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  • BRICS’ fight against COVID

    “BRICS” is an acronym coined by Jim O’Neill in 2001. In the start of the 21st century, BRICS seemed like the future economic powerhouse. Somehow this picture faded a little with time. This article shows the resilience and potential demonstrated by BRICS in times of Covid-19. It throws light on the latest initiatives of BRICS like New Development Bank. Finally what lies in the future for BRICS?

    The “I” in BRICS

    • India has reinforced its reputation as a rapidly emerging pharmacy of the world.

    • As the world’s largest producer of hydroxychloroquine, India has exported the drug to many countries like Russia, Brazil, Israel, U.S,  SAARC and Gulf nations.

    • Pharma-alliance: The above developments have set the stage for India to forge an inclusive BRICS-driven pharma alliance, which could also actively explore the production of vaccines.

    The “C” in BRICS

    • Despite allegations, China has responded strongly in containing the pandemic, leveraging its position as the workshop of the world.

    • China, using it’s manufacturing capabilities, responded to the disease by providing the “hardware” — masks, gloves, coveralls, shoe covers and testing kits — to hotspots across the globe.

    • Under its Health Silk Road doctrine, the Chinese are reaching out to two of the worst global hotspots, Italy and Iran.

    • China has also rolled out a medical air bridge for Europe.

    The “R” in BRICS

    • Despite fighting the virus at home, Russia too has sent its doctors and virologists overseas including an air mission to Italy.

    • At the request of U.S. President Donald Trump, Russia offered help in the form of medical experts and supplies.

    The “S” in BRICS

    • South Africa, the current rotating head of the African Union, is engaged in framing a pan-African response to COVID-19.

    The “B” in BRICS

    • Only Brazil’s response may need a course correction.

    • In Brazil’s case resistance to breaking the infection chains through travel bans, lockdowns, isolation and testing appear to have led to an infection surge.

    Where does the NDB’s model fit in this picture?

    • The New Development Bank of the BRICS has already demonstrated the way forward to allocate financial resources to combat COVID-19.

    • In April, NDB announced that it is going to disburse a $1 billion emergency loan to China, and subsequently to India, South Africa and Brazil.

    • The NDB had the financial heft to provide $10 billion in “crisis-related assistance” to BRICS member countries.

    The next step for BRICS –  COORDINATION

    • BRICS has demonstrated their comparative strengths as providers of Humanitarian Assistance and Disaster Relief (HADR).

    • BRICS countries now need to pool and coordinate their efforts, in partnership with the WHO, and Europe and North America, as part of a global assault on the virus.

    • BRICS countries also need to earmark resources and assets to combat a whole range of natural disasters, with special focus on the emerging economies and the global south.

    • The NDB’s financial model demonstrated to address the pandemic, can now become a template to address natural disasters.

    Bodies like BRICS have remained the favourite child of UPSC. Be it questions in prelims or mains. A question based on the regional grouping could be asked by the UPSC, for ex- “BRICS nations have proved to be more than merely an economic grouping. In light of the above statement, discuss the Humanitarian Assistance and Disaster Relief (HADR) potential of the BRICS countries.”

    Conclusion

    BRICS in future can leverage the coordination among them to work on finding the vaccine and also build on the experience gathered from the pandemic to form a disaster response policy in the future.

    Back2Basics: BRICS

    • BRICS is the acronym coined for an association of five major emerging national economies: Brazil, Russia, India, China and South Africa.
    • Originally the first four were grouped as “BRIC” (or “the BRICs”), before the induction of South Africa in 2010.
    • The BRICS members are known for their significant influence on regional affairs; all are members of G20.
    • Since 2009, the BRICS nations have met annually at formal summits. China hosted the 9th BRICS summit in Xiamen on September 2017, while Brazil hosted the most recent 11th BRICS summit on 13-14 November 2019.

    New Development Bank and the Fortaleza Declaration

    • During the sixth BRICS Summit in Fortaleza (2014), the leaders signed the Agreement establishing the New Development Bank (NDB).
    • In the Fortaleza Declaration, the leaders stressed that the NDB will strengthen cooperation among BRICS and will supplement the efforts of multilateral and regional financial institutions for global development, thus contributing to collective commitments for achieving the goal of strong, sustainable and balanced growth.
    • The bank was established in July 2015 by the BRICS countries (Brazil, Russia, India, China and South Africa).
    • The aim of the bank is to mobilize funding for infrastructure and sustainable development.
    • Its ownership structure is unique, as the BRICS countries each have an equal share and no country has any veto power.
    • In this sense, the bank is a physical expression of the desire of emerging markets to play a bigger role in global governance.
    • NDB was created to help fill the funding gap in the BRICS economies and was intended to grow its global scope over time.
    • The bank, with its subscribed capital base of US$50bn, is now poised to become a meaningful additional source of long-term finance for infrastructure in its member countries.

  • 04 May2020 | Nikaalo Prelims Quiz – Economy Test 3: Budget 2020/IYB/Eco Survey

    [WpProQuiz 430]

  • From informal to the formal economy: The crooked road

    The article discusses the issues around the informal workforce in the economy. What are the factors responsible for the high informal sector in India? How is this sector responding in times of COVID? Are there some easy solutions to mainstream the informal sector into our formal economy? These are some of the points one should ponder upon while reading this article.

    The vulnerability of the informal workforce

    • Developing countries such as India are economically vulnerable to Covid-19 because of the presence of huge informal workforce.

    • Lack of protection: This vast informal workforce, which has no labour, social or health protection, is woefully ill-equipped to cope with the medical and economic shocks of the virus.

    The humongous size of the informal economy in India

    • Share of the informal sector: As per Periodic Labour Force Survey, 2017-18, 90.6 per cent of India’s workforce was informally employed.

    • This estimate includes those who are employed in informal enterprises (unincorporated small or unregistered enterprises).

    • It also includes informal workers in the formal sector (workers in the formal sector who are not provided any social security benefits by employers).

    • Take another example: Between 2004-05 and 2017-18, a period when India witnessed rapid economic growth, the share of the informal workforce witnessed only a marginal decline from 93.2 per cent to 90.6 per cent. 

    • Covid effect: Looking ahead, it is likely that informal employment will increase as workers who lose formal jobs during the COVID crisis try to find or create work (by resorting to self-employment) in the informal economy.

    • Also, formal enterprises are likely to continue hiring informal workers as they seek more flexibility and attempt to cut labour costs to cope with the COVID-19 induced economic uncertainty.

    Why is the informal more favourable over the formal?

    • The basic reason: necessity to eke out a subsistence living in the absence of alternative employment opportunities.

    • The ‘not so basic’ reasons: Some self-employed persons choose to be in the informal economy voluntarily to avoid registration or taxation.

    • Many are deterred by the costs of formalisation or don’t see much benefit from formalisation.

    • Finally, the phenomenon of informalisation of wage employment in the formal sector is a consequence of formal firms trying to avoid payroll taxes and employer’s contributions to social security or pensions to reduce labour costs.

    Some solution to smoothen the crooked road

    • A multi-pronged and comprehensive approach is needed to facilitate the transition.

    • Labour intensive growth: It requires creating more formal jobs through labour-intensive growth so that informal workers can move to these jobs.

    • Registering and taxing informal enterprises: The Indian experience of compelling informal firms to register and become tax compliant through demonetisation and introduction of GST formalised them only in a legal sense.

    • There is a need for increasing productivity of informal enterprises and incomes of the informal workforce by providing them with technical and business skills, infrastructure services, financial services, enterprise support and training to better compete in the markets.

    • Promoting the path to entrepreneurship in the informal economy.

    • Many informal enterprises would welcome efforts to reduce barriers to registration and related transaction costs as they expect to reap the benefits of formalising.

    • Reducing decent work deficit: This requires protecting informal workers by providing them a social protection floor, ensuring a set of basic working conditions (adequate living wages, limits on hours of work and safe and healthy workplaces).

    A direct question based on the issue of the informal sector can be asked by the UPSC, for ex- “There is a humongous presence of the informal sector in the Indian economy. What are the factors responsible for this? Suggest ways to transform the informal sector into the formal sector.”

    Conclusion

    Questions around the role of government and who bears the onus of protecting workers deserve careful consideration in the backdrop of the rising incidence of informal employment in the formal sector and the growth of the gig economy. It is apparent that in our relentless pursuit of economic growth, we have ignored the voices of India’s informal sector for too long.

    Back2Basics: What is the informal economy?

    • An informal economy (informal sector or grey economy) is the part of any economy that is neither taxed nor monitored by any form of government.
    • Although the informal sector makes up a significant portion of the economies in developing countries, it is sometimes stigmatized as troublesome and unmanageable.
    • However, the informal sector provides critical economic opportunities for the poor.

  • Globalisation 2.0 after Covid-19

    The article discusses the future of the Globalisation after Covid-19. Globalisation 2.0 which has been dominated by China will see several changes in the post-pandemic world. Investment decisions and Global Value Chains would undergo a paradigm shift. The article is concluded by expressing the hope that pandemic doesn’t end  Globalisation 2.0 but it will certainly usher in the new rules of capitalism.

    Globalisation 2.0 and issues with the flow of labour

    • What is Globalisation 2.0? In strictly economic terms, globalisation is about the free movement of capital, goods and labour across national borders.
    • Globalisation 2.0 began in the early 1980s and has lasted for four decades.
    • Under the 2.0 phenomenon, the labour flows were never as free as the movements of capital and goods.
    • This is because one does not necessarily see who produced the goods or capital coming into the borders.
    • But migrants are distinguishable, one can directly observe how ethnically, racially, religiously different they are from the mainstream.

    Rise of right-wing politics in the US and UK due to labour flows

    • Labour flows is a major reason for triggering right-wing politics of nativism in present times.
    • Donald Trump directed his political campaign against non-white immigrants, especially Hispanics and Muslims.
    • He criticised businessmen who, in search of lower costs, had made China the destination of their accumulated investments, transferring jobs away from America’s industrial heartland.
    • Thus, his policies to levy higher tariffs to curtail freer trade. These policies made sure that the American corporations bring capital back to the US.
    • In Europe, a similar politics has been led by the UK, though less vociferously.

    How China has benefited from Globalisation 2.0?

    • In 1980, China was the 48th largest economy in the world: with GDPs at roughly $200 billion, Indian and Chinese economies were similar in size.
    • In 2018, China, with a GDP of $13.6 trillion, was the second-largest economy in the world, behind the US ($20.5 trillion). But far ahead of Japan ($4.9 trillion), Germany ($4.0 trillion), Britain ($2.8 trillion), France ($2.8 trillion) and India ($2.7 trillion).
    • Not only in terms of GDP, but China had also become the largest trading nation in the world by 2018:
    • Exports: worth $2.5 trillion, substantially ahead of the US ($1.6 trillion).
    • FDI in China: In 2018, China attracted over $203 billion worth of net FDI, much more than India ($42 billion), and second only to the US ($258 billion).

    Is COVID-19 a sign of ending Globalisation 2.0?

    • Despite the pure economic logic of how easy it is to manufacture at scale in China, the global leader today are more concerned about the political overtones.
    • Given all the doubts about how China handled the information about the origins of the virus in Wuhan, anger against China in world capitals is evident.
    • Such anger can have impact on the rules of globalisation.
    • Strict regulation of labour laws: We can expect labour flows will now be more strictly regulated than before.
    • Political risks in investment decisions: Western investors will also have to factor in political risks in their investment decision-making.
    • National security concern: New concerns like what if China threatens supply disruptions for critical materials.
    • Instead of chasing lower labour costs, investors will either bring capital back to domestic shores or geographically restructure their supply chains.
    • To summarize it, Globalisation will not end, but it will be pushed into greater retreat. Thus, changing the rules of the BIG game of capitalism.

    A question based on the impact of the pandemic on the global trade, issues associated with and opportunities for India could be asked in the Mains Paper 3.

    Also the Idea of Globalisation is important from the aspect of paper 1 and Essay. “Globalisation’ vs ‘Nationalism’ was one of the topic in Essay paper in 2009.

    Conclusion

    For the foreseeable future, economic efficiency, the cornerstone of market-based systems, will not be high on priority. Politics will drive new economic policies, not market-based rationality.

  • 80% IAS 2021 Aspirants struggle with time table. Talk to us, OK?

    80% IAS 2021 Aspirants struggle with time table. Talk to us, OK?

    Click to fill the form: Samanvaya for IAS 2021

    5 minutes, or 10 minutes, no more than that. That’s all the time we will need to get to know each other before we start talking about your IAS Preparation strategies.

    Last week we chatted with about 850+ aspirants via our Samanvaya outreach – 65% were full-time aspirants and 35% were preparing for it along with their job. Here’s what we chatted about:

    1. Working Junta? If you are preparing for IAS 2021 and working simultaneously, we can help you design a timetable that fits right in your hectic schedule.
    2. First-time prep? If you are in last year of college or thinking of dropping a year and preparing for IAS 2021 full time, we can help you pick the right books and craft a practical & personal strategy

    You just have to take 5 minutes out and fill this form: Samanvaya For IAS 2021

    Once done, we will call you within 24 hours or so.

    What happens when you fill this form? How does a call help you?

    1. Identifying your weaknesses

    Over 80% of students who claimed to have revised NCERTs twice were unable to answer basic questions. Many were not comfortable with at least 1 GS subject and Optional. Many struggled with ‘What went wrong’ after 2-3 years of hard work. Our mentors will provide free preliminary assignments so we can assess your preparedness and suggest accurate strategies.

    2. Strategy and study plan discussions

    Over 90% of students couldn’t stick to a plan. Study plans and strategies are iterative in nature and we want to help you with that. Many are unable to perform in tests despite preparing hard. This could be due to a variety of factors – lack of adequate prep, jitters in the exam hall, inadequate revision, lack of practice of test series or just a bad day at work. Tell us what you think went wrong and we’ll figure out a way to get you over the line next time.

    3. Helping you understand the exam better – which books to read, different approaches, etc. Over 60% of students we talked to did not find NCERTs relevant and saw no point in being thorough with them.

    4. Lack of motivation

    We have all had those days when it’s been hard to motivate ourselves to hit the books and just study. It happens to the best of us sometimes and for some of us, it happens more frequently. And it is understandable, Civil Service preparation is a long and often lonely process. Every aspirant, from toppers to those who have quit have been overwhelmed by this process at some point in time. Working alone is monotonous and helps you keep motivated by ensuring you are actively and passively studying every day. Focused telegram groups to foster discussions.

    Click to fill the form: Samanvaya for IAS 2021

  • [Prelims Spotlight] Important Keywords in Budget and Eco Survey

    Prelims Spotlight is a part of “Nikaalo Prelims 2020” module. This open crash course for Prelims 2020 has a private telegram group where PDFs and DDS (Daily Doubt Sessions) are being held. Please click here to register.

    Important Keywords in Budget and Eco Survey

    04 May 2020

    The Union Minister for Finance & Corporate Affairs, Smt. Nirmala Sitharaman presented the Economic Survey 2019-20 in the Parliament today. The Key Highlights of the Survey are as follows:

    Wealth Creation: The Invisible Hand Supported by the Hand of Trust

    • The big idea from the Economic Survey 2019-20 is the need to push towards increasing the number of wealth creators in the Indian economy.
    • The Survey states that to achieve the goal of becoming a $5-trillion economy, the invisible hand of markets will need the support of “the hand of trust”.

    Wealth Creation

    • Essentially, this means that regulation and rules in the economy should be such that they make it easy to do business but not turn into crony capitalism.
    • The Survey states: “The invisible hand needs to be strengthened by promoting pro-business policies to:
    1. Provide equal opportunities for new entrants, enable fair competition and ease doing business,
    2. Eliminate policies that unnecessarily undermine markets through government intervention,
    3. Enable trade for job creation, and
    4. Efficiently scale-up the banking sector to be proportionate to the size of the Indian economy.”

    How can this be done?

    • The Survey introduces the idea of “trust as a public good that gets enhanced with greater use”.
    • In other words, it states that policies must empower transparency and effective enforcement using data and technology to enhance this public good.
    • A key element here is the need to increase the opportunities for new entrants.
    • “Equal opportunity for new entrants is important because… a 10 per cent increase in new firms in a district yields a 1.8 per cent increase in Gross Domestic District Product (GDDP)”.
    • According to the Survey, the right policy mix can boost job creation

    Focus on Ethical Wealth Creation

    • The Survey emphasised on the importance of ‘Ethical Wealth Creation’, as the key to making India $5 trillion economies by 2025.
    • Krishnamurthy V. Subramanian, the Chief Economic Adviser of Ministry of Finance has done a commendable job in producing a thought-provoking masterpiece on ‘ethical wealth creation’.

    Pro-business versus Pro-markets Strategy

    • Survey says that India’s aspiration of becoming a $5 trillion economy depends critically on:
    1. Promoting a ‘pro-business’ policy that unleashes the power of competitive markets to generate wealth.
    2. Weaning away from ‘pro-crony’ policy that may favour specific private interests, especially powerful incumbents.
    • Pro-crony policies such as discretionary allocation of natural resources till 2011 led to rent-seeking by beneficiaries while the competitive allocation of the same post-2014 ended such rent extraction.

    Strengthening the invisible hand by promoting pro-business policies to:

    1. Provide equal opportunities for new entrants.
    2. Enable fair competition and ease doing business.
    3. Eliminate policies unnecessarily undermining markets through government intervention.
    4. Enable trade for job creation.
    5. Efficiently scale-up the banking sector.
    • Introducing the idea of trust as a public good, which gets enhanced with greater use.
    • The survey suggests that policies must empower transparency and effective enforcement using data and technology.

    Entrepreneurship at the Grassroots

    • Entrepreneurship as a strategy to fuel productivity growth and wealth creation.
    • India ranks third in a number of new firms created, as per the World Bank.
    • New firm creation in India increased dramatically since 2014:
    1. 2 % cumulative annual growth rate of new firms in the formal sector during 2014-18, compared to 3.8 % during 2006-2014.
    2. About 1.24 lakh new firms created in 2018, an increase of about 80 % from about 70,000 in 2014.
    • The survey examines the content and drivers of entrepreneurial activity at the bottom of the administrative pyramid – over 500 districts in India.
    • New firm creation in services is significantly higher than that in manufacturing, infrastructure or agriculture.
    • Survey notes that grassroots entrepreneurship is not just driven by necessity.
    • A 10 percent increase in registration of new firms in a district yields a 1.8 % increase in Gross Domestic District Product (GDDP).

    Impact of education on entrepreneurship

    • Literacy and education in a district foster local entrepreneurship significantly:
    1. The impact is most pronounced when literacy is above 70 per cent.
    2. New firm formation is the lowest in eastern India with the lowest literacy rate (59.6 % as per 2011 Census).
    • Physical infrastructure quality in the district influences new firm creation significantly.
    • Ease of Doing Business and flexible labour regulation enable new firm creation, especially in the manufacturing sector.
    • Survey suggests enhancing ease of doing business and implementing flexible labour laws can create maximum jobs in districts and thereby in the states.

    Divestment in public sector undertakings

    • The Survey has aggressively pitched for divestment in PSUs by proposing a separate corporate entity wherein the government’s stake can be transferred and divested over a period of time.
    • The survey analysed the data of 11 PSUs that had been divested from 1999-2000 and 2003-04 and compared the data with their peers in the same industry.
    • Further, the survey has said privatized entities have performed better than their peers in terms of net worth, profit, return on equity and sales, among others.
    • The government can transfer its stake in listed CPSEs to a separate corporate entity.
    • This entity would be managed by an independent board and would be mandated to divest the government stake in these CPSEs over a period of time.
    • This will lend professionalism and autonomy to the disinvestment programme which, in turn, would improve the economic performance of the CPSEs.

    Golden jubilee of bank nationalization: Taking stock

    • The survey observes 2019 as the golden jubilee year of bank nationalization
    • Accomplishments of lakhs of Public Sector Banks (PSBs) employees cherished and an objective assessment of PSBs suggested by the Survey.
    • Since 1969, India’s banking sector has not developed proportionately to the growth in the size of the economy.
    • India has only one bank in the global top 100 – same as countries that are a fraction of its size: Finland (about 1/11th), Denmark (1/8th), etc.
    • A large economy needs an efficient banking sector to support its growth.

    The onus of supporting the economy falls on the PSBs accounting for 70 % of the market share in Indian banking:

    1. PSBs are inefficient compared to their peer groups on every performance parameter.
    2. In 2019, investment for every rupee in PSBs, on average, led to the loss of 23 paise, while in NPBs it led to the gain of 9.6 paise.
    3. Credit growth in PSBs has been much lower than NPBs for the last several years.

    Solutions to make PSBs more efficient:

    • Employee Stock Ownership Plan (ESOP) for PSBs’ employees
    • Representation on boards proportionate to the blocks held by employees to incentivize employees and align their interests with that of all shareholders of banks.
    • Creation of a GSTN type entity that will aggregate data from all PSBs and use technologies like big data, artificial intelligence and machine learning in credit decisions for ensuring better screening and monitoring of borrowers, especially the large ones.

    Doubts regarding GDP Growth

    • GDP growth is a critical variable for decision-making by investors and policymakers. Therefore, the recent debate about the accuracy of India’s GDP estimation following the revised estimation methodology in 2011 is extremely significant.
    • As countries differ in several observed and unobserved ways, cross-country comparisons have to be undertaken by separating the effect of other confounding factors and isolating effect of methodology revision alone on GDP growth estimates.
    • Models that incorrectly over-estimate GDP growth by 2.7 % for India post-2011 also misestimate GDP growth over the same period for 51 out of 95 countries in the sample.

    Fiscal Developments

    • Revenue Receipts registered a higher growth during the first eight months of 2019-20, compared to the same period last year, led by considerable growth in Non-Tax revenue.
    • Gross GST monthly collections have crossed the mark of Rs. 1 lakh crore for a total of five times during 2019-20 (up to December 2019).
    • Structural reforms undertaken in taxation during the current financial year:
    • Change in the corporate tax rate.
    • Measures to ease the implementation of GST.
    • Fiscal deficit of states within the targets set out by the FRBM Act.
    • Survey notes that the General Government (Centre plus States) has been on the path of fiscal consolidation.

    External Sector

    Balance of Payments (BoP):

    • India’s BoP position improved from US$ 412.9 bn of forex reserves in end-March, 2019 to US$ 433.7 bn in end September 2019.
    • Current account deficit (CAD) narrowed from 2.1% in 2018-19 to 1.5% of GDP in H1 of 2019-20.
    • Foreign reserves stood at US$ 461.2 bn as on 10th January 2020.

    Global trade:

    • India’s merchandise trade balance improved from 2009-14 to 2014-19, although most of the improvement in the latter period was due to more than 50% decline in crude prices in 2016-17.
    • India’s top five trading partners continue to be USA, China, UAE, Saudi Arabia and Hong Kong.

    Exports:

    • Top export items: Petroleum products, precious stones, drug formulations & biologicals, gold and other precious metals.
    • Largest export destinations in 2019-20 (April-November): United States of America (USA), followed by the United Arab Emirates (UAE), China and Hong Kong.
    • The merchandise exports to GDP ratio declined, entailing a negative impact on BoP position.
    • A slowdown of world output had an impact on reducing the export to GDP ratio, particularly from 2018-19 to H1 of 2019-20.
    • Growth in Non-POL exports dropped significantly from 2009-14 to 2014-19.

    Imports:

    •  Top import items: Crude petroleum, gold, petroleum products, coal, coke & briquettes.
    •  India’s imports continue to be largest from China, followed by USA, UAE and Saudi Arabia.
    •  Merchandise imports to GDP ratio declined for India, entailing a net positive impact on BoP.
    • Large Crude oil imports in the import basket correlates India’s total imports with crude prices. As crude price raises so does the share of crude in total imports, increasing imports to GDP ratio.

    Logistics industry of India:

    • Currently estimated to be around US$ 160 billion.
    • Expected to touch US$ 215 billion by 2020.
    • According to World Bank’s Logistics Performance Index, India ranks 44th in 2018 globally, up from 54th rank in 2014.

    Direct investments and remittances:

    • Net FDI inflows continued to be buoyant in 2019-20 attracting US$ 24.4 bn in the first eight months, higher than the corresponding period of 2018-19.
    • Net FPI in the first eight months of 2019-20 stood at US$ 12.6 bn.
    • Net remittances from Indians employed overseas continued to increase, receiving US$ 38.4 billion in H1 of 2019-20 which is more than 50% of the previous year level.

    External debt:

    • Remains low at 20.1% of GDP as at end September, 2019.
    • After significant decline since 2014-15, India’s external liabilities (debt and equity) to GDP increased at the end of June, 2019 primarily by increase in FDI, portfolio flows and external commercial borrowings (ECBs).

    Monetary Management and Financial Intermediation

    Monetary policy:

    • Remained accommodative in 2019-20.
    • Repo rate was cut by 110 basis points in four consecutive MPC meetings in the financial year due to slower growth and lower inflation.
    • However, it was kept unchanged in the fifth meeting held in December 2019.
    • In 2019-20, liquidity conditions were tight for initial two months; but subsequently it remained comfortable.

    Prices and Inflation

    Inflation Trends:

    • Inflation witnessing moderation since 2014
    • Consumer Price Index (CPI) inflation increased from 3.7 per cent in 2018-19 (April to December, 2018) to 4.1 per cent in 2019-20 (April to December, 2019).
    • WPI inflation fell from 4.7 per cent in 2018-19 (April to December, 2018) to 1.5 per cent during 2019-20 (April to December, 2019).

    Drivers of CPI – Combined (C) inflation:

    • During 2018-19, the major driver was the miscellaneous group
    • During 2019-20 (April-December), food and beverages was the main contributor.
    • Among food and beverages, inflation in vegetables and pulses was particularly high due to low base effect and production side disruptions like untimely rain.

    Cob-web Phenomenon (Cyclical fluctuations in inflation) for Pulses:

    • Farmers base their sowing decisions on prices witnessed in the previous marketing period.
    • Measures to safeguard farmers like procurement under Price Stabilization Fund (PSF), Minimum Support Price (MSP) need to be made more effective.

    The volatility of Prices:

    • The volatility of prices for most of the essential food commodities with the exception of some of the pulses has actually come down in the period 2014-19 as compared to the period 2009-14.
    • Lower volatility might indicate the presence of better marketing channels, storage facilities and effective MSP system.

    Essential Commodities Act is outdated

    • The Centre’s imposition of stock limits in a bid to control the soaring prices of onions over the last few months actually increased price volatility, according to the ES.
    • The finding came in a hard-hitting attack in the report against the Essential Commodities Act (ECA) and other “anachronistic legislation” and interventionist government policies, including drug price control, grain procurement and farm loan waivers.
    • The Centre invoked the Act’s provisions to impose stock limits on onions after heavy rains wiped out a quarter of the Kharif crop and led to a sustained spike in prices.
    • However the Survey showed that there was actually an increase in price volatility and a widening wedge between wholesale and retail prices.
    • The lower stock limits must have led the traders and wholesalers to offload most of the kharif crop in October itself which led to a sharp increase in the price volatility.

    Agriculture

    • Agricultural productivity is also constrained by a lower level of mechanization in agriculture which is about 40 % in India, much lower than China (59.5 %) and Brazil (75 %).
    • With regard to the Agri sector, the Survey argued that the beneficiaries of farm loan waivers consume less, save less, invest less and are less productive.
    • It added that the government procurement of foodgrains led to a burgeoning food subsidy burden and inefficiencies in the markets, arguing for a shift to cash transfers instead.

    Food Management

    • The share of agriculture and allied sectors in the total Gross Value Added (GVA) of the country has been continuously declining on account of relatively higher growth performance of non-agricultural sectors.
    • GVA at Basic Prices for 2019-20 from ‘Agriculture, Forestry and Fishing’ sector is estimated to grow by 2.8 %.

    Services Sector

    The increasing significance of services sector in the Indian economy:

    1. About 55 % of the total size of the economy and GVA growth.
    2.  Two-thirds of the total FDI inflows into India.
    3. About 38 per cent of total exports.
    4. More than 50 % of GVA in 15 out of the 33 states and UTs.

    Social Infrastructure, Employment and Human Development

    • The expenditure on social services (health, education and others) by the Centre and States as a proportion of GDP increased from 6.2 % in 2014-15 to 7.7 % in 2019-20 (BE).
    • India’s ranking in the Human Development Index improved to 129 in 2018 from 130 in 2017:
    • With 1.34 % average annual HDI growth, India is among the fastest-improving countries
    • Gross Enrolment Ratio at secondary, higher secondary and higher education level needs to be improved.
    • Gender disparity in India’s labour market widened due to a decline in female labour force participation especially in rural areas:
    • Around 60 % of productive age (15-59) group engaged in full-time domestic duties.

    Sustainable Development and Climate Change

    • India moving forward on the path of SDG implementation through well-designed initiatives
    • SDG India Index:
    1. Himachal Pradesh, Kerala, Tamil Nadu, Chandigarh are front runners.
    2. Assam, Bihar and Uttar Pradesh come under the category of Aspirants.
    • India hosted COP-14 to UNCCD which adopted the Delhi Declaration: Investing in Land and Unlocking Opportunities.
    • COP-25 of UNFCCC at Madrid:
    1. India reiterated its commitment to implement the Paris Agreement.
    2. COP-25 decisions include efforts for climate change mitigation, adaptation and means of implementation from developed country parties to developing country parties.

  • Global Energy Review 2020, Report

    Covid-19 is having a ripple effect on the global energy space. Consistent lockdowns have reduced energy demand by almost 30 per cent in India.

    Covid-19 shock global energy demand

    • The IEA’s Global Energy Review studies the impacts of the Covid-19 crisis on global energy demand and CO emissions.
    • The projections of energy demand and energy-related emissions for 2020 are based on assumptions that the lockdowns implemented around the world.
    • It projects a 6 per cent fall in energy demand in 2020 — seven times the decline after the 2008 global financial crisis.
    • Electricity demand is set to decline by 5 per cent in 2020, the largest drop since the Great Depression in the 1930s.

    Global Energy Demands

    • The countries in full lockdown are experiencing an average decline of 25% in energy demand per week, while in those with a partial lockdown, the fall in energy demand is about 18% per week.
    • Global energy demand declined by 3.8% in the first quarter of 2020 compared to the first quarter of 2019.
    • Further, it is expected that the impact of Covid‑19 on energy demand in 2020 would be more than seven times larger than the impact of the 2008 financial crisis on global energy demand.

    Considering the above scenario the global demand of various energy sources can be analysed as given below

       Coal Demand:

    • It has been declined by 8% compared with the first quarter of 2019.
    • The reasons for such decline include, China – a coal-based economy – was the country hardest hit by Covid‑19 in the first quarter and cheap gas and continued growth in renewables elsewhere challenged coal.

    Oil Demand:

      • It has declined by 5% in the first quarter, majorly due to curtailment in mobility and aviation, which account for nearly 60% of global oil demand.
      • The report also estimates that the global demand for oil could further drop by 9% on average in 2020, which will return oil consumption to 2012 levels.
    •  Gas Demand:
      • The impact of the pandemic on gas demand has been moderate, at around 2%, as gas-based economies were not strongly affected in the first quarter of 2020.

    •  Renewables Energy Resources Demand:

      • It is the only source that has registered a growth in demand, driven by larger installed capacity.
      • Further, the demand for renewables is expected to rise by 1% by 2020 because of low operating costs and preferential access for many power systems.

    •  Electricity Demand:

      • It has been declined by 20% during periods of full lockdown in several countries.
      • However, the residential demand is outweighed by reductions in commercial and industrial operations.

    Indian scenario

    • The declines in electricity and transport demand in India have been among the deepest globally, but the contractions over the full year are likely to be smaller than the global average.
    • The impact of the crisis on energy demand is heavily dependent on the duration and stringency of measures to curb the spread of the virus.
    • At the same time, lockdown measures are driving a major shift towards low-carbon sources of electricity including nuclear, hydropower, wind and solar PV.

    Data on renewables

    • After overtaking for the first time ever in 2019, low-carbon sources are set to extend their lead this year to reach 40 per cent of global electricity generation — 6 percentage points ahead of coal.
    • Electricity generation from wind and solar PV continues to increase in 2020, lifted by new projects that were completed in 2019 and early 2020.

    Back2Basics: International Energy Agency (IEA)

    • The IEA is an autonomous organisation which works to ensure reliable, affordable and clean energy, headquartered in Paris, France.
    • It was established in the wake of 1973 (set up in 1974) oil crisis after the OPEC cartel had shocked the world with a steep increase in oil prices.
    • India became an associate member of the International Energy Agency in 2017.

  • E-Renminbi: China’s Official Digital Currency

    China in a significant move has launched a trial of digital yuan in four urban centres of the country for specific services even as the world grapples with the containment of Covid.

    What is a cryptocurrency? Discuss how a vibrant cryptocurrency segment could add value to India’s financial sector. (250 W)

    Prelims Perspective:-

    1. Subtle differences btn digital and virtual currency – e.g. Regulatory issues

    2. Which countries have official virtual currency – e.g. Petro of Venezuela

    e-RMB

    • It will be the electronic form of the renminbi, with a value equivalent to the paper notes and coins in circulation.
    • The People’s Bank of China, the country’s central bank, will be the sole issuer of the digital yuan, initially offering the digital money to commercial banks and other operators.
    • It will be launched in major cities of Shenzhen, Suzhou and Chengdu, as well as the Xiong’an New Area.
    • It aims to change the financial system in big ways — by cutting costs and making transactions easier, more convenient and more transparent.
    • The public would be able to convert money in their bank accounts to the digital version and make deposits via electronic wallets.

    Back2Basics: Cryptocurrency

    • A Cryptocurrency is an internet-based medium of exchange which uses cryptographical functions to conduct financial transactions.
    • It leverages blockchain technology to gain decentralization, transparency, and immutability.
    • The most important feature of a cryptocurrency is that it is not controlled by any central authority: the decentralized nature of the blockchain makes cryptocurrencies theoretically immune to the old ways of government control and interference.
    • It can be sent directly between two parties via the use of private and public keys.
    • Unlike decentralized cryptocurrencies, such as bitcoin, that allow users to transfer value with no central authority or third party involved, the government-backed digital currency is preferred.

    What are Blockchains?

    • Blockchain, sometimes referred to as Distributed Ledger Technology (DLT), makes the history of any digital asset unalterable and transparent through the use of decentralization and cryptographic hashing.
    • Blockchain consists of three important concepts: blocks, nodes and miners.
    • Nodes can be any kind of electronic device that maintains copies of the blockchain and keeps the network functioning.
    • Miners create new blocks on the chain through a process called mining.

  • Significance of UK labor party’s remarks on Kashmir

    The UK Labour party’s newly appointed leader Keir Starmer said Kashmir was a bilateral issue for India and Pakistan to resolve peacefully. These remarks were seen as an attempt to re-position his party’s stance on Kashmir and reach out to the Indian community in Britain.

    What was the Labour party’s stance before?

    • The party’s relations with the Indian diaspora have been strained, especially after its delegates passed an emergency policy motion in September 2019 criticizing India’s decision to revoke Article 370.
    • It maintained that the people of Kashmir should have self-determination rights.

    Why is the Labour Party’s relationship with the Indian diaspora important?

    • Indians are the largest ethnic community in the UK, numbering over 1.5 million people or accounting for over 2.3 per cent of the country’s population.
    • Therefore, they form a significant vote share for any party.
    • In the 2017 general elections, 50 per cent of the Indians living in the UK had voted for Labour.

    India in Labour Party (UK) manifestos

    Over the years, issues relating to India have found various mention in many election manifestos in the UK:

    • 1945: India’s freedom had been a campaign promise of the Labour party, its manifesto pledging “the advancement of India to responsible self-government”.
    • 1947: The Indian Independence Act, 1947, was passed when Attlee was Prime Minister.
    • 1949: all the Commonwealth Prime Ministers welcomed the free choice of India, Pakistan and Ceylon to join the Commonwealth as full and equal members.
    • 2019: Issue a formal apology for the Jallianwala Bagh massacre.

  • Back in news: International Whaling Commission (IWC)

    Iceland will not be hunting any whales in 2020. Iceland, alongside Norway and Japan, has frequently broken the International Whaling Commission’s 1986 worldwide moratorium, which indefinitely “paused” commercial whaling.

    Regarding IWC, we can expect a statement based prelim question asking-

    1) If IWC has a UN or any other parent organization

    2) If India is a member/observer etc.

    About International Whaling Commission (IWC)

    • The IWC is an Inter-Governmental Organisation set up by the terms of the International Convention for the Regulation of Whaling (ICRW) signed in Washington, D.C in 1946.
    • It aims to provide for the proper conservation of whale stocks and thus make possible the orderly development of the whaling industry.
    • The main duty of the IWC is to keep under review and revise as necessary the measures laid down in the Schedule to the Convention which governs the conduct of whaling throughout the world.
    • The body is the first piece of International Environmental Legislation established in 1946.
    • Commercial whaling was banned by the IWC in 1986 after some species were almost driven to extinction.
    • 89 countries have the membership of in IWC and all the member countries are signatories to this convention.
    • India is a member state of the IWC.

    Earlier reference

    • Japan has last year withdrawn from the IWC citing domestic reasons.
    • Thus, it resumed commercial whaling after 31 years, meeting a long-cherished goal of its traditionalists.

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