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Subject: Economics

  • India needs a coordinated approach for decarbonisation of economy

    Context

    The announcement of enhanced targets for climate action by India, particularly for achieving net-zero emissions by 2070, has highlighted the importance of long-term planning for decarbonising the economy.

    Why do we need a decarbonizing strategy

    • The Government of India has responded to rapid reductions in the cost of renewable energy (RE) based power, with dramatic enhancements in the targets for RE.
    • With this approach, India has done well and is on a path to fulfilling its Paris Agreement commitments for 2030.
    • However, the road ahead will be challenging, and therefore, a coordinated strategy for decarbonising the economy efficiently and effectively will be required.

    Strategy for decarbonising the economy

    • Factoring in the changes: By 2070, there will be many changes in technology, environmental conditions, and the economy.
    • The planning horizon of about 50 years will need to be broken up into shorter periods so that new knowledge about emerging technologies can be incorporated into plans.
    • Monitoring of the progress: Plans will need to be monitored so that the course can be corrected to respond to any unforeseen problems.
    • Five years, as the UK has used, seems like a reasonable “Goldilocks ideal.”
    • An autonomous and technically credible agency, like the Climate Change Committee (CCC) in the UK, should be set up.

    Decarbonising the power sector

    • Biggest source of GHG: The power sector is the biggest source of GHG emissions and also the easiest one to decarbonise.
    • Reducing emission intensity is a good overarching objective; increased use of RE or non-fossil-fuel generation is a means to that end.
    • The four 2030 targets: Non-fossil fuel generating capacity to be 500 GW, RE capacity to be 50 per cent of all generation capacity, reduction in emission intensity by 45 per cent, and avoidance of GHG emissions by 1 billion tonnes — are inter-related.

    Suggestions to decarbonise the power sector

    • Set emission intensity targets: Setting permissible emission intensity in terms of grammes of carbon dioxide equivalent per kWh of electricity sold, would be a good option for targets in the power sector.
    • Single emission-related objective: In order to decarbonise the power sector, it would be best to have a single emissions-related objective so that an optimal strategy can be developed to achieve the objective at the lowest cost.
    • Avoid separate targets: Currently there is a profusion of separate targets for almost every resource used to generate electricity.
    • For example, there are separate renewable purchase obligations (RPOs) for solar, non-solar RE, and hydropower.
    • Such an approach reduces the flexibility of distribution companies to select resources to meet their loads, resulting in a non-optimal resource mix, and a higher cost of electricity.
    • Reconsider RPO: RPOs are usually imposed to support nascent technologies, and because RE is now competitive on costs with conventional generation, the need for RPOs should be reconsidered.
    • The use of emission intensity targets is a better approach.

    Consider the question “Why power sector holds the key to decarbonising the Indian economy? Suggest the strategy India should follow to decarbonise the power sector.”

    Conclusion

    The use of five-year interim targets for permissible emission intensity and the establishment of an autonomous and credible agency to advise the government on targets and policies and to monitor progress will greatly facilitate an effective, economic, and smooth transition to decarbonisation of the power sector first, and the Indian economy later by 2070.

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  • Taproot upgrade in Bitcoins

    Bitcoin went through a major upgrade that enables its blockchain to execute more complex transactions, potentially widening the virtual currency’s use cases and making it a little more competitive with Ethereum for processing smart contracts.

    What is the new upgrade?

    • The enhancement, called Taproot, is the most significant change to the bitcoin protocol since the SegWit (Segregated Witness) block capacity change in 2017.
    • SegWit effectively increased the number of transactions that could fit into a block by pulling data on signatures from bitcoin transactions.
    • Smart contracts are self-executing transactions whose results depend on pre-programmed inputs.

    What is Taproot?

    • The Taproot upgrade consists of three separate upgrade proposals.
    • However, at its core, the upgrade introduces a new digital signature scheme called “Schnorr” that will help bitcoin transactions become more efficient and more private.
    • Schnorr can also be leveraged to let bitcoin users execute more complex smart contracts.

    When was Taproot officially activated?

    • Taproot was officially activated on block 709,632.
    • Blockchains settle transactions in batches or blocks.
    • Each block can contain only a certain number of transactions.

    What is its impact on Bitcoin?

    • The biggest impact would be the bitcoin network’s ability to process more smart contracts, similar to what Ethereum does.
    • Bitcoin has historically been much more limited in processing smart contracts compared with Ethereum.
    • Taproot increases privacy by obscuring what type of transaction is being executed.

    What are the other enhancements?

    • The Schnorr signatures can make more complex transactions on the bitcoin protocol, such as those from wallets that require multiple signatures, look like just any other transaction.
    • This makes transactions more private and more secure.
    • Bitcoin transactions will also become more data-efficient, optimizing block capacity and leading to lower transaction fees.

    What does Taproot mean for investors?

    • Large-scale upgrades have paved the way for the next phase of innovation in the bitcoin network.
    • The last major upgrade in 2017 helped launch the Lightning Network, which facilitated much faster and cheaper bitcoin payments than before.
    • Taproot to lead to a similar wave of innovation in bitcoin centered around smart contracts.

    Also read:

    Cryptocurrency

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  • Central bank digital currency (CBDC)

    Context

    Recently, Nigeria joined the Bahamas and five islands in the East Caribbean as the only economies to have introduced central bank digital currency (CBDC). This is a shortlist, but one that is likely to be supplemented.

    Benefits of CBDC

    • Desire to make domestic payments systems and cross-border remittances cheaper, faster and more efficient, and deepen financial inclusion, represent key areas of priority for most other emerging market and development economies (EMDEs).
    • Between 2019 and 2021, the last three surveys conducted by the Bank for International Settlements showed that the primary drivers for central banks of EMDEs to study CBDCs were domestic payments efficiency, financial inclusion and payments safety.

    Design features of CBDCs

    • In theory, the potential of CBDCs are only limited by their design and the capabilities of the central bank issuing it, but their appropriateness and form also depend on the state of the domestic banking and payments industry.
    • Ultimately, CBDCs must be seen as a means to an end.
    • A particular CBDC could, for example, be account-based or tokenised, may be distributed directly by the central bank or through intermediaries, may be interest-bearing (even the possibility of a negative interest has been considered), may be programmable, may offer limited pseudonymity to its holders (similar to, but not to the extent of, cash) and so on.
    • Whether it may be one or the other depends on what its country requires it to be.

    Challenges

    • An economy that adopts an interest-bearing CBDC could make the interest rate on CBDCs the main tool of monetary policy transmission domestically (assuming a high degree of substitution of fiat and fiat-like currency).
    • On the other hand, as former RBI Governor D Subbarao recently warned, rendering an Indian CBDC as an interest-bearing instrument could pose an existential threat to the banking system by eroding its critical role as intermediaries in the economy.
    • If CBDCs compete with bank deposits and facilitate a reduction of bank-held deposits, banks stand to lose out on an important and stable source of funding.
    • Banks may respond by increasing deposit rates, but this would necessitate a higher lending rate to preserve margins, and dampen lending activities.
    • The resultant shrinking of balance sheets will lead to a more pronounced disintermediation role for financial institutions, which could have long-term effects on financial stability, and facilitate easier bank runs.
    • The introduction of CBDCs would require central banks to maintain much larger balance sheets, even in non-crisis times.
    • They would need to replace the lost funding (because of migration of deposits) by lending potentially huge sums to financial institutions, while purchasing correspondingly huge amounts of government and possibly private securities.
    • CBDCs could also have implications for the state from seigniorage as the cost of printing, storing, transporting and distributing currency can be reduced.

    Conclusion

    Recent comments by RBI officials have focussed on the desirability of introducing CBDCs. But the path to a “Digital Rupee” is not clear.

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  • What is the Retail Direct Scheme for investors in G-Secs?

    The RBI has announced proposals for the Retail Direct Scheme for investors in government securities and the Integrated Ombudsman Scheme.

    What is the Retail Direct Scheme?

    • Under the scheme, small investors can buy or sell government securities (G-Secs), or bonds, directly without an intermediary like a mutual fund.
    • It is similar to placing funds in debt instruments such as fixed deposits in banks.
    • However, the same tax rules apply to income from G-Secs.

    Benefits of RDS

    • With the government being the borrower, there is a sovereign guarantee for the funds and hence zero risk of default.
    • Also, government securities may offer better interest rates than bank fixed deposits, depending on prevailing interest rate trends.
    • For example, the latest yield on the benchmark 10-year government securities is 6.366%.

    How can individuals access G-Sec offerings?

    • Investors wishing to open a Retail Direct Gilt account directly with the RBI can do so through an online portal set up for the purpose of the scheme.
    • Once the account is activated with the aid of a password sent to the user’s mobile phone, investors will be permitted to buy securities either in the primary market or in the secondary market.
    • The minimum amount for a bid is ₹10,000 and in multiples of ₹10,000 thereafter. Payments may be made through Net banking or the UPI platform.

    Why was it necessary to introduce this scheme?

    • Broader investor base: The scheme would help broaden the investor base and provide retail investors with enhanced access to the government securities market — both primary and secondary.
    • Institutional investment: Accessing retail investors could free up room for companies to bring funds from institutional investors which may otherwise have been cornered by the government.
    • Diverse borrowing for government: This scheme would facilitate smooth completion of the Government borrowing programme in 2021-22.
    • Structural reform: It is a major structural reform placing India among select few countries which have similar facilities.

    Why is the RBI setting up an Integrated Ombudsman?

    • Prior to the introduction of this scheme, the RBI had three different ombudsman schemes to aid dispute resolution with respect to banks, NBFCs, and non-bank pre-paid payment issuers (PPIs).
    • They were operated by the RBI through 22 ombudsman offices.
    • The RBI would now appoint the Ombudsman and a Deputy Ombudsman for three years.
    • Complaints may be made either physically to the Centralised Receipt and Processing Centre or the RBI’s offices; or electronically through the regulator’s complaint management system.

    Back2Basics: Government Securities

    • These are debt instruments issued by the government to borrow money.
    • The two key categories are:
    1. Treasury bills (T-Bills) – short-term instruments which mature in 91 days, 182 days, or 364 days, and
    2. Dated securities – long-term instruments, which mature anywhere between 5 years and 40 years
    • T-Bills are issued only by the central government, and the interest on them is determined by market forces.

     

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  • Char Dham Road Project

    The needs of defence and environment have to be balanced and a “nuanced” approach is required, said the Supreme Court while hearing an appeal against the widening of roads in Uttarakhand hills for the “Char Dham project”.

    What is Char Dham?
    • The Char Dham is a set of four pilgrimage sites in India.
    • It is believed that visiting these sites helps achieve moksha (salvation).
    • The four Dhams are, Badrinath, Dwaraka, Puri and Rameswaram.

    The highway project

    • The Char Dham highway project connects the four himalayan shrines of Gangotri, Yamunotri, Kedarnath and Badrinath in Garhwal Himalayas.
    • It has 899-km road which the Centre wants to broaden near Dehradun.

    What is the controversy?

    The Supreme Court formed a high-powered committee (HPC) to examine the issues. In July 2020, the HPC submitted two reports after members disagreed on the ideal width for hill roads.

    • Deforestation: In 2018, the road-expansion project was challenged by an NGO for its potential impact on the Himalayan ecology due to felling trees, cutting hills and dumping muck (excavated material).
    • Terrain damage: It was observed that a wider road requires additional slope cutting, blasting, tunnelling, dumping and deforestation.
    • Increasing vulnerability: All of this will further destabilise the Himalayan terrain, and increase vulnerability to landslides and flash floods.

    Criticism of the Project

    • Work without clearance: Project work and felling of trees on different stretches, adding up to over 250 km, has been continuing illegally since 2017-18.
    • Misusing old clearance: Work started on stretches adding up to over 200 km on the basis of old forest clearances issued to the Border Roads Organisation during 2002-2012.
    • False declaration: The work began by falsely declaring that these stretches did not fall in the Eco Sensitive Zones of Kedarnath Wildlife Sanctuary, Rajaji National Park, Valley of Flowers National Park etc.

    The defence angle

    • Even as the project grappled to come clean, it garnered support from the MoD seeking a double-lane road to meet the requirement of the Army.
    • The project always had a strategic angle to it as the highways would facilitate troop movement to areas closer to the China border.
    • Suddenly, this became the sole justification for building wider roads.

     

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  • [pib] Mineral Conservation and Development (Amendment) Rules, 2021

    The Ministry of Mines has notified the Mineral Conservation and Development (Amendment) Rules (MCDR), 2021.

    About the Amendment

    • The MCDR have been framed under section 18 of the Mines and Minerals (Development and Regulation) Act, 1957.
    • It aims to provide rules regarding conservation of minerals, systematic and scientific mining, development of the mineral in the country and for the protection of environment.

    Key highlights of the amendments:

    Digital aerial imaging of the mines

    • Digital mapping: All plans and sections related to mine shall be prepared by combination of Digital Global Positioning System (DGPS) or Total Station or by drone survey.
    • Drone Imaging: Lessees having annual excavation plans of 1 million tonne or more or having leased area of 50 hectare or more are required to submit drone survey images of leased area and up to 100 meters outside the lease boundary every year.
    • Satellite imaging: Other lessees submit high resolution satellite images obtained from CARTOSAT-2 satellite

    This step will not only improve mine planning practices, security and safety in the mines but also ensure better supervision of mining operations.

    Penalty Provisions

    Penalty provisions in the rules have been rationalized. Amendment in the rules categorized the violations of the rules under the following major heads:

    • Major Violations: Penalty of imprisonment, fine or both.
    • Minor Violations: Penalty reduced. Penalty of only fine for such violations prescribed.
    • Decriminalization of Rules: Violation of other rules has been decriminalized. These rules did not cast any significant obligation on the concession holder or any other person

    Financial Assurance

    • Amount of financial assurance increased to five lakh rupees for Category ‘A’ mines and three lakh rupees for Category ‘B’ mines from existing three and two lakh rupees, respectively.
    • Provision of forfeiture of financial assurance or performance security of the lease holder added in case of non-submission of final mine closure plan within the period specified.

    Employment Opportunity

    • Allowed engagement of a part-time mining engineer or a part-time geologist for small mines which will ease compliance burden for small miners.
    • Diploma in mining and mine surveying is added in qualification for full-time Mining Engineer.

     

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  • [pib] E-Amrit Portal for E-Vehicles

    India today launched ‘E-Amrit’, a web portal on electric vehicles (EVs), at the ongoing COP26 Summit in Glasgow, UK.

    It is a must-go portal for every aspirant. Click here to visit E-Amrit.

    E-Amrit Portal

    • E-Amrit is a one-stop destination for all information on electric vehicles—busting myths around the adoption of EVs, their purchase, investment opportunities, policies, subsidies, etc.
    • The portal has been developed and hosted by NITI Aayog under a collaborative knowledge exchange programme with the UK government.

    Features of the portal

    • It intends to complement initiatives of the government on raising awareness about EVs.
    • It aims to sensitize consumers on the benefits of switching to electric vehicles.

    Need for E-Amrit

    • In the recent past, India has taken many initiatives to accelerate the decarbonization of transport and adoption of electric mobility in the country.
    • Schemes such as FAME and PLI are especially important in creating an ecosystem for the early adoption of EVs.

     

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  • [pib] Reserve Bank – Integrated Ombudsman Scheme

    The PM will launch two innovative customer-centric initiatives of the Reserve Bank of India.

    What are the schemes?

    [A] Integrated Ombudsman Scheme

    • It aims to further improve the grievance redress mechanism for resolving customer complaints against entities regulated by RBI.
    • The central theme of the scheme is based on ‘One Nation-One Ombudsman’ with one portal, one email and one address for the customers to lodge their complaints.
    • There will be a single point of reference for customers to file their complaints, submit the documents, track status and provide feedback.
    • A multi-lingual toll-free number will provide all relevant information on grievance redress and assistance for filing complaints.

    [B] RBI Retail Direct Scheme

    • It is aimed at enhancing access to government securities market for retail investors.
    • It offers them a new avenue for directly investing in securities issued by the Government of India and the State Governments.
    • Investors will be able to easily open and maintain their government securities account online with the RBI, free of cost.

     

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  • Logistics Ease Across Different States (LEADS) Report, 2021

    The Logistics Ease Across Different States (LEADS) 2021 Index Rankings has been recently released.

    About LEADS

    • The LEADS index was launched in 2018 by the Commerce and Industry Ministry and Deloitte.
    • It ranks states on the score of their logistics services and efficiency that are indicative of economic growth.
    • States are ranked based on quality and capacity of key infrastructure such as road, rail and warehousing as well as on operational ease of logistics.

    Highlights of the 2021 report

    • India’s logistics costs account for 13-14 per cent of GDP, compared to 7-8 per cent in developed countries.
    • Gujarat, Haryana and Punjab have emerged as the top performers in the LEADS 2021 index respectively.
    • West Bengal, Rajasthan, Madhya Pradesh, Goa, Bihar, Himachal Pradesh and Assam were ranked 15th, 16th, 17th, 18th, 19th, 20th and 21st respectively.
    • North Eastern States, and J&K and Ladakh have been considered a separate group for LEADS rankings.

     

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  • India now ahead of China in financial inclusion metrics: SBI report

    India is now ahead of China in financial inclusion metrics, with mobile and Internet banking transactions rising to 13,615 per 1,000 adults in 2020 from 183 in 2015.

    What does one mean by Financial Inclusion?

    • Financial inclusion is defined as the availability and equality of opportunities to access financial services.
    • It refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and services.
    • These include banking, loan, equity and insurance products etc.

    Key highlights of the Report

    • Boosted by PM Jan-Dhan Yojana, the number of bank branches per 100,000 adults in India rose to 14.7 in 2020 from 13.6 in 2015.
    • It is higher than Germany, China and South Africa.
    • Data shows that states with higher Jan-Dhan accounts balances have seen a perceptible decline in crime.

    How did India achieve financial inclusion?

    • Financial inclusion policies have a multiplier effect on economic growth, reducing poverty and income inequality, while also being conducive for financial stability.
    • India has stolen a march in financial inclusion with the initiation of PMJDY accounts since 2014.
    • It was enabled by a robust digital infrastructure and also careful recalibration of bank branches and thereby using the BC model judiciously.
    • Such financial inclusion has also been enabled by use of digital payments.

    What is the BC Model?

    • The report highlighted that the Banking Correspondent (BC) model in India is enabled to provide a defined range of banking services at low cost.
    • The new branch authorisation policy of 2017 –recognises BCs that provide banking services for a minimum of 4-hours per day and for at least 5-days a week as banking outlets.
    • The BCs are enabled to provide a defined range of banking services at low cost and hence are instrumental in promoting financial inclusion.
    • This has progressively done away the need to set up brick and mortar branches.

     

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