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Subject: Economics

  • Mapping India’s Export Hotspots

    export

    Central idea: The article discusses the top exporting districts in India and their contribution to the country’s overall exports. It also provides information on the top exported commodities in each district.

    Top Exporting Districts in India

    Rank District State Share of India’s Exports
    1 Jamnagar Gujarat 24%
    2 Surat Gujarat 4.5%
    3 Mumbai Suburban Maharashtra 4.5%
    4 Dakshina Kannada Karnataka –
    5 Devbhumi Dwarka, Bharuch, Kachchh Gujarat –
    6 Mumbai Maharashtra –
    7 Kancheepuram Tamil Nadu –
    8 Gautam Buddha Nagar Uttar Pradesh –

     

    Top Exporting Districts in Each State

    • Map 1 shows the district that formed the highest share of a State’s exports in FY23.
    • The size of the circle in the map corresponds to the value of exports.
    • Most top exporting districts in the north-eastern States formed as much as 90% of a State’s exports, while some top exporting districts formed only around 20% of a State’s exports.

    Top Exported Commodities

    • Jamnagar’s dominance can be attributed to the fact that it formed a lion’s share of India’s surging petroleum exports, while Kancheepuram’s most exported commodity was smartphones.
    • Map 1 also lists the top exported commodity of the top exporting districts in each State.

    Top Exporting Districts for Each Commodity

    • Maps 2A-2F show the top five exporting districts for the top six commodities exported by India.
    • They include petroleum products, precious stones and jewellery, rice, wheat and other cereals, smartphones and electronic parts, vehicles other than railways, and pharmaceutical products.

    Share of Top Exporting Commodity

    • Table 3 shows the share of the top exporting commodity of the top exporting district in India’s total exports.
    • For instance, Jamnagar’s petroleum products export formed 67% of India’s total exports for that commodity, while Surat’s precious stones and jewellery exports formed 36% of India’s total exports for that commodity.

     

  • WTO panel rules against India in IT tariffs dispute

     

    A World Trade Organization (WTO) panel has ruled that India has violated global trading rules in a dispute with the European Union (EU), Japan, and Taiwan over import duties on IT products.

    About World Trade Organization (WTO)

    Details
    Purpose Regulate and facilitate international trade between nations
    Establishment 1995
    Headquarters Geneva, Switzerland
    Membership 164 member countries as of 2023, representing over 98% of global trade
    Goal Promote free and fair trade by negotiating and enforcing rules and agreements governing international trade
    Agreements Administers a number of agreements, including GATT, SPS Agreement, and TRIPS Agreement
    Dispute Resolution Operates a dispute settlement system to resolve conflicts between member countries
    Technical Assistance Provides technical assistance and training to help developing countries participate more effectively in international trade
    Decision-Making Body Ministerial Conference, which meets every two years
    Director-General Chief executive responsible for overseeing the organization’s operations and activities
    Criticisms Some criticize the WTO for being undemocratic, favoring developed countries, and not doing enough to promote labor and environmental standards in international trade

     

    What was the case?

    • The case involved a dispute over India’s introduction of import duties ranging from 7.5% to 20% on a wide range of IT products, including mobile phones, components, and integrated circuits.
    • The EU, Japan, and Taiwan challenged these import duties in 2019, arguing that they exceeded the maximum rate allowed under global trading rules.
    • The recent ruling by the WTO panel found that India had violated these rules and recommended that India bring its measures into conformity with its obligations.

    WTO Panel’s Ruling

    • The WTO panel has ruled that India violated global trading rules by imposing these import duties.
    • The panel recommended that India bring these measures into conformity with its obligations.
    • While the panel broadly backed the complaints against India, it rejected one of Japan’s claims that India’s customs notification lacked “predictability”.

    Implications of the ruling

    • The EU is India’s third-largest trading partner, accounting for 10.8% of total Indian trade in 2021, according to the European Commission.
    • The ruling could have implications for trade relations between India and the EU, as well as Japan and Taiwan.
    • India may be required to lower or eliminate the challenged import duties.
    • It remains to be seen whether India will appeal against the ruling.
    • If it does, the case will sit in legal purgatory since the WTO’s top appeals bench is no longer functioning due to US opposition to judge appointments.

    Conclusion

    • The panel recommended that India bring such measures into conformity with its obligations, and it remains to be seen whether India will appeal against the ruling.
    • The case highlights the importance of complying with global trading rules and the role of the WTO in resolving trade disputes between countries.

     

  • India’s Forex Reserves rise $6.30 bn to $584.75 bn

    forex

    India’s forex reserves increased by $6.306 billion to $584.755 billion last week, according to the Reserve Bank of India (RBI).

    Why discuss this?

    • In October 2021, India’s forex reserves reached an all-time high of $645 billion.
    • Since then, the reserves have been declining.

    What is Foreign Exchange (Forex) Reserve?

    • Foreign exchange reserves are important assets held by the central bank in foreign currencies as reserves.
    • They are commonly used to support the exchange rate and set monetary policy.
    • In India’s case, foreign reserves include Gold, Dollars, and the IMF’s quota for Special Drawing Rights.
    • Most of the reserves are usually held in US dollars, given the currency’s importance in the international financial and trading system.
    • Some central banks keep reserves in Euros, British pounds, Japanese yen, or Chinese yuan, in addition to their US dollar reserves.

    India’s forex reserves cover:

    1. Foreign Currency Assets (FCAs)
    2. Special Drawing Rights (SDRs)
    3. Gold Reserves
    4. Reserve position with the International Monetary Fund (IMF)

    Countries with the highest foreign reserves

    • Currently, China has the largest reserves followed by Japan and Switzerland.
    • India earlier overtook Russia to become the fourth-largest country with foreign exchange reserves. (Data from August 2022)
    1. China – $3,349 Billion
    2. Japan – $1,376 Billion
    3. Switzerland – $1,074 Billion
    4. Russia – $597.40 Billion

    Why are these reserves so important?

    • All international transactions are settled in US dollars and, therefore, required to support India’s imports.
    • More importantly, they need to maintain support and confidence for central bank action, whether monetary policy action or any exchange rate intervention to support the domestic currency.
    • It also helps to limit any vulnerability due to sudden disturbances in foreign capital flows, which may arise during a crisis.
    • Holding liquid foreign currency provides a cushion against such effects and provides confidence that there will still be enough foreign exchange to help the country with crucial imports in case of external shocks.

    Initiatives taken by the government to increase forex

    • To increase the foreign exchange reserves, the Government of India has taken many initiatives like AatmaNirbhar Bharat, in which India has to be made a self-reliant nation so that India does not have to import things that India can produce.
    • Other than AatmaNirbhar Bharat, the government has started schemes like Duty Exemption Scheme, Remission of Duty or Taxes on Export Product (RoDTEP), Nirvik (Niryat Rin Vikas Yojana) scheme, etc.
    • Apart from these schemes, India is one of the top countries that attracted the highest amount of Foreign Direct Investment, thereby improving India’s foreign exchange reserves.

  • Dabba Trading and its impact on the Economy

    dabba

    Central idea

    • The National Stock Exchange (NSE) has issued a series of notices warning retail investors about entities involved in ‘dabba trading’.
    • The NSE cautioned investors not to subscribe or invest using these products offering indicative, assured or guaranteed returns in the stock market as they are prohibited by law.
    • The entities involved in dabba trading are not recognized as authorized members by the exchange.

    What is Dabba Trading?

    • Dabba (Box) trading refers to informal trading that takes place outside the purview of the stock exchanges.
    • It involves betting on stock price movements without incurring a real transaction to take physical ownership of a particular stock as is done in an exchange.
    • In simple words, it is gambling centred around stock price movements.

    How does it work?

    • In dabba trading, investors place bets on stock price movements at a certain price point.
    • If the price point rises, they make a gain, and if it falls, they have to pay the difference to the dabba broker.
    • The broker’s profit from the investor’s loss, and vice versa.
    • Transactions are facilitated using cash and unrecognised software terminals or informal records, which helps traders stay outside the regulatory mechanism.

    What are the problems with dabba trading?

    • Since dabba traders do not maintain proper records of income or gain, they are able to escape taxation, which results in a loss to the government exchequer.
    • The use of cash also means that they are outside the purview of the formal banking system.
    • Investors in dabba trading do not have formal provisions for investor protection or grievance redressal mechanisms available within an exchange, which exposes them to the risk of broker defaults or insolvency.
    • Dabba trading also perpetuates a parallel economy, potentially encouraging the growth of black money and criminal activities.

    What is the current scenario?

    • Industry observers have reported that dabba brokers harass clients for default payments and refuse payments upon profit.
    • Potential investors are lured by aggressive marketing, ease of trading using apps with quality interfaces, and lack of identity verification.
    • Brokers keep their fees and margins open to negotiation depending on an individual’s trading profile.
    • The mechanism could potentially induce volatility and cause losses for the regulated bourse when dabba brokers look to hedge their exposures.

    What are the legal implications?

    • Dabba trading is recognised as an offence under Section 23(1) of the Securities Contracts (Regulation) Act (SCRA), 1956.
    • Upon conviction, it can invite imprisonment for a term extending up to 10 years or a fine up to ₹25 crore, or both.

     

  • What is MUDRA Scheme?

    mudra

    PM hit out at people ridiculing the Pradhan Mantri Mudra Yojana (PMMY) and said those who gave loans to big businessmen “over phone” never understood the power of microfinance.

    MUDRA Scheme

    • MUDRA (Micro Units Development and Refinance Agency) Scheme is a financial initiative launched by the Government of India in April 2015 to provide financial support to micro-enterprises in India.
    • The scheme is designed to cater to the financial needs of the non-corporate, non-farm sector enterprises in the country.
    • The objective of the scheme is to promote entrepreneurship, employment generation, and to provide access to finance to small and micro-businesses in India.

    Range of loans

    • The MUDRA scheme provides loans ranging from Rs. 50,000 to Rs. 10 lakhs to small and micro-businesses.
    • These loans are provided through various financial institutions such as banks, microfinance institutions, and non-banking financial companies (NBFCs).
    • The scheme also offers refinance support to these institutions.
    Category Loan Amount
    Shishu Up to Rs. 50,000
    Kishore Rs. 50,001 to Rs. 5 lakhs
    Tarun Rs. 5 lakhs to Rs. 10 lakhs

    Key features of the MUDRA scheme

    • Refinance support: The scheme offers refinance support to various financial institutions, such as banks, microfinance institutions, and non-banking financial companies (NBFCs), to provide loans to small and micro-businesses.
    • Employment generation: The scheme aims to promote entrepreneurship and employment generation in the country.
    • Digitalization of financial transactions: The scheme has helped in promoting the digitalization of financial transactions.
    • Focus on underprivileged and marginalized sections: The scheme aims to provide financial assistance to underprivileged and marginalized sections of the society, especially those belonging to the non-corporate, non-farm sector enterprises in the country.
    • Simplified loan processing: The loan processing under the scheme is simplified and requires minimal documentation.
    • No collateral requirement: The loans provided under the scheme do not require any collateral or security.
    • Competitive Interest rate: The interest rate for the loans provided under the scheme is competitive and affordable.

     

  • Inflation in India is Driven by Food Prices

    Inflation in India

    Central Idea

    • The recent trajectory of inflation in India is attributed to the pricing power of five big corporates or ‘Big 5’ according to former Deputy Governor of Reserve Bank of India, Viral Acharya. However, the argument is flawed as the Indian inflation is different from the rest of the world, and it is driven by food price inflation. While corporate pricing power does exist, it is limited, and the extent to which it drives overall inflation is still debatable.

    The factor of food price inflation

    1. Divergence between Indian and Western inflation rates is not new:
    • Sudden surge of Inflation in India: After the global financial crisis of 2008, Indian inflation surged higher than the economies of the US and UK due to food price inflation caused by negative agricultural shocks and high procurement price hikes.
    • Core inflation: Food-price inflation tends to feed into core inflation, so it would be hasty to conclude that Indian inflation is higher than the West today due to corporate pricing power.
    • Food price inflation: Evidence suggests that in India, food price inflation affects core inflation, and food price inflation enters costs of the non-agricultural sector.
    1. Corporate pricing power in India:
    • Corporate pricing power and overall inflation: Corporate pricing power exists in Indian industry, but the extent to which it drives overall inflation in India is debatable. The question is how much corporate power is driving inflation beyond its obvious role in elevating the price level.
    • Prices of food: To measure inflation without considering the price of food is to exclude what matters most to the public, as opposed to central bankers.
    • Inflation control strategy: India’s inflation control strategy needs to address the challenge of ensuring the production of food at affordable prices.
    1. Comparing WP inflation with CP inflation
    • Comparing WP inflation with CP inflation is to acquiesce in a mismatch.
    • The commodity basket corresponding to CP includes items that do not enter the wholesale price index, so we would be comparing apples with oranges.

    Inflation in India

    The argument is based on a short time period

    • WP inflation has eased considerably in the six months preceding March 2023, but CP inflation has not. However, a mismatch between WP and CP inflations is not new.
    • So, the maintenance of high price increases by firms in the retail sector even after wholesale price inflation has declined in 2022-23 may just be a compensating mechanism, i.e., the rising input cost of the retail sector is being passed on with a lag.

    Facts for prelims: WP inflation VS CP inflation

    Aspect Wholesale Price (WP) Inflation Consumer Price (CP) Inflation
    Definition Measures the change in average price level of goods sold by producers at the wholesale level Measures the change in average price level of goods and services purchased by households
    Captures Changes in prices of goods before they reach the retail market Changes in prices of goods and services at the retail level
    Indicator of Early indicator of changes in overall price level of economy Inflation that households experience in their day-to-day lives
    Impact Affects production cost and supply chain Affects purchasing power of consumers
    Calculation Based on price changes of goods sold in bulk to retailers or other businesses Based on price changes of goods and services purchased by households
    Usage Used by policymakers to monitor changes in cost of production and production-level inflation Used by policymakers to monitor inflation and make decisions related to monetary policy
    Examples Wholesale prices of raw materials, oil, and other commodities Retail prices of food, clothing, transportation, and other consumer goods and services

    Rising food prices driving current inflation

    • Over 75% of the direct contribution to inflation in the first three quarters of the financial year came from sectors in which the Big 5 are unlikely to be represented in a big way.
    • The contribution of food products alone was close to 50% in most time periods.
    • Rising food prices are driving current inflation in India.

    The current inflation control strategy

    • Considerable rise in food prices: In India, food prices have only risen, and in recent years their rate of inflation has been very high. For all the reforms since 1991, the real price of food, i.e., its price relative to the general price level, has risen considerably.
    • What matters most to public must be considered: In the context, to measure inflation without considering the price of food is to exclude what matters most to the public, as opposed to central bankers.
    • Current strategy restricted to using the interest rate to dampen aggregate demand: India’s inflation control strategy is currently restricted to using the interest rate to dampen aggregate demand. This strategy avoids addressing the challenge of ensuring the production of affordable food.
    • Question mark on RBI’s ability to control inflation: The RBI has been unable to control even the core inflation which central banks are assumed to be able to control. A recent intervention explaining core inflation in India has highlighted the RBI’s inability to control inflation.

    Conclusion

    • Inflation is being discussed only in terms of core inflation, which excludes the inflation in food and fuel prices because these prices tend to fluctuate and even out the changes, so it is assumed that they do not require a policy response. However, this assumption is flawed in the context of India’s economy, as food and fuel prices have a significant impact on the economy and people’s livelihoods. Therefore, limiting the discussion to core inflation ignores the role of corporate pricing power and the impact of food and fuel prices on the economy.

    Mains Question

    Q. What is the factor that primarily drives inflation in India? Highlight the relationship between food price inflation and overall inflation in India?

  • What is the Amul versus KMF controversy?

    amul

    Central idea

    • Amul, the country’s largest dairy player, announced on April 5 that it would supply milk and curd through e-commerce portals in Bengaluru.
    • The announcement was met with opposition from Kannadigas, who saw it as an attempt to threaten the iconic Nandini milk brand of the Karnataka Milk Federation (KMF).

    Political Controversy

    • The Amul vs. KMF row turned into a political tool in poll-bound Karnataka.
    • Dissenting sections expressed fears that Amul would eat into the market of Nandini and pose a threat to its business in the state.
    • The ruling government was accused of attempting to privatize the milk sector and “finish off” a home-grown product.

    A quick backgrounder

    • Both Amul Dairy and KMF are successful examples of adopting the three-tiered ‘Anand’ model of dairy procurement.
    • Farmers supply milk to dairy cooperatives at the village level, which is then procured by milk unions at the district and state levels.
    • There are 16 district milk unions in Karnataka supplying milk to the dairy cooperatives.
    • KMF provides competitive prices to dairy farmers.
    • KMF corners most of the market share for surplus milk provided by farmers in the state.

    Anand Model of Dairy Procurement

    • It is a system of milk collection and distribution pioneered by the Amul cooperative in Anand, Gujarat, India.
    • This model has revolutionized the dairy industry in India by providing a fair price to dairy farmers, eliminating the need for middlemen, and improving the quality of milk.
    • Under the Anand model, farmers are organized into dairy cooperatives, which collect and market their milk.
    • The cooperatives are managed by the farmers themselves and are supported by the infrastructure and marketing expertise of the Amul cooperative.
    • The farmers are paid a fair price for their milk, which is based on its quality and quantity, and they receive regular payments for their milk.

    Why are people protesting?

    • Overpricing: The pricing difference between Amul’s toned milk and Nandini’s toned milk was highlighted, with Amul’s milk priced at ₹54 per litre and Nandini’s at ₹39 per litre.
    • Unhealthy competition: KMF’s online presence in the state could create unhealthy competition with Amul’s online presence, despite the pricing difference, according to the federation.

    The turf war

    • The KMF is the second-largest milk cooperative in India after Amul.
    • While Amul and KMF compete in neutral regions like Mumbai, Nagpur, Goa, Hyderabad, and Chennai markets, they have not clashed on home turfs.
    • Karnataka is a milk-excess market that meets the needs of the state and exports surplus to other states.
    • KMF plans to write to the National Dairy Development Board, requesting it to direct Amul not to venture into the Bengaluru market and concentrate on milk-deficient states.

    Clarification by Amul

    • Amul clarified that it was launching its fresh milk and curd only for a niche market through e-commerce channels and not through the mass market distribution network.

     

  • Zojila Tunnel to revolutionise connectivity to Ladakh

    zojila

    Union Transport Minister recently visited the Zojila Tunnel In Jammu & Kashmir which is Asia’s longest as well as highest.

    About Zojila Tunnel

    • The Zojila tunnel is an upcoming 14.15 km road tunnel that will connect Srinagar and Leh in the Union Territory of Ladakh.
    • It is being constructed as part of a project to improve connectivity in the region, with a connecting tunnel from Z-Morh to the Zojila tunnel also being built.
    • The tunnel is being built at a cost of more than Rs 4,600 crore and is expected to be completed by December 2023.

    Need for the tunnel

    • All weather connectivity: The Zojila Pass is closed during harsh winters due to fears of avalanches, landslides, and slippery roads, cutting off areas beyond the pass from the rest of the country for at least five months.
    • Military mobilization: The upcoming Zojila tunnel will provide perennial connectivity between Ladakh and the rest of the country and benefit both civilians and the military.
    • Time and effort saving: The distance from Baltal to Minamarg, currently 40 km, will come down to 13 km, with travel time expected to be cut by an hour and a half.

  • Lessons Learned: Transition To A Self-reliant Clean Energy System

    Central Idea

    • Lessons learned from the liberalization of upstream petroleum sector can guide India’s transition to a self-reliant clean energy system.

    Background

    • In 1980, then-Prime Minister Indira Gandhi took a significant step in liberalizing the upstream petroleum sector in India. This move aimed to reduce the country’s reliance on external sources for petroleum and protect it from supply shocks. However, the liberalization did not bridge the gap between domestic demand and indigenous supply.
    • In 2020, Prime Minister Narendra Modi introduced the production-linked incentive (PLI) scheme to promote investment in minerals, components, and equipment required for the generation and consumption of clean energy. This decision was driven by the strategic imperative to transition to a self-reliant clean energy system and reduce dependence on external sources of energy.

    Bridging the gap between demand and supply in the clean energy sector

    • Demand and supply gap: The liberalization of upstream petroleum did not bridge the gap between the domestic demand for petroleum and indigenous supply.
    • Capital is not enough: The clean energy sector must not presume that the availability of technical talent and capital will be enough to create a world-class hub for the manufacture of batteries, solar cells, wafers, and modules.

    Efficient Implementation of Technology in Clean Energy Sector

    • India’s oil and gas producing average: The recovery rate of oil and gas from India’s producing fields has averaged between 25-30%, while fields of comparable geology across the world have a recovery rate between 40-60%.
    • China’s dominance in clean energy value chain: China’s dominance of the clean energy value chain is because its process engineers have perfected the implementation of the several technological steps required to convert raw material into end product.

    Reduce entry barriers and improve business condition

    • India cannot compete on the size of the incentive package, and the endeavor should instead be to lower entry barriers, ease business conditions and remove the perception that India offers a high-cost operating environment.

    India’s Dependency on External Market and Two-Track Policy with China

    • India remains dependent on the external market for supplies of petroleum, but the country should desist from building a high-cost, domestic, clean energy hub that is forever dependent on subsidies.
    • India should continue with its two-track policy and strengthen its trading relationship with China.

    Conclusion

    • India can learn from the lessons of the last 40 years to transition to a self-reliant clean energy system. The country needs to focus on creating an enabling ecosystem, efficiently utilizing technology, and easing business conditions to attract international investment. India should focus on trading relationships and not build a high-cost, domestic clean energy hub dependent on subsidies.

    Mains Question

    Q. India’s clean energy sector has enormous potential for growth, however there is a gap between domestic demand and indigenous supply. What specific measures can India take to bridge this gap and emerge as global leader in renewable energy?

  • [pib] State Energy Efficiency Index, 2021-22

    energy

    The Union Minister of Power and New & Renewable Energy has released the report of State Energy Efficiency Index (SEEI) 2021-22.

    State Energy Efficiency Index

    • The SEEI 2021-22 has been developed by Bureau of Energy Efficiency (BEE) in collaboration with Alliance for an Energy Efficient Economy (AEEE).
    • SEEI 2021-22 consists of 50 indicators (common and programme-specific) spanning 7 sectors – buildings, industry, municipal services, transport, agriculture, DISCOMs, and cross-sector.
    • 36 states and union territories have been assessed for their energy efficiency progress in FY 2020- 21 and FY 2021-22 in SEEI 2021-22.
    • Based on their efforts and achievements, states have been classified as ‘Front runner’, ‘Achiever’, ‘Contender’, and ‘Aspirant’.

    Highlights of the 2021-22 report

    Category States
    Front Runner (>60 points) Andhra Pradesh, Karnataka, Kerala, Rajasthan, Telangana
    Achiever (50-60 points) Assam, Haryana, Maharashtra, Punjab

     

    Importance of SEEI

    • The SEEI improves data collection, enables cross-state collaboration, and develops energy efficiency program ideas.
    • It helps states identify areas for improvement, learn from best practices, and adopt an economy-wide approach to energy efficiency implementation.
    • By prioritizing energy efficiency, it aims at driving decarbonization efforts and achieving a more sustainable future.

    Key recommendations of the report

    The report outlines the following recommendations to help states drive change in EE which will contribute towards the fulfillment of SDGs and NDC:

    • Enabling fiscal assistance for energy efficiency in the focus sectors.
    • Developing institutional capacity in states and UTs to address emerging needs and challenges in energy efficiency implementation.
    • Enhancing cross-functional collaborations across financial institutions, energy service companies, and energy professionals in large-scale energy efficiency implementation in states.
    • Mainstreaming energy data reporting and monitoring across sectors.

    Back2Basics: Bureau of Energy Efficiency (BEE)

    • BEE was established by the Government of India on 1st March 2002 under the provisions of the Energy Conservation Act, 2001.
    • The primary objective of BEE is to reduce the energy intensity of the Indian economy by developing policies and strategies based on self-regulation and market principles.
    • BEE coordinates with designated consumers, designated agencies, and other organizations to perform its functions under the Energy Conservation Act.
    • The Energy Conservation Act provides for both regulatory and promotional functions for BEE.
    • BEE’s role includes recognizing, identifying, and utilizing existing resources and infrastructure to promote energy conservation and efficiency.
    • It works towards driving energy efficiency policies and programs at the state and local level, enabling cross-state collaboration and developing energy efficiency program ideas.