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Subject: Economics

  • A macro view of the fiscal health of States

    Central Idea

    • In India, the States play a crucial role in revenue mobilization, government expenditure, and borrowing. Understanding their fiscal situation is essential for drawing evidence-based conclusions about the country’s overall fiscal health.

    Relevance of the topic

    Despite the decrease in fiscal deficits, it remains important to address the challenges associated with fiscal imbalances, including persistence of revenue deficits in many States

    Revise key concepts Fiscal deficit, revenue deficit, Debt-to-GDP ratio etc

    Fiscal imbalance and its impact on an economy and thereby social welfare.

    The fiscal imbalance at present

    1. Reduction in Fiscal Deficit:
    • There has been a significant reduction in fiscal deficits at both the Union and State levels. The Union’s fiscal deficit decreased from 9.1% of GDP in 2020-21 to 5.9% in 2023-24 (BE).
    • The aggregate State fiscal deficit also decreased from 4.1% of GDP in 2020-21 to 3.24% in 2022-23 (RE).
    • Major States are expected to achieve a fiscal deficit of 2.9% of GDP in 2023-24 (BE).
    1. Revenue Deficit Challenge:
    • Despite the reduction in fiscal deficits, there is persistence of revenue deficits in many States.
    • Out of the 17 major States analyzed, 13 have a deficit in the revenue account for the fiscal year 2023-24 (BE).
    • Seven States, namely Andhra Pradesh, Haryana, Kerala, Punjab, Rajasthan, Tamil Nadu, and West Bengal, experience fiscal deficits primarily driven by revenue deficits.
    1. High Debt-to-GSDP Ratios: Some of the States with revenue deficits also have high debt-to-GSDP ratios. This indicates that these States have accumulated significant levels of debt relative to their Gross State Domestic Product (GSDP).

    The Impact of fiscal imbalance on an Economy

    • Macroeconomic Instability: Fiscal imbalances, such as high fiscal deficits and revenue deficits, can lead to macroeconomic instability. Large deficits may increase government borrowing, which can put upward pressure on interest rates, crowd out private investment, and potentially lead to inflationary pressures. This instability can hinder economic growth and create uncertainty in the business environment.
    • Increased Debt Burden: Persistent fiscal imbalances often result in increased government debt levels. High levels of public debt can have adverse consequences, including increased debt servicing costs, reduced fiscal flexibility, and potential credit rating downgrades. A higher debt burden can also limit the government’s ability to invest in critical areas such as infrastructure, education, and healthcare.
    • Reduced Public Investments: Fiscal imbalances may necessitate fiscal consolidation measures, such as expenditure cuts and reduced public investments. This can impact critical areas of public spending, including infrastructure development, social welfare programs, and public services. Reduced investments can hinder long-term economic growth and development.
    • Limited Policy Space: Fiscal imbalances can limit the government’s ability to implement countercyclical fiscal policies during economic downturns. A high debt burden or constrained fiscal capacity may prevent the government from effectively using fiscal stimulus measures to boost aggregate demand and support economic recovery.
    • Pressure on Social Welfare: Fiscal imbalances may lead to reductions in social welfare programs and public services. Austerity measures implemented to address fiscal imbalances can disproportionately affect vulnerable populations and hinder efforts to address income inequality and social welfare needs.
    • Investor Confidence and Credit Ratings: Persistent fiscal imbalances can erode investor confidence and negatively impact the country’s credit ratings. A lower credit rating can increase borrowing costs, discourage foreign investment, and limit access to international capital markets.
    • Inter-Generational Equity: Fiscal imbalances, particularly when driven by high levels of public debt, can have inter-generational equity implications. The burden of repaying debt and managing fiscal imbalances may fall on future generations, impacting their ability to invest, save, and achieve sustainable economic growth.

    Reducing Revenue deficit: Way forward

    • Link Interest-Free Loans to Revenue Deficit Reduction: Implement a mechanism where interest-free loans provided by the Union Government to States are linked to a reduction in revenue deficits. This incentivizes States to prioritize revenue generation and reduce reliance on borrowed funds for revenue expenditure.
    • Defined Time Path for Revenue Deficit Reduction: Establish a clear timeline and targets for reducing revenue deficits in States. This includes setting specific goals for revenue deficit reduction and developing a credible fiscal adjustment plan to achieve those targets.
    • Performance Incentive Grants: Introduce performance incentive grants to reward States that effectively reduce their revenue deficits. The grants can be designed based on the recommendations of previous Finance Commissions, considering factors such as the extent of deficit reduction, fiscal discipline, and efficient revenue management.
    • Fiscal Adjustment and Expenditure Rationalization: Encourage States to undertake fiscal adjustment measures to align revenue and expenditure. This involves conducting a detailed analysis of expenditure patterns, prioritizing essential spending, and identifying areas for rationalization and efficiency gains.
    • Strengthen Revenue Mobilization: Enhance efforts to improve revenue mobilization by implementing measures such as broadening the tax base, improving tax administration and compliance, and exploring new revenue sources. This includes ensuring effective collection of Goods and Services Tax (GST) and non-GST revenues.
    • Public Financial Management Reforms: Strengthen public financial management systems to enhance transparency, accountability, and efficient utilization of resources. This includes improving budgeting processes, expenditure tracking, and financial reporting mechanisms to monitor and control revenue and expenditure.
    • Long-Term Revenue Planning: Develop a comprehensive long-term revenue plan that aligns with the country’s development goals. This involves forecasting revenue trends, identifying potential revenue sources, and implementing policies that support sustainable revenue generation over the long term.
    • Capacity Building: Invest in building the capacity of State governments in revenue management, tax administration, and expenditure control. This includes providing training and technical assistance to enhance their skills and capabilities in managing revenue deficits effectively.
    • Public Awareness and Participation: Conduct public awareness campaigns to educate citizens about the importance of revenue generation, fiscal discipline, and the impact of revenue deficits on public services. Foster public participation in budgeting processes to promote transparency and accountability.
    • Regular Monitoring and Reporting: Establish a robust monitoring and reporting mechanism to track the progress of revenue deficit reduction efforts. Regularly assess and report the performance of States in revenue mobilization and deficit reduction to ensure accountability and facilitate necessary corrective actions.

    Prelims mark enhancerDeficit Financing in India | Financing | EconomicsDebt to GDP Ratio - What Is It, Formula & Calculation

    Conclusion

    • Effectively managing revenue deficits is crucial for achieving fiscal balance and sustainable economic growth. By adopting a macro view and implementing appropriate measures and incentives, India can consolidate revenue deficits in its States. This would ensure fiscal stability, stimulate State-specific growth, and maintain macroeconomic stability at the national level

  • GIFT NIFTY: Connecting India and Singapore’s Capital Markets

    gift

    Central Idea

    • GIFT NIFTY (formerly known as SGX NIFTY) commenced trading from GIFT City in Gujarat, marking the first cross-border initiative between India and Singapore’s capital markets.
    • The trading session witnessed over 30,000 trades, signifying the growing significance of this collaboration.

    What is GIFT NIFTY?

    • The migration to GIFT NIFTY was initiated by PM Modi in July 2022.
    • GIFT NIFTY plays a crucial role in expanding GIFT IFSC’s reach to foreign investors and enhancing the capital market ecosystem in GIFT City.
    • The collaboration between SGX and NSE strengthens the connection between two rapidly growing economies.
    • NSE IX is restricted from entering similar arrangements with other exchanges, providing stability to the partnership.
    • The initial five-year contract can be extended for an additional two years.

    Operating time

    • GIFT NIFTY establishes a trading link where trading and matching take place in India, while clearing and settlement occur in Singapore.
    • It operates from 6:30 am to 3:40 pm in the Asia time zone.
    • The second session, from 4:35 pm to 2:45 am (next day), targets investors from the United States and Europe.

    Deal between SGX and NSE

    • Revenue sharing: The five-year contract establishes a 50:50 revenue-sharing arrangement between Singapore Exchange (SGX) and NSE International Exchange (NSE IX).
    • Initial revenue split: For Singapore-generated business, SGX will receive 75% of the revenue, while NSE will receive the remaining 25%.
    • IFSC business: NSE will retain 75% of the International Financial Service Centre (IFSC) business, with the remaining 25% going to SGX.
    • Future volume-based sharing: Once a “threshold volume” is reached, the revenue sharing will be equally split between both entities.

    Shift to GIFT NIFTY

    • Ceasing SGX NIFTY: On June 30, trading on SGX NIFTY in Singapore ended, with the entire trading volume and liquidity transitioning to GIFT IFSC.
    • Rechristened GIFT NIFTY: The trading platform was renamed GIFT NIFTY, offering four products: GIFT Nifty 50, GIFT Nifty Bank, GIFT Nifty Financial Services, and GIFT Nifty IT derivatives contracts.

    Back2Basics: GIFT City, Gandhinagar

    • GIFT city is India’s first operational smart city and international financial services centre (much like a modern IT park).
    • The idea for GIFT was conceived during the Vibrant Gujarat Global Investor Summit 2007.
    • The initial planning was done by East China Architectural Design & Research Institute (ECADI).
    • Currently approximately 225 units/companies are operational with more than 12000 professionals employed in the City.

    Key features

    • The entire city is based on the concept of FTTX (Fibre to the home/office).
    • The fiber optic is laid in fault-tolerant ring architecture so as to ensure maximum uptime of services.
    • Every building in GIFT City is an intelligent building.
    • There is piped supply of cooking gas. India’s first city-level DCS (district cooling system) is also operational at GIFT City.

     

  • Greedflation and its Counter Arguments

    greedflation

    Central Idea: Greedflation

    • The concept of “Greedflation” has emerged, suggesting that corporate greed for higher profits is a significant cause of the high inflation experienced in the United States since the pandemic.
    • Proponents of this theory argue that increased corporate profit margins have contributed to rising prices.
    • However, many economists question the validity of this narrative and offer alternative explanations for inflation.

    Inflation and Business Pricing

    • Pricing Dynamics: Businesses set prices based on consumer willingness to pay, aiming to maximize profits.
    • Consumer Influence: Consumers ultimately determine the market price through their buying decisions.
    • Market Competition: Businesses unable to sell products at high prices must lower prices to clear their stock.

    Inflation as a Macro-Level Phenomenon

    • Widespread Price Rise: Inflation refers to a general increase in the price level across the economy.
    • Corporate Influence on Prices: Corporations can impact overall prices by reducing supply, but there is no evidence of deliberate output reduction.
    • Monetary Policy and Inflation: The expansionary monetary policy of the U.S. Federal Reserve, combined with supply-chain disruptions, explains recent inflation.

    Rising Corporate Profit Margins

    • Rising Costs vs. Consumer Prices: Input costs have risen faster than consumer goods prices, leading to unexpected profit margin growth.
    • Corporate Profits vs. Wider Economy: Large corporations may have benefited from smaller business closures during the pandemic, but they represent a small portion of the overall economy.
    • Profit Margins and Inflation: Rising profit margins do not directly cause high inflation; prices are determined by buyers, not sellers.

    Critique of “Greedflation” as Cost-Push Inflation

    • Cost-Push Inflation Comparison: Greedflation is likened to cost-push inflation theories that attribute price increases to rising input costs.
    • Consumer Influence on Costs: The cost of inputs is indirectly determined by consumers through competitive bidding in the market.

    Conclusion

    • The notion of greedflation, attributing high inflation to corporate greed, lacks support from economists who emphasize the influence of consumer behaviour and macroeconomic factors.
    • While rising profit margins of corporations may indicate market dominance, they do not directly drive inflation.
    • Instead, factors such as monetary policy and supply disruptions better explain the recent inflationary pressures experienced in the United States.

  • What the Indian economy needs to complete with China

    Central Idea

    • The Indian economy has reached a milestone, surpassing $3.5 trillion in size, reminiscent of China’s position in 2007. While India shows similarities with China, such as comparable per capita income, the two countries diverge significantly in their growth drivers. This divergence has implications for India’s growth trajectory and its ability to achieve upper middle-income status.

    Relevance of the topic

    India lags behind China on multiple fronts such as investment ratios, export performance, labor force participation, and manufacturing employment. For instance, Female Labor Force Participation of China is 61% (2022) whereas in India it stands at 24% (2022).

    The stark disparities provide valuable insights to analyze and propose strategies for India’s future development in areas like investment promotion, export competitiveness, and inclusive growth.

    India’s positive growth

    • Economic Size: The Indian economy has recently crossed $3.5 trillion in size, according to Moody’s. This indicates a significant expansion of the economy and reflects positive growth.
    • Per Capita Income: India’s per capita income is projected to rise from $2,379 in 2022 to $2,601 in 2023, as estimated by the International Monetary Fund (IMF). This upward trend indicates an improvement in individual income levels and suggests positive growth in the economy.
    • Exports: India’s exports of goods and services exceeded $770 billion in 2022-23. This demonstrates the country’s ability to compete in the global market and generate revenue through international trade.
    • Investment Momentum: While India’s investment ratio has been lower than China’s, there are signs of activity picking up in certain sectors after a slowdown induced by the twin balance sheet problem. This indicates positive momentum in investment and the potential for future growth.
    • Services Sector: India has witnessed a growth in the services sector, particularly in areas such as IT and business process outsourcing (BPO). The expansion of the services sector contributes to economic growth and job creation.
    • Increase in Formal Manufacturing: India aims to boost formal manufacturing, which has higher productivity compared to other sectors. The focus on manufacturing can lead to increased employment opportunities and overall economic growth.
    • Rise in Female Labor Force Participation: Although India’s female labor force participation rate remains lower than China’s, there have been efforts to increase women’s participation in the workforce. This can contribute to enhanced productivity, economic empowerment, and overall growth

    Comparison: India’s economic position with China

    Aspect China (2007) India (2023)
    GDP Size Comparable to India $3.5 trillion
    Per Capita Income $2,694 $2,601 (estimated)
    Investment-to-GDP Ratio Average 40% Average around 33%
    Exports $1.2 trillion (goods) $770 billion (goods and services)
    Tariff Rate 10.69% (2003) to 5.32% (2020) 25.63% (2003) to 8.88% (2017)
    Labor Force Participation Rate Almost 73% Estimated around 50% (2022)
    Female Labor Force Participation 66% (2007) to 61% (2022) 30% (2007) to 24% (2022)
    Passenger Car Sales 6.3 million 3.8 million
    Manufacturing Productivity Twice as productive as transport Less productive than industry and construction

    The disparities between India and China

    • Investment Ratio: China’s investment-to-GDP ratio averaged 40% between 2003 and 2011, while India’s investment ratio during the same period averaged around 33%. This indicates that China had a higher level of investment, which contributed to its rapid economic growth.
    • Export Performance: In 2022-23, India’s exports of goods and services surpassed $770 billion, while China’s exports had already crossed $1.2 trillion in 2007. China’s deeper integration with the global economy and higher export volumes indicate a more robust export-driven growth model compared to India.
    • Tariff Rates: China experienced a decline in tariff rates, with the simple mean falling from 10.69% in 2003 to 5.32% in 2020. In contrast, India’s tariff rate decreased from 25.63% in 2003 to 8.88% in 2017 but has risen thereafter. China’s lower tariff rates have facilitated its emergence as a global supply chain hub.
    • Labor Force Participation: China had a considerably higher labor force participation rate, with almost 73% in 2007, while India’s rate stood at around 50% in 2022. The disparity, primarily driven by female labor force participation, impacts spending capacity and economic growth potential.
    • Sectoral Employment: Both countries have similar sectoral distribution, but China experienced a faster decline in agricultural employment compared to India. India’s challenge lies in finding alternative employment opportunities for its declining agricultural workforce, with the construction and service sectors historically providing more jobs than formal manufacturing.

    Implications of these disparities for future development of India

    • Growth Trajectory: The disparities in investment ratios indicate that India may face challenges in achieving rapid economic growth and reaching its developmental goals without increasing investment levels.
    • Export Competitiveness: The disparities in export performance suggest that India needs to enhance its global competitiveness to expand its export base and capitalize on international trade opportunities.
    • Job Creation: The disparities in labor force participation rates, particularly the low female participation rate, have implications for employment generation and inclusive growth in India.
    • Sectoral Shift: The slower decline in agricultural employment compared to other sectors raises concerns about the need for alternative employment opportunities for the declining agricultural workforce
    • Investment Climate: The disparities in investment ratios underscore the importance of creating a favourable investment climate in India to attract domestic and foreign investments necessary for sustained economic growth.

    Lessons learned from China

    • Emphasis on Investment: China’s high investment-to-GDP ratio played a crucial role in its rapid economic growth. India can benefit from prioritizing investments in infrastructure, industries, and human capital development to drive economic expansion and productivity.
    • Export-Led Growth: China’s success in becoming a global manufacturing and exporting powerhouse highlights the importance of export-led growth. India can focus on enhancing its export competitiveness, diversifying export markets, and promoting value-added exports to boost economic growth and job creation.
    • Trade Liberalization: China’s gradual reduction of tariffs and its efforts to integrate into global supply chains helped it become a major player in international trade. India can learn from this and work towards reducing trade barriers, improving trade infrastructure, and actively participating in regional and global trade agreements to enhance its integration into the global economy.
    • Manufacturing Development: China’s strategic focus on developing its manufacturing sector contributed significantly to its economic growth and job creation. India can prioritize the growth of formal manufacturing, foster a business-friendly environment, and provide targeted support to enhance manufacturing capabilities and competitiveness.
    • Infrastructure Development: China’s investments in infrastructure, such as transportation networks, energy systems, and telecommunications, played a vital role in supporting its economic growth. India can invest in modernizing and expanding its infrastructure to create a solid foundation for economic development and attract further investments.
    • Human Capital Development: China’s emphasis on education, skills training, and research and development (R&D) has contributed to its technological advancement and innovation capabilities. India can focus on improving the quality of education, enhancing vocational training programs, and promoting research and development to nurture a skilled workforce and foster innovation.
    • Long-Term Planning: China’s long-term development plans, such as its Five-Year Plans, provided a roadmap for sustained economic growth and policy continuity. India can develop comprehensive and strategic plans that align with its development goals and ensure consistent implementation of economic policies.
    • Infrastructure for Special Economic Zones (SEZs): China’s establishment of SEZs played a pivotal role in attracting foreign direct investment and promoting export-oriented manufacturing. India can learn from this model and develop specialized zones with the necessary infrastructure, incentives, and supportive policies to attract investments and promote targeted sectors.

    Conclusion

    • In the coming years, India’s growth may continue at a moderate pace, even if low- and semi-skilled job creation in manufacturing falls short. However, achieving the explosive growth witnessed by China between 2007 and 2021 would require increased investment activity, a resurgence in exports (particularly goods), a rise in female labor force participation, and greater employment opportunities in formal manufacturing. India must strive to replicate the success story of its neighbor if it aims to achieve rapid economic advancement.

  • Why are Indian Drugmakers under scrutiny?

    Central Idea

    • The Indian pharmaceutical industry has faced international scrutiny for exporting allegedly contaminated drugs, leading to adverse health outcomes and deaths in several countries.
    • Instances of sub-standard drugs, including cough syrups and anaesthetic medications, have raised concerns about the quality and safety of Indian pharmaceutical products.

    Lack of Regulatory Action

    • Probing Contamination: Despite reports of deaths and adverse reactions linked to contaminated drugs, the Ministry of Health and Family Welfare has not provided information on the investigations launched.
    • Regulatory Responsibility: The Central Drugs Standard Control Organisation (CDSCO) is responsible for licensing and prosecuting pharma companies, while State governments handle regulatory enforcement.

    Loss of Confidence and Independent Assessments

    • Loss of Confidence: Countries like Gambia, Nigeria, Sri Lanka, and Cameroon have raised red flags on drugs manufactured in India due to safety concerns and sub-standard quality.
    • Independent Assessments: Some countries, such as Mozambique, have established independent systems to check drug samples before export, highlighting the need for rigorous inspections.

    Punishment and Prosecution

    • Inadequate Punitive Measures: Merely suspending or cancelling manufacturing licenses is deemed insufficient to deter pharmaceutical companies from non-compliance.
    • Legal Provisions: The Drugs and Cosmetics Act allows for imprisonment for life for manufacturers violating good manufacturing practices, but prosecutions are often delayed and convictions are rare.

    Challenges in Drug Regulation

    • Shortage of Drug Inspectors: The CDSCO faces a shortage of drug inspectors, hindering effective oversight and inspections.
    • Administrative Errors: Errors committed by drug inspectors, such as incomplete testing processes and improper documentation, contribute to poor conviction rates.

    Conclusion

    • To restore its reputation and ensure the safety of pharmaceutical products, India needs to strengthen its regulatory framework and inspection processes.
    • Robust inspections, timely reporting of non-compliance, and effective prosecution of offenders are necessary to address the concerns regarding contaminated drugs.
    • Adequate allocation of resources and addressing the shortage of drug inspectors will play a crucial role in enhancing the effectiveness of drug regulation in India.

    Also read:

    [Sansad TV] Perspective: Common Drugs Standards

  • Centre puts norms against ‘Dark Patterns’ in Online Ads

    dark pattern

    Central Idea

    • The Department of Consumer Affairs (DoCA) and the Advertising Standards Council of India (ASCI) have joined forces to tackle unethical advertising practices in India.
    • Within the next two months, the authorities plan to release guidelines to combat dark patterns in Indian advertising.

    Understanding Dark Patterns

    • Dark patterns are manipulative marketing techniques that deceive customers through unethical practices.
    • They encompass a wide range of tactics, including creating false urgency, employing subscription traps, and sneaking items into the checkout basket, using disguised advertising, and manipulating prices during checkout.

    Types of dark patterns advertising

    • Disguised ads: Presenting advertisements in a way that makes them look like regular content or organic recommendations, deceiving users into engaging with promotional material unknowingly.
    • False urgency: Creating a sense of urgency by displaying countdown timers, limited-time offers, or stock availability to pressure consumers into making quick decisions without fully considering their options.
    • Sneak into basket: Adding additional products or services to the shopping cart without the user’s explicit consent or knowledge, often through pre-selected checkboxes or hidden options.
    • Hidden costs: Concealing or downplaying additional fees, charges, or subscriptions until the final stages of the checkout process, misleading consumers about the actual cost of a product or service.
    • Confirm-shaming: Using manipulative language or guilt-tripping tactics to pressure users into taking a specific action they may not want to, such as subscribing to newsletters or sharing personal information.
    • Roach motel: Making it easy for users to sign up for a service but intentionally creating barriers or complexities when they try to cancel or unsubscribe, making it difficult for them to leave.

    Consequences of such ads

    Dark patterns can lead to unintended purchases, addiction and overuse of products or services, and privacy violations.

    • Unintended purchases: Dark patterns can manipulate consumers into making purchases they did not intend to make, leading to unnecessary expenses and financial strain.
    • Addiction and overuse: Some dark patterns are designed to create addictive behaviors, keeping consumers engaged with a product or service beyond what is healthy or necessary.
    • Privacy violations: Dark patterns may deceive consumers into unknowingly sharing sensitive personal information, compromising their privacy and leaving them vulnerable to data breaches or identity theft.
    • Psychological manipulation: Dark patterns exploit cognitive biases and psychological vulnerabilities to manipulate consumer behavior, leading to decisions that are not based on informed choices but rather on emotional manipulation.

    Why discuss this?

    • Rapid growth of the Indian online space: The substantial expansion of the online sector in India raises concerns about the potential harm caused by dark patterns.
    • Dominance of digital platforms: With digital platforms becoming the primary source of information, goods, and services for consumers, the manipulation of UI/UX design and online choice architecture can significantly impact consumer well-being.

    Industry’s Role in Self-Regulation

    • Importance of self-regulation: The consensus among stakeholders is that self-regulation within the industry is crucial to effectively address and counter dark patterns.
    • Sectors to self-regulate: Various sectors, including online shopping, e-ticketing, restaurants, and travel, can adopt self-regulatory measures.

    Way forward

    • Providing tools for informed choices: Stakeholders suggested equipping users with browser extensions that can help detect and block dark patterns, enabling them to make more informed decisions.
    • Encouraging reporting: Users are encouraged to report instances of dark patterns, and efforts will be made to raise awareness among small and medium-scale merchants about these deceptive practices.
    • Consensus on self-regulation: All stakeholders unanimously agreed that industry self-regulation plays a pivotal role in countering deceptive online practices and protecting consumers’ interests.
    • Commitment to consumer protection: The meeting concluded with a commitment to continue exploring ways to counter dark patterns and safeguard consumer rights and interests.

  • The Open Market Sale Scheme (OMSS) for wheat and rice

    Central Idea

    • States across India are exploring alternative avenues for procuring wheat and rice due to the Food Corporation of India’s (FCI) recent quantity restrictions and denial of permission to participate in the Open Market Sale Scheme (OMSS). While the Centre claims that these measures are aimed at curbing inflation and regulating supply, critics argue that they prioritize political interests over the welfare of marginalized beneficiaries.

    Relevance of the topic:

    *According to a 2020 estimate by The Ministry of Consumer Affairs, Food and Public Distribution, more than 38,000 metric tonnes (MTs) of food grains got damaged in the five years leading upto 2020, including wheat, rice and pulses.

    *According to the BCG report, around 2.1 billion tonnes of food grains will be wasted by the time we reach 2030.

    *Amidst the challenge of food grain wastage, hunger and food security, the initiatives related to management of food grains becomes significant

    What is Open Market Sale Scheme (OMSS)?

    • The OMSS is a program implemented by the Food Corporation of India (FCI) to sell surplus food grains, primarily wheat and rice, from the central pool in the open market
    • The scheme allows the FCI to sell these food grains to traders, bulk consumers, retail chains, and other entities at pre-determined prices through e-auctions.
    • Through e-auctions, interested bidders can purchase specific quantities of food grains. Additionally, states have the option to procure grains through the OMSS, beyond their allocation from the central pool, to distribute among beneficiaries of the National Food Security Act (NFSA)

    Key changes in the OMSS implementation

    • Quantity Restrictions: The Centre decided to restrict the quantity that a single bidder can purchase in a single bid under the OMSS. Previously, the maximum quantity allowed per bid was 3,000 metric tonnes (MT). However, the revised OMSS now sets a range of 10 to 100 metric tonnes for the maximum quantity per bid. This change aims to accommodate more small and marginal buyers and promote wider participation in the scheme.
    • Suspension of Sales to State Governments: In a notification sent to the states on June 13, the Centre stopped the sale of rice and wheat from the central pool under the OMSS to state governments. This means that state governments can no longer procure these food grains directly from the FCI through the OMSS. Additionally, private bidders are also disallowed from selling their OMSS supplies to state governments.

    Significance of OMSS in India’s food grain management system

    • Surplus Management: The OMSS enables the Food Corporation of India (FCI) to effectively manage surplus food grains, primarily wheat and rice, from the central pool. By selling these surplus grains in the open market, the FCI can prevent wastage and maintain optimal stock levels.
    • Price Stability: The OMSS plays a crucial role in maintaining price stability in the market. By periodically selling surplus grains at pre-determined prices, the scheme helps regulate food grain prices, preventing excessive fluctuations and ensuring affordability for consumers.
    • Market Competition: The OMSS promotes market competition by allowing various entities, including traders, bulk consumers, and retail chains, to participate in e-auctions and purchase food grains. This fosters a more competitive market environment, preventing the concentration of purchasing power in the hands of a few entities and encouraging fair market practices.
    • Additional Procurement Avenue for States: States in India can procure food grains through the OMSS beyond their allocated quantities from the central pool. This provides an additional avenue for states to meet their food grain requirements, particularly for implementing welfare schemes such as the National Food Security Act (NFSA). It allows states to supplement their allocations and ensure the availability of essential food grains for marginalized beneficiaries.
    • Small and Marginal Buyers: The recent revisions in the OMSS implementation, including the reduction in the maximum quantity per bid, aim to accommodate more small and marginal buyers. By encouraging their participation, the scheme aims to promote inclusivity, empower smaller market participants, and prevent monopolies held by bulk buyers. This supports the growth and sustainability of small businesses and helps distribute the benefits of the scheme more evenly.

    How states are reacting to the changes?

    • Karnataka: In Karnataka, the Anna Bhagya scheme, which aims to provide rice to marginalized families, was a significant electoral promise of the Congress government. They argue that the changes in the OMSS hinder the implementation of the welfare scheme and are politically motivated.
    • Tamil Nadu: Tamil Nadu has also been affected by the changes in the OMSS. The state government has sought alternative sources to purchase 50,000 tonnes of rice, as the Union government has stopped the supply of rice under the OMSS. The state used to buy rice through the scheme and then subsidize it for ration card holders.
    • Criticism of Centre’s Politics: States like Karnataka and Tamil Nadu, as well as other states, have criticized the Centre for engaging in politics at the expense of marginalized beneficiaries of state welfare schemes. They argue that the restrictions and changes in the OMSS implementation are driven by political considerations rather than prioritizing the welfare of vulnerable sections of society.

    How OMSS contributes to food security?

    • Distribution to National Food Security Act (NFSA) Beneficiaries: The OMSS allows states to procure additional food grains beyond their allocated quantities from the central pool for distribution to beneficiaries under the NFSA. This ensures that the eligible population, particularly marginalized sections of society, has access to an adequate supply of essential food grains, such as wheat and rice, at affordable prices.
    • Price Stabilization: By periodically selling surplus food grains through the OMSS, the scheme helps stabilize prices in the market. The availability of surplus stocks from the central pool prevents excessive price fluctuations and ensures that food grains remain affordable for consumers.
    • Market Competition and Inclusivity: The OMSS promotes market competition by allowing various entities, including traders, bulk consumers, and retail chains, to participate in e-auctions and purchase food grains. This diversifies the buyer base and prevents monopolistic practices, fostering fair market competition. Moreover, recent revisions in the OMSS implementation, such as the reduction in the maximum quantity per bid, aim to encourage the participation of small and marginal buyers, promoting inclusivity and empowering smaller market participants.
    • Surplus Management: The OMSS helps manage surplus food grains held by the Food Corporation of India (FCI) in the central pool. By selling these surpluses in the open market, the FCI avoids wastage and ensures efficient utilization of available resources.
    • Additional Procurement Avenues for States: The OMSS provides states with an additional avenue to procure food grains beyond their allocated quantities from the central pool. This helps states meet their food grain requirements for welfare schemes and other initiatives aimed at ensuring food security at the state level.

    Challenges faced by OMSS

    • Low buyer demand due to high reserve prices: The OMSS faces a challenge of low demand from buyers, primarily because of the high reserve prices set by the FCI. These reserve prices, which include various costs like procurement, storage, transportation, and handling charges, are often higher than the prevailing market prices.
    • Logistical hurdles affecting timely delivery: Transportation, handling, and quality issues of food grains pose logistical challenges for the OMSS. These challenges can result in delays and impact customer satisfaction. The heavy reliance on railways by the FCI for grain movement can lead to congestion and further exacerbate the logistical problems.
    • Limited impact on market price stabilization: The OMSS has a limited impact on stabilizing market prices as it represents only a small share of the overall food grain supply and demand in the country. The FCI sells only a fraction of its total stocks through the OMSS, while the majority is distributed through the Targeted Public Distribution System (TPDS) and other welfare schemes (OWS).
    • Inadequate addressing of structural issues: The OMSS fails to adequately address the structural problems associated with food grain management, including procurement, distribution, and buffer stocking policies. Reforms in these areas are necessary to ensure food security and fiscal prudence. The excessive procurement by the FCI, beyond the requirements of TPDS and OWS, leads to surplus stocks and high carrying costs.

    Way forward: Steps to enhance its effectiveness

    • Stakeholder Consultation: The Centre should engage in meaningful consultations with states, policymakers, experts, and relevant stakeholders to understand the diverse perspectives and concerns related to the OMSS. This will help in developing a more inclusive and comprehensive approach that considers the welfare of marginalized beneficiaries, the interests of states, and the broader macroeconomic considerations.
    • Review and Reconsideration of Changes: The Centre should review and reconsider the recent changes made to the OMSS, taking into account the feedback and concerns raised by states. This could involve revisiting the quantity restrictions and exploring alternative ways to achieve the objectives of curbing inflation, promoting market competition, and ensuring wider participation of small and marginal buyers.
    • Transparency and Accountability: Ensuring transparency in the functioning of the OMSS is crucial. The Centre should provide clear guidelines, transparent processes, and timely information regarding the e-auctions, pricing, and availability of food grains through the scheme.
    • Strengthening State-Level Procurement: Alongside the OMSS, efforts should be made to strengthen state-level procurement mechanisms for food grains. This will enable states to meet their requirements for welfare schemes more effectively and reduce their dependence on central schemes like the OMSS.
    • Integrated Approach to Food Security: Food security is a multi-dimensional issue that requires an integrated approach. The Centre should work in collaboration with states to develop comprehensive strategies that address not only the availability and accessibility of food grains but also factors such as storage, transportation, nutrition, and agricultural productivity.
    • Monitoring and Evaluation: Regular monitoring and evaluation of the OMSS and its impact on food security outcomes are essential. This will help identify any shortcomings, assess the effectiveness of the scheme, and make necessary adjustments to improve its functioning. Data-driven analysis and feedback mechanisms should be put in place to ensure evidence-based decision-making and continuous improvement.

    Conclusion

    • The Centre’s recent restrictions on the OMSS have sparked a political controversy, with states like Karnataka and Tamil Nadu accusing the government of prioritizing politics over the welfare of marginalized beneficiaries. As the Centre aims to curb inflation and regulate supply, it must consider the potential impact on state welfare schemes and ensure the availability of essential food grains to those in need.

    Also read:

    Managing Inflation and Ensuring Food Security in India

     

  • Centre identifies 30 critical minerals: Why, how, and importance of the exercise

    minerals

    Central Idea

    • In a strategic move, the Indian government has recognized the importance of 30 critical minerals, including lithium, cobalt, nickel, graphite, tin, and copper, which play a crucial role in the country’s economic development and national security. These minerals are essential for various sectors such as clean technologies, information and communication technologies, and advanced manufacturing inputs.

    *Relevance of the topic:

    *As countries shift towards clean energy and digital economies, critical and rare earth minerals are essential for driving this transition

    *Dependence on other nations for procuring these resources can pose significant risks to the economy and strategic autonomy.

    *Also keep an eye on the reserves of these critical minerals. For example, Vast Lithium deposits discovered in the Himalayan region of Kashmir. A 5.9-million-ton lithium deposit was discovered in the Reasi district by the Geological Survey of India

    Background

    • Previous efforts have been made to identify critical minerals in India, including a 2011 initiative by the Planning Commission (now NITI Aayog).
    • This initiative emphasized the importance of ensuring the availability of mineral resources for industrial growth through planned exploration and management of existing resources. From 2017 to 2020, the country also focused on the exploration and development of rare earth elements.
    • The latest exercise was triggered by India’s international commitments to reduce carbon emissions and transition towards clean energy sources

    Major Critical Minerals and its applications

    • Graphite: Graphite is extensively used in the manufacturing of electric vehicle (EV) batteries. It is a key component in the anode of lithium-ion batteries, which power EVs and several portable electronic devices.
    • Lithium: Lithium is another essential mineral in the production of EV batteries. Lithium-ion batteries are widely used in electric vehicles, providing them with energy storage capacity. Lithium is also utilized in other applications, such as renewable energy storage systems.
    • Cobalt: Cobalt is a critical mineral required for the production of lithium-ion batteries used in electric vehicles. It enhances the stability and performance of the batteries. Additionally, cobalt finds applications in aerospace, communications, and defense industries. It is used in manufacturing fighter jets, drones, and other critical equipment.
    • Rare Earth Minerals: Rare earth minerals, although required in trace amounts, play a significant role in the manufacturing of semiconductors and high-end electronics. These minerals include elements like neodymium, dysprosium, and praseodymium, which are crucial for producing magnets used in electric motors, wind turbines, and other advanced technology applications.
    • Nickel: Nickel is another essential component in lithium-ion batteries, especially those used in electric vehicles. It helps enhance battery performance and energy density. Nickel is also utilized in various other industries, including aerospace and defense.

    Three-stage Assessment for identification of critical minerals in India

    1. In the first stage, strategies of various countries like Australia, the USA, Canada, UK, Japan, and South Korea were analyzed. Sixty-nine elements/minerals that were considered critical by these major global economies were shortlisted. Domestic initiatives were also given due importance.
    2. The second stage involved inter-ministerial consultations with various ministries to identify minerals critical to their sectors. Valuable inputs and suggestions were received from ministries such as Power, Atomic Energy, New and Renewable Energy, Fertilizers, Science and Technology, Pharmaceuticals, and NITI Aayog.
    3. The third stage aimed to develop an empirical formula for evaluating mineral criticality. This stage drew inspiration from the European Union’s methodology, which considers economic importance and supply risk as two major factors. Based on this comprehensive assessment process, a list of 30 critical minerals for India was finalized.

    Importance of Establishing a Specialized Agency

    • The committee responsible for identifying critical minerals emphasized the need to establish a National Institute or Centre of Excellence for critical minerals, similar to Australia’s CSIRO.
    • This proposed center would periodically update the list of critical minerals, develop a critical mineral strategy, and execute functions essential for the development of an effective value chain in the country.

    Significance of independent source of Critical Minerals and its impact

    • Key Industry Enablers: Critical minerals are fundamental components in industries such as clean energy, electronics, transportation, defense, and manufacturing. They enable the production of advanced technologies, including electric vehicles, renewable energy systems, high-tech electronics, and communication devices. Without a stable supply of critical minerals, these industries would face significant challenges in meeting the growing global demand for their products.
    • Technological Advancements: Critical minerals are crucial for driving technological advancements and innovation. They provide the necessary raw materials for developing and improving clean technologies, energy storage systems, telecommunications devices, advanced electronics, and defense technologies. Access to critical minerals supports the development of cutting-edge technologies, enhances competitiveness, and fosters sustainable practices in various sectors.
    • Clean Energy Transition: Critical minerals play a pivotal role in the transition to clean energy sources. Minerals like lithium, cobalt, nickel, and rare earth elements are vital for the production of high-performance batteries used in electric vehicles and renewable energy storage systems. By ensuring a stable supply of these minerals, countries can accelerate the adoption of clean energy technologies, reduce greenhouse gas emissions, and mitigate the impact of climate change.
    • Economic Growth and Job Creation: Critical minerals contribute to economic growth by supporting industries that generate employment opportunities and foster innovation. Domestic production and processing of critical minerals create jobs across the entire value chain, including exploration, mining, processing, manufacturing, and research and development. By developing a robust critical minerals sector, countries can stimulate economic growth, enhance competitiveness, and reduce dependence on foreign imports.
    • National Security: Dependence on foreign sources for critical minerals can pose risks to national security. Disruptions in the supply chain due to geopolitical factors, trade conflicts, or market fluctuations can significantly impact industries crucial for defense, infrastructure, and strategic sectors. By identifying and developing domestic sources of critical minerals, countries can enhance their resilience, reduce vulnerabilities, and safeguard national security interests.
    • Sustainable Resource Management: The identification and sustainable management of critical minerals contribute to responsible resource utilization and environmental stewardship. By ensuring responsible mining practices, promoting recycling and circular economy approaches, and minimizing the environmental impact of mineral extraction and processing, countries can meet their mineral needs while addressing social, environmental, and governance concerns.

    Conclusion

    • The identification of critical minerals is a strategic move by the Indian government towards economic development and national security. The country can learn from global practices while leveraging domestic and international collaborations to secure critical mineral resources and accelerate its growth in sectors like clean technologies and advanced manufacturing.

    Also read:

    Big Lithium find: Risks and Rewards

     

  • Centre identifies 30 Critical Minerals: Why, how, and importance of the exercise

    critical

    Central Idea

    • The Ministry of Mines has strategically identified 30 critical minerals, including lithium, cobalt, nickel, and graphite, crucial for the country’s economic development and national security.
    • The move aims to address supply chain vulnerabilities and ensure availability of these minerals for key industries such as clean technologies, information technology, advanced manufacturing, and defense.

    What are Critical Minerals?

    • Critical minerals are elements that are crucial to modern-day technologies and are at risk of supply chain disruptions.
    • These minerals are used in making mobile phones, computers, batteries, electric vehicles, and green technologies like solar panels and wind turbines.
    • Minerals such as antimony, cobalt, gallium, graphite, lithium, nickel, niobium, and strontium are among the 22 assessed to be critical for India.
    • Many of these are required to meet the manufacturing needs of green technologies, high-tech equipment, aviation, and national defence.

    Three-Stage Assessment Process

    1. Analysis of Global Strategies: The expert team studied the strategies of major economies and identified 69 elements/minerals considered critical by these countries.
    2. Inter-Ministerial Consultation: Different ministries were consulted to identify minerals critical to their respective sectors.
    3. Empirical Formula for Criticality Evaluation: An empirical formula was derived considering economic importance and supply risk, similar to the methodology used by the European Union.

    List of Critical Minerals for India

    • Identified Minerals: The assessment resulted in a list of 30 critical minerals, including antimony, beryllium, cobalt, copper, lithium, nickel, rare earth elements, silicon, tin, titanium, tungsten, and others.
    • Fertilizer Minerals: Two minerals critical for fertilizer production, phosphorous and potash, are also included.

    Why are these resources critical?

    • Clean energy transition: Critical minerals are essential to the ecosystem that fuels the world’s transition towards clean energy and digital economy.
    • Strategic nature: Any supply shock can severely imperil the economy and strategic autonomy of a country that is over-dependent on others to procure critical minerals.
    • Rare availability: Supply risks exist due to rare availability, growing demand, and complex processing value chain.

    What is the China ‘threat’?

    • Dominant role: China is the world’s largest producer of 16 critical minerals, including cobalt and rare earth elements.
    • Monopoly in processing: The country has a strong presence across the board in processing operations, with a share of refining around 35% for nickel, 50-70% for lithium and cobalt, and nearly 90% for rare earth elements.
    • Control over offshore mines: China also controls cobalt mines in the Democratic Republic of Congo, from where 70% of this mineral is sourced.
    • Supply chain dominance: The country’s dominance in critical minerals production and processing raises concerns of a supply disruption in case of a geopolitical conflict.

    Challenges in ensuring resilient critical minerals supply

    • Limited availability of critical minerals: The rare availability of critical minerals poses a challenge in meeting the growing demand for these minerals.
    • Geopolitical risks: Complex supply chains can be disrupted by hostile regimes or politically unstable regions, leading to supply chain disruptions.
    • Dominance of certain countries: A few countries, such as China, are the dominant producers of critical minerals, leading to concerns over supply disruptions in case of a geopolitical conflict.
    • Increasing demand for critical minerals: With the shift towards renewable energy technologies and electric vehicles, the demand for critical minerals such as copper, lithium, and rare earth elements is increasing rapidly.
    • Reliance on foreign partners: Countries with limited reserves and higher requirements for critical minerals may have to rely on foreign partners to meet their domestic needs, leading to supply chain vulnerabilities.
    • Environmental and social concerns: The extraction and processing of critical minerals can have negative environmental and social impacts, leading to challenges in meeting sustainability goals.

    What are countries around the world doing about it?

    Several countries are taking measures to ensure a consistent supply of critical minerals to their domestic markets.

    • US: It has ordered a review of vulnerabilities in its critical minerals supply chains and shifted its focus on expanding domestic mining, production, processing, and recycling of critical minerals and materials.
    • Australia: Its Critical Minerals Facilitation Office (CMFO) and KABIL had recently signed an MoU aimed at ensuring reliable supply of critical minerals to India.
    • UK: It has unveiled its new Critical Minerals Intelligence Centre to study the future demand for and supply of these minerals, and its critical mineral strategy will be unveiled later this year.

    India’s Domestic and Global Outreach

    • Domestic Exploration Efforts: The Geological Survey of India conducted advanced mineral exploration in Jammu & Kashmir, identifying inferred lithium resources. Further exploration is planned in different parts of the country.
    • Joint Venture Company: Khanij Bidesh India Ltd. (KABIL) has been established to acquire overseas mineral assets, including lithium, cobalt, and rare earth elements, ensuring a reliable supply.
    • Mineral Security Partnership (MSP): India’s inclusion in the MSP, a collaboration of 14 countries, highlights the country’s focus on securing critical mineral supply chains globally and reducing dependency on China.

    What should India do to ensure resilient supply?

    • Developing domestic sources of critical minerals: This can be achieved by promoting exploration and mining activities, both by public and private sector entities.
    • Encouraging responsible mining practices: The Indian government should encourage responsible mining practices that minimize the negative environmental and social impacts of mining activities.
    • Need for a Specialized Agency: The expert team proposed the establishment of a National Institute or Center of Excellence dedicated to critical minerals, similar to Australia’s CSIRO.
    • Promoting transparency in the supply chain: India should promote transparency in the critical minerals supply chain by ensuring the traceability of minerals from the point of extraction to the point of end-use.
    • Investing in research and development: India should invest in research and development to develop new technologies and processes for efficient extraction, processing, and recycling of critical minerals.
    • Developing a national critical minerals strategy: India should develop a national critical minerals strategy that identifies priority minerals, promotes domestic exploration and mining, and promotes sustainable and responsible mining practices.

    Conclusion

    • India has a significant mineral geological potential, many minerals are not readily available domestically.
    • Hence, India needs to develop a national strategy to ensure resilient critical minerals supply chains, which focuses on minerals found to be critical in this study.

  • PM-PRANAM Scheme gets cabinet nod

    pranam

    Central Idea

    • The union cabinet has given its approval to PM-PRANAM scheme, which aims to promote the usage of alternative fertilizers and balanced utilization of chemical fertilizers.
    • This scheme, announced in the budget for 2023-24, reflects the government’s commitment to sustainable agricultural practices and the conservation of natural resources.

    What is PM-PRANAM Scheme?

    • PM-PRANAM stands for Prime Minister Promotion of Alternate Nutrients for Agriculture Management Yojana.
    • The scheme was proposed during the National Conference on Agriculture for Rabi Campaign in September 2022.
    • Its objective is to reduce the subsidy burden on chemical fertilizers by promoting the use of alternative fertilizers.

    Notable features of the scheme

    • Incentivizing States and UTs: The scheme incentivizes states and Union Territories to promote the usage of alternative fertilizers and achieve a balanced use of chemical fertilizers. States that demonstrate significant savings in funds due to reduced chemical fertilizer usage receive grants as incentives.
    • Subsidy Savings Allocation: Around 50% of the subsidy savings resulting from reduced chemical fertilizer consumption will be allocated as a grant to the state that exhibits the highest savings. This encourages states to actively participate in the adoption of alternative fertilizers.
    • Creation of Assets: A significant portion (70%) of the granted funds will be utilized for creating assets associated with the technological integration of alternate fertilizers. This includes establishing production units at the village, block, and district levels, facilitating local production and availability of alternative fertilizers.
    • Recognition and Incentives for Farmers: The remaining 30% of the granted funds will be utilized to incentivize and recognize farmers and other village entities for their contributions to reducing fertilizer usage. This recognizes their efforts in adopting sustainable agricultural practices.
    • Environmentally Friendly Farming Practices: The scheme aims to promote environmentally friendly farming practices by encouraging the adoption of alternative fertilizers. This reduces the dependency on chemical fertilizers, which in turn contributes to environmental conservation and sustainability.
    • Long-term Soil Health and Agricultural Ecosystems: By promoting a balanced use of fertilizers, the scheme ensures the long-term health and fertility of agricultural ecosystems. It emphasizes sustainable agricultural practices that preserve soil health and protect natural resources.
    • Technological Integration: The scheme supports the integration of technology into agriculture for the production and utilization of alternative fertilizers. This includes the establishment of production units at the grassroots level, encouraging local production and accessibility of alternative fertilizers.