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  • Over 42,000 undertrials released to unclog prisons: NALSA report

    Legal services institutions have intervened to release 42,529 undertrial prisoners as well as 16,391 convicts on parole to de-congest prisons during the COVID-19 pandemic, a report from NALSA has said.

    Practice question for mains:

    Q. More than a century-old system of prisons in India needs urgent repair. Discuss with context to the increase in the cases of undertrials.

    Decongesting the prison

    • There are 1,339 prisons with approximately 4, 66,084 inmates in India with the rate of occupancy at Indian prisons at 117.6% (a/c to NCRB).
    • The report stated that 243 undertrial prisoners had been granted bail and 9,558 persons in remand had been given legal representation across the country.
    • It said the highest number of undertrial prisoners released was 9,977 in Uttar Pradesh, followed by 5,460 in Rajasthan and 4,547 in Tamil Nadu, 3,698 in Punjab and 3,400 in Maharashtra.
    • Note: Prisons/ Prisoners/persons detained is a State subject under Entry 4 of List II of the Seventh Schedule to the Constitution of India.

    Hardships of the undertrials

    • Right to a speedy trial is an integral part of the principles of fair trial and is fundamental to the international human rights discourse.
    • In Indian jails, most of the prisoners are undertrials, which are confined to the jails until their case comes to a definite conclusion.
    • In most of the cases, they end up spending more time in the jail than the actual term that might have had been awarded to them had the case been decided on a time and, assuming, against them.
    • Plus, the expenses and pain and agony of defending themselves in courts is worse than serving the actual sentence. Undertrials are not guilty till convicted.
    • In 2017, the Law Commission of India had recommended that undertrials who have completed a third of their maximum sentence for offences attracting up to seven years of imprisonment be released on bail.

    About NALSA

    • National Legal Services Authority of India (NALSA) was formed on 9 November 1995 under the authority of the Legal Services Authorities Act 1987.
    • Its purpose is to provide free legal services to eligible candidates and to organize Lok Adalats for the speedy resolution of cases.
    • The CJI is patron-in-chief of NALSA while second seniormost judge of Supreme Court of India is the Executive-Chairman.
    • There is a provision for similar mechanism at state and district level also headed by Chief Justice of High Courts and Chief Judges of District courts respectively.
    • The prime objective of NALSA is speedy disposal of cases and reducing the burden of the judiciary.

    Also read:

    [Burning Issue] Need of Prison Reforms

  • Super Cyclone Amphan and its threats

    The storm system in the Bay of Bengal, Amphan, developed into a super cyclone and is expected to make landfall along the West Bengal-Bangladesh coast very soon.

    Realted PYQ:

    Q. In the South Atlantic and South Eastern Pacific regions in tropical latitudes, cyclone does not originate. What is the reason? (CSP 2015)

    (a) Sea Surface temperature are low
    (b) Inter Tropical Convergence Zone seldom occurs
    (c) Coriolis force is too weak
    (d) Absence of land in those regions

    Super Cyclone Amphan

    • Cyclone Amphan is a tropical cyclone formed over the Bay of Bengal that has intensified and likely to turn into a “super cyclonic storm (maximum wind speed is 224 kmph)”.
    • It has been named by Thailand.
    • Amphan is the equivalent of a Category 5 hurricane on the Saffir-Simpson Hurricane Wind Scale.
    • By the time it makes landfall in West Bengal, Amphan is expected to tone down into a category 4 Extremely Severe Cyclonic (ESC) storm with a wind speed of 165-175 kmph and gusting to 195 kmph.

    What makes it a nightmare?

    • This is the first super cyclone to form in the Bay of Bengal after the 1999 super cyclone that hit Odisha and claimed more than 10,000 lives.
    • It is the third super cyclone to occur in the North Indian Ocean region after 1999 which comprises of the Bay of Bengal, the Arabian Sea and the northern part of the Indian Ocean.
    • The other two super cyclones were Cyclone Kyarr in 2019 and Cyclone Gonu in 2007.

    Recent cyclones in the region

    • From 1965 to 2017, the Bay of Bengal and the Arabian Sea collectively registered 46 ‘severe cyclonic storms’.
    • More than half of them occurred between October and December.
    • Seven of them occurred in May and only two (in 1966 and 1976) were recorded in April, according to data from the IMDs cyclone statistics unit.
    • Cyclone Phailin in 2013 and the super cyclone of 1999 — both of which hit coastal Odisha — have been the most powerful cyclones in the Bay of Bengal in the past two decades in terms of wind speed.
    • Last year, Fani, which was an ESC made landfall in Odisha and ravaged the State, claiming at least 40 lives.

    Back2Basics: Tropical Cyclones

    • Cyclones are formed over slightly warm ocean waters.
    • The temperature of the top layer of the sea, up to a depth of about 60 metres, need to be at least 28°C to support the formation of a cyclone.
    • This explains why the April-May and October-December periods are conducive for cyclones.
    • Then, the low level of air above the waters needs to have an ‘anticlockwise’ rotation (in the northern hemisphere; clockwise in the southern hemisphere).
    • During these periods, there is an ITCZ in the Bay of Bengal whose southern boundary experiences winds from west to east, while the northern boundary has winds flowing east to west.
    • This induces the anticlockwise rotation of the air.
    • Once formed, cyclones in this area usually move northwest. As it travels over the sea, the cyclone gathers more moist air from the warm sea and adds to its heft.

    What strengthens them?

    • A thumb rule for cyclones is that the more time they spend over the seas, the stronger they become.
    • Hurricanes around the US, which originate in the vast open Pacific Ocean, are usually much stronger than the tropical cyclones in the Bay of Bengal, a relatively narrow and enclosed region.
    • The cyclones originating here, after hitting the landmass, decay rapidly due to friction and absence of moisture.

    Grading of Cyclones

    • Tropical cyclones in the Bay of Bengal are graded according to maximum wind speeds at their centre.
    • At the lower end are depressions that generate wind speeds of 30 to 60 km per hour, followed by:
    1. cyclonic storms (61 to 88 kmph)
    2. severe cyclonic storms (89 to 117 kmph)
    3. very severe cyclonic storms (118 to 166 kmph)
    4. extremely severe cyclonic storms (167 to 221 kmph) and
    5. super cyclones (222 kmph or higher)

  • Species in news: Pinanga Andamanensis

    A rare palm endemic to the South Andaman Island is finding a second home at Thiruvananthapuram-based Jawaharlal Nehru Tropical Botanic Garden and Research Institute (JNTBGRI).

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

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

    Pinanga Andamanensis

    • Pinanga andamanensis is an IUCN critically endangered species and one of the least known among the endemic palms of the Andaman Islands.
    • The name is derived from ‘Penang’, the modern-day Malaysian state.
    • Its entire population of some 600 specimens naturally occurs only in a tiny, evergreen forest pocket in South Andaman’s Mount Harriet National Park.
    • It was originally described by the Italian botanist Odoardo Beccari in 1934.
    • His description was based on an old herbarium specimen collected by E.H. Man, a late-19th century assistant superintendent in the Andaman administration.
    • After that first identification, it was thought to be extinct till 1992.

  • [pib] Shekatkar Committee recommendations on Border Infrastructure

    Government has accepted and implemented three important recommendations of the Committee of Experts (CoE) under the chairmanship of Lt General D B Shekatkar (Retd.) relating to border Infrastructure.

    Practice question for mains:

    Q. India’s unique geo-strategic location needs an all-weather and efficient border infrastructure. Comment.

    About Shekatkar Committee

    • The military reforms committee – under Lt General (retd.) DB Shekatkar – was set up by then Raksha Mantri Manohar Parrikar in 2015.
    • The committee was established with a mandate for Enhancing Combat Capability and Rebalancing Defence Expenditure.
    • Shekatkar Committee had made recommendations on enhancing the combat potential of India’s three armed forces, rationalizing the defence budget etc.
    • The committee submitted its report on December 21, 2016. It had apparently exceeded its brief with some 200 recommendations.
    • A major recommendation is that the defence budget should be 2.5% to 3% of the GDP.

    Recommendations on border infrastructure

    • On the matter related to creating border infrastructure, the Government has implemented the recommendation of CoE to outsource road construction work beyond the optimal capacity of Border Roads Organisation (BRO).
    • These were related to speeding up road construction, leading to socio-economic development in the border areas.
    • The other recommendation relating to the introduction of modern construction plants, equipment and machinery has been implemented.

    Back2Basics: Border Roads Organisation (BRO)

    • The BRO develops and maintains road networks in India’s border areas and friendly neighboring countries and functions under the Ministry of Defence.
    • It is entrusted for construction of Roads, Bridges, Tunnels, Causeways, Helipads and Airfields along the borders.
    • Officers from the Border Roads Engineering Service (BRES) and personnel from the General Reserve Engineer Force (GREF) form the parent cadre of the Border Roads Organisation.
    • It is also staffed by officers and troops drawn from the Indian Army’s Corps of Engineers on extra regimental employment.
    • The BRO operates and maintains over 32,885 kilometers of roads and about 12,200 meters of permanent bridges in the country.

  • [Burning Issues] Fiscal Push for MSME Sector of India (Part I)

    The Covid-19 pandemic has left its impact on all sectors of the economy but nowhere is the hurt as much as the Medium, Small and Micro Enterprises (MSMEs) of India. All anecdotal evidence available, such as the hundreds of thousands of stranded migrant workers across the country, suggests that MSMEs have been the worst casualty of lockdown.

    A closer look at the anatomy of the MSME sector explains why MSMEs are so vulnerable to economic stress.

    Backgrounder: India’s MSME Sector

    • The Indian MSME sector is the backbone of the national economic structure and has unremittingly acted as the bulwark for the Indian economy, providing it resilience to ward off global economic shocks and adversities.
    • With around 63.4 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India’s manufacturing output.
    • They have been able to provide employment to around 120 million persons and contribute around 45% of the overall exports from India.

    What are MSMEs? How are they defined?

    • Formally, MSMEs are defined in terms of investment in plant and machinery.

    The significance of MSMEs:

    The significance of MSMEs is attributable to their calibre for employment generation, low capital and technology requirement.

    • They are also important for the promotion of industrial development in rural areas, use of traditional or inherited skill, use of local resources, mobilization of resources and exportability of products.
    • According to the estimates of the Ministry of MSME, Government of India, the sector generates around 100 million jobs through over 46 million units situated throughout the geographical expanse of the country.
    • With 38% contribution to the nation’s GDP and 40% and 45% share of the overall exports and manufacturing output, respectively, it is easy to comprehend the salience of the role they play in social and economic restructuring of India.
    • Besides the wide range of services provided by the sector, the sector is engaged in the manufacturing of over 6,000 products ranging from traditional to hi-tech items.

    Why the MSME sector is important specially for India?

    • The Indian MSME sector provides maximum opportunities for both self-employment and wage-employment outside the agricultural sector.
    • It contributes to building an inclusive and sustainable society in innumerable ways through the creation of non-farm livelihood at low cost, balanced regional development, gender and social balance, environmentally sustainable development, etc.

    How many MSMEs does India have, who owns them?

    • According to the latest available (2018-19) Annual Report of Department of MSMEs, there are 6.34 crore MSMEs in the country.
    • Around 51 per cent of these are situated in rural India.
    • Together, they employ a little over 11 crore people but 55 per cent of the employment happens in the urban MSMEs.

    • The numbers suggest that, on average, less than two people are employed per MSME.
    • At one level that gives a picture of how small these really are. But a breakup of all MSMEs into micro, small and medium categories is even more revealing.

    What kind of problems do MSMEs in India face?

    Given the shape and form of MSMEs, it is not hard to envisage the kind of problems they would face.

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

    • They don’t have the buffers of the bigger firms or access to cheap capital to help them tide over this period.
    • Bad credit history:

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

    Other problems

    • Long receivables cycles make a mess of working capital management.
    • Limited access to trained labour, technical progress and management support limit their growth.
    • Other common problems faced by small enterprises are related to the availability of technology, infrastructure and managerial competence, and limitations posed by labour laws, taxation policy, market uncertainty and imperfect competition.

    Opportunity areas for MSMEs in India

    Telecommunications

    • Domestic manufacturing of low-cost mobile phones, handsets, and devices;
    • Manufacturing of telecom networking equipment, including routers and switches;
    • Manufacture of base transceiver station equipment;
    • Mobile customer data analytics – services oriented toward analytical solutions; and
    • Development of value-added services

    Healthcare

    • Manufacturing of personal protective equipment (PPE) and face masks, as the COVID-19 pandemic has fundamentally changed social behaviour, public health and hospital needs, and created new demand;
    • Manufacturing of low-cost medical devices, and medical accessories such as surgical gloves, scrubs, and syringes;
    • Low-cost surgical procedures to reduce the cost of healthcare;
    • Telemedicine; and
    • Diagnostic labs.

    Electronics

    • Domestic manufacturing of low-cost consumer electronics, consumer durables;
    • Nano-electronics and microelectronics;
    • Electronic Systems Design and Manufacturing including semiconductor design, electronic components design and hi-tech manufacturing under India’s ‘National Electronics Mission; and
    • Strategic electronics, as the government is keen on encouraging the domestic manufacturing of products needed by the security forces.

    Others

    • Other areas that offer opportunities for MSMEs include information technology, pharmaceutical, chemical, automotive, renewables, gems and jewellery, textile, and food and agriculture.

    Part II of the BI will be published shortly…………

  • India on the margins of Afghanistan diplomacy

    From economic, strategic to security, India has many interests in “future” Peaceful and Developed Afghanistan. But India was sidelined from the recently organised meeting on Afghanistan. This article analyses what went wrong in India’s foreign and security policy. Two factors are emphasised in the article- India’s reluctance to talk with the Taliban and the US’s desperation to get out of Afghanistan.

    India’s Rigid policy toward Afghanistan

    • Recent developments in Afghanistan demand a flexible approach.
    • But India’s foreign and security planners have lacked flexibility in their approach.
    • Right approach should have included seeking to establish open connections with all its political groups, including with those perceived to be in Pakistan’s pocket.
    • Instead, they continued to rigidly cling to Afghanistan President Ashraf Ghani even as his influence diminished with each passing month.

    India’s support to Mr Ghani

    • Prime Minister Narendra Modi congratulated Mr Ghani for winning the elections, in December 2019 when the Afghanistan election commission had only announced the preliminary results.
    • And most countries had maintained a discreet silence then.
    • When the final result came it was rejected by Mr Ghani’s main rival, Abdullah Abdullah.
    • The international community ultimately supported Mr Ghani.
    • But qualified it with an insistence that he enters into a real power-sharing agreement with Mr Abdullah.

    India sidelined from meeting on Afghanistan

    • The United Nations Secretariat organised a meeting on Afghanistan where it invited the 6 current physical neighbours of Afghanistan—China, Pakistan, Iran, Turkmenistan, Uzbekistan and Tajikistan.
    • In addition, invitations were extended to the United States, Russia and the Ghani government.
    • Obviously, Mr Ghani did not condition his participation on India’s inclusion.
    • The constructive role New Delhi has played in Afghanistan’s reconstruction since the Taliban were ousted from the country in 2001-2002 after 9/11 was neglected.

    US going along with India’s absence

    • The role and action of the US proved that the U.S. acts to promote its interests in Afghanistan.
    •  It obviously expects that if in doing so Indian interests are exposed, India will protect them as best as it can.
    • U.S. Special Representative for Afghanistan Reconciliation said that ‘India should talk directly to Taliban, discuss terror concerns directly’.
    • He noted that despite India’s contributions to Afghanistan’s economic development — and these are undeniably significant covering large parts of the country, and are popular — as well as its long history of contacts with that country, it does not have a place in international diplomacy on Afghanistan.
    • He also said that when it comes to international efforts, India yet does not have a role that it could.
    • He patronisingly added that the U.S. wants India to have a more active role in the peace process.

    So, why India’s presence was not considered vital?

    • U.S. Special Representative for Afghanistan Reconciliation thinks that by avoiding open contacts with the Taliban, India has reduced its role in international diplomatic efforts.
    • That the U.S. is currently crucially dependent on Pakistan for the successful implementation of its Taliban deal.
    • It is reminiscent of the time in the 1990s when, at Pakistan’s insistence, India was considered a problem and kept out of crucial global forums on Afghanistan.

    Way forward

    • In such a situation, it is essential for India to maintain its strong links with the Afghan government, built and support its traditional Afghan allies.
    • But India should also established open lines of communication with the Taliban.
    • This is important because they are informally conveying that India should not consider them as Pakistan’s puppets and also because they have gained international recognition.
    • Contacts and discussions do not mean acceptance of their ways but its still a step forward.
    • India should act keeping in mind that there are no countries on the horizon which are really opposed to the Taliban acquiring a major place in the Afghanistan’s formal power structures.

    In 2013, the UPSC asked a question related to developments in Afghanistan against the backdrop of the proposed withdrawal of the International Security Assistance Force. Similarly, a question based on the latest development can be asked, for ex-“The return of Taliban after the US-Taliban deal in Afghanistan is fraught with major security implications for the countries in the region. Examine in the light of the fact that India is faced with a plethora of challenges and needs to safeguard its own strategic interests.”

    Conclusion

    India needs to take corrective diplomatic action even at this late stage, and even in the time of COVID-19. It must begin openly talking to the Taliban and with all political groups in the country. It must realise that its Afghan policy needs changes.

  • Atmanirbhar Abhiyan Package

    The article examines the various aspects of the recently announced Atmanirbhar Bharat Abhiyaan (ANBA). But before digging deeper into the ANBA the author ruminates over India’s growth (GDP) story. Reasons for India’s failure to deliver on the economic empowerment are also examined. In the end, the relation between the free economies and the welfare states is examined.

    The good and the bad of India’s GDP story

    • India crossed the UK two years ago, France last year, and will cross Germany and Japan in the next five years. (In terms of nominal GDP)
    • That will leave only America and China ahead of us.
    • But India’s per capita GDP story is on a different track.
    • We once equalled Korea (1960) and China (1997) but today there are 138 countries ahead of us.
    • The COVID-19 lockdown and the stories of pain inflicted on migrant workers exposes how per capita GDP is more important for our citizens than total GDP.

    A take on Economic empowerment

    • Ramchandra Guha, in his book- Gandhi: The Years that Changed India, suggests that while other patriots had used Swaraj to signify national independence, Gandhiji made India aware of its true or original meaning, Swa-Raj, or self rule- both political and economic.
    • Our collective political Swaraj hasn’t always translated into individual economic Swa-Raj because of inadequate formalisation, industrialisation, urbanisation, financialisation, and skilling.

    Atmanirbhar Bharat Abhiyaan(ANBA) – A step towards Swaraj

    • The Atmanirbhar Bharat Abhiyaan (ANBA) policy announcements are important moves in meeting Gandhiji’s vision of individual self-reliance and recognising poverty as the worst form of violence.
    • ANBA targets avoiding unemployment becoming hunger and illiquidity becoming insolvency.
    • The agriculture package of Rs 1.63 lakh crore included farm-gate and aggregation point infrastructure, fisheries, animal husbandries, and others like animal vaccination, micro food enterprises.
    • The non-bank liquidity package of Rs 5.94 lakh crore included MSMEs, NBFCs, MFIs, housing finance companies, power discoms, and others (PF, tax relief).
    • The migrant and farmer package of Rs 3.16 lakh crore included concessional credit via kisan credit card, farmer working capital, affordable housing, and others (food, street vendors, microloans).
    • The welfare and health package of Rs 1.85 lakh crore included women and pensioner benefits, MNREGA, emergency health response, and others like food, financial security.
    • RBI’s liquidity measures of Rs 5.24 lakh crore included two phases of targeted long-term repo operations, CRR cut, marginal standing facility limit increase, refinancing facilities, and mutual fund special liquidity facility.
    • The reform to the Essential Commodities Act, APMCs and contract farming directly impact prosperity as 45 per cent of our agricultural labour force generates only 14 per cent of GDP.

    How ANBA maintained fiscal health?

    • ANBA is also important for what it is not. It’s not fiscal profligacy-i.e. the government is spending with due care for fiscal deficit figures.
    • Total spending may be higher if the loans for which government has stated to stand as a guarantor turns NPAs (for ex. MSMEs loans).
    • But for now, it marginally raises our already difficult fiscal deficit.
    • It’s not an institutional assault — RBI’s role in ANBA keeps it away from the political minefield that the US Federal Reserve has entered.
    • The US Fed is buying the bonds sold by corporations (i.e. Fed is spending itself) while the RBI has only lent the money to banks.
    • There is a recognition that RBI has lending powers, not spending powers.
    • It’s not a mindless public sector expansion: The end of monopolies (public sector monopoly) and new public-private partnership opportunities signal pragmatism and efficiency targeting.
    • It’s not waiting for potential COVID upsides: it makes us worthy if risky global just-in-time supply chains get replaced by resilient just-in-case diversification.
    • It’s not shutting off India from the world i.e. Atmanirbhar is not isolationist policy.
    • It creates new openness to ideas, investment, and trade.

    What is on agenda for ANBA 2.0?

    • The unfinished agenda for ANBA 2.0 includes following-
    • Civil service reform-the steel frame has become a steel cage.
    • Government reform-Delhi doesn’t need 57 ministries and 250 people with Secretary rank.
    • Financial reform-sustainably raising credit to GDP ratio from 50 per cent to 100 per cent.
    • Urban reform-having 100 cities with more than a million people rather than 52.
    • Education reform-our current regulator confuses university buildings with building universities.
    • Skill reform-our apprentice regulations are holding back employers and universities.
    • Labour reform-our capital is handicapped without labour and labour is handicapped without capital.

    Welfare state and free economies

    • A modern state is a welfare state with formal private jobs.
    • The idealisation of Scandinavian social democracies forgets that their dense social security nets are underwritten by remarkably free economies.
    • The World Bank Ease of Doing Business scale ranks Denmark third, Norway seventh, and Sweden 12th of 190 countries.
    • Despite — or thanks to — America’s capitalism, its central government spends 37 per cent of GDP while India’s spends 14 per cent.
    • And its ferocious fiscal pandemic response involves $3 trillion government borrowing in the next three months.
    • People suggest the US can sustain its welfare state because it has the world’s reserve currency.
    • But America can afford its welfare state because of the productivity of its cities, companies and citizens. Consider the following-
    • New York’s GDP equals Russia with 6 per cent of the people and 0.00005 per cent of the land.
    • The $4.5 trillion revenue of its 25 largest companies is more than Germany’s GDP.
    • Its per capita income is $55,000.
    • India’s welfare state does not lack intentions but lacks resources.
    • No amount of CSR, philanthropy, or government borrowing can provide the resources for the care of our weak, vulnerable, and unlucky that will flow from more productive cities, firms, and citizens.
    • This is what ANBA hopes to achieve.

    Consider the question “Far from being an isolationist, Atmanirbhar Bharat Abhiyan seeks to make India a welfare state with more productive cities, firms and citizens. Comment.”

    Conclusion

    India missed the manufacturing export train that China boarded but another may be coming.  Policy reform is not the solving of a sum but the painting of a picture — 90 days after the lockdown ends, we need ANBA 2.0 to finish the job.

    Back2Basics: Just in time inventory

    • The just-in-time (JIT) inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules.
    • Companies employ this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs.
    • This method requires producers to forecast demand accurately.

    Just in case inventory

    • Just in case (JIC) is an inventory strategy in which companies keep large inventories on hand.
    • This type of inventory management strategy aims to minimize the probability that a product will sell out of stock.
    • The company that utilizes this strategy likely has a hard time predicting consumer demand or experiences large surges in demand at unpredictable times.
    • A company practicing this strategy essentially incurs higher inventory holding costs in return for a reduction in the number of sales lost due to sold-out inventory.

  • New Possibilities for Agriculture Sector

    The finance minister proposed package for the farmers. The package has 11 points. But this article discusses only 3 points which the author hopes would be the game-changer for agri-marketing. The three points pertain to the ECA, APMC Acts and contract farming. So, how can these three proposed laws transform agri-marketing and be a boon to farmers and consumers at the same time? Read the article.

    1. Amending the Essential Commodities Act 1955

    • Background of the ECA: The ECA of 1955 has its roots in the Defence of India Rules of 1943.
    • At that time, India was ravaged by famine and was facing the effects of World War II.
    • It was a scarcity-era legislation.
    • By the mid-1960s, hit by back-to-back droughts, India had to fall back on PL480 imports of wheat from the US and the country was labelled as a “ship to mouth” economy.
    • Importer to exporter:  Today, India is the largest exporter of rice in the world and the second-largest producer of both wheat and rice, after China.
    • Our granaries are overflowing.

    So, how ECA hurts farmers as well as consumers?

    • Our legal framework is of the 1950s, which discourages private sector investment in storage.
    • How ECA discourage investment?  The ECA can put stock limits on any trader, processor or exporter at the drop of a hat.
    • Such limits discourage investments in storage facilities. As a result, the country lacks storage facilities.
    • When farmers bring their produce to the market after the harvest, there is often a glut, and prices plummet. All this hurts the farmer.
    • In the lean season, prices start flaring up for the consumers.
    • So, both lose out because of the lack of storage facilities.

    How the amendment will help?

    • The amendment announced last week, if implemented in the right spirit, will remove roadblocks in investment and help both farmers and consumers.
    • It will bring relative price stability.
    • It will also prevent the wastage of agri-produce that happens due to lack of storage facilities.

    2. Central law to allow farmers to sell outside APMC

    • Issues with APMC Acts: Our farmers suffer more in marketing their produce than during the production process.
    • APMC markets have become monopsonistic with high intermediation costs.

    How the proposed Central law to allow farmers to sell to anyone outside the APMC yard will help?

    • 1. It will bring greater competition amongst buyers.
    • 2. It will lower the mandi fee and the commission for arhatiyas (commission agents).
    • 3. It will reduce other cesses that many state governments have been imposing on APMC markets.
    • 4. The proposed law will open more choices for the farmers and help them in getting better prices. So their incomes should improve.
    • 5. By removing barriers in inter-state trade and facilitating the movement of agri-goods, the law could lead to better spatial integration of prices.
    • 6. This will help farmers of regions with surplus produce to get better prices and consumers of regions with shortages, lower prices.
    • 7. India will have one common market for agri-produce, finally.

    3. Legal framework for contract farming

    • The legal environment for contract farming, with the assurance of a price to the farmers at the time of sowing, is a step in the right direction.
    • It will help them take cropping decisions based on forward prices.
    • Normally, our farmers look back at last year’s prices and take sowing decisions accordingly.
    • The new system will minimise their market risks.

    2 Supplementary notes for success of above 3 measures

    •  Big buyers like processors, exporters, and organised retailers going to individual farmers is not a very efficient proposition.
    • They need to create a scale.
    • 1. And for that, building farmer producer organisations (FPOs), based on local commodity interests, is a must.
    • How FPOs will help? This will help ensure uniform quality, lower transaction costs, and also improve the bargaining power of farmers vis-à-vis large buyers.
    • NABARD has to ensure that all FPOs get their working capital at 7 per cent interest rate — a rate that the farmers pay on their crop loans.
    • Currently most of them depend on microfinance institutions and get loans at 18-22 per cent interest rates.
    • This makes the entire business high-cost.
    • 2. Another thing to watch out for is the fine print of the legislation.
    • Certain conditions to reimpose the ECA restrictions if the prices of commodity go up in the proposed legislation could be counterproductive.
    • That would be unreasonable and all the reforms would be undone.
    • One needs to understand how much is the “extra burden” inflicted by the price increase on the food budget of a household.

    The UPSC asked a direct question about the APMC Act in 2014- ” There is also a point of view that Agriculture Produce Market Committees (APMCs) set up under the State Acts have not only impeded the development of agriculture but also have been the cause of food inflation in India. Critically examine.”

    Conclusion

    The reforms, announced last week could be a harbinger of major change in agri-marketing, a 1991 moment of economic reforms for agriculture. But before one celebrates it, let us wait for the fine print to come.

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

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

    Essential Commodities Act 1955

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

    How ECA works?

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

    PL-480

    • The US President Dwight D. Eisenhower signed into law the Agricultural Trade Development and Assistance Act of 1954, commonly known as PL–480 or Food for Peace.
    • Prior to that, the United States had extended food aid to countries experiencing natural disasters and provided aid in times of war, but no permanent program existed within the United States Government for the coordination and distribution of commodities.
    • Public Law 480, administered at that time by the Departments of State and Agriculture and the International Cooperation Administration, permitted the president to authorize the shipment of surplus commodities to “friendly” nations, either on concessional or grant terms.
    • It also allowed the federal government to donate stocks to religious and voluntary organizations for use in their overseas humanitarian programs.
    • Public Law 480 established a broad basis for U.S. distribution of foreign food aid, although reduction of agricultural surpluses remained the key objective for the duration of the Eisenhower administration.

  • Fiscal support to the power sector

    Part of the package announced by Finance Minister was a Rs 90,000-crore liquidity injection into power distribution companies (or discoms).

    Practice question:

    Ujwal DISCOM Assurance Yojana (UDAY) has failed to turn around the precarious financial position of state power DISCOMs in India. Discuss.

    Fiscal push for DISCOMs

    • The move is aimed at helping the discoms clear their dues with gencos (or electricity generation companies), who in turn can clear their outstanding dues with suppliers, such as coal miners, easing some of the working capital woes of Coal India Ltd and contract miners.
    • This is subject to the condition that the Centre will act as guarantor for loans given by the state-owned power finance companies such as PFC and REC Ltd to the discoms.

    Why was this needed?

    • The primary trigger is the poor financial condition and revenue collection abilities of most state discoms.
    • This is despite several interventions, including a scheme called UDAY that was launched in 2015 to fix the problems of a sector where the upstream side (electricity generation) was drawing investments even as the downstream (distribution) side was leaking.

    How do the DISCOMs work?

    To understand how the sector works, we have to imagine a three-stage process.

    • First stage: Electricity is generated at thermal, hydro or renewable energy power plants, which are operated by either state-owned companies or private companies.
    • Second stage: The generated electricity then moves through a complex transmission grid system comprising electricity substations, transformers, and power lines that connect electricity producers and the end-consumers.
    • The entire electricity grid consists of hundreds of thousands of miles of high-voltage power lines and millions of miles of low-voltage power lines with distribution transformers that connect thousands of power plants to millions of electricity customers all across the country.
    • Third stage: This last-mile link is where discoms come in, operated largely by state governments. However, in cities such as Delhi, Mumbai, Ahmedabad, and Kolkata, private entities own the entire distribution business or parts of it.

    Why there is a problem?

    • Discoms essentially purchase power from generation companies through power purchase agreements (PPAs), and then supply it to their consumers (in their area of distribution).
    • The key issue with the power sector currently is the continuing problem of the poor financial situation of state discoms.
    • This has been affecting their ability to buy power for supply, and the ability to invest in improving the distribution infrastructure. Consequently, this impacts the quality of electricity that consumers receive.

    There are two fundamental problems here:

    1) Lack of competitiveness

    • One, in India, electricity price for certain segments such as agriculture and the domestic category (what we use in our homes) is cross-subsidised by the industries (factories) and the commercial sector (shops, malls).
    • This affects the competitiveness of the industry.

    2) Transmission and distribution losses

    • There is the problem of AT&C (aggregate transmission and distribution losses), which is a technical term that stands for the gap in the bills that it raises and the final collection process from end-consumers.
    • As a result, the discoms are perennially short of funds, even to pay those supplying power to them, resulting in a cascading impact up the value chain.

    Back2Basics: UDAY Scheme

    https://www.civilsdaily.com/news/uday-scheme-for-financial-turnaround-of-power-distribution-companies/

  • Sovereign Gold Bonds: A substitute for physical gold

    Gold bond prices rise to near record highs after the second tranche of subscription were closed.

    Questions based on capital markets are quite frequent these years.  Consider this-

    Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly? (CSP 2019)

    (a) Certificate of Deposit

    (b) Commercial Paper

    (c) Promissory Note

    (d) Participatory Note

    What is a Sovereign Gold Bond (SGB)?

    • SGB is a substitute for holding physical gold.
    • The bonds are issued by the RBI on behalf of the government and are a bond denominated in gold.
    • The government issues such bonds in tranches at a fixed price that investors can buy through banks, post offices and also in the secondary markets through the stock exchange platform.

    What are the benefits of buying SGB?

    • These bonds are backed by a sovereign guarantee and can also be held in Demat form.
    • Further, they are priced as per the underlying spot gold prices.
    • Hence, investors who want to invest in gold can buy the bonds without worrying about the safekeeping of physical gold along with locker charges, making charges or purity issues.
    • Plus, these bonds offer interest at the rate of 2.5% per annum on the principal investment amount.
    • While the interests on the bonds are taxable, the capital gains at the time of redemption are exempt from tax.
    • These bonds can also be used as collateral for availing loans from banks and NBFCs.

    How are the bonds structured?

    • SGB has a fixed tenure of eight years, though early redemption is allowed after the fifth year from issuance.
    • Since the bonds are listed on the exchange, these can be transferred to other investors as well.
    • The bonds are priced in rupees based on the simple average of the closing price of gold of 999 purity which published by the India Bullion and Jewellers Association.
    • At the time of redemption, cash equivalent to the number of units multiplied by the then prevailing price would be credited to the bank account of the investor.

    Are there any risks in investing in SGB?

    • A capital loss is a risk since the bond prices would reflect any change in gold prices.
    • If gold prices fall, the principal investment would fall proportionately.

    Why need such bonds?

    • The gold demand rises in times of uncertainty or high inflation.
    • Gold demand is mostly met through imports
    • Years of high imports are ones of high current account deficits which, in turn, have weakened the rupee.
    • It is to reduce this huge import bill that, in November 2015, the government tried to introduce gold bonds.

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