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Subject: Economics

  • Kerala’s 5 agricultural products get GI Tag

    gi

    Five agricultural products of Kerala have been granted Geographical Indication (GI) status.

    Which are the 5 GI products?

    • These are the latest Geographical Indications that have been registered-
    1. Attappady Attukombu Avara: It cultivated in the Attappady region of Palakkad, is curved like a goat’s horn as its name indicates. Its higher anthocyanin content compared to other dolichos beans imparts violet colour in the stem and fruits. Anthocyanin is helpful against cardiovascular diseases along with its antidiabetic properties. Other than this, calcium, protein, and fibre content are also high. The higher phenolic content of imparts resistance against pest and diseases, making the crop suitable for organic cultivation.
    2. Attappady Thuvara: It is having seeds with white coat. Compared to other red grams, Attappady Thuvara seeds are bigger and have higher seed weight. This delicious red gram, which is used as vegetable and dal, is rich in protein, carbohydrate, fibre, calcium and magnesium.
    3. Kanthalloor-Vattavada Veluthulli (garlic): Compared to the garlic produced in other areas, this garlic contains higher amount of sulphides, flavonoids, and proteins. It is rich in allicin, which is effective against microbial infections, blood sugar, cancer, cholesterol, heart diseases, and damages to blood vessels. The garlic cultivated in this area is also rich in essential oil.
    4. Onattukara Ellu and its oil: It is famous for its unique health benefits. Relatively higher antioxidant content in Onattukara Ellu helps in fighting the free radicals, which destroy the body cells. Also, the high content of unsaturated fat makes it beneficial for heart patients.
    5. Kodungalloor Pottuvellari: It is cultivated in Kodungalloor and parts of Ernakulam is consumed as juice and in other forms. This snap melon, which is harvested in summer, is an excellent for quenching thirst. It contains high amount of Vitamin C. Compared to other cucurbits, nutrients such as calcium, magnesium, fibre and fat content are also high in that.
    • The unique features of the products, imparted by the agro-climatic conditions of the geographical area of their production, are the basis for getting a GI tag.

    What are the other GIs tags awarded?

    Adding to the present collection of Geographical Indications (GIs), nine new items, including-

    1. Gamocha of Assam
    2. Tandur red gram of Telangana
    3. Raktsey Karpo apricot of Ladakh, and
    4. Alibag white onion of Maharashtra

     

    Do you know?

    Karnataka and Tamil Nadu are states with the highest number of GI tags, followed by Kerala (35), Uttar Pradesh (34), and Maharashtra (31).

     

    About GI Tag

    • Recognised by the World Trade Organization (WTO), GI is used to denote the geographical territory from where a product, be it agricultural produce, natural product, or manufactured.
    • It conveys the assurance of quality, distinctiveness, and attributes that are unique to that specific geographic region/place of origin.
    • India became a signatory to this convention, when, as a member of WTO, it enacted the Geographical Indications (Registration and Protection) Act, 1999, which came into effect on September 15, 2003.
    • To protect the GI of goods, a GI registry has been established to administer the GI of Goods (Registration and Protection) Act, 1999, under the Controller General of Patents, Designs & Trade Marks.

     

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  • Road ministry notifies new rules on BH Series registration mark for vehicles

    bh series

    The Ministry of Road Transport and Highway has notified new rules to further increase the scope of implementation of the BH series registrations for vehicles.

    What is the update?

    The transport ministry has proposed new rules that would permit transfer of vehicles with BH series registration mark to other persons, who are eligible or ineligible for the getting the series.

    What is Bharat series (BH-series)?

    • There was a procedure of re-registration of a vehicle while moving to another state.
    • A vehicle bearing BH registration mark shall not require assignment of a new registration mark when the owner of the vehicle shifts from one State to another.
    • Format of Bharat series (BH-series) Registration Mark –

    Registration Mark Format:

    1. YY BH #### XX
    2. YY – Year of first registration
    3. BH- Code for Bharat Series
    4. ####- 0000 to 9999 (randomized)
    5. XX- Alphabets (AA to ZZ)

    Why such move?

    • Station relocation occurs with both Government and private sector employees.
    • Such movements create a sense of unease in the minds of such employees with regard to transfer of registration from the parent state to another state.
    • Under section 47 of the Motor Vehicles Act, 1988, a person is allowed to keep the vehicle for not more than 12 months in any state other than the state where the vehicle is registered.

    Who can get this BH series?

    • BH-series will be available on voluntary basis to Defense personnel, employees of Central Government/ State Government/ Central/ State PSUs and private sector companies/organizations.
    • The motor vehicle tax will be levied for two years or in multiple of two.
    • This scheme will facilitate free movement of personal vehicles across States/UTs of India upon relocation to a new State/UT.
    • After completion of the fourteenth year, the motor vehicle tax shall be levied annually which shall be half of the amount which was charged earlier for that vehicle.

     

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  • India’s Current Account Deficit (CAD) Strategy amidst the Global Uncertainty

    Deficit

    Context

    • There seems to be considerable optimism about India’s near-term growth prospects now that the major global energy and commodity shocks have subsided. Even if these shocks have subsided, India still faces one big problem of its large current account deficit (CAD). How will this be managed? It turns out that the answer to both questions lies in one word exports.

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    Deficit

    What is Current Account Deficit (CAD)?

    • 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.
    • CAD = Trade Deficit + Net Income from Abroad + Net transfers

    What has been the recent trend?

    • Swelling CAD: Over the past year, the post-pandemic normalisation has caused the current account deficit to swell to exceptional proportions.
    • Decline in demand abroad: At home, normalisation has spurred a renewed demand for imported inputs. But abroad, it has had the opposite effect, leading to a decline in demand.
    • India’s import soared while exports fell: Foreign households are no longer demanding so many goods now that the lockdowns that kept them in their houses and the fiscal stimuli that gave them the money to spend have both ended. So, India’s imports have soared just at a time when its merchandise exports have started to fall.
    • Statistics for instance: The difference between the value of goods imported and exported fell to $54.48 million in Q4FY 2021-22 from $59.75 million in Q3 FY2021-22.
    • Service sector is saviour: However, based on robust performance by computer and business services, net service receipts rose both sequentially and, on a year, -on-year basis.

    Future projections

    • Looking ahead, the situation seems set to worsen: Foreign demand will slow further as advanced countries slip into what now seem like inevitable recessions.
    • In the backdrop of recession India’s CAD could widen further: In that case, India’s CAD could widen even further, possibly to four per cent of GDP in 2022-23, double the level that the Reserve Bank of India (RBI) traditionally regards as “safe”.

    Deficit

    Analysis: How should India respond?

    1. Attracting foreign capital inflow: Attract foreign capital inflows worth at least four per cent of GDP.
    • Is this realistic in time of global uncertainty: The world is currently facing unprecedented levels of uncertainty. Two years of the pandemic, now a land war in Europe, inflation and energy crisis in Europe, interest rate hikes in the history of the US Federal Reserve, slowdown in china, etc. In such an uncertain environment, foreign investors prefer to invest in safe assets such as US government bonds rather than emerging markets like India. As a result, India has witnessed large outflows of foreign capital in 2022-23
    1. Deploying RBI’s Forex to pay for imports: If India cannot attract the required amount of capital inflows, the RBI’s foreign exchange reserves could be deployed to pay for imports.
    • Is this strategy sustainable: The country’s reserves are meant to tide the country over short-term problems, such as commodity price spikes. India’s merchandise exports have been structurally weak, stagnating for the past decade, until the pandemic induced a short-lived boom.

    Deficit

    How depreciating rupee could be helpful?

    • Price needs to be adjusted by depreciating rupee: This means that something fundamental needs to change. Ultimately, India’s CAD reflects a mismatch between the demand and supply of foreign exchange. To restore balance, first and foremost, the price needs to adjust, that is, the rupee needs to depreciate.
    • Exporting becomes more profitable: When this happens, exporting becomes more profitable, inducing more and more firms to explore foreign markets. Meanwhile, foreign demand improves, because the rupee depreciation makes India’s products more price-competitive. As a result, exports increase and the CAD falls.
    • Exchange rate depreciation is helpful in sustained growth: The recovery of the Indian economy from the pandemic was largely fuelled by exports. But with exports now declining, this crucial source of growth has now become uncertain for India. Strengthening the export sector is, therefore, critical for sustaining growth.

    Way forward

    1. Allow the rupee to depreciate,
    2. Encourage foreign firms to produce in India by letting them access their supply chains,
    3. Encourage domestic firms to step up to the competition, and
    4. Create a level playing field for all players.

    Conclusion

    • The large CAD, however, is not a short-term problem: It is a long-term problem requiring a long-term solution. By adopting the discussed strategy, India could potentially solve its two most important macroeconomic problems that are reducing the large CAD and securing rapid, sustained growth.

    Mains question

    Q. What is Current account deficit (CAD)? In a time of global uncertainty How India can reduce its large CAD and secure sustained growth. Analyze

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  • [pib] Social Progress Index (SPI) for states and districts

    Economic Advisory Council to Prime Minister (EAC-PM) will release the Social Progress Index (SPI) for states and districts of India on December 20, 2022.

    Social Progress Index (SPI) Report

    • SPI is a comprehensive tool intended to be a holistic measure of the Social Progress made by the country at the national and sub-national levels.
    • The report has been prepared by Institute for Competitiveness, headed by Dr Amit Kapoor and the Social Progress Imperative, headed by Michael Green.
    • It was mandated by Economic Advisory Council to the Prime Minister of India.

    Objectives of the report

    • With state and district-wise rankings and scorecards, the report aims to provide a systematic account of the social progress made at all levels in the country.
    • The report also sheds light on the achievements of the districts that have performed well on the index and the role of the states in achieving social progress.
    • A special section of the report provides an analysis of the Aspirational Districts of India, leading to a broader understanding of the social progress at the grassroots level.
    • The report will act as a critical enabler and tool for policymakers in the coming years for achieving sustained socio-economic growth.

    Components of SPI

    SPI assesses the performance of states and districts on three dimensions of social progress:

    1. Basic Human Needs: It assesses the performance of states and districts in terms of Nutrition and Basic Medical Care, Water and Sanitation, Personal Safety and Shelter.
    2. Foundations of Wellbeing: It evaluates the progress made by the country across the components of Access to Basic Knowledge, Access to Information and Communication, Health and Wellness, and Environmental Quality.
    3. Opportunity: It focuses on aspects of Personal Rights, Personal Freedom and Choice, Inclusiveness, and Access to Advanced Education.

    (This newscard will be updated once the report is published.)

    Need for SPI

    • GDP is not a holistic measure of a nation’s development: It would be incorrect to state that the economic progress is completely divorced from progress made in areas mentioned above.
    • Social outcomes of developmental economics: The primary goal of the SPI is to provide a rigorous tool to benchmark progress and stimulate progress within countries.
    • No single holistic parameter available: Several indicators, like GHI and HDI, go beyond GDP, but none captures social progress as finely as SPI.
    • Doing away with biased reports: India does not display a respectable position in the index, as even the small neighbours like Nepal have a better rank. India is also the lowest rank holder in BRICS.

     

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  • Capital Expenditure and Fiscal Consolidation

    Fiscal

    Context

    • The 2023-24 Union budget will be announced on February 1, followed by the states’ respective budgets. These budgets will set the policy tone for the rest of the year and, as such, are followed closely.

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    Situation of Capex and fiscal consolidation after pandemic

    • Rise in fiscal deficit: The overall fiscal deficit of the government has soared and we believe the next few years will be all about getting it back on track.
    • Rising interest payments: This is important because interest payments on past debt make up a whopping 50 per cent of net tax revenues for the central government, leaving very little room for other spending.
    • less room for social spending: Given the needs of the economy on various fronts like health, education and capex, it is important to lower the interest burden over time. That can only be achieved by fiscal consolidation.

    Analysing the tax revenue and expenditure of central and state Government

    • Central government tax revenues have risen faster than state revenues: Both benefitted as small and informal firms struggled with the lockdowns and lost market share to large firms, which tend to pay more taxes.
    • Disparity in revenue collection: A large chunk of the tax revenues in the early part of the pandemic period came from the “special” duty and surcharge on oil, which went primarily to the central government. To be fair, the central government subsequently cut the duty on oil (in both 2021-22 and 2022-23) and the tax share that went to the states rose somewhat.
    • Capex of centre is more: The Centre has committed to more current expenditure than the states. While it increased across the board during the pandemic, current expenditure rose more for the central government.
    • Higher spending on social schemes: This was led by higher social welfare spending (for instance, on the free food distribution scheme) and, more recently, higher subsidies (for example, fertilisers) in the face of rising commodity prices.
    • States have a moderate capex: The common perception is that states have gone all out on unsustainable current expenditure. But the data shows that it’s just a few states which have spent heavily (for example, Telangana, Assam, West Bengal and Punjab).

    Fiscal

    Analyzing the capex and fiscal deficit of central and state government

    • The central government capex has risen but state capex has contracted: Making a commendable choice, the central government used both its tax bounty as well as its ability to borrow more at a time when banking sector liquidity was loose to raise capex spending, which rose by 1.2 per cent of GDP between 2019-20 and 2021-22.
    • Cut in state capex: On the other hand, the states cut back on capex, which has fallen as a percentage of GDP over the last few years, and continues to be on a weak footing in the current year. In fact, putting the central government’s capex alongside the state and public sector capex shows that the overall public sector thrust is not any stronger than it was back in 2018-19.
    • Centre has breached the fiscal deficit target: The central government’s fiscal deficit has overshot targets while the state deficit is relatively contained. At a budgeted 6.4 per cent of GDP in 2022-23, the central government’s fiscal deficit has risen above the pre-pandemic level of 3.4 per cent in 2018-19, and is well above the 3 per cent medium-term target.
    • Sharp fall in states fiscal deficit target: Even though the state fiscal deficit rose in the first year of the pandemic (from 2.5 per cent of GDP in 2018-19 to 3.8 per cent in 2020-21), it has fallen sharply since (to 2.7 per cent in 2021-22).
    • Low borrowing by states: In fact, state government borrowing is rather low in the current year so far. If this continues, the fiscal deficit could be even lower in 2022-23 (around 2.5 per cent of GDP), which is well under the 3 per cent medium-term target, and bang in line with pre-pandemic levels.

    Fiscal

    What are the challenges?

    • Less consolidation by states: The states have less fiscal consolidation to do than the central government.
    • High quality spending: Both have a common challenge to commit to more capex, which is considered high quality spending as it “crowds in” private investment if done responsibly. And we believe investment is the only sustainable way to increase the capacity of the economy to grow and create jobs.
    • Balancing the capex and fiscal consolidation: For the central government, the challenge is to hold on to its capex push at a time of fiscal consolidation. For the states, the challenge is to start doing more.

    Fiscal

    What should be the way forward?

    • Lowering the fiscal deficit: The central government’s aim is to lower the fiscal deficit by about 2 per cent of GDP over the next three years. About half of this consolidation can come from lowering current expenditure to pre-pandemic levels.
    • Raising the tax revenue through formalization: Continued formalisation of the economy that raises tax revenues (though “organic” formalisation will likely be more sustainable than “forced” formalisation).
    • Disinvestment of PSUs: A bigger push for disinvestment by selling stakes in public-owned companies, and further tax reforms (in terms of direct taxes and the GST).
    • Capex cut is the last option: If these don’t work, the default option will be to cut capex, which is a concern as it has implications for medium-term growth.

    Conclusion

    • Fiscal consolidation and capital expenditure should go hand in hand. More government spending means more infrastructure building and more chances of growth and employment. However, this spending should be done with sound fiscal base.

  • What caused the great Indian Airport jam?

    airport

    As more passengers take to the skies, airports in India’s top cities—Delhi, Mumbai, and Bengaluru—are witnessing heavy traffic.

    What is causing congestion at airports?

    • There are lengthy queues at airport entry, check-in counters, security, and immigration.
    • There is crowding at baggage claim areas too.
    • This is the result of an unexpected surge in demand for air travel because of the holiday season—the last two years saw muted demand during this period because of the pandemic.
    • Air traffic has been 1-7% above pre-covid levels of 4 lakh daily flyers for the past 10 days.
    • Consequently, the personnel strength of CISF at check-in, the number of X-Ray machines and automatic trays for security, as well as baggage belts, have fallen short in handling the demand.

    Which airports are most affected?

    • The congestion is more severe at airports with maximum connectivity such as Delhi, Mumbai, Bengaluru, and Hyderabad.
    • The worst-hit is Delhi—the busiest airport in India and 10th busiest in the world.
    • Delhi handles the largest share of international as well as domestic air traffic in the country with a 27% share in international segment for the country and 20% in overall air traffic in India.
    • The airport, with three terminals, has a capacity to handle around 70 million passengers per annum.
    • Over the last 10 days, the airport has handled over 190,000 passengers daily, which is close to its full capacity.

    Is airport congestion an India-specific problem?

    • Globally, air travel continues to face disruptions.
    • Europe’s busiest airport, London Heathrow, needs to hire around 25,000 staff to manage peak hours.
    • Schiphol in Amsterdam has imposed a 20% cap on capacity to manage traffic.
    • The aviation industry laid off thousands of people during the pandemic, and expects staff strength to realign by mid-2023.

    What is being done to decongest airports?

    • The aviation ministry has recommended a reduction in the number of flights and more manpower at all check-in and baggage drop counters.
    • It has sought for increasing the number of X-ray machines and baggage trays for security check.
    • The government will also analyse manpower requirements at immigration counters and, if required, additional personnel will be deployed.
    • IndiGo, the largest airline in India, has asked fliers to report 3.5 hours early for domestic flights from Delhi.

    Easing the airport congestion  

    • There is no immediate solution, and the government’s action plan will only bring temporary relief. Increasing the number of personnel at entry, security, and immigration will take time.
    • Higher usage of the contactless travel platform—Digi Yatra—for passengers without check-in luggage is expected to ease the congestion a bit.
    • Cities like Delhi and Mumbai need additional infrastructure.
    • However, the Jewar airport in Noida and the Navi Mumbai airport are expected to be operational only by 2024.

     

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  • GI tag sought for Beypore Uru

    beypore uru

    The District Tourism Promotion Council, Kozhikode has applied for a Geographical Indication (GI) tag for the famous Beypore Uru (boat).

    Beypore Uru

    • Beypore Uru is a wooden dhow (ship / sailing boat / sailing vessel) handcrafted by skilled artisans and carpenters in Beypore, Kerala.
    • They are a symbol of Kerala’s trade relations and friendship with the Gulf countries.
    • It is purely made of premium wood, without using any modern techniques.
    • The wood used is still sawed the traditional way which requires immense expertise.
    • It takes anywhere between 1-4 years to build each Uru and the entire process is done manually.

    Its historic significance

    • Historical records show that Beypore has been a legendary maritime hub for traders from across the world since the 1st Century C.E.
    • The iconic Uru ships have been in high demand for around 2000 years.
    • The history of Khalasis, skilled natives engaged in launching the Uru boats at Beypore, dates back to 2000 years.
    • The prominent people among them are Odayis. They manage the technical matters of ship building.
    • Their family name comes from Odam (a type of small ship previously used in interactions/trade between the Malabar coast and Lakshadweep).
    • They are also referred to as Mappila Khalasis as majority of them are Mappila Muslims.

     

    Try this PYQ:

    Q.With reference to ‘Changpa’ community of India, consider the following statement:

    1. They live mainly in the State of Uttarakhand.
    2. They rear the Pashmina goats that yield fine wool.
    3. They are kept in the category of Scheduled Tribes.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 and 3 only

    (c) 3 only

    (d) 1, 2 and 3

     

    [wpdiscuz-feedback id=”jmhupo6jvk” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

    Back2Basics: Geographical Indication (GI)

    • A GI is a sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin.
    • Nodal Agency: Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry
    • India, as a member of the World Trade Organization (WTO), enacted the Geographical Indications of Goods (Registration and Protection) Act, 1999 w.e.f. September 2003.
    • GIs have been defined under Article 22 (1) of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.
    • The tag stands valid for 10 years.

     

     

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  • Urban-rural manufacturing shift: A mixed bag

    manufacturing

    Context

    • There is growing evidence to suggest that the most conspicuous trend in the manufacturing sector in India has been a shift of manufacturing activity and employment from bigger cities to smaller towns and rural areas. This ‘urban-rural manufacturing shift’ has often been interpreted as a mixed bag, as it has its share of advantages that could transform the rural economy, as well as a set of constraints, which could hamper higher growth.

    Recent data by Annual Survey of Industries for 2019-20

    • In terms of capital: The rural segment is a significant contributor to the manufacturing sector’s output. While 42% of factories are in rural areas, 62% of fixed capital is in the rural side.
    • In terms of value addition: In terms of output and value addition, rural factories contributed to exactly half of the total sector.
    • In terms of employment: In terms of employment, it accounted for 44%, but had only a 41% share in the total wages of the sector.

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    Why is this shift of manufacturing away from urban locations to rural?

    • A report on manufacturing shift brought out by World Bank: The movement of manufacturing away from urban locations was brought out by the Work Bank in a report a decade ago, “Is India’s Manufacturing Sector Moving Away from Cities? Policy Research Working Paper, World Bank).
    • Higher urban-rural cost caused this shift: This study investigated the urbanisation of the Indian manufacturing sector by “combining enterprise data from formal and informal sectors and found that manufacturing plants in the formal sector are moving away from urban areas and into rural locations, while the informal sector is moving from rural to urban locations”. Their results suggested that higher urban-rural cost ratios caused this shift.
    • Steady investment in rural areas: This is the result of a steady stream of investments in rural locations over the last two decades.
    • Input costs are relatively less in rural area: Rural areas have generally been more attractive to manufacturing firms because wages, property, and land costs are all lower than in most metropolitan areas.
    • Factory floorspace supply constraints: When locations get more urbanised and congested, the greater these space constraints are.
    • Increased capital intensity of production: The driving force behind such a shift is the continuing displacement of labour by machinery as a result of the continuous capital investments in new production technologies. In cities, factories just cannot be expanded as opposed to rural areas.

    How this trend is a welcome sign?

    • Fulfilling the need of balanced development: Given the size of the Indian economy and the need for balanced regional development, the dispersal of manufacturing activities is a welcome sign.
    • Created an opportunity for small scale industries to survive after liberalization: In the aftermath of trade liberalisation, import competition intensified for many Indian manufacturers, forcing them to look for cheaper methods and locations of production. One way to cut costs was to move some operations from cities to smaller towns, where labour costs are cheaper.
    • Source of livelihood diversification in rural area: The shift in manufacturing activities from urban to rural areas has helped maintain the importance of manufacturing as a source of livelihood diversification in rural India.
    • Make up for loss of employment: This trend helped to make up for the loss of employment in some traditional rural industries. The growth of rural manufacturing, by generating new jobs, thus provides an economic base for the transition out of agriculture

    What are the challenges ahead and a solution to it?

    • While the input cost is less but the cost of capital is high, offsetting the benefits: Though firms reap the benefits of lower costs via lower rents, the cost of capital seems to be higher for firms operating on the rural side. This is evident from the shares in rent and interest paid. The rural segment accounted for only 35% of the total rent paid, while it had 60% of the total interest payments. The benefits reaped from one source seem to be offset by the increased costs on the other front.
    • Skill shortages in rural area: There exists an issue of “skills shortage” in rural areas as manufacturing now needs higher skilled workers to compete in the highly technological global ‘new economy’. Manufacturers who need higher skilled labour find that rural areas cannot supply it in adequate quantities. Manufacturers who depend only on low-wage workers simply cannot sustain their competitive edge for longer periods as this cost advantage vanishes over time.
    • Solution to this issue lies in skill development: This suggests the need for clear solutions to the problems of rural manufacturing and the most important is the provision of more education and skilling for rural workers. A more educated and skilled rural workforce will establish rural areas’ comparative advantage of low wages, higher reliability and productivity and hasten the process of the movement out of agriculture to higher-earning livelihoods

    Conclusion

    • Given the size of the Indian economy and the need for balanced regional development, the dispersal of manufacturing activities is a welcome sign. However, the compulsions of global competition often extend beyond the considerations of low-wage production and depend on the virtues of ‘conducive ecosystems’ for firms to grow.

    Mains Question

    Q. There is growing evidence to suggest that the trend in the manufacturing sector in India has been a shift of manufacturing activity and employment from bigger cities to smaller towns and rural areas. Discuss the reasons for this trend and note down the challenges ahead.

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  • What is a Loan Write-Off?

    Banks have written off bad loans worth â‚č10,09,511 crore during the last five financial years, finance minister informed the Parliament.

    What is a loan write-off?

    • Writing off a loan essentially means it will no longer be counted as an asset.
    • By writing off loans, a bank can reduce the level of non-performing assets (NPAs) on its books.
    • The bank moves the defaulted loan, or NPA, out of the assets side and reports the amount as a loss.
    • An additional benefit is that the amount so written off reduces the bank’s tax liability.
    • The loans written off by the banks are the depositors’ money.

    Why do banks resort to write-offs?

    • Recovery issues: The bank writes off a loan after the borrower has defaulted on the loan repayment and there is a very low chance of recovery. However, the chances of recovery from written-off loans are very low.
    • Provisioning: After the write-off, banks are supposed to continue their efforts to recover the loan using various options. They have to make provisioning as well.
    • Reduce tax liability: The tax liability will also come down as the written-off amount is reduced from the profit.

    Who is at the forefront of write-offs?

    • Public sector banks reported the lion’s share of write-offs at Rs 734,738 crore accounting for 72.78 per cent of the exercise.
    • Among individual public sector banks, reduction in NPAs due to write-offs in the case of State Bank of India Rs 204,486 crore in the last five years.
    • Among private banks, ICICI Bank’s reduction in NPAs due to write-offs was Rs 50,514 crore in the last five years.
    • Axis Bank wrote off Rs 49,715 crore and HDFC Bank Rs 34,782 crore during the period, according to the RBI.

    What about recovery of such loans?

    • Since the loan account is not closed in write-off, the right to recovery of the amount is not waived by the lender or the bank.
    • The bank or lender can try to recover the loan amount from the loan defaulter.

    Back2Basics: Non-Performing Assets (NPAs)

    • A NPA is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
    • Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.
    1. Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.
    2. Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
    3. Loss assets: As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”

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  • Why are nitrogenous fertilizers still a first choice of farmers?

    fertilizers

    Context

    • Two ambitious schemes of the Central government such as Soil Health Card and mandatory neem-coating of urea were supposed to promote balanced use of fertilisers. However, far from weaning farmers from urea, annual consumption of this nitrogenous fertiliser has only risen from 30 to 35 million tonnes (mt) in the last five years.

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    Rise in the sales of nitrogenous fertilizers

    • Rise in sales of not only urea but also DAP: This year, not only have urea sales gone up by 3.7 per cent during April-October over the same period of 2021, it has grown even more, at 16.9 per cent, for di-ammonium phosphate (DAP).
    • Sales are not in correct proportion: It has come even as sales of all other fertilisers including complexes containing nitrogen (N), phosphorus (P), K (potash) and sulphur (S) in different proportions have fallen.
    • Urea and DAP are the dominant choice of Indian farmers: In other words, instead of balanced use of plant nutrients based on soil testing and specific crop requirement, Indian farmers are effectively applying just urea and DAP both high-analysis fertilisers containing 46 per cent N and P respectively.

    Fertilizers

    What are the reasons for increasing use of Urea and DAP Fertilizers?

    • The non-urea fertiliser is decontrolled or fixed by the companies: The government has fixed the maximum retail price (MRP) of urea at Rs 5,628 per tonne. The MRPs of other fertilisers are technically decontrolled, but companies have been “told” not to charge more than Rs 27,000/tonne for DAP.
    • Informally fixed prices are higher: The informally-fixed MRPs are higher at Rs 29,000-31,000 and Rs 34,000 per tonne for NPKS complexes and muriate of potash (MOP) respectively, but farmers have little incentive to buy at these prices.
    • DAP is cheaper to apply: Farmers are reluctant to apply complexes such as 10:26:26:0, 12:32:16:0 and 20:20:0:13 when DAP is cheaper and has 46 per cent P as well as 18 per cent N.
    • Price is the primary concern for over micronutrients: The fact that DAP does not contain K, S or other macro and micro nutrients wouldn’t matter to a majority of farmers. For them, choice of fertilisers is primarily a function of prices.
    • Subsidies on individual ferlizers are to be blamed: Underpricing of urea (a historical phenomenon) and DAP (recent) is a product of subsidy-induced market distortions, for which the blame lies squarely with the Government.

    Ideal ratio for N:P:K and effects of excessive use

    • Ideal ratio v/s current NPK ratio: The effects of these the current NPK ratio is about 13:5:1, as against the ideal 4:2:1 would ultimately show up in crop yields.
    • Plants will respond poorly: Plants, like humans, will respond poorly to fertilisers if only one or two nutrients are given in excess.
    • Disturbs soil health: Excessive use of chemical fertilizers kills all the microorganisms available in the soil, which are so essential for maintaining soil health

    What the government can do?

    • Changing the subsidy policies: The Government should replace subsidies on individual fertiliser products with a flat per-hectare cash transfer, maybe twice a year.
    • E- wallet account for money transfer only to purchase fertilizers: Every farmer can have an e-wallet account into which this money can be credited before the kharif and rabi planting seasons. The e-wallet may be used only for the purchase of fertilisers.
    • Maintaining stock of basic fertilizers: The government can maintain a stock of basic fertilisers, including urea and DAP, to ensure no untoward price rise even in a decontrol scenario.

    Fertilizers

    Have you heard? “PM PRANAM” scheme

    • In order to reduce the use of chemical fertilisers by incentivising states, the Union government plans a new scheme – PM PRANAM, which stands for PM Promotion of Alternate Nutrients for Agriculture Management Yojana.
    • The proposed scheme intends to reduce the subsidy burden on chemical fertilisers.
    • This burden if uneased, is expected to increase to Rs 2.25 lakh crore in 2022-2023, which is 39% higher than the previous year’s figure of Rs 1.62 lakh crore.
    • The scheme will not have a separate budget and will be financed by the “savings of existing fertiliser subsidy” under schemes run by the Department of fertilisers.

    Conclusion

    • The compulsions of electoral politics have clearly trumped concerns over soil nutrient imbalances. Price distortions in fertilisers will not help farming in the long run. Govt can offer acreage-based cash transfers.

    Mains Question

    Q. Despite government efforts to reduce nitrogenous fertilizers, the annual consumption of these fertilizers is increasing. Discuss the reasons and what government can do more?

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