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Subject: Economics

  • Declining Consumer Demand and Reluctant Investors

    Consumer Demand

    Context

    • In September, Finance Minister Nirmala Sitharaman was anguished that industry was holding back from investing in manufacturing despite a significant cut in corporate tax rates in 2019.

    Analyzing the corporate Investment since the pandemic

    • Less investment is not the result of losses: The slowdown in corporate investment did not happen because companies were making losses.
    • More profit but less investments by corporates: In fact, private companies, boosted by considerable tax cuts, made windfall profits. A State Bank of India analysis shows that tax cuts contributed 19% to the top line of companies during the pandemic. But this did not result in increased investments.
    • Dividends to shareholders: Before the pandemic, instead of investing in themselves, companies chose to reward shareholders with higher dividends.
    • Investment in equity and debt instead of Infrastructure: During the pandemic, they did not use the profits for paying out dividends; they retained a big chunk of the profits. However, instead of investing in buildings, plants and machinery, they invested in equity shares and debt instruments.
    • Corporate cited the slowdown in demand as reason for less investment: So, both before and after the outbreak, they shied away from capital investments. The hesitancy to invest can be explained by a slowdown in the demand side of the economy.
    • Corporates didn’t invest in long term returns sectors: Consumer demand started to decline the year before the pandemic and worsened after the COVID19 outbreak. This forced companies to use the increased profits to decrease their debts, pay dividends and invest in financial instruments instead of increasing productivity by making capital investments.

    Consumer Demand

    What is The current consumer’s demand situation?

    • Average Consumer sentiment index: Private companies invest when they are able to estimate profits, and that comes from demand. The Centre for Monitoring Indian Economy’s (CMIE) consumer sentiment index is still below pre-pandemic levels but is far higher than what was seen 12-18 months ago.
    • Buoyant Aggregate demand: RBI’s Monetary policy report dated September 30 says, Data for Q2 (ended Sept) indicate that aggregate demand remained buoyant, supported by the ongoing recovery in private consumption and investment demand. It shows that seasonally adjusted capacity utilization rose to 74.3% in Q1 the highest in the last three years.
    • High household savings: Along with household savings intentions remaining high, might hold the key to the investment cycle kicking in.

    Consumer Demand

    Statistic on demand and investment

    • New investment projects: The new investment projects announced as a % of GDP, since FY18, the share has remained below the 5% mark, compared to over 9% between FY05 and FY22.
    • Collection of corporate tax decreased: Corporate tax and income tax collected in India as a % of GDP after the cut in 2019, the share of corporate tax declined dramatically, while the share of income tax gradually increased.
    • Double burden on tax payers: The shift in tax burden from the corporates to the people came at a time of job losses and reduced income levels. This pushed more people into poverty.
    • Corporate profit increased after tax cut: Profit after tax earned by non-financial private companies in ₹ trillion after the tax cut, the profits of these companies rose to ₹4-5 trillion in the last two financial years from ₹1-2 trillion in many of the previous periods.
    • Increase and decrease in dividend to shareholders: Dividends paid by non-financial private companies as a share of profits earned after tax, Payouts to shareholders surged in FY20, the year before the pandemic, but reduced in the following years.
    • Profit retention increased: Retained profits as a % of profit after tax surged to 63% in FY22 the highest in a decade (limited companies were analyzed in FY22, so data are provisional).
    • Profits are invested in equities: In FY21, the debt-to-equity ratio came down to 0.86 the lowest in at least three decades. In FY22 (provisional data), it came down further to 0.71.
    • Year on year decline in capital investment: Year on year change in the investments of non-financial private companies in fixed assets such as buildings, plants, machinery, transport and infrastructure have declined in recent years. But the year on year change in investments in financial instruments such as equity, debt and mutual funds have surged.

    Consumer Demand

    Conclusion

    • Corporates are holding their pockets in hope of demand rise in future. However, this affects the post-pandemic recovery of economy. IMF and RBI was right to revise their growth forecast this year. Unequal recovery of economy have certainly affected the income levels of middle class. Government has taken a lot of step on supply side (corporate side and banking reform) but no intervention in revival of demand.

    Mains Question

    Q. Analyze the corporate investment pattern before and after the pandemic? What are the reasons for decline in corporate investment in fixed assets in economy since the pandemic?

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  • Price regulation of UPI

    UPI

    Context

    • The recent discussion paper by the RBI on charges in payment systems has triggered widespread public debate, especially on the zero-charge framework for UPI transactions.

    Know the basics- What is UPI?

    • UPI is an instant real-time payment system developed by National Payments Corporation of India (NPCI) facilitating inter-bank transactions.
    • The interface is regulated by the Reserve Bank of India and works by instantly transferring funds between two bank accounts on a mobile platform.

    Why RBI wants to intervene?

    • Two important reasons:
    1. Goals of financial inclusion: Viewing digital payments as a public good and
    2. Addressing market failures: Such as the presence of dominant firms or externalities that may arise due to the two-sided nature of this market.
    • For both objectives, regulators might want to cap or set to zero the MDR or merchant discount rate (paid by merchants to their payments service provider) or the interchange fee (paid by the acquiring bank to the issuing bank), or both.

    UPI

    What is the present scenario of Pricing UPI?

    • Subsidies on operational cost: In the case of UPI, the government subsidizes the operational costs of facilitating UPI transactions, which is reportedly inadequate. In January 2022, the Payments Council of India reported that the industry expected a loss of Rs 5,500 crore.
    • Subsidies are inadequate: Even with a public good motive, in the absence of evidence, one cannot assume this to be the best allocation of limited government resources. As per the Indian Digital Payments Report (second quarter of 2022), the average ticket size of P2M transactions (person to merchant) on UPI is Rs 820. RBI’s estimated cost of Rs 2 for processing a Rs 800 transaction, is 0.25 per cent of the transaction value, much lower than the MDR cap set at 0.9 per cent for debit cards and an MDR of 2 per cent being pro- posed for RuPay credit cards on UPI.
    • Presently MDR is Zero: A floor MDR of 0.25 per cent is, therefore, not unreasonable. Arguably, these are substitutable services competing for the same pool of merchants. Policymakers must also bear in mind behavioural challenges in moving from zero MDR to a positive MDR. Anchored at a zero MDR since January 2020, merchants, especially ones with thin margins, may hesitate to accept an increase in MDR, even if they benefit on net terms.

    How RBI can regulate price?

    • Understanding what to regulate: In order to understand how and what to regulate, we borrow from the rationale followed for other two-sided markets that exhibit cross-platform externalities. consumers benefit more if the size of the merchant network accepting a payment instrument (for example, debit cards) is larger and, at the same time, merchants benefit more if many consumers use debit cards.
    • Recovering the cost from merchants: Card networks like Visa and Mastercard compete for banks, usually not too many, to issue their cards. Since the acquiring bank must pay the interchange fee, they recover these costs from merchants.
    • Regulating the interchange fee: In most jurisdictions, the interchange fee is regulated to prevent banks from charging exploitative rates and the MDR is left to be commercially determined. This is also done for administrative ease, since banks are fewer, while monitoring bank-merchant contracts can be onerous.
    • Charging the MDR: In the UPI parallel, involving payment service providers of payers and payees, the remitter and beneficiary banks as well as NPCI, RBI could either regulate the inter change fee between payment service providers or the merchant discount rate charged by them.
    • Deciding between MDR and interchange fee: The market for merchant acquisition is usually more competitive and can be left unregulated, and if necessary, the interchange fee between the two payment service providers can be regulated. If both markets are sufficiently competitive, regulation could mean establishing a floor/ cap charge. The decision what to regulate is, therefore, crucial.
    • Example of telecom industry: A related example is available in the telecom industry where facilities provision is regulated through the interconnection fee, while retail prices for the relatively competitive telecom services segment are left to the market. For externalities of the two-sided market to be internalized, the choice of instrument must be carefully evaluated.
    • Determining the actual price: The next step is to determine the price level, which is a lot trickier. Drawing from economic theory, the optimal level would depend on whether the regulator cares only about consumer welfare (as op- posed to total welfare), and whether the issuing and acquiring banks make positive margins on each transaction.

    UPI

    How digital payment is charged around the world and India’s requirement?

    • Example of PIX of Brazil: Pix, a two-year-old interoperable digital payments system in Brazil, provides a good comparison of how price setting might be considered in the UPI context. Pix does not regulate MDR, payment service providers have the freedom to set MDR, though in practice most banks currently don’t charge an MDR, largely to onboard more merchants on their platforms.
    • MDR appears less attractive: The indicated cost is R$ 0.01 for each 10 transfers, or 16 paise in Indian rupees for every s10 transactions. This is substantially lower than the costs estimated for India and is also perhaps the reason why payment service providers are not immediately inclined to recover costs through MDR.
    • Not hampering the innovation and investment: In general, benefits of regulatory intervention should outweigh the costs of intervening. The costs of intervening not only include the administrative costs, but also potential costs arising from setting the wrong interchange fee or cap, as well as any costs arising from the impact of the intervention on future investment and innovation in the market.

    Do you know what is Merchant Discount Rate?

    • Merchant Discount Rate (alternatively referred to as the Transaction Discount Rate or TDR) is the sum total of all the charges and taxes that a digital payment entails.
    • Simply put, it is a charge to a merchant by a bank for accepting payment from their customers in credit and debit cards every time a card gets swiped in their stores.
    • Similarly, MDR also includes the processing charges that a payments aggregator has to pay to online or mobile wallets or indeed to banks for their service.

    Do you know what is Merchant Discount Rate? Merchant Discount Rate (alternatively referred to as the Transaction Discount Rate or TDR) is the sum total of all the charges and taxes that a digital payment entails. Simply put, it is a charge to a merchant by a bank for accepting payment from their customers in credit and debit cards every time a card gets swiped in their stores. Similarly, MDR also includes the processing charges that a payments aggregator has to pay to online or mobile wallets or indeed to banks for their service.

    Conclusion

    • Policymakers must collect more data on costs of transfer, user preferences, both merchants and consumers, as well as undertake a thorough analysis of substitutability and competition in the digital payments sector, to put our best foot forward in helping achieve the potential of UPI in India.

    Mains Question

    Q. Explain the reasons for success of UPI in India? Analyze the Role of UPI in financial inclusion in India?

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  • Make-II Route of Defence Procurement

    The Army has approved sanction orders for the development of niche technology by the Indian industry under the Make-II route of defence procurement.

    What are Make-Category Projects?

    • The provision of ‘Make’ category of capital acquisition in Defence Procurement Procedure (DPP) is a vital pillar for realising the vision behind the ‘Make in India’ initiative.
    • It aims to foster indigenous capabilities through design & development of required defence equipment/product/systems or upgrades/ sub-systems/components /parts by both public and private sector in a faster time frame.

    ‘Make’ Procedure has following two sub-categories:

    1. Make-I (Government Funded): Projects under ‘Make-I’ sub-category will involve Government funding of 90%, released in a phased manner and based on the progress of the scheme, as per terms agreed between MoD and the vendor.
    2. Make-II (Industry Funded): Projects under ‘Make-II’ category will involve prototype development of equipment/ system/ platform or their upgrades or their sub-systems/ sub-assembly/assemblies/ components. They aim primarily for import substitution/innovative solutions, for which no Government funding will be provided for prototype development purposes.

     

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  • Poverty Estimate using National Family Health Survey

    Poverty

    Context

    • The recent release of the National family health survey (NFHS) data for 2019-21 allows for a detailed analysis of the progress in the reduction of absolute poverty and related determinants like nutrition.

    Poverty estimation in India

    • Planning Commission Expert Group (1962): It formulated the separate poverty lines for rural and urban areas at ₹20 and ₹25 per capita per year respectively.
    • VM Dandekar and N Rath (1971): They made the first systematic assessment, based on National Sample Survey (NSS) data. They suggested providing 2250 calories per day in both rural and urban areas.
    • YK Alagh Committee (1979): It constructed a poverty line for rural and urban areas on the basis of nutritional requirements and related consumption expenditure.
    • Lakdawala Committee (1993): It suggested that consumption expenditure should be calculated based on calorie consumption as earlier. State specific poverty lines should be constructed. It asked for discontinuation of scaling of poverty estimates based on National Accounts Statistics.
    • Tendulkar Committee (2009): The current official measures of poverty are based on the Tendulkar poverty line, fixed at daily expenditure of ₹27.2 in rural areas and ₹33.3 in urban areas is criticized by many for being too low.

    Poverty

    How poverty is estimated under NFHS?

    • Multidimensional poverty index: The NFHS surveys are part of a multinational attempt to provide estimates of a multidimensional poverty index. Its computation rests on estimates of poverty according to 10 different indicators:
    1. Nutrition
    2. Child mortality
    3. Years of schooling
    4. School attendance
    5. Cooking fuel
    6. Sanitation
    7. Drinking water
    8. Electricity
    9. Housing
    10. Assets
    • The deprivation index: the deprivation index for each indicator is the per cent poor (deprived) according to that indicator. The aggregation of the 10 indicators into one index involves legitimate issues of weighting, but individual components do not suffer from this drawback.

    Poverty

    What are the findings of NFHS?

    • Multidimensional poverty declined: at a compounded annual average rate of 4.8 per cent per year in 2005-2011 and more than double that pace at 10.3 per cent a year during 2011-2021.
    • Declining child mortality: There are some issues with the 2011 child-mortality data, but for each of the 10 components of the MPI index, the rate of decline in 2011-2021 is considerably faster than in 2005-2011.
    • Average decline in overall indicators: The average equally weighted decline for nine indicators was 1.9 per cent per annum in 2005-2011 and a rate of 16.6 per cent per annum, more than eight times higher in 2011-2021.
    • Consumption inequality decline: Every single household survey or analysis has shown that consumption inequality declined during 2011-2021. This is consistent with the above finding of highly inclusive growth during 2011-2021.

    Poverty

    What are the efforts behind inclusive growth and reduced poverty?

    • A major factor behind the inclusive nature of growth during 2011-2021 is the focus of government policies on each of the individual indicator’s indicative of a dignified standard of living. A direct impact of this dedicated fiscal push is that slow-moving variables such as housing, access to cooking fuel, sanitation, etc, have witnessed a remarkable increase.
    • Swachh Bharat Mission: The government’s Swachh Bharat mission in 2014-2021 constructed over 110 million toilets even if some were without easy access to water, many were.
    • Saubhagya Yojana: Similarly, close to one-third of Indians were deprived of electricity till as recently as 2014. It was only after a dedicated push (Saubhagya Yojana) that India managed to electrify every village, and eventually households. Electricity deprivation declined by a 28.2 per cent rate post-2014; between 2005 and 2011, the rate of decline was close to zero.
    • Jan Dhan Yojana: Another example is the Jan Dhan Yojana which made financial inclusion a reality in India, especially for women.
    • Ujjwala Yojana: On access to modern cooking fuel (through the Ujjwala Yojana), deprivation was nearly halved from 26 per cent to 14 per cent in just five years. The previous halving (2005/6 to 2015/16) took 10 years.
    • Awas Yojana: The affordable housing scheme (Awas Yojana) has meant that less than 14 per cent are now deprived, compared to thrice that number in 2011/12.
    • Jal Jeevan Mission: More recently, government has embarked on an ambitious project of ensuring universal access to piped water under the Jal Jeevan Mission. Rural piped water coverage was a little less than 17 per cent in 2019, but is now well above 54 per cent and expected to at least be near, if not meet, the 100 per cent target by 2024.

    Conclusion

    • Extreme poverty in India is surely on decline but pandemic have pushed people again back to the poverty. Pandemic have put the break on inclusive growth of people. Government must realize these and plan accordingly.

    Mains Question

    Q. Analyze the data of NFHS for poverty estimation in India? How government policies have helped to reduce the extreme poverty in India?

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  • One must know India’s Economic Growth Story

    Economic

    Context

    • As the COVID-19 pandemic fades and hopes to rise for nations and societies to return to some kind of normalcy, there is effort all around to take stock of where we stand and what our prospects look like. A look back over the last few years at how India performed in terms of its economy.

    Present situation of India’s economic growth

    • Mixed growth story: One group of experts argues, India’s growth story is more mixed. In 2021-22, its GDP growth was 8.7%, which was among the highest in the world. This is good but, against this, we must offset the fact that much of this is the growth of climbing out of the pit into which we had fallen the previous year.
    • IMF reduced the growth forecast: In 2020-21, India’s growth was minus 6.6%, which placed the country in the bottom half of the global growth chart. For 2022-23, the International Monetary Fund has cut India’s growth forecast to 6.1%.

    Economic

    Structural assessment of India’s growth

    • Rising inequality and high unemployment: Most of India’s growth is occurring at the top end, with a few corporations raking in a disproportionate share of profits, and unemployment is so high, it is likely that large segments of the population are actually witnessing negative growth.
    • Slowdown in previous years: What makes India’s growth story worrying is that the slowdown began much before the COVID19 pandemic. It began in 2016, after which, for four consecutive years, the growth rate each year was lower than in the previous year. Growth in 2016-17 was 8.3%. After that it was, respectively, 6.9%, 6.6%, 4.8%, and minus 6.6%.
    • Status of unemployment: India’s unemployment rate is high. In October, it stood at 7.8%. However, what is really worrying is youth unemployment. According to International Labour Organization (ILO) data, collated and presented by the World Bank, India’s youth unemployment, that is, from among people aged 15 to 24 years who are looking for work, the percent that does not find any, stands at 28.3%.

     Know the basics-What is Unemployment?

    • Definition: Unemployment is a phenomenon that occurs when a person who is capable of working and is actively searching for the work is unable to find work.
    • Those who are excluded: People who are either unfit for work due to physical reason or do not want to work are excluded from the category of unemployed.
    • Unemployment rate: The most frequent measure of unemployment is unemployment rate. The unemployment rate is defined as a number of unemployed people divided by the number of people in the labour force.
    • Labour Force: Persons who are either working (or employed) or seeking or available for work (or unemployed) during the reference period together constitute the labour force.

    Economic

    Other perspectives on Indian economy

    • The latest GDP numbers suggest: For Q1 FY2022–23 suggest that economic growth is on a healthy track. Consumers, after a long lull, have started to step out confidently and spend private consumption spending went up 25.9% in Q1.
    • On the production side: the contact-intensive services sector also witnessed a strong rebound of 17.7%, thanks to improving consumer confidence.
    • Healthy agriculture sector: The only sector that consistently performed well throughout the pandemic, remained buoyant.
    • Industrial growth: Industrial growth boosted from accelerating growth in construction and electricity, gas, water supply and other utility services sectors.
    • Manufacturing is not doing well: A sector that has not yet taken off sustainably is manufacturing, which witnessed modest growth of 4.5% in Q1. Higher input costs, supply disruptions, and labor shortages due to reverse migration have weighed on the sector’s growth. According to the Reserve Bank of India’s (RBI’s) data on nonfinancial firms, surging raw material costs have stressed the profitability and margins of companies.

    What are the Challenges for the growth of economy?

    • High inflation: The biggest worry is that of high inflation (which has persisted for way too long) and all the challenges that come along with it. Inflationary environments increase the costs of doing business, impact profitability and margins, and reduce purchasing power. In short, inflation thwarts both supply and demand. Central banks’ monetary policy actions, in response to rising inflation, can impede credit growth and economic activity, thereby intensifying the probability of a recession in a few advanced nations.
    • Rising current account deficit: The other challenge is the rising current-account deficit and currency depreciation against the dollar. While a rebounding domestic economy is resulting in higher imports, moderating global demand is causing exports to slow. The US dollar’s unrelenting rise and global inflation are further causing India’s import bills to rise.
    • Declining forex: The RBI had to intervene to contain volatility and ensure an orderly movement of the rupee. The RBI’s intervention is leading to a drawdown in foreign exchange reserves. Consequently, the import cover from reserves has reduced to nine months from a high of 19 months at the start of 2021 (although, it remains above the benchmark of three months).

    Economic

    The economy’s growth drivers are improving

    • Exports: Exports, the first growth driver are slowing down and are likely to moderate along with the probable global economic slowdown.
    • Government spending: Government spending, the second driver, is already at an elevated level, thanks to the pandemic, and the government will likely focus on its prudence in utilizing limited resources. The good news is the share of capital expenses is going up even as the government is reducing revenue expenses. Multiplier effects of this spending will aid in growth in income, assets, and employment for years to come. Strong tax revenues may support further capital spending in the future.
    • Capital expenditure: According to experts, prospects for capex investments the third growth driver by companies are brighter. Sustained demand growth may be the most-awaited cue for a sustained push for investment.
    • Consumer demand: Consumer Demand, the fourth, and perhaps the most important, growth driver has improved significantly in recent quarters. However, spending has not grown sustainable despite improving consumer confidence. For instance, retail sales are growing but the pace is patchy, and auto registrations have remained muted. We expect that receding pandemic fears and the upcoming festive season could give a much-needed boost to the consumer sector.

    Conclusion

    • Indian economy should not be looked from isolation. It is very much integrated in global economy. Pandemic, Ukraine war, US- China trade war have given a successive shock to global and Indian economy. Despite that Indian has done well than rest of the world. Our focus should be on curbing inequality, not to allow people to descend into extreme poverty and employment generation.

    Mains Question

    Q. Analyse the present economic macro-indicators of Indian economy. What are the challenges for growth story of India in the context of global uncertainty?

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  • GI tag in news: Kashmir Saffron

    saffron

    The Directorate of Tourism, Kashmir has organised a saffron festival in the Karewa of Pampore.

    Saffron

    • Saffron is a spice derived from the flower of Crocus sativus, commonly known as the “saffron crocus”.
    • The vivid crimson stigma and styles, called threads, are collected and dried for use mainly as a seasoning and colouring agent in food.

    Kashmir Saffron

    • It is cultivated and harvested in the Karewa (highlands) in some regions of Kashmir, including Pulwama, Budgam, Kishtwar and Srinagar.
    • It has been associated with traditional Kashmiri cuisine and represents the rich cultural heritage of the region.
    • Its cultivation is believed to have been introduced in Kashmir by Central Asian immigrants around 1st Century BCE. In ancient Sanskrit literature, saffron is referred to as ‘bahukam’.
    • In 2020, the Centre issued a certificate of Geographical Indication (GI) registration for Saffron grown in the Kashmir Valley.

    Major types

    The saffron available in Kashmir is of three types —

    • ‘Lachha Saffron’, with stigmas just separated from the flowers and dried without further processing;
    • ‘Mongra Saffron’, in which stigmas are detached from the flower, dried in the sun and processed traditionally; and
    • ‘Guchhi Saffron’, which is the same as Lachha, except that the latter’s dried stigmas are packed loosely in air-tight containers while the former has stigmas joined together in a bundle tied with a cloth thread

    Whats’ so special about Kashmir Saffron?

    • The unique characteristics of Kashmir saffron are its longer and thicker stigmas, natural deep-red colour, high aroma, bitter flavour, chemical-free processing, and high quantity of crocin (colouring strength), safranal (flavour) and picrocrocin (bitterness).
    • It is the only saffron in the world grown at an altitude of 1,600 m to 1,800 m AMSL (above mean sea level), which adds to its uniqueness and differentiates it from other saffron varieties available the world over.

    Policy moves

    • The National Saffron Mission (launched as a part of Rashtriya Krishi Vikas Yojana) was sanctioned by the central government in the year 2010 in order to extend support for creation of irrigation facilities.
    • It seeks to facilitate farmers with tube wells and sprinkler sets which would help in production of better crops in the area of saffron production.
    • North East Centre for Technology Application and Reach (NECTAR) under Saffron Bowl Project has identified few locations in Arunachal Pradesh and Meghalaya for saffron cultivation.

     

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  • Green Signal to GM Mustard

    MustardContext

    • The recent clearance by the government for the release of GM Mustard Hybrid DMH 11 based on the recommendations of GEAC under the Ministry of Environment, Forests and Climate Change is a bold decision in the best interest of our farmers and the nation.

    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 Mustard: GM mustard crop was introduced, which was later withdrawn. 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.

    MustardAdvantages of GM mustard?

    • Benefits to producers and consumers: GM foods are developed and marketed because there is some perceived advantage either to the producer or consumer of these foods. This is meant to translate into a product with a lower price, greater benefit (in terms of durability or nutritional value) or both. Initially GM seed developers wanted their products to be accepted by producers and have concentrated on innovations that bring direct benefit to farmers (and food industry generally)
    • Improves crop protection: One of the objectives for developing plants based on GM organisms is to improve crop protection.
    • Insect Resistance: Some GMO foods have been modified to make them more resistant to insects and other pests. This means the amount of pesticide chemicals used on the plants are reduced, so their exposure to dangerous pesticides is also reduced
    • Develops stronger Crop: Another benefit that GM technology is believed to bring about is that crops can be engineered to withstand weather extremes and fluctuations, this means that there will be good quality and sufficient yields even under a poor or severe weather condition
    • Provides Environment Protection: GM crops often requires less time, tools and chemicals, and may help with reducing greenhouse gas emissions, soil erosion and environmental pollution
    • More Nutritious Foods: According to the UN Food and Agricultural Organization (FAO), some GM foods have been engineered to become more nutritious in terms of vitamin or mineral content.
    • More economic benefits: Larger production leading to increased farm income, reduced poverty, low food prices and thus reduced hunger and malnutrition. Besides new food products are also included, diversifying food varieties

    What is the risk associated with GMO?

    • Contamination of genes: GMOs contaminate forever. GMOs cross pollinate and their seeds can travel far and wide.
    • Irreversible changes in gene pool: It is impossible to fully clean up our contaminated gene pool.
    • More herbicides in our food: Genetic engineering allows plants to survive high doses of weed killers, resulting in higher herbicide residues in our food.
    • Super weeds and super bugs: GMO crops are creating ‘super weeds’ and ‘super bugs,’ which can only be killed with more toxic poisons.

    MustardWhy there was necessity to grant approval for GM Mustard?

    • To meet our current challenges: Over-exploitation of natural resources (soil, water, biodiversity), declining factor productivity, urgency to achieve sustainable development goals, especially ending poverty and hunger, and addressing timely the adverse effects of climate change the best option is scientific innovations and their scaling.
    • The adoption of GM food crops is in our broader national interest: Genetically modified maize, soybean, cotton, tomato and canola are grown across the world and the area currently under GM crops is about 200 m ha. Besides India, these have been grown for many years in the US, Brazil, Argentina, Canada, Australia, Philippines, Pakistan, Bangladesh, and China.
    • To meet the existing deficit in edible oils: India is currently importing around 13 million tonnes at a cost of Rs 1.17 lakh crore to the exchequer. Interestingly, of this, 2.0-2.5 mt soybean oil and 1.0-1.5 mt canola oil is already GM. Hence, we are consuming GM oil already, besides, the 1.5 mt of GM cotton oil produced domestically.
    • Associated health benefits: It is scientifically proven that the consumption of refined oil does not allow any protein to enter the human system. Thus, the consumption of GM oil is completely safe from a health point of view.
    • High yields to farmers: A major concern of our farmers is that yields of mustard are low and have stagnated for a long time at around 1,260 kg/ha, much lower than the global average of 2,000 kg/ha. Yields of canola in Canada, China and Australia are almost three times higher than in India since they use GM hybrid technology. Mustard is a very important oilseed crop, grown in 6.0 -7.0 million hectares, mostly in Rajasthan, Haryana, Punjab and Madhya Pradesh. Thus, the government’s decision to allow the production of GM Mustard hybrids will go a long way in increasing our yields, while reducing the use of pesticides.

    MustardWhat else needs to be done?

    • Providing enabling environment: The Department of Agriculture (DoA) and ICAR need to move forward fast and provide an enabling environment to test the available seed of Hybrid DMH 11 in the current rabi season.
    • Encourage public-private partnership: This needs to happen on several farmers’ fields in the mustard belt. It must also encourage public-private partnerships to produce quality seeds to cover more area next year.
    • Encouraging further innovation: Also, scientists at ICAR institutes must be encouraged to develop new GM Mustard hybrids on a mission mode. Allowing the production of GM Soybean and GM Maize going forward will also be a positive step, increasing both the productivity and profitability of these crops and doubling farmers’ income.

    Conclusion

    • The decision to remove the unscientific ban on GM crops reflects the determination of the government to move towards Atmanirbhar Bharat. It also meets the aspirations of our scientific community and farmers can derive the benefits of innovative technology.

    Mains Question

    Q. How GM mustard crop are different from conventional crops? What are the benefits and risks of adopting the GM mustard crop?

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  • GI in news: Kalanamak Rice

    kalanamak

    Kalanamak, a traditional variety of paddy is all set to get a new look and name.

    Kalanamak Rice

    • Kalanamak rice is a paddy with black husk and strong fragrance, which is considered a gift from Lord Buddha to the people of Sravasti when he visited the region after enlightenment,
    • It is grown in 11 districts of the Terai region of northeastern Uttar Pradesh and in Nepal.
    • The traditional Kalanamak rice is protected under the Geographical Indication (GI) tag
    • It’s recorded in the GI application that Lord Budhha gifted Kalanamak paddy to the people of Sravasti so that they remembered him by its fragrance.

    What is the upgrade?

    • The traditional paddy has been prone to ‘lodging’, a reason for its low yield.
    • Lodging is a condition in which the top of the plant becomes heavy because of grain formation, the stem becomes weak, and the plant falls on the ground.
    • Addressing the problem, the Indian Agriculture Research Institute (IARI) has successfully developed two dwarf varieties of Kalanamak rice.
    • They have been named Pusa Narendra Kalanamak 1638 and Pusa Narendra Kalanamak 1652.

    Back2Basics:  Geographical Indication

    • A GI is a sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin.
    • Nodal Agency: Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry
    • India, as a member of the World Trade Organization (WTO), enacted the Geographical Indications of Goods (Registration and Protection) Act, 1999 w.e.f. September 2003.
    • GIs have been defined under Article 22 (1) of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.
    • GI is granted for a term of 10 years in India. As of today, more than 300 GI tags has been allocated so far in India (*Wikipedia).
    • The tag stands valid for 10 years.

     

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  • Road to Net Zero Goes Via Green Financing

    financing

    Context

    • Climate finance, or Green Money, remains a critical bottleneck for India in its journey towards the Net Zero 2070 objective and to create a resilient system through climate adaptation and mitigation. The challenge is daunting to make a climate transition for a nation of 1.4 billion people with increasing aggregate national income and individual wealth inequality.

    What is the Present arrangement of external financing for climate change

    • Estimated cost: Finances for climate change were to be channelized through multi-tiered systems in the form of national, regional, and international bodies. It has been estimated that India will need $15 trillion to finance its Net Zero journey.
    • Concessional loans: In most cases, small amounts flowing now into the developing component of the G20 nations are actually in the form of concessional loans rather than grants.
    • Technological support from developed countries: There is no doubt that India will need international financial commitments and technological support from developed countries, who have been erratic with their promised deliveries so far.

    What is green financing?

    • Green finance is a phenomenon that combines the world of finance and business with environment friendly behavior. It may be led by financial incentives, a desire to preserve the planet, or a combination of both.
    • In addition to demonstrating proactive, environment friendly behavior, such as promoting of any business or activity that could be damaging to the environment now or for future generations.

    Green financing through domestic market

    • Status of Green Bonds: As for domestic financial sources, according to an RBI Bulletin from January 2021, green finance in India is still at the nascent stage. Green bonds constituted only 0.7% of all the bonds issued in India since 2018, and bank lending to the non-conventional energy constituted about 7.9% of outstanding bank credit to the power sector as of March 2020.
    • Provision of Green loans: The report also mentioned that the development of green financing and funding of environment-friendly sustainable development is not without challenges, which may include false compliance claims, misuse of green loans, and, most importantly, maturity mismatches between long-term green investments and relatively short-term interests of investors.

    financing

    What are the challenges to green financing?

    • No assessment of climate finance risk: Research report indicates that banks in India, like in many parts of the world, are not prepared to adapt to climate change; and have not yet factored in any climate-related financial risks into their day-to-day decision-making. Some of the criteria used to assess the banks include a commitment to phase out investments in coal, disclosing and verifying direct and indirect emissions, issuing green loans, financing climate mitigation, and Net Zero targets for different types of emissions and their implementation plans.
    • Lack of enthusiasm among bankers: The report is also critical that none of the 34 banks have tested the resilience of their portfolios in the face of climate change. Yet, the bankers’ noise around the green finance topic is euphorically loud, without action.
    • No standard definition of green financing: These banks and financial institutions are also not geared up for financing green transition. India faces the big challenge of “how to define green”, as there is no uniform green definition and green taxonomy.
    • Poor debt market for green finance: The green money is generated through largely debt-based products (green bonds, climate policy performance bonds, debt for climate swaps, etc.), while the fund deployment occurs through debt-based, equity-based, and often, insurance-based instruments, apart from grants and loans. However, the Indian market lacks the depth of its debt markets or the heft of the bond markets.
    • Lack of green data governance: There is an inherent problem with “green data governance” that entails tracking the entire data-chain of a green financing initiative.
    • Unviable green projects: Like many other private sectors funding, the banks look at rates of return that do not really often make financing “public goods” as viable investments. They are even apprehensive about financing projects with long gestation periods with uncertain returns.

    financing

    What is way forward for green financing?

    • Considering social cost of carbon: An economic return alone might not be sufficient to induce green financing. A more holistic rate of return, considering the social cost of carbon, will be appropriate.
    • Return on green investment should include social returns: A longer time horizon will be needed for the cost-benefit analysis and the estimation of the return on investment. This is because, for climate-related projects, the returns increase over time. The extent to which the particular project could result in CO2 reduction and, eventually reduction in the social cost of carbon need to be assessed. As an example, India intends to reduce 1 billion Tonnes of CO2. The present social cost of CO2 (SCC) is $86/tonne. Therefore, the sheer economic gain is to the tune of $86 billion, or 2.1% of the current Indian GDP. Social cost saving is a public good and is enjoyed by all businesses, including the financial institutions.
    • Applying the green taxation: Hence, for a stronger business case for climate finance, experts propose to include in its Return-on-investment calculations the cost-benefit returns of the project through NPVSCC20 the Net Present Value of Social Cost of Carbon over 25 years of the project, a time period that compares well with tenor of infra and sovereign bonds. As an incentive, the government could introduce taxation sops for using NPVSCC25.

    financing

    You may want to know about Net Zero

    • Net zero means cutting greenhouse gas emissions to as close to zero as possible, with remaining emissions re-absorbed by oceans/ forests.
    • China, US, EU and India contribute 75% of total GHG emissions
    • However, per capita GHG emissions for US, EU and China are7,3 and 3 times of India
    • India has set target to achieve net zero emissions by 2070.

    Conclusion

    • The way India finances its journey to Net Zero 2070 could very well be a framework for other nations, for it would need to have contours of social inclusion, economic flexibility, and sustainable financing, while keeping in mind the political compulsions, as well as serving the demographic requirements of creating and sustaining livelihood in decades to come.

    Mains Question

    Q. Green financing is the most crucial part of achieving Net zero target. Comment. What are the India’s efforts to finance its climate action goals?

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  • Revitalizing India’s Spectrum Policy

    Spectrum

    Context

    • It is widely acknowledged that spectrum policy in India has had ups and downs, regretfully more downs than ups. Despite the recognized failure, India hosts 800 million internet users and host the second-largest telecommunications network in the world. We wonder what might have been achieved with a more reasonable and transparent spectrum policy.

    Background

    • On September 22, the government released the draft Indian Telecommunication Bill, 2022 seeking to replace the colonial era Indian Telegraph Act, 1885.
    • The draft bill compares spectrum to aatma: “In a way, spectrum is similar to aatma, like aatma, spectrum too does not have any physical form, yet it is omnipresent.” And yet there is one immutable difference in this material world. While the value of aatma is inestimable, spectrum has always had a banal price tag associated with it.

    Spectrum

    What is Draft Indian Telecommunication Bill, 2022?

    • The draft Indian Telecommunication Bill, 2022 is an attempt by the Department of Telecommunications (DoT) to consolidate various legislations presently governing the telecommunication landscape in India.
    • The Bill seeks to replace three laws, the Indian Telegraph Act, 1885, the Indian Wireless Telegraphy Act, 1933 and the Telegraph Wires (Unlawful Possession) Act, 1950.
    • The new regulatory framework is to bring the law at par with technological advancements and remove obsolete provisions from the colonial era laws.

    What is mean by Spectrum?

    • In physics, it’s a word that describes the distribution of something, like energy or atomic particles
    • Spectrum refers to the invisible radio frequencies that wireless signals travel over. Devices such as cell phones and wireline telephones require signals to connect from one end to another.
    • These signals are carried on airwaves, which must be sent at designated frequencies to avoid any kind of interference. The frequencies we use for wireless are only a portion of what is called the electromagnetic spectrum.
    • The Union government owns all the publicly available assets within the geographical boundaries of the country, which also include airwaves.
    • With the expansion in the number of cell phones, wireline telephone and internet users, the need to provide more space for the signals arise from time to time.

    The status of Spectrum policy in India?

    • Host the second largest telecommunications network despite of failures:
    • It is widely acknowledged that spectrum policy in India has had ups and downs, it has for the most part failed to capitalize on the ubiquity of the electromagnetic spectrum to provide meaningful connectivity to all citizens.
    • Despite the recognized failure, we boast of a billion plus mobile subscribers, 800 million internet users and host the second-largest telecommunications network in the world.
    • Ineffective access widening space of digital divide:
    • The intent of the draft bill is to correct past sins so that the benefits of spectrum and technology are better shared, and the quality of access improved for everybody.
    • In other words, since effective access to spectrum has remained a significant barrier to facilitating meaningful connectivity for Indians.
    • Spectrum’s potential is huge but with technical limitations:
    • The draft bill rightly refers to the spectrum as having the characteristics of a public good. It is also an inexhaustible resource. But while spectrum per se is not depletable, there are technical limitations to its optimum utilization at a given point in time.
    • Consequently, it is viewed as a scarce natural resource and what’s more, expensive auctions have made the spectrum dear and arguably exclusionary.
    • High cost of spectrum acquisition:
    • Since 2010, the government has consistently used auctions for spectrum allocation and in only one of the seven auctions held since then, the government was successful in selling 100 per cent of the available spectrum. One reason for this lukewarm response, barring the 2010 auction, is the high cost of spectrum acquisition.
    • High cost of auctions leading to revenue loss for the government:
    • Due to the high reserve price, the most recent auction witnessed spectrum being sold at the reserve price, effectively rendering the basis of an auction moot.
    • If almost all spectrum was sold at its reserve price, and a significant amount goes unsold, it implies that the price was too high, to begin with. It also implies a loss of revenue for the government for spectrum unsold is spectrum squandered.
    • Finally, it results in areas being underserved or unserved affecting quality and quantity.
    • High network charges by operators impacts compromising equal distribution and quality:
    • According to one estimate, at 7.6 per cent of their aggregate revenue, spectrum cost in India is amongst the most expensive in the world.
    • Since network operators incur a significantly higher cost for spectrum compared to other emerging markets, the ability to invest in network upgradation and infrastructure is severely impacted, resulting in uneven distribution of service and poor quality to boot.

    Spectrum

    What Could be the fresh approach?

    • Acknowledging and addressing the issues:
    • It must be recognized that the spectrum needs to be combined with other infrastructure to enable service delivery.
    • The cost of deploying other infrastructure in remote areas is nearly twice as much, while revenue opportunities are far lower, damaging if not destroying the prospects of rural businesses. Plugging the digital divide, therefore, needs a fresh approach.
    • Correcting the cost of spectrum and boosting investment:
    • Since licences and spectrum are typically assigned for service areas that are, for the most part, identified by state boundaries.
    • Since operators predominantly cater to urban markets, the spectrum in remote areas remains under- or in places un-utilized due to a lack of investment in allied infrastructure.
    • Reviving the old and executing the fresh provisions enshrined in draft bill for equitable sharing:
    • The draft bill incorporates practical provisions on the spectrum such as use it, share it, or lose it – an awaited policy that, however, needs innovative support to be successful. The idea of “niche operators” providing services including to telecom operators and manufacturers, introduced in 2005, needs revival in this regard.
    • If licensed operators are unable to utilise the assigned spectrum, the same could be given to local entrepreneurs who understand the needs of rural customers and are better placed to develop a more effective business case more quickly than the larger telcos. Active promotion of the idea of niche operators might just jolt operators out of their lethargy towards rural services.
    • Adopting innovative methods:
    • Alternatively, the government may explore innovative methods of spectrum access such as a non-competitive licensing framework for certain specific use cases.
    • Canada, for instance, has initiated consultations on a non-competitive local licensing framework in the 3900-3980 MHz Band and portions of the 26, 28 and 38 GHz bands to inter alia facilitate broadband connectivity in rural areas.
    • Emphasizing on Transparency and enhancing healthy competition:
    • The government should build an ecosystem that inspires trust so that transparency in assignment can be secured at a reasonable price for operators with strict service obligations without the phantasm of auctions.
    • At the same time, there should be no unsold spectrum. Niche operators should be invoked to engender competition, and government could yet collect revenue for itself.

    Spectrum

    Conclusion

    • The telecom is no longer an end in itself. It exists for user industries much more than ever before. The spill over benefits are far greater than what the sector commands within. Thus, to state the obvious, the vision that is “Digital India” can never be realized if affordable broadband connectivity remains only within the reach of a few.