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Subject: Economics

  • World’s Largest Office Space: Surat Diamond Bourse

    surat diamond

    Central Idea

    • The Surat Diamond Bourse (SDB), hailed as the world’s largest office space project, is set to be inaugurated by Prime Minister.

    About Surat Diamond Bourse

    • The SDB is a large-scale project located in Surat, Gujarat, India.
    • It is claimed to be the world’s biggest office space in a single project.
    • It is built to expand and consolidate the diamond trading business from Mumbai to Surat.
    • Surat is renowned as a major hub for cutting and polishing diamonds, and the development of SDB aims to bring all diamond-related activities and infrastructure under one roof.

    Key features  

    • Location: The SDB is situated at DREAM (Diamond Research and Mercantile) city in Surat.
    • Size: The bourse spans an area of 66 lakh square feet (approximately 6.6 million square feet), making it one of the largest office spaces in the world.
    • Design: The thematic landscaping of the project is based on the ‘panch tatva’ theme, representing the five elements of nature – air, water, fire, earth, and sky.
    • Infrastructure: The SDB consists of nine towers, each with ground plus 15 floors. It will accommodate over 4,200 offices with sizes ranging from 300 square feet to 7,500 square feet.
    • Security: Given the high-security nature of the diamond industry, over 4,000 CCTV cameras have been installed at different locations inside and outside the SDB.
    • Shifting from Mumbai: The bourse seeks to address the space crunch and expensive office real estate in Mumbai, where much of the diamond trading currently takes place.

    Economic significance of SDB

    • Businesses: The complex will house various diamond-related businesses, including the sale of rough and polished diamonds, diamond manufacturing machinery, diamond planning software, diamond certificate firms, lab-grown diamonds, and more.
    • Employment: The SDB is expected to generate significant employment opportunities, providing direct employment to over 1 lakh people in various roles related to the diamond industry.

  • Niti Aayog’s Export Preparedness Index, 2022

    export
    PC: Live Mint

    Central Idea

    • Tamil Nadu has emerged as the most export-competitive state in India, securing the top spot in the Export Preparedness Index 2022 by Niti Aayog.

    Export Preparedness Index (EPI)

    • EPI is a comprehensive tool aimed at gauging the export readiness of India’s states and union territories (UTs).
    • The index analyses various parameters, enabling the identification of strengths and weaknesses in each region and offering valuable insights for effective policy formulation.
    • EPI focuses on four pillars:
    1. Policy: This pillar evaluates the effectiveness of a state’s trade policy, providing strategic direction for both exports and imports.
    2. Business Ecosystem: The efficiency of a business ecosystem is crucial for attracting investments and fostering an enabling infrastructure for startups and entrepreneurship.
    3. Export Ecosystem: This pillar assesses the business environment specific to exports, determining the level of support and facilitation provided to exporters.
    4. Export Performance: The sole output-based parameter, this pillar examines the reach of export footprints in states and UTs, measuring their actual export achievements.
    • 10 Sub-pillars include: Export Promotion Policy; Institutional Framework; Business Environment; Infrastructure; Transport Connectivity; Export Infrastructure; Trade Support; R&D Infrastructure; Export Diversification; and Growth Orientation.

    States performance

    • Export-Competitive State: Top Contenders: Maharashtra, Karnataka, and Gujarat (last year’s leader) followed closely, while Haryana claimed the fifth position.
    • Coastal States’ Dominance: Coastal states dominated the top rankings, with four out of the top five positions occupied by them. Andhra Pradesh also secured the ninth spot.
    • Gujarat- Leading Merchandise Exporter: Gujarat holds the top position as the leading merchandise exporter, accounting for one-third of India’s total merchandise exports.
    • Top Five Exporting States: Maharashtra, Tamil Nadu, Karnataka, and Uttar Pradesh complete India’s top five exporters.
    • Seven States’ Dominance: An impressive 75% of India’s total exports are contributed by just seven states.

    Reasons for export boost

    • Export Promotion Policies: The top-performing states have implemented export promotion policies at both state and district levels.
    • Diversified Export Basket: These states have a diverse export basket, showcasing their global footprint.
    • Promoting Unique Products: Successful states focus on promoting products unique to their region. Tamil Nadu and Karnataka lead in exporting geographical indication (GI) products.

    India’s Export Performance

    • Resilient Exports: Despite pandemic challenges and supply-side issues, India’s goods exports remained robust, reaching an all-time high of $447 billion in FY23.
    • Target for FY24: The government refrained from setting a specific export target for FY24 due to global headwinds but may aim for $450 billion to $500 billion in goods exports.
    • Services Exports: Services exports amounted to $323 billion in FY23, bringing India’s overall exports to $770 billion.

  • The dramatic transformation of India’s oil trade with Russia

    oil

    What’s the news?

    • For over a year, India, the world’s third-largest consumer of crude oil with an import dependency of more than 85%, has been entangled in a passionate affair with Russian oil.

    Central idea

    • Aftermath invasion of Ukraine, Russia began offering deep discounts to willing buyers as Western countries turned their backs on its oil. Prior to the conflict, Russia had a minor role in India’s oil trade, which was predominantly dominated by West Asian suppliers like Iraq, Saudi Arabia, and the UAE. However, the discounts offered by Russia led to a drastic transformation, making it India’s primary source of crude oil

    Recent growth in Russian oil imports

    • According to data from the Directorate General of Commercial Intelligence and Statistics (DGCI&S), India’s oil imports from Russia surged more than tenfold since April 2022.
    • This steady growth gained momentum, particularly after the G7 imposed a $60-per-barrel price cap on seaborne Russian crude in December 2022.
    • Russia’s market share skyrocketed to 24.2% during the 14-month period, up from a mere 2% in FY22. In contrast, other major suppliers such as Iraq, Nigeria, and the US witnessed substantial declines in their market shares.
    • OPEC’s share in India’s oil imports fell by almost half, from 75.3% in May 2022 to 40.3% in May 2023.
    • Among the major suppliers to India, several OPEC members saw their market shares decline, while Russia’s share surged from 6% to 40.4%.

    How it transformed India’s energy landscape?

    • Before the Ukraine conflict, Russia was a minor player in India’s oil trade, and the country relied heavily on West Asian suppliers like Iraq, Saudi Arabia, and the UAE.
    • The deep discounts offered by Russia created an opportunity for India to diversify its sources of crude oil, reducing its dependence on a few dominant suppliers and increasing energy security.
    • The discounts on Russian oil provided significant foreign exchange savings for Indian refiners. Till May 2023, Indian refiners saved approximately $7.17 billion in foreign exchange due to increased purchases of discounted Russian oil.
    • These savings positively impacted India’s trade balance and current account deficit, contributing to overall economic stability.

    What are the concerns?

    • India’s deepening energy ties with Russia amid geopolitical tensions and international sanctions may expose India to geopolitical risks.
    • The association with Russian oil could lead to diplomatic complexities with other nations.
    • Despite diversifying energy sources, there is still concern about over-reliance on Russian oil.
    • India’s substantial imports from Russia could leave it vulnerable to supply disruptions or geopolitical developments affecting Russian exports.
    • The volatility of discount levels on Russian oil adds uncertainty to India’s energy trade calculations.
    • The lack of transparency in the pricing of Russian oil cargoes makes determining exact discounts challenging, leading to uncertainties in trade negotiations and financial planning.

    Way forward

    • India should continue diversifying its sources of crude oil to reduce dependence on a single supplier.
    • Ensuring transparency in oil pricing and understanding the actual discounts offered by Russia can help in making informed decisions.
    • As India deepens its energy ties with Russia, it should manage its relationships with other oil-producing nations, especially those from OPEC.
    • India should develop a comprehensive and forward-looking energy policy that considers both short-term energy needs and long-term sustainability.
    • Adequate energy infrastructure, including ports, pipelines, and storage facilities, is crucial to support diverse energy sources and efficient energy trade.

    Conclusion

    • The unprecedented shift in India’s oil trade reflects the dramatic impact of Russia’s deep discounts amid geopolitical conflicts. Although the recent erosion of discounts poses challenges for Indian refiners, the affair with Russian oil has left a lasting impact on India’s energy trade dynamics. The future of this relationship remains uncertain, but the profound influence of Russia’s discounts will be remembered as a transformative episode in India’s oil trade history.

    Also read:

    India’s export of Russian oil to West

  • NITI Aayog suggests changes to APMC System

    apmc

    Central Idea

    • Experts from NITI Aayog have put forth recommendations to revamp the existing Agriculture Produce Marketing Committee (APMC) system in India’s agriculture sector.

    NITI Aayog

    • NITI Aayog stands for the National Institution for Transforming India. It is a policy think tank and a government institution in India.
    • It was established on January 1, 2015, to replace the Planning Commission, which was the central agency responsible for formulating India’s Five-Year Plans.
    • PM serves as the ex-officio Chairman of NITI Aayog.
    • It has a full-time Vice-Chairperson, who is usually a renowned economist or policy expert, and also includes several full-time members and special invitees.
    • Its primary objective is to provide strategic and policy inputs to the central and state governments in India with a focus on sustainable and inclusive development.

    What is APMC?

    • APMCs are created by state governments, reflecting agriculture’s status as a State List subject under the Indian Constitution.
    • APMC’s existence aims to safeguard farmers from exploitation by large retailers and maintain reasonable retail price spreads.
    • All food produce must first be brought to market yards and then sold through auction as per the Agricultural Produce Marketing Regulation (APMR) Act.

    Establishments of APMCs

    • British Raj Influence: The regulation of raw cotton under the Hyderabad Residency Order in 1886 marked the beginning of agriculture produce market regulation in India.
    • Royal Commission’s Recommendation: The 1928 Royal Commission on Agriculture recommended the regulation of marketing practices and the establishment of regulated markets.
    • Model Bill and Independence: The Government of India prepared a Model Bill in 1938, but significant progress was made only after India gained independence.
    • Enactment of APMR Acts: During the 1960s and 1970s, most states enacted and enforced Agricultural Produce Markets Regulation (APMR) Acts, bringing primary wholesale assembling markets under their ambit.

    Working of APMCs

    • APMCs operate on two principles:
    1. Ensure that farmers are not exploited by intermediaries (or money lenders) who compel farmers to sell their produce at the farm gate for an extremely low price.
    2. All food produce should first be brought to a market yard and then sold through auction.
    • Each state that operates APMC markets (mandis) establish their markets in different places within their borders, geographically dividing the state.
    • Farmers are required to sell their produce via auction at the mandi in their region.
    • Traders require a license to operate within a mandi.

    Key Reforms Suggested by NITI Aayog

    (1) Alternative Marketing Options

    • App-Based Sales and E-commerce: The experts suggest leveraging technology for app-based sales of farm produce by individual farmers or farmer groups. Additionally, they emphasize the potential of e-commerce and digital commerce as alternative marketing avenues.
    • Subsidy Reforms: To address the over-exploitation of groundwater due to free or highly subsidized power, they recommend direct payment of subsidy amounts to farmers and shifting to the metered power supply.

    (2) Modernizing Agriculture

    • Corporate Investments: The paper highlights that about 80% of investments in agriculture come from private sources, mainly farmers. However, the corporate sector’s involvement remains low, and they believe there is significant potential for corporate expansion in agribusiness.
    • Market Integration and Competition: Encouraging corporate investment in areas like warehousing, logistics, cold chain, food processing, and value chain development would improve market integration and competition over time and space.

    (3) Enhancing Farmer Income

    • High-Value Crops and Livestock Activities: To boost the income of farmers with small land holdings, the experts suggest enabling them to focus on high-value crops and livestock activities while supplementing their agricultural income with non-agricultural sources.
    • MSP Reforms: The Minimum Support Price (MSP) system should be designed to avoid market distortions. The paper proposes using a combination of procurement and price deficiency payment to pay MSP to farmers, linked to public distribution system needs, price stability, and strategic stocks.

    Earlier reforms: Three Farm Laws

    Reforms were passed in the form of three acts in 2020 (later repealed) which led to massive protests.

    1. Farmers’ Produce Trade and Commerce Act: This act aimed to promote and facilitate trade and commerce of farmers’ produce outside the physical boundaries of APMCs, allowing farmers to sell their produce in other markets and directly to buyers.
    2. Farmers Agreement on Price Assurance and Farm Services Act: This act empowered farmers to enter into agreements with buyers, ensuring a guaranteed price for their produce and access to various farm services.
    3. Essential Commodities Amendment Act: This amendment sought to remove restrictions on the movement and storage of essential commodities, promoting a more open market.

    Conclusion

    • Balancing Farmer Interests and Market Efficiency: While the reforms aim to create a more competitive and liberalized market, it is crucial to address farmers’ concerns and protect their interests.
    • Dialogue and Collaboration: To find common ground, constructive dialogue and collaboration between the government and farmers are essential in shaping the future of agricultural reforms.

  • Rajasthan minimum income Bill: provisions, what makes it unique

    income

    What’s the news?

    • Rajasthan government has introduced ‘The Rajasthan Minimum Guaranteed Income Bill, 2023’ in the Assembly, what is widely expected to be the last session before the State goes for polls in less than four months.

    Central Idea

    • Rajasthan Minimum Guaranteed Income Bill, 2023, aim at providing guaranteed wages or pensions to the entire adult population of the state. Social activists have reacted positively to the bill, highlighting its unique features and praising its focus on providing employment and pensions through legislation rather than cash transfer schemes.

    What is the Bill?

    • All families of the state get guaranteed employment of 125 days every year,
    • The aged, disabled, widows, and single women get a minimum pension of Rs 1,000 per month.
    • The pension will be increased each year at the rate of 15 per cent.
    • The Bill has three broad categories: right to minimum guaranteed income, right to guaranteed employment, and right to guaranteed social security pension.
    • The government anticipates an additional expenditure of Rs 2,500 crore per year for this scheme, which may increase with time

    Major provisions of the Bill

    1. Minimum guaranteed income:
    • Guaranteed minimum income for 125 days- each year – every adult citizen of Rajasthan.
    • Implemented through- Indira Gandhi Shahri Rozgar Guarantee Yojana for urban areas and MGNREGA for rural areas.
    • Supplement MGNREGA’s 100 days- additional 25 days of employment in rural regions.
    1. Guaranteed employment:
    • After completion of work- minimum wages should be paid on a weekly or fortnightly basis.
    • Implementation responsibility – through A program officer– ensures- job sites are located within a five-kilometer radius of the registered job card address in both urban and rural areas.
    • If the program officer fails to provide employment within 15 days of receiving an application- applicant will be entitled to a weekly unemployment allowance.
    1. Guaranteed social security pension:
    • Individuals falling into the categories- old age, specially-abled, widows, and single women with prescribed eligibility- entitled to a pension.
    • The pension amount will increase annually by 5% in July and 10% in January, beginning from the financial year 2024-2025.

    What is the Rationale behind the Bill?

    • The bill aligns with the principle of social justice and aims to provide support and security to the most vulnerable members of society.
    • Treating the most marginalized individuals with fairness and dignity.
    • “Mahatma Gandhi’s message that the true measure of a society lies in how it treats its most vulnerable members”
    • As part of a bouquet of schemes and measures undertaken by the government to provide relief from inflation
    • Provide a safety net and alleviate financial burdens on the most vulnerable sections of society.

    Criticism over the bill

    • The bill’s introduction close to the upcoming elections- politically motivated
    • Populist measure designed to appeal to voters
    • Financial feasibility of implementing the bill’s provisions- securing sustainable funding
    • Burden on the state’s finances in the long run.
    • Proper identification of beneficiaries, monitoring mechanisms, and ensuring efficient delivery of guaranteed income, employment, and pensions

    Conclusion

    • The Rajasthan Minimum Guaranteed Income Bill, 2023, is being seen as a pioneering step towards securing social security for all residents of the state. If implemented properly and efficiently the legislation will pave the way towards building a just and inclusive society, where the welfare of every citizen is a priority.

    Also read:

    A Social Security Board for Gig Workers: Rajasthan’s Pioneering Step

     

     

  • India- UAE Local Currency Settlement System (LCSS)

    uae dirham rupee india lcss local currency

    Central Idea

    • India and the United Arab Emirates (UAE) signed a pact during PM Modi’s visit to Abu Dhabi.
    • It established a framework for promoting the use of the Indian rupee (INR) and UAE Dirham (AED) in cross-border transactions.

    Local Currency Settlement System (LCSS)

    • LCSS Establishment: The framework aims to establish a Local Currency Settlement System (LCSS) between India and the UAE.
    • Domestic Currency Transactions: LCSS enables exporters and importers to invoice and pay in their respective domestic currencies.
    • Foreign Exchange Market Development: LCSS facilitates the development of an INR-AED foreign exchange market.
    • Transaction Optimization: The use of local currencies optimizes transaction costs and settlement time.
    • Remittance Benefits: LCSS benefits remittances from Indians residing in the UAE.

    Interlinking of Payment Systems: UPI-IPP Linkage

    • Payment System Linkage: The Memorandum of Understanding (MoU) includes the linking of India’s Unified Payments Interface (UPI) with the UAE’s Instant Payment Platform (IPP).
    • Card Switches and Messaging Systems: It explores linking the card switches (RuPay switch and UAESWITCH) and messaging systems of both countries.
    • Efficient Cross-Border Fund Transfers: UPI-IPP linkage facilitates fast, convenient, safe, and cost-effective cross-border fund transfers.
    • Mutual Acceptance of Domestic Cards: The agreement enables the mutual acceptance of domestic cards and processing of card transactions.

    Impact of the Move

    • Trade boost: Bilateral trade between India and the UAE reached around $85 billion in FY23.
    • Exchange Rate Risk Management: The agreement helps Indian exporters’ hedge exchange rate risks in rupee-based trade.
    • Internationalization of the Rupee: It supports India’s efforts to internationalize the rupee and reduce dependence on the US dollar.
    • Interest from Other Countries: Countries in Africa, the Gulf region, Sri Lanka, and Bangladesh have shown interest in trading in rupee terms.

    Significance for Exporters

    • Denominating in Local Currencies: Denominating export contracts and invoices in local currencies minimizes exchange-rate risks and aids in competitive pricing.
    • Enhanced Cooperation: Enhanced cooperation between the banking systems of India and the UAE supports trade and economic activity.
    • Major Export Categories: Major Indian exports to the UAE include mineral fuels, pearls, precious stones, electrical machinery, and equipment.
    • Trade Growth and Destination: The UAE is India’s second-largest export destination, and India-UAE trade reached $85 billion in 2022.

    Benefits for Remittances

    • Reduced Transaction Costs: The agreement reduces high transaction costs and exchange rate margins associated with remittances.
    • Affordable and Efficient Remittances: It makes remittances more affordable and efficient, particularly for low-wage earners.
    • Increased Remittance Inflows: In 2022, India experienced a 24.4% increase in remittances to $111 billion, accounting for 3.3% of GDP.
    • Contribution of GCC Countries: Remittance inflows from Gulf Cooperation Council (GCC) countries contribute significantly to India’s total remittance inflows.

    Larger Impact

    • Reducing Dollar Dependence: The agreement promotes the use of local currencies, reducing dependence on the US dollar in international transactions.
    • Strengthening Economic Ties: Strengthened economic ties between India and the UAE encourage investments, remittances, and trade growth.
    • Rupee Internationalization: The agreement aligns with India’s goal of internationalizing the rupee and expanding its global acceptance.
    • Similar Cross-Border Efforts: Similar efforts, such as collaboration with Singapore’s PayNow, have been undertaken to facilitate cross-border transactions.

    Conclusion

    • The agreement positively impacts bilateral trade, facilitates remittances, and supports India’s goal of internationalizing the rupee.
    • By reducing transaction costs and enhancing financial connectivity, the agreement strengthens economic relations between India and the UAE, fostering trade growth and cooperation.

  • India to launch Global Biofuel Alliance (GBA)

    biofuel

    Central Idea

    • The upcoming 14th Clean Energy Ministerial and Eighth Mission Innovation (CEM14/MI-8) conference, taking place in Goa from July 19-22, 2023, aims to establish the Global Biofuel Alliance (GBA).

    What are Biofuels?

     

    • Biofuels are a type of renewable energy derived from organic materials, such as plants, crops, and agricultural waste.
    • They are considered an alternative to traditional fossil fuels, such as coal, oil, and natural gas, because they areproduced from renewable biomass sources.

    There are several types of biofuels, including:

    1. Ethanol: It is a biofuel produced by fermenting and distilling sugars or starches found in crops like corn, sugarcane, and wheat. It is commonly used as a blending component in gasoline and can be used as a fuel for vehicles in its pure form, known as E85 (85% ethanol and 15% gasoline).
    2. Biodiesel: It is a renewable fuel made from vegetable oils, animal fats, or recycled cooking oils. It is typically used as a substitute for diesel fuel and can be blended with petroleum diesel or used in its pureform. Biodiesel has lower emissions of pollutants compared to petroleum diesel and can be used in conventional diesel engines without any modifications.
    3. Biogas: It is produced through the anaerobic digestion of organic waste materials such as agricultural residues, food waste, and animal manure. It primarily consists of methane and carbon dioxide. Biogas can be used for heating, electricity generation, or as a vehicle fuel after purification.

    What is Global Biofuel Alliance (GBA)?

    • G20 Priority: The GBA is a crucial priority under India’s G20 Presidency.
    • Learning from ISA: The GBA draws inspiration from the International Solar Alliance (ISA), jointly initiated by India and France in 2015 to combat climate change through solar energy adoption.
    • Objective: This alliance will focus on promoting international collaboration and cooperation to encourage the acceptance and utilization of biofuels.
    • Core Members: The GBA, comprising Brazil, the US, and India, aims to impact the global energy architecture and achieve net-zero emissions.
    • Membership and Endorsement: Other nations can join the GBA by endorsing the foundation document, and membership is open to non-G20 countries.

    Focus Areas of GBA

    • Focus areas of the GBA include:
    1. The GBA will focus on strengthening markets and facilitating global biofuel trade.
    2. Concrete policy lessons will be shared, and technical support will be provided for national biofuel programs worldwide.
    3. The alliance will highlight successful cases and best practices in the biofuel industry.

    Significance of GBA

    • Addressing OPEC+: The initiative signals India’s focus on reducing dependence on conventional hydrocarbons and calls for increased production by the OPEC+
    • Transformative Opportunities: GBA offer transformative opportunities for economic growth, rural development, energy self-sufficiency, reduced air pollution, and clean energy transition.
    • Adoption of Sustainable Biofuels: The alliance aims to accelerate the adoption of sustainable biofuels.

    India’s Biofuel Achievements

    • Milestone Achieved: In the fiscal year 2020-21, India produced 4.08 billion litres of ethanol, achieving a blending rate of 10.02% and resulting in a reduction of 2.7 million tonnes of CO2 emissions.
    • Goals and Targets: India aims to achieve a blending rate of 12% by 2022-23 and a goal of 20% blending by 2025, requiring an expanded production capacity of ethanol to 17 billion litres.
    • Focus on Compressed Bio-Gas (CBG): India actively promotes compressed bio-gas (CBG) derived from waste through the Sustainable Alternative towards Affordable Transportation (SATAT) program.
    • Target Deadline: India aims to install 5,000 CBG plants across the country by 2024.

    Biofuel Advancements in Aviation

    • First Commercial Passenger Flight: India conducted its first commercial passenger flight using sustainable aviation fuel (SAF) blend produced domestically.
    • Program Committee Established: The Bio-Aviation Turbine Fuel Programme Committee has been established to advance the use of SAF in the aviation sector.
    • Blending Targets: India aims to achieve a 1% SAF blend in jet fuel by 2025, requiring 140 million liters of SAF per year, and a more ambitious target of a 5% blend would need approximately 700 million liters per year.

    Global response

    • Brazil’s Support: Brazil expressed support for the GBA and its goals to expand and strengthen sustainable biofuels markets.
    • Saudi Arabia’s Focus: Saudi, a major oil producer, has a focus on conventional hydrocarbons and has not favored the GBA.
    • Russia’s Opec+ Involvement: Russia, as part of the Opec+ group, has been implementing production cuts despite fragile global economic recovery.
    • China’s Opposition: China, a major biofuel producer, opposed the India-led initiative and boycotted a G20 meeting on tourism held in Srinagar.

    Conclusion

    • The establishment of GBA represents a significant step towards promoting international collaboration and the adoption of sustainable biofuels.
    • India’s achievements in biofuel production and advancements in aviation fuel provide a strong foundation for the alliance’s objectives.

  • A roadmap to eliminate poverty in India

    What’s the news?

    • With the receding impact of Covid-19 and hopeful prospects for an amicable resolution to the Russia-Ukraine War, India must now focus on charting its future growth strategy

    Central idea

    • India’s current per capita income estimated at $2,379 in 2022-23, which needs to be raised by nearly six times over the next 25 years. This ambitious goal will pave the way for a higher standard of living and the eradication of poverty. However, achieving this vision requires a comprehensive understanding of the challenges ahead and the necessary actions to overcome them.

    What is per capita income?

    • Per capita income refers to the average income earned by individuals in a specific geographic area. It is calculated by dividing the total income of a population by the total number of individuals in that population.
    • Per capita income provides an indicator of the average standard of living and economic well-being within a given population.

    What is Gross Fixed Capital Formation (GFCF)?

    • GFCF refers to the total value of investment in fixed assets within an economy, such as machinery, equipment, buildings, and infrastructure, during a specific period.
    • It represents the net increase in the stock of fixed capital goods.
    • GFCF is an essential component of aggregate demand and is considered a driver of economic growth.
    • Higher levels of investment in fixed assets contribute to increased production capacity, improved productivity, and long-term economic development.
    • The GFCF ratio is often expressed as a percentage of GDP, indicating the proportion of total investment in fixed assets relative to the size of the economy.

    What is incremental capital-output ratio (ICOR)?

    • The ICOR is an economic indicator that measures- amount of investment required to generate an additional unit of output.
    • It represents the ratio between the change in capital investment and the corresponding change in output or GDP.
    • It provides insights into the efficiency of capital utilization and the productivity of investment in an economy.
    • A lower ICOR indicates that a smaller amount of investment is required to generate a given increase in output, indicating higher efficiency and productivity of capital.
    • A higher ICOR suggests that a larger amount of investment is needed to achieve the same level of output growth, indicating lower efficiency of capital utilization.

    Growth Target and Investment Requirements

    • To sustain continuous growth of 7 percent over the next 25 years, India must maintain a GFCF rate of 28 percent.
    • According to the latest release of NSO, the GFCF rate in current prices for 2022-23 is 29.2 per cent of GDP.
    • While the commonly assumed incremental capital-output ratio (ICOR) of 4 suggests improved capital efficiency, recent trends indicate an average ICOR of 4.65 from 2016-17 to 2022-23.
    • Acknowledge the evolving ICOR and work towards an estimated investment rate of 30-32 percent of GDP.
    • Both public and private investments, especially from the corporate and non-corporate sectors, need to increase.
    • Direct investments into sectors that promote growth and generate employment opportunities
    • Welcoming Foreign direct investment in emerging technological sectors

    What global factors at present poses challenges?

    • The overall climate for peace– necessary for growth– deteriorated- Ukraine-Russia conflict.
    • Prolonged tension and conflicts- negative impact on global stability and economic growth.
    • Shifting attitude of some countries towards global trade.
    • Developed countries, which previously advocated for free trade, are now imposing restrictions on imports– challenges for developing countries like India, particularly as they strive to compete in the world market.
    • Supply disruptions of critical imports, such as oil, can cause setbacks for developing and developed countries alike.
    • The absorption of new technologies, such as Artificial Intelligence (AI)- impact on the industrial structure and employment landscape– challenge for populous countries like India
    • Balancing economic growth with environmental sustainability may require compromises and adjustments in the growth rate.

    What strategy India must follow to sustain its growth?

    • India’s economic transformation in 1991 marked a departure from the past, embracing a more market-oriented approach.
    • India needs to adopt a multi-dimensional approach that encompasses agriculture, manufacturing, and exports.
    • Given India’s strength in the services sector, it is essential to preserve and enhance this advantage.
    • Prepare to absorb new technologies, including Artificial Intelligence (AI),
    • Reorienting the educational system to equip students with required skills and
    • Identifying labour-intensive economic activities to address potential job losses due to adoption of technology

    Conclusion

    • India has made significant strides in building a strong and diversified economy over the past 75 years. However, India’s per capita income remains low compared to many countries, emphasizing the need for sustained growth. By addressing domestic challenges, seizing opportunities, and prioritizing inclusive development, India can realize its vision of a prosperous and equitable future.

    Also read:

    Why Indian manufacturing’s productivity growth is plummeting and what can be done?

  • Private Digital Currencies

    Digital

    What is the news?

    • The emergence of Private digital currencies presents a challenge to central banks’ control and can disrupt the established order by introducing new dynamics and possibilities.

    Central idea

    • The control over money supply, circulation, and value holds significant influence over economic systems and national trajectories. Governments and central banks play a crucial role in managing currency, shaping economic policies, and ensuring macroeconomic stability. However, the rise of private digital currencies introduces new dynamics and challenges to this control, potentially disrupting the established order.

    What are Private digital currencies?

    • Private digital currencies, also known as cryptocurrencies, are digital or virtual currencies that utilize cryptographic technology to secure transactions and control the creation of new units.
    • They operate independently of traditional financial institutions and are typically decentralized, meaning they are not controlled or regulated by a central authority like a government or central bank.
    • Some of the most well-known private digital currencies include Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and Litecoin (LTC)

    What are stable coins?

    • Stablecoins are a type of cryptocurrency that are designed to maintain a stable value relative to a specific asset or a basket of assets.
    • Unlike many other cryptocurrencies that experience significant price volatility, stablecoins aim to provide stability and minimize price fluctuations.
    • They achieve this stability by pegging their value to an underlying asset, such as a fiat currency (like the U.S. dollar), commodities (like gold), or a combination of assets.

    What is mean by monetary sovereignty?

    • Monetary sovereignty is the country’s ability to exercise control over its own currency and monetary policy without external interference.
    • It is the authority of a nation’s government and central bank to determine and manage the value, supply, and circulation of its currency, as well as to shape and implement monetary policies that promote economic stability and growth.

    Challenges posed by Private digital currencies to monetary sovereignty

    • Private digital currencies- utilizes blockchain technology– bypasses the need for central intermediaries like banks and central banks
    • Alternative systems of value transfer- peer-to-peer transactions – diminish the relevance of banks and other financial institutions.
    • Operate outside the regulatory frameworks– challenges in terms of enforcing financial regulations- Anti Money Laundering and KYC requirements, which are designed to prevent illicit activities.
    • The volatility and speculative nature– risks to financial stability.
    • Sharp price fluctuations and market instability- adverse effects on investors, consumers, and the broader economy- particularly developing economies– less robust financial systems.
    • Facilitate illicit activities- money laundering, tax evasion, and terrorist financing

    Case study 1: Myanmar’s digital dynamics of power

    • In Myanmar, the National Union Government (NUG) has utilized- cryptocurrency to – circumvent the military controlled economy- raise funds for the resistance.
    • The NUG issued- Digital Myanmar Kyat (DMMK) -evade military oversight-independent determination of exchange rates.
    • The DMMK- cross-border payments – easier to collect donations from diaspora communities.
    • Serves as- means of fundraising- challenges the legitimacy of the military-issued kyat.
    • The split financial system in Myanmar highlights the risks and consequences of digital currencies on sovereign legitimacy.

    Case study 2: China’s Cautious Monetary Security Approach

    • Contrasting views on cryptocurrencies and central bank digital currencies (CBDCs)
    • Cryptocurrencies- strict restrictions- not recognized as legal tender
    • Actively promotes its digital yuan- internationalize the currency- reduce reliance on US-controlled financial networks.
    • Acknowledges the potential of digital money to reshape the financial ecosystem and sees it as a catalyst for global monetary decentralization.
    • China’s comprehensive ban- cryptocurrencies- commitment to safeguard monetary sovereignty.

    Case study 3: India’s apprehensions

    • The Reserve Bank of India (RBI) has underscored the need for decisive actions to address the escalating risks associated with the crypto-assets ecosystem.
    • The primary concern- risks associated with stablecoins– susceptible to potential risks of redemptions and investor panics- necessitating careful mitigation measures.
    • The RBI has further cautioned- private currencies, emphasising their historical propensity to generate instability– undermine sovereign control over money supply, interest rates, and macroeconomic stability- especially in developing economies.
    • India’s own CBDC- Digital Rupee- perceived as a strategic response- counter the challenges- crypto-assets ecosystem.

    Way forward

    • Clear and comprehensive regulatory frameworks for private digital currencies- address consumer protection, investor safeguards, financial integrity, and risk management.
    • International coordination and collaboration- engage in dialogue- information sharing- standardization efforts
    • Continue exploring the potential of CBDCs as regulated digital currency alternatives
    • Public education and awareness-building trust- benefits and risks- foster responsible usag
    • Invest in research and development- development of solutions- enhance financial systems- increase efficiency.

    Conclusion

    • Private digital currencies present both opportunities and challenges to monetary sovereignty. The examples of Myanmar, China, and India demonstrate the complex interplay between currency control, legitimacy, and trust. As the world navigates the development of digital currencies, the balance between innovation and maintaining sovereign control will continue to shape the future of monetary systems

    Also read:

    India’s Central bank digital currency (CBDC) in detail

  • Cash Transfers vs Foodgrain Distribution

    Central idea

    • Three years ago, financial constraints prevented the Centre and states from providing cash transfers to vulnerable households during pandemic lockdowns. However, there was an abundance of wheat and rice in FCI’s warehouses, allowing distribution to 813.5 million people. However, the current scenario has reversed, with governments having funds but limited grain stocks, raising concerns for future provisions.

    Grain Distribution and Export Scenario

    Grain Distribution:

    • During the pandemic-enforced lockdowns the government distributed 10 kg of grain per month practically free to 813.5 million people from April 2020 to December 2022.
    • This distribution was made possible through the public distribution system (PDS) and aimed to support poor and vulnerable households suffering from job and income losses.

    Offtake of Grains:

    • 2020-21 (April-March): The offtake of wheat and rice totalled 92.9 million tonnes, surpassing the annual average of 62.5 million tonnes during the first seven years after the National Food Security Act (NFSA) implementation.
    • 2021-22: The offtake further increased to 105.6 million tonnes.
    • 2022-23: The offtake remained high at 92.7 million tonnes.

    Grain Exports:

    • Rice: In 2021-22, India exported 21.2 million tonnes of rice, valued at $9.66 billion. In 2022-23, rice exports reached 22.3 million tonnes, valued at $11.14 billion.
    • Wheat: Wheat exports accounted for 7.2 million tonnes ($2.12 billion) in 2021-22 and 4.7 million tonnes ($1.52 billion) in 2022-23

    Karnataka Case: Shift from Grain to Cash Transfers

    • Change in Financial Situation: As economic activities resumed, the financial situation improved for both the Centre and the states. Gross GST revenues grew, indicating increased financial resources available to the governments.
    • Reduction in Grain Quota: From January 2023, the monthly grain quota under the National Food Security Act (NFSA) was reduced from 10 kg to 5 kg per person.
    • Additional grain demand: The government in Karnataka sought additional grain from the FCI to fulfill its election promise of providing 10 kg of free rice per month to all members of below-poverty-line (BPL) households.
    • Centre’s Refusal: The Centre did not allow the state government to distribute the extra rice beyond the 5 kg provided under the National Food Security Act (NFSA)
    • Resort to Cash Transfers: As a result the Karnataka government started giving cash transfers instead. They started transferring Rs 170 to the bank accounts of the BPL family heads in lieu of the extra 5 kg of rice

    Implications of cash transfers 

    • Inflationary Pressures:
    • When households receive cash instead of free grain, they have the flexibility to use the money for various purposes, including purchasing rice or other goods.
    • Increased demand for rice in the market can lead to higher prices, potentially contributing to inflationary pressures.
    • Deflationary Impact of Free Grain Distribution:
    • When surplus grains are distributed without a monetary transaction, it can help stabilize or reduce the prices of grains in the market.
    • This can mitigate inflationary pressures and ensure affordable access to essential food items for vulnerable populations.
    • Budgetary Considerations:
    • This allocation needs to be carefully managed to ensure that it aligns with overall fiscal goals and priorities.
    • The availability of adequate financial resources for cash transfers can be a determining factor in choosing between cash transfers and free grain distribution.
    • Flexibility for Beneficiaries:
    • Instead of receiving a predetermined amount of grain, households can decide how to allocate the cash according to their priorities.
    • This flexibility allows households to address their unique requirements beyond food, such as healthcare, education, or other essential expenses.
    • Market Dynamics:
    • Cash transfers can stimulate economic activity by injecting money into local markets. This can have positive multiplier effects, benefiting various sectors and local businesses.
    • On the other hand, free grain distribution may limit the market demand for grains, potentially affecting the livelihoods of farmers and traders.

    Depleted grain stocks and uncertain monsoon

    • Depleted Grain Stocks:
    • The total stocks of wheat and rice in the Central pool today stands at a five-year-low.
    • While these stocks are still above the normative minimum required, there are concerns about the monsoon and its impact on this year’s rice crop, which may affect procurement and future stocks.
    • Monsoon Impact on Production:
    • The poorly distributed rain has resulted in lower-than-usual rice cultivation, with farmers having planted only 123.18 lakh hectares out of the normal total of 399.45 lakh hectares under rice during the monsoon season. Additionally, the cumulative area sown is 6.1% lower than the previous year.
    • Insufficient rainfall in the monsoon’s second half can impact not only the kharif rice but also the upcoming rabi wheat crop.

    The Export conundrum

    • Record Export Quantities: Despite the imposition of restrictions on grain exports, India witnessed record-breaking exports of rice, wheat, and other cereals. Specifically, total exports amounted to 32.3 million tonnes in 2021-22 and 30.7 million tonnes in 2022-23, valued at $12.87 billion and $13.86 billion, respectively.
    • Inflationary Pressures:  The rising demand for rice, coupled with reduced domestic availability due to exports, can lead to higher prices for consumers within the country.
    • Limited Import Capability for Rice: As India is the world’s largest rice exporter, importing rice in case of domestic production shortfalls becomes challenging. Unlike wheat, which can be imported due to ample global supplies, rice imports are restricted.
    • Price Volatility and Potential Export Restrictions: The rising rice prices globally, indicating potential price volatility. Given concerns over depleted grain stocks and uncertainties related to the monsoon, the government is considering additional export restrictions.

    Way forward: A balanced approach

    • Targeted Cash Transfers: Implement focused cash transfer programs to support the most vulnerable households affected by economic hardships.
    • Optimal Grain Procurement: Strengthen grain procurement mechanisms to ensure an adequate supply of grains for the Public Distribution System (PDS) and strategic reserves.
    • Strategic Stock Management: Develop effective strategies to balance grain distribution for immediate consumption while maintaining sufficient reserves for emergencies.
    • Diversify Food Sources: Explore diverse food options, such as millets, pulses, and vegetables, to reduce reliance on a single crop and enhance food and nutritional diversity.
    • Enhance Food System Resilience: Improve supply chain efficiency, reduce food waste, and enhance coordination among stakeholders for a resilient food system.
    • Continuous Monitoring and Evaluation: Establish robust monitoring and evaluation systems to track the effectiveness of cash transfer programs, grain procurement strategies, and food security initiatives.

    Conclusion

    • The current state of depleted grain stocks, coupled with the uncertainties surrounding monsoon performance and global market dynamics, presents a significant challenge for the government. Balancing the need for cash transfers to alleviate the plight of vulnerable households while ensuring adequate grain reserves to sustain the country’s food security is a delicate task.