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  • Foreign Policy Watch: India-Bangladesh

    India, Bangladesh, Pakistan: What east can teach west

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

    Context

    The bilateral relationship between India and Bangladesh dominated by endless contentions at the turn of the millennium has transformed into a very productive partnership.

    Contrast between India’s relations with Bangladesh and Pakistan

    • The persistence of cross-border terrorism, the conflict over Kashmir, the militarisation of the frontier, little connectivity, poor trade relations and no formal inter-governmental negotiations paint a bleak picture of the India-Pak border.
    • The inability of successive generations of Indian and Pakistani leaders to bring a closure to Partition in the west makes the talk of a “100-year war” credible.
    • The only trend that can counter this pessimism is the good news from India’s eastern frontier with Bangladesh.
    • In contrast to the talk of a 100-year war between India and Pakistan, India and Bangladesh have proclaimed a “sonali adhyay” or “golden chapter” in bilateral relations.
    • While the unresolved land and maritime territorial disputes constitute one of the main problems in India’s relations with Pakistan, their resolution with Bangladesh transformed the context of bilateral relations.
    • For both Delhi and Dhaka, the reinvention of the bilateral relationship has been one of the most significant successes of their recent foreign policies

    Rebuilding the Bangladesh-India ties after 2010

    • The work on rebuilding ties began in earnest in 2010, when Sheikh Hasina came to India after taking charge of Bangladesh as prime minister for the second time in 2009.
    • Addressing bilateral problems: Both sides embarked on an extraordinary effort to address most bilateral problems—including border settlement, river water sharing, cross-border terrorism, market access to Bangladeshi goods, and connectivity.
    • The land boundary deal got parliamentary approval in 2015 in India.
    • India also accepted the award of the Permanent Court of Arbitration in The Hague on settling the maritime boundary dispute between Delhi and Dhaka. 
    • Security cooperation: Cooperation on cross-border terrorism that began a couple of years earlier helped build much-needed political trust between the two national security establishments.
    • Connectivity: On the connectivity front, we have seen a substantive movement towards reopening the border that was largely shut down after the 1965 war between India and Pakistan.
    • Trans-boundary bus services, reopening of railway lines, and the revitalisation of waterways are restoring connectivity in the eastern subcontinent that was severed.
    • Bilateral trade: Bilateral trade volumes have grown by leaps and bounds in recent years touching nearly $16 billion last year.
    • Bangladesh is one of India’s top export markets.
    •  India and Bangladesh have also developed inter-connected power grids facilitating Dhaka’s purchase of power from India.
    • It currently buys about 1200 MW of power from India and an additional 1500 MW is in the pipeline.
    • Development of the northeastern India: Today the northeastern states have realised the immense benefits of deeper economic engagement with Bangladesh — none of them more important than ending the geographic isolation of the region.
    • Assam today is at the forefront of imagining a bolder agenda for deepening economic ties with Bangladesh.
    • Peace and prosperity in the region: For India, the expansive partnership with Bangladesh has significantly eased its security challenges and laid the basis for peace and prosperity in the eastern subcontinent.
    • For Bangladesh, discarding the temptation to balance India and embark on a cooperative strategy has allowed Dhaka to focus on its economic growth and lift itself in the regional and global hierarchy.

    Way forward

    • Consolidating the gains: Rather than regret the unfortunate dynamic on the western frontier and bemoan Pakistan’s reluctance to let the SAARC become a vehicle for regional cooperation, Delhi should focus on consolidating the “golden moment” in the east.
    • The issues that need resolution are protecting the rights of minorities, sharing the waters of more than 50 rivers, promoting cross-border investments, managing one of the longest borders in the world, facilitating trade and preventing illegal migration, countering forces of religious extremism, promoting maritime security in the Bay of Bengal, expanding defence cooperation, and mitigating climate change in the shared regional environment to name a few.
    • Solving problems and tending to the relationship must necessarily be a continuous effort rather than episodic.

    Conclusion

    Nor can Delhi and Dhaka take each other for granted and let domestic politics overwhelm the logic of bilateral cooperation. The 75th anniversary of independence offers Delhi and Dhaka a special opportunity to elevate the ambition for their bilateral partnership.

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

    Macrovariable projections in uncertain times

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

    Context

    The Fed has raised its benchmark interest rate again by a whopping 0.75%. The Reserve Bank of India has also been forced to raise interest rates further but also take other steps.

    Two challenges for policymakers

    • Decisions in the Monetary Policy Committee (MPC) meeting are based on what the members of the MPC see as the likely course of the economy in the months ahead.
    • But, the trajectory of the world economy, and its likely impact on the Indian economy, is imponderable.
    • So, Indian policymakers would face two crucial problems.
    • 1] Uncertainty due to war and Covid-19: First, the main uncertainty is due to Russia’s war on Ukraine and the resultant economic sanctions on Russia, as well as the zero-COVID-19 policy in China that repeatedly implements lockdowns leading to global supply bottlenecks.
    • 2] Uncertainty in data: Policy has to base itself on data.
    • If it is deficient, it introduces additional uncertainty, making projections for the future difficult and causing policies to fail.
    • This will compound the problem that results from the global uncertainty.

    Role of uncertainties related to Covid and Ukraine war

    • Since early 2020, the SARS-COV-2 virus has caused global uncertainty.
    •  In a globalised interdependent world, production was hit resulting in price rise (inflation) and loss of real incomes.
    • This has resulted in decline in demand and, in a vicious cycle, a further slowing down of the economy.
    • As prices have risen globally and economies slowed down, many countries have faced stagflation.
    • Decline in uncertainty: The uncertainty due to the novel coronavirus has declined in spite of waves of attack persisting because the impact of new virus mutants of the virus is milder and there is also immunity due to vaccination.
    • However, China is an exception with its zero-COVID policy.
    •  It has been implementing strict lockdowns in the last six months, even when only a few cases of the disease have been detected.

    The uncertainties due to Ukraine conflict

    • The war in Ukraine and western sanctions on Russia have caused huge uncertainty since February 2022 (when Russia invaded Ukraine) and displaced the disease-related uncertainty, i.e., COVID-19.
    • The reason is that the war is a proxy war between two powerful capitalist blocs.
    • There is needless continuing suffering of the people of Ukraine, with a bombardment of cities, and this could escalate.
    • The war and the sanctions have already affected the world economy and the Europeans in particular.
    • The U.S. economy has entered technical recession with two quarters of GDP decline.
    • As supplies of critical items supplied by Russia and Ukraine have been hit, prices have soared.
    • Europe, the United States and India have experienced or are experiencing high inflation.
    • The biggest disruption is in energy supplies from Russia, impacting production.
    • The availability of food, fertilizers, metals, etc., have been hit as Ukraine and Russia are important sources.
    • To weaken Russia, sanctions may be imposed on countries that carry out trade with it.
    • Many Indian entities may face the heat since India has increased its imports from Russia, which undermines sanctions.
    • China may also face sanctions since it has increased trade with Russia and is backing it.

    Data related uncertainties

    • Indian policymakers also face data-related issues.
    • It is not only available with a big lag on most macroeconomic variables but for many variables, data are either not available or has huge errors.
    • Errors in data: Policymakers rely on high frequency data to proxy for actual data.
    • For example, very little data are available for quarterly GDP data which is used to calculate the growth rate of the economy.
    • First, except for agriculture, unorganised sector data is not available.
    • Second, for the organised sector, very limited data are available.
    • Third, projections from the previous year or proxies are used — both these introduce errors when there are repeated shocks to the economy, such as the pandemic and now the war.
    • Issues with price data: Price data too are problematic.
    • The services sector is under-represented.
    • Prices of many services have risen and expenditures on them have increased dramatically, thus changing their weight in the consumption basket.
    • Common CPI: Further, the consumer price index is common for the upper classes and the poor.
    •  Earlier, there was a different index for various categories of people, which reflected the differential impact of inflation on people.
    • This gave a truer picture of the economy and peoples’ distress.

    Conclusion

    Indian policymakers face the unenviable task of predicting the course of the economy for the next few months and even the year (or years) ahead because of the shocks and faulty and inadequate data. The problem is compounded by international factors.

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  • Foreign Policy Watch: India-China

    China’s problem with top US senator visiting Taiwan

    | International Relations | Mains Paper 2: Important International Institutions

    The Speaker of the House of Representatives, Nancy Pelosi, landed in Taiwan, ignoring Chinese threats and a warning by President Xi Jinping to “not play with fire”.

    Why in news?

    • Pelosi’s visit to Taiwan is the highest-level visit by an American official to the island in a quarter century.
    • The senior US politician has been critical of China on multiple fronts over the decades.

    US defiance of One China Policy

    • The US has maintained a ‘One China’ policy since the 1970s, under which it recognises Taiwan as a part of China.
    • But it has unofficial ties with Taiwan as well — a strategy that is known as strategic or deliberate ambiguity.
    • Beijing considers Taiwan a part of China, threatens it frequently, and has not ruled out taking the island by military force at any time.

    Why does China have a problem with Pelosi visiting Taiwan?

    • For China, the presence of a senior American figure in Taiwan would indicate some kind of US support for Taiwan’s independence.
    • This move severely undermined China’s perception of sovereignty and territorial integrity.

    Brief history of China-Taiwan Tensions

    • Taiwan is an island about 160 km off the coast of southeastern China, opposite the Chinese cities of Fuzhou, Quanzhou, and Xiamen.
    • It was administered by the imperial Qing dynasty, but its control passed to the Japanese in 1895.
    • After the defeat of Japan in World War II, the island passed back into Chinese hands.
    • After the communists led by Mao Zedong won the civil war in mainland China, Chiang Kai-shek, the leader of the nationalist Kuomintang party, fled to Taiwan in 1949.
    • Chiang Kai-shek set up the government of the Republic of China on the island, and remained President until 1975.
    • Beijing has never recognised the existence of Taiwan as an independent political entity, arguing that it was always a Chinese province.

    Taiwanese stance

    • Taiwan says that the modern Chinese state was only formed after the revolution of 1911.
    • It was not a part of that state or of the People’s Republic of China that was established after the communist revolution.
    • While the political tensions have continued, China and Taiwan have had economic ties.
    • Many migrants from Taiwan work in China, and China has investments in Taiwan.
    • No doubt, cultural ties are indispensable.
    • In recent years, Taiwan’s government has said only the island’s 23 million people have the right to decide their future and that it will defend itself when attacked.
    • Since 2016, Taiwan has elected a party that leans towards independence.

    How does the world, and US, view Taiwan?

    • The UN does NOT recognise Taiwan as a separate country; in fact, only 13 countries around the world — mainly in South America, the Caribbean, Oceania, and the Vatican — do.
    • In June, President Biden said that the US would defend Taiwan if it was invaded, but it was clarified soon afterward but America does not support Taiwan’s independence.
    • While the US has no formal ties with Taipei, it remains Taiwan’s most important international backer and arms supplier.

     

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  • Foreign Policy Watch: India-Bangladesh

    India-Bangladesh River Disputes

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

    India and Bangladesh are likely to ink at least one major river agreement later this month.

    It is gauged that India has agreed to offer Bangladesh a package on river waters-related deals that will be considered a significant advancement in terms of sharing of river resources with Dhaka.

    Why in news?

    • There is a strong possibility that an agreement on the River Kushiyara that flows from Assam into Bangladesh is part of one such agreement.
    • This river got its fame in recent Assam floods.
    • Water sharing is considered a sensitive subject given the fact that it often takes political meaning.

    Rivers between India and Bangladesh

    • Overall, India and Bangladesh have 54 transboundary rivers between them, all of which are part of the drainage system of the Ganga-Brahmaputra-Meghna (GBM) basin.
    • The Padma (the Ganga), the Jamuna (the Brahmaputra) and the Meghna (the Barak) and their tributaries are integral in maintaining food and water security in Bangladesh.
    • In most of these cases, Bangladesh is the lower riparian.
    • This causes concern in Bangladesh that India—being both the upper riparian and first to develop the water resources—can have far more disproportionate control over the rivers.
    • Compounded by the lack of transparent data regarding trans-boundary rivers, such concern can lead to a more serious conflict between the two otherwise friendly neighbours.

    Genesis of the disputes

    • The issues between India and Bangladesh regarding water resource allotment can be traced to the time Bangladesh was still East Pakistan.
    • In 1961, India began construction of the Farakka Barrage—which was to be operational by April 1975—to divert a portion of the dry-season flow and increase the navigability of Kolkata port.
    • When India began its preliminary planning for the project in 1950-51, Pakistan immediately expressed concerns over the potential effect of the project on East Pakistan.

    Moves for disputes resolution: Joint River Commission

    • Soon after the independence of Bangladesh in 1971, the Joint River Commission was formed between India and Bangladesh in 1972.
    • In a joint declaration issued on 16 May 1974, the PM of Bangladesh and India acknowledged the need for the flow augmentation of the Ganga in the lean season to meet the requirements of both countries.

    Often in news: Teesta River Dispute

    • The Bangladesh government has been insistent on sealing the Teesta Waters Agreement, which has eluded settlement so far.
    • Teesta River is a 315 km long river that rises in the eastern Himalayas, flows through the Indian states of Sikkim and West Bengal through Bangladesh and enters the Bay of Bengal.
    • It is a tributary of the Brahmaputra (known as Jamuna in Bangladesh), flowing through India and Bangladesh.
    • It originates in the Himalayas near Chunthang, Sikkim and flows to the south through West Bengal before entering Bangladesh.
    • Originally, it continued southward to empty directly into the Padma River but around 1787 the river changed its course to flow eastward to join the Jamuna river.
    • The Teesta Barrage dam helps to provide irrigation for the plains between the upper Padma and the Jamuna.

    What is the dispute about?

    • The point of contention between India and Bangladesh is mainly the lean season flow in the Teesta draining into Bangladesh.
    • The river covers nearly the entire floodplains of Sikkim while draining 2,800 sq km of Bangladesh, governing the lives of hundreds of thousands of people.
    • For West Bengal, Teesta is equally important, considered the lifeline of half-a-dozen districts in North Bengal.
    • Bangladesh has sought an “equitable” distribution of Teesta waters from India, on the lines of the Ganga Water Treaty of 1996, but to no avail.
    • The failure to ink a deal had its fallout on the country’s politics, putting the ruling party of PM Sheikh Hasina in a spot.

    Q.The hydrological linkages between India and Bangladesh are a product of geography and a matter of shared history. Discuss this statement in line with the Teesta water sharing dispute.

    The deal

    • Following a half-hearted deal in 1983, when a nearly equal division of water was proposed, the countries hit a roadblock. The transient agreement could not be implemented.
    • Talks resumed after the Awami League returned to power in 2008 and the former Indian PM Manmohan Singh visited Dhaka in 2011.
    • In 2015, PM Modi’s visit to Dhaka generated more ebullient lines: deliberations were underway involving all the stakeholders to conclude the agreement as soon as possible.

    Issues from the Indian side

    • It remains an unfinished project and one of the key stakeholders — West Bengal CM is yet to endorse the deal.
    • Her objection is connected to “global warming. Many of the glaciers on the Teesta basin have retreated.
    • The importance of the flow and the seasonal variation of this river is felt during the lean season (from October to April/May) as the average flow is about 500 million cubic metres (MCM) per month.
    • The CM opposed an arrangement in 2011, by which India would get 42.5% and Bangladesh 37.5% of the water during the lean season, and the plan was shelved.

    Why does this deal matters?

    • India and Bangladesh have resolved border problems through the Land Boundary Agreement of 2015.
    • However, both nations have locked horns over the sharing of multiple rivers that define the borders and impact lives and livelihoods on both sides.

     

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  • Climate Change Impact on India and World – International Reports, Key Observations, etc.

    What is causing Arctic Amplification?

    | Enviro & Biodiversity | Mains Paper 1: Important Geophysical Phenomena

    Finnish researchers have found that the Arctic is heating four times faster than the rest of the planet.

    Arctic is warming faster

    • The warming is concentrated in the Eurasian part of the Arctic, where the Barents Sea north of Russia and Norway is warming at an alarming rate — seven times faster than the global average.
    • Other studies indicate that the Arctic amplification is four times the global rate.

    What is Arctic Amplification?

    • Global warming has hastened due to anthropogenic forces or human activities since pre-industrial times and has increased the planet’s average temperature by 1.1 degrees Celsius.
    • While changes are witnessed across the planet, any change in the surface air temperature and the net radiation balance tend to produce larger changes at the north and south poles.
    • This phenomenon is known as polar amplification; these changes are more pronounced at the northern latitudes and are known as the Arctic amplification.

    What causes amplification?

    • Among the many global warming-driven causes for this amplification, the ice-albedo feedback, lapse rate feedback, water vapour feedback and ocean heat transport are the primary causes.
    • Sea ice and snow have high albedo (measure of reflectivity of the surface), implying that they are capable of reflecting most of the solar radiation as opposed to water and land.
    • In the Arctic’s case, global warming is resulting in diminishing sea ice.
    • As the sea ice melts, the Arctic Ocean will be more capable of absorbing solar radiation, thereby driving the amplification.
    • The rate at which the temperature drops with elevation i.e. lapse rate decreases with warming.
    • Studies show that the ice-albedo feedback and the lapse rate feedback are responsible for 40% and 15% of polar amplification respectively.

    What do the previous studies say?

    • The extent of Arctic amplification is debated, as studies show various rates of amplification against the global rate.
    • Studies have shown that the Arctic was warming at twice the global rate prior to the beginning of the 21st century.
    • Already the Arctic surface air temperature has likely increased by more than double the global average over the last two decades.

    What are the consequences of Arctic warming?

    • The causes and consequences of Arctic amplification are cyclical — what might be a cause can be a consequence too.
    • The Greenland ice sheet is melting at an alarming rate, and the rate of accumulation of sea ice has been remarkably low since 2000.
    • This is also marked by young and thinner ice replacing the old and thicker ice sheets.
    • Greenlandic ice sheet holds the second largest amount of ice, after Antarctica, and therefore it is crucial for maintaining the sea level.
    • In 2019, this was the single biggest cause for the rise in the sea level, about 1.5 metres.

    Visible impacts

    • If the sheet melts completely, the sea level would rise by seven metres, capable of subsuming island countries and major coastal cities.
    • The warming of the Arctic Ocean and the seas in the region, the acidification of water, changes in the salinity levels, are impacting the biodiversity, including the marine species and the dependent species.
    • The warming is also increasing the incidence of rainfall which is affecting the availability and accessibility of lichens to the reindeer.
    • The Arctic amplification is causing widespread starvation and death among the Arctic fauna.
    • The permafrost in the Arctic is thawing and in turn releasing carbon and methane which are among the major greenhouse gases responsible for global warming.
    • Experts fear that the thaw and the melt will also release the long-dormant bacteria and viruses that were trapped in the permafrost and can potentially give rise to diseases.

    What is the impact on India?

    • In recent years, scientists have pondered over the impact the changing Arctic can have on the monsoons in the subcontinent.
    • The link between the two is growing in importance due to the extreme weather events the country faces, and the heavy reliance on rainfall for water and food security.
    • A study says that reduced sea ice in the Barents-Kara sea region can lead to extreme rainfall events in the latter half of the monsoons — in September and October.
    • The changes in the atmospheric circulation due to diminishing sea ice combined with the warm temperatures in the Arabian Sea contribute to enhanced moisture and drive extreme rainfall events.

    Steps taken by India

    • In 2014, India deployed IndARC, India’s first moored-underwater observatory in the Kongsfjorden fjord, Svalbard.
    • It aims to monitor the impact of the changes in the Arctic Ocean on tropical processes such as the monsoons.

     

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

    India as a ‘developed’ country: where we are, and the challenges ahead

    | Economics | Mains Paper 3: Indian Economy

    In his Independence Day address, PM asked Indians to embrace the “Panch Pran” — five vows — by 2047 when the country celebrates 100 years of independence.

    What are the Panch Prans?

    • Calling it the ‘panch pran‘ — the five resolutions to help India become a developed nation in the next 25 years — PM said:
    1. Every Indian should focus on developing the country;
    2. 100 per cent freedom from slavery (100% Azadi from Ghulami);
    3. Taking pride in Indian heritage;
    4. Ensuring importance is given to unity and integrity and
    5. Every citizen should be responsible

    What is a “developed” country?

    • Different global bodies and agencies classify countries differently.
    • The ‘World Economic Situation and Prospects’ of the United Nations classifies countries into three broad categories: developed economies, economies in transition, and developing economies.
    • The idea is “to reflect basic economic country conditions”, and the categories “are not strictly aligned with the regional classifications”.
    • So, it isn’t as though all European countries are “developed”, and all Asian ones are “developing”.
    • To categorise countries by economic conditions, the United Nations uses the World Bank’s categorisation, based on Gross National Income (GNI) per capita (in current US dollars).

    Issues with such categorization

    • But the UN’s nomenclature of “developed” and “developing” is being used less and less, and is often contested.
    • Former US President Donald Trump had criticised the categorisation of China as a “developing” country, which allowed it to enjoy some benefits in the World Trade Organization.
    • If China is a “developing” country, then the US should also be “made” one, Donald Trump once said.

    But why is the United Nations classification contested?

    • It can be argued that the UN classification is not very accurate and, as such, has limited analytical value.
    • Only the top three mentioned in chart 3 alongside — the US, the UK and Norway — fall in the developed country category.
    • Today, there are 31 developed countries according to the UN in all.
    • All the rest — except 17 “economies in transition” — are designated as “developing” countries, even though in terms of proportion, China’s per capita income is closer to Norway’s than Somalia’s.
    • China’s per capita income is 26 times that of Somalia’s while Norway’s is just about seven times that of China’s.
    • Then there are countries — such as Ukraine, with a per capita GNI of $4,120 (a third of China’s) — that are designated as “economies in transition”.

    Where does India stand?

    • As chart 2 shows, India is currently far behind both the so-called developed countries, as well as some developing countries.
    • Often, the discourse is on the absolute level of GDP (gross domestic product).
    • On that metric, India is one of the biggest economies of the world — even though the US and China remain far ahead.
    • However, to be classified as a “developed” country, the average income of a country’s people matters more.
    • And on per capita income, India is behind even Bangladesh.
    • China’s per capita income is 5.5 times that of India, and the UK’s is almost 33 times.

    India’s progress

    • India has made a secular improvement on HDI metrics.
    • For instance, the life expectancy at birth (one of the sub-metrics of HDI) in India has gone from around 40 years in 1947 to around 70 years now.
    • India has also taken giant strides in education enrolment at all three levels — primary, secondary, and tertiary.

    What is the distance left to cover?

    • When compared to the developed countries or China, India has a fair distance to cover.
    • Even though India is the world’s third-largest economy in purchasing power parity (PPP) terms, most Indians are still relatively poor compared to people in other middle income or rich countries.
    • Ten per cent of Indians, at most, have consumption levels above the commonly used threshold of $10 (PPP) per day expenditures for the global middle class.
    • Other metrics, such as the food share of consumption, suggest that even rich households in India would have to see a substantial expansion of their total consumption to reach levels of poor households in rich countries.

    How much can India achieve by 2047?

    • One way to make this assessment is to look at how long other countries took to get there.
    • For instance, in per capita income terms, Norway was at India’s current level 56 years ago — in the year 1966.
    • Comparing India to China is more useful. China reached that mark in 2007.
    • Theoretically then, if India were to grow as fast as China did between 2007 and 2022, then, broadly speaking, it will take India another 15 years to be where China is now.
    • But then, China’s current per capita income was achieved by the developed countries several decades earlier — the UK in 1987, the US and Norway in 1979.

    Where does India lag?

    • India’s current HDI score (0.64) is much lower than what any of the developed countries had even in 1980.
    • China reached the 0.64 level in 2004, and took another 13 year to reach the 0.75 level — that, incidentally, is the level at which the UK was in 1980.

    What can India achieve by 2047?

    • The World Bank’s 2018 report had made a mention of what India could achieve by 2047.
    • By 2047 — the centenary of its independence — at least half its citizens could join the ranks of the global middle class.
    • By most definitions, this will mean that households have access to better education and health care, clean water, improved sanitation, reliable electricity, a safe environment, affordable housing, and enough discretionary income to spend on leisure pursuits.

    Way forward

    • Fulfilling these aspirations requires income well above the extreme poverty line, as well as vastly improved public service delivery.
    • To see this in perspective, note that at the last count, as of 2013, India had 218 million people living in extreme poverty — which made India home to the poorest people in the world.

     

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  • Financial Inclusion in India and Its Challenges

    Centre restores Modified Interest Subvention Scheme (MISS)

    Prelims Only | Economics | Mains Paper 3: Inclusive Growth & Issues

    The Union Cabinet has decided to restore the interest subvention on short-term agriculture loans to 1.5% for all financial institutions, including cooperative banks.

    What is the news?

    • The Union Cabinet has approved to restore Interest Subvention on short term agriculture loans to 1.5% for all financial institutions.
    • Thus, Interest Subvention of 1.5% will be provided to lending institutions for the financial year 2022-23 to 2024-25 for lending short term agri-loans upto Rs 3 lakh to the farmers.

    What is MISS?

    • Kisan Credit Card scheme was introduced for farmers, to empower them to purchase agriculture products and services on credit at any time.
    • To ensure that the farmers have to pay a minimal interest rate to the bank, the GoI introduced Interest Subvention Scheme (ISS), now renamed as Modified Interest Subvention Scheme (MISS).
    • It aims to provide short term credit to farmers at subsidized interest rates.

    Features of MISS

    • Under this scheme, short term agriculture loan upto Rs. 3.00 lakh is available to farmers engaged in Agriculture and other allied activities including Animal Husbandry, Dairying, Poultry, fisheries etc. at the rate of 7% p.a.
    • An additional 3% subvention (Prompt Repayment Incentive – PRI) is also given to the farmers for prompt and timely repayment of loans.
    • Therefore, if a farmer repays his loan on time, he gets credit at the rate of 4% p.a.
    • For enabling this facility to the farmers, GoI provides Interest Subvention (IS) to the Financial Institutions offering this scheme.
    • This support is 100% funded by the Centre, it is also the second largest scheme of DA&FW as per budget outlay and coverage of beneficiaries.

    Benefits of MISS

    • Ensuring hassle-free credit availability at cheaper rate to farmers has been the top priority of GoI.
    • Increase in Interest Subvention will ensure sustainability of credit flow in the agriculture sector as well as ensure financial health and viability of the lending institutions.
    • Banks will be able to absorb increase in cost of funds and will be encouraged to grant loans to farmers for short term agriculture requirements and enable more farmers to get the benefit of agriculture credit.
    • This will also lead to generation of employment since short term agri-loans are provided for all activities including Animal Husbandry, Dairying, Poultry, fisheries.
    • Farmers will continue to avail short term agriculture credit at interest rate of 4% per annum while repaying the loan in time.

    Who gets the subvention?

    • The lending institutions include- Public Sector Banks, Private Sector Bank, Small Finance Banks, Regional Rural Banks, Cooperative Banks and Computerized PACS directly ceded with commercial banks.

     

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  • RBI Notifications

    Curbing inflation in tomatoes, onions and potatoes requires streamlining their value chains

    op-ed snap | Economics | Mains Paper 3: Agriculture and related issues,Indian Economy

    Context

    The higher the weight of food in the overall CPI, the more difficult it is for the monetary policy squeeze alone to contain inflation.

    Inflation challenge in Indian economy

    • Under the FRBM Act, The RBI has the unenviable task of keeping inflation within the 4+/-2 per cent range.
    • But lately, despite its best efforts, inflation has remained defiant and above its tolerance band.
    • The RBI’s major policy tool, the repo rate has already been hiked by 90 basis points, raising it to 4.9 per cent in June.
    • It is likely to rise to at least 5.5 per cent, if not more, over the course of this financial year.
    • But this will not be enough to tame inflation due to the nature and structure of inflation in India.

    How India’s CPI basket is different

    • The CPI basket in India comprises of 299 commodities grouped into six major categories.
    •  The food and beverages group has a weight of 45.86 per cent (with food at 39.06 per cent, prepared meals at 5.55 per cent and non-alcoholic beverages at 1.26 per cent).
    • High weight of food in overall CPI: It is this overwhelmingly high weight of food in overall CPI, based on the consumer expenditure survey (CES) data of 2011-12, that distinguishes Indian inflation from many other developed countries where the food weight is much smaller.
    • It is much lower in Germany (8.5 per cent), the UK (9.3 per cent), the US (13.42 per cent), Canada (15.94 per cent), France (16.49 per cent), Australia (16.8 per cent), China (19.9 per cent), and Japan (26.3 per cent). Even developing nations like South Africa (17.24 per cent), Brazil (25.5 per cent), and Pakistan (34.83 per cent) have lesser weightage of food in overall CPI than India.
    •  The higher the weight of food in the overall CPI, the more difficult it is for the monetary policy squeeze alone to contain inflation.

    Tomato inflation

    • Interestingly, of the 299 commodities that comprise CPI, the highest contributor to overall inflation was tomatoes at 8.9 per cent.
    • Inflation in tomatoes was stupendously high at 158.8 per cent (year-on-year).
    • One of the prime reasons was the low base effect as inflation in June 2021 was minus 14.4 per cent.
    • Due to low price realisation last year, this year tomato farmers shifted acreage to other crops.
    • On top of that, some tomato growing areas got flooded, while many others faced heat waves that further depressed tomato supplies.
    •  It is for this reason a scheme called TOP (Tomatoes, Onions, and Potatoes) and allocated Rs 500 crore to streamline their value chains.
    •  But the scheme went to the Ministry of Food Processing, and was expanded to TOTAL by including several other vegetables.
    • Without having a champion, like Verghese Kurien was for milk, this scheme (from TOP to TOTAL) got diffused in focus and has not shown any visible impact in improving the value chains of vegetables.
    • Way forward: The real solution to tomato inflation may lie beyond the ambit of the RBI.
    • Processing: It requires linking tomato value chains to processing of at least 10 per cent of tomato production into tomato paste and puree during bumper years and using them when fresh tomato prices spike.
    • Reduce GST: Further, to enhance the affordability of processed tomatoes, its GST rates need to be reduced from 12 per cent to 5 per cent.
    • This would also help farmers to stabilise their incomes and avoid the typical cobweb problem they face in case of perishables.

    Way forward

    • So, monetary policy alone may not be as effective in the Indian case.
    • Revise CPI: India desperately needs to revise its CPI with the latest consumption survey weights.
    • Our parliamentarians must recognise the limitations that the RBI faces in taming inflation.

    Conclusion

    The upshot of all this is that the nature and structure of inflation in India is different than in developed countries.

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  • Tax Reforms

    Centre raises thresholds for prosecution under Customs Act

    Prelims Only | Economics | Mains Paper 3: Money-Laundering & Its Prevention

    The government has raised the thresholds for prosecutions and arrests under the Customs Act to ₹50 lakh from ₹20 lakh for smuggling and illegal imports of goods in baggage, and from ₹1 crore to ₹2 crore for cases involving commercial fraud.

    What is Custom Duty?

    • Customs duty refers to the tax imposed on goods when they are transported across international borders.
    • In simple terms, it is the tax that is levied on import and export of goods.
    • Custom duty in India is defined under the Customs Act, 1962, and all matters related to it fall under the Central Board of Excise & Customs (CBEC).
    • The government uses this duty to raise its revenues, safeguard domestic industries, and regulate movement of goods.
    • The rate of Customs duty varies depending on where the goods were made and what they were made of.

    Types of custom duty

    • Basic Customs Duty (BCD): It is the duty imposed on the value of the goods at a specific rate at a specified rate of ad-valorem basis.
    • Countervailing Duty (CVD): It is imposed by the Central Government when a country is paying the subsidy to the exporters who are exporting goods to India.
    • Additional Customs Duty or Special CVD: It is imposed to bring imports on an equal track with the goods produced or manufactured in India.
    • Protective Duty: To protect interests of Indian industry
    • Safeguard Duty: It is imposed to safeguard the interest of our local domestic industries. It is calculated on the basis of loss suffered by our local industries.
    • Anti-dumping Duty: Manufacturers from abroad may export goods at very low prices compared to prices in the domestic market. In order to avoid such dumping, ADD is levied.

     

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  • Foreign Policy Watch: India – EU

    India-UK Relations

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

    Context

    • The year 2022 is significant for both India and the UK as our country commemorates the 75th anniversary of its Independence and the two celebrate 75 years of bilateral ties.
    • India-UK relations were elevated to a Comprehensive Strategic Partnership in 2021, based on a shared commitment towards democracy, fundamental freedoms and multilateralism.

    Background of the India-UK ties

    • Partnership: The historical legacy has its own imprint on the relationship. But what is truly remarkable is the broad range of partnerships that have evolved between the two countries, transcending trade, investment and strategic affairs.
    • Close ties: This broader partnership between the world’s fifth and sixth largest economies has its foundations on three critical aspects: education, common law system and the increasingly influential role and impact of the Indian diaspora in the UK.
    • Shared values: The India-UK partnership is based on shared values, respect for the rule of law and common law, and institutional integrity protected by democratic institutions in the both the countries.

    What progress has been made in the India-UK relationship?

    1.Economic: During 2019-20, trade between the two countries stood at US$ 15.45 billion with the balance in favor of India. Between April 2021-February 2022, Indian exports to the UK stood at US$ 9.4 billion (2.5% of India’s exports). The imports in the corresponding period were US$ 6.59 billion (1.2% of India’s imports). There is a scope for significant improvement. Both countries expect that the bilateral trade can reach US$ 100 billion by 2030.

    2.Defense and Security: India and the UK signed the Defence and International Security Partnership (DISP) in November 2015. It provides a strategic roadmap and direction to the evolving India-UK Defence Relations. At present some 70 companies in the UK supply goods for aircraft and related equipment besides supporting platforms like the Jaguar, Mirage and Kiran aircraft.

    3.Indian Diaspora: Around 1.5 million people of Indian origin live in Britain. Indian diaspora are making significant contributions to the British Society. This includes 15 Members of Parliament, three members in Cabinet, and two in high office as Finance and Home Ministers.

    4.Education: The UK-India Education and Research Initiative (UKIERI) was launched in 2005. A new ‘UKEIRI Mobility Programme: Study in India’ was also launched in 2019. Under this Britain’s universities collaborate with Indian partners and send UK students to India.

    5.Health: The successful partnership between Oxford University, AstraZeneca and SII on COVID-19 vaccine demonstrated the potential of Indian and UK expertise working together to solve international challenges. The two sides are also working on pandemic preparedness, Antimicrobial Resistance (AMR), digital health, Ayurveda and alternative medicines, as well as health worker mobility.

    What is the significance of India-UK Relationship?

    1.Regional and global issues of mutual interest: A healthy relationship between the two is imperative for enhancing cooperation in the Indo-Pacific, Afghanistan, UNSC, G20 and Commonwealth. For instance, India welcomed the UK’s accession in the Indo-Pacific Ocean’s Initiative under the Maritime Security pillar.

    2.Tackling Climate Change: The cooperation between them can be helpful to achieve the goals of the Paris Agreement and in implementing the Glasgow Climate Pact. For instance, the countries have agreed to work for early operationalisation of the Global Green Grids-One Sun One World One Grid Initiative (OSOWOG) under ISA. They are also working on the IRIS platform under CDRI which was jointly launched by India and UK at COP26.

    3.Supporting 3rd World Countries: Through the Global Innovation Partnership, India and UK have agreed to co-finance up to £ 75 million to support the transfer and scale up of climate smart sustainable innovations to third countries. The novel GIP Fund created under this Partnership will also aim to raise additional £ 100 million from the market to support Indian innovations.

    3.Strategic Considerations: India can engage with the UK to counter China’s rise in the Indian Ocean Region. The UK on other hand can use India as an alternative destination to China and its companies can invest in India as part of China plus one strategy. It is the business strategy to avoid investing only in China and diversify business into other countries.

    Challenges in India-UK relations

    1.BREXIT

    • Impact on Diaspora– Many members of Indian Diaspora in Britain had voted against BREXIT because it is likely that Indian IT Professional in Britain will face tough competition when UK will open up its border for more skilled migration.
    • Impact on Indian Companies in UK– A hard Brexit would inevitably impact more than 800 Indian companies in UK in crucial sectors of British economy Indian. But data has shown that companies are increasing investments in the UK and creating many thousands of new jobs. This demonstrates that, Brexit or no Brexit, India supports Britain.
    • Impact on India-EU Relations –With €72.5 billion worth of India-EU trade and €19.4 billion of India UK trade at stake, all partners needed to think through this issue carefully in the business and commercial context. Brexit seems to be a challenge to the India EU strategic partnership but India would need to learn to manage its relations with the EU without UK
    • Impact on Trade–Forging a Free Trade Agreement with India will not be a priority for UK as it leaves EU. Instead, Britain would initially focus on tackling existing barriers to trade. But India should grab the opportunity to fill the trade gap in UK, post-Brexit.

    2.Visas and Immigration

    • Illegal Migration: There are more than 1 lakh illegal Indian immigrants in UK. Britain has started putting pressure on Indian government to ensure that Indians who have no right to remain in UK be sent back to India
    • Latest Measures: On the other hand, a white paper on post-Brexit visas and immigration strategy has been unveiled. It is expected to benefit Indian students and professionals, with a focus on skills rather than country of origin. An annual cap of 20,700 on the number of skilled work visas issued will also be removed.

    3.Terrorism

    • In the context of Brexit, unlike the United States’ contemporary view, India continues to be hyphenated with Pakistan in London’s outlook.
    • India states the fact that bilateral relations went beyond the economic realm to issues such as security and terrorism were not being heeded in Britain, despite continuous efforts by India over the past decades.

    4.Totalization agreement

    • The UK government has also made it mandatory for people to pay a health care surcharge as part of their immigration application.
    • When employees are there for a short term as part of their work, it is important that they get to keep their hard-earned money rather than giving UK thousands of pounds of free money as social security taxes.
    • Therefore, it is important for UK and India to sign the totalization agreement at the earliest.
    • The totalization agreement with the UK would have exempted Indian professionals who are working for a certain period of time in the UK from paying those social security taxes if they are paying such taxes in India.

    Way forward

    • The historical baggage also needs to be addressed cooperatively to diminish the possibility of hindrance in future cooperation.
    • The India-United Kingdom are dynamic democracies and the world’s leading economies with impressive advancements in human resources, manufacturing, innovation, research, education, space, defence, green technologies, and clean energy, among other areas.
    • This relationship can be utilized for the betterment of the fields and more collaborations should be undertaken.

    Conclusion

    • As we celebrate the historic collaboration between the UK and India in producing the Covishield vaccine, and look forward to the much-awaited signing of the bilateral Free Trade Agreement, we should not lose sight of the tremendous power that transnational university-wide collaborations can leverage in the accord. Education, research and knowledge partnership ought to become the centre-piece of the India-UK relationship at 75, as we move forward.

    Mains question

    Q.Analyse India-UK bilateral relations with scope of upscaling and challenges they need to overcome .

     

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