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Subject: Economics

  • Big Tech’s privacy promise could be good news and also bad news

    Context

    In February, Facebook stated that its revenue in 2022 is anticipated to reduce by $10 billion due to steps undertaken by Apple to enhance user privacy on its mobile operating system.

    Move towards more privacy-preserving options

    • Apple introduced AppTrackingTransparency feature that requires apps to request permission from users before tracking them across other apps and websites or sharing their information with and from third parties.
    • Through this change, Apple effectively shut the door on “permissionless” internet tracking and has given consumers more control over how their data is used.
    • Privacy experts have welcomed this move because it is predicted to enhance awareness and nudge other actors to move towards more privacy-preserving options, leading to a market for “Privacy Enhancing Technologies”.
    • Google’s Privacy Sandbox project is a case in point, though it remains to be seen whether it will be truly privacy-preserving.

    Big Tech dominance and issues related to it

    • Privacy and acquisitions: One standout feature of the Big Tech dominance has been the non-price factors such as quality of service (QoS) in general and privacy and acquisitions in particular.
    • Acquisitions to kill competition: Acquisitions by Big Tech are regular and eat up big bucks, not always to promote efficiency but to eliminate potential competition, described evocatively as “kill zone” by specialists.
    • According to a report released by the Federal Trade Commission, between 2010 and 2019, Big Tech made 616 acquisitions.
    • In the absence of a modern framework, competition law continues to rely on Bork’s theory of consumer welfare which postulated that the sole normative objective of antitrust should be to maximise consumer welfare, best pursued through promoting economic efficiency.
    • Market structure thus became irrelevant and conduct became the sole criterion for judgement.
    • Conduct now predominantly revolves around QoS which, like much else surrounding digital platforms, is pushing competition authorities to fortify their existing regulatory toolkits.

    Privacy as a metric of quality

    •  Companies such as Apple and DuckDuckGo (with its slogan “the search engine that doesn’t track you”) are employing enhanced user privacy as a competitive metric.
    • It has been shown that “websites which do not face strong competition are significantly more likely to ask for more personal information than other services provided for free”.
    • In 2018, OECD accepted that privacy is a relevant dimension of quality despite the low quality that may be prevalent due to lack of market development.
    • Regulators across the globe are recognising privacy as a serious metric of quality.
    • For instance, the Competition Commission of India (CCI) in 2021 took suo moto cognisance of changes to WhatsApp’s “take-it” or “leave-it” privacy policy that made it mandatory for every user to share data with Facebook.
    • In its prima facie order, the CCI inter alia observed that this amounts to degradation of privacy and therefore quality.

    Way forward

    • Privacy and competition have overlapping boundaries.
    • If privacy becomes a competitive constraint, then companies will have the incentive to create privacy-preserving and enhancing technologies.
    • Barriers for new entrants: On the other hand, care must be taken so that Big Tech, aka the gatekeepers in the EU’s Digital Markets Act, do not misuse privacy to create barriers for newer entrants.
    • Restricting third-party tracking is not novel and other browsers such as Mozilla Firefox and Microsoft’s Edge have already done so.
    • But Google, which owns 65 per cent of the global browser market, is different.
    • By disabling third parties from tracking but continuing to use that data in its own ad tech stack, Google harms competition.
    • The use of privacy as a tool for market development, therefore, has to tread this tightrope between enabling and stifling competition.

    Conclusion

    An approach that balances user autonomy, consumer protection, innovation, and market competition in digital markets is a real win-win and worth investing in.

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  • IRMS

    Context

    A recent Gazette notification regarding the creation of the Indian Railway Management Service (IRMS) marks a paradigm shift in the management of one of the world’s largest rail networks.

    About the merger and IRMS

    • A nearly 8,000 strong cadre of the erstwhile eight services is now merged into one.
    • Eight out of 10 Group-A Indian Railway services have been merged to create the IRMS.
    • The merged services are: Indian Railway Traffic Service (IRTS), Indian Railway Personnel Service (IRPS), Indian Railway Accounts Service (IRAS), Indian Railway Service of Electrical Engineers (IRSEE), Indian Railway Service of Signal Engineers (IRSS), Indian Railway Service of Mechanical Engineers (IRSME), Indian Railway Service of Civil Engineers (IRSE) and Indian Railway Stores Service (IRSS).
    • Aims of the restructuring: Besides removing silos, this restructuring also aims at rationalising the top-heavy bureaucracy of the Indian Railways.

    Way forward: Training

    • Training the future leaders of India’s public transporter in the rapidly evolving logistics sector of the country is the most important task ahead.
    • The UPSC will recruit a few hundred IRMS officers each year from now, they will remain much less in number when compared to already serving officers for a long time to come.
    • Training of the existing cadre of officers: The fact remains that even after the creation of the IRMS, the 8,000 strong (already serving) officers of the Indian Railways will need to work in coordination and not in silos, as they will be serving in the organisation for decades to come.
    • This highlights the importance of training of the existing cadre of officers as they will have to deliver on the ambitious Gati-Shakti projects.
    • The task of training such a dynamic talent pool assumes importance in view of India’s aspirations of becoming a $5 trillion economy.
    • All this will require a massive revamp of the capacity building ecosystem of the Indian Railways.
    •  Redesign the training: The merger of services provides an opportunity to redesign the training for newly recruited IRMS officers to make them future-ready. Initial training along with mid-career training programmes may be reoriented.
    • The IRMS training needs to be designed based on the competencies required for different leadership roles.
    • Mission Karmayogi of the Government of India provides for competencies based postings of officers.
    • The Integrated Government Online Training (iGOT) programme of the Government of India will be instrumental in shaping the career progression of IRMS officers.

    Conclusion

    Future IRMS officers should be ready to face the challenges of working in an organisation that is involved in round the clock and round the year operations, has substantial social obligations to meet and, at the same time, which must earn for itself.

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  • Addressing Duty Anomalies in Trade Deals

    India has long suffered the anomaly of imported raw material being taxed more than the finished product. Economists call it the inverted duty structure. A spate of free trade agreements (FTAs) in the past have not helped. Are the new ones any better?

    What is the inverted duty structure?

    • An inverted duty structure comes up in a situation where import duties on input goods are higher than on finished goods.
    • In other words, the GST rate paid on purchases is more than the GST rate payable on sales.

    Why is it a problem?

    • When manufacturers cannot set off the taxes paid on raw materials against the tax on the final product, the excess tax paid on inputs gets built into the price of the product.
    • This makes an Indian-made product more expensive than the imported finished product, affecting the competitiveness of Indian makers.
    • The issue is acute in sectors like textiles and apparels.
    • Correcting duty anomalies is key to attracting investments in manufacturing.

    Will new FTAs worsen the problem?

    • Looks unlikely. The FTAs under negotiations are structurally very different from those signed a decade ago.
    • The FTAs signed in the early 2000s were with manufacturing hubs like the 10-nation ASEAN which includes the Philippines, Vietnam, South Korea, and Japan.
    • Most of these countries directly compete with India in a host of manufacturing sectors including apparel, electronics, and engineering goods.
    • They largely produced the same goods as India.
    • By contrast, the new FTAs being signed by India are with countries like the United Arab Emirates (UAE) that share complementarities with India with respect to trade interests.

    How is India addressing duty anomalies?

    • India has been increasing import duties since 2014-15 to correct the inverted duty structure for non-FTA countries and the average tariff rose from 13.5% in 2014 to 15% in 2020.
    • In fact, the last two budgets sought to correct it by removing duty exemptions and lowering the duty on raw materials.

    How did the earlier FTAs impact India?

    • In old FTAs, India agreed to lower or eliminate duties on finished goods. But import duty on raw materials remained high.
    • That made it cheaper to import the final product than make them in India, hurting domestic manufacturers.
    • This can be seen from the fact that the share of ASEAN in India’s total imports has grown from 8.2% in FY11 to 12% in FY21, while exports have stagnated at 10%.
    • The share of South Korea rose from 2.83% in FY11 to 3.23% in FY21, while exports are up marginally from 1.5% to 1.6% during the same period.

    And how are the new FTAs different?

    • The UAE, for example, is a services, oil, and gold-led economy rather than a manufacturer. India benefits from duty-free access for mobile phones, which the UAE does not make.
    • Australia, which signed a pact with India last week is again not a major manufacturing economy, but a services one with key interests in wines and minerals, pears, oranges, etc.
    • Besides, this time around, the government is holding consultations with the industry during the FTA talks, doing a SWOT analysis to ensure FTAs benefit India’s exports.

     

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  • Places in news: Nadabet- the Wagah of Gujarat

    As part of the Seema Darshan project, Union Home Minister inaugurated an Indo-Pakistan border viewing point in Nadabet in Gujarat, around 188 km from Ahmedabad.

    Where is Nadabet?

    • Located in the Rann of Kutch region, Nadabet is also known as the ‘Wagah of Gujarat’.
    • It is connected by a narrow bitumen road cutting across mudflats that get inundated during high-tide.
    • The biggest attraction of the Seema Darshan Project is the access provided to civilians to view the fenced international border with Pakistan at ‘Zero Point’.
    • This is guarded round the clock by the Border Security Force (BSF) in Banaskantha district of Gujarat.
    • Pakistan is around 150 metres from the border pillar 960 at Nadabet.
    • Though the BSF conducts a parade similar to the one held at Attari-Wagah border in Punjab every evening during sunset, there won’t be anyone present across the border on the Pakistani side.

    What is the Seema Darshan Project?

    • The Seema Darshan project is a joint initiative of the tourism department of the Gujarat state government and the BSF Gujarat Frontier.
    • The focus is to develop border-tourism in the region which has a sparse population and even sparser vegetation.
    • The project aims to boost tourism as well as restrict migration from the villages across the border to the Indian side.

    Role of Nadabet in 1971 Indo-Pak War

    • Nadabet played a key role in the 1971 Indo-Pakistan War.
    • It was in this region that the BSF not only stalled the enemy trying to invade from the west, but also captured 15 enemy posts.
    • During the war, the BSF had captured 1,038 square km of Pakistan territory in Nagarparkar and Diplo areas.
    • The area was returned to Pakistan after the Shimla Agreement was signed.

     

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  • Challenges in RBI’s inflation management

    Context

    The first bi-monthly meeting of the Reserve Bank of India’s Monetary Policy Committee (MPC) for the current financial year reaffirmed its focus on inflation management.

    Towards the normalisation of monetary policy

    • The MPC voted to keep the policy rate unchanged at 4 per cent and retained its accommodative stance.
    • However, the wording was changed to “remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.”
    • This statement sets the stage for a shift to a neutral stance in the next meeting and policy rate hikes in subsequent meetings.
    • RBI has announced the withdrawal of some of the steps taken during the pandemic to support the economy.
    • These will foster the normalisation of monetary policy.

    Inflation challenge

    • The central bank has acknowledged that the disruptions caused by the Russia-Ukraine crisis have upended their growth and inflation outlook.
    • It has steeply revised its inflation projection from 4.5 per cent earlier to 5.7 per cent now for the current financial year.
    • The projection is based on an average global crude oil price of $100 per barrel.
    • The Food and Agriculture Organisation’s (FAO’s) Food Price Index, a gauge of global food prices, posted a record growth of 12.6 per cent from February.

    Formalisation of Liquidity Adjustment Framework (LAF)

    • The RBI has been managing liquidity infused into the system during the pandemic through the Variable Rate Reverse Repo Auctions (VRRR) to withdraw liquidity and Variable Rate Repo auctions to inject liquidity.
    • RBI has now formalised the Liquidity Adjustment Framework (LAF).
    • The LAF is a framework to absorb and inject liquidity into the banking system.
    • The LAF is now a symmetric corridor with a width of 50 basis points.
    • The policy repo rate is at the centre of the corridor, with the MSF 25 basis points above the policy rate and the SDF 25 basis points below the policy rate.

    What is a Standing Deposit Facility

    • The RBI has introduced the Standing Deposit Facility (SDF) as the lower bound of the LAF corridor to absorb liquidity.
    • The idea of the SDF was first mooted by the Urjit Patel Committee report on the monetary policy framework.
    • The RBI Act was amended through the Finance Act of 2018 to allow RBI to use this instrument.
    • The SDF will be a facility available to banks to park their funds.
    • The SDF will serve as the standing liquidity absorption facility at the lower end of the LAF corridor.
    • At the upper end of the corridor is the Marginal Standing Facility (MSF) to inject liquidity.
    • Through the SDF, the RBI can absorb liquidity without placing government securities as collateral, hence it will give greater flexibility to the central bank.
    • The change also marks a shift away from reverse repo being the effective policy rate.

    Key takeaways

    • While on the face of it, there are no rate hikes, the shift from the reverse repo rate to the SDF signals a tightening of monetary policy.
    • There is a 40 basis points increase in the floor rate.
    •  In the medium run, the call money rate would move towards the new LAF corridor, thus bringing orderly conditions in the money market.
    • As RBI begins to normalise liquidity in a calibrated manner, its ability to manage bond yields will likely be limited.
    • Yields on bonds are likely to inch up and remain above the 7 per cent mark.
    • Going forward, the trade-off between managing inflation and the borrowing programme of the government will become challenging.

    Conclusion

    For now the RBI has rightly decided to place top priority on inflation management. This will help in maintaining the credibility of the inflation targeting framework.

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  • NITI Aayog publishes Energy and Climate Index List

    Gujarat has topped the list for larger States in the NITI Aayog’s State Energy and Climate Index–Round 1 that has ranked States and Union Territories (UTs) on certain parameters.

    State Energy and Climate Index

    • The States have been categorized based on size and geographical differences as larger and smaller States and UTs.
    • The index is based on 2019-20 data.
    • It ranks the states’ performance on 6 parameters, namely
    1. DISCOM’s Performance
    2. Access, Affordability and Reliability of Energy
    3. Clean Energy Initiatives
    4. Energy Efficiency
    5. Environmental Sustainability; and
    6. New Initiatives
    • The parameters are further divided into 27 indicators. Based on the composite SECI Round I score.
    • The states and UTs are categorized into three groups: Front Runners, Achievers, and Aspirants.

    Performance by the states

    • Gujarat, Kerala and Punjab have been ranked as the top three performers in the category of larger States, while Jharkhand, Madhya Pradesh and Chhattisgarh were the bottom three States.
    • Goa emerged as the top performer in the smaller States category followed by Tripura and Manipur.
    • Among UTs, Chandigarh, Delhi and Daman & Diu/Dadra & Nagar Haveli are the top performers.
    • Punjab was the best performer in discom performance, while Kerala topped in access, affordability and reliability category.
    • Haryana was the best performer in clean energy initiative among larger States and Tamil Nadu in the energy efficiency category.

     

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  • RBI proposes ATM cash withdrawals using UPI

    The RBI’s Monetary Policy Committee (MPC) has proposed to make cardless cash withdrawal facility available at all ATMs, irrespective of banks, through the Unified Payment Interface (UPI).

    What is UPI?

    • UPI is an instant real-time payment system developed by National Payments Corporation of India (NPCI) facilitating inter-bank transactions.
    • The interface is regulated by the Reserve Bank of India and works by instantly transferring funds between two bank accounts on a mobile platform.

    How will cash withdrawals via UPI work?

    • While the RBI did not disclose specific details on how the process will work, a person having knowledge about the matter said ATMs soon will show an option to withdraw cash using UPI.
    • Upon selecting that option, a user would have to add the amount they wish to withdraw following which a QR code would be generated on the ATM machine.
    • The user would then have to scan that code on their UPI app and enter their pin following which the ATM will dispense cash.

    Why such move?

    • Allowing cash withdrawals through UPI would increase the security of such transactions.
    • The absence of the need for physical cards for such transactions would help prevent frauds such as card skimming and card cloning, among others.

    What are the current ways of cardless cash withdrawals at ATMs?

    • At the moment, a few banks such as ICICI Bank, Kotak Mahindra Bank, HDFC Bank and SBI, allow their users to withdraw cash from their ATMs without a card.
    • This was a feature introduced in the wake of the Covid-19 pandemic.
    • However, it is a long-drawn process.
    • Users have to install apps of their respective banks and first select the option of cardless cash withdrawal on the app, followed by adding beneficiary details and the withdrawal amount.
    • After confirming the mobile number of a user, the bank will send an OTP and a nine-digit order ID to the beneficiary’s phone.
    • Post that, the beneficiary would have to visit an ATM and key-in the OTP, order ID, amount for transaction and mobile number to get the cash.

    Could this impact debit card usage?

    • Debit cards are currently the most popular way of cash withdrawals at ATMs.
    • As of now, there are more than 900 million debit cards in the country, and experts have cautioned that allowing cash withdrawals through UPI could negatively impact debit card usage.
    • There could be a potential first-order impact on debit cards as this step would reduce the need to carry debit cards.

    What’s next in the UPI pipeline?

    • It is projected that in the next 3-5 years, UPI would be processing a billion transactions a day, and to enable that, a number of initiatives have been introduced.
    • Chief among these is UPI’s AutoPay feature, which has already seen increased adoption owing to RBI’s disruptive guidelines on recurring mandates.
    • According to industry experts, the AutoPay feature will be crucial to increasing daily transactions on the platform.
    • The RBI has also announced UPI123 on feature phones without an Internet connection, which is expected to open up the payments system to more than 40 crore individuals who use such devices.
    • This will expand digital financial inclusion and add to the number of transactions made on the platform.

     

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  • RBI shift on monetary policy

    Context

    The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Friday gave a surprise, with a formal start to policy normalisation. This was contrary to the predominant market expectations of a hold.

    RBI on the path of policy normalisation

    • Focus on target of 4% +/- 2%: While the MPC voted unanimously to remain accommodative, in a change of language, the focus would now be on “withdrawal of accommodation to ensure that (CPI) inflation remains within the target (of 4 per cent +/- 2 per cent) going forward”.
    •  Remember, the RBI had become a (flexible) inflation-targeting central bank since FY17, whose primary objective is price stability, that is, inflation management.
    • The Liquidity Adjustment Facility (LAF) corridor was narrowed back to the conventional 0.25 percentage points from the earlier extraordinary pandemic widening in late March 2020.
    • The cap of the erstwhile corridor was the repo rate and the floor was the reverse repo.
    • Now, while the repo rate was held at 4.0 per cent and the latter at 3.35 per cent, the floor of the corridor was increased by 0.4 percentage points from 3.35 per cent.
    • There was also a change in the monetary policy orientation, of which the stance is one component.
    • The priority for monetary policy now is inflation, growth and financial stability, in that order.

    Reasons for unexpected tightening of policy

    • Inflation concerns: Despite uncertainty over growth impulses and demand concentrated at the upper-income level households, inflation has increasingly emerged as a big concern.
    •  Given that inflation is likely to average 6.1 per cent in Q4 of FY22, this increases the risk of inflation remaining above the 6 per cent upper target for three consecutive quarters, necessitating an explanation to the government by the MPC.
    • One comforting aspect of this scenario is that household inflation expectations remain anchored, with the median of three months to one year ahead expectations (as of March ’22) rising by only 0.1 percentage points from the earlier January readings.
    • Stabilisation of demand: On demand conditions, the RBI scaled-down the FY23 real GDP growth projection to 7.2 per cent (from 7.8 per cent), indicating that a combination of continuing supply dislocations, slowing global economy and trade, high prices and financial markets volatility are likely to take a toll.
    • One possible reconciliation with modest GDP growth is continuing weakness in services, which is also borne out by channel checks.
    • Certainly, continuing high inflation is likely to lead to some demand destruction, which will act as an automatic stabiliser.
    • A relatively loose fiscal policy is likely to offset some of this reduced demand, particularly with continuing subsidies to lower-income households.
    • Financial stability: This has multiple dimensions – interest and foreign exchange rates, market volatility, banking sector asset stress, and so on.
    • An important objective for the RBI is the management of money supply and system liquidity.
    • In a rising rate cycle, with a large borrowing programme of the Centre and state governments, interest rates on sovereign bonds are likely to increase without a measure of support from the RBI through Open Market Operations (OMOs).
    • This will entail injecting more liquidity into an already large surplus, which might add to inflationary pressures.
    • The introduction of the overnight Standing Deposit Facility (SDF) was a significant measure in this context.
    • Unlike the reverse repo facility, the RBI will not need to give banks government bonds as collateral against the funds they deposit.
    • This is thus a more flexible instrument should a shortage of government bonds in RBI holdings actually transpire under some eventuality, say the need to absorb large capital inflows post a bond index inclusion.

    What are the implications?

    • Interest rates will begin to increase but, for bank borrowers, this is likely to be a very gradual process.
    • For corporates and other wholesale borrowers, who also borrow from bond markets, this increase is likely to be faster as the surplus system liquidity is gradually drained.
    • How this is likely to affect demand for credit is uncertain, given the capex push of the government, some revival of private sector investment and likely continuing demand for housing.

    Conclusion

    This cycle of policy tightening will present a particularly difficult mix of economic and financial trade-offs, but RBI has demonstrated the ability to innovatively use the multiple instruments at its disposal to ensure an orderly transition.

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    Back2Basics: Liquidity Adjustment Facility corridor

    • Liquidity adjustment facility (LAF) is a monetary policy tool which allows banks to borrow money through repurchase agreements or repos.
    • LAF is used to aid banks in adjusting the day to day mismatches in liquidity (frictional liquidity deficit/surplus).
    • The liquidity adjustment facility corridor is the excess of repo rate over reverse repo.

  • What is Standing Deposit Facility (SDF)?

    The Reserve Bank of India (RBI) introduced the Standing Deposit Facility (SDF), an additional tool for absorbing liquidity, at an interest rate of 3.75 per cent.

    What is SDF?

    • In 2018, the amended Section 17 of the RBI Act empowered the Reserve Bank to introduce the SDF – an additional tool for absorbing liquidity without any collateral.
    • By removing the binding collateral constraint on the RBI, the SDF strengthens the operating framework of monetary policy.
    • The SDF is also a financial stability tool in addition to its role in liquidity management.
    • The SDF will replace the fixed-rate reverse repo (FRRR) as the floor of the liquidity adjustment facility corridor.
    • Both the standing facilities — the MSF (marginal standing facility) and the SDF will be available on all days of the week, throughout the year.

    How it will operate?

    • The main purpose of SDF is to reduce the excess liquidity of Rs 8.5 lakh crore in the system, and control inflation.
    • The SDF rate will be 25 bps below the policy rate (Repo rate), and it will be applicable to overnight deposits at this stage.
    • It would, however, retain the flexibility to absorb liquidity of longer tenors as and when the need arises, with appropriate pricing.
    • The RBI’s plan is to restore the size of the liquidity surplus in the system to a level consistent with the prevailing stance of monetary policy.

    Also read:

    What is Reverse Repo Normalization?

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  • Indonesia’s Palm Oil Crisis

    The world’s largest producer and exporter of palm oil, Indonesia, is facing domestic shortages, leading to price controls and export curbs.

    What is the news?

    • It’s rare for any country that is the largest producer and exporter of a product to experience domestic shortages of the same product.
    • Consumers are unable to access or paying through the nose for a commodity in which their country is the preeminent producer and exporter.

    What is Oil Palm?

    • Palm oil is an edible vegetable oil derived from the mesocarp of the fruit of the oil palms.
    • The oil is used in food manufacturing, in beauty products, and as biofuel.

    Palm oil production in Indonesia

    • Its palm oil production for 2021-22 (October-September) at 45.5 million tonnes (mt).
    • That’s almost 60% of the total global output and way ahead of the next bigger producer: Malaysia (18.7 mt).
    • It is also the world’s No. 1 exporter of the commodity, at 29 mt, followed by Malaysia (16.22 mt).

    Do you know?

    14,000 IDR is less than $1 or Rs 74! See the extent of depreciation one currency can undergo!

    Have you ever heard of the Zimbabwean hyperinflation of 2009? One literally had to pay a heap of cash to buy a piece of bread!

    Why in headlines?

    • Indonesia has seen domestic prices of branded cooking oil spiral, from around 14,000 Indonesian rupiah (IDR) to 22,000 IDR per litre between March 2021 and March 2022.
    • Much recently, the government imposed a ceiling on retail prices at 14,000 IDR.
    • This led to the product disappearing from supermarket shelves, amid reports of hoarding and consumers standing in long queues for hours to get a pack or two.

    India’s imports of palm oil (in lakh tonnes)

    Plausible factors

    (1) Ongoing War

    • The possible reason has to do supply disruptions — manmade and natural — in other cooking oils, especially sunflower and soyabean.
    • Ukraine and Russia together account for nearly 80% of the global trade in sunflower oil, quite comparable to the 90% share of Indonesia and Malaysia in palm.
    • Russia’s invasion of Ukraine has resulted in port closures and exporters avoiding Black Sea shipping routes.
    • Sanctions against Russia have further curtailed trade in sunflower oil, the world’s third most exported vegetable oil after palm and soybean.

    (2) Diversion for Bio-Fuels

    • Another factor is linked to petroleum, more specifically the use of palm oil as a bio-fuel.
    • The Indonesian government has, since 2020, made 30% blending of diesel with palm oil mandatory as part of a plan to slash fossil fuel imports.
    • Palm oil getting increasingly diverted for bio-diesel is leaving less quantity available, both for the domestic cooking oil and export market.

    Impact on India

    • India is the world’s biggest vegetable oils importer.
    • Out of its annual imports of 14-15 mt, the lion’s share is of palm oil (8-9 mt), followed by soyabean (3-3.5 mt) and sunflower (2.5).
    • Indonesia has been India’s top supplier of palm oil, though it was overtaken by Malaysia in 2021-22 (see above table).
    • The restrictions on exports, even in the form of levy, take into cognizance Indonesia’s higher population (27.5 crores, against Malaysia’s 3.25 crore) as well as its ambitious biofuel program.
    • To that extent, the world – more so, the bigger importer India – will have to get used to lower supplies from Indonesia.

     

    Answer this PYQ from CSP 2019:

     

    Q.Among the agricultural commodities imported by India, which one of the following accounts for the highest imports in terms of value in the last five years?

    (a) Spices

    (b) Fresh fruits

    (c) Pulses

    (d) Vegetable oils

     

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