covishield vaccines under India’s Vaccine Maitri Initiative.
- Financial connectivity: It has touched new heights through the launch of the RuPay card and the BHIM app.
- Start-Up ecosystem: Both nations successfully linked up the Start-Up systems of our two countries via structured workshops; through the National Knowledge Network & the Druk-REN connection.
- E-Library project: It has opened up new vistas of education and knowledge sharing between two countries.
Irritants in ties
- India has not invested in significantly in Bhutan and other smaller neighbours that modicum of trust which is critical in building genuine goodwill.
- This means not only increasing people-to-people contact but also being sensitive to Bhutan’s desire for a wider engagement beyond India’s borders. This means respecting Bhutan as an equal, sovereign nation-state.
Conclusion
- The Indo-Bhutan friendship is built on shared values and aspirations, trust and mutual respect.
- Bhutan’s foreign policy framework holds the relationship with India as being integral to its national interest.
- The Indian approach to Bhutan has necessarily to be tailored while being sensitive to the growing Bhutanese aspirations of being considered equal.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: ECB
Mains level: Not Much
The Reserve Bank of India has relaxed norms for companies raising external commercial borrowings (ECBs), as part of a set of measures to stem the slide in the rupee.
What are ECBs taken by Indian companies?
- ECBs are commercial loans that eligible resident entities can raise from outside India, i.e. from a recognized non-resident entity.
- ECBs can be buyer’s credit, supplier’s credit, foreign currency convertible bonds, foreign currency exchangeable bonds, loans etc.
- ECBs can be raised via the automatic route where cases are examined by the Authorized Category Dealer, or the approval route where borrowers are mandated to forward their request to RBI through their authorized dealers.
- Borrowers must follow norms on minimum maturity period, maximum all-in-cost ceiling, end-uses etc.
What is the relaxation offered by the RBI?
- RBI earlier had raised borrowing limit under the automatic route from $750 million or its equivalent per financial year to $1.5 bn up till up to 31 December, 2022.
Why such move?
- The objective was to increase the supply of foreign exchange reserves.
- This in turn would thereby prevent the fast depreciation of the rupee witnessed over the last few months.
What clarity do foreign lenders want from RBI?
- Lenders want to know whether the investment grade needs to be rated by domestic or international agencies.
- If it is only by global agencies, it would limit the number of potential borrowers.
- This is because companies which might be rated high domestically might not necessarily have made the investment grade when rated by international agencies.
Why do Indian firms go for ECBs?
- Low cost: ECBs give companies the benefit of borrowing abroad at lower interest rates.
- Long term repayment: They are also an avenue to borrow a large volume of funds for a relatively long period of time.
- Surpassing exchange fluctuation: Also, borrowing in foreign currencies enables companies to pay for their machinery import etc., thereby nullifying the impact of varying exchange rate.
- Long term profitability: ECBs can help diversify the investor base and funds available at lower cost, helping improve profitability of companies.
- Better credit ratings: ECB interest rates are also a function of their ratings in the international market.
What are the risks for firms raising ECBs?
- Though companies get attracted to ECBs due to lower interest rates, the comfort level of the borrower depends on how stable the rate of exchange is.
- Depreciation of the rupee will raise debt servicing burden as compared to what has been worked out at the time of availing of the ECB facility.
- Thus, the companies might need to incur hedging costs (amount equal to the aggregate costs, fees, and expenses) to cover the exchange rate risk.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Read the attached story
Mains level: NA
This article provides a quick summary of what has been happening in the global economy. These are few key terms that one is likely to hear repeatedly in the coming days and weeks:
- Yield Inversion
- Soft-landing and
- Reverse Currency War
Here’s a quick look at what they mean and why they are significant at present.
(1) Bond Yield Inversion
What is Bond Yeild?
- Bonds are essentially an instrument through which governments (and also corporations) raise money from people.
- Typically government bond yields are a good way to understand the risk-free interest rate in that economy.
- This 2019 piece provides an introduction to government bonds and explains how yields are calculated.
What is Yield Curve?
- The yield curve is the graphical representation of yields from bonds (with an equal credit rating) over different time horizons.
- In other words, if one was to take the US government bonds of different tenures and plot them according to the yields they provide, one would get the yield curve.
The chart below provides a sense of the different types of yield curves one could have.
How to see this?
- Under normal circumstances, any economy would have an upward sloping yield curve.
- That is to say, as one lends for a longer duration — or as one buys bonds of longer tenure — one gets higher yields. This makes sense.
- If one is parting with money for a longer duration, the return should be higher.
- Moreover, a longer tenure also implies that there is a greater risk of failure.
- An inversion of the yield curve essentially suggests that investors expect future growth to be weak.
Inversion of bond yield
- However, there are times when this bond yield curve becomes inverted.
- For instance, bonds with a tenure of 2 years end up paying out higher yields (returns/ interest rate) than bonds with a 10 year tenure.
- Such an inversion of the yield curve essentially suggests that investors expect future growth to be weak.
Here’s how to make sense of this?
- When investors feel buoyant about the economy they pull the money out from long-term bonds and put it in short-term riskier assets such as stock markets.
- In the bond market, the prices of long-term bonds fall, and their yield (effective interest rate) rises.
- This happens because bond prices and bond yields are inversely related.
- However, when investors suspect that the economy is heading for trouble, they pull out money from short-term risky assets (such as stock markets) and put them in long-term bonds.
- This causes the prices of the long-term bonds to rise and their yields to fall.
Why use inversion curve?
- Over the years, inversion of the bond yield curve has become a strong predictor of recessions. Of course, for it to be taken seriously, such an inversion has to last for several months.
- Over the past few weeks, such inversion is happening repeatedly in the US, suggesting to many that a recession is in the offing.
- In the current instance, the US Fed (their central bank) has been raising short-term interest rates, which further bumps up the short-end of the yield curve while dampening economic activity.
(2) Soft-Landing
- The process of monetary tightening that the US is currently unveiling involves not just reducing the money supply but also increasing the cost of money (that is, the interest rate).
- US is doing this to contain soaring inflation.
- Ideally, the US Fed or any central bank doing this would like to bring about monetary tightening in such a manner that slows down the economy but doesn’t lead to a recession.
- When a central bank is successful in slowing down the economy without bringing about a recession, it is called a soft-landing — that is, no one gets hurt.
- But when the actions of the central bank bring about a recession, it is called hard-landing.
(3) Reverse Currency War
- A flip side of the US Fed’s action of aggressively raising interest rates is that more and more investors are rushing to invest money in the US.
- This, in turn, has made the dollar become stronger than all the other currencies. That’s because the dollar is more in demand than yen, euro, yuan etc.
- On the face of it, this should make all other countries happier because a relative weakness of their local currency against the dollar makes their exports more competitive.
- For instance, a Chinese or an Indian exporter gets a massive boost.
- In fact, in the past the US has often accused other countries of manipulating their currency (and keeping its weaker against the dollar) just to enjoy a trade surplus against the US.
- This used to be called the currency war.
What explains this reverse currency war unfolding at the moment?
- The important thing to understand is that a stronger dollar has had a key benefit — importing cheaper crude oil.
- A currency which is losing value to the dollar, on the other hand, finds that it is getting costlier to import crude oil and other commodities that are often traded in dollars.
- But raising the interest rate is not without its own risks.
- Just like in the US, higher interest rates will decrease the chances of a soft-landing for any other economy.
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From UPSC perspective, the following things are important :
Prelims level: Vice President of India
Mains level: Not Much
A major political party has declared that West Bengal Governor Jagdeep Dhankhar would be the candidate for the post of Vice-President.
About Vice President of India
- The VP is the deputy to the head of state of the Republic of India, the President of India.
- His/her office is the second-highest constitutional office after the president and ranks second in the order of precedence and first in the line of succession to the presidency.
- The vice president is also a member of the Parliament as the ex officio Chairman of the Rajya Sabha.
Qualifications
- As in the case of the president, to be qualified to be elected as vice president, a person must:
- Be a citizen of India
- Be at least 35 years of age
- Not hold any office of profit
- Unlike in the case of the president, where a person must be qualified for election as a member of the Lok Sabha, the vice president must be qualified for election as a member of the Rajya Sabha.
- This difference is because the vice president is to act as the ex officio Chairman of the Rajya Sabha.
Roles and responsibilities
- When a bill is introduced in the Rajya Sabha, the vice president decides whether it is a money bill or not.
- If he is of the opinion that a bill introduced in the Rajya Sabha is a money bill, he shall refer it to the Speaker of the Lok Sabha.
- The vice president also acts as the chancellor of the central universities of India.
Election procedure
- Article 66 of the Constitution of India states the manner of election of the vice president.
- The vice president is elected indirectly by members of an electoral college consisting of the members of both Houses of Parliament and NOT the members of state legislative assembly.
- The election is held as per the system of proportional representation using single transferable votes.
- The voting is conducted by Election Commission of India via secret ballot.
- The Electoral College for the poll will comprise 233 Rajya Sabha members, 12 nominated Rajya Sabha members and 543 Lok Sabha members.
- The Lok Sabha Secretary-General would be appointed the Returning Officer.
- Political parties CANNOT issue any whip to their MPs in the matter of voting in the Vice-Presidential election.
Removal
- The Constitution states that the vice president can be removed by a resolution of the Rajya Sabha passed by an Effective majority (majority of all the then members) and agreed by the Lok Sabha with a simple majority( Article 67(b)).
- But no such resolution may be moved unless at least 14 days’ notice in advance has been given.
- Notably, the Constitution does not list grounds for removal.
- No Vice President has ever faced removal or the deputy chairman in the Rajya Sabha cannot be challenged in any court of law per Article 122.
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From UPSC perspective, the following things are important :
Prelims level: GST Slabs
Mains level: Rationalization of GST
Customers will have to pay a 5% Goods and Services Tax (GST) on pre-packed, labelled food items such as atta, paneer and curd, besides hospital rooms with rents above ₹5,000.
What is GST?
- GST launched in India on 1 July 2017 is a comprehensive indirect tax for the entire country.
- It is charged at the time of supply and depends on the destination of consumption.
- For instance, if a good is manufactured in state A but consumed in state B, then the revenue generated through GST collection is credited to the state of consumption (state B) and not to the state of production (state A).
- GST, being a consumption-based tax, resulted in loss of revenue for manufacturing-heavy states.
What are GST Slabs?
- In India, almost 500+ services and over 1300 products fall under the 4 major GST slabs.
- There are five broad tax rates of zero, 5%, 12%, 18% and 28%, plus a cess levied over and above the 28% on some ‘sin’ goods.
- The GST Council periodically revises the items under each slab rate to adjust them according to industry demands and market trends.
- The updated structure ensures that the essential items fall under lower tax brackets, while luxury products and services entail higher GST rates.
- The 28% rate is levied on demerit goods such as tobacco products, automobiles, and aerated drinks, along with an additional GST compensation cess.
Why rationalize GST slabs?
- From businesses’ viewpoint, there are just too many tax rate slabs, compounded by aberrations in the duty structure through their supply chains with some inputs taxed more than the final product.
- These are far too many rates and do not necessarily constitute a Good and Simple Tax.
- Multiple rate changes since the introduction of the GST regime in July 2017 have brought the effective GST rate to 11.6% from the original revenue-neutral rate of 15.5%.
- Merging the 12% and 18% GST rates into any tax rate lower than 18% may result in revenue loss.
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