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Subject: Economics

  • Impact of the Covid-19 pandemic on global poverty

    poverty

    Context

    • A recent World Bank report, titled “Correcting Course”, captures the impact of the COVID-19 pandemic on global poverty. The economic mismanagement we were witness to in India resulted in 5.6 crore people slipping into extreme poverty in 2020.

    Do You Know?

    • 17 October is observed as International Day for the Eradication of Poverty
    • The theme for International Day for the Eradication of Poverty 2022-2023 is “Dignity For All in Practice: The commitments we make together for social justice, peace, and the planet”

    What is the Impact of COVID-19?

    • Rapid rise in extreme poverty: The number of people living in extreme poverty rose by seven crores million in 2020, as the global poverty rate rose from 8.4% in 2019 to 9.3%in 2020.
    • Increased Inequality: This is the first time in two decades that the poverty rate has gone up. Global inequalities have widened, evident in the relative impacts felt on incomes in the richest countries as opposed to the poorest; and, unsurprisingly, economic recovery has been similarly uneven.

    poverty

    What the World Bank report says on fiscal policy of developing Nations?

    • The report focuses on fiscal policy as an instrument for governments in dealing with crises such as the pandemic.
    • Poorer countries were unable to use fiscal policy as effectively and thus unable to offset the impact of the pandemic to a much lesser degree than richer countries.

    What is the status of India’s Fiscal Policy and Poverty?

    • Sluggish state of Indian Economy: India’s economy continues to be sluggish in 2022, and one should look back at the policy choices that were made back in 2020.
    • Absence of official poverty data: The World Bank report relies on the Consumer Pyramids Household Survey (CPHS) by the Centre for Monitoring Indian Economy (CMIE), in the absence of official poverty data since 2011.
    • Poverty and fall in GDP: By the estimate, 5.6 crore people are likely to have slipped into poverty as India’s GDP fell by7.5% in FY2020-21.
    • India’s Population below poverty line: The population below poverty line in India stood at 10% in 2020.
    • Marginal Incremental spending: Refusal to provide a fiscal stimulus to consumption the Government announced a fiscal stimulus worth Rs.2 lakh crore, or 1% of GDP. However, only a small fraction therein reflected incremental spending.
    • Inadequate increase in MGNREGA wage: The minor increase to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) wage by Rs.20 per day was a long-pending correction and quite inadequate to say the least.
    • No money in the hands of households: The majority of India’s stimulus package took the form of credit lines and refinancing schemes to private enterprises, which are an inefficient mechanism to realise the goal of putting money in the hands of people to boost household-level consumption.

    poverty

    The relationship between India’s Tax policies and Poverty

    • Reduced corporate tax: Through the pandemic and beyond, India persisted with the reduced corporate tax rate that had been announced in September 2019. The reduction of corporate tax from 30% to 22% cost the exchequer Rs.1.84 lakh crore over the last two fiscal years, according to the Parliamentary Committee on Estimates.
    • Rise in corporate profit: India has refused to reintroduce wealth tax, or indeed, an inheritance tax. At the same time, corporate profits soared, as reported by the CMIE.
    • Rise in inequality: Through all of this, and in spite of the World Inequality Report terming India as a ‘poor and very unequal country’.
    • GST as regressive tax regime: India has repeatedly increased the rates on a wide range of products covered by the Goods and Services Tax as well as increased the prices of cooking and transport fuels. While indirect taxes may help prop up public finances, they place a disproportionate burden on the poor.

    Food aid through PMGKAY and the problem associated with it

    • Pradhan Mantri Garib Kalyan Ann Yojana: The announcement of 80-crore people in India would get food aid through the Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY), a scheme that continues mainly because of the undeniable household-level distress. PMGKAY is currently estimated to cost about Rs.3.90 lakh crore. Started in April 2020, it has been extended till the upcoming Assembly elections are over.
    • PMGKAY is not a long-term solution: food aid is not a long-term solution, and certainly does not solve the problem of chronic malnutrition.

    World Bank Suggested priorities for Post pandemic recovery

    • The World Bank report identifies three priorities for fiscal policy for governments to aid with post-pandemic recovery:

    1. Targeted subsidies that benefit the poor

    2. Public investment to build resilience in the long term;

    3. Revenue mobilisation that should rely on progressive direct taxation rather than indirect taxes

    poverty

    Conclusion

    • India’s fiscally prudent policies had ensured the wealthy state but poor people. However, we must not see India’s story in isolation. Despite the good fiscal packages developed country like UK, USA are heading towards recession. Though sluggish, India has done well to maintain positive growth trajectory but this positive growth must include the growth of the poor as well.

    Mains Question

    Q.How fiscal policy can impact the poverty? What are the government initiatives to uplift the poor?

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  • Rejuvenating the Indian coffee industry

    coffee

    Context

    • Coffee cultivation is becoming an increasingly loss-making proposition in India. Already weighed down by the high cost of inputs and production as well as labor shortage, the industry is now also affected by changes in climate patterns, reports from Karnataka’s coffee heartland.

    All you need to know about Coffee plantation

    • Coffee is a tropical plantation crop.
    • 16° – 28°C temperature, 150-250cm rainfall and well-drained slopes are essential for its growth.
    • It grows on hilly slopes at the height of 900-1800m.
    • Low temperature, frost, dry weather for a long time and harsh sunshine are harmful for its plant.

    The status Coffee in India

    • India contributes about 4% of the world’s total coffee production. It ranks 6thin the world in coffee production.
    • At present, more than half of the total coffee production in India is produced by Karnataka alone, followed by Kerala and Tamil Nadu.
    • Coffee plants grow better in the laterite soils of Karnataka in India.
    • The Arabica variety initially brought from Yemen is produced in the country.
    • Indian coffee is highly rated and commands premium prices in the global coffee markets.
    • Indian coffee offering innumerable flavors, aromas and blends. The commodity, for several decades, enjoyed a special position in India’s export lists.
    • Coffee has high value and high imagery potential at home and overseas market. From being handled and sold as a berry, a green bean, a processed bean, a roasted bean and now a roasted and ground offering, coffee has climbed the hierarchy of value-addition.
    • Coffee was an important export item for the Union government, when the commodity’s exports were in the range of â‚č4,000-â‚č5,000 crore annually.

    coffee

    Do you know the history of Coffee in India?

    • The history of Indian coffee dates back to around 1600 AD with the planting of Seven Seeds of Mocha by legendary saint Baba Budan in the courtyard of his hermitage in Chikmangalur, Karnataka. The coffee plants remained a garden curiosity before they gradually spread as backyard plantings, and later on to the hills of what is now known as Baba Budan Hills.
    • However, it wasn’t until the 18th century the British entrepreneurs started taking coffee cultivation properly and turned forests in Southern India into commercial coffee plantations

    What are Challenges faced by Coffee cultivation in India?

    • Impact of Climate Change: Drastic changes in climate patterns over the last few years have adversely impacted India’s coffee production and the quality of the crop. There were dry spells between 2015 and 2017 and unseasonal heavy rains, floods and landslides between 2018 and 2022. According to the Coffee Board of India’s post-blossom estimate, production for the 2022 crop is anticipated to be some 30% lower than the estimated production due to the extreme climatic conditions.
    • Impact of heavy rains: Destruction caused by heavy rains between July and September. The impact of the rains continues, with diseases affecting plants, and estate infrastructure suffering long-term damage. Plantations in Wayanad in Kerala and Palani in Tamil Nadu have also suffered similar losses. fruit rot, stalk rot and root rot and other irreparable damage due to heavy rainfall and landslides, berries turned black and dropped.
    • Emergence of New diseases: Erratic weather conditions are helping pests to breed and new diseases to emerge, further stressing coffee plantation.

    coffee

    Crisis in Coffee Industry of India

    • No adequate fund support by government: Sturdy and weather-resistant varieties of coffee may help and stand against climate change, but sadly the government is not providing adequate funds to coffee research stations to develop these.
    • The volatility in market prices marginalizing producers: The volatility in market prices and the reduced influence of producers in the value chain render coffee cultivation an increasingly loss-making proposition. Producers are getting marginalized. This is rapidly turning out to be a buyer-driven commodity market.
    • Impact of Exports on cost competitiveness: More than 75% of Indian coffee production is exported. This has an impact on the cost competitiveness of Indian coffee vis-Ă -vis the coffee that is exported from other producer regions, especially since those growers get their finances at very low interest rates.
    • High Cost of financing: Most private banks insist that growers provide collateral for financing. Since small and medium-size growers are invariably not in a position to provide collateral, the interest rates are high, at around 12%. International interest rates, on the other hand, are negligible, mostly in single digits. This is an advantage for competing coffee-producing region.
    • Increasing cost of Inputs: Due to the rise in the cost of inputs year on year and the increase in the cost of labor and benefits, which constitute 60% to 70% of total plantation expenditure, coffee growers are left with very little money in hand which is not adequate to repay loans. The cost of inputs around coffee such as fertilizers and agrochemicals has increased by almost 20% in a year.
    • No pricing mechanism: There is no official price setting mechanism even in the domestic market. So, traders and curers are calling the shots and fixing prices, and growers are at their mercy.
    • Identity crisis for Indian coffee: On the brand front, Indian coffee is still facing an identity crisis in global markets, although the country started exporting coffee actively before the 19th century. The fact that India sells Robusta and Arabic at a price higher than the hugely advertised Colombia is an indication of the brand building done by the Indian exporter and the quality of Indian coffee. Yet, Indian coffee does not have an individual brand identity in the international markets, Indian coffee was never considered a separate origin coffee. It was always used as filler.

    What are the reasons behind the High cost of production?

    • Rising labor charges: In India, production of coffee is low while the cost of production is on the rise compared to other coffee countries such as Vietnam and Brazil. In Brazil, labour charges account for 25% of the entire production cost, but in India, planters say they account for about 65%
    • Hard terrain and topography: It is possible to bring down the cost of production to some extent through mechanization, but India’s coffee terrains and topography limit this possibility. At the same time, Indian coffee has a unique positioning as it is shade-grown and grown at elevations, while other major producing countries grow coffee in flat lands.
    • High cost of Irrigation: Power cuts makes irrigation expensive as the cost of diesel is high. The high cost of inputs leads to the high cost of production which is the main problem for coffee growers. It makes coffee cultivation unviable. Earlier, the cost of production would go up by 4% to 5% annually, but now it goes up at least 20% annually.
    • Unskilled migrant labour and wage costs: There is increasingly a shortage of labor while the cost of labour is on the rise in the coffee sector. The children of workers in all the three coffee-growing States Karnataka, Tamil Nadu and Kerala prefer to move to urban areas. This means plantations are forced to depend heavily on migrant labours who are unskilled. A lot of effort, time and energy has to be invested in training migrant labours. As wage costs are not linked to productivity, growers are mandated to pay the usual wage along with other social costs such as housing and medicines, which adds up some 30% more to the wages. Most plantations simply don’t find skilled labour, especially for tasks such as shade-lopping, pruning, and borer tracing.

    coffee

    Way forward

    • Alternative source of revenue: Finding alternative sources of revenue and increasing domestic consumption on the one hand and branding and promoting Indian coffee better in the global market on the other.
    • Creating in addition revenue streams: Growers should create additional revenue streams through inter-cropping or through innovative measures. In addition to traditional inter-cropping of pepper and cardamom, coffee growers could try planting exotic fruit-bearing trees, food crops, or getting into fish farming, dairy farming, apiary or green tourism to increase incomes from their coffee gardens. For instance, progressive farmers from Thandikudi in Dindigul district in Tamil Nadu, and from Sakleshpur in Chikkamagaluru district, are growing avocados, mangosteens, oranges, guavas and other fruit bearing trees, amid their coffee plants. In some seasons they say they have even earned more money from these than from coffee and pepper.
    • Government should permit to plant alternate crops: Considering the change in land use, the government could permit growers to plant alternate crops in a land not suitable for coffee cultivation. Timely conversion will prevent growers from going financially sick.
    • Coffee Act and the new Coffee (Promotion and Development Bill), 2022: India’s share in the global coffee market may be less than 5%, but the coffee sector is hopeful that the Coffee Act and the new Coffee (Promotion and Development Bill), 2022, will do away the 80-year-old coffee regulation and usher in change.

    Conclusion

    • The coffee community in India, comprising close to 4 lakh coffee growers, hundreds of large planters, associations that represent growers, planters, curers and exporters, and over a dozen Fair Trade Organizations, hopes to boost coffee in the domestic and international markets and counter the problems the industry faces.

    Mains Question

    Q. Even after getting out of the shackles of the pooling system in 1996, the bean maintained a special status as a valuable export commodity for a long time. Discuss the problems of coffee industry taking a back seat in India and suggest solutions.

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  • What are Gift Taxes?

    The Supreme Court recently ruled that shares within the lock-in period are not ‘quoted shares’, and thus they need to be valued as ‘unquoted shares’ to determine the gift tax liability.

    What are quoted and unquoted shares?

    • According to the Wealth Tax Act, ‘quoted share’ in relation to an equity share or a preference share means a share quoted on any recognised stock exchange with regularity from time to time.
    • The quotations of such shares are based on current transactions made in the ordinary course of business.
    • An ‘unquoted share’ is simply a share that is not a quoted share.
    • So according to the SC order, if the locked-in shares of the promoter falls in the ‘unquoted share’ category, their price treatment can’t be that of the ‘quoted shares’, and so gift tax will not be applicable.

    What are Gift Taxes?

    • Gift tax is a provision introduced by the Parliament of India in 1958.
    • It was introduced to impose tax on giving and receiving gifts under certain circumstances which is specified under the act.
    • These gifts can be in any form including cash, jewellery, property, shares, vehicle, etc.

    Gift Tax on Transfers

    • The gift tax is also applicable on certain transfers that is not considered as a gift.
    • The transfer of existing movable or immovable property in money or money’s worth qualifies for gift tax.

    Certain exemptions

    • Though gift tax is applicable on gifts whose value exceeds Rs.50,000, the gift is exempted from tax if it was given by a relative.
    • The income tax rule specifies who can be considered as a relative and the list is mentioned below.
    1. Parent
    2. Spouse
    3. Siblings
    4. Spouse’s siblings
    5. Lineal descendants
    6. Lineal descendants of the spouse

    Listed below are other situations in which the gift will be exempted from tax.

    1. Gifts received during weddings are usually exempted from tax.
    2. Gifts received as part of inheritance is exempted from tax.
    3. Cash or rewards received by local authorities or educational institutions on the basis of merit is exempted from tax.

     

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  • Competition panel penalizes Google

    The Competition Commission of India (CCI) has imposed a â‚č1,337.76-crore penalty on Google for abusing its dominant position in multiple markets in the Android mobile device ecosystem.

    What did Google do?

    • Google had abused its dominance in the licensing of its operating system for smart mobile devices, app store market for Android smart mobiles among others.
    • The CCI examined various practices of Google with respect to its licensing and various proprietary mobile applications, including Play Store, Google Search, Google Chrome, YouTube, etc.

    About Competition Commission of India

    • CCI is the competition regulator in India.
    • It is a statutory body responsible for enforcing The Competition Act, 2002 and promoting competition throughout India and preventing activities that have an appreciable adverse effect on competition in India.
    • It was established on 14 October 2003. It became fully functional in May 2009.

    Its establishment

    • A need was felt to promote competition and private enterprise especially in the light of 1991 Indian economic liberalization.
    • The idea of CCI was conceived and introduced in the form of The Competition Act, 2002 by the Vajpayee government.
    • The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, follows the philosophy of modern competition laws.
    • The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises, and regulates combinations (acquisition, acquiring of control, and Merger and acquisition), which causes or likely to cause an appreciable adverse effect on competition within India.

     

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  • China’s total trade surplus with India ‘surpasses $1 trillion’

    china

    The favourable trade balance that China has enjoyed with India, since bilateral trade began to boom in the early 2000s, has now exceeded $1 trillion.

    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 per cent.
    • 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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  • India’s Direct Benefit Transfer Schemes

    Transfer

    Context

    • Last week, the International Monetary Fund (IMF) lauded India’s Direct Benefit Transfer (DBT) Scheme as a “logistical marvel” that has reached hundreds of millions of people and specifically benefitted women, the elderly and farmers. Paolo Mauro, Deputy Director in the IMF’s Fiscal Affairs Department, praised the role of technological innovation in achieving this feat.

    What is Direct Benefit Transfer(DBT)?

    • With the aim of reforming Government delivery system by re-engineering the existing process in welfare schemes for simpler and faster flow of information/funds and to ensure accurate targeting of the beneficiaries, de-duplication and reduction of fraud Direct Benefit Transfer (DBT) was started on 1st January, 2013.
    • DBT Mission was created in the Planning Commission to act as the nodal point for the implementation of the DBT programmes. The Mission was transferred to the Department of Expenditure in July, 2013 and continued to function till 14.9.2015. To give more impetus, DBT Mission and matters related thereto has been placed in Cabinet Secretariat under Secretary (Co-ordination & PG).

    Transfer

    Efforts behind the efficient DBT

    • Mission-mode approach for financial inclusion: Government endeavoured to open bank accounts for all households, expanded Aadhaar to all, and scaled up the coverage of banking and telecom services.
    • Public Finance Management System through Aadhar: It evolved the Public Finance Management System and created the Aadhaar Payment Bridge to enable instant money transfers from the government to people’s bank accounts.
    • Participation of various stakeholders for extensive UPI: The Aadhaar-enabled Payment System and Unified Payment Interface further expanded interoperability and private-sector participation.
    • Directly receiving of subsidies: This approach not only allowed all rural and urban households to be uniquely linked under varied government schemes for receiving subsidies directly into their bank accounts but also transferred money with ease.

    What is the Present status of DBT?

    • The status of JAM trinity (Jan Dhan Aadhar Mobile)
    • By 2022, more than 135 crore Aadhaar’s have been generated,
    • There are 47 crore beneficiaries under Pradhan Mantri Jan Dhan Yojana,
    • Mobile subscribers number more than 120 crores.
    • Riding on this network, the DBT programme has reached commanding heights towards achieving the government’s vision of “sabka vikas”.
    • Last mile banking through Bank Mitras: 5 lakh Bank Mitras delivering branchless banking services.
    • DBT applicable to government schemes: Becoming the major plank of the government’s agenda of inclusive growth, it has 318 schemes of 53 central ministries spanning across sectors, welfare goals and the vast geography of the country.

    Transfer

    How benefits are delivered through DBT?

    • DBT in rural areas: In rural Bharat, DBT has allowed the government to provide financial assistance effectively and transparently to farmers with lower transaction costs be it for fertilisers or any of the other schemes including the PM Kisan Samman  Nidhi, PM Fasal Bima Yojana, and PM Krishi Sinchayi Yojana  thus becoming the backbone for supporting the growth of the agricultural economy.
    • DBT in urban area: In urban India, the PM Awas Yojana and LPG Pahal scheme successfully use DBT to transfer funds to eligible beneficiaries.
    • Benefits under MGNAREGA: The benefits received under the Mahatma Gandhi National Rural Employment Guarantee Act and Public Distribution System drive the rural demand-supply chain.
    • Various assistance programmes: Various scholarship schemes and the National Social Assistance Programme use the DBT architecture to provide social security.
    • Scheme for rehabilitation: DBT under rehabilitation programmes such as the Self Employment Scheme for Rehabilitation of Manual Scavengers opens new frontiers that enable social mobility of all sections of society.
    • DBT as last mile support in Pandemic: The efficacy and robustness of the DBT network were witnessed during the pandemic. It aided the government to reach the last mile and support the most deprived in bearing the brunt of the lockdown. From free rations to nearly 80 crore people under the Pradhan Mantri Garib Kalyan Yojana, fund transfers to all women Jan Dhan account holders and support to small vendors under PM-SVANidhi, DBT helped the vulnerable to withstand the shock of the pandemic.

    Transfer

    What are the reasons for successful DBT schemes?

    • An enabling policy regime: Proactive government initiatives and supportive regulatory administration allowed the private and public sector entities in the financial sector to overcome longstanding challenges of exclusion of a large part of the population.
    • Creation of a dedicated ecosystem: These are essential elements of the pioneering ecosystem created by the government for the aggressive rollout of the ambitious DBT programme, achieving impressive scale in a short span of six years.

    Conclusion

    • Direct Benefit Transfer has transformed the welfare aspect of the governance. Going forward digital and financial literacy, robust grievance redressal, enhancing awareness and an empowering innovation system are some of the aspects that would require continued focus. This would play a vital role for India in meeting the diverse needs of its population and ensuring balanced, equitable and inclusive growth.

    Mains Question

    Q.Enlist the schemes that comes under DBT. How DBT has changed the lives of needy people in urban and rural India?

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  • What are Foreign Currency Non-Resident (FCNR) deposits?

    The RBI’s 2013 FCNR scheme to buffer the rupee against steep declines and rebuild foreign exchange reserves is unlikely to prove fruitful in the current crisis as economic fundamentals are different.

    What are FCNR deposits?

    • Back in 2013, the RBI had offered to swap the U.S. dollars banks had raised via foreign currency non-resident (FCNR) deposits or foreign currency funding for rupees at concessional rates.
    • A FCNR is a bank account for NRIs to maintain a Fixed Deposit account in India.
    • This account allows one as an NRI to save money earned in the currency form of the country you’ve originally earned the money from.
    • FCNR deposits can hold currencies like US Dollars, Pounds Sterling, Euro, Japanese Yen, Australian Dollars and Canadian Dollars.
    • Interest on such deposits is exempt for income tax.

    How do they operate?

    • These deposit accounts are a term deposit account, not savings.
    • Once can withdraw your money before the date of maturity, and there will be no charges, but the interest will not be paid until after a year is complete.

    Benefits offered

    • FCNRs are just like what FDs are for resident Indians, except in foreign currency.
    • They work as great investment options for NRIs to invest in the country for a start, before looking for other avenues in investments on the stock market.
    • Because the money is being held in those currencies, the risk of exchange rate fluctuations is eliminated.

    Why in news?

    • Forex reserves have tumbled about $110 billion from a peak of $642 billion in September last year.
    • A significant reason behind this is RBI’s currency market intervention.

     

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  • Japan seeks GI tag for Nihonshu, an alcoholic beverage

    nihonshu

    The Embassy of Japan, New Delhi, has filed an application seeking Geographical Indication (GI) tag for nihonshu/Japanese sake, an alcoholic beverage.

    Why in news?

    • It is learnt that this is the first time a product from Japan has filed for a tag at the Geographical Indication Registry in Chennai.

    What is Nihonshu?

    • Nihonshu is regarded as a special and valuable beverage made from fermenting rice.
    • People traditionally drink nihonshu on special occasions, such as festivals, weddings or funerals, but it is also consumed on a daily basis.
    • Thus, it is an integral part of the lifestyle and culture in Japan.
    • The sake market (almost all are nihonshu) is the second largest brewed liquor (such as beer) market in Japan.

    How is it made?

    • For making nihonshu three main raw materials – rice, koji-kin (a type of fungal spore) and water – are required.
    • Its production follows an alcoholic fermentation method called parallel multiple fermentation and involves raw material treatment, koji making, starter culture making, mash making, pressing, heat sterilisation and bottling.
    • The rice and koji used should originate in Japan.

    Try this PYQ:

    Q.Which of the following has/have been accorded ‘Geographical Indication’ status?

    1. Banaras Brocades and Sarees
    2. Rajasthani Daal-Bati-Churma
    3. Tirupathi Laddu

    Select the correct answer using the code given below:

    (a) 1 only

    (b) 2 and 3 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

     

    [wpdiscuz-feedback id=”kwp9fobhbd” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

    Back2Basics:  Geographical Indication

    • 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.
    • GI is granted for a term of 10 years in India. As of today, more than 300 GI tags has been allocated so far in India (*Wikipedia).
    • The tag stands valid for 10 years.

     

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  • About 41.5 crore Indians out of multi-dimensional poverty since 2005-06

    poverty

    About 41.5 crore people exited poverty in India during the 15-year period between 2005-06 and 2019-21, out of which two-thirds exited in the first 10 years, and one-third in the next five years, according to the global Multidimensional Poverty Index (MPI).

    What is global MPI?

    • The global Multidimensional Poverty Index (MPI) is an international measure of acute poverty covering over 100 developing countries.
    • It complements traditional income-based poverty measures by capturing the severe deprivations that each person faces at the same time with respect to education, health and living standards.
    • The global MPI was developed by OPHI with the UN Development Programme (UNDP) for inclusion in UNDP’s flagship Human Development Report in 2010.
    • It has been published in the HDR ever since.

    poverty

    Multidimensional poverty in India: Major improvements

    poverty

    • The report shows that the incidence of poverty fell from 55.1% in 2005-06 to 16.4% in 2019-21 in India.
    • Deprivations in all 10 MPI indicators saw significant reductions as a result of which the MPI value and incidence of poverty more than halved.
    • Improvement in MPI for India has significantly contributed to the decline in poverty in South Asia.
    • It is for the first time that it is not the region with the highest number of poor people, at 38.5 crore, compared with 57.9 crore in Sub-Saharan Africa.
    • Bihar, the poorest State in 2015-2016, saw the fastest reduction in MPI value in absolute terms.

    Long way towards alleviation

    • Despite the strides made, the report notes that the ongoing task of ending poverty remains daunting.
    • India has by far the largest number of poor people worldwide at 22.8 crore, followed by Nigeria at 9.6 crore.
    • Two-third of these people live in a household in which at least one person is deprived in nutrition.
    • There were also 9.7 crore poor children in India in 2019-2021 — more than the total number of poor people, children and adults combined, in any other country covered by the global MPI.

    Why multi-dimensional poverty does persist in India?

    Poverty is not just the absence of income, money and/or money-like resources required to meet needs.

    • Multiple disadvantages: A person who is poor can suffer multiple disadvantages at the same time – for example they may simultaneously have:
    1. Poor health or malnutrition
    2. Lack of clean water or electricity
    3. Poor quality of livelihood options
    4. Little/No schooling
    5. Disempowerment
    6. Threats of violence
    7. Climate change vulnerability etc.

    Other factors include:

    1. Limited financial resources
    2. Material deprivation
    3. Social isolation
    4. Exclusion and powerlessness
    5. Physical and psychological ill-being
    • Multiple dimensions: Focusing on one factor alone, such as income, is not enough to capture the true reality of poverty. National MPI ensures a holistic approach towards defining poverty at the national level.
    • More comprehensive: MP measures can be used to create a more comprehensive picture. They reveal who is poor and how they are poor – the range of different disadvantages they experience.
    • Better targeting: As well as providing a headline measure of poverty, multidimensional measures can be broken down to reveal the poverty level in different areas of a country and among different sub-groups of people.
    • Priority definition for target groups: It offers statistics that determine the national priorities by using a set of dimensions, indicators with respect to the urban and rural areas of India along with an indicator-wise deconstruction and breakdown.

    Various govt. interventions to for poverty alleviation

    (I) Food Security

    • National Food Security Act 2013 (also ‘Right to Food Act’): It aims to provide subsidized food grains to approximately two thirds of the country’s 1.2 billion people.

    (II) Employment and Skilling

    • National Rural Livelihood Mission (NRLM) – Ministry of Rural Development started NRLM 2011 to evolve out the need to diversify the needs of the rural poor and provide them jobs with regular income on a monthly basis.
    • Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) – In 2005 Ministry of Rural Development initiated MGNEREGA to provide 100 days of assured employment every year to every rural household. One-third of the proposed jobs would be reserved for women.

    (III) Income Support

    • PM Jan Dhan Yojana (PMJDY): The Ministry of Finance in 2014 initiated PMJDY that aimed at direct benefit transfer of subsidy, pension, insurance, etc., and attained the target of opening 1.5 crore bank accounts. The scheme particularly targets the unbanked poor.
    • PM Kisan Samman Nidhi (PM KISAN): PM KISAN is an initiative by the government of India in which all farmers will get up to â‚č6,000 per year as minimum income support.

    Various challenges

    • Pauperization: Every year a huge number is added to the population pool of the country. To exemplify, this pandemic has led to severe pauperization of migrant workers.
    • Regional divide: Incidence of extreme poverty continues to be much higher in rural areas than in urban areas.
    • Jobless growth: Despite rapid growth and development, an unacceptably high proportion of our population continues to suffer from severe and multidimensional deprivation.
    • Inadequate resources: The resources allocated to anti-poverty programmes are inadequate and there is a tacit understanding that targets will be curtailed according to fund availability.
    • Implementation bottlenecks: Lack of proper implementation and right targeting has been legacy issues in India. There has been a lot of overlapping of schemes.

     

     

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  • PM inaugurates ‘One Nation, One Fertilizer’ Scheme

    Prime Minister has inaugurated 600 Kisan Samridhi Kendras and ‘One Nation, One Fertilizer’ scheme and said that these steps were being taken to modernise agriculture.

    One Nation One Fertilizer (ONOF)

    • The single brand name for UREA, DAP, MOP and NPK etc. would be BHARAT UREA, BHARAT DAP, BHARAT MOP and BHARAT NPK etc. respectively for all Fertilizer Companies, State Trading Entities (STEs) and Fertilizer Marketing Entities (FMEs).
    • Also a logo indicating Fertilizer subsidy scheme namely Pradhanmantri Bhartiya Janurvarak Pariyojna will be used on said Fertilizer bags.
    • Under the scheme, companies are allowed to display their name, brand, logo and other relevant product information only on one-third space of their bags.
    • On the remaining two-thirds space, the “Bharat” brand and Pradhanmantri Bharatiya Jan Urvarak Pariyojana logo will have to be shown.

    What is the government’s argument for introducing this scheme?

    The government’s logic for introducing a single ‘Bharat’ brand for all subsidised Fertilizers being marketed by companies is as follows:

    (1) Subsidies normalization

    • The maximum retail price of urea is currently fixed by the government, which compensates companies for the higher cost of manufacturing or imports incurred by them.
    • The MRPs of non-urea Fertilizers are, on paper, decontrolled.
    • But companies cannot avail of subsidy if they sell at MRPs higher than that informally indicated by the government.
    • Simply put, there are some 26 Fertilizers (inclusive of urea), on which government bears subsidy and also effectively decides the MRPs;

    (2) Harmonizing markets

    • Apart from subsidising and deciding at what price companies can sell, the government also decides where they can sell.
    • This is done through the Fertilizer (Movement) Control Order, 1973.
    • Under this, the department of Fertilizers draws an agreed monthly supply plan on all subsidised Fertilizers in consultation with manufacturers and importers.
    • This supply plan is issued before the 25th of each month for the following month, with the department also regularly monitoring movement to ensure Fertilizer availability as per requirement, including remote areas.

    (3) Farmers welfare

    • The government is spending vast sums of money on Fertilizer subsidy (the bill is likely to cross Rs 200,000 crore in 2022-23).
    • By deciding where and at what price companies can sell, it would obviously want to take credit and send that message to farmers.

    What can be the drawbacks of the scheme?

    • It may disincentivize Fertilizer companies from undertaking marketing and brand promotion activities.
    • They will now be reduced to contract manufacturers and importers for the government. Any company’s strength ultimately is its brands and farmer trust built over decades.
    • Currently, in case of any bag or batch of Fertilizers not meeting the required standards, the blame is put on the company. But now, that may be passed on fully to the government.
    • Politically, the scheme might well boomerang rather than benefit the ruling party.

    Challenges in the fertilizer sector

    • Distortion in use due to price difference: In 2019-20, fertilizer use per hectare of cultivated area varied from 70 kg of NPK in Rajasthan to 250 kg in Telangana
    • Shift in the composition of fertilizer used:The high price differences among fertilizers (Nitrogen is much cheaper than Potassium and Phosphorus) have disturbed the relative prices of various fertilizers and resulted in a big shift in the composition of fertilizers used in the country in favor of urea and thus Nitrogen.
    • Increasing fertilizer subsidy: Fertilizer subsidy has doubled in a short period of three years. For 2021-22, the Union Budget has estimated fertilizer subsidy at â‚č79,530 crores (from â‚č66,468 crores in 2017-18).
    • Burden on exchequer: Taxpayers bear 78% of the cost of urea and farmers pay only 22%. This is expected to increase and is not sustainable.
    • Sensitive to Global impacts: The subsidy is likely to reach a much higher level due to the recent upsurge in the prices of energy,the international prices of urea and other fertilizers, and India’s dependence on imports.
    • Import dependence: The total demand for urea in the country is about 34-35 million tonnes whereas the domestic production is about 25 million tonnes.

    Other issues

    • Lesser expansion of Irrigation facilities and consequent low fertilizer consumption leads to low demand and therefore, restricts the growth of the industry.
    • Use of Obsolete Technology: Most of the fertilizer industry operates under PSUs that are using decade-old technology and thus making huge losses and also the competitive edge.

    Way forward

    • India should pay attention to improving fertilizer efficiency through need-based use rather than broadcasting fertilizer in the field.
    • The use of bio-fertilizers is necessary to maintain soil health as more and more use of chemical fertilizers kills all the microorganisms available in the soil, which are so essential for maintaining soil health.

     

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