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Subject: Economics

  • PMI suggests Services activity hit 12-year high

    services

    The Purchasing Managers Index (PMI) for the services sector in India rose to 55.3 in February. This marks the highest level of the PMI in the services sector in 12 years, driven by an increase in new business orders and employment.

    Service Sector

    The service sector, also known as the tertiary sector, includes a wide range of economic activities that are focused on providing intangible goods and services to customers.

    Some examples of activities that fall under the service sector include:

    1. Hospitality and tourism: This includes activities such as hotels, restaurants, travel agencies, and tour operators.
    2. Retail and wholesale trade: This includes businesses that buy and sell goods, such as supermarkets, department stores, and online retailers.
    3. Financial services: This includes banks, insurance companies, and investment firms.
    4. Professional and business services: This includes activities such as legal services, accounting, consulting, and advertising.
    5. Information and communication technology: This includes activities such as software development, telecommunications, and data processing.
    6. Healthcare and social assistance: This includes activities such as hospitals, clinics, nursing homes, and social services.
    7. Education and training: This includes activities such as schools, colleges, universities, and vocational training.
    8. Transportation and logistics: This includes activities such as shipping, warehousing, and distribution.

    Purchasing Managers’ Index

    • PMI is an indicator of business activity — both in the manufacturing and services sectors.
    • The S&P Global India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies.
    • It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
    • It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.

    How is the PMI derived?

    • The PMI is derived from a series of qualitative questions.
    • Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.

    How does one read the PMI?

    • A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
    • Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
    • If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.

    Recent trends in Services PMI

    • For the 19th straight month, the headline figure was above the neutral 50 mark, denoting expansion.
    • There was substantial moderation in cost pressures as input prices increased at the slowest pace in almost two-and-a-half years and output charge inflation softened to a 12-month low.
    • Still, capacity pressures remained mild and jobs rose only marginally.

     

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  • South Asia Need to Invest In Human Capital

    South Asia

    Central Idea

    • The last few years have ushered in a harsh new reality where crises are the norm rather than the exception. Pandemics, economic slumps and extreme weather events were once tail-end risks, but all three have hit South Asia in rapid succession since 2020.  To strengthen resilience and protect the well-being of future generations, governments across South Asia need to take urgent policy action and invest in human capital.

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    South Asia Overview

    • Countries: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.
    • Population: The region has a total population of over 1.8 billion people, making it the most populous region in the world.
    • Geography: South Asia has a diverse geography, with mountain ranges such as the Himalayas and Hindu Kush, major rivers like the Ganges, Indus, and Brahmaputra, and coastal areas along the Arabian Sea, Bay of Bengal, and Indian Ocean.
    • Economy: India is the largest economy in the region, accounting for more than 70% of the region’s total GDP. Agriculture is a major employer in most countries, with rice and wheat being staple crops. The manufacturing sector is also a significant contributor to the region’s economy, with textiles, garments, and leather products being major exports
    • Climate: The climate of South Asia is varied, with the monsoon season bringing heavy rainfall to much of the region and causing flooding in some areas. The region’s geography and size also result in varying climate patterns. In general, the region experiences hot and humid summers and mild winters.
    • Climate Change Risks: Climate change poses significant risks to the region, with some areas, such as the Maldives, at risk of sea level rise. Other risks include increased frequency and severity of extreme weather events, such as floods and droughts. The region is also vulnerable to the impacts of climate change on health, including increased incidence of heat-related illness and infectious diseases.
    • Biodiversity and Environmental Threats:
    • South Asia is home to several biodiversity hotspots, such as the Western Ghats in India and the Eastern Himalayas.
    • However, the region faces significant environmental threats, such as deforestation, air and water pollution, and climate change.
    • Deforestation is a major problem in the region, with logging and land use change leading to habitat destruction and loss of biodiversity.

    South Asia

    An underutilized asset of South Asia: Analysis

    • South Asia’s people are its biggest asset but remain wastefully underutilized:
    • With nearly half its population under the age of 24 and over one million young people set to enter the labour force every month until 2030, the region could reap an enviably high demographic dividend.
    • Stunting one of the significant challenges: South Asia is also home to over one third of the world’s stunted children. And a child born in the region today can, by the age of 18, expect to attain only 48% of their full productive potential.
    • Governments spending on Health and education: South Asian governments on average spend just 1% of GDP on health and 2.5% on education. In comparison, the global average is 5.9% on health and 3.7% on education.
    • COVID-19 pandemic, a blow to regions human capital: The COVID-19 pandemic, which pushed an additional 35 million people across South Asia into extreme poverty, dealt an unprecedented blow to the region’s human capital. Among its most woeful impacts is a rise in learning poverty, or the inability to read and understand a simple text by age 10. Ineffective remote instruction, during the pandemic increased South Asia’s learning poverty from 60% to 78%.
    • The poorest and most vulnerable people fell further behind: For example, in Bangladesh, the poorest students lost 50% more in terms of learning than the richest students. Several countries still show little to no signs of recovery, and South Asia’s students could lose up to 14.4% of their future earnings.

    Interventions that can make a difference

    • Affordable education: Recent evidence suggests that even simple and low-cost education programmes can lead to sizable gains in skills.
    • For instance:
    • In Bangladesh attending a year of additional pre-school through two-hour sessions significantly improved literacy, numeracy, and social-development scores.
    • In Tamil Nadu, six months of extra remedial classes after school helped students catch up on about two-thirds of lost learning linked to 18 months of school closures.
    • In Nepal, government teachers ran a phone tutoring programme that helped increase students’ foundational numeracy by 30%.
    • Robust systems for crisis management: The need for countries to have robust systems in place to support individuals and families during times of crisis. Such systems, which can include social safety nets, health care, and education programs, can help to mitigate the impact of crises like the pandemic, protect vulnerable populations, and promote resilience. By investing in these systems before a crisis strikes, countries can better prepare themselves to respond to the challenges that may arise.
    • Use data and technology: Effective systems are needed to respond to crises quickly and maintain vital services like healthcare and education. Coordination across sectors is important. Data and technology play a crucial role in the delivery of services, human development systems should ensure they are effectively used.

    South Asia

    World Bank study: Interdependence of health, education and skills for human development

    • A new World Bank study, Collapse and Recovery: how COVID eroded human capital and what to do about it, analyses the pandemic’s impacts on young people, stresses the multi-dimensional and complementary nature of human development.
    • The health, education, and skills people acquire at various stages of their lives, build and depend on each other.
    • To be effective, human development systems must recognise and exploit these overlapping connections. In other words, they should be agile, resilient and adaptive.

    Conclusion

    • The road ahead for South Asia is rocky. The next crisis may be just around the corner. A robust human development system would not only mitigate the damage but also help ensure lives and livelihoods are protected. It could provide the resilience South Asia needs to prosper in an increasingly volatile world. While the outlook is grim, it is important to remember that well-designed and implemented interventions can make a difference if governments act fast.

    Mains question

    Q. South Asia possesses remarkable human capital, but it remains underutilized and has been further impacted by the COVID-19 pandemic. Discuss and suggest what can be done to address the issues?

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  • What is the Expected Credit Loss (ECL) regime?

    The Reserve Bank of India is moving closer towards ring-fencing the banking system from credit losses as it proposes to move to provision on the principles of ‘expected losses’ from ‘incurred losses. ‘

    What is a Loan-Loss Provision?

    • The RBI defines a loan loss provision as an expense that banks set aside for defaulted loans.
    • Banks set aside a portion of the expected loan repayments from all loans in their portfolio to cover the losses either completely or partially.
    • In the event of a loss, instead of taking a loss in its cash flows, the bank can use its loan loss reserves to cover the loss.
    • The level of loan loss provision is determined based on the level expected to protect the safety and soundness of the bank.

    What is Expected Credit Loss (ECL) regime?

    • The Expected Credit Loss (ECL) regime is a new accounting standard that was introduced by the International Financial Reporting Standards (IFRS) in response to the global financial crisis of 2008.
    • The ECL regime requires banks and other financial institutions to estimate and report the expected losses from their loan portfolios over the lifetime of the loans.
    • Under the ECL regime, financial institutions must assess the credit risk associated with each loan and estimate the expected losses that will result from default or other credit events.
    • These expected losses must be recognized in the financial institution’s accounts and reported to investors and other stakeholders.
    • Under this practice, a bank is required to estimate expected credit losses based on forward-looking estimations rather than wait for credit losses to be actually incurred before making corresponding loss provisions.

    Benefits of the ECL regime

    • ECL will result in excess provisions as compared to a shortfall in provisions, as seen in the incurred loss approach.
    • It will further enhance the resilience of the banking system in line with globally accepted norms.

    Issues with this regime

    • It requires banks to provide for losses that have already occurred or been incurred.
    • The delay in recognizing loan losses resulted in banks having to make higher levels of provisions which affected the bank’s capital.
    • This affected banks’ resilience and posed systemic risks.
    • The delays in recognizing loan losses overstated the income generated by the banks, which, coupled with dividend payouts, impacted their capital base.

     

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  • SDGs: India’s Progress Analysis

    SDG

    Central Idea

    • A recent analysis published in The Lancet has concluded that India is not on-target to achieve 19 of the 33 Sustainable Development Goals (SDGs) indicators. The critical off-target indicators include access to basic services, wasting and overweight children, anaemia, child marriage, partner violence, tobacco use, and modern contraceptive use.

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    Analysis

    • On-Target: Districts that have not met the SDG target by 2021 and have observed a magnitude of improvement between 2016 and 2021 sufficient to meet the target by 2030.
    • Off-Target: Districts that have not met the SDG target by 2021 and either observed worsening between 2016 and 2021 or observed an insufficient magnitude of improvement between 2016 and 2021. If these districts continue with either of these trends, they will not meet their targets by 2030.
    • Progress in: Indicators shows the progress in reducing adolescent pregnancy, tobacco use in women, multidimensional poverty, teenage sexual violence, and improving electricity access.
    • Areas where more efforts are needed: More efforts are needed for reducing anaemia in women, improving access to basic services, providing health insurance for women, and reducing anaemia in pregnant women.

    Sustainable Development Goals (SDGs)

    • The SDGs, otherwise known as the Global Goals, are a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity.
    • The SDGs were adopted by the United Nations in 2015 with a vision to achieve a better and more sustainable future for all. The 17 SDGs came into force with effect from 1st January 2016 as a part of 2030 Agenda for Sustainable Development.
    • India is one of the signatory countries that has committed to achieving these goals by 2030.
    • Though not legally binding, the SDGs have become de facto international obligations and have the potential to reorient domestic spending priorities of the countries during the next fifteen years.
    • Countries are expected to take ownership and establish a national framework for achieving these goals.

    SDG

    Targets set for each of the SDGs

    • No Poverty: By 2030, eradicate extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day.
    • Zero Hunger: By 2030, end hunger and ensure access by all people, in particular the poor and people in vulnerable situations, including infants, to safe, nutritious and sufficient food all year round.
    • Quality Education: By 2030, ensure that all girls and boys complete free, equitable and quality primary and secondary education leading to relevant and effective learning outcomes.
    • Gender Equality: End all forms of discrimination, violence, harmful practices against all women and girls everywhere. Ensure women’s full and effective participation and equal opportunities for leadership at all levels of decision-making in political, economic, and public life.

    SDG

    India’s progress towards achieving SDGs so far

    • SDG 1 (No Poverty): India has made significant progress in reducing poverty, with the poverty rate declining from 21.9% in 2011-12 to 4.4% in 2020. The government’s efforts to provide financial inclusion and social protection schemes have contributed to this progress.
    • SDG 2 (Zero Hunger): India has made progress in reducing hunger, with the prevalence of undernourishment declining from 17.3% in 2004-06 to 14% in 2017-19. The government’s initiatives such as the National Food Security Act and the Pradhan Mantri Garib Kalyan Anna Yojana have contributed to this progress.
    • SDG 3 (Good Health and Well-being): India has made progress in improving maternal and child health, with maternal mortality ratio declining from 167 per 100,000 live births in 2011-13 to 113 in 2016-18. The government’s efforts to strengthen health systems and increase access to healthcare services have contributed to this progress.
    • SDG 4 (Quality Education): India has made progress in improving access to education, with the gross enrolment ratio for primary education increasing from 93.4% in 2014-15 to 94.3% in 2019-20. The government’s initiatives such as the Sarva Shiksha Abhiyan and the Right to Education Act have contributed to this progress.
    • SDG 5 (Gender Equality): India has made progress in improving gender equality, with the sex ratio at birth increasing from 918 in 2011 to 934 in 2020. The government’s initiatives such as the Beti Bachao Beti Padhao and the Maternity Benefit Programme have contributed to this progress.

    Recent findings by National Family Health Survey

    • Multidimensional poverty declined: At a compounded annual average rate of 4.8 per cent per year in 2005-2011 and more than double that pace at 10.3 per cent a year during 2011-2021.
    • Declining child mortality: There are some issues with the 2011 child-mortality data, but for each of the 10 components of the MPI index, the rate of decline in 2011-2021 is considerably faster than in 2005-2011.
    • Average decline in overall indicators: The average equally weighted decline for nine indicators was 1.9 per cent per annum in 2005-2011 and a rate of 16.6 per cent per annum, more than eight times higher in 2011-2021.
    • Consumption inequality decline: Every single household survey or analysis has shown that consumption inequality declined during 2011-2021. This is consistent with the above finding of highly inclusive growth during 2011-2021.

    Conclusion

    • The analysis provides a valuable tool for policymakers to address the gaps and focus on the indicators that require more attention, thereby improving the well-being of its citizens and creating a sustainable future for all.

    Mains question

    Q. What are Sustainable Development Goals (SDGs)? Discuss India’s progress made so far in achieving these targets

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  • Extradition of Fugitive Economic Offenders (FEOs)

    fugitive

    Central idea: India has called upon G20 countries to adopt multilateral action for faster extradition of fugitive economic offenders (FEOs) and recovery of assets both on the domestic front as well as from abroad.

    Who are Fugitive Economic Offenders (FEOs)?

    • FEOs are individuals who have fled their home country to avoid facing prosecution for financial crimes such as money laundering, fraud, and embezzlement.
    • These individuals typically engage in illegal activities that involve large sums of money and often cause significant damage to the economy of the country they have fled.

    FEOs and India

    fugitive

    • India has put in place specialized legislation in this regard, in the form of the Fugitive Economic Offenders Act, 2018.
    • It defines the term- as an individual against whom a warrant of arrest in relation to a scheduled offense has been issued by any court in India and who has left the country so as to avoid criminal prosecution; or the FEO abroad, refuses to return to face criminal prosecution”.

    Why do offenders go fugitive?

    • Finding safe heavens: FEOs seek refuge in countries that do not have an extradition treaty with their home country or that have weak extradition laws.
    • Evading justice: FEOs often exploit legal loopholes and the differences in laws and regulations across countries to evade justice.
    • Asset offshoring: They may move their assets to offshore accounts or invest in assets such as real estate and art that are difficult to seize.

    How FEOs impact the economy?

    FEOs can have a significant impact on the economy of the country they have fled from.

    • Loan defaults: They may default on loans, engage in fraudulent activities, and siphon off large amounts of money from banks and financial institutions.
    • NPA crisis: This can lead to a rise in non-performing assets (NPAs), a slowdown in economic growth, and a loss of investor confidence.

    International mechanisms for FEOs

    Some of the key international mechanisms for FEOs are:

    • Extradition treaties: Many countries have extradition treaties in place with other countries that enable them to request the extradition of individuals who have fled to other countries to avoid prosecution.
    • Mutual Legal Assistance Treaties (MLATs): MLATs are agreements between countries that facilitate the exchange of information and evidence in criminal investigations and proceedings.
    • International Conventions and Agreements: There are several international conventions and agreements that address financial crimes and provide a framework for international cooperation. Ex. UN Convention against Corruption, FATF etc.
    • INTERPOL: Interpol facilitates cross-border police cooperation and coordination. It maintains a database of wanted individuals, including FEOs, and works with member countries to locate and apprehend them.
    • Asset recovery: Such mechanisms are designed to enable countries to recover assets by means of seizure and repatriation of assets, as well as the freezing of assets to prevent FEOs from accessing them.

    Way forward

    • Strengthening domestic laws: India can strengthen its domestic laws and regulations to make it easier to prosecute FEOs and recover their assets.
    • Developing extradition treaties: India can work to develop and strengthen extradition treaties with other countries to ensure that FEOs are not able to evade justice by fleeing to other countries.
    • Enhancing international cooperation: India can enhance its cooperation with other countries and international organizations to facilitate the sharing of information and intelligence about FEOs.
    • Seizing and repatriating assets: India can work to seize and repatriate assets that have been acquired through illegal means by FEOs.
    • Improving transparency and accountability: India can improve transparency and accountability in its financial system to prevent FEOs from exploiting loopholes and engaging in illegal activities.

     

     

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  • RBI’s new pilot project on Coin Vending Machines

    coin

    The RBI in collaboration with banks is set to launch a pilot project to assess the functioning of a QR-code-based coin vending machine.

    Coin Vending Machines

    • The vending machines would dispense coins with the requisite amount being debited from the customer’s account using United Payments Interface (UPI) instead of physical tendering of banknotes.
    • Customers would be endowed the option of withdrawing coins in required quantities and denominations.
    • The central idea here is to ease the accessibility to coins.
    • With particular focus on ease and accessibility, the machines are intended to be installed at public places such as railway stations, shopping malls and marketplaces.

    Why such a move?

    • Prevent hoarding of coins: The situation with respect to coins is peculiar with the supply being very high. It is taking up a lot of storage space and is not getting properly distributed despite high demands.
    • Eliminate the physical tendering of banknotes: It was observed that the currency being fed into the machines (for coin exchange) were often found to be fake and could not be checked right at that point of time.

    Do you know?

    For perspective, coins in India are issued in denominations of 50 paise, one rupee, two rupees, five rupees, ten rupees and twenty rupees (not considering special edition coins of various denomination).

    Coins of up to 50 paise are called ‘small coins’ while those of one rupee and above are called ‘rupee coins’.

     

    How coins are significant in our economy?

    • As per the latest RBI bulletin, the total value of circulation of rupee coins stood at ₹28,857 crore as of December 30 last year. The figure is an increase of 7.2% from the year-ago period.
    • Circulation of small coins remained unchanged at ₹743 crore.
    • The figures above could be compared to the volume of digital payments until December 2022 which stood at approximately ₹9,557.4 crore, as per the Digidhan Dashboard.
    • The number is inclusive of mobile banking, internet banking, IMPS, BHIM-UPI and NEFT, among others.
    • Hence the reliance on UPI for dispensing coins is particularly noteworthy.

    Is it going against the digital push?

    • RBI is in the midst of a pilot for the Central Bank Digital Currency (CBDC).
    • But this proposal should not be viewed as a “zero-sum game of digital versus cash.”
    • The two can easily supplement each other by re-circulating existing coins in the economy.

     

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  • Current Account Deficit (CAD): Desirable and Undesirable Components

    CAD

    Central Idea

    • As per the RBI’s quarterly statistics, the current account deficit (CAD) widened to 4.4 per cent of GDP in the second quarter of 2022-23, down from 2.2 per cent in the preceding quarter. This marks a reversal from an unusual surplus of 0.9 per cent of GDP in 2020-21. In the third quarter of this financial year, while the merchandise trade deficit has widened, the CAD may witness a fall.

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    What is Current Account Deficit (CAD)?

    • Current Account Deficit (CAD) = Trade Deficit + Net Income + Net Transfers
    • A current account is a key component of balance of payments, which is the account of transactions or exchanges made between entities in a country and the rest of the world.
    • This includes a nation’s net trade in products and services, its net earnings on cross border investments including interest and dividends, and its net transfer payments such as remittances and foreign aid.
    • A CAD arises when the value of goods and services imported exceeds the value of exports, while the trade balance refers to the net balance of export and import of goods or merchandise trade.

    Components of Current Account

    1. Trade Deficit
    • Trade Deficit = Imports – Exports
    • A Country is said to have a trade deficit when it imports more goods and services than it exports.
    • Trade deficit is an economic measure of a negative balance of trade in which a country’s imports exceeds its exports.
    • A trade deficit represents an outflow of domestic currency to foreign markets.
    1. Net Income
    • Net Income = Income Earned by MNCs from their investments in India.
    • When foreign investment income exceeds the savings of the country’s residents, then the country has net income deficit.
    • Net income is measured by Payments made to foreigners in the form of dividends of domestic stocks, Interest payments on bonds and Wages paid to foreigners working in the country.
    1. Net Transfers
    • In Net Transfers, foreign residents send back money to their home countries. It also includes government grants to foreigners. It also Includes Remittances, Gifts, Donation etc.

    CAD

    India’s CADs have both desirable and undesirable components

    • Desirable:
    • A desirable deficit is a natural reflection of rising investment, portfolio choices and the demographics of the country.
    • If CADs can be financed by stable capital inflows, such as FDI inflows, they are desirable as they are less prone to capital flight.
    • Stable capital flows are desirable as they allow debtor countries, such as India, to utilize and allocate them into sectors that may yield long-term productive gains and foster higher economic growth.
    • Undesirable:
    • Large and persistent CADs can be undesirable if they reflect bigger problems such as poor export competitiveness and are financed by unstable financing.
    • If deficits are financed by volatile capital flows such as portfolio flows, there may be a cause of concern. Portfolio flows are capricious and more susceptible to reversals in case of any global financial shock.

    The countercyclical nature of India’s CAD: A matter of concern

    • Dominance of external shocks: Research suggests that the country’s CAD rises when output falls rather than when demand rises, indicating the dominance of external shocks.
    • For instance: If oil prices rise, and as oil is an input in the production process, it raises the cost of production and leads to a fall in economic growth. In this case, CADs rise with falling growth due to both the inelasticity of oil import demand as well as its major share in India’s total imports.

    Remarks to be Noted

    • Remittances and services exports have provided a counter-balance to rising merchandise trade deficits.
    • India’s services exports grew at 23.5 per cent in 2021-22.
    • While capital flows are pro-cyclical and react negatively to contractionary monetary policy by the Fed, remittances have exhibited remarkable stability.

    Challenges and a Way ahead

    • The composition of financing is crucial. While FDI inflows were enough to finance the deficit in 2021-22, these inflows have been weak in the current fiscal year.
    • Over the medium term, policymakers need to arrest the negative spillovers from the slowdown in global trade on merchandise exports.
    • Further rate hikes by the US Fed may lead to capital outflows leading to additional exchange rate market pressures. This could be challenging in the current situation as a weaker currency, coupled with a sticky import basket will lead to imported inflation.
    • Policy measures thus must facilitate exports by focusing on structural reforms to improve trade competitiveness, alongside which the government must sign free trade agreements.

    CAD

    Conclusion

    • India is currently facing the twin-deficit problem of high fiscal and CADs. While aggressive fiscal consolidation may be undesirable in the face of rising fears about a global slowdown, a comfortable external environment can be maintained by ensuring stable financing, along with using exchange rates as a shock absorber to weather the adverse global economic situation.

    Mains Question

    Q. Explain the concept of Current account deficit? India’s CAD have both desirable and undesirable components. Discuss.

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  • Invest In People For The Brighter Future

    Invest

    Central Idea

    • The world is indeed looking up to the Indian economy as a bright star, as the finance minister noted in the Budget speech on February 1. In 2020, India accounted for 20.6% of the worldwide population of 15- to 29-year-olds. Which means that in the years ahead, one out of every five workers deployed globally could be an Indian. No doubt, the rest of the world foresees a fortune in India’s young population. But are our policymakers doing enough to realise the possibilities that are unfolding?

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    The key proposals in this year’s Union budget are the following

    • Increase in capital expenditures for infrastructure: There will be a considerable increase in capital expenditures, for the building of physical infrastructure, mainly in transport, energy and defence. The figures under this head are expected to be higher in 2023-24 compared to the corresponding level in 2022-23 (revised estimates).
    • Modest tax revenue: The growth of the tax revenues is going to be modest, the government is nevertheless committed to reducing the fiscal deficit to 5.9% of GDP. That could have been achieved only by reducing the spending on some other sectors
    • The axe has fallen on subsidies and social sector expenditures: Compared to its previous year, in 2023-24, the Union government’s expenditure on food subsidy will fall by ₹0.9 trillion (or 90,000 crore), on fertilizer subsidy by ₹0.5 trillion, and on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) by ₹0.3 trillion.
    • Marginal increase unlikely to make impact: The marginal increases in the allocations on health, education, agriculture and the Angwandi scheme are unlikely to make an impact, after taking into account the effect of inflation.

    Public-private complementarities

    • Capital spending indicates country’s productive capability: A jump in capital spending by the government, as proposed in the Budget, is a much-needed step to reinvigorate the Indian economy. Investment as a proportion of income or GDP indicates the rate at which a country’s productive capabilities are growing.
    • High rates of investment; Fast rates of economic progress: In India, this proportion rose steadily during the mid-2000s and peaked at 42% in 2007, which was even better than China’s record at that point in time. High rates of investment translated into extremely fast rates of economic progress in the country, which lasted until the early 2010s.
    • Crowd in Private investments: If the proposed investments by the government come through, and they indeed crowd in private investments as the finance minister has predicted, that can set the stage for a revival of the Indian economy.

    Global financial crisis in 2007-08 was a turning point

    • China responded with high domestic investment: China responded to the crisis by increasing domestic investment, a large part of which coming from its public sector.
    • India restrained its expenditures: In India, the government restrained its expenditures, worrying about the rising fiscal deficits. As public expenditures nosedived, private investors lost confidence as well. Investment as a proportion of GDP was on a steady downward slide

    Invest

    Investing in people is an investment in the future

    • Expenditure on social sector: Public expenditures on the social sectors constitute an investment for the future more so for a country with a predominantly young population.
    • For instance: The income a destitute mother receives for work through MGNREGA may ensure that her children do not have to go to school with empty stomachs.
    • Underinvestment in education: Underinvestment in education and health will undercut India’s chances in a global economy that is increasingly dominated by knowledge. Millions of young people are denied access to affordable education and decent jobs, leading to frustration.
    • For instance: In 2022, only 2.6% of the nearly 1.9 million candidates who wrote the NEET managed to secure a seat for MBBS in a government college.
    • Government expenditure to boost to supply and demand: Government expenditure on health and education can provide a boost to both the supply and the demand fronts in a knowledge-driven economy, more new jobs as teachers and doctors, especially for women, and a greater supply of younger professionals and skilled workers.

    Importance of social sector spending for long-term growth and social welfare

    • Contrasting Capital Expenditures with Social Sector Spending: Unlike capital expenditures, which are generally considered productive, subsidies and social sector spending are often labeled as wasteful. It is commonly believed that cutting social sector spending will not harm economic growth; however, this perception is incorrect.
    • The Negative Impact of Reducing Social Sector Spending: Cutting social sector spending not only exacerbates existing social inequalities but also dampens the prospects for long-term growth.
    • For instance: In India, for example, only 9.8% of workers have access to regular jobs that provide some form of social security. Therefore, measures such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the free provision of food have been a lifeline for millions of poor Indians who have been affected by the COVID-19 pandemic and joblessness.

    Unwarranted fears about fiscal deficit

    • The Counterproductive Nature of Inflated Fears: Inflated fears about the fiscal deficit and government debt will only be counterproductive in a country possessing vast reserves of untapped human and other resources as India does.
    • India’s government debt is held largely by domestic financial institutions does not pose threat: Only a small portion of India’s public debt is owed to external agencies (amounting to 4.2% of GDP in 2022), which does not pose a threat. India’s public debt is held largely by domestic financial institutions, including public sector banks, insurance companies. This is a debt the government owes to the people of this country, whose savings the financial institutions have mobilised.
    • For example: Greece and the most recent example of Sri Lanka’s economic crisis was a result of external debt.
    • A Virtuous Cycle of Debt: Higher levels of development and incomes will lead to the creation of fresh savings, which can help pay off the debts. Borrowing to feed and educate all of its young citizens will provide asset-poor and socially disadvantaged households the opportunity to pick up qualifications required to enter the new job market.

    Invest

    Conclusion

    • For a generation of young Indians, this is, without a doubt, a ‘make or break moment’. without increased public spending on human capabilities, there is little hope for them to escape poverty, lack of skills, and discontent. However, if the government invests in food security, health, and education, India’s young people can thrive and become bright stars that illuminate the world.

    Mains question

    Q. Without increased public spending on human capabilities, there is little hope for young Indians to escape poverty and discontent. Discuss.

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  • Surya Nutan: A Stove of Green Energy Transition

    Stove

    Central Idea

    • The formal launch of the Indian Oil Corporation’s patented solar cook-stove at the India Energy Week 2023 (February 6-8, 2023 in Bengaluru as part of the G-20 calendar of events) by the Prime Minister Narendra Modi must be looked at closely from the point of view of India’s national energy story. While Mr. Modi claimed the stove would soon reach three crore households within the next few years, Union Minister for Petroleum and Natural Gas Hardeep Singh Puri called it a catalyst in accelerating adoption of low-carbon options along with biofuels, electric vehicles, and green hydrogen.

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    Salient features of Surya Nutan solar cook-stove

    • Indoor solar cooking: Surya Nutan is a Stationary, rechargeable, and always kitchen-connected indoor solar cooking.
    • Patented by Indian Oil: This is a patented product designed and developed by Indian Oil R&D Centre, Faridabad.
    • Maximum utilization of solar energy: It offers online cooking mode while charging through the Sun which maximizes the system efficiency and ensures high utilization of energy from Sun.
    • How it will work?: It collects energy from the sun, converts it into heat through a specially designed heating element, stores thermal energy in a scientifically proven thermal battery and reconverts the energy for use in indoor cooking. The energy captured not just covers day time cooking needs of a family of four but also the night meal.
    • Hybrid mode: It works on a Hybrid Mode (i.e. can work on both solar & auxiliary energy source simultaneously) which makes the Surya Nutan a reliable cooking solution for all weather conditions.
    • Minimises heat loss: Insulation design of Surya Nutan minimizes radiative and conductive heat losses.
    • Surya Nutan is available in three different models: The premium model (Breakfast +Lunch+Dinner) of Surya Nutan can cook all the meals for family of four.
    • What will be the cost: Initially, cost of the product is around Rs 12,000 for base model, and Rs. 23,000 for Top Model. However, the cost is expected to reduce substantially with economies of scale. At a price of Rs. 12,000-14,000/- for Top Model, assuming annual consumption of 6-8 LPG cylinders, this product can pay back the buyer in first 1-2 years itself.
    • Inbuilt Safety aspects: All the safety aspects required in any indoor appliances are inbuilt in Surya Nutan.
    • substitute for fossil fuels: The stove, which entails a one-time procurement cost and has zero maintenance, is being touted as a substitute for fossil fuels. It does not have a traditional battery that needs replacement. Also, the solar panel has a 25-year life.
    • Modular system: Surya Nutan is a modular system and can be designed in different sizes as per the requirement.

    India’s national energy story

    • In 1950s, the National Physical Laboratory (NPL) fabricated a solar cooker and state-led hydroelectric power but failed to address rural energy consumption.
    • Parallel efforts to improve the traditional stove proved unsuccessful, such as the Hyderabad Engineering Research Laboratories smokeless chulha.
    • 1980s government launched improved chulhas program to reduce fuelwood consumption and benefit women’s health/finances with 50% subsidy incentive. But the program failed due to construction, maintenance, and corruption issues. Women still rely on chulha despite hazards.
    • Cooking is 80% of rural Indian household’s energy use. 668m people in India use biomass for cooking/lighting, despite LPG scheme success. Fuel price inflation and subsidy withdrawal force women to use chulha with hazards.

    India Energy Week 2023

    • India’s G20 Presidency: India Energy Week 2023 is being organised during India’s G20 Presidency, under the tagline “Growth, Collaboration, Transition”, from 6-8 February 2023 in Bengaluru.
    • Opportunity for India: It provided a unique opportunity to showcase India as both an engine of global economic growth and a driver for global consumption, supported by a conducive and investment-friendly environment, and a skilled workforce.
    • Opportunity for strategic policy making and knowledge sharing: IEW 2023 was an unprecedented opportunity for regional, international leaders and CEOs to come together for strategic policy making and technical knowledge sharing.

    Why In India?

    • India is projected to witness the largest increase in energy demand of any country over the next two decades, as its economy continues to grow and create opportunities for its people to fulfil their potential.
    • India’s share in global energy consumption will rise from 7% to 14% by 2050
    • IEA predicts India will account for 25% of energy demand growth from 2020 to 2040
    • India’s oil and gas demand will triple by 2050
    • Gas consumption to grow threefold by 2030
    • Share of gas in energy mix to rise from 6.3% today to 15% by 2030

    Do you know “THE PANCHAMRIT” (The five-nectar-element commitments)?

    1. Indian Will take its non-fossil energy capacity to 500 GW by 2030.
    2. Indian will meet 50 % of its energy requirements from renewable energy by 2030.
    3. India will reduce the total projected carbon emissions by one billion tonnes from now till 2030.
    4. By 2030, India will reduce the carbon intensity of its economy by less than 45 percent.
    5. By the year 2070, India will achieve the target of net zero

    Conclusion

    • Surya Nutan has the potential to transform our energy security situation, as India currently imports 50% of its LPG requirements. It also reduces India’s CO2 emissions drastically and keeps our citizens insulated from the vagaries of the high international fossil fuel prices. India’s energy transition will play a pivotal role in global energy markets. India Energy Week comes at a critical time, with the challenges of energy security and environmental sustainability impacting long-term energy transition and paths towards decarbonisation.

    Mains Question

    Q. Indian Oil Corporation recently launched the Surya Nutan a solar cook-stove at the India Energy Week 2023. Discuss its salient features and potential benefits for energy security for rural households.

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  • India ranks 42 among 55 countries on International IP Index

    ip

    India ranks 42nd among 55 leading global economies on the International Intellectual Property (IP) Index released by the US Chambers of Commerce.

    International IP Index

    • It is released annually by the US Chamber of Commerce.
    • The index evaluates IP rights in 55 global economies across 50 unique indicators.
    • The indicators include patent and copyright policies to commercialization of IP assets, and ratification of international treaties.
    • The index aims to help nations navigate toward a brighter economic future marked by greater innovation, creativity, and competitiveness.

    Key prospects for India

    • India is ripe to become a leader for emerging markets seeking to transform their economy through IP-driven innovation said the report.
    • Successful IP-based businesses in India include pharmaceutical companies, software firms, and creative industries.

    Key factors contributing to India’s score

    • IP laws
    • Efficiency of its judicial system and
    • Level of enforcement of IP rights

    Challenges faced

    • These are some challenges faced by Indian companies in protecting and monetizing their IP include issues such as-
    1. Counterfeiting
    2. Piracy
    3. Weak enforcement of IP laws

    IP regime in India

    Broadly, the following acts deal with the protection of intellectual property:

    • Trade Marks Act, 1999
    • The Patents Act, 1970 (as amended in 2005)
    • The Copyright Act, 1957
    • The Designs Act, 2000
    • The Geographical Indications of Goods (Registration and Protection) Act, 1999
    • The Semiconductor Integrated Circuits Layout Design Act, 2000
    • The Protection of Plant Varieties and Farmers’ Right Act, 2001
    • The Information Technology Act, 2000

    Way forward

    • India must undertake reforms to strengthen IP protection and enforcement, modernizing IP laws, and increasing investment in IP infrastructure.
    • Collaboration between government, industry, and academia is important in improving India’s IP ecosystem/
    • Lessons can be learned from other countries with successful IP regimes, such as the United States, Japan, and South Korea.

     

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