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Subject: Economics

  • BASIC nations oppose ‘Carbon Border Tax’

    carbon

    BASIC countries that includes India has jointly stated that carbon border taxes, that could result in market distortion and aggravate the trust deficit amongst parties, must be avoided.

    EU proposes, BASIC opposes

    • The European Union has proposed a policy — called the Carbon Border Adjustment Mechanism– to tax products such as cement and steel that are extremely carbon intensive, with effect from 2026.
    • BASIC, a group constituting Brazil, India, South Africa and China have opposed this move.
    • These are large economies that are significantly dependent on coal, has for several years voiced common concerns and reiterated their right to use fossil fuel.

    What is Carbon Pricing?

    • Carbon pricing is an approach to reducing carbon emissions that uses market mechanisms to pass the cost of emitting to emitters.
    • Its goal is to discourage the use of fossil fuels, address the causes of the climate crisis and meet national and international agreements.
    • Well-designed carbon pricing can change the behavior of consumers, businesses and investors while encouraging technological innovation and generating revenue that can be used productively.
    • There are a few carbon pricing instruments, such as a carbon tax and cap-and-trade programmes.

    What is Carbon Border Tax?

    • A carbon border tax (CBT) is a tax on carbon emissions attributed to imported goods that have not been carbon-taxed at source.
    • The carbon border tax proposal is part of the European Commission’s European Green Deal that endeavours to make Europe the first climate-neutral continent by 2050.

    Objective:

    • To ‘incentivize’ greener manufacturing around the world and create parity with European manufacturers who are already subjected to substantial carbon levies.

    A move to benefit local EU manufacturers

    The carbon border tax has wide appeal in Europe. It is supported by the new president of the European Commission.

    • A carbon border tax is able to protect a country’s local manufacturers, motivating them to adhere to green regulations.
    • Many EU companies are at a cost disadvantage as they have been paying a carbon border tax and for carbon emissions since 2005 under the EU’s Emissions Trading System.
    • The new carbon border tax can therefore lead to a more level playing field against importers, especially those from nations with more lax environmental standards.

    What could the new proposal mean politically?

    • Notably, China’s continuing reliance on non-renewable energy to power its economy leaves it particularly vulnerable in this matter.
    • For example, given that China produces steel with blast furnaces that release a large amount of carbon, it will have to pay an additional layer of carbon border tax, which will increase its costs and its market price.
    • This will consequently reduce the competitiveness of steel produced in China, compared to steel from other countries that is made in more carbon-efficient mills that do not have to pay this additional tax.

    This suggests that the carbon border tax is also politically preferable to Europe as it slows down the gradually rising economy in China, and would therefore preserve the European countries’ competitiveness.

    How does this impact India?

    • As India’s third largest trading partner, the EU accounted for €62.8 billion ($74.5 billion) worth of trade in goods in 2020, or 11.1% of India’s total global trade.
    • India’s exports to the EU were worth $41.36 billion in 2020-21, as per data from the commerce ministry.
    • The CBT would cover energy-intensive sectors such as cement, steel, aluminium, oil refinery, paper, glass, chemicals as well as the power sector.
    • By increasing the prices of Indian-made goods in the EU, this tax would make Indian goods less attractive for buyers and could shrink demand.
    • Sadly, India’s many ‘self-reliance’ tariffs are also a contributor to this.

    Issues with CBT

    • Impact on trade: The degree of impact on industrial sectors would be largely influenced by two factors: carbon intensity and trade intensity.
    • Altering competitiveness: For companies, it will raise the administrative burden of crossing borders and increase trade frictions, especially for small businesses. That will inevitably reduce choice and raise costs for consumers.
    • Promoting protectionism: The carbon tax may end up being protectionist, and will hit emerging economies like India hard.
    • Unfair practices under WTO: Depending on their design they could fall foul of WTO measures designed to prevent importing countries from discriminating against particular exporting countries.
    • A violation of Paris Accord: CBT compels developing countries to pay the same price as the developed countries to climate change. The EU is essentially bypassing the principle of ‘common but differentiated responsibilities’ that should guide international climate action.

    Way forward

    • Carbon taxing is just one way of holding large emitters accountable for their role in harming the environment.
    • However, fundamental changes can’t be forced by tariffs.
    • If the planet is to have any hope of meeting the Paris Agreement goals, drastic measures that consider both the economic and social wellbeing of nations’ inhabitants must be taken.
    • This should take all nations into confidence than imposing such overnight tariffs.
    • It is no doubt that India must be in the forefront in climate politics. But it must also be cautious about the negotiations in global laws to protect domestic interests.

     

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  • In news: Vostro Accounts

    vostro

    Russian banks have been permitted by the RBI to open special Vostro accounts to pave the way for rupee-based export-import transactions.

    Why such move?

    • Logged out of SWIFT -the messaging service to facilitate and confirm cross-border payments – most Russian banks are looking for alternative ways.
    • India and several other countries too want a way out so that trade can continue.
    • India and Russia are now exploring to directly trade in rupee-ruble.

    And this is where Nostro and Vostro may come into play.

    What is a Vostro Account?

    • A Vostro account is defined as an account that a correspondent bank holds on behalf of another bank.
    • Vostro is a Latin word that means “your”, therefore, a vostro account implies that it is “your account”.
    • An example of such an account would be HSBC vostro account is held by SBI in India.

    Understanding a Vostro Account

    • The banks are acting in a fiduciary relationship and they share a principal-agent relationship.
    • The correspondent foreign bank is a financial intermediary in the transactions that they are involved in.
    • The foreign bank acts as an agent that provides services such as executing wire transfers, performing foreign exchange, enabling deposits, enabling withdrawals, expediting international trade on behalf of the domestic bank.
    • It is most used in settlement of foreign exchanges or foreign trade.
    • No interest will be paid on the vostro account maintained, as per the directives that have been issued by the RBI in India.
    • An overdraft facility can only be availed if it is specifically sanctioned.

    Other related terms: Nostro and Loro Accounts

    • Vostro and Nostro accounts are often confused to be the same.
    • While in essence, it is the same account that is being spoken about, the perspective from which it is being seen matters.
    • In a vostro account, it is the correspondent foreign bank point of view, whereas in a nostro account, it is the point of view of the domestic bank.
    • Vostro accounts are maintained in the domestic currency whereas, nostro accounts in foreign currency.
    • A Loro account is a current account that is maintained by one domestic bank for another domestic bank in the form of a third party account, unlike nostro and vostro which is bilateral correspondence.

    Why is it used?

    • This account serves as an economic way for small domestic banks to access the financial resources and services of a larger foreign bank.
    • Enables one to offer international banking solutions to a customer without opening a bank branch in a foreign nation.
    • It minimizes the time for transfer of funds.
    • Closely monitored nostro accounts can be used for better reconciliation of statements.

     

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  • Countering Chinese monopoly in Electric vehicle market

    Electric vehicle

    Context

    • The start of COP27 in Egypt has renewed the world’s focus on climate change. Electric vehicles (EVs) are key in the global quest to decarbonizing. In India, which also faces serious air pollution issues, the transition to EVs is critical. However, there is a China-size risk in the supply chain for electric vehicles. The recent saber-rattling across the Taiwan Straits ought to be a warning for the world. Given India’s troubled relationship with China, the risk may be even more acute.

    What are Electrical vehicles (EV’s)?

    • Electric vehicles (EV) are a part of the new normal as the global transportation sector undergoes a paradigm shift, with a clear preference towards cleaner and greener vehicles.
    • The electric vehicle is a vehicle that runs on electricity alone. Such a vehicle does not contain an internal combustion engine like the other conventional vehicles. Instead, it employs an electric motor to run the wheels.

    Electric vehicle

    The global status of EVs production and supply chain.

    • 50% of global EV’s production comes from China: EVs themselves, China has a share of around 50 per cent in global production.
    • 25% from Europe: Europe is a distant and stands at second position with 25 per cent.
    • 10% from US: Surprisingly, the US is a small player in the EV supply chain, producing only 10 per cent of vehicles and containing just 7 per cent of battery production capacity.
    • India’s position is still not noteworthy: India does not feature as a player of note.

    What makes China a dominant player in EVs supply chain?

    • Every part of EV concentrated in China: According to a recent report by the International Energy Association, every part of the EV supply chain is highly concentrated, mostly in China.
    • High global mining output of Key minerals, specifically graphite: The first stage of the supply chain is the key minerals required for batteries, namely lithium, nickel, cobalt and graphite, In graphite, China has an 80 per cent share of global mining output.
    • Chinese control over Politically unstable DRC’ Mines of cobalt: In Cobalt, the politically highly unstable Democratic Republic of Congo mines two-thirds of the global supply and Chinese companies control a big share of that country’s mining.
    • China dominates the processing of ore/minerals: Globally, over 60 per cent of lithium processing, over 70 per cent of cobalt processing, 80 per cent of graphite processing and about 40 per cent of nickel processing takes place in China.
    • China’s heavy production of cell components: Other than Japan and south korea, China produces two-thirds of global anodes and three-fourths of cathodes.
    • Same case with the battery cells: China has a 70 per cent share in the production of battery cells.

    The status of Governmental spending’s of energy transition

    • China the biggest spender on energy transition: According to a report by Bloomberg’s New Energy Fund (NEF), in 2021, out of a total global spend of $750 billion in climate-related investments (90 per cent of which went into renewable energy and electric transport), China alone spent $266 billion.
    • US stands at second: The US was a distant second with $114 billion. The major countries of Europe combined would equal the US. In Europe, about 75-80 per cent of the spending is on EVs, which is why it leads the US in this sector.
    • India holds 7th rank but needs a focused approach: India was in 7th place not a bad rank to occupy with $14 billion invested. However, almost 40 per cent of Chinese and US spending was on EVs, while more than 95 per cent of India’s spending is on renewable energy. In India, despite intent, EVs have not received sufficient investment.

    Electric vehicle

    What Strategy India can follow?

    • Accelerating the mechanism of acquiring overseas mines of critical minerals: A recently formed government venture, KABIL, which is a JV between three minerals and metals PSUs, is tasked with the job of identifying and acquiring overseas mines
    • Liberalizing the domestic exploration policies: An alternate option is to liberalize exploration policies domestically, benchmark them with global best practices and invite global investors to find and mine in India.
    • Stitching up the supply alliances: It is important to stitch up supply alliances with countries ex-China, as has been done with Australia. At higher ends of the value chain, from battery cells onwards, there is a need to invest much more in R&D.
    • Making vibrant start up ecosystem and public private partnership: A public-private partnership is vital. The vibrant startup ecosystem must be leveraged because it is more likely to be innovative than legacy firms.

    Electric vehicle

    Do you know The Khanij Bidesh India Limited (KABIL)?

    • 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).
    • 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

    Conclusion

    • The dragon has showed its evil side during the pandemic. China is weaponizing the trade to counter its adversaries. Excessive reliance on China for critical mineral resources is like falling into China’s trap. India and world need to restrain China to have monopoly over Electric Vehicle market.

     

  • India’s GM crop revolution and the controversy over GM mustard

    GM

    Context

    • As soon as the government took the decision to release India’s first genetically-modified (GM) food crop Dhara Mustard Hybrid-11 (DMH-11) for “environment release”, some activists approached the Supreme Court to ban it for various reasons. The Supreme Court has ordered the status quo to be maintained till the next hearing on the matter on November 17.

    What are Genetically modified organisms (GMO)?

    • Changes in genetic material: GMOs can be defined as organisms (i.e., plants, animals or microorganisms) in which the genetic material (DNA) has been altered in a way that does not occur naturally by mating and/or natural recombination
    • Transfers of genes: It allows selected individual genes to be transferred from one organism into another, also between nonrelated species.
    • GM foods: Foods produced from or using GM organisms are often referred to as GM foods

    GM

    What is the ironic case of opposition to the GM crops?

    • Opposition to GM is not new: The opposition to GM food crops is not new. There has been a global campaign in this regard by many activists. GM crops have spread around the world since 1996.
    • of countries accepted the use of GM crops: More than 70 countries have accepted the use of GM crops. For instance, by 2019, roughly 190 million hectares were under GM crops, led by corn and soyabean in the US, Brazil, Argentina, and canola (rapeseed/mustard) in Canada, even Bangladesh has marched ahead with Bt brinjal.
    • No concrete evidence of harmful impact: There is ample evidence in support of that with no harmful impact on human or animal health or the environment per se.

    India’s journey towards GM crops, specifically “Bt cotton”

    • First GM crop released under Vajpayee government with the slogan of Jai Vigyan:
    • Atal Bihar Vajpayee envisioned that science could transform agriculture
    • India had its first GM crop, Bt cotton, released in 2002 by the Vajpayee government. He extended the original slogan of “jai jawan, jai kisan” (salutation to the soldier and the farmer), given by Lal Bahadur Shastri, to include “jai vigyan” (salutation to science).
    • The case of Historic success of Bt cotton:
    1. Cotton production Increased: With the Bt cotton, Cotton production increased remarkably from a mere 13.6 million bales (1 bale = 170 kg) in 2002-03 to 39.8 million bales in 2013-14. Registered an increase of 192 per cent in just 12 years, ushering the famous “gene revolution”.
    2. Area under Cotton cultivation expanded: The area under cotton cultivation expanded by 56 per cent, of which about 95 per cent is under Bt cotton.
    3. Cotton productivity per hectare increased significantly: Cotton productivity increased from 302 kg per hectare in 2002-03 to 566 kg per hectare in 2013-14, an increase of 76 per cent,
    4. More productivity more income to farmers lead to increase in agri- GDP: The gains to cotton farmers whose incomes increased significantly. For instance, Bt cotton led Gujarat’s “agrarian miracle” of very high (above 8 per cent) annual growth rate in agri-GDP during 2002-03 to 2013-14.
    5. Revived the glory to The Indian cotton in the world market: It made India the second-largest producer after China, and the second-largest exporter after the US, of cotton in the world today.

    What are the concerns associated with the cultivation of GM crops?

    • Emergence of Increased pest resistance: Enhanced sucking pest damage in Bt cotton; increase in secondary pests such as mired bugs and Spodoptera; and the emergence of pest resistance.
    • Impact on environment of human health: Environmental and health implications in terms of toxicity and allergenicity that can cause hematotoxin reactions in the human body.
    • Fear of increased mono cropping: Farmers’ exposure to a greater risk of monopoly in the seed business.

    GM

    What is the controversy and debate associated with GM Mustard?

    • Debate on advantages and impacts: There is a raging debate going on advantages and disadvantages of GMOs. For a long time, further study was requested by farmers, environmentalist on GMO crops.
    • Denial goes against the principle of basic rights of farmers: By not allowing GM mustard or for that matter even Bt brinjal for so long, one is denying the basic rights of farmers who want to increase their incomes.
    • Allow with the sustainable practice with the use of science and technology: The best way to do so is by raising productivity in a sustainable manner. The field trials of GM mustard at different locations showed 25-28 per cent higher yield and better disease resistance compared to indigenous varieties. This can go a long way in augmenting domestic mustard oil supplies and farmers’ incomes.
    • Unnecessary debate after the approval by the scientific body: Dissent is a good sign in any democratic society and forms an essential part of checks and balances. But once the safety tests are done and the scientific body (GEAC) has given the green signal, what is needed is political leadership to keep the decision-making science-based.

    GM

    Why GM Mustard is important for India?

    • India’s heavy dependence on Imported edible oils: India heavily depends on imported edible oils (55-60 per cent of India’s domestic requirement is imported). A large portion of this about three-four million tonnes every year comes from Argentina, Brazil, Canada, the US, etc, which is all from GM technology (in soybean and canola).
    • Import and GM crops are already in our food chain: We eat plenty of our own cotton seed (binola) oil, and about 95 per cent of our cotton is now GM. Cotton seed is also fed to cattle which gives the milk its fat content. Even poultry feed, such as soya and corn, is being imported. So, one thing is clear GM food is already in our food chain, and has been there for quite some time.
    • A chance to emerge as a major export hub: It was expected that India would be at the forefront of the gene revolution and emerge as a major export hub to other Asian and African countries. What the IT revolution has done in computer science, the Bt revolution could have done in agriculture.

    Conclusion

    • The agriculture of tomorrow is going to be science-based, and the winners will be those who adopt it and develop it further today. Innovation is the name of the game, and “Jai Anusandhan” is a good slogan given by PM Modi. But it will have meaning only when the government goes ahead with not just GM mustard but also fast-tracks Ht Bt cotton, Bt brinjal, and even GM soya and corn.

    Mains Question

    Q. What are GM crops? With policy paralysis in the case of GM mustard, India may not be able to keep pace with the success of Bt cotton. Critically analyse.

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  • Making the Indigenous Defence Industry Self-Reliant and Globally Competitive

    Defence

    Context

    • Defence-Expo 2022 held in Gandhinagar, Gujarat in October drew attention to a major policy initiative, the need for India to acquire the appropriate degree of “atma nirbharata” (self-reliance) in the defence sector and the arduous path ahead.

    What is the present status of defence supplies in India?

    • High dependency on foreign supply: Even as India aspires to become a $5-trillion economy, it is evident that it faces many national security inadequacies. The high dependency index on foreign suppliers (traditionally the former USSR now Russia) for major military inventory items is stark.
    • Risk of National vulnerability: This dependency induces a macro national vulnerability and dilutes India’s quest for meaningful and credible strategic autonomy.
    • Undermining national interest: Furthermore, the current gaps in combat capacity expose the chinks in the Indian ability to safeguard core national security interests. The Galwan setback apropos China is illustrative.

    Defence

    Do you know the following examples of Indigenous defence production?

    • INS Vikrant: The commissioning of the indigenously-designed and built aircraft carrier INS Vikrant.
    • SLBM Missiles: The recent test fired SLBM (submarine-launched ballistic missile) from the INS Arihant is indigenously bulit.
    • LCH Prachand: The induction of the made in India Prachand LCH (light combat helicopter) is significant leap.
    • Kalashnikov-type light weapon: The conclusion of a deal with Russia to manufacture a Kalashnikov-type light weapon/small arms in India.
    • 155mm artillery Gun: The 155-mm artillery guns being designed and manufactured in the country.

    Current scenario of India’s Defence export

    • Rising defence export: India’s defence exports have grown eight times in the last five years.
    • Exporting the defence material to 75 nations: India is exporting defence materials and equipment to more than 75 countries of the world. In 2021-22, defence exports from India reached $1.59 billion (about Rs 13,000 crore).
    • Target of $5 billion export: The government has now set a target of $5 billion (Rs 40,000 crore).” This is an ambitious target and will demand mission-mode resolve to be realised.

    Why our defence industry is not competitive at global stage?

    • Import of critical components: India does not yet have the domestic competence to fully design and manufacture any significant combat weapon/platform and is dependent on the foreign supplier for the critical components that lie at the core of the combat index of the equipment in question.
    • Partial methods of indigenous manufacturing: While it is commendable that India is now going to manufacture the C295 transport aircraft in a collaboration with AirBus, France, the reality is that the engine, avionics, landing gear, etc, will come from abroad and the integration will be done by the Indian entity.
    • Soft defence export: While India now claims that it will soon become a major arms exporter, the composition of such inventory leans towards the “soft” category (clothing, helmets, surveillance equipment).
    • No major defence manufacturing hub: India missed the industrial design and manufacturing bus, a national competence demonstrated by nations like South Korea and China, over the last five decades. Technological advances have made the design and manufacture of the semiconductor chip the new currency of national prosperity and military power.

    Ways to make India’s defence industry globally competitive?

    • Increasing the investment in R&D is necessary: At the heart of this challenge is the grim reality that historically, India has not invested enough in the national research and development (R&D) effort. As per data collated by the World Bank, India has been able to allocate only 0.66 per cent of GDP (2018) towards R&D, while the world average is 2.63 per cent.
    • Matching with the Global players in R&D: The comparable individual R&D allocation (per cent of GDP) for some other nations is as follows: Israel 5.44; USA 3.45; Japan 3.26; Germany 3.14; China 2.4; and Turkey 1.09.
    • Making the R&D prior national issue: Providing a sustained fillip to the national R&D effort across the board (state, corporate and academia) remains critical if India is to emerge as a credible military power and one would identify this as a high-priority issue for the national security apex the CCS (cabinet committee on security).

    defence

    Read this news Defence- Expo 2022

    • India’s flagship exhibition on land, naval and homeland security systems.
    • Defence-Expo 2022 was the 12th edition, held in Gandhinagar, Gujrat
    • Largest participation with 75 countries so far.
    • A milestone under Atmanirbhar Bharat policy.

    Conclusion

    • The push to achieve self-reliance in defence is commendable. India must step up R&D to achieve competence in design, manufacture of combat weapons/platforms. Meaningful indigenisation and credible “atma nirbharta” calls for sustained funding support, fortitude and an ecosystem that will nurture this effort.

    Mains Question

    Q. Discuss the current state of indigenous defence production in India? Why Indian defence industry is not Globally competitive?

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  • In news: Kisan Rail Project

    kisan rail

    Punjab has assured Kerala Government to provide paddy straw for usage as fodder for livestock using the Kisan Rail Project.

    Why such move?

    • Kerala, being a land-stressed coastal state, does not generate enough roughage that can be used as fodder for cattle.
    • It ranks second in milk production after Punjab.
    • The move will help Punjab to deal with the excessive paddy straw which contributes to stubble burning.

    About Kisan Rail Project

    • In the Union Budget 2020-21 an announcement was made by the Union Finance Minister regarding the launch of Kisan Rail.
    • The idea behind running Kisan Rail services is to move perishables including fruits, vegetables, meat, poultry, fishery and dairy products from production or surplus regions to consumption or deficient regions.
    • The speedy rail movement would thus ensure minimum damage during transit.

    How can farmers transport their produce?

    • The farmers have to approach the Chief Parcel Supervisor of the Railway Stations from where the Kisan Rail service is scheduled to originate or to have enroute stoppage, along with their consignment.
    • Due care is taken to ensure that the packing condition is not faulty.
    • The consignment is weighed and charges are levied as per the prescribed parcel rates (P-scale).

    Salient features

    • 50 percent subsidy is given in freight for transportation of fruits and vegetables.
    • The subsidy is being borne by the Ministry of Food Processing Industries under their Operation Greens – TOP to Total scheme.
    • There is no minimum limit on quantity that can be booked, enabling small famers to reach bigger and distant markets.
    • Kisan Rails are based on the concept of multi commodity, multi consignor, multi consignee and multi stoppages – to help small farmers with lesser produce to transport their consignment without any middleman.

    Need for such scheme

    • Farmers, especially small and marginal farmers, often find it difficult to sell their produce in markets beyond a certain distance.
    • This is primarily due to factors such as non-availability of affordable transport, delay in transit resulting in damage/decay to produce, and unwillingness of road transporters to carry small sized consignments.

    Benefits provided

    • Access to markets: Vast network of Indian Railways enables farmers from remote villages to connect to the mainstream market and sell their agricultural produce.
    • Helps prevent food wastage: It saves times and encourages farmers to transport their perishables to greater distances and bigger markets.
    • Getting better deal for farmers: Kisan Rail is a factor enabling improvement in terms of trade for farmers and the real returns received by farmers for their produce.
    • Doubling farmers’ income: Access to such markets will enable farmers to sell their produce at a better price, which will go a long way in fulfilling Government’s vision of ‘doubling farmers’ income.’

     

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  • US removes India from its Currency Monitoring List

    The United States’ Department of Treasury has removed India from its Currency Monitoring List. India had been on the list for the last two years for alleged manipulation of Rupee.

    What is Currency Manipulation?

    • Currency manipulation refers to actions taken by governments to change the value of their currencies relative to other currencies in order to bring about some desirable objective.
    • It is a designation applied by the US Department of the Treasury, to countries that engage in what is called “unfair currency practices” that give them a trade advantage.
    • The typical claim – often doubtful – is that countries manipulate their currencies in order to make their exports effectively cheaper on the world market and in turn make imports more expensive.

    Why do countries manipulate their currencies?

    • In general, countries prefer their currency to be weak because it makes them more competitive on the international trade front.
    • A lower currency makes a country’s exports more attractive because they are cheaper on the international market.
    • For example, a weak Rupee makes Indian exports less expensive for offshore buyers.
    • Secondly, by boosting exports, a country can use a lower currency to shrink its trade deficit.
    • Finally, a weaker currency alleviates pressure on a country’s sovereign debt obligations.
    • After issuing offshore debt, a country will make payments, and as these payments are denominated in the offshore currency, a weak local currency effectively decreases these debt payments.

    US treasury’s criteria for currency monitoring

    To be labelled a manipulator by the U.S. Treasury:

    • Countries must at least have a $20 billion-plus bilateral trade surplus with the US
    • foreign currency intervention exceeding 2% of GDP and a global current account surplus exceeding 2% of GDP

    Which are the countries under this list?

    • China, Japan, Korea, Germany, Malaysia, Singapore, and Taiwan are the seven economies that are a part of the current Currency Monitoring List.
    • China’s failure to publish foreign exchange intervention and broader lack of transparency around key features of its exchange rate mechanism.

     

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  • Vande Bharat: Modern trains need modern infrastructure

    Vande Bharat

    Context

    • When the Prime Minister inaugurated the latest edition of the Vande Bharat train recently, India made a huge leap into the future of mass transportation. The new Vande Bharat Express trains or Vande Bharat 2.0 are expected to usher in an era of faster, safer and more comfortable rail travel for passengers.

    All you need to know about Vande Bharat

    • The Vande Bharat Express is a semi-high-speed, electric multiple unit train previously known as Train 18
    • It is designed, built by the Integral Coach Factory (ICF) under the Make in India Initiative
    • Vande bharat running on 5 routes as of November 2022.
    • The first Vande Bharat Express train was flagged off on February 15, 2019, on the New Delhi-Kanpur-Allahabad-Varanasi route.
    • All the coaches are equipped with automatic doors, GPS-based audio-visual passenger information system, onboard hotspot Wi-Fi for entertainment purposes, and comfortable seats.
    • Vande bharat running on 5 routes as of November 2022.
    • Indian Railways hopes to roll out another 25 Vande Bharat train sets by the end of March 2023.
    • Railways plans to roll out 75 Vande Bharat trains by Independence Day next year

    What is Vande Bharat 2.0?

    • The name may be the same, but this train, the third in the Vande Bharat series, is being dubbed ‘Vande Bharat 2.0’, because of certain upgrades it has received over its predecessors.

    Vande Bharat

    What are the notable upgrades and newly added features in 2.0?

    • Faster and lighter than the previous: This train reaches a top speed of 160 km per hour in 129 seconds, around 16 seconds faster than its predecessor. This is because this train weighs around 392 tonnes, 38 tonnes lighter than the last one, and needs to run almost a km less to attain its top speed.
    • Improved on Riding Index: It also has a better riding index (lower the better) of 3.26 at 180 km per hour, from the earlier 3.87. At a standard speed of 115 km per, its riding index is 3.26, better than 3.62 attained at the same speed by the earlier. In layman’s terms, Riding index is a global benchmark to calculate how comfortable and steady the passenger is while the train is in motion.
    • Fitted with automatic anti-collision system “Kavach”: In terms of safety features, the new train comes fitted with the automatic anti-collision system Kavach, which the previous trains did not have.
    • Improved on safety features: Coaches have disaster lights and their battery backup increased from the last one’s one-hour battery backup. The exterior has eight flatform-side cameras, up from four.
    • Passenger communication facility: There is a passenger-guard communication facility in coaches, which comes with automatic voice recording feature.
    • Making it flood resilient: The new trainset is higher, making it safe from floods up to 650 mm, up from 400 mm.
    • Better quality streaming of audio-visual information with improved network: A centralised coach monitoring system, another new addition, through CCTV cameras, and the internal network supports data at 1 gigabyte per second, This means better quality streaming of audio-visual information.
    • Air purification system: The internal air is filtered through photo catalytic ultra violet air purification system with UV lamp which deactivates 99 per cent of germs, the Railways claims something the earlier trainsets did not have.
    • Onboard infotainment: It also has a wifi-enabled onboard infotainment system and the LCD display in each coach is now 32 inches, up from the 24-inch screen.

    Vande Bharat

    Challenges to the modern railway infrastructure

    • Tracks are not in sync with the modern age trains: This new-age train slammed head-on into the “old-age” country on at least two occasions in its very first week. The train crashed into a herd of cows, damaging the aircraft-like nose of the driver coach car.
    • Poor fencing along the tracks: The railways built a new-age train but forgot to construct fencing along the tracks to prevent bovine collisions.
    • Issues with the battery charging units: Occasional Failure in the battery charging mechanism due to a fault in the charging cable as well as tripping of a circuit breaker needs to addressed.
    • Technical glitches in the alerting software system: Failure to alert the technical glitches in the functioning of the system creating problems and adding up to malfunctioning.

    Conclusion

    • A senior railway official proudly detailed the “superior” features of the Vande Bharat train, which would provide passengers with an “aircraft-like travelling experience” albeit, even quieter than an aircraft, also testified by the Prime Minister But these superior features need superior and resilient infrastructure to achieve the target.

  • Current Account Deficit (CAD) likely to be lower at 3% this fiscal

    deficit

    The SBI has estimated a lower current account deficit at 3% for this fiscal as against the minimum consensus of 3.5%, citing rising software exports, remittances and a likely $5-billion jump in forex reserves via swap deals.

    What is Current Account Deficit (CAD)?

    deficit

    • A current account is a key component of balance of payments, which is the account of transactions or exchanges made between entities in a country and the rest of the world.
    • This includes a nation’s net trade in products and services, its net earnings on cross border investments including interest and dividends, and its net transfer payments such as remittances and foreign aid.
    • A CAD arises when the value of goods and services imported exceeds the value of exports, while the trade balance refers to the net balance of export and import of goods or merchandise trade.

    Components of Current Account

    Current Account Deficit (CAD) =  Trade Deficit + Net Income + Net Transfers

    (1) Trade Deficit

    • Trade Deficit = Imports – Exports
    • A Country is said to have a trade deficit when it imports more goods and services than it exports.
    • Trade deficit is an economic measure of a negative balance of trade in which a country’s imports exceeds its exports.
    • A trade deficit represents an outflow of domestic currency to foreign markets.

    (2) Net Income

    • Net Income = Income Earned by MNCs from their investments in India.
    • When foreign investment income exceeds the savings of the country’s residents, then the country has net income deficit.
    • This foreign investment can help a country’s economy grow. But if foreign investors worry they won’t get a return in a reasonable amount of time, they will cut off funding.
    • Net income is measured by the following things:
    1. Payments made to foreigners in the form of dividends of domestic stocks.
    2. Interest payments on bonds.
    3. Wages paid to foreigners working in the country.

    (3) Net Transfers

    • In Net Transfers, foreign residents send back money to their home countries. It also includes government grants to foreigners.
    • It Includes Remittances, Gifts, Donation etc

    How Current Account Transaction does takes place?

    • While understanding the Current Account Deficit in detail, it is important to understand what the current account transactions are.
    • Current account transactions are transactions that require foreign currency.
    • Following transactions with from which component these transactions belong to :
    1. Component 1 : Payments connection with Foreign trade – Import & Export
    2. Component 2 : Interest on loans to other countries and Net income from investments in other countries
    3. Component 3 : Remittances for living expenses of parents, spouse and children residing abroad, and Expenses in connection with Foreign travel, Education and Medical care of parents, spouse and children

    What has the SBI said?

    • The biggest impact on CAD is oil imports, which form as much as 30% of the country’s import bills.
    • Every $10 increase in crude prices impacts the CAD to the tune of 40 basis points while the same on fuel inflation is 50 bps and also results in 23 bps decline in growth.
    • Strong remittances and software exports had lowered CAD by 60 basis points (bps) in the June quarter.
    • Forex reserves, which have declined from $642 billion in September 2021 to about $531 billion last week, are expected to rise by $5 billion as swap transactions reverse.

     

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  • In news: Pashmina Wool

    pashmina

    Traders of Pashmina shawls are complaining that “obsolete testing methods” have resulted in many of their export consignments being flagged for the presence of ‘Shahtoosh’ guard hair, which is obtained from endangered Tibetan antelopes.

    Shahtoosh, on the other hand, is the fine undercoat fibre obtained from the Tibetan Antelope, known locally as ‘Chiru’, a species living mainly in the northern parts of the Changthang Plateau in Tibet.  

    What is Pashmina?

    • Pashmina is a fine type of cashmere wool. The textiles made from it were first woven in Kashmir.
    • The wool comes from a number of different breeds of the cashmere goat; such as the changthangi or Kashmir pashmina goat from the Changthang Plateau in Tibet and part of the Ladakh region and few parts of Himachal Pradesh.
    • Often shawls called shahmina are made from this material in Kashmir and Nepal; these shawls are hand spun and woven from the very fine cashmere fibre.
    • Traditional producers of pashmina wool are people known as the Changpa.
    • Bureau of Indian Standards (BIS) has published an Indian Standard for identification, marking and labelling of the already GI tagged Pashmina products to certify its purity.

    About Pashmina goat

    • The Changthangi or Pashmina goat is a special breed of goat indigenous to the high altitude regions of Ladakh in Jammu and Kashmir.
    • They are raised for ultra-fine cashmere wool, known as Pashmina once woven. The Textiles are handspun and were first woven in Kashmir.
    • The Changthangi goat grows a thick warn undercoat which is the source of Kashmir Pashmina wool – the world’s finest cashmere measuring between 12-15 microns in fiber thickness.
    • These goats are generally domesticated and reared by nomadic communities called the Changpa in the Changthang region of Greater Ladakh.
    • The Changthangi goats have revitalized the economy of Changthang, Leh and Ladakh region.

     

    Try this PYQ:

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

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

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 and 3 only

    (c) 3 only

    (d) 1, 2 and 3

     

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