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Subject: Economics

  • Critical Minerals: Opprtunity for Aatmanirbharta in Energy security.

    Minerals

    Context

    • In his Independence Day address, Prime Minister Narendra Modi exhorted the country to pursue aatmanirbhar bharta in energy by focusing on clean energy technologies. Securing access to key critical minerals such as lithium, cobalt, nickel and rare earth metals is critical for building resilient and indigenous supply chains for clean energy technologies.

    Background 

    • Concerns over the pricing and availability of oil and gas in the wake of the Ukraine crisis continue to fuel global policy debates on energy security. However, the fragility of clean energy supply chains obscures pathways for countries to reduce dependence on fossil fuel.
    • Imported inflationary pressures through exposure to volatile oil and gas markets also pose risks to macroeconomic growth and stability, particularly for India, import ­dependent for around 85% of its oil and half of its gas needs.

    Minerals

    What are Critical Minerals?

    • Critical minerals are elements that are the building blocks of essential modern-day technologies, and are at risk of supply chain disruptions.
    • These minerals are now used everywhere from making mobile phones, computers to batteries, electric vehicles and green technologies like solar panels and wind turbines.
    • Based on their individual needs and strategic considerations, different countries create their own lists.
    • However, such lists mostly include graphite, lithium, cobalt, rare earths and silicon which is a key mineral for making computer chips, solar panels and batteries.
    • Aerospace, communications and defence industries also rely on several such minerals as they are used in manufacturing fighter jets, drones, radio sets and other critical equipment.

    Why is this resource critical?

    • As countries around the world scale up their transition towards clean energy and digital economy, these critical resources are key to the ecosystem that fuels this change.
    • Any supply shock can severely imperil the economy and strategic autonomy of a country over-dependent on others to procure critical minerals.
    • But these supply risks exist due to rare availability, growing demand and complex processing value chain.
    • Many times the complex supply chain can be disrupted by hostile regimes, or due to politically unstable regions.
    • They are critical as the world is fast shifting from a fossil fuel-intensive to a mineral-intensive energy system.

    MineralsWhat are Rare Earth Metals?

    • The rare earth elements (REE) are a set of seventeen metallic elements. These include the fifteen lanthanides on the periodic table plus scandium and yttrium.
    • Rare earth elements are an essential part of many high-tech devices.
    • They have a wide range of applications, especially high-tech consumer products, such as cellular telephones, computer hard drives, electric and hybrid vehicles, and flat-screen monitors and televisions.
    • Significant defense applications include electronic displays, guidance systems, lasers, and radar and sonar systems.
    • Rare earth minerals, with names like neodymium, praseodymium, and dysprosium, are crucial to the manufacture of magnets used in industries of the future, such as wind turbines and electric cars.

    Applications of REMs in various fields:

    • Electronics: Television screens, computers, cell phones, silicon chips, monitor displays, long-life rechargeable batteries, camera lenses, light-emitting diodes (LEDs), compact fluorescent lamps (CFLs), baggage scanners, marine propulsion systems.
    • Defense Sector: Rare earth elements play an essential role in our national defense. The military uses night-vision goggles, precision-guided weapons, communications equipment, GPS equipment, batteries, and other defense electronics. These give the United States military an enormous advantage. Rare earth metals are key ingredients for making the very hard alloys used in armored vehicles and projectiles that shatter upon impact.
    • Renewable Energy: Solar panels, Hybrid automobiles, wind turbines, next-generation rechargeable batteries, bio-fuel catalysts.
    • Manufacturing: High strength magnets, metal alloys, stress gauges, ceramic pigments, colorants in glassware, chemical oxidizing agent, polishing powders, plastics creation, as additives for strengthening other metals, automotive catalytic converters
    • Medical Science: Portable x-ray machines, x-ray tubes, magnetic resonance imagery (MRI) contrast agents, nuclear medicine imaging, cancer treatment applications, and for genetic screening tests, medical and dental lasers.
    • Technology: Lasers, optical glass, fiber optics, masers, radar detection devices, nuclear fuel rods, mercury-vapor lamps, highly reflective glass, computer memory, nuclear batteries, high-temperature superconductors.

    DO YOU KNOW?

    Metals such as cadmium, lead are often used in manufacturing plastic and over time can enter coastal waters. These are acutely harmful for coastal wildlife and humans.Different kinds of plastic releases different kinds of metals  that may release when exposed to water and UV lights.

    What are the challenges in accessing Critical minerals?

    • Deposits in geopolitically sensitive regions: Reserves are often concentrated in regions that are geopolitically sensitive or fare poorly from an ease of doing business perspective.
    • Controlled production:  A portion of existing production is controlled by geostrategic competitors. For example, China wields considerable influence in cobalt mining in the Democratic Republic of Congo through direct equity investments and its Belt and Road Initiative.
    • Agreements in advance from outside: Future mine production is often tied up in off take agreements, in advance, by buyers from other countries to cater to upcoming demand.

    MineralsA step taken by Indian government for sourcing strategic minerals

    • For sourcing of strategic minerals, the Indian government established Khanij Bidesh  India Limited (KABIL) in 2019 with the mandate to secure mineral supply for the domestic market.

    What is Khanij Bidesh India Limited (KABIL)?

    • Joint venture: A joint venture company namely Khanij Bidesh India Ltd. (KABIL)  set up with the participation of three Central Public Sector Enterprises namely, National Aluminium Company Ltd.(NALCO), Hindustan Copper Ltd.(HCL) and Mineral Exploration Company Ltd. (MECL).
    • Objective: The objective of constituting KABIL is to ensure a consistent supply of critical and strategic minerals to Indian domestic market. While KABIL would ensure mineral security of the Nation, it would also help in realizing the overall objective of import substitution.

    Suggestions based on Council on energy environment and water (CEEW) to achieve the objective of KABIL

    • Mapping out the domestic requirement: Figure out the mineral requirements of the domestic industry. This could best be accomplished by a task force which includes the ministries of power, new and renewable energy, heavy industry, and science and technology.
    • Clear road map for indigenous manufacturing: Five­ year road maps with clear targets for deployment and indigenous manufacturing across clean energy applications would provide visibility to domestic investors. Assess the technology mix that would support this deployment. On this basis, determine the quantities of minerals necessary to support indigenous manufacturing.
    • Better coordination between different stakeholders: Coordinate with the domestic industry to determine where strategic interventions by the government would be necessary for the purpose.KABIL could collaborate with industry to bolster its market intelligence capabilities for tracking global supply­ side developments.
    • Preemptive agreements through KABIL for reliable supply: If conducive investment opportunities don’t exist KABIL should pre­emptively sign off take agreements with global  mineral suppliers to secure future production. It could aggregate reliable supply of minerals for domestic requirements  and sign back ­to­ back sales agreements with the domestic industry .Such large scale centralised  national procurement could be done at preferential terms.
    • Joint Investment In mining assets to mitigate investment risks: The government should jointly invest in mining assets with geostrategic partners. KABIL should make equity investments in mining jurisdictions that private sector investors may deem too risky. It should leverage government­ to­ government partnerships to mitigate investment risks. This could be done through joint investments with sovereign entities from geostrategic partners or private sector entities with expertise in specific geographies.
    • Finding the alternatives: Technologies such as sodium ­ion batteries could reduce requirements for sourcing minerals from beyond India’s borders.  It could also propose co­ development of such technologies with geostrategic partners.
    • Developing policies on sustainable urban mining and recycling: Develop policies on urban mining aimed at recycling mineral inputs from deployments that have completed their useful life. These could help further reduce dependence on international sourcing.

    Conclusion

    • Besides Ukraine, other potential geopolitical flash points also exist against a backdrop of dwindling multilateral cooperation. India must act immediately and decisively to mitigate  these risks  to its energy security.

    Mains Question

    Q.What are critical minerals? Why the critical minerals are so important? What steps India can take to achieve the objective of Atmanirbhar Bharat in domestic mineral supply and thereby mitigating energy security risks?

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  • Economics Nobel for work on Role of Banks during Financial Crisis

    nobel

    The Nobel Prize for Economics in 2022 was awarded to Ben S Bernanke, Douglas W Diamond and Philip H Dybvig for research on banks and financial crises.

    Do you know?

    • The economics prize is not one of the original five awards created in the 1895 will of industrialist and dynamite inventor Alfred Nobel.
    • It was established by Sweden’s central bank and first awarded in 1969, its full and formal name being the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

    Why was the Nobel given to these three scholars?

    • The research of the three laureates has helped us understand the role of banks in the economy, particularly during financial crises.
    • Their research shows why avoiding a bank collapse is very important for the economy.

    Which bank did these scholars study?

    • In 1656, the then-king of Sweden approved the foundation of Sweden’s first bank, the Stockholms Banco, which also became the first bank to issue banknotes in Europe.
    • However, Banco over-issued notes leading to its liquidation in 1667.
    • In 1668, the Swedish Nobles decided to found the Riksens Standers Bank, which was later renamed as Sveriges Riksbank in 1867.
    • In 1968, on its tercentenary, the Sveriges Riksbank decided to award the economics prize in memory of Alfred Nobel.
    • The award itself was the result of an ongoing crisis and conflict between the central bank and the government.
    • The purpose of mentioning this history is to highlight how failures are central to banks.
    • Banks have failed ever since they were created.

    What does Ben Bernanke say about banking crises?

    • In the 1930s, the world economy faced a serious economic contraction called the Great Depression.
    • For many years, it was thought the Great Depression was due to a lack of policy stimulus.
    • The economist John Maynard Keynes had argued that monetary policy was ineffective in such crises as interest rates could not go lower than zero percent, and one needed a large fiscal stimulus.
    • Milton Friedman argued that central banks could create money even when interest rates were zero by buying assets, thereby increasing the money supply.

    Reasons behind the crisis

    • Bernanke said that while a lack of policy stimulus explains the contraction, it does not explain why the Great Depression continued for such a long time.
    • The economic contraction had led to a large number of bank failures.
    • His argument was that it was this large-scale failure of banks which prolonged the crisis.
    • Banks were not in a position to channel loans towards productive activities, leading to the crisis becoming more severe in the US.

    How is bank failure attributed to the financial crisis?

    • Banks have special insights into companies, and when a bank fails, all this information is lost.
    • A failed banking system takes many years to repair and the economy performs very poorly in this period.
    • This explains why the Great Depression became such a prolonged crisis.
    • Bernanke drew his analysis from a deep understanding of economic and monetary history.
    • This prize also shows the importance of history, which is becoming rarer in economic research.

    What are Diamond’s and Dybvig’s insights into banking crises?

    • Bernanke explained what happens when banks fail. But Diamond and Dybvig explained why banks fail.
    • In joint research, hence called the Diamond-Dybvig model, they explain that banks fail when depositors rush for their money.
    • In their model, banks are seen as financial intermediaries that intermediate funds from depositors to loan seekers.
    • The deposits are for shorter durations whereas loans are typically given for longer durations (technically called the maturity transformation function of banks).
    • The banks are seen as entities that help savers meet investors, and by channeling loans towards good projects, banks help an economy grow.

    How bank failure is related to depositors?

    • Banks are prone to runs by depositors.
    • In their research, they show that once there is a rumor about a bank’s weakness, it spreads like wildfire, causing a bank run, when depositors literally run for their funds to the bank.
    • As banks lend most of the funds towards long-term projects, the loans cannot be recalled easily to repay the depositors.
    • If the rumor is not addressed, it leads to eventual bank failure.

    Is it Nobel-worthy?

    • While many know this is basically how banks fail, the prize-winning duo formalized the model.
    • They also presented a solution for bank failures via deposit insurance, which was also introduced before their research.
    • In 1933, the US was the first country to adopt deposit insurance, followed by India in 1962.
    • Both adopted deposit insurance after a significant number of banks failed in these countries.

    What does the prize mean for Indian banking?

    • India has been facing sporadic banking crises from 2013 where few banks failed.
    • Bernanke’s research shows how once a crisis starts, it can prolong not just banking problems but also lower economic growth over time.
    • Diamond-Dybvig’s research shows how the weak performance of individual banks like the Punjab and Maharashtra Urban Cooperative Bank and Yes Bank lead to runs.
    • Such banks need to be bailed out by the government.
    • There was also the case of ICICI bank which faced a run in 2008 based on rumours, but the run was stalled by the central bank by issuing a notification assuring the sound health of the bank.

    You must know this!

    • Economist and former Reserve Bank of India (RBI) chief Raghuram Rajan seemed to have missed out on the award.
    • He is a leading scholar on banking and has written many research papers with this year’s awardee, Douglass Diamond.
    • The Nobel committee has cited 12 of his research papers, which are a significant contribution to the field of banking.

     

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  • Boosting India’s Cotton Production

    IndiaContext

    • Cotton, one of the most important crops, has a strategic role in India’s international agriculture play. India is the world’s third-largest exporter of cotton and the second-largest exporter of textiles, therefore, also contributing significantly to the country’s economy.

    All you need to know about the Cotton crop

    • Rainfall and Temperature: Sensitive to timing of rainfall and rainfall during harvest might lead to crop failure. Temperature required is around 20-30 degree c., while rainfall is about 75-100cm.
    • Soil: Black soil ideally suited for cotton cultivation as it is rich in lime.cotton is vulnerable to pest attack.
    • Humidity: Cotton cultivation requires more than 200 frost free days. Humidity during harvest is harmful.
    • Oilcake: The cotton seeds are crushed for oil and the oilcake is an important animal fodder and also used as farm manure.

    India

    What is the Present status of cotton in India?

    • India holds a 4% share of the U.S.$840 billion global textile and apparel market
    • India has been successful in developing backward links, with the aid of the Technical Upgradation Fund Scheme (TUFS), in the cotton and technical textiles industry.
    • However, India is yet to move into man-made fibres as factories still operate in a seasonal fashion.
    • Areas of cotton cultivation are Gujrat, Maharashtra, Telangana, Punjab, etc.

    Do you know?

    The latest archaeological discovery in Mehrgarh puts the dating of early cotton cultivation and the use of cotton to 5000 BCE. The Indus Valley civilization started cultivating cotton by 3000 BCE. Cotton was mentioned in Hindu hymns in 1500 BCE.

    IndiaWhat are the voluntary sustainable standards (VSS) in cotton?

    • Voluntary Sustainability Standards (VSS):  Voluntary Sustainability Standards (VSS), which encapsulate certification schemes, labelling programmes, and private standards. The major VSS that are dominant in the sustainable cotton value chain today include Better Cotton Initiative (BCI), Organic Cotton, Fair trade Cotton, and Cotton Made in Africa.
    • To achieve sustainable Goal: The global textile supply chain is undergoing a paradigm shift; it is pursuing environmental and social upgradation to meet the sustainability requirements imposed by global textile and home furnishing retailers, so as to mitigate the adverse impacts of climate change on cotton farmers and cotton cultivation.

    What are the benefits of VSS for India?

    • Enhance position in global cotton supply: Adapting to VSS is clearly beneficial for India. On the one hand, it will help it remain globally competitive in the cotton supply chain and strengthen its position in the export market, while on the other, it will help meet India’s SDG commitments.
    • Takes India a step closer towards sustainable farming: India has made considerable progress in its transition towards a more sustainable cotton farming ecosystem. The total cotton area under VSS has reached 1.5 million hectares, contributing to 24 percent of the global VSS cotton area.
    • Increases organic production of cotton: With approximately 0.2 million hectares of area for production, it is the largest producer of organic cotton, accounting for 50 percent of global organic cotton production, and the second-largest producer of ‘Better Cotton’, accounting for 16.5 percent of total Better Cotton production covering an area of 1.5 million hectares.
    • Higher yeild: According to the BCI’s 2020 Impact Report for India, Better Cotton farmers have 9 percent higher yields and 18 percent higher profit than conventional farmers.
    • Eco friendly production:The Thinkstep report 2018 on the Life Cycle Assessment of VSS Cotton conducted in Madhya Pradesh revealed a reduction of 50 percent in climate change impact, 59 percent in blue water consumption, 84 percent in ecotoxicity, and 100 percent eutrophication in organic over conventional cotton.
    • To achieve SDG Targets: The VSS cotton growth story in India has already demonstrated its contribution towards the achievement of SDG targets for Zero Hunger (Goal 2), Clean Water and Sanitation (Goal 6), Responsible Consumption and Production (Goal 12), Life on Land (Goal 15), and Climate Action (Goal 16).
    • NITI Aayog’s Assessment: VSS cotton delivers real, measurable outcomes according to priority indicators as outlined by NITI Aayog which maps India’s SDG goals. These indicators include changes in the extent of water bodies, improving groundwater withdrawal against availability, and rationalising nitrogen fertiliser.

    IndiaConclusion

    • India must scale up the VSS while aligning it with its SDG commitments since VSS in cotton ensures a better production system, sourcing methods, and consumption patterns while also influencing the lives of hundreds of millions.

    Mains Question

    Q. What are the Voluntary Sustainable Standards (VSS)? Cotton production can be boosted in India using VSS method. Elaborate.

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  • Aatmanirbhar in defence production: Where does India stand?

    India ranks fourth among 12 Indo-Pacific nations in self-reliant arms production capabilities, according to a study released this month by the Stockholm International Peace Research Institute (SIPRI).

    Study on Defence production

    • China tops the list, Japan is second, South Korea is in third place, and Pakistan is at number 8.
    • The study, which measures self-reliance until 2020, is based on three indicators of self-reliance in each country:
    1. Arms procurement — imports, licensed and domestic production as a proportion of the government’s total procurement of major conventional arms;
    2. Arms industry — the study presents the five largest arms companies in each country, where data are available, ranked by sales of arms and military services in 2020 to both domestic and export customers;
    3. Uncrewed maritime vehicles, the sea equivalent of drones — covering both uncrewed surface vehicles (USVs) and uncrewed underwater vehicles (UUVs), meant to provide a qualitative understanding of how countries are engaging domestic research institutes and firms to produce such cutting edge systems.

    How has China progressed?

    • China was the world’s fifth largest arms importer in 2016-20.
    • Its self-reliance policies, and its high economic growth in that period meant that the Chinese arms industry now increasingly fulfils the requirements of the People’s Liberation Army (PLA).
    • Its high volume of imports in absolute terms accounts for only 8 per cent of total procurement for the period, the lowest share for any of the 12 governments studied in this report.

    Why is India still lagging behind?

    • India is ranked as the second-largest importer of arms for its armed forces in 2016-20.
    • India is highly dependent on imports of complete foreign major arms, including many produced under licence or as components for its domestic production.
    • Of India’s total volume of procurement in 2016–20, 84 per cent was of foreign origin.
    • Domestic arms companies provide only 16 per cent of its total procurement.

    Steps taken by the Centre to boost defence production

    • Licensing relaxation: Measures announced to boost exports since 2014 include simplified defence industrial licensing, relaxation of export controls and grant of no-objection certificates.
    • Lines of Credit: Specific incentives were introduced under the foreign trade policy and the Ministry of External Affairs has facilitated Lines of Credit for countries to import defence product.
    • Policy boost: The Defence Ministry has also issued a draft Defence Production & Export Promotion Policy 2020.
    • Budgetary allocation: In addition, a percentage of the capital outlay of the defence budget has been reserved for procurement from domestic industry.
    • Defence Industrial Corridors: The government has also announced 2 dedicated Corridors in the States of TN and UP to act as clusters of defence manufacturing that leverage existing infrastructure, and human capital.
    • Long-term vision: The vision of the government is to achieve a turnover of $25 bn including export of $5 bn in Aerospace and Defence goods and services by 2025.
    • Push for self-reliance: The govt has identified the Defence and Aerospace sector as a focus area for the ‘Aatmanirbhar Bharat’ or Self-Reliant India initiative.

    Issues retarding defence indigenization

    • Excess reliance on Public Sector: India has four companies (Indian ordnance factories, Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL) and Bharat Dynamics Limited (BDL)) among the top 100 biggest arms producers of the world.
    • Policy delays: In the past few years, the government has approved over 200 defence acquisition worth Rs 4 trillion, but most are still in relatively early stages of processing.
    • Lack of Critical Technologies: Poor design capability in critical technologies, inadequate investment in R&D and the inability to manufacture major subsystems and components hamper the indigenous manufacturing.
    • Long gestation: The creation of a manufacturing base is capital and technology-intensive and has a long gestation period. By that time newer technologies make products outdated.
    • ‘Unease’ in doing business: An issue related to stringent labour laws, compliance burden and lack of skills, affects the development of indigenous manufacturing in defence.
    • Multiple jurisdictions: Overlapping jurisdiction of the Ministry of Defence and Ministry of Industrial Promotion impair India’s capability of defence manufacturing.
    • Lack of quality: The higher indigenization in few cases is largely attributed to the low-end technology.
    • FDI Policy: The earlier FDI limit of 49% was not enough to enthuse global manufacturing houses to set up bases in India.
    • R&D Lacunae: A lip service to technology funding by making token allocations is an adequate commentary on our lack of seriousness in the area of Research and Development.
    • Lack of skills: There is a lack of engineering and research capability in our institutions. It again leads us back to the need for a stronger industry-academia interface.

    Way forward

    • Reducing import dependence: India was the world’s second-largest arms importer from 2014-18, ceding the long-held tag as the largest importer to Saudi Arabia, says 2019 SIPRI report.
    • Security Imperative: Indigenization in defence is critical to national security also. It keeps intact the technological expertise and encourages spin-off technologies and innovation that often stem from it.
    • Economic boost: Indigenization in defence can help create a large industry which also includes small manufacturers.
    • Employment generation: Defence manufacturing will lead to the generation of satellite industries that in turn will pave the way for a generation of employment opportunities.

     

     

     

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  • Moonlighting: Overemployment or Underpayment

    MoonlightingContext

    • In July, Kotak Securities said in a study that at least 60% of 400 employees surveyed said they themselves had, or knew someone who had engaged in moonlighting.

    What is mean by moonlighting?

    • Moonlighting is a state where employees work for remuneration with entities other than their employers. It is not defined in any of the statutes in India. However, there are enactments that deal with double employment.

    MoonlightingHow does it affect companies and what are latest examples?

    • Wipro: According to Wipro CEO, there is a lot of chatter about people moonlighting in the tech industry. This is cheating plain and simple. The company sacked 300 employees following the discovery that they were working for rival firms on the side, leading to conflict of interest.
    • Infosys: Infosys has warned staff against moonlighting, saying it could lead to termination.
    • Effect of WFH: Another software firm DXC Technologies said that moonlighting by employees was a challenge for employers but that wouldn’t affect its WFH (work from home) policy that has worked well for both the firm and its staff.
    • Moonlighting policy: Swiggy announced a moonlighting policy’ that allows employees to pursue their passion for economic interests alongside their fulltime employment.”

    MoonlightingWhat is the Legal status of moonlighting?

    • Factory act: Section 60 of the Factories Act deals with restriction on double employment stating that “No adult worker shall be required or allowed to work in any factory on any day on which he has already been working in any other factory, save in such circumstances as may be prescribed. However, this enactment is applicable only to employees working in factories.
    • The Tamil Nadu Shops & Establishments Act, 1947: There are State enactments which deal with employment of persons working in offices, banks, shops, etc. In Tamil Nadu, it is termed as The Tamil Nadu Shops & Establishments Act, 1947. However, there is no provision wherein dealing with dual employment.
    • Glaxo Laboratories (I) Limited vs Labour Court, Meerut and others: The apex court held that “The employer has hardly any extra territorial jurisdiction. He is not the custodian of general law and order situation or the Guru or mentor of his workmen for their well-regulated cultural advancement. If the power to regulate the behaviour of the workmen outside the duty hours and at any place wherever they may be was conferred upon the employer, contract of service may be reduced to contract of slavery.” This case was not specifically about moonlighting but the court’s observation gives us an idea as to how the law may view such cases.

    MoonlightingWay forward

    • More earning: The Minister of State for Skill Development and Entrepreneurship, and Electronics and IT, said that employers should not to suppress employees who want to monetise, develop and demonstrate but also urged employees not to violate their agreements with employers.
    • Working hours: Moonlighting is subject to law of the land. The sphere of employment cannot be extended by the employer beyond working hours and outside his place of employment.
    • Socialistic view: The Courts of law in India dealing with employment are Writ Courts and Labour Courts, which exercise jurisdiction based on equity or fairness. Therefore, the Courts may lean in favour of the employee unless the contravention of the employee has led to serious prejudice and loss to the employer

    Conclusion

    • Employees are not the slaves of employers. What they do beyond the working hours is none of the business of employer unless it affects company financially or causes substantial damage to business. Government should bring the legal statute to regulate moonlighting and prevent the unjustified punishment of employees.

    Mains Question

    Q. What is moonlighting? Why employees do moonlighting? Discuss the legal framework about moonlighting in India.

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  • India’s Rice Exports and food Insecurity

    ExportsContext

    • On August 8, India banned the exports of broken rice and imposed a 20 per cent duty on the exports of various grades of rice amid high cereal inflation and uncertainties with respect to domestic supply.

    Background

    • This is surely not the first time an attempt is being made to ban wheat and rice exports.
    • It was also done in 2007-08, in the wake of the global financial crisis.
    • Perhaps government will also impose stocking limits on traders for a host of commodities, suspend futures trading in food items, and even conduct income tax raids on traders of food.

    Exports

    What is the current status of rice in India?

    • World’s largest rice exporter: India has exported more than 20 MT of rice worth a record $9. 6 billion to more than 150 countries in 2021-22.It has been the world’s largest rice exporter of the grain in the last decade and has a share of around 44% global trade.
    • Likely to fall in production: India’s rice production is likely to decline by 6 per cent t to 104.99 million tonnes in the kharif season due to a fall in paddy acreage amidst rainfall deficit in key producing states, including Jharkhand, Madhya Pradesh and West Bengal.
    • Kharif season: Sowing in the kharif season begins with the onset of the southwest monsoon from June and harvesting from October onwards .About 85 per cent of India’s total production comes from this season.
    • Deficient rainfall: West Bengal, the biggest rice producer amongst states, has received deficient rainfall in 15 of its 23 districts, raising the likelihood of crop loss. Uttar Pradesh, the second biggest producer of rice has received 42% less rainfall than benchmark. The rainfall deficiency in the other eastern states Bihar (-34%) and Jharkhand (-48%).
    • Depleting stocks: There are concerns about rice stocks with the Food Corporation of India (FCI) depleting to a 10-year low level by April, 2023 year, if the free ration scheme is extended to the second half of the financial year. The government may have to impose some curbs on rice exports though minimum export price or an export tax if the scheme is extended.

    Why India’s rice export ban is cause for worry?

    • Thin world rice market and the impact on prices: Given that 90 per cent of production is consumed domestically, As a result, any small change in exports and imports has an enormous impact on prices, especially if it leads to panic buying of food grains by rich countries.
    • Limited Import option: The stakes are higher as it is India’s largest agricultural crop. Unlike with wheat, the options for import in rice due to any production shortfall are limited, when India’s own share in the global trade of the cereal is more than 40%.
    • Affect the credibility: The export uncertainties will affect the credibility of Indian exporters, create a disincentive for future exports, and will enable buyers to shift towards other major rice-exporting countries.
    • Affect a section of farmers: Though Indian farmers in general lack market access, and hence do not take advantage of high market prices, the fall in prices may adversely affect a section of farmers who hope to get a better price for their produce through exports. The exporters who face the burden of the unfeasibility of exports may pass it on to farmers in the form of lower prices during procurement.
    • Affect low-income and low middle-income Countries: India’s export restrictions will adversely affect several low-income and low-middle-income countries like Bangladesh, Senegal, Nepal and Benin, which are among the largest importers of Indian rice.
    • Domestic prices and to safeguard food security: Frequent changes in export policies undoubtedly have long-term ramifications on domestic prices

    Exports

    What are the Issues in India’s rice export strategy?

    • Highest ever volume: India exported the highest-ever volume of 21 million metric tonnes (MMT) of rice in 2021-22 (FY22) in a global market of about 51.3 MMT, which amounts to about 41 per cent of global exports.
    • Reduced price: Such large volumes of rice exports brought down global prices of rice by about 23 per cent in March (YoY), when all other cereal prices, be it wheat or maize, were going up substantially in global markets. In fact, in FY22, the unit value of exports of common rice was just $354/tonne, which was lower than the minimum support price (MSP) of rice.
    • Below MSP buying or leakage from PMGKAY: This meant that rice exporters were either buying rice (paddy) from farmers and millersat below the MSP or that quite a substantial part of rice was given free under the PM Garib Kalyan Ann Yojana (PMGKAY) was being siphoned away for exports at prices below MSP.
    • Artificial competitive advantage: Free electricity for irrigation in several states, most notably Punjab, and highly subsidised fertilisers, especially urea, create an artificial competitive advantage for Indian rice in global markets.

    Problems with India’s rice cultivation

    • Lower yield: India’s rice yield is lower than the world average. However, India’s yield is better than Thailand and Pakistan but worse than Vietnam, China and the US.
    • Higher cost of cultivation and price support: The cost of cultivation in India is also increasing, and hence there will be a need for a higher MSP to make production remunerative. This will exacerbate the pressure to re-think its price-support-backed food security mechanism.
    • Water-intensive nature: India’s rice production likely to fall amidst the shortfall of rainfall in major rice producing states and increasing salinity of soil because of over usage of water. The water-intensive nature of rice cultivation, along with frequent export restrictions will adversely affect the long-run sustainability of rice production. In India, around 49 per cent of rice cultivation depends on groundwater which is depleting rapidly.

    ExportsWhat is the link between Rice cultivation and groundwater depletion?

    • Ground water depletion: In India, around 49 per cent of rice cultivation depends on groundwater which is depleting rapidly.
    • Food and Agriculture Organization (FAO) data: As per the latest data available from the Food and Agriculture Organization (FAO), agricultural water withdrawal as a percentage of total available renewable water resources has increased from 26.7 per cent in 1993 to 36 per cent in 2022.
    • Virtual water trade (VWT): Rice exports are leading to an indirect export of water to other countries a phenomenon known as virtual water trade (VWT). The relative per capita water availability in India is lower than a majority of its major importing countries. The other major exporters of rice, such as Thailand and Vietnam, also have better per capita water availability in comparison to India.
    • Renewable water resources: Out of 133 countries in which India has positive net rice exports, only 39 countries have relatively lower per capita renewable water resources. Out of these 39 countries, 12 countries are high-income countries with the ability to buy food at a higher price.

    Conclusion

    • Depletion of groundwater resources and rising cost of cultivation may threaten rice production in the future. Adequate water saving measures in the form of widespread adoption of water saving practices like System of Rice Intensification (SRI) need to be taken to keep input requirements, costs and production sustainable.

    Mains question

    Q.As many developing countries depend on Indian rice, rice export restrictions have raised food security concerns in the global market. In this context discuss the causes and effects of India’s restrictions on rice export.

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  • NOPEC: the US bill to pressure the OPEC+ oil group

    nopec

    US legislation NOPEC which could open members of oil producing group OPEC+ to antitrust lawsuits has emerged as a possible tool to tackle high fuel prices.

    What is NOPEC?

    • NOPEC stands for No Oil Producing and Exporting Cartels (NOPEC).
    • It is a bill to protect US consumers and businesses from engineered oil spikes.
    • But some analysts warn that implementing it could also have some dangerous unintended consequences.

    Why such a move by the US?

    • OPEC+, which groups the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, agreed to steep production cuts, curbing supply in an already tight market.
    • After the decision, the US decided to reduce the group’s control over energy prices.

    Key feature of the NOPEC bill

    • The bipartisan NOPEC bill would tweak US antitrust law to revoke the sovereign immunity that has protected OPEC+ members and their national oil companies from lawsuits.
    • If signed into law, the US attorney general would gain the option to sue the oil cartel or its members, such as Saudi Arabia, in federal court.
    • It is unclear exactly how a federal court could enforce judicial antitrust decisions against a foreign nation.

    Is such bill effective?

    • Previous versions of the NOPEC bill have failed amid resistance by oil industry groups, including the top US oil lobby groups.
    • Saudi Arabia has rebuffed repeated lobbying during visits by Biden officials not to cut production.
    • Instead, OPEC+ has agreed to cut output by the most since the start of the COVID-19 pandemic.

    Implications of NOPEC

    • NOPEC more or less is a knee-jerk reaction from the US against oil hegemony of the OPEC+.
    • If passed into law, it could lead to unintended blowback.
    • In 2019, for example, Saudi Arabia threatened to sell its oil in currencies other than the dollar if Washington passed a version of the NOPEC bill.
    • There is a possibility that other countries could take similar action on the US for withholding agricultural output to support domestic farming, for example.

     

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  • Analysing Insolvency and bankruptcy Code

    InsolvencyContext

    • Speaking at the Sixth anniversary of the insolvency and bankruptcy Board of India (IBBI) on October 1, Union Finance Minister Nirmala Sitharaman said that the country could not afford to lose the “sheen” of its insolvency law, the Insolvency and Bankruptcy code(IBC)

    What is Insolvency?

    • Simply speaking, insolvency is a financial state of being one that is reached when you are unable to pay off your debts on time.
    • Insolvency is essentially the state of being that prompts one to file for bankruptcy. An entity a person, family, or company becomes insolvent when it cannot pay its lenders back on time.
    • Typically, those who become insolvent will take certain steps toward a resolution. One of the most common solutions for insolvency is bankruptcy.

    What is Bankruptcy?

    • Bankruptcy, on the other hand, is a legal process that serves the purpose of resolving the issue of insolvency.
    • Bankruptcy is a legal declaration of one’s inability to pay off debts. When one files for bankruptcy, one obliges to pay off what is owed with help from the government.

    InsolvencyWhat is Insolvency and Bankruptcy Code (IBC)?

    • In a growing economy, a healthy credit flow and generation of new capital are essential.
    • When a company or business turns insolvent or “sick”, it begins to default on its loans.
    • In order for credit to not get stuck in the system or turn into bad loans, it is important that banks or creditors are able to recover as much as possible from the defaulter, as quickly as they can.

    Why the IBC introduced?

    • Increasing Non ­Performing Assets: In 2016, at a time when India’s Non Performing Assets and debt defaults were piling up, and older loan recovery mechanisms were performing badly, the IBC was introduced to overhaul the corporate distress resolution regime in India.
    • Time bound mechanism: To consolidate previously available laws to create a time bound mechanism with a creditor­ in­ control model as opposed to the debtor ­in ­possession system.
    • Two positive outcomes: When insolvency is triggered under the IBC, there can be just two outcomes: resolution or liquidation. liquidation means the process of winding up a corporation or incorporated entity

    InsolvencyImportance of the Insolvency and bankruptcy code

    • Resolution: First objective is finding a way to save a business through restructuring, change in ownership, mergers etc.
    • Maximising the value: The second objective is to maximise the value of assets of the corporate debtor  maximise the value .
    • Credit facility: To promote entrepreneurship, availability of credit, and balancing the interests of all stakeholders.
    • Easy exit: The Insolvency and Bankruptcy Code would provide such an environment to ensure easy exit for sick companies and help the country to improve its position in ease of doing business.
    • Speedy winding up: The bankruptcy code will make it easier for companies to wind up failed businesses and bring India on a par with developed nations in terms of resolving bankruptcy issues.
    • Time bound disposal: Timeliness is key here so that the viability of the business or the value of its assets does not deteriorate further. It minimizes the problem of delay as there are strict timelines within which the case has to be disposed off. Quick disposal of cases will maximize the recovery amount.
    • Information database: It prepares a database to provide information on the insolvency status of individuals. In addition to this, specialized insolvency professionals helps in guiding through the process.
    • Easy process of claim: Easy process of claim by the creditors also encourages financial institutions to extend credit facilities thus strengthening the financial markets with increased availability of credit for business.

    What are the challenges before IBC?

    • Weak Resolution: IBBI data for the 3,400 cases admitted under the IBC in the last six years, more than 50% of the cases ended in liquidation, and only 14% could find a proper resolution.
    • Increasing deadlines: The IBC was thus initially given a 180 day deadline to complete the resolution process, with a permitted 90 day extension. It was later amended to make the total timeline for completion 330 days is almost a year.
    • In FY22, it took 772 days to resolve cases involving companies that owed more than 1,000 crore. The average number of days it took to resolve such cases increased rapidly over the past five years.
    • On Haircuts (Debts that banks forgo):The Parliamentary Standing Committee on Finance pointed out in 2021 that in the five years of the IBC, creditors on an average had to bear an 80% haircut in more than 70% of the cases.
    • As per The Hindu Data Team, in close to 33 of 85 companies so far that owed more than 1,000 crore, lenders had to take above 90% haircuts. In case of the resolution of the Videocon Group for instance, creditors bore a haircut of 95.3%.

    InsolvencyWhat  are experts saying?

    • Addressing the delays: In order to address the delays, the Parliamentary Standing Committee suggested that the time taken to admit the insolvency application and transfer control of the company to a resolution process, should not be more than 30 days after filing the case.
    • New mechanism: The IBBI has also called for a new yardstick to measure haircuts. It suggested that haircuts not be looked at as the difference between the creditor’s claims and the actual amount realized but as the difference between what the company brings along when it enters IBC and the value realized.

    Conclusion

    • Insolvency and Bankruptcy Code is a comprehensive and systemic process, which gives a quantum leap to the functioning of the credit market. However, it is the need of the hour to find new and innovative alternatives to make this system comprehensible and address the challenge of delay and resolution.

    Mains Question

    Q. Insolvency and Bankruptcy Code (IBC) is a comprehensive and systemic process, which gives a quantum leap to the functioning of the credit market. Discuss the challenges and way ahead in the resolution mechanism of IBC.

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  • Centre raises credit limit under ECLGS

    The Ministry of Finance has raised the credit limit for airlines under the Emergency Credit Line Guarantee Scheme (ECLGS), making them eligible for a sum equivalent to 100% of their outstanding debt, up to a maximum of ₹1,500 crore.

    Boost for Aviation sector

    • Earlier, airlines were eligible to borrow up to 50% of their credit outstanding up to ₹400 crore.
    • This is the second time the government has liberalized the scheme for the aviation sector.
    • The scheme introduced for medium and small enterprises during the outbreak of the COVID-19 pandemic was extended till March 2023 and its guarantee cover expanded by ₹50,000 crore to ₹5 lakh crore.

    What is ECLGS?

    • Under the Scheme, 100% guarantee coverage to be provided by National Credit Guarantee Trustee Company Limited (NCGTC) for additional funding of up to Rs. 3 lakh crore to eligible MSMEs and interested MUDRA borrowers.
    • The credit will be provided in the form of a Guaranteed Emergency Credit Line (GECL) facility.
    • The Scheme would be applicable to all loans sanctioned under GECL Facility during the period from the date of announcement of the Scheme to 31.10.2020.

    Aims and objectives

    • The Scheme aims at mitigating the economic distress faced by MSMEs by providing them additional funding in the form of a fully guaranteed emergency credit line.
    • The main objective is to provide an incentive to Member Lending Institutions (MLIs), i.e., Banks, Financial Institutions (FIs) and NBFCs to increase access to, and enable the availability of additional funding facility to MSME borrowers.
    • It aims to provide a 100 per cent guarantee for any losses suffered by them due to non-repayment of the GECL funding by borrowers.

    Salient features of ECGLS

    • The entire funding provided under GECL shall be provided with a 100% credit guarantee by NCGTC to MLIs under ECLGS.
    • Tenor of the loan under Scheme shall be four years with a moratorium period of one year on the principal amount.
    • No Guarantee Fee shall be charged by NCGTC from the Member Lending Institutions (MLIs) under the Scheme.
    • Interest rates under the Scheme shall be capped at 9.25% for banks and FIs, and at 14% for NBFCs.

     

     

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  • What is Purchasing Managers Index (PMI)?

    India’s manufacturing sector experienced its slowest expansion in September since June, the S&P Global India Manufacturing Purchasing Managers’ Index (PMI) indicated, with the index easing to 55.1 from August’s 56.2.

    PMI improves

    • A PMI reading above 50 indicates an increase in firms’ activity levels, and September marked the 15th straight month of growth in manufacturing activity.

    Purchasing Managers’ Index (PMI)

    • PMI is an indicator of business activity — both in the manufacturing and services sectors.
    • It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
    • It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
    • The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

    How is the PMI derived?

    • The PMI is derived from a series of qualitative questions.
    • Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.

    How does one read the PMI?

    • A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
    • Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
    • If the figure is higher than the previous month’s then the economy is expanding at a faster rate.
    • If it is lower than the previous month then it is growing at a lower rate.

    What are its implications for the economy?

    • The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available.
    • It is, therefore, considered a good leading indicator of economic activity.
    • Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later.
    • Central banks of many countries also use the index to help make decisions on interest rates.

     

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