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Subject: Economics

  • Global Hunger Index is out, India in ‘serious’ category at rank 107

    hunger

    India ranks 107 out of 121 countries on the Global Hunger Index in which it fares worse than all countries in South Asia barring war-torn Afghanistan.

    Global Hunger Index (GHI)

    • The Global Hunger Index is a peer-reviewed annual report, jointly published by Concern Worldwide and Welthungerhilfe.
    • It determines hunger on a 100-point scale, where 0 is the best possible score (no hunger) and 100 is the worst.
    • It is designed to comprehensively measure and track hunger at the global, regional, and country levels.
    • The aim of the GHI is to trigger action to reduce hunger around the world.

    For each country in the list, the GHI looks at four indicators:

    1. Undernourishment (which reflects inadequate food availability): calculated by the share of the population that is undernourished (that is, whose caloric intake is insufficient)
    2. Child Wasting (which reflects acute undernutrition): calculated by the share of children under the age of five who are wasted (that is, those who have low weight for their height)
    3. Child Stunting (which reflects chronic undernutrition): calculated by the share of children under the age of five who are stunted (that is, those who have low height for their age)
    4. Child Mortality (which reflects both inadequate nutrition and unhealthy environment): calculated by the mortality rate of children under the age of five

    India’s performance

    • India’s child wasting rate (low weight for height), at 19.3%, is worse than the levels recorded in 2014 (15.1%) and even 2000 (17.15),
    • It is the highest for any country in the world and drives up the region’s average owing to India’s large population.
    • Prevalence of undernourishment has also risen in the country from 14.6% in 2018-2020 to 16.3% in 2019-2021.
    • This translates into 224.3 million people in India considered undernourished.

    How India performs among its neighbours?

    • India’s score of 29.1 places it in the ‘serious’ category. India also ranks below Sri Lanka (64), Nepal (81), Bangladesh (84), and Pakistan (99).
    • Afghanistan (109) is the only country in South Asia that performs worse than India on the index.
    • China is among the countries collectively ranked between 1 and 17 having a score of less than five.

    Has India improved somewhere?

    • India has shown improvement in child stunting, which has declined from 38.7% to 35.5% between 2014 and 2022, as well as child mortality which has also dropped from 4.6% to 3.3% in the same comparative period.
    • On the whole, India has shown a slight worsening with its GHI score increasing from 28.2 in 2014 to 29.1 in 2022.

    Reasons for such poor performance

    • Poor maternal health: Mothers are too young, too short, too thin and too undernourished themselves, before they get pregnant, during pregnancy, and then after giving birth, during breast-feeding.
    • Poor sanitation: Poor sanitation, leading to diarrhoea, is another major cause of child wasting and stunting.
    • Food insecurity: Low dietary diversity in India is also a key factor in child malnutrition.
    • Poverty: Almost 50 million households in India are dependent on these small and marginal holdings.
    • Livelihood loss: The rural livelihoods loss after COVID and lack of income opportunities other than the farm sector have contributed heavily to the growing joblessness in rural areas.

    Issues over credibility of GHI

    • India has ranked among many African countries while it is among the top 10 food-producing countries in the world.
    • The GHI is largely children-oriented with a higher emphasis on under-nutrition than on hunger and its hidden forms, including micronutrient deficiencies.
    • The first component — calorie insufficiency — is problematic for many reasons.
    • The lower calorie intake, which does not necessarily mean deficiency, may also stem from reduced physical activity, better social infrastructure and access to energy-saving appliances at home, among others.
    • For a vast and diverse country like India, using a uniform calorie norm to arrive at deficiency prevalence means failing to recognise the huge regional imbalances in factors that may lead to differentiated calorie requirements at the State level.

    Conclusion

    • The low ranking does not mean that India fares uniformly poor in every aspect.
    • This ranking should prompt us to look at our policy focus and interventions and ensure that they can effectively address the concerns raised by the GHI, especially against pandemic-induced nutrition insecurity

     

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  • What are Rythu Bharosa Kendras?

    rythu

    Ethiopian Agricultural Minister is in Andhra Pradesh (AP) to study the first-of-its-kind Rythu Bharosa Kendras (RBKs).

    What are Rythu Bharosa Kendras?

    • Set up for the first time in the country, the RBKs are unique seeds-to-sales, single-window service centres for farmers that have been set up across the state.
    • They are a one-stop solution to all farmers’ needs and grievances. RBKs sell pre-tested quality seeds, certified fertilisers and animal feed.
    • Farmers can purchase or hire farm equipment, and even sell their produce at the prevailing MSP in the RBKs.
    • The RBKs provide services like soil testing and make recommendations — on which crops to sow, and quantity and type of fertiliser to be used.
    • The state government also pays crop insurance, procures grains and makes payments to farmers through the RBKs.

    Have the RBKs proved to be helpful to farmers?

    • RBKs facilitate interaction between farmers, agriculture scientists, and agriculture extension officers right at the village level.
    • Apart from providing services and items for sale, RBK officials demonstrate new farm equipment and provide training to farmers.
    • Based on inputs provided by officials after soil testing and weather conditions, many farmers have changed their cropping patterns and benefited immensely.
    • The RBKs have been responsible for elimination of spurious seeds and uncertified and dangerous fertilisers, which can cause crop damage and failures.
    • The RBKs, staffed by agriculture and horticulture graduates, help farmers decide the crops they should cultivate in a scientific manner.

    How has it been received by the Centre?

    • The Centre has recently nominated the RBK concept for the Food and Agriculture Organisation’s “Champion’’ award.

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  • Finance Commission’s Approach to Equitable Delivery of Goods and Services

    finance commission

    Context

    • 15th Finance commission on horizontal devolution agreed that the Census 2011 population data better represents the present need of States, to be fair to, as well as reward, the States which have done better on the demographic front, Finance commission has assigned a 12.5 per cent weight to the demographic performance criterion. Population, area, forest and ecology, demographic performance, tax efforts, income and distance are the criteria for horizontal distribution of funds.

    Why equitable delivery is necessary in the country?

    • To fulfil the need of basket of Goods: There is a basket of goods and services that should be delivered by the State. It is best not to call them public goods, since “public goods” have a specific meaning for economists and this basket has items that are typically collective private goods.
    • To achieve Aantodaya approach (last person): Curlew Island is in the Andaman and Nicobar Islands. Until the 2011 Census, it had a population of two. Pulomilo Island, also in Andaman and Nicobar, had a population of 20 in 2011. At the time of elections, we read of astounding attempts made, so that voters in remote locations can vote. No one should be disenfranchised because of remoteness of location. By the same token, a resident, regardless of location, must be entitled to that basket.
    • To achieve poverty alleviation: The quality of public services affects economic growth via its impact on poverty alleviation, human capital formation and corruption.

    finance commission

    What are the Problems with Equitable delivery targets?

    • High cost of delivery: States can have differential sources of revenue. Alternatively, the cost of delivering that basket may vary across geographical zones.
    • Problems associated with migration: Over time, villages of course get depopulated. They are reclassified, get absorbed into larger agglomerations, or disappear because of migration.

    finance commission

    How equitable delivery can be achieved?

    • State need to take honest responsibility: The State cannot abdicate its responsibility of providing the basket.
    • Economic compulsion: Migration is a voluntary decision, often driven by the pull (and push) of economic forces. That voluntary decision cannot be replaced by fiat.
    • Dividing the pool between the governments: The Union Finance Commission has a vertical task, dividing the divisible pool between the Union government and states.
    • Adjusting to the criteria set by FC: It also has a horizontal task, dividing State share between different states. Accordingly, from the 1st to the 15th, Finance commission have adopted different formulae, with an attempt to also create incentives, by attaching weights to fiscal efficiency and even demographic performance.
    • This leaves variables like population, geographical area, income distance, infrastructure distance and forest cover:
    • expenditure equalisation based on needs/costs of public services;
    • Revenue equalisation measured by the ability of the state to raise revenue from one or more sources; and
    • Macro indicators covering broader economic or non-economic indicators that approximate fiscal capacity, where data constraints make it difficult to apply the other approaches.
    • Addressing Geographic area and population: Needs/costs are sought to be measured through geographical area and population. All Finance Commissions have used area as another criterion in the devolution formula on the ground of need — the larger the area, greater is the expenditure requirement for providing comparable services.

    Conclusion

    • Equitable access to public goods and services in low income and inequal (economic inequality) country like India is cumbersome task. Finance commission is trying their best for equitable allocation of resources.

    Mains Question

    Q. How Equity is different from equality?  What is the finance commission’s criteria for horizontal allocation of resources among the states ?

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  • Promise and perils of Flex Fuel Vehicles

    flex

    The auto sector is testing many new technologies to reduce carbon emissions. Flex fuel is one technology that has gained currency.

    What are Flex Fuel Vehicles?

    • Like traditional vehicles, flex fuel vehicles have an internal combustion engine, but instead of regular petrol, it can run on blended fuel—petrol with ethanol or methanol.
    • The ethanol mix can vary between 20% and 85%.
    • The vehicle has additional sensors and different programming of the engine control module to assess the blend of the fuel and adjust accordingly.
    • Unlike electric hybrid vehicles, no bulky parts need to be added to the basic gasoline vehicle architecture.
    • Upgrading existing vehicles to run on high blend of ethanol fuel, however, is possible but expensive and not considered feasible.

    Are they better than traditional vehicles?

    • Flex fuel vehicles are seen as a one-shot solution for multiple problems—pollution, oil import bill and glut in sugar production.
    • According to the US department of energy, they have lower overall greenhouse gas emissions, between 40-108%, depending on the feedstock used to produce them.
    • It could also help bring down India’s crude oil import bill.
    • Further, India also suffers from a glut in sugar production of 6 million tonnes and in sugar season 2020-21, about 2.4 million tonne was diverted to produce 302 litres of ethanol for blending.
    • India has set a target of 20% blending rate for 2025.

    Is there a catch in flex-fuel technology?

    • There is unlikely to be any direct benefit to the consumer.
    • Though ethanol costs much lower than petrol at ₹47-64/ltr depending on the sugarcane source, oil marketing companies are expected to pocket the cost differential.
    • It is also controlled by the government. So, chances of frequent revision are high.
    • On the contrary, the fuel economy is likely to fall by 4-8%.

    What are the challenges?

    flex

    • For mass adoption, an adequate supply of different types of ethanol blends is needed across the country.
    • This would have to be in addition to the existing network as current vehicles on the road would have to be supplied with fuel that has only 10% ethanol blending.
    • This means significant investment in infra by oil firms.
    • At the same time, a constant supply of ethanol would have to be ensured.
    • Since this largely comes from sugarcane in India, which is a water-guzzling crop, any drought could have an impact on blending rates.

    How do they fit in with carbon neutrality?

    • With electrification already on the horizon, flex fuel vehicles are seen as a stop-gap arrangement.
    • The benefit for the environment is less as compared to battery EVs or hydrogen fuel cell vehicles of the future.
    • With much lower cost of running, they also offer better economy for consumers.
    • The Toyota pilot project notwithstanding, there is also resistance from the industry.
    • They want to prioritize investments and not get stretched thin between hybrid and battery electric, fuel cell and flex fuel technologies.

     

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  • Millets the future of Sustainable Agriculture

    Millets

    Context

    • International Year of Millets in 2023 was approved by the Food and Agriculture Organisation (FAO) in 2018 and the United Nations General Assembly has declared the year 2023 as the International Year of Millets. The Odisha Government had launched Odisha Millet Mission (OMM), which aims to bring millets back to its fields and food plates by encouraging farmers to grow the crops that traditionally formed a substantial part of the diet and crop system in tribal areas.

    Millets

    Importance of millets

    • Nutrition rich: Millet is a good source of protein, fibre, key vitamins, and minerals. The potential health benefits of millet include protecting cardiovascular health, preventing the onset of diabetes, helping people achieve and maintain a healthy weight, and managing inflammation in the gut.Millet is fibrous in content, has magnesium, Niacin (Vitamin B3), is gluten-free and has a high protein content.
    • Requires less water: Millet’s comprise a significant staple in the semiarid tropic and guarantee food and nutritional security for needy individuals, who can’t develop other food crops because of poor rainfall and soil fertility. They are profoundly nutritious and are utilized by people in the rural area.
    • Requires Moderate fertile soils: They can grow in low to medium fertile soils and in areas of low rainfall. Jowar, Bajra, and Ragi are the significant Millet’s developed in India.
    • Profitable crop: Millets are the good choice for farmers to achieve primary goals of Farming e.g., profit, versatility, and manageability.
    • Drought resistant and sustainable: Millet’s are the ‘marvel grains’ of the future as they are drought resistant which need few external inputs. Due to its high resistance against harsh conditions, millets are sustainable to the environment, to the farmer growing it, and provide cheap and high nutrient options for all.
    • Long shelf life: Nearly 40 percent of the food produced in India is wasted every year. Millets do not get destroyed easily, and some of the millets are good for consumption even after 10-12 years of growing, thus providing food security, and playing an important role in keeping a check on food wastage.

    Millets

    What is Odisha Millet mission (OMM) and its impact?

    • Promotion of millets: OMM promotes production and consumption of seven millets. But so far, focus has been on ragi, which has accounted for 86 per cent of the total area under millets, according to data on the OMM website. In contrast, little millet, foxtail millet, sorghum, pearl millet, kodo millet and barnyard millet cover less than 13 per cent of the area.
    • Non ragi millets: Mission aimed at looking for high-yielding seeds for non-ragi millets. Farmers are urged to plant some non-ragi millets
    • Limited procurement: In 2020-21, the state government procured slightly more than 20 million kg of ragi. However, this accounts for only 27 per cent of the total ragi produced, as OMM procures only 500 kg of ragi per ha and leaves the rest for farmers to consume.
    • Millets in diet for complete nutrition: This practice has prompted farmers to consume more millets in all seasons, shows a mid-term evaluation by NCDS in 2019-20. But given that average yield is 1,500 kg per ha, much of the produce does not get procured and farmers are forced to sell it at distressed rate. OMM officials also admit that despite ragi being distributed in PDS and as a mix through anganwadi centres in two districts, its consumption has not picked up in a significant manner.
    • Diverse products of Millets: OMM also sells millet products, such as cookies, savoury snacks, vermicelli and processed millets, under a brand called “Millet Shakti” through food trucks, cafés, kiosks and other outlets.
    • Food processing chain using SHGs: Women self-help groups (SHGs) have been kept at the centre of the programme. They do not just pay a major role in manufacturing biological inputs to improve millet yields and undertake processing of the produce, but also operate the millet-based cafés and outlets.The full potential of SHGs, though, has not yet been realised. So far, only three women’s SHGs manufacture and process Millet Shakti products, which limits the volume available, income generated, and consumption.
    • Market linkage by FPOs: OMM also leverages farmer-producer organisations (FPOs) to provide better marketing linkages. Until now, OMM has tapped into existing FPOs to sell processed millets in the open market or aggregate produce for Tribal Development Co-operative Corporation of Odisha Limited; if a block does not have an FPO, an SHG or community group is registered as one.
    • Current status of FPO’S: Currently, there are 76 FPOs under OMM. But some of them are engaged only in minor processing and aggregation, without plans of scaling up market linkages. Encouraging FPOs with better incentives and benefit-sharing will help them compete in the market

    Millets

    What are other government efforts to promote millet crops?

    • Smart food campaign: Smart Food with the tagline ‘good for you, good for the planet and good for the smallholder farmer’ is an initiative that will initially focus on popularising millets, and sorghum and has been selected by LAUNCH Food as one of the winning innovations for 2017.
    • Popularising the millets: Smart Food will be taken forward as a partnership and many organisations have already teamed up to popularise millets. In India, this includes Indian Institute of Millet Research (IIMR), National Institute of Nutrition (NIN), MS Swaminathan Research Foundation (MSSRF) and Self-Employed Women’s Association (SEWA).

    Conclusion

    • One way to double farm incomes and encourage farm diversification is to make millet production attractive by introducing millet cultivation in areas where farmers’ distress is visible.Dedicated programmes with proper training and capacity-building initiatives that urge farmers to move away from loss-making crops toward diversification via millets can be a timely method to pull farmers away from the region’s distress.

    Mains Question

    Q.why millets cultivation is suitable for geographic conditions of India? Analyse the various efforts by government to promote the millets.

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  • Bringing Business friendly Industrial Laws

    Business

    Context

    • The government’s proposal to bring a “holistic decriminalisation” bill in the Winter Session of Parliament, If gets enacted into law, it will be one of India’s greatest reforms since 1991. One of the objectives of this proposed law is to “end harassment and reduce compliance burden on businesses.

     What is Holistic decriminalisation Bill?

    • A new holistic decriminalisation bill is set to amend burdensome provisions in laws related to businesses.
    • Union Minister of Commerce and Industry, Piyush Goyal said that the Decriminalising sections of various laws will end the harassment faced by businesses and reduce compliance burden. Seeking quick industry feedback on problematic areas that can be covered in the proposed Bill.

    What is the status of existing laws in India?

    • Burden of Imprisonment clauses: Business regulatory universe comprises 1,536 laws, of which more than half, or 843 laws, carry imprisonment clauses. Under these laws, there are 69,233 compliances businesses face as an aggregate, of which almost two out of five, or 26,134, carry imprisonment clauses.
    • Union and state legislations on the compliance: Of the 843 laws with imprisonment clauses, 28.9 percent, or 244 laws, have been enacted by Parliament; the rest by State legislatures and rules. Of the 26,134 compliances that carry imprisonment clauses, a fifth, or 5,239 clauses are situated in Union laws.
    • No institutional support for informal sector: Of the 69 million enterprises in India, only 1 million are formal employers; as a result, the remaining informal enterprises get no access to institutional capital, talent, or supply chains.
    • Smaller the better attitude: India’s predatory and rent-seeking policy infrastructure ensures that businesses choose to remain under the regulatory radar—small may not be beautiful but it is certainly safe. For instance, a small business with 150 employees or more has to deal with 500 to 900 compliances a year, on which it can end up spending up to INR 12-18 lakhs by hiring consultants to be compliant with labour laws, taxes, factories, and so on.
    • Burden of compliance is cost-effective: Creating a regulatory bias against small businesses once a line of scale is crossed, managing a compliance department becomes cost-effective; until then, for the small business owner-manager, compliances becomes a risk-management strategy, almost an economic activity.

    Business

    Why such reforms in business laws are necessary?

    • To attract more investment: When viewed through the lens of the government’s intention to make India an investment destination for global and domestic capital, it would be a reform that should end the endemic of harassment, corruption, and rent-seeking by officials of the Union government.
    • To end corruption at state level: Corruption by officials of state governments will end when criminal provisions in State laws and rules get similarly rationalised; some of these will get rationalised with amendments to Union laws that are enforced by state governments.
    • Encouraging the entrepreneurial spirit: Regulatory framework is cumulative policy actions of the three arms of the State the executive, the legislature, and the judiciary using instruments of legislations, rules, regulations, or orders, to create or raise barriers to a smooth flow of ideas, organisation, money, and, most importantly, the flow of the entrepreneurial spirit.

    Business

    What are the recommendations for Holistic decriminalization?

    • Amend the overreaching laws: Reform all compliances with overarching legislation, across ministries and departments. Smaller steps being taken to ease doing business in India, such as shifting the responsibility under the Legal Metrology Rules from directors to executives, should converge into this single bill.
    • There should be Justifiable imprisonment: Use criminal penalties in business laws with extreme restraint the idea of using a criminal clause as a default option should be done away with and replaced by a justification for imprisonment, including the term in jail.
    • Ending the criminalisation: End the criminalisation of all compliance procedures such as filing on a wrong form or mislabelling.
    • Introducing new laws: Introduce sunset clauses for all imprisonment clauses this needs a new enabling law as a precursor.
    • Bringing extensive Digitisation: Digitise all compliance filings, as has been done by the income tax department.
    • Focus on paperless work: Convert every department that acts as a regulatory body to go paperless and faceless. This should look beyond merely creating a website and uploading records. This will enable automated record reconciliation, identify leakages, detect frauds, and flag discrepancies.
    • More such steps in the right direction: By reducing the compliance burden such that it ends harassment, the government is moving in the right direction. To prevent any policy holes left after the passage of the bill into an act, this is a law that needs to be studied hard, debated well, and only then enacted. Of course, there will be political opposition. It is up to the government to ignore the rhetoric and embrace the solutions for the greater good of the country.

    BusinessConclusion

    • The country is getting ready for third-generation reforms. Among them are reforms that rationalise compliances and imprisonment clauses—retain a handful, reduce or remove most, compound the rest and turn physical imprisonment into financial penalties. The Inspector Raj, expressed through the colonial, corrupt, and rent-seeking policy infrastructure, must be disassembled and jobs, wealth, and large enterprises created.

    Mains Question

    Q. Why current industrial policy and laws are causing the harassment of entreprenuers? Discuss the reforms needed in the light of proposed “ Holistic Discrimination” Bill.

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  • India gets 4th set of Swiss Bank account details

    swiss

    India has received the fourth set of Swiss Bank account details of its nationals and organizations as part of annual information exchange, under which Switzerland has shared particulars of nearly 34 lakh financial accounts with 101 countries.

    How India gets such information?

    Ans. Automatic Exchange of Information (AEOI) Agreement

    • In an effort to bring in transparency and restrict money laundering, the Swiss Federal Office gives a detailed account of the massive AEOI exchange.
    • This is the fourth tranche of information that India has received from Switzerland since the two countries entered into an Automatic Exchange of Information (AEOI) agreement in January 2018.
    • The first such exchange with India took place in 2019.
    • Some countries which have been added to the Swiss AEOI list for the first time are Turkey, Peru and Nigeria.
    • The Swiss Federal Tax Administration office has also informed that with 74 of these 101 countries, the information exchange was reciprocal.

    What is the volume, nature of data?

    • In 2019, prior to India receiving its first batch of banking information via the AEOI, India would be among 73 countries that would be receiving the data.
    • In India’s case “several dispatches” would be required, giving an indication of the large volume of account holders.

    Guidelines for exchange of such sensitive banking information

    • The guidelines and parameters for the AEOI are set by the OECD (Organisation for Economic Co-operation and Development), the Paris-based international body.
    • The annual exercise of AEOI exchange, such as the current Swiss bonanza of banking details, is strictly meant for “tax only” purposes and in India.
    • This data is kept in the custody of and for action by the Central Board of Direct Taxes (CBDT).
    • Under the OECD’s guidelines, details of the quantum of funds or the names of account holders cannot be publicised.

    What is the scope of India’s AEOI network?

    • Under the OECD umbrella of AEOI, India presently shares bulk financial and banking information with 78 countries.
    • It receives the same from 107 countries, with Switzerland known to be sharing some of the most voluminous data.

    Institutional mechanism in India

    • Primarily to the large volume of FI data coming in from now a 100 countries, the CBDT last year set up a network of Foreign Asset Investigation Units (FAIUs) in 14 of its investigation wings.
    • The information of a region which has reached India via the AEOI route is transmitted in a secure manner.
    • It is the FAIUs that do the follow-up probe of the such data, and to begin with, investigate whether the taxpayer has declared the foreign bank account/s in tax returns or not.

    Why do people park their money in Swiss Banks?

    • As wealth became easily mobile across international borders, the safety and stability of Swiss banks, located in a peaceful country presented an irresistible attraction for the super-rich.
    • Switzerland itself is a politically neutral country.
    • Swiss bank accounts are attractive to depositors because they combine low levels of risk with very high levels of privacy.
    • The Swiss economy is extremely stable, and the banks are run at very high levels of professionalism.
    • Opening an account is not difficult, and requires not much more than basic KYC, including a proof of identity such as a passport.

    Question of Black Money

    • “Black money” allegedly stashed away by Indians in Swiss banks is a political issue in India.
    • Leaders and political functionaries have often made promises to “bring it back” and credit 15 Lakh Rupees in every Indian’s account.
    • Swiss authorities have maintained that they cooperate with the Indian government to fight tax evasion and fraud.

    Also read:

    What are Swiss Banks?

     

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  • Critical Minerals: Opprtunity for Aatmanirbharta in Energy security.

    Minerals

    Context

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

    Background 

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

    Minerals

    What are Critical Minerals?

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

    Why is this resource critical?

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

    MineralsWhat are Rare Earth Metals?

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

    Applications of REMs in various fields:

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

    DO YOU KNOW?

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

    What are the challenges in accessing Critical minerals?

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

    MineralsA step taken by Indian government for sourcing strategic minerals

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

    What is Khanij Bidesh India Limited (KABIL)?

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

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

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

    Conclusion

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

    Mains Question

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

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

    nobel

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

    Do you know?

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

    Why was the Nobel given to these three scholars?

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

    Which bank did these scholars study?

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

    What does Ben Bernanke say about banking crises?

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

    Reasons behind the crisis

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

    How is bank failure attributed to the financial crisis?

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

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

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

    How bank failure is related to depositors?

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

    Is it Nobel-worthy?

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

    What does the prize mean for Indian banking?

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

    You must know this!

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

     

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  • Boosting India’s Cotton Production

    IndiaContext

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

    All you need to know about the Cotton crop

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

    India

    What is the Present status of cotton in India?

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

    Do you know?

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

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

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

    What are the benefits of VSS for India?

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

    IndiaConclusion

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

    Mains Question

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

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