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Subject: Economics

  • India’s Path to Prosperity through Formal Employment

    prosperity

    Context

    • Mass prosperity for massive populations is hard. India’s large remittances from a small population overseas and IT sectors employability reinforce that our mass prosperity strategy should be human capital and formal jobs.

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    prosperity

    Why human capital formation is effective tool for mass prosperity?

    • Disproportionate contribution of IT employees: A strong case for human capital-driven productivity is our software employment — 0.8 per cent of workers generate 8 per cent of GDP.
    • Remittance by NRIs: This case is reinforced by remittances from our overseas population of less than 2 per cent of our resident population crossing $100 billion last year.
    • Shift towards formal employment: A World Bank report suggests that the qualitative shift during the previous five years from low-skilled, informal employment in Gulf countries (dropped from 54 per cent to 28 per cent) to high-skilled formal jobs in high-income countries (increased from 26 per cent to 36 per cent) is significant.
    • Remittances are higher than FDI: Our rich forex remittance harvest roughly 25 per cent higher than FDI and 25 per cent less than software exports is fruit from the tree of human capital and formal jobs.

    prosperity

    Limitations of Fiscal and monetary policy

    • Credit availability is bigger issue: Monetary policy is, at best, a placebo, painkiller, or steroid especially since credit availability is a bigger problem in India than credit cost.
    • Source of finance is important than expenditure: Global experience suggests where governments spend money (pensions, interest, salaries, education, healthcare, roads, etc) and how this spending is financed (taxes or debt) matters more than how much is spent (about Rs 80 lakh crore in India this year).
    • Fiscal policy tends to overshoot: Covid made enormous fiscal and monetary policy demands, but the bigger the binge, the bigger the hangover. Western central banks are struggling to shrink their balance sheets because they used what Harvard’s Paul Tucker calls “unelected power” to chase goals outside their mandate, administer medicine with poorly understood side effects, and speed down highways with no known return paths.
    • India avoided the fiscal and monetary trap: Rich-country borrowing rates have risen by 300 per cent plus and inflation hurts the poor the most. India avoided these fiscal and monetary policy excesses. This prudence now combines with previous structural reforms (GST, IBC, MPC, UPI, DBT, NEP, etc) and a reform “tone from the top” to create a fertile habitat for productive citizens and firms.

    prosperity

    What should be the strategy in next fiscal year for employment generation?

    • Targeting the job creation: The Finance Bill must target productivity and continuity by legislating human capital and formal job reforms previously proposed.
    • NEP should be implemented in 5 years: It should reduce the implementation glide path for the powerful National Education Policy 2020 from 15 years to five years.
    • Abolishing the licensing: It should abolish separate licensing requirements for online degrees and freely allow all our 1,000-plus accredited universities to launch online learning.
    • Accelerating apprentices: It should accelerate growing our 0.5 million apprentices to 10 million by allowing all universities to launch degree apprentice courses under tripartite contracts with employers under the Apprentices Act.

    What are the other steps that can be taken through next budget?

    • Notify labour code: It should notify the four labour codes for all central-list industries while appointing a tripartite committee to converge them into one labour code by the next budget.
    • Universal enterprise number: It should continue EODB reforms by designating every enterprise’s PAN number as its Universal Enterprise Number.
    • Remove the factory act: It should explore manufacturing employment by abolishing the Factories Act this painful Act accounts for 8,000 of the 26,000 plus criminal provisions in employer compliance and require all employers to comply under each state’s Shops and Establishment Act (like Infosys, TCS, and IBM India do).
    • Ensuring better compliances by employer: It should create a non-profit corporation (like NPCI in payments) that will operate an API-driven National Employer Compliance Grid and enable central ministries and state governments to rationalise, digitise and decriminalise their employer compliances.
    • Making EPFO contribution optional: Making employees’ provident fund contributions optional but raising employer PF contributions from the current 12 per cent to 13 per cent. It should notify a previous budget announcement to create employee choice in their contributions to health insurance (ESIC or insurance companies) and pensions (EPFO or NPS).
    • Subsidy to high wage employer: Most importantly, it should link all employer subsidies and tax incentives to high-wage employment creation (a difficult-to-fudge and easy-to-measure effectiveness metric for this public spending is employer provident fund payment).

    Conclusion

    • Experience and evidence now firmly suggest the odds of mass prosperity in the planet’s most populous nation rise from possible to probable by anchoring our strategy in human capital and formal jobs rather than fiscal or monetary policy.

    Mains Question

    What are the limitations of Fiscal and monetary policy in mass welfare of people? What are the possible strategies for creation of mass prosperity in India?

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  • Genetically modified Crops and Transgenic Technology Needs Precautions

    Crops

    Context

    • The Supreme Court’s Technical Expert Committee and two unanimous reports of multi-party parliamentary standing committees have recommended that genetically modified (GM) Herbicide Tolerant (HT) crops should be banned in India.

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    Why transgenic technology is worrisome?

    • Uncontrollable and irreversible: Transgenic technology, unlike other technologies, is uncontrollable and irreversible after environmental release.
    • Self-propagation and proliferation: Living Modified Organisms (LMOs), as the Cartagena Protocol on Biosafety refers to Genetically Modified Organisms (GMOs), propagate themselves and proliferate.
    • Long term assessment is necessary: This process cannot be reversed. Therefore, any deliberate environmental release has to be only after thorough, independent, peer-reviewed assessment of long-term implications.
    • Precaution is necessary: The precautionary principle is a cornerstone because of the unpredictability and time lag of serious outcomes manifesting in highly complex living systems, and their irreversibility. To draw a parallel, not a single one of 330 invasive species (for example, lantana, parthenium) in India has yet been eliminated, despite estimated damage of Rs 8.3 trillion by just 10 of them!

    Reality check on GM crops

    • Less countries adopted GM technology: More than 25 years after their introduction, GM crops are still globally grown in just 29 out of 172 countries. Moreover, 91 per cent of GM crop area continues to be in just five countries (USA, Brazil, Argentina, Canada, India).
    • BT cotton demand is declining: Most countries of Europe and Japan, Israel, Russia, Malaysia etc., do not grow GM crops. In China, a first adopter, Bt cotton area has been declining and non-GM hybrid technology is used for rapeseed/mustard.
    • Heavy focus on two traits only: Only two traits are present in over 85 per cent of GM crops grown herbicide tolerance (HT, where crop plants are modified to withstand large amounts of toxic weed-killing chemicals), and/or insect resistance (pesticidal toxin, usually Bt, is produced inside the plant).

    crops

    Negative impact of HT crops

    • Damage to ecology: HT crops result in not only ecological damage, but human health impacts for consumers. Like tobacco, once declared safe, the effects take long to manifest.
    • Honey production will be affected: Beekeepers say that HT mustard will affect honey production and contaminated honey will damage exports.
    • Human health will be affected: As regards human health, probable carcinogenicity, neuro-toxicity, reproductive health problems, organ damage etc. have been documented by independent research on GM crops and associated herbicides, once claimed by developers and regulators to be “safe”.
    • Campaign against release of GM crops: Like thousands of doctors in other countries, over 100 eminent Indian doctors have conveyed their concerns asked that no HT food crops be released and the planted GM mustard be uprooted before flowering.

    crops

    What is the issues vis-e vis DMH-11 Mustard crop?

    • Proponent says Mustard is not a HT crop: It is claimed that DMH-11 is not an HT crop as the use of the Bar gene which confers an herbicide tolerance trait is essentially for the pollination control technology in creating hybrids, and glufosinate herbicide will only be used during seed production.
    • Opponent says it’s a HT crop: The reality is that by virtue of the Bar gene being present in both parental lines, and thereby also in all their hybrid offspring, this GM mustard can withstand application of a toxic weedkiller, glufosinate, including in farmers’ fields.  It should therefore have been assessed as an HT crop.
    • Government failed to prevent illegal use of HT cotton: If governments, for over 10 years, have been aware of the illegal planting of herbicide tolerant cotton and rampant illegal use of glyphosate on such HT cotton, and have been unable or unwilling to stop this, what “regulatory process” will now prevent farmers in search of low-cost weeding options from spraying glufosinate on herbicide tolerant mustard?

    What are the observations of SC and parliamentary Committee?

    • Absence of regulatory protocol: The ongoing litigations in the Supreme Court are about serious shortcomings in our regulatory regime. Minutes of meetings of the regulatory body GEAC and the “guidelines and protocols” on the regulator’s website reflect an absence of regulatory protocols for HT crops.
    • Inadequate bio testing: And yet a crop with an HT trait is being released in the environment! The technical expert committee (TEC) appointed by the SC and the unanimous multi-party reports of two parliamentary standing committees have exposed serious lapses and inadequacies in bio-safety testing.
    • Against the release of GM crops: They all advised that herbicide tolerant crops, which GM Mustard is, should not be released in Indian conditions.
    • Government panel recommended the ban: Even the government-nominated experts in the TEC asked for a ban on HT crops. The government, surely, cannot call them unscientific.
    • No independent participant in testing: Testing on GM mustard has been done with test protocols evolved by the crop developer, and most tests were done by the applicant. No independent health expert participated in the committees that looked at GM mustard safety.
    • No biosafety data: To this day, biosafety data of GM mustard has not been posted on the regulator’s website for independent scrutiny.

    Crops

    Conclusion

    • GM crop transgenic technology comes with mixed baggage. Government must strike the balance between biodiversity concern and welfare of farmers. Outright ban or permission without credible data and scrutiny must be avoided.

    Mains Question

    Q. What are the worrisome aspects of transgenic technology? What are the observations of Supreme court and parliamentary committee regarding GM crops?

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  • Millet-only lunch in Parliament

    millet

    To raise awareness on millets and prepare for 2023, PM Modi, along with fellow parliamentarians across party lines, enjoyed a sumptuous lunch where millets were front and centre.

    Why in news?

    • 2023 has been declared as the “International Year of Millets” by the United Nations, after a proposal from India in 2019.

    What are Millets?

    • Millet are small-grained cereals like sorghum (jowar), pearl millet (bajra), foxtail millet (kangni), little millet (kutki), kodo millet, finger millet (ragi/ mandua), proso millet (cheena/ common millet), barnyard millet (sawa/ sanwa/ jhangora), and brown top millet (korale).
    • They were among the first crops to be domesticated.
    • There is evidence for consumption of millets in the Indus-Sarasvati civilisation (3,300 to 1300 BCE).
    • Several varieties that are now grown around the world were first cultivated in India.
    • West Africa, China, and Japan are also home to indigenous varieties of the crop.

    Cultivation of millets

    • Millets are now grown in more than 130 countries, and are the traditional food for more than half a billion people in Asia and Africa.
    • Globally, sorghum (jowar) is the biggest millet crop.
    • The major producers of jowar are the US, China, Australia, India, Argentina, Nigeria, and Sudan.
    • Bajra is another major millet crop; India and some African countries are major producers.

    Millets in India

    millet

    • In India, millets are mainly a kharif crop.
    • During 2018-19, three millet crops — bajra (3.67%), jowar (2.13%), and ragi (0.48%) — accounted for about 7 per cent of the gross cropped area in the country, Agriculture Ministry data show.

    (1) Jowar

    • Jowar is mainly grown in Maharashtra, Karnataka, Rajasthan, Tamil Nadu, Andhra Pradesh, Uttar Pradesh, Telangana, and Madhya Pradesh.
    • In 2020-21, the area under jowar stood at 4.24 million hectares, while production was 4.78 million tonnes.
    • Maharashtra accounted for the largest area (1.94 mn ha) and production (1.76 million tonnes) of jowar during 2020-21.

    (2) Bajra

    • Bajra is mainly grown in Rajasthan, Uttar Pradesh, Haryana, Gujarat, Madhya Pradesh, Maharashtra and Karnataka.
    • Of the total 7.75 mn ha under bajra in 2020-21, the highest (4.32 mn ha) was in Rajasthan.
    • The state also produced the most bajra in the country (4.53 million tonnes of the total 10.86 million tonnes) in 2020-21.
    • The consumption of millets was reported mainly from these states: Gujarat (jowar and bajra), Karnataka (jowar and ragi), Maharashtra (jowar and bajra), Rajasthan (bajra), and Uttarakhand (ragi).

    Benefits of Millets

    • Millets are eco-friendly crops: They require much less water than rice and wheat, and can be grown in rainfed areas without additional irrigation.
    • Lesser water footprints: Wheat and rice have the lowest green water footprints but the highest blue water footprints, while millets were exactly opposite. Green water footprint refers to water from precipitation whereas blue water refers to water from land sources.
    • Highly nutritious: Agriculture Ministry declared certain varieties of millets as “Nutri Cereals” for the purposes of production, consumption, and trade.
    • Nutrition security: Millets contain 7-12% protein, 2-5% fat, 65-75% carbohydrates and 15-20% dietary fibre. Small millets are more nutritious compared to fine cereals. They contain higher protein, fat and fibre content.

    Back2Basics: 2023- the Year of Millets

    • On March 3, 2021, the United Nations General Assembly (UNGA) adopted a resolution to declare 2023 as the International Year of Millets.
    • The proposal, moved by India, was supported by 72 countries.
    • Several events and activities, including conferences and field activities, and the issuing of stamps and coins, are expected as part of the celebrations.
    • These are aimed at spreading awareness about millets, inspiring stakeholders to improve production and quality, and attracting investments.

     

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  • Anti-dumping duty on viscose fibre from Indonesia

    The Directorate General of Trade Remedies (DGTR) has recommended the levy of anti-dumping duty (ADD) on viscose staple fibre imported from Indonesia.

    What is Dumping?

    • Dumping is a process wherein a company exports a product at a price that is significantly lower than the price it normally charges in its home (or its domestic) market.
    • This is an unfair trade practice which can have a distortive effect on international trade.
    • Anti-dumping is a measure to rectify the situation arising out of the dumping of goods and its trade distortive effect.

    What is Anti-Dumping Duty?

    • An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
    • In order to protect their respective economy, many countries impose duties on products they believe are being dumped in their national market.
    • In fact, anti-dumping is an instrument for ensuring fair trade and is not a measure of protection per se for the domestic industry.
    • Such ‘dumped’ products have the potential to undercut local businesses and the local economy.
    • Anti-dumping duties provide relief to the domestic industry against the injury caused by dumping.

    Mechanism in India

    • The Department of Commerce recommends the anti-dumping duty, provisional or final.
    • The Department of Revenue in Finance Ministry acts upon the recommendation within three months and imposes such duties.

    WTO and Anti-Dumping Duties

    • The WTO operates a set of international trade rules, including the international regulation of anti-dumping measures.
    • It does NOT intervene in the activities of companies engaged in dumping.
    • Instead, it focuses on how governments can—or cannot—react to the practice of dumping.
    • In general, the WTO agreement permits governments to act against dumping if it causes or threatens material injury to an established domestic industry.

    Issues with such duties

    • Anti-dumping duties have the potential to distort the market.
    • In a free market, governments cannot normally determine what constitutes a fair market price for any good or service.

    Back2Basics: Viscose Fibre

    • Viscose is a type of rayon. Originally known as artificial silk, in the late 19th century, the term “rayon” came into effect in 1924.
    • The name “viscose” derived from the way this fibre is manufactured; a viscous organic liquid used to make both rayon and cellophane.
    • It is the generalised term for a regenerated manufactured fibre, made from cellulose, obtained by the viscose process.
    • As a manufactured regenerated cellulose fibre, it is neither truly natural (like cotton, wool or silk) nor truly synthetic (like nylon or polyester) – it falls somewhere in between.
    • Chemically, viscose resembles cotton, but it can also take on many different qualities depending on how it is manufactured.

     

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  • Credit Ratings Agency and their Significance

    credit

    Fitch Ratings on December 20, 2022, retained its rating for India at ‘BBB’-with a stable outlook.

    What does BBB mean?

    • A ‘BBB’ rating indicates that expectations of default risk are currently low.
    • The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.

    What is a Rating Agency?

    • Rating agencies assess the creditworthiness or potential of an equity, debt or country.
    • Their reports are read by investors to make an informed decision on whether or not to invest in a particular country or companies in that geography.
    • They assess if a country, equity or debt is financially stable and whether it at a low/high default risk.
    • In simpler terms, these reports help investors gauge if they would get a return on their investment.

    What do they do?

    credit

    • The agencies periodically re-evaluate previously assigned ratings after new developments geopolitical events or a significant economic announcement by the concerned entity.
    • Their reports are sold and published in financial and daily newspapers.

    What grading pattern do they follow?

    • The three prominent ratings agencies, viz., Standard & Poor’s, Moody’s and Fitch subscribe to largely similar grading patterns.
    • Standard & Poor’s accord their highest grade, that is, AAA, to countries, equity or debt with the exceedingly high capacity to meet their financial commitments.
    • Its grading slab includes letters A, B and C with an addition a single or double letter denoting a higher grade.
    • Moody’s separates ratings into short and long-term definitions. Its longer-term grading ranges from Aaa to C, with Aaa being the highest.
    • Fitch, too, rates from AAA to D, with D being the lowest. It follows the same succession scheme as Moody’s and Fitch.

    Criticism of rating agencies

    • Popular ratings agencies publicly reveal their methodology, which is based on macroeconomic data publicly made available by a country, to lend credibility to their inferences.
    • However, credit rating agencies were subjected to severe criticism for allegedly spurring the financial crisis in the United States, which began in 2017.
    • The agencies underestimated the credit risk associated with structured credit products and failed to adjust their ratings quickly enough to deteriorating market conditions.
    • They were charged for methodological errors and conflict of interest on multiple counts.

    Do countries pay attention to ratings agencies?

    • Lowered rating of a country can potentially cause panic selling or offloading of investment by a foreign investor.
    • In 2013, the European Union opted for regulating the agencies.
    • Over reliance on credit ratings may reduce incentives for investor to develop their own capacity for credit risk assessment.
    • Ratings Agencies in the EU are now permitted to issue ratings for a country only thrice a year, and after close of trade in the entire Union.

     

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  • Economic inequality and the relationship between state, citizens and taxation

    inequality

    Context

    • Economic inequality in India impacts every aspect of our everyday lives, despite the country being a welfare state. As we celebrate 75 years of Independence, the poor citizens of India continue to face increased fiscal burden in the form of inflation and higher taxes, with fewer benefits.

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     “No taxation without representation”

    • This slogan played a crucial role in the freedom movements of India and the United States.
    • The statement indicates the relationship between the state, citizens and taxation.

    inequality

    Analysis: Relationship between the state, citizens and taxation

    • A concept of welfare state: The legitimacy of taxation is derived from the welfare done by the government.
    • Government’s role: The Constitution of India envisaged the state’s role as a welfare one. For that, the government is empowered to administer taxes and their transfer.
    • However, in the year of Azadi ka Amrit Mahotsav, ‘transfers’ are being painted as revadi (freebies) and the lives of poor citizens are being burdened by regressive “taxes”
    • Inflation as a hidden tax: Inflation acts as a hidden tax on poor and middle-class citizens. For instance, at the time of the introduction of the central scheme Pradhan Mantri Kisan Samman Nidhi or PM-KISAN, which gave Rs 6,000 cash benefit to farmers, diesel cost Rs 65 per litre. Thus, fuel inflation devours the cash benefit of this scheme
    • Highway taxation in contrast with the idea of a welfare state: The roadways are meant to be available free of cost, being public goods. However, Privatisation and PPP models, such services now demand a fee. In the financial year 2021-2022, the government mopped up Rs 35,000 crore as toll tax. The same is projected to reach Rs 1.34 lakh cr by 2025.
    • The diversion of funds meant for one to other sectors is an implicit fiscal burden: The road cess that was intended to fund the construction of roads is diverted to other projects, while citizens are charged heavy tolls for the roads, adding up to already toll burdened people.
    • The case of municipal tax and user charges: When citizens pay municipal tax, the municipality is supposed to ensure cleanliness and sanitation facilities. But the Ahmedabad Municipal Corporation (AMC) introduced a “User Charge” of Rs 365 per household to make the city clean, which is 15% of the municipal tax amount.
    • Discriminatory practices of the administration: Flawed administrative rules also impose fiscal costs on the poor and middle classes of society. Administration allows cars to be parked on the road with impunity, but if two-wheelers are parked on the road, they get towed.

    inequality

    Criticism: Discriminatory treatment to rich and poor in the name of welfare state

    • Monetisation of public spaces weakens state- citizen relationship: It is said when people take ownership and responsibility of public spaces, people become citizens. It ought to be remembered that monetisation of public spaces portends to weaken the state-citizen relationship.
    • The nomenclature of government language itself reflects discriminatory approach: When governments provide fiscal help to the poor, it is called revadi, but the same offered to the rich is lucratively termed “incentive”.
    • Subsidised food is advertised while incentives provided to corporates are not well known: Posters for subsidised food to the poor are ubiquitous across India, but no public posters are screaming about the Rs 1.97 lakh crore “incentive” given to the corporate sector under 13 production linked incentive schemes.
    • Flawed mechanism of personal details in the name of transparency: In the name of transparency, the government uploads the personal details of each Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) worker on its website; but the same government does not disclose the names of willful bank defaulters to uphold those ideals of privacy.

    inequality

    Conclusion

    • 73% of the wealth generated in India in 2017 went to the richest 1%, while the poorest half of the population saw only a 1% increase in their wealth. When we celebrate the Azadi Ka Amrit Mahotsav, the need of the hour is to focus must be to make India economically equal and prosperous.

    Mains question

    Q. As we celebrate 75 years of Independence, the poor citizens of India continue to face increased fiscal burden in the form of inflation and higher taxes, with fewer benefits. Critically examine.

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  • Rupee Settlement Mechanism draws interest from more nations

    rupee

    India’s rupee trade settlement mechanism, a means of using rupees instead of dollars and other big currencies for international transactions, is attracting interest from more countries.

    More countries are interested

    • Tajikistan, Cuba, Luxembourg and Sudan have begun talking to India about using the mechanism.
    • They have shown interest in opening special rupee accounts, called vostro accounts.
    • Opening of these accounts needs approval from the Reserve Bank of India.
    • It has already been used by Russia following the imposition of sanctions on Moscow over the Ukraine war.

    Rupee Settlement System for International Trade

    • Banks acting as authorized dealers for such transactions would have to take prior approval from the regulator to facilitate this.
    • All exports and imports under the invoicing arrangement may be denominated and invoiced in Rupee.
    • The exchange rate between the currencies of the two trading partner countries may be market determined.
    • Exporters and importers can now use a Special Vostro Account linked to the correspondent bank of the partner country for receipts and payments denominated in rupees.
    • These accounts can be used for payments for projects and investments, import or export advance flow management, and investment in Treasury Bills subject to Foreign Exchange Management Act, 1999 (FEMA).
    • Also, the bank guarantee, setting-off export receivables, advance against exports, use of surplus balance, approval process, documentation, etc., related aspects would be covered under FEMA rules.

    Benefits of such a mechanism

    • Trade facilitation: This will also facilitate trade with countries like Russia which are facing sanctions.
    • FOREX savings: India imports more than it exports so the country will also save foreign currency under the new arrangement.
    • Rupee appreciation: The rupee is at a historic low against the dollar. It will also help stabilize rupee.
    • Mitigating war impact: Payments had become a pain point for exporters immediately after the Russia-Ukraine war broke out, especially after Russia was cut off from the SWIFT payment gateway.
    • Convertibility easing: We see this as a first step towards 100% convertibility of rupee.
    • Energy security: It will also help buy discounted crude oil from Russia, which now accounts for 10% of all imported crude.
    • Export promotion: As such, the new mechanism will help India promote its exports.

    Which countries would prefer this system?

    • War mongering Russia: For now, it looks like trade settlements in rupee will be limited to countries like Russia and Iran who are facing sanctions from the West
    • Bankrupt Sri Lanka: SL is going through economic turmoil and India has been consistently extending lines of credit to SL.
    • Immediate neighbors: Other countries may include immediate neighbors of India.

    Rupees over Dollars: Why countries would prefer Rupees?

    • At a very simplistic level, this is like two Indians deciding to use an alternative mode of exchange that they have come up with, instead of using rupees.
    • In other terms, this is similar to the barter system.
    • The main reason for countries to want to trade with India in rupees is this:
    1. USD has been going through a phase of strength against most currencies in the world
    2. Strong USD performance has essentially made imports expensive for most countries
    3. Sri Lanka, which is going through one of its worst economic crises in decades, is a glaring example of a country in which the economy has come to a halt due to a drastic fall in forex reserves
    • While the Sri Lankan Rupee has declined over 83 percent against the US Dollar, its fall against the Indian Rupee has been lower at 70 percent.
    • So instead of paying 83 percent more to make purchases in USD, Sri Lanka can pay in Indian Rupees and save some money.

    Challenges

    • Trade surplus countries’ preference: The question that RBI and the Indian government will have to answer is this – why would countries with a trade surplus with India want to trade in rupees?
    • Negative trade balance: China had a $73-billion trade surplus with India in 2021-22 – that is, Indian imports from China exceeded its exports to China by $73 billion.
    • Idle money lying useless: If China were to trade with India in rupees, it would have Indian rupees worth $73 billion (about ₹5.77 lakh crore) sitting idle in its Rupee Vostro accounts in an Indian bank.
    • Few countries interested: Countries whose exports to India are more than imports, will not be too enthusiastic to trade in rupees, especially if the difference is huge as in the case of China.

     

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  • 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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