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Subject: Economics

  • Aatmanirbhar in defence production: Where does India stand?

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

    Study on Defence production

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

    How has China progressed?

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

    Why is India still lagging behind?

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

    Steps taken by the Centre to boost defence production

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

    Issues retarding defence indigenization

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

    Way forward

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

     

     

     

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  • Moonlighting: Overemployment or Underpayment

    MoonlightingContext

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

    What is mean by moonlighting?

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

    MoonlightingHow does it affect companies and what are latest examples?

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

    MoonlightingWhat is the Legal status of moonlighting?

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

    MoonlightingWay forward

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

    Conclusion

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

    Mains Question

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

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  • India’s Rice Exports and food Insecurity

    ExportsContext

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

    Background

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

    Exports

    What is the current status of rice in India?

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

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

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

    Exports

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

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

    Problems with India’s rice cultivation

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

    ExportsWhat is the link between Rice cultivation and groundwater depletion?

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

    Conclusion

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

    Mains question

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

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

    nopec

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

    What is NOPEC?

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

    Why such a move by the US?

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

    Key feature of the NOPEC bill

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

    Is such bill effective?

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

    Implications of NOPEC

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

     

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  • Analysing Insolvency and bankruptcy Code

    InsolvencyContext

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

    What is Insolvency?

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

    What is Bankruptcy?

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

    InsolvencyWhat is Insolvency and Bankruptcy Code (IBC)?

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

    Why the IBC introduced?

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

    InsolvencyImportance of the Insolvency and bankruptcy code

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

    What are the challenges before IBC?

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

    InsolvencyWhat  are experts saying?

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

    Conclusion

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

    Mains Question

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

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  • Centre raises credit limit under ECLGS

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

    Boost for Aviation sector

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

    What is ECLGS?

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

    Aims and objectives

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

    Salient features of ECGLS

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

     

     

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  • What is Purchasing Managers Index (PMI)?

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

    PMI improves

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

    Purchasing Managers’ Index (PMI)

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

    How is the PMI derived?

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

    How does one read the PMI?

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

    What are its implications for the economy?

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

     

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  • Natural Gas: The energy future of India

    Natural GasContext

    • The announcement at the end of August by the ministry of petroleum that they had constituted a committee, headed by energy expert Kirit Parikh, to review the domestic natural gas pricing regime.

    Background

    • Prime Minister Narendra Modi wants to raise the share of gas in India’s energy mix to 15% by 2030 from 6.2%, helping it progress towards meeting a 2070 net zero carbon-emission goal.

    What is Natural Gas?

    • Natural gas is a fossil fuel source consisting primarily of methane. It is the cleanest fossil fuels among the available fossil fuels.
    • It is used as a feedstock in the manufacture of fertilizers, plastics and other commercially important organic chemicals as well as used as a fuel for electricity generation, heating purpose in industrial and commercial units.
    • Natural gas is also used for cooking in domestic households and a transportation fuel for vehicles.

    Natural GasWhy Natural gas is Important?

    • Energy Efficient:Natural gas produces more energy than any of the fossil fuels in terms of calorific value.
    • Cleaner fuel: Natural gas is a superior fuel as compared with coal and other liquid fuels being an environment-friendly, safer and cheaper fuel.
    • Economy of use: Natural Gas (as CNG) is much cheaper compared with petrol or Diesel.
    • Emission commitments: India made a commitment to COP-21 Paris Convention in December 2015 that by 2030, it would reduce carbon emission by 33%-35% of 2005 levels.
    • Diverse applications: Natural gas can be used as domestic kitchen fuel, fuel for the transport sector as well as a fuel for fertilizer industries and commercial units.
    • Supply chain convenience: Natural Gas is supplied through pipelines just like we get water from the tap. There is no need to store cylinders in the kitchen and thus save space.
    • Pacing up the progress line: On the global front,switching to natural gas is bringing commendable results.The latest report released by IEA shows that the electricity produced by natural gas worldwide was more than that of coal for the first time ever.

    Natural gas scenario in India

    • Domestic Gas Sources: The domestic gas in the country is being supplied from the oil & gas fields located at western and southeastern areas viz. Hazira basin, Mumbai offshore & KG basin as well as North East Region (Assam & Tripura).
    • Import of Liquefied Natural Gas (LNG): In order to meet the gas demand, LNG is imported through the Open General License (OGL) in the country.  At present, India is having six operational LNG regasification terminals at Dahej, Kochi, Mundra, Ennore etc.
    • Gas Pipelines :
    • Gas Pipeline infrastructure is an economical and safe mode of transporting natural gas by connecting gas sources to gas-consuming markets.
    • An interconnected National Gas Grid has been envisaged to ensure the adequate availability and equitable distribution of natural gas in all parts of the country.
    • Pricing:
    • To incentivise gas producers and boost local output, since 2014 India has linked local gas prices to a formula tied to global benchmarks, including Henry Hub, Alberta gas, NBP and Russian gas.
    • In 2016, the country began fixing the ceiling prices of gas produced from ultra-deep water and challenging fields and allowed marketing freedom to the operators of these fields.

    Natural asStatistics of Natural gas in India

    • Current consumption: India’s natural gas consumption is expected to grow by eight per cent year-on-year to around 34,949 million standard cubic meters (MSCM) in the current calendar year aided by expanding infrastructure, strong GDP growth projections, and supportive government policy.
    • 2021 Consumption: In the 2021 calendar year (CY), the country’s natural gas demand stood at 32,360 MSCM. The share of domestic gas and imported RLNG was about 48% & 52% respectively. The City Gas Distribution (CGD) accounts for the largest consumption of natural gas followed by fertilizers, power and other industrial sectors
    • High prices: The state-set local gas prices and ceiling rates are at a record high and are expected to rise further due to a surge in global gas prices triggered by the Ukraine-Russia conflict.

    Kirit Parikh Committee

    • Objective: Ensuring fair prices to end consumers, and to suggest a market oriented, transparent and reliable pricing regime for India’s long term vision for ensuring a gas based economy.
    • Members: The committee,headed by energy expert Kirit Parikh, will include members from the fertiliser ministry, as well as gas producers and buyers.Four of the six members are from the public sector.

    Natural GasWhat are the problems facing India’s natural gas reserves?

    • Harsh topography: IHS CERA has estimated India has undiscovered gas resources of approximately 64 TCF The bulk of this is, however, in harsh topography and complex geology. These reserves are difficult to locate.
    • Distant from the market:Even if located,they are difficult to bring to market on economically viable terms. This is because the cost of creating the development and production infrastructure is massive.
    • Heavy Budget: The reality is India is a high-risk exploration play. There are inherent geologic, technical, and economic obstacles to achieving commercial success.
    • Administered Pricing: Constraint of administered pricing petroleum companies have reduced their exploration budgets under pressure to shift away from fossil fuels.

    What can be done?

    • Pricing freedom: It should clear up the existing complexity and, other than for producers of gas from nomination blocks, permit all producers of gas to determine prices through arms length,direct and transparent negotiations with different consumer segments.
    • Subsidies: There are no liquefaction facilities for the export of LNG in India. Subsidies may have to be provided but if so,they should be given directly by the government,through the exchequer. The gas producers must not be asked to bear that brunt.

    Conclusion

    • In the wake of the Ukraine crisis, the international energy market has undergone a profound transformation.India has made impressive progress towards clean energy. It has,however, a long way to go before it can fully wean itself off fossil fuels.

    Mains Question

    Q. It is evident that clean energy transitions are underway and it’s also a signal that we have the opportunity to meaningfully move the needle on emissions through more ambitious policies and investments in natural gas regime. Comment

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  • How Tokenization will change your online purchase?

    token

    The RBI’s deadline for tokenization of cards used in online payments passed on 30 September.

    What is Tokenization?

    • Tokenisation refers to the replacement of credit and debit card details with an alternative code called a ‘token’.
    • This token is unique for a combination of card, token requestor (the entity that accepts a request from the customer for tokenization of a card and passes it on to the card network to issue a token) and the device.

    How does it work?

    • Tokenizing credit and debit cards is a way to reduce the number of places where your card data can be found.
    • For instance, payments on Uber showed a warning that your card data will be saved with payment gateways such as Visa and Mastercard.
    • What it is saying is that a merchant like Uber will have to work with payment networks like Visa to convert the card details into a digital token, which is then used to validate transactions.
    • As a result, the card details you enter on the Uber app, or any online platform, are not stored on the company’s cloud servers, and are hence more secure.

    What is the digital token being used?

    • The digital token is a randomized string, usually alphanumeric. So, a 16-digit card number gets converted to something like 8f9%yf57ljTa.
    • It is generated by computer programmes, and the card network tags the token to your actual card details, and relays the token to the merchant.
    • When payments are to be requested, the merchant sends this token to the card network, which matches it against the saved details and validates the transaction.
    • A third party accessing the token won’t have use for it, since tokens will be unique across combinations of card, token requestor and merchants.

    Who can offer tokenization services?

    • Tokenisation can be performed only by the authorised card network and recovery of original Primary Account Number (PAN) should be feasible for the authorised card network only.
    • Adequate safeguards have to be put in place to ensure that PAN cannot be found out from the token and vice versa, by anyone except the card network.
    • RBI has emphasised that the integrity of the token generation process has to be ensured at all times.

    Benefits of Tokenization

    • Transaction safety: Tokenization reduces the chances of fraud arising from sharing card details.
    • Easy payments: The token is used to perform contactless card transactions at point-of-sale (PoS) terminals and QR code payments.
    • Data storage: Only card networks and card-issuing banks will have access to and can store any card data.

    How were the transactions processed?

    token

    • There are many players involved in processing one card transaction today:
    1. Merchant
    2. Payment aggregator
    3. Issuing bank
    4. Card network
    • When a transaction happens on a merchant platform, the data is sent to the payment aggregator (PA).
    • The PA next sends the details to either the issuing bank or the card network.
    • Then issuing bank sends an OTP and the transaction flows back.

    How will tokenization prevent online fraud?

    • Card details saved on an app are stored in cloud servers, which if hacked, can give the hacker access to information like card numbers, expiry dates, name of holder etc.
    • Though most merchants put special mechanisms to store card details in an obfuscated manner, it’s much more difficult to hack a bank or a Visa than it is to hack websites and apps.

    How does it differ from encryption?

    • The primary difference is that the token cannot lead one to the card details.
    • In encryption, a computer program obfuscates data using an encryption key, and this key can turn the data back to its original form.
    • In tokenization, however, there is no way to know what data a token represents unless one has access to the databases of the actual issuer of that token.
    • In many cases, laws don’t consider tokens as “sensitive data”, and hence, companies don’t have to ensure the same compliance to protect them.

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  • Forex Reserves to dip by $23 billion by Dec

    India’s depleted foreign exchange reserves are likely to drop further, falling to their lowest level in more than two years by end-2022.

    Forex to dip

    • In a battle that has so far failed to staunch the rupee’s fall to a record low against the greenback, the RBI has drawn down its foreign exchange reserves by close to $100 billion, to $545 billion.
    • Those reserves are forecast to fall another $23 billion to $523 billion by the end of this year.

    What is Foreign Exchange (Forex) Reserve?

    • Foreign exchange reserves are important assets held by the central bank in foreign currencies as reserves.
    • They are commonly used to support the exchange rate and set monetary policy.
    • In India’s case, foreign reserves include Gold, Dollars, and the IMF’s quota for Special Drawing Rights.
    • Most of the reserves are usually held in US dollars, given the currency’s importance in the international financial and trading system.
    • Some central banks keep reserves in Euros, British pounds, Japanese yen, or Chinese yuan, in addition to their US dollar reserves.

    India’s forex reserves cover:

    • Foreign Currency Assets (FCAs)
    • Special Drawing Rights (SDRs)
    • Gold Reserves
    • Reserve position with the International Monetary Fund (IMF)

    Countries with the highest foreign reserves

    Currently, China has the largest reserves followed by Japan and Switzerland. India has overtaken Russia to become the fourth largest country with foreign exchange reserves. (Data from August 2022)

    1. China – $3,349 Billion
    2. Japan – $1,376 Billion
    3. Switzerland – $1,074 Billion
    4. India – $612.73 Billion
    5. Russia – $597.40 Billion

    Why are these reserves so important?

    • All international transactions are settled in US dollars and, therefore, required to support India’s imports.
    • More importantly, they need to maintain support and confidence for central bank action, whether monetary policy action or any exchange rate intervention to support the domestic currency.
    • It also helps to limit any vulnerability due to sudden disturbances in foreign capital flows, which may arise during a crisis.
    • Holding liquid foreign currency provides a cushion against such effects and provides confidence that there will still be enough foreign exchange to help the country with crucial imports in case of external shocks.

    Initiatives taken by the government to increase forex

    • To increase the foreign exchange reserves, the Government of India has taken many initiatives like AatmaNirbhar Bharat, in which India has to be made a self-reliant nation so that India does not have to import things that India can produce.
    • Other than AatmaNirbhar Bharat, the government has started schemes like Duty Exemption Scheme, Remission of Duty or Taxes on Export Product (RoDTEP), Nirvik (Niryat Rin Vikas Yojana) scheme, etc.
    • Apart from these schemes, India is one of the top countries that attracted the highest amount of Foreign Direct Investment, thereby improving India’s foreign exchange reserves.

     

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