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Context: In a historic decision Telecom Regulatory Authority of India (TRAI) barred differential pricing for data over internet a few days back.

Q. What was the main issue before TRAI?

Whether or not differential or discriminatory data pricing is permissible or not. For instance, in Airtel Zero package, for a few sites and applications data charge would be borne by app maker and no consumer. In Free Basics Platform, only certain sites were provided for free.

Q. What’s the problem with that? To me, it looks like such a great idea. Something is better than nothing, right?

It’s not such a great idea because

1. It compartmentalizes internet into walled gardens, where some people will have access to whole internet, while others only to certain sites vetted by corporations.

2. Eventually those people might come to think that Facebook is internet, it will hamper growth of internet and it’s open architecture.

3. Internet is based on network economy and it will benefit only those few websites in walled garden.

4. There are no free lunches in this world. This whole free thing is ultimately based on the data economy and people who sign up for these free things may not even be aware of what data and meta data they may be parting with.

5. In the context of huge information asymmetry between ISPs and consumers, it’s absolutely essential for Govt to protect consumer interest.

Add to these run of the mill points such as

Internet giants could easily afford to participate in such programs, putting new players at a disadvantage.

Q. What do supporters of such free programmes have to say about all this?

1. Poor unconnected were getting to access some sites, they will lose access to those.

2. Broadband penetration is abysmally low in India (ranking 141/165). It will help improve internet penetration.

3. There are studies that confirm that giving access to a few sites make people make a move towards whole internet.

4. Zero Ratings is a legitimate business practice. Even FCC (US version of TRAI) has not banned it but said it will review zero rating platforms on case by case basis.

Rebuttal– There are no independent studies. All such studies are done by academics paid for by corporate. Founder of WWW Tim Lee opposes such practices.

Q. So what’s the way forward? How can broadband penetration be increased in India?

1. Use Universal Service Obligation Fund (USOF) to give certain amount of free data to every consumer.

2. ISPs can give free data say 250MB one time free without creating walled gardens to get people on board.

3. Timely roll out of optical fibre and connection of all gram panchayats using Bharat Net project.

Q. So is this all about net neutrality?

1. No, discriminatory pricing is only a small but very important part of net neutrality.

2. Other aspects include no blocking, no throttling, no filtering, no slowing down, no fast lanes.

Net neutrality is a concept that says a public network should treat allcontent, sites, and platforms equally.

Q. What’s government doing about those aspects of net neutrality?

1. Govt. has promised on the floor of house to bring a comprehensive legislation covering all aspects of net neutrality.

2. In this regard govt needs to protect interest of teeming millions who are yet to connect to internet. Success of digital India mission will depend on this.

Remember ,The idea behind net neutrality is simple – treat all sites equally to give everyone a fair chance at growth, and reject the idea of monopolies.

PS– I would strongly suggest everyone to read the explainer and story on net neutrality from the links given below. After that, you don’t need to read anything extra on net neutrality for exam purpose.

https://www.civilsdaily.com/free-basics-is-it-digital-divide-among-people/

Net Neutrality & The Debate Around It

http://www.hindustantimes.com/hawkings-thrilled-with-gravitational-wave-discovery-pm-lauds-india-role/story-l3MDwatw92qwUMOy7GsaSN.html

Context:  Trans Pacific Partnership (TPP ) was signed in NZ last week.

Q. Give us a broad overview of TPP. ( names imp for prelims)

1. The Trans-Pacific Partnership (TPP) is a trade agreement among twelve Pacific Rim countries which include

4 ASEAN memebrs Malaysia, Singapore, Brunei ,Vietnam

7 RCEP members  4 ASEAN above + Australia, New Zealand, Japan

5 American countries Canada, Mexico, United States, Chile, Peru (3 from North and central America + 2 from South America)

2. They represent 40% of world economy and 26% of global trade

Q. What are the objectives of this deal?

1. Stated objective is dismantling of tariff and non tariff barriers and thus boosting trade and prosperity.

2. Unstated objective is to liberalize capital movement and make the world safe for transnational capital.

3, Even more importantly it is sought to be projected as a model for future trade deal.

Q. What are the geo strategic calculations behind this deal?

1. US wants to retain its domination of global economy and Asia pacific.

2. It’s part of US pivot to Asia or rebalancing as it was later called.

Q. What is China’s response?

1. Promoting its own trade deals like RCEP, regional comprehensive economic partnership and  FTAAP, free trade area in Asia Pacific, both of which seems to be going nowhere.

2. On strategic side One Belt One road, OBOR

Problem for Chian is that xinxiang is pivotal to overland project while south china sea and malacca strait are pivotal to marine project and china has major weaknesses at both places.

Q. What are points of concern with regard to TPP?

1. Short answer is investment ,ipr, labour and environmental standard which are much more stringent than WTO.

2. They are in effect technical barriers to trade, so called non tariff barriers.

3. IPR which are TRIPS plus will make ever greening of branded drugs possible and would lead to higher cost of medicines.

4. Data exclusivity clause will make it even more difficult for generics to come into market.

Q. You also talked about investment protection. What is this issue about investor state dispute settlement?

Under this rule private sector can prosecute states for loss of profit because of govt policies. Very limited exemptions are available on grounds of public health, environment and public order.

Similar provision is being negotiated in TTIP, Transatlantic Trade and investment Partnership and German judges have already issue declaration that this kind of arbitration is unacceptable.

Q. What should be India’s response now?

If we join TPP national treatment would help our pharma companies and ITES companies due to freedom of travel. visa issues will be sorted out.

Theoretically it is easy to say we should have been there, watering things down, build greater relationships, be part of global value chains, extend our act east policy but the fact remains that we have not been able to digest WTO. We need deep reform in so many areas. We are not at all even at stage of thinking of joining.
Reforms internally, build consensus around WTO, sign RCEP and Free trade deal with EU.

 

any other substitute of civil daily in hindi ???

What on earth is happening there guys! Please pitch in with most relevant clips and articles. I can’t understand this leftist charade anymore!

R. Sankaran was a senior IAS officer, widely known as ‘an ideal people’s IAS officer’ for the proactive role he played in formulating pro-poor policies. He was a bachelor who devoted his life for the welfare of Scheduled Castes and Scheduled Tribes.

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A personification of simple living, honesty and integrity, unassuming but strong, modest yet firm and affable, the diminutive civil servant was a role model who showed what an IAS officer could do for the marginalised sections of society.

Simplicity at its peak

This is a little long story but I bet you’ll be thrilled to read it…

An Indian Airlines flight arrived at the Agartala Airport one late afternoon. It was a full flight. All the passengers scrambled down to pick up their baggage and leave for home. Among them was a short-statured, frail, middle-aged person wearing an ordinary bush shirt and slightly crumpled trousers. The only remarkable feature was his thick crop of well-parted shining black hair. He saw some flamboyant busybodies briskly moving up and down in search of somebody. The gentleman quietly passed by them totally unnoticed. He went to the baggage-claim belt, collected a small suitcase, unobtrusively went out of the building and walked towards the cycle-rickshaw stand. As he was coming out, he noticed some activity around a couple of red-lighted cars and a posse of police constables, smartly uniformed, eagerly waiting for somebody. At the rickshaw-stand he started enquiring in his broken, heavily-accented Hindi about the Circuit House. A rickshaw-puller came forward and agreed to take him after telling him the fare. The rickshaw-puller took the suitcase from him and helped him to get onto the seat.

A policeman was idly watching the proceedings. He heard the word “Circuit House” a couple of times. He knew that a new Chief Secretary was due to arrive and he was posted at the rickshaw-stand to control the movement of rickshaws till the new Chief Secretary’s convoy passed. He had a suspicion. He ran back to the building and informed his officer-in-charge that perhaps the new Chief Secretary had boarded a rickshaw to go the Circuit House.

All hell broke loose thereafter. Everyone started running towards the rickshaw-stand and the constable pointed to a smiling gentleman quietly sitting on a rickshaw awaiting the departure of the official cavalcade of red-light cars. The Deputy Secretary, Protocol, very apologetically enquired whether the gentleman was S.R. Sankaran. He politely nodded. Then started furious activity in search of his “missing” luggage. The gentleman calmly told the officials present that he had no “missing” luggage. The small suitcase at the footboard was his only piece of luggage. He was requested to get off the rickshaw and get into the official car waiting at the VIP gate. He quickly pulled out his money bag, took out the money he had agreed to pay to the rickshaw-puller and offered him the money before he got down.

All the officials protested. He looked at them and said it was a contract between the rickshaw-puller and him. Because of him the rickshaw-puller had missed other passengers. Hence he had to be compensated for the lost fare. He paid him his fare.

Now the rickshaw-puller returned him half the fare telling him that as he did not take him to the Circuit House he could not accept the contracted fare and that he would get passengers from amongst the persons who had come to see- off the Calcutta-bound passengers.

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Bonded labour

In his first tenure as Secretary, he took up the issue of bonded labour seriously. Though the abolition of bonded labour and rehabilitation of bonded labourers was part of the first 20-Point programme of Indira Gandhi, and though the Bonded Labour System (Abolition) Act, 1976, (first as ordinance) was in place, some of those in the political leadership were averse to taking it seriously. This was because they were either directly masters of bonded labourers or were beholden to the masters of bonded labourers for political support. This brought him into direct clash with successive Chief Ministers, but he bravely and righteously stood his ground.

Nationalisation of coal industry

Before his first tenure in Social Welfare, Sankaran was, in the early 1970s, Special Assistant to Mohan Kumaramangalam, Union Minister for Steel and Mines. The idealist constantly reminded the ideologue about the promise and need to nationalise the coal industry, and it was because of the Kumaramangalam-Sankaran duo that this significant measure went through with the support of Prime Minister Indira Gandhi.

Dalit issue

In his second tenure as Principal Secretary, Social Welfare, in addition to revisiting the issue of bonded labour – of pressing urgency for him and the victims, most of whom were Dalits – he took up the issue of atrocities against Dalits, which had assumed a menacing form.

An important instance of this was his active intervention in the rehabilitation of the victims of the Karamchedu atrocities of 1985 in a new colony named Vijayanagar near Chirala in Andhra Pradesh. This was before the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989, was passed.

These measures again brought him into conflict with the Chief Ministers, which left him without any post for several months until he came to the Centre as Secretary, Ministry of Rural Development, in January 1990.

Facing the opposition

Sankaran had to face obstacles and hostility continuously from some powerful persons in politics and the administration though all the work undertaken by him was not only in accordance with the Constitution but mandated by the Constitution upon the state. The oft-mentioned “civil society”, with a few exceptions, was largely indifferent and in some instances hostile to his valuable endeavours.

Spent his pension on education of dalit students

After retirement in 1992, he shifted to a modest apartment in busy Punjagutta area and continued to fight for the rights of the poor, sharing his pension with SC/ ST students.

Lifetime mission

It became his lifetime mission to demystify the left-wing ideology and try and bring about a meeting point. His initiative, Committee of the Concerned Citizens strove hard through mediatory efforts to find sustainable solution to social turmoil.

Book on Sankaran

A book titled ‘Marginalisation, Development and Resistance: Essays in Tribute to SR Sankaran’ Volume-1 was released by CH Hanumantha Rao, former member, Planning and Finance Commission.

He passed away on 7th October 2010.

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Published with inputs from Swapnil | Image - Frontline

Last year methodology of calculating India’s GDP was revised along with base year revision. It produced surprising results revising growth rate for 2013-14 to 6.9% from 5% (38% jump) as per old methodology. Not many were convinced then and most are still unconvinced.

In this article, we discuss various changes brought about by the recent revision but before we go there, let’s have a look at basics of GDP.

https://www.youtube.com/watch?v=FRb0zIo0Y5g&feature=youtu.be

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What is GDP and how is it calculated?

GDP or gross domestic product is nothing but money value of all the final goods and services produced in the domestic economy in a given time period.

Let’s break GDP down-

It’s gross because it does not account for depreciation.

What is depreciation-

A part of capital is lost every year due to wear and tear. Suppose life cycle of a machine which makes toys is 20 years, after 20 years we will have to replace it or we can say that every year 1/20th portion has to be replaced. This replacement cost is called depreciation.

When we subtract depreciation, we get net product.

Net Domestic Product = GDP – Depreciation

It’s domestic because production happening in domestic economy is considered. It does not matter if it’s produced in India by Indians or Americans.

On the other hand national product takes into account production by nationals. It does not matter whether they produce in India or US.

Let’s understand this with an example –

Priyanka Chopra charges some (hefty) fee for acting in Quantico in US. Her fee will be counted in domestic product of USA and national product of India.

By this very same token, McDonald american manager’s salary who is working in India will be counted in US National product and Indian Domestic product .You get the point, right ?

National product = domestic product +income of nationals in abroad – income of foreigners in the country

Or

Domestic product – net factor income from abroad.

Okay so now that we understand the basic definitions, let’s understand how GDP is calculated.

There are only 3 methods of GDP calculation

1. Income method i.e. add income of all the individuals of the economy
2. Expenditure (consumption) method i.e. add all the expenditure incurred by all the individuals
3. Production or value added method i.e. add value addition at each stage of production or as we say in definition Final value of all goods and services produced.

Note here that I mention final value which implies if we count value of a Maruti, we shall ignore value of component parts of Maruti such as steel used or rubber etc. Or we can ignore the final value of Maruti but add value addition at every stage. Point here is to avoid double counting.

All 3 methods shall give the same result due to circular flow of money.

What is this circular flow of income?

A theory that states that money flows to workers in the form of wages, they buy goods and services from it ( expenditure) and money flows back to firms in exchange for products.

What’s the concept of GDP at Factor cost and GDP at market price?

Factor cost is cost incurred in paying factors of production i.e. land (rent), labour (wages), Capital (interest,dividend), entrepreneur (profits). Essentially cost of production.

Market price of a good = Factor cost + Indirect taxes – subsidies

GDP at market price = GDP at factor cost + Indirect Taxes – Subsidies

What’s this GDP at current market price and GDP at fixed price?

Because of inflation, money value of output may increase without any commensurate increase in actual real production.

For instance, if last year we produced 100 kg of pulses whose cost was 100 rs per kg, our GDP would be 100*100.

This year due to some reason price has risen to 200 per kg. We produce only 100 kg this year but GDP at current market price would be 100*200 i.e. double of last year even though there’s no real increase in output. 

Hence, when we calculate real GDP growth, we compare the real GDP i.e. inflation adjusted GDP with some base year. That inflation adjuster is known as GDP deflator.

Real GDP = Nominal GDP at current market prices/ GDP deflator.

The base year has to be revised periodically as structure of economy changes. Some goods become obsolete with time (audio cassettes) while new goods come into the market and base year has to reflect those changes.

It was to reflect these changes that the base year was revised but other changes were also incorporated in the methodology of GDP calculation.

Let’s analyse these change in brief –

1. Base Year was revised from 2004-05 to 2011-12
2. GDP calculation at constant market prices instead of at factor cost.
3. Sector wise estimation of gross value added (GVA) at basic prices instead of factor cost.
4. Comprehensive coverage of corporate sector using MCA21 software.
5. Comprehensive coverage of financial sector
6. Improved coverage of activities of local bodies and autonomous institutions.

All these changes were made to align Indian accounts as per IMF approved methodology.

But as mentioned earlier, revision dramatically increased our growth rate but high growth rate numbers don’t correspond with the high frequency macro-economic indicators in the economy, such as bank credit growth, corporate performance, auto sales, factory output etc.

What needs to be done?

Central Statistical Organization (CSO) will have to create a back series so that analysts are able to make sense of the GDP data. Otherwise credibility of our numbers will be questioned which would be a very bad news for investor confidence.

What are the money stock measures published by RBI

China devalued renminbi by 2% in a single day last August and sent stock markets in a tizzy. Currency was devalued again by 0.5% in January this year. Overall, it has depreciated some 8% against the dollar. Immediately, charges of competitive devaluation were levied and China was accused of stating a global currency war. Japan, European union all are trying to keep their rates down. Meanwhile, the rupee has also depreciated and has now reached 68, 2 years low. Yet exports are falling month after month and exporters are claiming rupee to be overvalued.

So why are major economies trying to devalue their currency? How does devaluation help? And if low exchange rate is really such a great thing, why were we crying when rupee was falling in the wake of taper tantrum in September 2013? What do we actually want??

But first thing first

What’s the exchange rate and how is exchange rate determined?

Exchange rate is the rate at which one currency will be exchanged for another. It is the value of one country’s currency in terms of another currency. So if for 1 $, we get 100 rupees, $/rupee exchange rate is 100. This is nominal bilateral exchange rate.

Nominal because it is just a numeric term and does not tell us anything about purchasing power or competitiveness of a currency.

Bilateral as only 2 countries are compared while we might be trading with n number of counties.

Then, what’s real exchange rate ?

It’s real because it tells us about purchasing power and competitiveness aspects as well. It is nominal exchange rates multiplied by the price indices of the two countries i.e. takes inflation into account.

NOTE- In economics, real means adjusting for inflation. For instance,Real GDP is GDP adjusted for inflation.

How does real exchange rate provide us with more information? Let’s understand by an example-

Suppose India and USA ,both only produce apples and there is free trade with zero tariff. At present exchange rate is 100. 1 kg apples cost 1$ in US and 100 rs in India. Now, because of technological improvements combined with cheaper labour costs,  prices in India declined to 90, everyone will convert their $ to rupee and buy from India. Now there’s more demand for Indian rupee i.e. rupee value will go up.  It will force exchange rate to move up to 90 and trade is balanced again. That’s how markets determine nominal exchange rates. As productivity levels rise, inflation declines, exchange rate moves up.

Note here, Real rates haven’t changed. Real rate remains 100 ( 90 (nominal rate)* 100 ( US price level)/ 90 (Indian Price Level).

But what if RBI tried to con the market and maintained exchange rate at 100 ? While nominal rates remain unchanged, rates have depreciated in real terms because real rate is inflation adjusted i.e. 100* 100/ 90.

Or we can say, US dollar has appreciated in real terms. What’s the effect? Nobody would buy apples from US. US farmers would go bankrupt.

In effect, lower real rates make domestic prices cheaper and promotes export while at the same time making imports costlier. That’s the reason central banks resort to devaluation to make their currencies competitive in world market.

But is is that simple?? More demand for your products # more demand for currency # exchange rate moving up # trade balancing??

If only goods and services were traded, determination of exchange rates would have been so simple. Inflation would put downward pressure on exchange rate while rising competitiveness would put upward pressure. Nominal rates will move up and down but real rates will remain stable and there will be balance of trade.

But currencies also move in financial markets for investment and speculation and that creates complication.

So if US companies invest in Indian stock markets or bring FDI, they would buy rupees, demand for rupee high, exchange rate will go up. Real rate also goes up as there’s no immediate change in inflation-competitiveness dynamics. Bad news for exporters.

How would rates adjust?

More rupee in the economy now ( dollars converted into rupee). If no increase in production, it would result in inflation and nominal exchange rate would come down, real rate would readjust to previous value.

In capital starved countries like India, investment results in building of new infrastructure, new products # production increased to blunt some effect of rising money supply # nominal exchange rates would come down according to inflation differential.

Now you can understand, why rupee was 40 to $ a decade back and is 68 to $ today. High inflation in India reduces purchasing power of rupee and it has to depreciate to maintain competitiveness.

Why were we panicking when rupee was plunging during taper tantrum days?

At that time, FII withdrew money in droves as Fed hinted at raising US interest rate # increased demand for dollar # rupee fall precipitously. Precipitous fall creates huge volatility and uncertainty in the minds of investors. Uncertainty is not good for anyone. That’s why RBI steps in to defend the rupee and curtail the volatility. It dips into reserves and sells Dollars but reserves are limited and that creates further doubts in the minds of investors about the ability of central bank. Net result- Investment environment takes a beating and we panic.

What is China trying to do by devaluing it’s currency?

China grew by over 10% for last 3 decades on back of export led growth. But growth has now slowed down and China just posted slowest growth in a quarter century. Devaluing currency helps-

As we saw above Chinese products will become cheaper for foreigners to buy, more exports from Chinese economy. High growth, jobs etc.

1. Things Chinese import will become costlier so high oil, gas mineral costs. resulting in inflation. Inflation tends to drive down currencies. China might just enter that vicious circle. Falling competitiveness # depreciation # inflation # depreciation.
2. Those who invested in Chinese currency would book losses . If u had invested 100 dollars for 100 yuan, now u get, say 98 dollars back.  It will result in Capital fight from China. Will put further downward pressure on yuan. Stock markets will be down.
3. Chinese corporations and banks who had borrowed in dollars would find it difficult to repay the loan. Earlier if they had borrowed 100$ and got 100 Yuans, they will have to shell out 102 Yuans to pay back same 100$. Banks and corporations will go bust.

Most importantly,

Other countries would want to protect their market. In tat for tat move, they will bring down their exchange rates . Chaos in market. Not good for anyone . Beggar thy neighbor policy. Everyone wanting to grow at the expense of other countries.

Fact is total world exports = total world imports

If no country is willing to import, total imports will come down but since total imports = total exports, overall trade will come down, bad for everyone.

How does it affect India?

1. Weak renminbi will lead to widening of trade deficit.
2. Markets in which China and India compete, Chinese will price out Indians.
3. Chinese will dump cheaper products in our market resulting in factory closure, job losses etc.

Rupee has fallen to 68 against the dollar this January. Why are exporters still complaining about rupee being overvalued?

We don’t trade with only US but with other economies as well . Their exchange rate movement w.r.t. dollar affects us, as rupee will inch up or down relative to those currencies. Russian, Brazilian, Turkish, Indonesian all currencies have fallen more than ours and that makes Rupee overvalued in trade based terms.

To take value of other currencies we trade with into account, we calculate trade weighted exchange rates.  We determine value of our currency w.r.t. a basket of currencies with which we trade. There are two ways of doing this.

1. NEER or Nominal effective exchange rate –  To calculate NEER, we weight the nominal exchange rate of the rupee against the currencies of these trading partners by their share in India’s trade. Then, by summing the weighted exchange rates, we get the NEER.

For instance, suppose we trade only with China and Russia. Earlier, value of 1$ was 100 rupee = 100 yuans = 100 roubles. Now rupee depreciates to 110, yuan to 120 and rouble to 130. Note here that though rupee has depreciated w.r.t. dollar, it has relatively appreciated w.r.t. yuan and rouble. Bilateral nominal exchange rate will not tell that story, but NEER will.

2. REER  or Real effective exchange rate is to NEER what Real rate was to nominal exchange rate. It takes into account inflation and competitiveness.

In REER terms rupee has appreciated significantly i.e. rupee is overvalued or less competitive w.r.t.  currencies with which we trade.

A few Final Comments-

We saw how markets determine exchange rates and central banks intervene to reduce volatility. This type of regime is called managed floating exchange rate regime. When a currency moves up and down, it’s called Appreciation and Depreciation of currency, respectively. Eg. India, USA etc.

In some countries, central banks fix exchange rate and intervene to defend the currency at that value. This type of regime is called Fixed exchange rate regime. When currency moves up and down, it’s called revaluation and devaluation respectively. Eg. Pre reform India, China.