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Subject: Economics

  • India better placed to avoid Risks of Stagflation: RBI

    India’s economy is better placed than many other countries to avoid the risk of potential stagflation worldwide, said the Reserve Bank of India Deputy Governor.

    Why in news?

    • Stagflation remains a risk to the US economy, and there are similarities between the situation in the 1970s and today, a/c to World Bank.
    • Surging prices for oil and food are pushing up the cost of living, and business executives are voicing concerns about the outlook for the economy.

    What is Stagflation?

    • Stagflation is a stagnant growth and persistently high inflation. It, thus, describes a rather rare and curious condition of an economy.
    • Iain Macleod, a Conservative Party MP in the United Kingdom, is known to have coined the phrase during his speech on the UK economy in November 1965.

    What happens in Stagflation?

    • Typically, rising inflation happens when an economy is booming — people are earning lots of money, demanding lots of goods and services and as a result, prices keep going up.
    • When the demand is down and the economy is in the doldrums, by the reverse logic, prices tend to stagnate (or even fall).
    • But stagflation is a condition where an economy experiences the worst of both worlds — the growth rate is largely stagnant (along with rising unemployment) and inflation is not only high but persistently so.

    Possible reasons behind

    • Volatility due to war: Global economic conditions continued to deteriorate as commodity prices and financial market volatility have led to heightened uncertainty.
    • Monetary tightening: In advanced economies, the war against inflation would entail significant monetary tightening, complicating the growth-inflation outlook.
    • Global slowdown: Emerging market economies grapple with the global trade slowdown, capital outflows and imported inflation.

    Why is it so unpopular?

    • The combination of slow growth and inflation is unusual, because inflation typically rises and falls with the pace of growth.
    • The high inflation leaves less scope for policymakers to address growth shortfalls with lower interest rates and higher public spending.

    Back2Basics: Inflation and its impact

    • Depression: It is Economic depression is a sustained, long-term downturn in economic
    • Deflation: It is the general fall in the price level over a period of time.
    • Disinflation: It is the fall in the rate of inflation or a slower rate of inflation. Example: a fall in the inflation rate from 8% to 6%.
    • Reflation: It is the act of stimulating the economy by increasing the money supply or by reducing taxes, seeking to bring the economy back up to the long-term trend, following a dip in the business cycle. It is the opposite of disinflation.
    • Skewflation: It is the skewed rise in the price of some items while remaining item prices remain the same. E.g. Seasonal rise in the price of onions.
    • Stagflation: The situation of rising prices along with falling growth and employment, is called stagflation. Inflation is accompanied by an economic recession.

     

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  • The uneven toll of inflation

    Context

    This upsurge of inflation is affecting the poor more than any other social group because some of the commodities whose prices are increasing the most (like petrol and certain food items) represent a larger fraction of the budget of the most vulnerable sections of society.

    Factors fueling inflation in India

    • The Wholesale Price Index (WPI) and the Consumer Price Index (CPI) show an upward rising trend, annually, at 13.11 per cent and 6.07 per cent respectively.
    • Falling rupee: Inflation is here to stay because it has much to do with the decline in value of the rupee that has fallen to its lowest, which makes imports of oil and gas more expensive.
    • Ukraine crisis: The war in Ukraine has the same effect and pushes the price of some food items upward.

    Rising inequality

    • Impact on the poor: This upsurge of inflation is affecting the poor more because some of the commodities whose prices are increasing the most represent a larger fraction of the budget of the most vulnerable sections of society.
    • Rising inequality: As a result, inequalities — which were already on the rise — are increasing further.
    • Recently, the State of Inequality in India report showed that an Indian making Rs 3 lakh a year belonged to the top 10 per cent of the country’s wage earners. 
    •  Inequalities are also increasing among salaried people, who are privileged compared to those of the informal sector: The bottom 50 per cent account for only 22 per cent of the total salary income.
    • The situation of the lower-middle class and poor is deteriorating.
    • The Reserve Bank of India shows slow farm wage growth in nominal terms: From an average of 6.6 per cent in fiscal 2021 to 5.7 per cent in fiscal 2022 (April-November average). This is below the inflation rate.

    Inequality in healthcare

    • India’s spending on healthcare is among the lowest in the world.
    • A decent level of healthcare is available only to the ones who can afford it because of increasing out-of-pocket expenditure — the payment made directly by individuals for the health service, not covered under any financial protection scheme.
    •  Overall, these out-of-pocket expenses on healthcare are 60 per cent of the total expenditure on public health in India, which is one of the highest in the world.

    How policies are contributing to the increasing inequality?

    • High indirect taxes: The share of indirect taxes in the state’s fiscal resources has increased from 2014 to 2019 to reach 50 per cent of the total taxes in 2019.
    • Higher indirect taxes are the most unfair as it affects everyone, irrespective of their income.
    • Taxes on alcohol and petroleum products are cases in point.
    • In contrast, the big companies are flourishing, again, partly because of certain fiscal policies. 
    • Low corporate taxes: The government’s budget in 2015 substantially lowered the corporate tax.
    • Withdrawal of enhanced surcharge: In addition to these tax cuts, the government withdrew the enhanced surcharge on long- and short-term capital gains for foreign portfolio investors (FPIs) as well as domestic portfolio investors.
    • These government policies are clearly promoting the supply side at the expense of demand.
    • The central bank has raised interest rates and CRR in an attempt to curb demand, but demand in the country is already choking.

    Way forward

    • Higher allocation for MGNREGA: A higher allocation of funds for MGNREGS in rural areas, as well as the introduction of similar employment generation schemes in urban areas, should, therefore, be a priority.
    • Municipal bonds at state level: At the state level, the development of municipal bond markets could be a plausible alternative.
    • Reduction on excise duty on fuel: A reduction in the excise duty on fuel prices and easing the fuel tax burden could also supplement the disposable income and reduce the input cost burden for producers.

    Conclusion

    Though the government is opting for market-based economics, currently, India needs a mixed solution that comprises price stability via government channels and subsidies.

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    Back2Basics: Long and short-term capital gain

    • When you buy and sell assets, the profit that you earn is called a Capital Gain.
    • Long Term Capital Gains are those that you earn when you sell an asset after 36 months (3 years) from the date on which you acquired the asset.
    • Short Term Capital Gains are those that you earn when you sell an asset in under 36 months (3 years) from the date on which you acquired the asset.

  • Freebie model of Governance

    Context

    The newly elected Punjab government’s announcement of providing up to 300 units of free power to every household has raised questions: What constitutes “freebies”?

    Two categories for providing support

    • In India government provides two types of support.
    • 1] support to low-income households for augmenting their consumption of selected goods and services.
    • 2] Government also provides incentives to support selected categories of investors and producers.
    • Different objectives: The economic objectives in these two categories are quite different.
    • The first category would include the free or subsidised provision of foodgrains and services such as health and education.
    • Examples of the second group include the central government’s recent initiative for production-linked incentives to various sectors and tax concessions.
    • In the past, incentives in the form of reduction of corporate taxes have been offered to promote investment in general, or in certain regions such as backward areas.

    What commodities should be distributed free?

    • The key question is to decide what commodities should be distributed free or at a subsidised level and what the level of subsidy should be.
    • Essential goods: The provision of foodgrains at a heavily subsidised price to target groups has found general acceptance, particularly among political parties, even though there are some critics of the measure.
    • The distribution of commodities which are considered “essential”, primarily foodgrains, faces no criticism.
    • Merit goods: There is also a category of goods which are called “merit” goods where significant positive externalities are associated with their consumption — for instance, health and education-related provisions, including mid-day meals and breakfast.
    • In such cases, subsidisation is justified: If only market prices prevail, the community will consume less than what is socially desirable.

    What should be the suitable mode of providing support?

    • The question of a suitable model for providing budgetary support arises in the context of both consumption and production-supporting initiatives.
    • 1] In the first case, budgetary support to a targeted segment of the population for augmenting their consumption of essential items may be provided either through direct income support or by a free or highly subsidised provision. 
    • Procurement set up and distribution system: When the provision of subsidised goods is involved, there may, in general, be a requirement of a procurement set-up and a public distribution system.
    • Managing procurement and distribution by government agencies involves additional costs which tend to be higher than the corresponding supply through the market because of leakages and avoidable administrative costs.
    • 2] Production-related incentives: In the case of production-related incentives, alternative methods include direct budgetary support and indirect support through tax concessions.
    •  Both have a differential impact.
    • These schemes also require to be carefully designed to avoid their misuse and minimise their costs. The provision of free power to farmers was often misused.
    • In the case of tax concessions, there have not been any convincing studies as to whether the stated initial objectives were achieved in line with the large budgetary costs.
    • The magnitudes involved amounted to 1.9 per cent and 2.5 per cent of the GDP in 2018-19 and 2019-20 respectively.

    What should be a prudent fiscal limit for funding such programmes?

    • Let us consider the case of distribution of commodities that are meant to support consumption.
    • Limited budgetary resources: This question should be considered in light of our limited budgetary resources.
    • Stagnating revenue to GDP ratio: In India, the revenue to GDP ratio has been stagnating over a long period of time.
    • During 2010-11 to 2019-20, combined revenue receipts of central and state governments, relative to GDP, have languished in the narrow range of 18.4 per cent to 20.3 per cent.
    • In contrast, in many developed and emerging market economies, this ratio tends to be much higher.
    • In 2019, these ratios were 36 per cent and 30.1 per cent for the UK and USA.

    Suggestions

    • It is advisable to limit the distribution of commodities and services at highly subsidised levels to essential and merit goods.
    • Infrastructure expansion: Production may be incentivised more effectively by other methods such as infrastructure expansion.
    • Determining the total quantum of support: In respect of production-related incentives also, greater care is required for determining the total quantum of support as well as the specific forms of such support.
    • Limit of 10 %: It would be prudent to limit overall fiscal support for the distribution of commodities to less than 10 per cent of the total expenditure of the central government and state governments until their revenue GDP or GSDP ratios are successfully increased in a sustained way.

    Conclusion

    Governments that do not pay adequate attention to the strength of their fisc eventually become exposed to the cost of the choices that they make.

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    Back2Basics: Merit goods

    • Merit goods are the goods that are provided generally by the government to certain sections of the society.
    • Unlike in the case of pure public goods, the merit goods are not provided to the entire society; rather they are given to certain targeted people.
    • The government here believe that the deserving people may under-consume such goods and hence provides these to them at low cost or no cost.

    Positive externalities

    • A positive externality exists if the production and consumption of a good or service benefits a third party not directly involved in the market transaction.
    • For example, education directly benefits the individual and also provides benefits to society as a whole through the provision of more informed and productive citizens.

  • Cabinet approves mega 5G auction

    The Union Cabinet has approved the auction of airwaves capable of offering fifth generation, or 5G, telecom services, including ultra-high-speed Internet, and gave its nod for setting up of captive 5G networks by big tech firms.

    What is the news?

    • The auction of over 72 GHz of the spectrum will be held by July-end.
    • Auctions will be held at reserve prices recommended by the sector regulator, Telecom Regulatory Authority of India (TRAI).
    • TRAI had earlier recommended about a 39% reduction in the reserve or floor price for the sale of 5G spectrum for mobile services.

    What is 5G technology?

    • 5G or fifth generation is the latest upgrade in the long-term evolution (LTE) mobile broadband networks.
    • It mainly works in 3 bands, namely low, mid and high-frequency spectrum — all of which have their own uses as well as limitations.

    Three bands of 5G

    (1) Low band spectrum

    • It has shown great promise in terms of coverage and speed of internet and data exchange, the maximum speed is limited to 100 Mbps (Megabits per second).
    • This means that while telcos can use and install it for commercial cellphones users who may not have specific demands for very high-speed internet, the low band spectrum may not be optimal for the specialized needs of the industry.

    (2) Mid-band spectrum

    • It offers higher speeds compared to the low band but has limitations in terms of coverage area and penetration of signals.
    • Telcos and companies, which have taken the lead on 5G, have indicated that this band may be used by industries and specialized factory units for building captive networks that can be molded into the needs of that particular industry.

    (3) High-band spectrum

    • It offers the highest speed of all the three bands, but has extremely limited coverage and signal penetration strength.
    • Internet speeds in the high-band spectrum of 5G have been tested to be as high as 20 Gbps (gigabits per second), while, in most cases, the maximum internet data speed in 4G has been recorded at 1 Gbps.

    Where does India stand in the 5G technology race?

    • On par with the global players, India had, in 2018, planned to start 5G services as soon as possible, with an aim to capitalize on the better network speeds and strength that the technology promised.
    • Indian private telecom players have been urging the DoT to lay out a clear road map of spectrum allocation and 5G frequency bands so that they would be able to plan the rollout of their services accordingly.
    • One big hurdle, however, is the lack of flow of cash and adequate capital with some companies due to their AGR dues.

    Global progress on 5G

    • More than governments, global telecom companies have started building 5G networks and rolling it out to their customers on a trial basis.
    • In countries like the US, some companies have taken the lead when it comes to rolling out commercial 5G for their users.
    • A South Korean company, which had started researching on 5G technology way back in 2011, has, on the other hand, take the lead when it comes to building the hardware for 5G networks for several companies.

     

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  • First train under Bharat Gaurav Scheme inaugurated

    The ‘Bharat Gaurav’ train service from Coimbatore to Shirdi, a first of its kind in the country, was inaugurated at the Coimbatore North Railway Station.

    What are Bharat Gaurav trains?

    • Bharat Gaurav express trains are operated by private players, who have the right to use the rail infrastructure provided by the Indian Railways.

    About Bharat Gaurav Scheme

    • Under this Scheme, theme-based tourist circuit trains, on the lines of the Ramayana Express, can be run either by private or State-owned operators.
    • Till now, the Railways had passenger segments and goods segments.
    • Now, it will have a third segment for tourism under the Bharat Gaurav.
    • The scheme has been developed after extensive stakeholder discussions and a lot of State Governments, including Odisha, Rajasthan, Karnataka and Tamil Nadu, have shown interest.

    Key features

    • Service providers, who can be an individual, company, society, trust, joint venture or consortium will be free to decide themes/circuits.
    • They will offer an all-inclusive package to tourists including rail travel, hotel accommodation and sightseeing arrangement, visit to historical/heritage sites, tour guides etc.
    • They have full flexibility to decide the package cost.
    • The service providers will also be able to design/furnish the interior of the coaches based on the theme and put branding or advertising inside and outside of the train.

     

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  • International North–South Transport Corridor (INSTC)

    Iran started the first transfer of Russian goods to India via a new trade corridor which transits the West Asian nation, people on the Iranian side familiar with the developments told news outlets.

    The cargo will travel through the International North-South Transport Corridor (INSTC).

    What is the news?

    • The cargo ship departed St. Petersburg for the Caspian Sea port city of Astrakhan.
    • It will reach the northern Iranian port of Anzali and then will be transferred by road to the southern port of Bandar Abbas on the Persian Gulf.
    • From Bandar Abbas it will reach via ship to India at Jawaharlal Nehru Port Trust (JNPT).

    International North–South Transport Corridor (INSTC)

    • The INSTC is a 7,200 km-long multimodal transportation network encompassing sea, road, and rail routes to offer the shortest route of connectivity.
    • It was established on 12th September 2000 in St. Petersburg, by Iran, Russia and India for the purpose of promoting transportation cooperation among the Member States.
    • It links the Indian Ocean to the Caspian Sea via the Persian Gulf onwards into Russia and Northern Europe.
    • It will move freight between India, Iran, Afghanistan, Armenia, Azerbaijan, Russia, Central Asia and Europe.

    Significance of INSTC

    • Trade facilitation: INSTC is aimed at reducing the carriage cost between India and Russia by about 30 per cent and bringing down the transit time by more than half.
    • New corridor in making: It has the potential to transform the economies of countries along the corridor into specialized manufacturing, logistics, and transit hubs by facilitating access to newer markets.
    • Multimodal transit: The recent Suez Canal blockade, which cost the global economy hefty damage amounting to US$9 billion, has amplified the optimistic outlook towards the INSTC as a cheaper and faster alternative multimodal transit corridor.

    Benefits offered to India

    • Export promotion: The INSTC connects India with Central Asia, and Russia, and has the potential to expand up to the Baltic, Nordic, and Arctic regions, increasing the scope of trade multifold.
    • Ease of trade: For India, it provides a shorter trade route with Iran, Russia, and beyond to Europe, creating scope for increased economic engagement.
    • Alternative Route to Central Asia: It opens up a permanent alternative route for India to trade with Afghanistan and Central Asia, given the hurdles in the direct route through Pakistan.

     

     

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  • Coal Shortages in India

    Context

    The recent power crisis due to the coal shortage in India underscores the need for measures to avoid a repeat of episodes in the future.

    Factors contributing to power crisis

    • Spike in power demand: With the sudden early onset of summer in 2022, power demand spiked, riding on the back of the post-Covid economic recovery.
    • Increase in price due to Ukraine crisis: The matter was further exacerbated by the Ukraine conflict, which led to a sharp increase in the price of imported coal.
    • Consequently, power stations designed on imported coal stopped importing because it was no longer economical for them to generate, given their contract price with the distribution companies.
    • Availability of railway rakes: It’s not that domestic coal was not available since enough stock had been built in the mines.
    • The issue was of availability of railway rakes for transportation.

    What were the measures taken by the government ?

    • 1] Import of coal to 10 per cent: First, all generators have been asked to import coal to the extent of 10 per cent (as against 4 per cent earlier) and that half of this should be physically available by the end of June.
    • CIL as aggregator: Coal India will function as the aggregator on behalf of the generators.
    • CIL functioning as the aggregator is a better idea and it may be able to import at a cheaper cost by accumulating demand as well as standardising the coal grade to be procured.
    • Moreover, it would be easier for regulators to calculate the revised energy charge since the price at which coal was imported would be well-documented.
    • 2] Section 11 of the Electricity Act 2003 (Act) invoked: Under this section, the government directed imported coal-based plants to run at full capacity with the assurance that their enhanced cost of operation would be compensated.
    • 3] Tolling: The government invoked the concept of tolling, which allowed states to transfer their allotted coal to private generators located near the mines instead of transporting it to far away state generators.
    • This move would ease the burden on the availability of railway rakes.
    • 4] Seeking the consent of beneficiaries for hike: the government issued policy directions to the Central Electricity Regulatory Commission (CERC) overriding CERC’s regulations that made it mandatory to seek the consent of beneficiaries if the tariff went up by more than 30 per cent, if some alternate fuel is used.
    • 5]  Committee to rework the energy charge: A committee of officials was set up to rework the energy charge for imported coal-based generators.
    • 6] Additional working capital: The government is cognisant of the fact that there is a need for additional working capital and has advised REC/PFC as well as commercial banks to arrange for this.

    Issues with the measures

    • Use of Section 11: The government invoked Section 11 to give  direction to private generators to import coal at a higher cost.
    • Section 11(1) allows the government to give direction to a generation company to operate and maintain a generating station in extraordinary circumstances.
    • Section 11(2) of the Act mentions that the adverse financial impact on generating compacy due to directions referred to in sub-section (1) would be offset by the regulator.
    • Going by Section 11(2), the government should have left the job of working out the energy charge to the regulator instead of setting up a committee of officials to do so though, of course, the CERC was represented in the committee.
    • 2] No transparency: The committee has already worked out the revised energy costs for six of the plants but there is no transparency regarding the coal cost assumed, its calorific value, transportation cost, etc.
    • 3] Additional rakes: We have to bear in mind that the coal problem arose because of the non-availability of rakes.
    • With 38 MT of coal to be imported by October this year, and half of that by end of June, the need for rakes will not only go up but would be front-loaded.
    • We need the requisite number of rakes otherwise, we are back to where we began.

    Conclusion

    While the government is taking steps to increase coal imports and addressing the other issues, it must ensure that domestic production does not dip during monsoon season.

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  • Rising global food prices: Causes and Solution

    Context

    This increase in global food prices which manifested itself in the three food price crises since the 1960s offers some pertinent lessons for global food systems and the international community.

    Managing year-to-year volatility Vs. periodic spikes in food prices

    • Year-to-year volatility is easily managed by most countries through changes in their trade and domestic policies.
    • But steep and severe periodic price shocks can lead to some sort of a crisis at the global and national levels.
    • Implications: The crisis can emerge in the form of food shortages, trade disruptions, a rise and spread in hunger and poverty levels, depletion of foreign exchange reserves, a strain on a nation’s fiscal resources, a threat to peace, and even social unrest in some places.

    History of food crises after since adoption of Green Revolution

    • Data from Food and Agriculture Organization of the United Nations, the World Bank/International Monetary Fund show that since the onset and the adoption of Green Revolution technology in the early 1960s, the world has been struck thrice by food price crises.
    • First shock-1973-76: The first shock was experienced during 1973-76 when the food price index (based on prices in U.S. dollars) doubled in nominal terms.
    • Declining trend: For the next two decades, food prices in real terms followed a declining trend and were at their lowest around 2002.
    • After this, nominal as well as the real prices of food began rising.
    • Second crisis-2008: This momentum built up to culminate in the next food price crisis of 2008, which was further intensified by 2011.
    • While the price shock began softening after 2014, food prices did not move back to their pre-2006 level.
    • Third crisis-2020: This time the increase in the food price index happened very quickly and it turned out to be very big – it has taken the food price index to its historically highest level.
    • Cause outside agriculture: All the three food price crises were triggered by factors outside agriculture.
    • They were not caused by any serious shortfall in agriculture production.
    • The interval between crises is reducing: The interval between two consecutive price shocks has narrowed down considerably and the severity of shock is turning stronger.

    What are the causes responsible for the recent food price crisis?

    • 1] Covid-19 and Ukraine crisis: It was triggered by supply disruptions due to COVID-19 and further aggravated by the Russia-Ukraine war.
    • The current food price spike first began in vegetable oils and then expanded to cereals.
    • Higher the global trade higher disruption: The effect of global trade disruption will be higher for commodities that are traded more and vice-versa.
    • 2] Diversion of food for biofuel: Another factor underlying the rising trend and spikes in food prices is the diversion of food for biofuel needs.
    • When crude prices increase beyond a certain level it becomes economical to use oilseeds and grains for biodiesel and ethanol, respectively.
    • The second reason for the use of food crops for biofuel is the mandates to increase the share of renewable energy resources.
    • 3] Increased cost of agrochemicals and fertilisers: Food prices are also expected to go up in the current and next harvest season because of an increase in the prices of fertilizer and other agrochemicals.

    Way forward for India

    • Transmission of international prices to domestic prices can be prevented only if there is no trade.
    • 1] Trade policy changes: This transmission of global prices to the domestic market can be moderated through trade policy and other instruments.
    • When international prices go too low, India has checks on cheap imports to protect the interests of producers; and when international prices go too high, the country liberalises imports and imposes checks on exports to ensure adequate availability and reasonable food prices for domestic consumers.
    • 2] Buffer stock: The policy of having a buffer stock of food staples has also been very helpful in maintaining price stability, especially in the wake of global food crises.
    • 3] Strategic liberalisation: India should continue with a policy of strategic liberalisation, as followed in the past, to balance the interests of producers and consumers.
    • 4] Maintain image as a reliable and credible exporter: The importance of agriculture exports to mop up food and agriculture surplus from the country is increasing.
    • Ongoing trends in domestic demand and supply imply that India will be required to dispose of 15% of its domestic food output in the overseas market by 2030.
    • This underscores the need to maintain India’s image as a reliable and credible exporter.
    • However, it is important to differentiate between the two situations: disturbing normal export and regulating exports exceeding the normal level.

    What are the implications for India?

    • Increased prices in India: Export and import in the agriculture sector constituted 13% of gross value added in agriculture during 2020-21.
    • Therefore, some transmission of an increase in global prices on domestic prices is inevitable.
    • Wheat export ban and implications: The recent ban on wheat exports and restrictions on the export of other food commodities by India need to be seen in the light of an abnormal situation created by spikes in international prices.
    • Some experts see it as a setback to India’s image as a reliable exporter as this move is seen to disrupt (regular) export channels.
    • A closer examination of data reveals that India’s action to ban or restrict food exports is not disrupting its normal exports.
    • India was a very small exporter of wheat, with its share in global wheat trade ranging between 0.1% to 1% during 2015-16 to 2020-21.
    • The international market is looking for around 50 million tonnes of wheat to compensate for the disruption in wheat exports from Russia and Ukraine.
    • If India had not imposed a ban on wheat export, it would have resulted in a severe shortage of wheat within the country.

    Global impact and suggestions

    • As the steam of Green Revolution technology slowed down with the start of the 21st century, food prices began increasing in real terms.
    • New breakthroughs required: The world requires new breakthroughs such as Green Revolution technology, for large-scale adoption in order to enable checks on food prices rising at a faster rate.
    • Increase spending on agri-research: This in turn requires increased spending on agriculture research and development (especially by the public sector and multilateral development agencies).
    • Strengthen global agri-research system: There is a need to strengthen and rejuvenate the global agri-research system under the Consultative Group on International Agricultural Research (CGIAR) which is heading towards disarray.
    • Rethink biofuel protocols: Biofuel protocols have contributed to the global food crisis for the second time in the last 15 years.
    • Diversion of land under food crops and food output for biofuel should be carefully calibrated with implications for food availability.

    Conclusion

    • The last three food price crises were primarily caused due to an increase in energy prices and disruptions in the movement of food across borders.
    • Factors related to climate change are going to be an additional source of supply shocks in the years ahead.
    • Therefore, the global community must plan to have a global buffer stock of food in order to ensure reasonable stability in food prices and supply.

    Back2Basics: Consultative Group on International Agricultural Research (CGIAR)

    • CGIAR (formerly the Consultative Group for International Agricultural Research) is a global partnership that unites international organizations engaged in research about food security.
    • CGIAR research aims to reduce rural poverty, increase food security, improve human health and nutrition, and sustainable management of natural resources.

  • The way forward on 5G

    Context

    The near-death of competition signalled by the incipient exit of Vi late last year pushed the Department of Telecommunications (DoT) to announce steps to prevent the premature exit of a sagging operator.

    About 5G

    • 5G is the 5th generation mobile network.
    • It is a new global wireless standard after 1G, 2G, 3G, and 4G networks.
    • 5G can be significantly faster than 4G, delivering up to 20 Gigabits-per-second (Gbps) peak data rates and 100+ Megabits-per-second (Mbps) average data rates.
    • 5G enables a new kind of network that is designed to connect virtually everyone and everything together including machines, objects, and devices.
    • 5G wireless technology is meant to deliver higher multi-Gbps peak data speeds, ultra low latency, more reliability, massive network capacity, increased availability, and a more uniform user experience to more users.
    • Higher performance and improved efficiency empower new user experiences and connects new industries.
    • With high speeds, superior reliability and negligible latency, 5G will expand the mobile ecosystem into new realms.
    • 5G will impact every industry, making safer transportation, remote healthcare, precision agriculture, digitized logistics — and more — a reality.

    India’s telecom sector: From monopoly to hyper-competition to duopoly

    • India’s telecom market has seen monopoly as well as hyper-competition.
    • Twenty-five years ago, the government alone could provide services.
    • Technology and deregulation: In the following years, the combined forces of technology and deregulation helped break the shackles of public sector dominance despite the latter’s stiff resistance
    • In the following years, there were nearly a dozen competing operators. Most service areas now have four players.
    • However, the possible exit of the financially-stressed Vodafone Idea would leave only two dominant players-Airtel and Jio in the telecom sector.
    • A looming duopoly, or the exit of a global telecommunications major, are both worrying.
    • They deserve a careful and creative response.

    Government package for telecom sector to prevent duopoly

    • The near-death of competition signalled by the incipient exit of Vi late last year pushed the Department of Telecommunications (DoT) to announce steps to prevent the premature exit of a sagging operator.
    • As a part of its support package for the telecom sector, in October 2021, it dispensed with the requirement of performance bank guarantees required earlier as security.
    • It increased the tenure of spectrum holding from 20 to 30 years.
    • It allowed for the surrender of the unutilised or underutilised spectrum after 10 years.
    • Most importantly removed the levy of spectrum usage charges. 

    Why competitive telecom market is important?

    • Key to achieving digital ambitions: A competitive telecom sector is fundamental to realising India’s digital ambitions.
    • Innovation: Monopolies have no incentive to innovate.
    • Investment: The competition will guarantee that operators find it attractive to invest in network infrastructure upgradation and offer consumers a wide range of innovative service options.
    • Source of revenue: A competitive telecom sector would be an indirect source of tax revenue as well.
    • How to make market competitive? Competition cannot be willed into the sector.
    • It needs careful nurturing, assiduous fostering and regulatory neutrality. 

    Way forward on 5G

    • Structural changes: While the package may have prevented the exit of Vi from the market, to embed competition within the sector, structural changes are necessary.
    • The imminent 5G networks demand massive investment and sophistication of operations.
    • 1] Level playing field: This will not be achieved unless the playing field is level across the relevant operators and honest incentives are provided to operators to embrace new technology.
    •  2] Change the spectrum allocation method: There is no doubt that spectrum auctions have served India well in the past due to the acrimonious political economy associated with administrative spectrum assignment, including First Come First Serve (FCFS) method.
    • The auction regime worked well when demand exceeded supply, but if there is an adequate quantity of spectrum for everyone, that constraint would not exist.
    • Administrative assignments can thus be considered once again.
    • 3] Administrative assignments:  An administrative assignment will include the possibility that all spectrum can be assigned at reasonable prices and in the process, a grand bargain can be struck with telecom operators.
    • 4] Assigning 5G spectrum for private enterprise business: TRAI and the Digital Communications Commission (DCC) are considering whether 5G spectrum should be assigned to companies like TCS, Amazon and Google, among others, for their private enterprise business.
    • 5G spectrum assignment for enterprises would adversely affect the business model of telcos.
    • But there will be enterprises that telcos could serve that are not large enough to purchase 5G spectrum.
    • A grand bargain that allows enterprises to buy 5G spectrum while assigning spectrum to the existing telcos through the administrative route will also serve the revenue needs of the government.
    • 5] Privatise public sector operator: This is an opportunity to also signal to the public sector operator that 5G business is outside the range of its capability set.
    • Hence like Air India it needs to be privatised in the fullness of time.
    • These are difficult decisions and will need much more political will than in 1994.

    Consider the question “Why a competitive telecom market is a prerequisite for achieving India’s digital dream and why an eminent duopoly in the sector stands to threaten that dream? Suggest way forward.”

    Conclusion

    It would be tragic if India’s telecom-access market was to be reduced to only two competing operators, as we have a long way to go. What we need is structural changes in the sectors as well as the way the sector is regulated.

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    Back2Basics: Spectrum usage charges

    • Companies had to pay 3-5 per cent of their adjusted gross revenue (AGR) as spectrum usage charge to the department of telecom.
    • If they share spectrum with another operator, operators must pay an additional 0.5 per cent of AGR for that band as SUC.
    • However, in September 2021, the Department of Telecommunications (DoT) decided to remove the floor rate of 3% of the adjusted gross revenue (AGR) for operators to pay their spectrum usage charge (SUC).
    • The removal of the clause fixing a floor rate of 3% was done to give effect to the recently announced telecom relief package.
    • Though the telecom package talks of scrapping SUC only on spectrum acquired in future auctions like that of 5G, if the 3% floor is abolished, as and when operators acquire more spectrum in future auctions, their SUC will become zero on the entire holding.
    • This is because of a complex weighted average formula to calculate the SUC of operators who have a mix of administratively allocated spectrum and acquired through auctions.

  • India specific factors that have bearing on inflation trajectory

    Context

    Inflation is turning into a global concern fueled by multiple global factors. However, in India there are a few other triggers that will have a bearing on the inflationary trajectory.

    Global inflation concerns

    • All that could have possibly triggered higher inflation globally has already occurred — multiple waves of the pandemic, supply disruptions, an overdose of policy stimuli, war, sanctions, energy shocks, geopolitical adversity and weather disruptions.

    1] Impact of MSP on inflation

    • The MSP that is fixed by the government for kharif and rabi crops has been one of the key policy instruments.
    • Policymakers in India have often acted with alacrity to protect the interests of farmers over the years.
    • In the last 20 years, the weighted average MSP for kharif crops saw double-digit growth four times — in 2007, 2008, 2012 and 2018.
    • Food inflation shot up to 12 per cent in 2007-08 as against 8 per cent in 2006-07 and 4 per cent in 2005-06.
    • The inflationary surge continued in 2009 as a monsoon failure hit agricultural output hard.
    • Global agricultural commodity prices started to rise in 2010 again and the FAO food price index reached an all-time high in July 2012.
    • One of the key reasons for the increase in food prices was the oil price surge and a rise in demand for biofuel production.
    • The global upside in food prices coincided with a 22 per cent increase in MSP for Kharif crops in India.
    • Following the rise in MSP, food inflation in 2012 increased by 14.6 per cent as against 3.6 per cent the preceding year.
    • In  2018, for the first time, the MSPs for all 23 kharif and rabi crops were fixed at a margin of at least 50 per cent higher than the cost of cultivation.
    • The cost of cultivation (A2 + FL) includes the paid-out cost and cost of imputed family labour.
    • Accordingly, the MSP of kharif crops in 2018 saw an annual increase of about 14 per cent.
    • However, despite the significant rise in MSP, food inflation in 2018-19 was muted at 0.3 per cent.
    • This was because farm input costs were under control and the terms of trade for farmers remained positive.

    2] Impact of GST on inflation

    • Raising the revenue-neutral rate: In the upcoming meeting, there is talk of changes in GST slabs and rates with an eye on raising the revenue-neutral rate from around 11.5 per cent, which is far lower than the 15.5 per cent estimated at the time of the launch of GST.
    • Avoid the shock: However, a GST rate shock to the system is best avoided given the global inflationary backdrop and the fragility of consumer balance sheets.

    3] Influence of weather

    • While the dependence of agricultural output on the quantum of rainfall has reduced, variance in the spatial and temporal distribution of rainfall is emerging as a key risk.
    • A look at 2021 — a normal monsoon year with rainfall at 99 per cent of its long period average — is instructive.
    • The late excess rains delayed the crop cycle and led to crop damage in several parts of the country.
    • Likewise, the spatial distribution of rainfall remained uneven in 2021.
    • Thus, even with normal rainfall in 2021, there were several disruptions to the crop cycle and farm cash flows.

    Conclusion

    The government has taken various steps lately to rein in inflation. However, the RBI will have little freedom in case the GST council decides to accord revenue protection to states via higher GST rates or if the monsoon is not in line with expectations. One hopes these events pan out right, like the MSP hike, when most other things have gone wrong.

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