💥Join UPSC 2027,2028 Mentorship (August Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

Subject: Economics

  • World Dairy Summit 2022 to be held in India after 48 years

    At a time when several milk-producing centers are battling Lumpy Skin Disease (LSD), India will host the International Dairy Federation’s World Dairy Summit 2022 in Greater Noida.

    World Dairy Summit

    • The World Dairy Summit is an annual meeting of the global dairy sector, bringing together approximately 1500 participants from all over the world.
    • The participant profile includes CEOs and employees of dairy processing companies, dairy farmers, suppliers to the dairy industry, academicians, government representatives, etc.
    • The summit is composed of a series of scientific and technical conferences and social events including a welcome reception, farmers’ dinner, gala dinner as well as technical and social tours.
    • The last World Dairy Summit was organised in 1974 in New Delhi.

    Significance of the event

    • It is a prestigious event for us as India is now the largest milk producer in the world and we have the highest number of cattle.
    • The last time this event was held, India was import-dependent and now we are self-sufficient.

    Back2Basics: India’s dairy sector

    • Initiated in 1970, Operation Floodtransformed India into one of the largest milk producers.
    • The per capita availability of milk in 2018-19 was 394 grams per day as against the world average of 302 grams.
    • Today with an annual production of 187.75 million tonnes India accounts for about 22% of the world’s milk production.
    • However, India is yet to join the ranks of major milk exporting nations, as much of what we produce is directed towards meeting domestic demands.

     

    UPSC 2023 countdown has begun! Get your personal guidance plan now! (Click here)

  • Drugs, Medical Devices and Cosmetics Bill 2022

    Context

    A draft law to replace the 1940 Drugs and Cosmetics Act with a Drugs, Medical Devices and Cosmetics Bill 2022 was uploaded by the Union health ministry in early July, seeking public comments and objections.

    Major provisions of the Bill

     1] E-commerce for medical drugs

    • Presently, online sales of medicines account for a fraction of the total pharma sales in India but are forecast to grow exponentially.
    • The first major feature in the new Bill that affects consumers relates to e-commerce.
    • Like all online shopping, the consumer gets the advantage of discounts and the comfort of shopping from home.
    • In normal times, e-commerce can surmount three uniquely Indian disadvantages.
    • Storage condition: The first relates to climatic conditions, which require medicines to be stored at below 30 degrees Celsius and 70 per cent relative humidity — unattainable in most of India.
    •  It can mandate establishing a back-end brick and mortar store for drug supply having good storage conditions.
    • Compliance with regal provision: The second advantage of e-commerce could be fulfilling a legal requirement — providing a bill to the consumer and retaining one copy bearing the batch numbers and expiry dates of the drugs.
    • In addition, the practice of accessing prescription drugs over-the-counter would reduce.
    • In the case of e-commerce, registration of a pharmacy can require enrollment with the central and state drug control organisations and the practice of uploading a prescription from a registered medical practitioner can be enforced.
    • Concern: Shopping for medical drugs on the internet could encourage overuse or incomplete use of drugs, increase dependency on habit-forming medicine — for example, sleep-inducing drugs or self-medication with products for weight loss, male enhancement, even treating mental illness — which is fraught with dangerous consequences.
    •  A greater focus on medical devices: The draft law also proposes according a greater focus on medical devices, which include thousands of engineered apparatuses like stents, joint implants, pacemakers, catheters, etc, which require quality regulation.
    • Provision for advisory board: Rules for medical devices were notified in 2017 but now it is proposed to establish a statutory Medical Device Technical Advisory Board, with experts from the fields of atomic energy, science and technology, electronics, and related fields like biomedical technology to guide the process.
    • This is a welcome move that will bring in the required expertise.

    Issues not addressed in the Bill

    • Mismanagement of trade: What the Bill does not address is the need to stop the continued mismanagement of the wholesale and retail drugs trade in India.
    • Requirements for drug license not changed: Rule 64 (2) of the Drugs and Cosmetics Rules 1945 lays down that a wholesale drug licence can be given to a qualified pharmacist or one who has passed the matriculation examination or its equivalent or a graduate with one year’s experience in dealing with drug sale.
    • This is a relic from 80 years ago.
    • When the country is reported to have over 7,00,000 pharmacists, this anachronism must be discarded.
    •  It is essential to introduce a binding and enabling provision to only licence qualified pharmacists and put the safety of millions of citizens before the self-preservation of a few thousand wholesalers and stockists.

    Way forward

    • There is need for ensuring digitisation of procurement, inventory control and accountability for dispensing drugs into a digital trail.

    Conclusion

    The debate should not be between e-commerce and retail sale. It should be between being compliant and non-compliant.

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

  • MC12 over, it’s ‘gains’ for the developed world

    Context

    The 12th Ministerial Conference (MC12) of the World Trade Organization (WTO) was concluded recently. A cursory examination of the outcomes of the meeting leaves us in no doubt that the European Union (EU) and some other developed countries are the overwhelming winners, while India finds itself on the losing side.

    Background of TRIPS waiver for Covid related  treatment

    • On October 2020, India and South Africa put forth a proposal seeking to temporarily suspend the protection of intellectual property rights such as patents, copyrights, industrial designs and trade secrets, so that the production of vaccines, therapeutics and diagnostics could be ramped up to help overcome the crisis and fight the COVID-19 pandemic.
    • The opponents of the proposal, i.e,. Germany, the United Kingdom, Japan, Switzerland and the United States, found themselves on the wrong side of the global opinion on this issue.
    • In June-July 2021, the U.S. gave its support to the proposal, but limited it to vaccines.
    • Pushed into a corner, the European Union (EU) made a counter-proposal to undermine the proposal made by India and South Africa.
    • This counter proposal provided a cosmetic simplification in certain procedural aspects of compulsory licensing in patent rules.
    • By March 2022, India and South Africa were corralled into accepting the EU’s proposal.
    • This formed the basis of the final outcome at the MC12.

    Gain for EU at MC12

    • The ministerial outcome on the so-called TRIPS waiver represents the biggest gain for the EU.
    • The ministerial outcome adds very little to what already exists in the WTO rulebook.
    • The final outcome is almost unworkable; a big public relations victory for the EU.
    • Change in institutional architecture: In the name of WTO reform, the EU sought to make fundamental changes to the institutional architecture of the WTO.
    • It also sought to give a formal role to the private sector in WTO.
    • Environmental issues: The EU has also managed to create a window to pursue negotiations on issues related to trade and environment at the WTO, an issue of concern for many developing countries.

    Disappointments for India

    • No solution to public stockholding issue: India, the issue of a permanent solution to public stockholding was identified by the Indian Minister of Commerce and Industry as being its top most priority.
    • Despite having the support of more than 80 developing countries, this issue has not found mention anywhere in the ministerial outcome.
    •  Instead, the WTO members have succeeded in diverting attention from India’s interest by agreeing that food security is multi-dimensional, requiring a comprehensive solution.
    • No taxing electronic transmission: India has also failed in many of its other objectives, such as securing the right to raise revenues by taxing electronic transmissions.
    • In the area of fisheries subsidies, it gets two years to have suitable regulatory mechanisms in place to monitor fish catch and reporting.
    •  Although it has secured a temporary reprieve to provide subsidies for enhancing its fishing fleets, it will have to fight an uphill battle on this issue in future negotiations.

    Conclusion

    Overall, the path ahead for India at the WTO is difficult. India’s negotiators need to undertake soul searching to learn lessons from the dynamics at the MC12, and make course corrections.

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

    Back2Basics: Public stockholding issue

    • Under the WTO’s Agreement on Agriculture, government procurement for public stockholding programs is exempt from discipline if stocks are procured at current market prices.
    • If procured at pre-announced administered prices, however, those outlays would potentially be counted toward a country’s overall limits on trade-distorting support.
    • Some developing countries are concerned that their procurement of food at fixed prices under these programs may push outlays to exceed allowed limits, thus depriving them of the necessary policy space to meet domestic food security requirements.
    • In this context, India and other members of the G33 developing country coalition have called for WTO members to agree to a “permanent solution,” following the 2013 Bali decision to exempt these programs from legal challenge under certain conditions.

  • Kuznets Hypothesis and India’s unique Jobs Crisis

    In India, there are fewer people employed in agriculture today, but the transformation has been weak. Those moving out of farms are working more in construction sites and the informal economy than in factories.

    What is the news?

    • India has too many people in agriculture and the inability to move surplus labour from farms constitutes a major policy failure of successive governments.
    • In 1993-94, agriculture accounted for close to 62% of the country’s employed labour force.
    • Overall, between 1993-94 and 2018-19, agriculture’s share in India’s workforce came down from 61.9% to 41.4%.
    • In other words, roughly a third in 25 years. That isn’t insignificant.
    • The declining trend continued, albeit at a slower pace, in the subsequent seven as well.

    What is our point of analysis?

    • Even the movement of workforce from agriculture that India has witnessed over the past three decades or more does not qualify as what economists call “structural transformation”.
    • Such transformation would involve the transfer of labour from farming to others sectors – particularly manufacturing and modern services – where productivity, value-addition and average incomes are higher.
    • The surplus labour pulled out from the farms is being largely absorbed in construction and services.
    • The bulk of the jobs are in petty sectors such as retailing, small eateries, domestic help, sanitation, security staffing, transport and similar other informal economic activities.
    • This is also evident from the low, if not declining, share of employment in organised enterprises, defined as those engaging 10 or more workers.

    What is the crux of the story?

    • Simply put, the structural transformation process in India has been weak and deficient.
    • Yes, there is movement of labour taking place away from farms – even if stalled, possibly temporarily.
    • But that surplus labour isn’t moving to higher value-added non-farm activities, specifically manufacturing and modern services.
    • This is familiar to the ‘Kuznets Process’ named after the American economist and 1971 Nobel Memorial Prize winner, Simon Kuznets.

    What is Kuznets’ Hypothesis?

    • In the 1950s and 1960s, Simon Kuznets hypothesized that as an economy develops, market forces first increase and then decrease the overall economic inequality of the society.
    • This is illustrated by the inverted U-shape of the Kuznets curve.
    • For instance, the hypothesis holds that in the early development of an economy, new investment opportunities increase for those who already have the capital to invest.
    • These new investment opportunities mean that those who already hold the wealth have the opportunity to increase that wealth.
    • Conversely, the influx of inexpensive rural labor to the cities keeps wages down for the working class thus widening the income gap and escalating economic inequality.

    Basis of this hypothesis

    • The Kuznets curve implies that as a society industrializes, the center of the economy shifts from rural areas to the cities as rural laborers, such as farmers, begin to migrate seeking better-paying jobs.
    • This migration, however, results in a large rural-urban income gap and rural populations decrease as urban populations increase.
    • But according to Kuznets’ hypothesis, that same economic inequality is expected to decrease when a certain level of average income is reached.
    • This process is triggered by the processes associated with industrialization, such as democratization and the development of a welfare state, take hold.
    • It is at this point in economic development that society is meant to benefit from trickle-down effect and an increase in per-capita income that effectively decreases economic inequality.

    What does the inverted Kuznets Curve mean?

    • The inverted U-shape of the Kuznets curve illustrates the basic elements of the Kuznets’ hypothesis with income per capita graphed on the horizontal x-axis and economic inequality on the vertical y-axis.
    • The graph shows income inequality following the curve, first increasing before decreasing after hitting a peak as per-capita income increases over the course of economic development.

    Criticism of the theory

    • Critics say that the Kuznets curve does not reflect an average progression of economic development for an individual country.
    • Rather it is a representation of historical differences in economic development and inequality between countries in the dataset.
    • It suits to the countries that have had histories of high levels of economic inequality as compared to their counterparts in terms of similar economic development.
    • The critics hold that when controlling for this variable, the inverted U-shape of the Kuznets curve begins to diminish.

     

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

  • RBI and the rupee: To break a free fall or not to

    Context

    The Indian rupee has been in free fall. Some commentators have pointed out that it has fallen less against the US dollar than a lot of other currencies.

    Significance of foreign exchange reserves

    • Decline by 10 per cent: A large part of the current relative strength of the rupee vis-à-vis other currencies is due to the sale of dollars by the RBI — it has lost more than 10 per cent of its foreign reserves in the space of about nine months.
    • Why country needs foreign exchange: A developing economy needs foreign exchange to finance its international transactions for both the current account (goods and services) and capital account (assets) transactions.
    • Cost involved: The benefits of this stock are obvious, but there are also costs associated with the holding of these.
    •  The larger the stock, the more its reassuring value.
    • Typically, because of their “liquid” nature, the returns on these are low.

    How RBI manages the foreign exchange reserves?

    • How country accumulates foreign exchange reserves? A country can accumulate reserves by running current account surpluses that is, keeping its total expenditure below its gross national product, and/or by interventions in the foreign exchange markets.
    • India (usually) runs a current account deficit.
    • Its reserves are then accumulated solely through “sterilised” interventions.
    • When foreign entities want to invest in Indian assets (stocks and debt), the RBI gives them rupees in exchange for foreign exchange.
    • Mindful of the fact that this may cause a surge in inflation, the RBI then sells government bonds, sucking out the additional rupees.
    • The foreign exchange reserves rise, and are matched by an increase in government bonds outstanding.

    How outflow of foreign financial capital affects foreign exchange reserves?

    • When capital inflows were taking place, the RBI accumulated foreign exchange and allowed some currency appreciation.
    • As long as capital flows were strong, foreign reserves kept piling up and the currency (in real terms) was strong.
    • Depreciation of rupee: In recent months, we have witnessed an outflow of foreign financial capital, with reserves falling and the rupee depreciating.
    • International capital flows tend to be pro-cyclical, that is, they move with the world economic activity.
    • Unlikely to increase export: A depreciation of our currency is unlikely to see our exports rise very much because the world income levels are down.
    • Inflation: What this depreciation will cause is imported inflation and bankruptcies.

    Analysing the RBI’s role

    • Allowed outward remittances: The RBI threw caution to the winds and allowed outward remittances in foreign currency by Indian residents, with almost no questions asked (up to $2,50,000 annually). 
    • The RBI could have had a much larger supply of foreign exchange had they not generously handed out foreign currency to be frittered away.
    • While they have not restricted outward remittances, they are trying to shore up reserves by making FCNR (B) and FRE deposits more attractive.
    • It is not in any individual’s interest to bail out the RBI.
    • The RBI has also committed to using reserves to ensure an orderly depreciation.
    • Futility of RBI’s intervention: If the world financial markets want a depreciated rupee, the RBI’s intervention would not be able to prevent it.
    • But in spite of this, the RBI, with its commitment to inflation targeting, would try to prevent a depreciation (because it causes the price of imported goods to rise).
    • Possible impact on the poor: Having too open a capital account policy was always fraught with risks.
    • When countries are confronted with a crisis, the IMF is asked to provide assistance.
    • But assistance from IMF would involve a “structural adjustment”, including cutting back on subsidies for the poor and vulnerable.

    Conclusion

    We are standing at the edge of a precipice, but, hopefully, the world will pull back in the nick of time. If not, it would be the chronicle of a death foretold.

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

    Back2Basics: FCNR(B) Account

    • An FCNR ( Foreign Currency Non-resident) account is a type of term deposit that NRIs can hold in India in a foreign currency.
    • FCNR (A) was introduced in 1975 to encourage NRI deposits.
    • The Reserve Bank of India (RBI) guaranteed the exchange rate prevalent at the time of a deposit to eliminate risk to depositors.
    • In 1993, the apex bank introduced FCNR (B), without exchange rate guarantee, to replace FCNR (A).

  • Manufacturing PMI hits 8-month high

    India’s manufacturing sector rebounded in July, with sales and output growing at the fastest pace since November. The PMI quickened last month to 56.4, from June’s 9-month low of 53.9.

    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.

     

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

  • Government bailouts are not the answer to India’s energy sector woes

    Context

    Across several states, the fiscal situation is becoming increasingly challenging. Yet, the common thread that runs through these deficits — state ownership and control — remains unaddressed.

    State ownership: structural cause of India’s deficit

    • Coal India’s inability to raise production to meet growing demand contributed to the recent power crisis.
    • The state-owned power distribution companies have failed to bring down losses despite many schemes and packages.
    • The state control of these critical aspects of India’s power chain is central to a higher current account deficit and growing fiscal risks at the state level.

    Coal output fails to meet the demand

    • From 2013-14, the Indian economy has grown by around 50 per cent (in real terms).
    • But Coal India, which accounts for around 80 per cent of India’s total coal production, was able to raise its output by just 34 per cent over the same period.
    • Increased reliance on imported coal: India’s coal imports (thermal and cooking) rose to a staggering 230.3 million tonnes in 2020-21, up 37 per cent from 168.5 million tonnes in 2013-14.
    • Coal imports for thermal power alone have more than doubled in the first quarter, compared to the same period last year.
    • To put this in perspective — the value of coal imports in just the first three months of this year is likely to be around half of what was imported in all of last year.
    • Increase in current account deficit: This growing reliance on coal imports (along with crude and gold) is at the root of the country’s widening current account deficit.
    • An inability to ramp up production, to forecast demand accurately, as every episode of coal shortage over the years has exposed, is the hallmark of the coal sector that is still largely the preserve of a public sector monopoly.

    Problem of DISCOMS

    • No improvement in financial and operational issues: Despite repeated attempts to turn around their financial and operational positions, on key metrics, the divide between the public and private sector discoms is deepening.
    • In 2019-20, public sector discoms lost Rs 0.72 per unit of power sold, while private discoms made Rs 0.20 per unit.
    • High AT&C losses: Similarly, in 2019-20, the AT&C losses (due to operational inefficiencies) for state discoms were pegged at 21.7 per cent, while for the private sector, losses were at 8 per cent.
    • With deteriorating finances, the net worth of all public sector discoms put together stands at a negative Rs 61,757 crore, while for the private sector, it is a positive Rs 24,965 crore.
    • There have been several attempts to rescue state discoms.
    • In the early 2000s, the scheme for repayment of SEB dues amounted to Rs 41,473 crore.
    • In 2012, the financial restructuring plan added up to Rs 1.19 lakh crore.
    • In 2015, UDAY involved a transfer of Rs 2.01 lakh crore to state government balance sheets.
    • Notwithstanding various schemes to turn around their finances, the total debt of all discoms put together stood at Rs 5.14 lakh crore at the end of 2019-20.
    • Of this, Rs 4.87 lakh crore is owed by state discoms.
    • Impact on entire power chain: A deterioration in the financial position of discoms means that their dues to power generating companies start mounting, which in turn delay payments to coal miners, affecting the financial stability of the entire power chain.

    Declining cross-subsidisation

    • As tariffs charged by discoms are much higher than the cost of alternatives, a sizeable part of non-agricultural sales of discoms (industrial and commercial consumers) have already shifted towards captive and solar.
    •  And with the ministry of power recently reducing the threshold for green energy open access, more and more consumers will increasingly opt out.
    • This would mean that discom losses will rise as cross subsidisation from commercial and industrial consumers will decline, increasing their dependence on state subsidies.
    • In 2019-20, the total state subsidy claimed and released was around Rs 1.1 lakh crore or 17 per cent of total discom revenue.
    • This will only increase down the line, making future bailouts even more fiscally challenging.

    Conclusion

    Tackling these deficits requires addressing the issue of government control over critical aspects of India’s energy sector. Without shifting to market-determined prices — reforms are ultimately about price — little headway is likely to be made.

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

  • India’s first Global Bullion Exchange unveiled

    Prime Minister has launched India’s first International Bullion Exchange (IIBX) at the Gujarat International Finance Tec-City (GIFT City) near Gandhinagar.

    What is Bullion?

    • Bullion refers to physical gold and silver of high purity that is often kept in the form of bars, ingots, or coins.
    • It can sometimes be considered legal tender and is often held as reserves by central banks or held by institutional investors.

    When was the IIBX announced?

    • During her 2020 budget speech, Finance Minister announced the setting up of India International Bullion Exchange (IIBX) at International Financial Services Center (IFSC) at GIFT City in Gandhinagar.
    • The International Financial Services Centres Authority (Bullion Exchange) Regulations, 2020, was notified in December 2020 for trading of precious metals, including gold and silver.
    • These regulations also cover bullion exchange, clearing corporation, depository and vaults.

    What is the IIBX?

    • India for the first time had liberalised gold imports through nominated banks and agencies in the 1990s.
    • Now, the eligible qualified jewellers in India have been allowed to directly import gold through IIBX.
    • For this, jewellers will have to become a trading partner or a client of an existing trading member.
    • In addition, the exchange has set up necessary infrastructure to store physical gold and silver.
    • The exchange will sell physical gold and silver and aims to be set up on the lines of the Shanghai Gold Exchange and Borsa Istanbul in order to make India a key regional hub for bullion flows.

    How will it work?

    • The thought process behind setting this up is to enable the trading of commodities on an exchange.
    • Since this is international exchange, trading can take place in US dollars as well.
    • India has positioned itself as one of the biggest trading hubs in Asia.
    • Because of the competitive pricing on IIBX, international players will be happy to use our vaulting services.
    • Moreover, with this being a free trade zone, no duty will be paid.

    What was the practice up until now?

    • Currently, gold in India is imported on a consignment model into different cities by nominated banks and agencies approved by the RBI and then supplied to traders/jewellers.
    • The banks and other agencies get a fee from the gold exporter for handling, storage, etc, and also add a premium to the gold while transacting with domestic buyers.
    • The buyer passes this charge on to the value chain until it reaches the end customer.

    What change did IIBX bring?

    • With the IIBX becoming operational today, qualified domestic buyers can, through a branch in Gift City, purchase the bars and coins.
    • This purchase can be done from an international supplier who is a member of the IIBX.

    What is the advantage of an exchange?

    • Through the dis-intermediation by facilitating transactions through an anonymously traded exchange platform, bullion is made available across special economic zones (SEZs) at International Financial Services Centres Authority (IFSCA)-approved vaults.
    • This means the growth of IIBX is not just limited to GIFT City but across jewellery manufacturing hubs nationwide.
    • The qualified jeweller allowed to import gold through IIBX, or a jeweller who is a client of an IIBX member, can view the available stock and place the order.
    • This shall nudge jewellers towards just-in-time inventory management.
    • It will also result in greater transparency in pricing, and order sequencing, thereby removing any room for unfair preference by supplier, importing or logistics agency.

    Which jewellers have come on board?

    • So far, 64 big jewellers have come onboard and more applications are in the pipelines.
    • Some of the big names include Malabar Gold Pvt Ltd, Titan Company Ltd, Bangalore Refinery Pvt Ltd, RBZ Jewellers Pvt Ltd, Zaveri and Company Pvt Ltd.

    What are the new RBI guidelines for importing gold?

    • Banks may now allow qualified Jewellers to remit advance payments for 11 days for import of gold through IIBX in compliance to the extant Foreign Trade Policy and regulations issued under IFSC Act.
    • According to the RBI, all payments by qualified jewellers for imports of gold through IIBX shall be made through the exchange mechanism as approved by IFSCA.

    Who can enrol on the exchange?

    1. Non-Resident Individual / Proprietorship Firm
    2. Registered Partnership Firm
    3. Private Limited Company
    4. Public Limited Company
    5. Qualified Jewellers
    6. Branches of IBU at GIFT City
    7. Foreign Bullion Suppliers who follow OECD guideline
    • In order to become a qualified jeweller, entities require a minimum net worth of Rs 25 crore.
    • And 90 per cent of the average annual turnover in the last three financial years through deals in goods categorised as precious metals.
    • NRIs and institutes will also be eligible to participate in the exchange after registering with the International Financial Services Centre Association (IFSCA).
    • Jewellers will be able to transact on IIBX only as trading members or as clients of a trading member.
    • If one wants to become a trader, a qualified jeweller will have to establish a branch or a subsidiary in IFSC (international financial services centre) and apply to the IFSCA.

    What products does IIBX offer?

    • IIBX offers a diversified portfolio of products and technology services at a cost which is far more competitive than the Indian exchanges as well as other global exchanges in Hong Kong Singapore, Dubai, London and New York.
    • Gold 1 kg 995 purity and gold 100 gm 999 purity with a T+0 settlement (100% upfront margin) are expected to trade at IIBX initially.
    • All contracts will be listed, traded and settled in US Dollar
    • The exchange will have three vaults – one operated by Sequel Global (ready and approved), the second one to be operated by Brinks India is ready and awaiting final approval and the third is under construction.
    • Once the gold is imported by the authorised entities it will be deposited at one of the vaults which will issue bullion depository receipts.
    • These receipts will then be traded in dollars on the exchange.

    Significance of IIBX

    • The IIBX shall be the “Gateway for Bullion Imports into India”, wherein all the bullion imports for domestic consumption shall be channelized through the exchange.
    • The exchange ecosystem is expected to bring all the market participants to a common transparent platform for bullion trading.
    • It would provide efficient price discovery, assurance in the quality of gold, and enable greater integration with other segments of financial markets.

     

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

  • Core Sector output expands by 12.7%

    India’s eight core sectors’ output growth moderated to 12.7% in June, from 18.1% in May, with all sectors except crude oil registering an uptick in production.

    What are the Core Industries in India?

    • The main or the key industries constitute the core sectors of an economy.
    • In India, there are eight sectors that are considered the core sectors.
    • They are electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilizers.

    Index of Eight Core Industries (ICI) vs Index of Industrial Production (IIP)

    [A] Index of Eight Core Industries

    • The monthly Index of Eight Core Industries (ICI) is a production volume index.
    • ICI measures collective and individual performance of production in selected eight core industries viz. Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity.
    • Prior to the 2004-05 series six core industries namely Coal, Cement, Finished Steel, Electricity, Crude petroleum and Refinery products constituted the index basket.
    • Two more industries i.e. Fertilizer and Natural Gas were added to the index basket in 2004-05 series. The ICI series with base 2011-12 will continue to have eight core industries.

    Components covered in these eight industries for the purpose of compilation of index are as follows:

    • Coal – Coal Production excluding Coking coal.
    • Crude Oil – Total Crude Oil Production.
    • Natural Gas – Total Natural Gas Production.
    • Refinery Products – Total Refinery Production (in terms of Crude Throughput).
    • Fertilizer – Urea, Ammonium Sulphate (A/S), Calcium Ammonium Nitrate (CAN), Ammonium chloride (A/C), Diammonium Phosphate (DAP), Complex Grade Fertilizer and Single superphosphate (SSP).
    • Steel – Production of Alloy and Non-Alloy Steel only.
    • Cement – Production of Large Plants and Mini Plants.
    • Electricity – Actual Electricity Generation of Thermal, Nuclear, Hydro, imports from Bhutan.

    [B] Index of Industrial Production

    • The Index of Industrial Production (IIP) is an index for India which details out the growth of various sectors in an economy such as mineral mining, electricity and manufacturing.
    • The all India IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period.

    Difference between the two

    • IIP is compiled and published monthly by the National Statistics Office (NSO), Ministry of Statistics and Programme Implementation six weeks after the reference month ends.
    • However, ICI is compiled and released by Office of the Economic Adviser (OEA), Department of Industrial Policy & Promotion (DIPP), and Ministry of Commerce & Industry.
    • The Eight Core Industries comprise nearly 40.27% of the weight of items included in the Index of Industrial Production (IIP).
    • These are Electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilisers.

    Importance of Core Industries

    • The core sectors have a major impact on the Indian economy and significantly affect most other industries as well.
    • Their measures help account for the physical volume of production in India.
    • Their analysis offers a clearer and more realistic assessment of what’s happening in the economy
    • Their progress is used by government agencies for policy-making purposes.
    • They remain extremely relevant for the calculation of the quarterly and advanced Gross Domestic Product (GDP) estimates.
    • The core sector is also known as Infrastructure output as they represent the basic industries that form the base of the economy.

    Do you know about the Strategic Sectors?

    The government has identified four strategic sectors where the presence of state-run companies will be reduced to a minimum.

    1. Atomic energy, space and defence
    2. Transport and telecommunications
    3. Power, petroleum, coal and other minerals and
    4. Banking, insurance and financial services

     

    Try this PYQ:

    Q.In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?

    (a) Coal production

    (b) Electricity generation

    (c) Fertilizer production

    (d) Steel production

     

    [wpdiscuz-feedback id=”25p2lmotyo” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

    UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

  • Why the govt plans to scrap the decades-old Coffee Act?

    The Ministry of Commerce and Industry is planning to replace the 80-year-old Coffee Act with the new Coffee (Promotion and Development Bill), 2022, which has been listed for the Monsoon Session of Parliament.

    What is the Coffee Act?

    • The Coffee Act, 1942 was first introduced during World War II, in order to protect the struggling Indian coffee industry from the economic downturn caused by the war.
    • In the 1930s, the Indian coffee industry was facing significant problems, such as large-scale damage by pests and diseases, and the global economic downturn caused by the Great Depression.
    • With coffee planters making significant losses, the government passed the Coffee Cess Act (XIV of 1935) and established the first Indian Cess Committee in November 1935.
    • This aimed to promote the sale of coffee and increase consumption of Indian coffee at home and abroad.
    • These problems from the 1930s were compounded with the outbreak of World War II, as low demands and a loss of foreign markets led to a sharp decline in coffee prices.
    • Since the Cess Committee was not able to deal with the crisis faced by the industry, the government formed the Coffee Board, through the introduction of the Coffee Act, 1942.

    Purpose of the Act

    • The purpose of the Act was to provide for the development of the coffee industry.
    • The Board was tasked with supporting the industry in marketing, promotion of consumption, finance and research and development.

    Why scrap the old law?

    • The government is now trying to scrap the law because it claims that many of the provisions have become redundant and are too restrictive.
    • It has also proposed to repeal the decades old laws on tea, spices and rubber, and introduce new legislations in order to increase the ease of doing business and promote the development of these sectors.
    • These are very old laws and the idea is only to simplify them, make it easier to do business.
    • It aims to ensure that the small people in the different areas like coffee growing, tea growing do not have to suffer from high levels of compliance burden.

    Major contentious factor: Pooling System

    • Before India liberalised its economy in 1991, the Coffee Board controlled the marketing of the commodity in its entirety, both in India and abroad.
    • The Act introduced a pooling system, where each planter was required to distribute their entire crop to a surplus pool managed by the Board, apart from the small quantities that were allowed for domestic use and seed production.
    • The Board marketed 70% of the total pool for export and 30% for domestic markets, and sold them in separate auctions, according to Takamasa Akiyama, an economist affiliated with the World Bank.
    • In order to spur domestic consumption, the price of domestic coffee was kept artificially low.

    The changes since liberalization

    • While the Coffee Board no longer maintains its monopolistic control over the marketing of Indian coffee.
    • Through a series of amendments, the Board’s authority was reduced, and in 1996, the pooling system was abolished and growers were allowed to directly sell to processing firms.
    • The coffee market was entirely deregulated and the growers exposed to the free market.
    • Since liberalization, the Coffee Board plays more of an advisory role, and aims at increasing production, promoting further export and supporting the development of the domestic market.

    What are the proposed changes?

    • In order to facilitate growth and ease of doing business, the government would remove the restrictive and redundant provisions.
    • The centre wants to introduce a simplified version of the Act to suit the present needs of the industry.
    • The government would not close the Coffee Board, but would rather shift it from the Ministry of Commerce to the Ministry of Agriculture.
    • Here it aims to ensure that the benefits of all agricultural schemes are extended to coffee growers.
    • The new legislation is now primarily concerned with promoting the sale and consumption of Indian coffee including through e-commerce platforms, with fewer government restrictions.
    • It also aims at encouraging further economic, scientific and technical research in order to align the Indian coffee industry with “global best practices.”

    Back2Basics: Coffee Production in India

    • India is the third-largest producer and exporter of coffee in Asia and the sixth-largest producer and fifth-largest exporter of coffee in the world.
    • The country accounts for 3.14% (2019-20) of the global coffee production.
    • Coffee production in India is dominated in the hill tracts of South Indian states, with Karnataka accounting for 71%, followed by Kerala with 21% and Tamil Nadu (5%).
    • Indian coffee is said to be the finest coffee grown in the shade rather than in direct sunlight anywhere in the world.
    • Almost 80% of Indian coffee is exported.
    • The two well-known species of coffee grown are the Arabica and Robusta. The first variety was introduced in the Baba Budan Giri hill ranges of Karnataka in the 17th century.
    • Brazil is, the largest coffee producer in the world.

     

    UPSC 2023 countdown has begun! Get your personal guidance plan now! (Click here)