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Subject: Economics

  • ECGC to seek RBI nod for payment in forex to exporters

    ECGC Ltd., the government enterprise that provides export credit insurance, will soon approach the Reserve Bank of India for approval to deal in foreign currency for the benefit of exporters.

    What is ECGC?

    • ECGC is an acronym for Export Credit Guarantee Corporation of India Ltd.
    • It is a government owned export credit provider.
    • It is under the ownership of Ministry of Commerce and Industry and is based in Mumbai.
    • It provides export credit insurance support to Indian exporters.
    • Its topmost official is designated as Chairman and Managing Director who is a central government civil servant under ITS cadre.
    • The GoI had initially set up Export Risks Insurance Corporation (ERIC) in July 1957.
    • It was transformed into Export Credit and Guarantee Corporation Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation of India in 1983.

    Functions of ECGC

    • ECGC provides a range of credit risk insurance covers to exporters against loss in export of goods and services as well.
    • It offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them.
    • It provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan and advances.

    Facilities by ECGC

    • It offers insurance protection to exporters against payment risks.
    • It provides guidance in export-related activities.
    • It makes available information on different countries with its own credit ratings.
    • It makes it easy to obtain export finance from banks/financial institutions.
    • It assists exporters in recovering bad debt.
    • It provides information on the creditworthiness of overseas buyers.

    Why need export credit insurance?

    • Payments for exports are open to risks even at the best of times.
    • The risks have assumed large proportions today due to the far-reaching political and economic changes that are sweeping the world.
    • An outbreak of war or civil war may block or delay payment for goods exported. Ex. Ukraine War.
    • Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported. Ex. Sri Lankan Crisis.
    • In addition, the exporters have to face commercial risks of insolvency or protracted the default of buyers.
    • Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss.

     

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  • [pib] MSME Sustainable (ZED) Certification Scheme

    The  Union Ministry for Micro, Small and Medium Enterprises has launched the MSME Sustainable (ZED) Certification Scheme.

    MSME Sustainable (ZED) Certification Scheme

    • This Scheme is an extensive drive to enable and facilitate MSMEs adopt Zero Defect Zero Effect (ZED) practices.
    • It aims motivate and incentivize them for ZED Certification while also encouraging them to become MSME Champions.
    • Through the ZED Certification, MSMEs can reduce wastages substantially, increase productivity, enhance environmental consciousness, save energy, optimally use natural resources, expand their markets, etc.

    Components of the scheme

    • Under the Scheme, MSMEs will get subsidy as per the following structure, on the cost of ZED certification:
    1. Micro Enterprises: 80%
    2. Small Enterprises: 60%
    3. Medium Enterprises: 50%
    • There will be an additional subsidy of 10% for the MSMEs owned by Women/SC/ST Entrepreneurs OR MSMEs in NER/Himalayan/LWE/Island territories/aspirational districts.
    • In addition to above, there will be an additional subsidy of 5% for MSMEs which are also a part of the SFURTI OR Micro & Small Enterprises – Cluster Development Programme (MSE-CDP) of the Ministry.
    • Further, a limited purpose joining reward of Rs. 10,000/- will be offered to each MSME once they take the ZED Pledge.

    Back2Basics: Zero Defect Zero Effect Scheme

    • Launched in 2016 by the Ministry of MSME, the ZED scheme is an integrated and comprehensive certification system.
    • The scheme accounts for productivity, quality, pollution mitigation, energy efficiency, financial status, human resource and technological depth including design and IPR in both products and processes.
    • Its mission is to develop and implement the ‘ZED’ culture in India based on the principles of Zero Defect & Zero Effect.
    • ZED principles include:
    1. Zero Defect: Zero non-conformance or non-compliance
    2. Zero Effect: Zero wastage, liquid discharge, solid waste; zero pollution

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  • Tackling the inflation

    Context

    Expectations that commodity and oil prices would cool down in 2022 as the pandemic ebbed were belied by the Russia-Ukraine conflict, which exacerbated existing pressures. Fresh lockdowns in China are also extending the pandemic-induced supply-chain bottlenecks.

    Challenges for central banks

    • Systemically important central banks that viewed the consistent uptick in inflation as transitory — caused by post-pandemic supply shocks — are now finding it hard to bottle the genie.
    • Inflation in the time of weak growth: What central banks like even less is having to deal with rising inflation in times of weak growth.
    • Because the primary tool they have to fight it — the interest rate hike — can be recessionary.

    Inflation in India

    • CPI inflation averaged 6.3 per cent in the January-March 2022, above the RBI’s target range of 2-6 per cent.
    • The RBI forecasts inflation for April-June at 6.3 per cent.
    • One more quarter over the 6 per cent mark, and the central bank would owe the government an explanation.
    • Factors driving inflation: Fiscal 2021-In fiscal 2021, inflationary pressures came largely from food and, to some extent, core which excludes fuel and food.
    • Fiscal 2022- In fiscal 2022, crude prices hardened to emerge as the new driver. Core inflation firmed up further.
    • But the drop in food inflation offset this, so overall inflation was lower at 5.5 per cent compared with 6.2 per cent the previous year.

    Understanding inflation in fiscal 2023

    • What makes this fiscal worrying is, all three-fule, food and core are firmly pointing in the same direction — up.
    • Fuel inflation, in double digits for a year now, shows no signs of easing.
    • Energy prices have risen sharply across the board — from crude oil to coal and natural gas.
    • The cut in excise duties on petrol and diesel in November 2021 is insufficient to bring down fuel inflation, in the event crude prices stay above $90 per barrel this fiscal.
    • Food inflation: Food is the most volatile component and biggest mover of CPI inflation, given that it occupies 39 per cent weight in the average consumption basket.  
    • On the positive side, India looks set to enjoy a fourth successive year of normal monsoon and still has good buffer stocks of rice and wheat.
    • What is certain, though, is the rising cost of food production.
    • Prices of fertilisers, pesticides, diesel and animal feed are all surging.
    • Already pricey edible oils are set to get even costlier, with Indonesia’s recent ban on refined palm oil exports adding pressure.
    • No wonder then, food inflation is expected to rise.
    • Core inflation: Core inflation, a barometer of demand pressures, will continue to climb despite an environment of weak demand due to the persistence of supply shocks.
    • For producers, the bump-up in international prices across energy and metal commodities since the war has brought more pain.
    • But a weak and uneven demand recovery means producers had limited ability to pass on cost pressures to consumers.
    • Such pass-through has been partial, at best.
    • For most goods, CPI inflation has been much lower than the corresponding WPI last fiscal.
    • The pattern of recovery is also uneven across different segments, with contact-intensive services lagging formal manufacturing.
    • But contact-based services will catch up sooner or later, as restrictions become a thing of the past.
    • The last time we saw such broad-basing of inflationary pressures was after the Global Financial Crisis.
    • The difference this time around is consumer demand, which remains weak and will limit the extent of pass-through.

    Conclusion

    Forecasting inflation in such uncertain times is fraught with risk. The RBI has predicted ~5.7 per cent consumer inflation this fiscal, while professional forecasters see it at 5.6 per cent. The odds currently favour a higher inflation print, and a rate hike in June.

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  • State of (un)employment in India

    Data from the Centre for Monitoring Indian Economy (CMIE) shows that India’s labour force participation rate (LFPR) has fallen to just 40% from an already low 47% in 2016.

    What is LFPR?

    • Before understanding LFPR, we need to define the labour force itself.
    • According to the CMIE, the labour force consists of persons who are of age 15 years or older, and belong to either of the following two categories:
    1. are employed
    2. are unemployed and are willing to work and are actively looking for a job
    • There is a crucial commonality between the two categories — they both have people “demanding” jobs.
    • This demand is what LFPR refers to. While those in category 1 succeed in getting a job, those in category 2 fail to do so.
    • Thus, the LFPR essentially is the percentage of the working-age (15 years or older) population that is asking for a job; it represents the “demand” for jobs in an economy.
    • It includes those who are employed and those who are unemployed.
    • The Unemployment Rate (UER), which is routinely quoted in the news, is nothing but the number of unemployed (category 2) as a proportion of the labour force.

    What is the significance of LFPR in India?

    • Typically, it is expected that the LFPR will remain largely stable.
    • As such, any analysis of unemployment in an economy can be done just by looking at the UER.
    • But, in India, the LFPR is not only lower than in the rest of the world but also falling. This, in turn, affects the UER because LFPR is the base (the denominator) on which UER is calculated.
    • The world over, LFPR is around 60%. In India, it has been sliding over the last 10 years and has shrunk from 47% in 2016 to just 40% as of December 2021.
    • This shrinkage implies that merely looking at UER will under-report the stress of unemployment in India.
    • Recent trend suggests that not only that more than half of India’s population in the working-age group is deciding to sit out of the job market, but also that this proportion of people is increasing.

    How is it under-reported?

    • Imagine that there are just 100 people in the working-age group but only 60 ask for jobs — that is, the LFPR is 60% — and of these 60 people, 6 did not get a job. This would imply a UER of 10%.
    • Now imagine a scenario when the LFPR has fallen to 40% and, as such, only 40 people are demanding work. And of these 40, only 2 people fail to get a job.
    • The UER would have fallen to 5% and it might appear that the economy is doing better on the jobs front but the truth is starkly different.
    • The truth is that beyond the 2 who are unemployed, a total of 20 people have stopped demanding work.
    • Typically, this happens when people in the working-age get disheartened from not finding work.

    So, what is the correct way to assess India’s unemployment stress?

    • When LFPR is falling as steadily and as sharply as it has done in India’s case, it is better to track another variable: the Employment Rate (ER).
    • The ER refers to the total number of employed people as a percentage of the working-age population.
    • By using the working-age population as the base and looking at the number of people with jobs, the ER captures the fall in LFPR to better represent the stress in the labour market.

    ER trends in India

    • If one looks at the ER data (Chart 1), it becomes clear that while India’s working-age population has been increasing each year, the percentage of people with jobs has been coming down sharply.
    • Looking at the absolute numbers makes the stress even more clear.
    • In December 2021, India had 107.9 crore people in the working age group and of these, only 40.4 crore had a job (an ER of 37.4%).
    • Compare this with December 2016 when India had 95.9 crore in the working-age group and 41.2 crore with jobs (ER 43%).
    • In five years, while the total working-age population has gone up by 12 crore, the number of people with jobs has gone down by 80 lakh.

    Why is India’s LFPR so low?

    • The main reason for India’s LFPR being low is the abysmally low level of female LFPR.
    • According to CMIE data, as of December 2021, while the male LFPR was 67.4%, the female LFPR was as low as 9.4%.
    • In other words, less than one in 10 working-age women in India are even demanding work.
    • Even if one sources data from the World Bank, India’s female labour force participation rate is around 25% when the global average is 47%.

    Why do so few women demand work?

    • One reason is essentially about the working conditions — such as law and order, efficient public transportation, violence against women, societal norms etc — being far from conducive for women to seek work.
    • The other has to do with correctly measuring women’s contribution to the economy.
    • There are methodological issues in formally capturing women’s contribution to the economy since a lot of women in India are exclusively involved within their own homes.
    • Lastly, it is also a question of adequate job opportunities for women.

    How do people who leave the labour force survive?

    • Households with more than one working member often witness this phenomenon.
    • The fall in the LFPR since 2016 has been accompanied by a fall in the proportion of households where more than one person is employed.
    • The fall in LFPR has largely been the result of the additional person employed in a typical household losing a job.

     

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  • State Taxes on Fuels

    PM has said that fuel prices were too high in some States ruled by other parties and they were not passing on the benefits of the Centre’s excise duty cut to the people.

    Why are states reluctant?

    • The reluctance to reduce excise duty and VAT on fuel stems from the fact that it constitutes an important source of revenue for both the Union government and the states.
    • Excise duty on fuel makes up about 18.4 per cent of Centre’s gross tax revenues.
    • Petroleum and alcohol, on an average, account for 25-35 per cent of the own tax revenue of states

    Present taxation of Fuels

    What is Excise Duty?

    • Excise duty is a form of tax imposed on goods for their production, licensing and sale.
    • It is the opposite of Customs duty in sense that it applies to goods manufactured domestically in the country, while Customs is levied on those coming from outside of the country.
    • At the central level, excise duty earlier used to be levied as Central Excise Duty, Additional Excise Duty, etc.
    • Excise duty was levied on manufactured goods and levied at the time of removal of goods, while GST is levied on the supply of goods and services.

    Purview of excise duty

    • The GST introduction in July 2017 subsumed many types of excise duty.
    • Today, excise duty applies only on petroleum and liquor.
    • Alcohol does not come under the purview of GST as exclusion mandated by constitutional provision.
    • States levy taxes on alcohol according to the same practice as was prevalent before the rollout of GST.
    • After GST was introduced, excise duty was replaced by central GST because excise was levied by the central government.
    • The revenue generated from CGST goes to the central government.

    Types of excise duty in India

    Before GST, there were three kinds of excise duties in India.

    (1) Basic Excise Duty

    • Basic excise duty is also known as the Central Value Added Tax (CENVAT).
    • This category of excise duty was levied on goods that were classified under the first schedule of the Central Excise Tariff Act, 1985.
    • This duty applied on all goods except salt.

    (2) Additional Excise Duty

    • Additional excise duty was levied on goods of high importance, under the Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act, 1957.
    • This duty was levied on some special category of goods.

    (3) Special Excise Duty

    • This type of excise duty was levied on special goods classified under the Second Schedule to the Central Excise Tariff Act, 1985.
    • Presently the central excise duty comprises of a Basic Excise Duty, Special Additional Excise Duty and Additional Excise Duty (Road and Infrastructure Cess) on auto fuels.

    Present taxation of Fuels

    • Currently, taxes on petroleum products are levied by both the Centre and the states.
    • While the Centre levies excise duty, states levy value-added tax (VAT).
    • For instance, VAT on petroleum products is as high as 40% in Maharashtra, contributing over ₹25,000 crores annually.
    • By being able to levy VAT on these products, the state governments have control over their revenues.
    • When a national GST subsumed central taxes such as excise duty and state levies like VAT on July 1, 2017, five petroleum goods – petrol, diesel, ATF, natural gas and crude oil – were kept out of its purview.

     

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  • Centre enhances Subsidy for Non-Urea Fertilizers

    With urea and fertilizer prices shooting up in the wake of Russia’s invasion of Ukraine, the Union Cabinet approved an enhancement in subsidies on non-urea fertilisers for the upcoming Kharif crop, to ₹60,939 crore.

    What is the news?

    • The government fixes the retail price of urea and subsidises producers based on the difference between costs and the fixed selling price.
    • It pays a subsidy to non-urea fertiliser makers on the basis of nutrient-based rates.
    • The increase in the prices of Di-ammonium phosphate (DAP) and its raw material is in the range of about 80%.

    Fertilizer Subsidy in India

    • Subsidy as a concept originated during the Green Revolution of the 1970s-80s.
    • Fertiliser subsidy is purchasing by the farmer at a price below MRP (Maximum Retail Price), that is, below the usual demand-and-supply-rate, or regular production and import cost.

    How is the subsidy paid and who gets it?

    • The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
    • From March 2018, a new so-called direct benefit transfer (DBT) system was introduced, wherein subsidy payment to the companies would happen only after actual sales to farmers by retailers.
    • With the DBT system, each retailer — there is over 2.3 lakh of them across India — now has a point-of-sale (PoS) machine linked to the Department of Fertilizers’ e-Urvarak DBT portal.

    How does this system work?

    • A popular example of how this system works is that of the neem coated urea fertiliser.
    • Its MRP (Maximum Retail Price) is fixed by the government at Rs. 5922.22 per tonne.
    • The average cost of domestic production is at Rs 17,000 per tonne. The difference is footed by the centre in the form of subsidy.
    • This fertiliser has high Nitrogen content and is cheaper than usual fertilizers.
    • While this may be perceived as a good thing, excess of Nitrogen can disrupt the NPK (Nitrogen, Phosphorus and Potassium) balance in the soil.

    What about non-urea fertilizers?

    • The non-urea fertiliser is decontrolled or fixed by the companies.
    • The non- urea fertilizers are further divided into two parts, DAP (Diammonium Phosphate) and MOP (Muriate of Phosphate).
    • The government pays a flat per tonne subsidy to maintain the nutrition content of the soil, and ensure other fertilizers are economical to use.

    Issues with such subsidies

    • A flawed subsidy policy is harmful not just for the farmer, but to the environment as well.
    • Indian soil has low Nitrogen use efficiency, which is the main constituent of Urea.
    • Consequently, excess usage contaminates groundwater.
    • The bulk of urea applied to the soil is lost as NH3 (Ammonia) and Nitrogen Oxides. The WHO has prescribed limits been breached by Punjab, Haryana and Rajasthan.
    • For human beings, “blue baby syndrome” is a common side ailment caused by Nitrate contaminated water.

    Try answering this PYQ:

    Q.What are the advantages of fertigation in agriculture? (CSP 2020)

    1.Controlling the alkalinity of irrigation water is possible.
    2. Efficient application of Rock Phosphate and all other phosphatic fertilizers is possible.
    3. Increased availability of nutrients to plants is possible.
    4. Reduction in the leaching of chemical nutrients is possible.

    Select the correct answer using the code given below:
    (a) 1, 2 and 3 only

    (b) 1,2 and 4 only

    (c) 1,3 and 4 only

    (d) 2, 3 and 4 only

     

    [wpdiscuz-feedback id=”pxjt2tbo29″ question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

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  • Direct Tax collections surge in FY22

    India’s net direct tax collections amounted to ₹14,09,640.83 crore for FY22, which is the highest collection ever.

    What are Direct Taxes?

    • A type of tax where the impact and the incidence fall under the same category can be defined as a Direct Tax.
    • The tax is paid directly by the organization or an individual to the entity that has imposed the payment.
    • The tax must be paid directly to the government and cannot be paid to anyone else.

     Why in news?

    • The surge in direct tax collection signals that the Indian economy has bounced back after two years of the pandemic.

    Rise in direct tax collection

    • As against ₹14.09 lakh crore this year, our collection in 2020-21 was only ₹9.45 lakh crore.
    • In a single year, the economy has moved upward by nearly ₹4.5 lakh crore, registering a growth of 49%.
    • The collection is the best-ever as far as income tax and corporation tax are concerned.

    What about direct tax-to-GDP ratio?

    • The direct tax-to-GDP ratio is around 12%.
    • The Central Board of Direct Taxes (CBDT) was working to raise the ratio to 15-20% in 5-10 years.

    Why is it significant?

    • A tax-to-GDP ratio is a gauge of a nation’s tax revenue relative to the size of its economy as measured by gross domestic product (GDP).
    • The ratio provides a useful look at a country’s tax revenue because it reveals potential taxation relative to the economy.
    • It also enables a view of the overall direction of a nation’s tax policy, as well as international comparisons between the tax revenues of different countries.

    Back2Basics: Types of Direct Taxes

    The various types of direct tax that are imposed in India are mentioned below:

    (1) Income Tax

    • Depending on an individual’s age and earnings, income tax must be paid.
    • Various tax slabs are determined by the Government of India which determines the amount of Income Tax that must be paid.
    • The taxpayer must file Income Tax Returns (ITR) on a yearly basis.
    • Individuals may receive a refund or might have to pay a tax depending on their ITR. Penalties are levied in case individuals do not file ITR.

    (2) Wealth Tax

    • The tax must be paid on a yearly basis and depends on the ownership of properties and the market value of the property.
    • In case an individual owns a property, wealth tax must be paid and does not depend on whether the property generates an income or not.
    • Corporate taxpayers, Hindu Undivided Families (HUFs), and individuals must pay wealth tax depending on their residential status.
    • Payment of wealth tax is exempt for assets like gold deposit bonds, stock holdings, house property, commercial property that have been rented for more than 300 days, and if the house property is owned for business and professional use.

    (3) Estate Tax

    • It is also called Inheritance Tax and is paid based on the value of the estate or the money that an individual has left after his/her death.

    (4) Corporate Tax

    • Domestic companies, apart from shareholders, will have to pay corporate tax.
    • Foreign corporations who make an income in India will also have to pay corporate tax.
    • Income earned via selling assets, technical service fees, dividends, royalties, or interest that is based in India is taxable.
    • The below-mentioned taxes are also included under Corporate Tax:
    1. Securities Transaction Tax (STT): The tax must be paid for any income that is earned via security transactions that are taxable.
    2. Dividend Distribution Tax (DDT): In case any domestic companies declare, distribute, or are paid any amounts as dividends by shareholders, DDT is levied on them. However, DDT is not levied on foreign companies.
    3. Fringe Benefits Tax: For companies that provide fringe benefits for maids, drivers, etc., Fringe Benefits Tax is levied on them.
    4. Minimum Alternate Tax (MAT): For zero tax companies that have accounts prepared according to the Companies Act, MAT is levied on them.

    (5) Capital Gains Tax:

    • It is a form of direct tax that is paid due to the income that is earned from the sale of assets or investments. Investments in farms, bonds, shares, businesses, art, and home come under capital assets.
    • Based on its holding period, tax can be classified into long-term and short-term.
    • Any assets, apart from securities, that are sold within 36 months from the time they were acquired come under short-term gains.
    • Long-term assets are levied if any income is generated from the sale of properties that have been held for a duration of more than 36 months.

    Advantages of Direct Taxes

    The main advantages of Direct Taxes in India are mentioned below:

    • Economic and Social balance: The Government of India has launched well-balanced tax slabs depending on an individual’s earnings and age. The tax slabs are also determined based on the economic situation of the country. Exemptions are also put in place so that all income inequalities are balanced out.
    • Productivity: As there is a growth in the number of people who work and community, the returns from direct taxes also increases. Therefore, direct taxes are considered to be very productive.
    • Inflation is curbed: Tax is increased by the government during inflation. The increase in taxes reduces the necessity for goods and services, which leads to inflation to compress.
    • Certainty: Due to the presence of direct taxes, there is a sense of certainty from the government and the taxpayer. The amount that must be paid and the amount that must be collected is known by the taxpayer and the government, respectively.
    • Distribution of wealth is equal: Higher taxes are charged by the government to the individuals or organizations that can afford them. This extra money is used to help the poor and lower societies in India.

    What are the disadvantages of direct taxes?

    • Easily evadable: Not all are willing to pay their taxes to the government. Some are willing to submit a false return of income to evade tax. These individuals can easily conceal their incomes, with no accountability to the law of the land.
    • Arbitrary: Taxes, if progressive, are fixed arbitrarily by the Finance Minister. If proportional, it creates a heavy burden on the poor.
    • Disincentive: If there are high taxes, it does not allow an individual to save or invest, leading to the economic suffering of the country. It does not allow businesses/industry to grow, inflicting damage to them.

     

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  • Anchoring inflationary expectations

    Context

    The RBI released the Inflation Expectations Survey of Households (IESH) for March 2022 on April 8. The survey results present interesting behavioural insights for public policy, particularly from a gender perspective.

    Significance of inflation expectations

    • The impact of inflation — the overall increase in the prices in an economy — is felt by everyone.
    • High inflation adversely affects the poor.
    • Individuals, therefore, form expectations about how prices will behave in the future to take precautions.
    • If they anticipate high inflation, they negotiate wages or rents to compensate against a potential fall in their purchasing power.
    • Self-fulfilling: Increased wages increase the cost of production, making expectations self-fulfilling and, therefore, playing a pivotal role in determining inflation.
    • Anchoring inflation expectations: Central banks raise interest rates to ‘anchor’ high inflationary expectations when temporary price shocks, on account of drought or disruption in global supply chains, entail the risk of getting transmitted into actual inflation.

    What shapes inflation expectations of individuals?

    • A recent study carried out by Acunto et al., 2020, validates that what agents frequently purchase, instead of those purchased infrequently, shape their perception of the general level of inflation.
    • Factors shaping individual’s perception: A significant factor shaping perceptions on inflation are the prices that individuals observe in their daily lives, originally posited by Robert Lucas in his seminal Islands model.
    • Therefore, generalising aggregate inflation expectations for making general views of prices in the economy could be misleading.
    • This insight has implications for gender-based differences in anticipating inflation in the future.
    • Existing literature shows that women have higher inflationary expectations compared to men.
    •  However, a new study reveals that it is not the innate characteristics as much as the traditional gender roles that explain this divergence.

    Natural experiments

    • To test its validity, trends of Inflation Expectations Survey of Households (IESH) before and after the lockdown period present itself as a crude ‘natural experiment’.
    • The authors hypothesise that if traditional gender roles are the primary reasons behind the gender inflation expectation gap, then the lockdown-imposed work-from-home (WFH) arrangements or loss of employment should contribute in closing this gap.
    • The logic: during the lockdown, people in urban areas lost jobs or remained at home, taking a relatively equal share in the frequent day-to-day purchases.
    • Two categories of occupations are studied here: homemakers (assumed to be dominated by women) and financial sector employees (assumed to be dominated by men).
    • Looking at the trends of the RBI surveys for the period between March 2018 and March 2020, homemakers report higher inflation expectations than financial sector employees.
    • However, this gap has narrowed over the last two years and has almost converged in March 2022.
    • A possible explanation of closing of the gap could be the gradual ‘experience effect’ of male-dominated financial sector employees.
    • Experience effect, contrary to Rational Expectations Theory that assumes individuals base their decisions on the information available to them, is based on the premise that actual personal experiences shape behaviour more than being informed about the outcome of the event.

    Conclusion

    Focus could be shifted more on the microfoundations — understanding macroeconomic outcomes by studying factors that shape individual behaviour and decision making — for making better policy decisions concerning macroeconomic phenomena.

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  • Effective and Efficient: The Insolvency and Bankruptcy Code

    Context

    The performance of the Insolvency and Bankruptcy Code (IBC) has been under intense scrutiny.

    Basis for the criticism of IBC

    • The Code has been mainly criticised on three counts:
    • 1] Delay in resolution: There are inordinate delays in the resolution procedure.
    • 2] Liquidation:  There have been more liquidations than resolutions.
    • 3] Low recovery amount: The recovery amounts under IBC are not substantial, making it more of a talking point than an effective structural reform.

    Is the criticism about the delay justified?

    • Assessing IBC based only on the average time taken to resolve successful cases does a substantial disservice to how much more efficient the IBC is compared to the previous regimes.
    •  It is calculated by taking a simple average of time taken on each completed case.
    • This is one of the metrics used by the Insolvency and Bankruptcy Board of India (IBBI) to compare the IBC regime with the earlier Board of Industrial and Financial Reconstruction (BIFR) regime.
    •  However, the performance of a bankruptcy resolution should ideally be evaluated along at least three dimensions:
    • The average time taken to resolve a case, the fraction of cases resolved within a given timeframe, and the recovery rate conditional on resolution.
    • Focusing on any single parameter may result in a gross under (over) estimation of the IBC’s (BIFR’s) performance.
    • By examining the fraction of cases that are resolved within a specific timeframe, we see that for any fraction of the total cases resolved under each scheme, the IBC took considerably less time than BIFR.
    • Total number of cases solved: Since its inception in 1987, the BIFR has resolved less than 3,500 cases while the IBC, since it was launched in 2016, resolved about 1,178 cases until it was suspended at the onset of the COVID pandemic.
    • Most analyses of IBC’s performance overlook the important fact that many of the legacy BIFR cases were subsumed by IBC, and these were often zombie firms that were kept alive due to massive evergreening of loans between 2008-2015.

    Conclusion

    The bottom line is straightforward: The IBC has significantly outperformed the earlier BIFR regime in terms of the speed of resolution.

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  • NITI Aayog’s Draft Battery Swapping Policy

    The NITI Aayog has released a draft battery-swapping policy targeted at electric two- and three-wheelers as the government think tank aims to expedite large-scale adoption of EVs.

    What is Battery Swapping?

    • Battery swapping is a mechanism that involves exchanging discharged batteries for charged ones.
    • This provides the flexibility to charge these batteries separately by de-linking charging and battery usage, and keeps the vehicle in operational mode with negligible downtime.
    • Battery swapping is generally used for smaller vehicles such as two-wheelers and three-wheelers with smaller batteries that are easier to swap, compared to four-wheelers and e-buses, although solutions are emerging for these larger segments as well.

    What is BaaS?

    • Battery-as-a-service (BaaS) is seen as a viable charging alternative.
    • Manufacturers can sell EVs in two forms: Vehicles with fixed or removable batteries and vehicles with batteries on lease.
    • If you buy an electric scooter with battery leasing, you do not pay for the cost of the battery—that makes the initial acquisition almost 40% cheaper.
    • Users can swap drained batteries for a fully charged one at a swap station. The depleted batteries are then charged on or off-site.
    • The advantages of swapping include low downtimes for commercial fleets, reduced space requirements, and lower upfront costs.
    • It is also a viable solution for those who don’t have parking spots at home.

    Draft Battery Swapping Policy: Key Proposals

    • Rationalizing taxes on battery: The draft policy has suggested that the GST Council consider reducing the differential across the tax rates on Lithium-ion batteries and electric vehicle supply equipment. Currently, the tax rate on the former is 18 per cent, and 5 per cent on the latter.
    • Incentivization for swapping enabled vehicles: The policy also proposes to offer the same incentives available to electric vehicles that come pre-equipped with a fixed battery to electric vehicles with swappable batteries. The size of the incentive could be determined based on the kWh (kilowatt hour) rating of the battery and compatible EV.
    • Terms of contracts for battery providers: The government will specify a minimum contract duration for a contract to be signed between EV users and battery providers to ensure they continue to provide battery swapping services after receiving the subsidy.
    • Public battery charging stations: The policy also requires state governments to ensure public battery charging stations are eligible for EV power connections with concessional tariffs. It also proposes to install battery swapping stations at several locations like retail fuel outlets, public parking areas, malls, kirana shops and general stores etc.
    • Tariff rationalization: It also proposes to bring such stations under existing or future time-of-day (ToD) tariff regimes, so that the swappable batteries can be charged during off-peak periods when electricity tariffs are low.
    • Registration ease: Transport Departments and State Transport Authorities will be responsible for easing registration processes for vehicles sold without batteries or for vehicles with battery swapping functionality.
    • Unique identification number (UIN): The policy also proposes to assign a UIN to swappable batteries at the manufacturing stage to help track and monitor them. Similarly, a UIN number will be assigned to each battery swapping station.
    • Locations: The NITI Aayog has proposed that all metropolitan cities with a population of more than 40 lakh will be prioritized for the development of battery swapping networks under the first phase, which is within 1-2 years of the draft policy getting finalized.

    Why hasn’t BaaS taken off yet?

    • Hefty taxes: There are economic and operational constraints. Energy service providers offering swapping solutions have to charge 18% goods and services tax (GST) for swapping, compared to 5% GST on the purchase of an EV.
    • No incentives yet: Additionally, the government’s FAME-II incentives are not offered to vehicles sold with BaaS or swap station operators.
    • Lack of interoperability infrastructure: While these are economic disadvantages compared to direct charging solutions, the lack of a dense and interoperable battery swap infrastructure has also hindered the roll-out.

    Does the draft policy talk about EV safety?

    • To ensure a high level of protection at the electrical interface, a rigorous testing protocol will be adopted, the draft said, to avoid any unwanted temperature rise at the electrical interface.
    • The battery management system, which is a software that controls battery functions, will have to be self-certified and open for testing to check its compatibility with various systems, and capability to meet safety requirements.
    • This particularly assumes significance given the recent incidents of electric two-wheelers bursting into flames.

    Issues with BaaS

    • Standardization of specifications: There is a need for standardization of safety specifications as well as the battery.
    • Safety hazard: Swapping in the various permutations and combinations of batteries at a station where  they  have not been tested for compatibility could lead to safety hazards.
    • Non-competitive nature: Also, mandating only one type of battery to  be eligible for  concessions  would be  disadvantageous  to  many  players.

    Significance of battery swapping

    • High Cost of EVs: An EV, by industry standards, is 1.5-2x costlier than IC Engine counterpart and at least half the cost is from the battery pack.
    • Cost reduction: Many manufacturers are offering batteries separately from a vehicle, reducing the cost. In that case, a fleet owner can buy vehicles without battery and utilize battery swapping.
    • Range Anxiety: Another major reason stopping people from buying EVs is range anxiety, or in simple terms, the fear of battery getting empty without finding a charging station.
    • Inadequate charging infrastructure: Unlike petrol pumps, EV charging stations are rare to spot and that further increases the range anxiety exponentially, especially while going on a road trip.
    • Hazard management: In case of a Swapping Station, one can simply locate a station, go and replace the empty battery with a new one.

     

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