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Subject: Economics

  • [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 ₹10,09,511 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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  • Species in news: Badri Cow

    badri

    To increase the productivity of its indigenous petite Badri cow that grazes on the medicinal herbs of the Himalayas, Uttarakhand is now planning for its genetic enhancement.

    Badri Cow

    • Badri/Pahari desi cow is a native cow species of Uttarakhand.
    • This cow grazes in the Himalayas on native herbs and shrubs and hence its milk has high medicinal value.
    • These cattle are well adapted to the hilly terrain and the climatic conditions of Uttarakhand.
    • This sturdy and disease-resistant breed is found in hilly regions of the Almora and Pauri Garhwal districts of Uttarakhand.
    • Disease resistance is a very important characteristic of this breed as it rarely gets any disease.

    Medicinal benefits

    • This breed is blessed with strong immunity.
    • The milk of the Badri cow contains almost 90% A2 beta-casein proteins – and is one of the highest in any indigenous varieties.
    • Antioxidants in pure desi ghee help the body better absorb vitamins and minerals, thus boosting immunity.
    • Butyric acid in Badri cow ghee helps strengthen immunity by increasing T-cell production in the gut which helps fight against allergens.

    Why in news?

    • The State authorities proposed to use sex-sorted semen technology to improve production of Badri cattle.
    • They also proposed to opt for the embryo transfer method in order to produce more cattle of high genetic stock.

    Economic significance of Badri cow

    • The Badri ghee is available at the rate of ₹3,000 to ₹5,000 per kg.
    • There is a huge marketing potential for gaumutra ark (distilled cow urine), cow dung, and Panchgavya (the five products of the cow, including milk, curd, ghee, dung and urine).

     

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  • India-China trade deficit is at $51.5 Bn

    The trade deficit, difference between import and exports, between India and China has touched $51.5 billion during April-October this fiscal.

    Widening deficit

    • The deficit during 2021-22 had jumped to $73.31 billion as compared to $44.03 billion in 2020-21.
    • According to the data, imports during April-October this fiscal stood at $60.27 billion, while exports aggregated at $8.77 billion.
    • The merchandise exports from India to China had increased from $11.93 billion in 2014-15 to $21.26 billion in 2021-22.

    India-China bilateral trade

    • In 2021, annual two-way trade crossed $100 billion for the first time, reaching $125.6 billion, with India’s imports accounting for $97.5 billion, pegging the imbalance at close to $70 billion.
    • This is certainly a healthy deficit compared to the industrial development in both nations.

    A quick backgrounder

    • Trade ties began to boom since the early 2000s.
    • This was driven largely by India’s imports of Chinese machinery and other equipment.
    • It rose up from $3 billion in the year 2000 to $42 billion in 2008, the year China became India’s largest trading partner.

    The Hindi-Chini buy buy

    • A third of machinery and almost two-fifths of organic chemicals that India purchases from the world come from China.
    • Automotive parts and fertilizers are other items where China’s share in India’s import is more than 25 per cent.
    • Several of these products are used by Indian manufacturers in the production of finished goods, thus thoroughly integrating China in India’s manufacturing supply chain.
    • For instance India sources close to 90 per cent of certain mobile phone parts from China.

    India’s export to China

    • Even as an export market, China is a major partner for India.
    • China is the third-largest destination for Indian shipments.
    • At the same time, India only accounts for a little over two percent of China’s total exports, according to the Federation of Indian Export Organisation (FIEO).

    Should we worry about this?

    • Trade deficits/surpluses are just accounting exercises and having a trade deficit against a country doesn’t make the domestic economy weaker or worse off.
    • In this light, India’s trade imbalance with China should not be viewed in isolation.
    • For instance, pharmaceuticals that India exports to the world require ingredients that are imported from China.
    • Chinese imports of Indian seafood are one area that has recently shown robust growth and carries scope to grow in future.

    So, having a trade deficit is good?

    • Of course NOT. Running persistent trade deficits across all countries raises two main issues.
    1. Availability of foreign exchange reserves to “buy” the imports.
    2. Lack of domestic capacity to produce most efficiently.

    Can we ban trade with China?

    Ans. Certainly NOT!

    • It will hurt the Indian poor the most: This is because the poor are more price-sensitive. For instance, if Chinese TVs were replaced by either costlier Indian TVs or less efficient ones, unlike poor, richer Indians may buy the costlier option.
    • It will punish Indian producers and exporters: Several businesses in India import intermediate goods and raw materials, which, in turn, are used to create final goods — both for the domestic Indian market as well as the global market (as Indian exports).
    • Pharma sector could be worst hit: For instance, of the nearly $3.6 billion worth of ingredients that Indian drug-makers import to manufacture several essential medicines, China catered to around 68 percent.
    • Ban will barely hurt China: According to the United Nations Conference on Trade and Development (UNCTAD) data for 2018, 15.3% of India’s imports are from China, and 5.1% of India’s exports go to China.
    • Chinese money funds Indian unicorns: India and China have also become increasingly integrated in recent years. Chinese money, for instance, has penetrated India’s technology sector, with companies like Alibaba and Tencent strategically pumping in billions of dollars into Indian startups such as Zomato, Paytm, Big Basket and Ola.
    • India will lose policy credibility: It has also been suggested that India should renege on existing contracts with China. This can be detrimental to India’s effort to attract foreign investment.

    China is our Frenemy. Here is why.

    • The first thing to understand is that turning a border dispute into a trade war is unlikely to solve the border dispute.
    • Worse, given India and China’s position in both global trades as well as relative to each other, this trade war will hurt India far more than China.
    • Again, these measures will be most poorly timed since the Indian economy is already at its weakest point ever — facing a sharp GDP contraction.

    Way forward

    • In the long term, under the banner of self-reliance, India must develop its domestic capabilities and acquire a higher share of global trade by raising its competitiveness.
    • But no country is completely self-sufficient and that is why trade is such a fantastic idea.
    • For the long run, a more effective strategy needs to be built to provide an ecosystem that addresses the cost disability of Indian manufacturing leading to such imports.

     

     

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  • Energy Conservation (Amendment) Bill, 2022 introduced in RS

    The Ministry of New and Renewable Energy has introduced the Energy Conservation (Amendment) Bill in Rajya Sabha.

    Highlights of the Bill

    • The Bill amends the Energy Conservation Act, 2001 to empower the central government to specify a carbon credit trading scheme.
    • Designated consumers may be required to meet a proportion of their energy needs from non-fossil sources.

    Why was this Bill introduced?

    • During the COP-26 summit in 2021, India made commitments relevant for energy efficiency efforts.
    • Against this backdrop, the Energy Conservation (Amendment) Bill, 2022 was introduced in Lok Sabha in August 2022.

    Key features of the bill

    • Carbon credit trading:The Bill empowers the central government to specify a carbon credit trading scheme.   Carbon credit implies a tradable permit to produce a specified amount of carbon dioxide or other greenhouse emissions.
    • Obligation to use non-fossil sources of energy:The Act empowers the central government to specify energy consumption standards for designated consumers to meet a minimum share of energy consumption from non-fossil sources.  Designated consumers include: (i) industries such as mining, steel, cement, textile, chemicals, and petrochemicals, (ii) transport sector including Railways, and (iii) commercial buildings, as specified in the schedule.
    • Energy conservation code for buildings: The bill empowers the central government to specify norms for energy efficiency and conservation, use of renewable energy, and other requirements for green buildings.   Under the Act, the energy conservation code applies to commercial buildings: (i) erected after the notification of the Code, and (ii) having a minimum connected load of 100 kilowatt (kW) or contract load of 120 kilo volt ampere (kVA).
    • Standards for vehicles and vessels: Under the bill, the energy consumption standards may be specified for equipment and appliances which consume, generate, transmit, or supply energy.  The Bill expands the scope to include vehicles (as defined under the Motor Vehicles Act, 1988), and vessels (includes ships and boats).
    • Composition of the governing council of BEE: The Act provides for the setting up of the Bureau of Energy Efficiency (BEE).  The Bureau has a governing council with members between 20 and 26 in number.

    Concerns raised

    • Carbon credit trading aims to reduce carbon emissions, and hence, address climate change.  The question is whether the Ministry of Power is the appropriate Ministry to regulate this scheme.
    • A further question is whether the market regulator for carbon credit trading should be specified in the Act.
    • Same activity may be eligible for renewable energy, energy savings, and carbon credit certificates.
    • The Bill does not specify whether these certificates will be interchangeable.
    • Designated consumers must meet certain non-fossil energy use obligation.  Given the limited competition among discoms in any area, consumers may not have a choice in the energy mix.

     

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