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Subject: Economics

  • [pib] Gold Reserves in India

    The Minister of Mines and Coal has provided useful information regarding gold reserves in India.

    Gold Reserves in India

    • As per National Mineral Inventory data, the total reserves/resources of gold ore (primary) in the country have been estimated at 501.83 million tonnes as of 2015.
    • Out of these, 17.22 million tonnes were placed under the reserves category and the remaining 484.61 million tonnes were under the remaining resources category.
    • In India, the largest resources of gold ore (primary) are located in Bihar (44%) followed by Rajasthan (25%), Karnataka (21%), West Bengal (3%), Andhra Pradesh (3% ), Jharkhand (2 %).
    • The remaining 2% resources of ore are located in Chhattisgarh, Madhya Pradesh, Kerala, Maharashtra, and Tamil Nadu.

    Who takes up their mapping?

    • Geological Survey of India (GSI) is actively engaged in geological mapping followed by mineral exploration (survey) for various mineral commodities including gold.
    • GSI aims to identify potential mineral-rich zones and establish resources.
    • Every year, as per the approved annual Field Season Program, GSI takes up mineral exploration projects in various parts of the country for augmenting mineral resources.
    • Recently, GoI has amended the MEMC Rules to allow auction of composite license at G4 level for deep-seated minerals including Gold.

    Answer this PYQ in the comment box:

    Consider the following statements:

    1. In India, State Governments do not have the power to auction non -coal mines.
    2. Andhra Pradesh and Jharkhand do not have goldmines.
    3. Rajasthan has iron ore mines.

    Which of the statements given above is/are correct?

    (a) 1 and 2 only

    (b) 2 only

    (c) 1 and 3 only

    (d) 3 only

  • Implications of EU’s new GHG emissions law for Indian industry

    Context

    On July 14, the European Union introduced new legislation, Fit for 55, to cut its GHG emissions by 55 per cent by 2030 and to net-zero by 2050.

    Implications of Fit for 55

    • Legal backing: It turns the EU’s announcement into law, protecting it from the winds of political change.
    • Opportunity for India: It opens new markets for Indian industry, for example for electric vehicles.
    • CBAM: However, it also introduces a potentially adverse policy called the carbon border adjustment mechanism (CBAM).
    • CBAM is meant to discourage consumers from buying carbon-intensive products and encourage producers to invest in cleaner technologies.

    What is CBAM?

    • The EU has had a carbon emission trading system since 2005.
    • With Fit for 55, the EU’s carbon price is likely to go up.
    • High carbon price will make the EU’s domestic products more expensive than imports from countries that do not have such rules.
    • The new CBAM is meant to level the playing field between domestic and imported products.
    • CBAM will require foreign producers to pay for the carbon emitted while manufacturing their products.
    • The adjustment will be applied to energy-intensive products that are widely traded by the EU, such as iron and steel, aluminium, cement, fertiliser, and electricity.

    Why CBAM is a cause for concern for India?

    • India is Europe’s third-largest trading partner, and it does not have its own carbon tax or cap.
    • So, CBAM should be a cause for concern for it.
    • A UNCTAD study predicts that India will lose $1-1.7 billion in exports of energy-intensive products such as steel and aluminium.
    • India’s goods trade with the EU was $74 billion in 2020.

    Way forward for Indian Industry

    • Clean technology partnerships: Indian Industry should enter clean technology partnerships with European industry.
    • Invest in renewables:  Indian companies should invest in more renewable electricity and energy efficiency.
    • Incentivise low-carbon choices: They can adopt science-based targets for emission reduction and internal carbon pricing to incentivise low-carbon choices.
    • Schemes and Government financing: The government can extend the perform-achieve-trade scheme to more industries and provide finance to MSMEs to upgrade to clean technologies.
    • WRI India’s analysis shows that carbon dioxide emissions from the iron and steel industry can be reduced from 900 million tonnes to 500 million tonnes in 2035 through greater electrification, green hydrogen, energy efficiency, and material efficiency.
    • Diversify export: India can try to diversify its exports to other markets and products.

    Consider the question “What is carbon border adjustment mechanism (CBAM) introduced by the EU? What are its implications for Indian industry?” 

    Conclusion

    At present, the CBAM may seem obstructionist. But over the long-term, it can provide regulatory certainty to industry by harmonising carbon prices, and Indian industry can position itself as a strong player in the trade landscape of the future.

    Back2Basics: UNCTAD

    • UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964.
    • Its headquarters are located in Geneva, Switzerland, and have offices in New York and Addis Ababa.
    • UNCTAD is part of the UN Secretariat.
    • IT report to the UN General Assembly and the Economic and Social Council but have own membership, leadership, and budget.
    • It is also part of the United Nations Development Group.

  • Essential Defence Services Bill, 2021

    The Minister of State for Defence has introduced the Essential Defence Services Bill in the Lok Sabha.

    Essential Defence Services Bill

    • Essentially, the bill is aimed at preventing the staff of the government-owned ordnance factories from going on strike.
    • Around 70,000 people work with the 41 ordnance factories around the country.
    • It is aimed to provide for the maintenance of essential defence services so as to secure the security of the nation and the life and property of the public at large and for matters connected therewith or incidental thereto.

    Why need such a bill?

    • Indian Ordnance Factories is the oldest and largest industrial setup that functions under the Department of Defence Production of the Ministry of Defence.
    • The ordnance factories form an integrated base for indigenous production of defence hardware and equipment, with the primary objective of self-reliance in equipping the armed forces with state-of-the-art battlefield equipment.
    • It is essential that an uninterrupted supply of ordnance items to the armed forces be maintained for the defence preparedness of the country and the ordnance factories continue to function without any disruptions.

    What does it allow the government to do?

    • The Bill empowers the government to declare services mentioned in it as essential defence services the cessation of work of which would prejudicially affect the production of defence equipment or goods.
    • It also prohibits strikes and lockouts in “any industrial establishment or unit engaged in essential defence services”.

    Why does the government feel its need?

    • In June the government announced the corporatization of the Ordnance Factory Board.
    • The OFB was directly under the Department of Defence Production and worked as an arm of the government.
    • The government has claimed that the move is aimed at improving the efficiency and accountability of these factories.
    • The Bill mentioned that there is a threat, though, that the employees of these factories can go on a strike against the decision.

    Also read:

    Ordinance Factory Board corporatization gets Cabinet approval

  • Special Economic Zones

    Key Highlights of the report

    • If India is to become a US $5 trillion economy by 2025, then the current environment of manufacturing competitiveness and services has to undergo a basic paradigm shift.
    • The report notes that the success seen by services sectors like IT and ITES (IT enabled services) has to be promoted in other services sector like health care, financial services, legal, repair and design services.

  • India’s FAANG moment has arrived

    Context

    In the US, the Big Tech FAANG five are Facebook, Apple, Amazon, Netflix and Google (now Alphabet).  Today, in India, Zomato’s stock market debut is a big occasion for India that could pave the path for other online successes.

    Significance for economy

    • It is the first among a host of domestic unicorns to have taken the IPO road, heralding a watershed moment.
    • Boost for startups: It is also also a big leap for our country as a whole, which today boasts of the third largest start-up ecosystem in the world.
    • Creation of online ecosystem: The response to Zomato’s initial public offer (IPO) gave us interesting insights into the robustness of the online economy in a pandemic-stricken world.
    • Help creation of tech-giants: It could alter the composition as well as perception of markets, giving Indian investors a feel of new-generation, tech-heavy, assets-light and agile entrepreneurial growth stories, woven around the consumer internet ecosystem in India.
    • Attracting FDI: With global liquidity at unprecedented levels and tech being the toast of the season, we could be looking at FDI inflows in unforeseen proportion in days to come.
    • The ascent of new-age enterprises like Zomato and Paytm on the Stock Market, followed by likes of Oyo, Ola, Swiggy, Byju’s and even Flipkart could signal the emergence of India’s own FAANG family.

    What sets the tech startups apart?

    • Their reliance on big data and leveraging of ever-evolving technology, while sustaining a two-way connection with clients set them apart.
    • The ‘stickiness’ and the ‘connect’ built over the years through carefully fabricated social layers puts them in the league of giant social media influencers.
    • During the last few decades, two distinctive traits that have the potential to push the boundaries of limitations are the creation of a large talent pool and India’s prowess in software and data (including AI/ML) technology, both on a global scale.

    Conclusion

    As we celebrate 30 years of economic reforms, today’s debut, at least for the markets and the economy, may well be called India’s re-tryst with destiny.

  • [pib] Periodic Labour Force Survey (2019 –2020)

    The Periodic Labour Force Survey (PLFS) Annual Report for July, 2019 to June 2020 was recently released by the National Statistical Office (NSO).

    Periodic Labour Force Survey

    • Considering the importance of the availability of labor force data at more frequent time intervals, National Statistical Office (NSO) launched PLFS in April 2017.
    • The objective of PLFS is primarily twofold:
    1. to estimate the key employment and unemployment indicators (viz. Worker Population Ratio, Labour Force Participation Rate, Unemployment Rate) in the short time interval of three months for the urban areas only in the Current Weekly Status (CWS).
    2. to estimate employment and unemployment indicators in both ‘Usual Status’ and CWS in both rural and urban areas annually.

    Various dimensions of the survey

    The PLFS gives estimates of Key employment and unemployment Indicators:

    • Labour Force Participation Rate (LFPR): LFPR is defined as the percentage of persons in the labor force (i.e. working or seeking or available for work) in the population.
    • Worker Population Ratio (WPR): WPR is defined as the percentage of employed persons in the population.
    • Unemployment Rate (UR): UR is defined as the percentage of persons unemployed among the persons in the labor force.
    • Activity Status- Usual Status: When the activity status is determined on the basis of the reference period of the last 365 days preceding the date of the survey, it is known as the usual activity status of the person.
    • Activity Status- Current Weekly Status (CWS): The activity status determined on the basis of a reference period of the last 7 days preceding the date of the survey is known as the CWS of the person.

    Highlights of the third report

    • The Labour force participation ratio has increased to 40.1% in 2019-20 from 37.5% and 36.9%, respectively, in the last two years.
    • Worker population rate improved to 38.2% in 2019-20 compared with 35.3% in 2018-19 and 34.7% in 2017-18.
    • The unemployment rate fell to 4.8% in 2019-20. In 2018-19, it stood at 5.8% and 6.1% in 2017-18.

  • Challenges in withdrawing stimulus measures

    Context

    Economic-policy discussions increasingly revolve around the question of when and how quickly central banks should pull back the uber-stimulus measures implemented last year in response to the pandemic.

    Why withdrawal is challenging?

    • Uncertainties: Both parts of the question (when and how) call for finely balanced judgment to account for uncertainties that are in play.
    • Policy changes by major central banks can have far-reaching implications for economic and financial well-being, affecting not just those directly involved but also the many nations.
    • To answer the question, an assessment of three current issues is required:
    • The labor market.
    • The surge in inflation.
    • The risk of not being able to recover quickly in the event of a policy mistake.

    Let’s look into these three issues

    1) Labour market puzzle

    • Despite massive demand, the labor market is unable to match unemployed workers to jobs.
    • The situation is particularly stark in the US.
    • Job data for April show that there are a record number of job openings in the US—more than nine million—labor-force participation remains stubbornly low, and unemployment high, compared to pre-pandemic levels.
    • The labor market’s persistent malfunctioning—particularly employers’ struggle to find employees—is likely to lead to higher wage growth, a possibility that fuels concern about the second issue-inflation.

    2) Inflation: Is it transitory or long-lasting?

    • There is a view that the current uptick in inflation will sharply reverse itself.
    • As the year progresses, it is expected that the base effect will wash out together with the supply and demand mismatches.
    • However, there is a possibility of supply bottlenecks, changes in supply chains, and lasting inventory management challenges.

    3) Policy challenges: To act or not to act

    • Policymakers must be mindful of the risks associated with any given course of action—including inaction.
    • In the face of such uncertainty, it is wise to ask not just what could go wrong but also what the consequences of a policy mistake would be.
    • Under the current conditions, a wrong move could have far-reaching, lasting effects.
    • Those favoring a continuation of loose monetary policies argue that central bankers still have tools to overcome inflation should it persist.
    • But as the opponents are quick to point out, those tools have become increasingly ineffective and difficult to calibrate.
    • The risk of inaction (or inertia) in this case may be larger than that of acting early.

    Options with systemically important central banks

    • In the case of the US, economic growth is buoyant, fiscal policy is also extremely expansionary, and businesses and households alike have significant accumulated savings that they will now be spending down.
    • The conditions are now ripe for the Fed to start reducing—gradually and carefully—its bond-buying program from its current rate of $120 billion per month.
    • The European Central Bank, however, is in a different position.
    • While eurozone growth is picking up, the level of financial support is not as strong as in the US, and the private-sector recovery is not as advanced.
    • The hardest case to call in the UK.
    • With growth, fiscal support, and the private sector’s prospects more finely balanced.
    • Other central bankers around the world also have an important role to play.
    • Central bankers elsewhere should be running their own scenario analyses and formulating appropriate response plans.

    Conclusion

    There is nothing wrong with hoping that three systemically important central banks will get to their destination smoothly. But the journey is far from over, and the risk of someone slipping is not negligible.

    Back2Basics: Labour force participation rate

    • The labor force participation rate is a measure of an economy’s active workforce.
    • The formula for the number is the sum of all workers who are employed or actively seeking employment divided by the total noninstitutionalized, civilian working-age population.
    • Used in conjunction with the unemployment numbers, it offers some perspective into the state of the economy.

    Source:

    https://www.financialexpress.com/opinion/withdrawal-symptoms-central-banking-fast-and-slow/2295940/

  • RBI working towards ‘phased introduction’ of Digital Rupee

    The Reserve Bank of India (RBI) is working toward a “phased implementation strategy” of a Central Bank Digital Currency (CBDC).

    Do you know?

    China’s digital RMB was the first digital currency to be issued by a major economy.

    Central Bank Digital Currency (CBDC)

    • The phrase CBDC has been used to refer to various proposals involving digital currency issued by a central bank.
    • They are also called digital fiat currencies or digital base money.
    • The present concept of CBDCs was directly inspired by Bitcoin, but a CBDC is different from virtual currency and cryptocurrency.
    • Cryptocurrencies are not issued by a state and lack the legal tender status declared by the government.

    Why India needs a digital rupee?

    • Online transactions: India is a leader in digital payments, but cash remains dominant for small-value transactions.
    • High currency in circulation: India has a fairly high currency-to-GDP ratio.
    • Cost of currency management: An official digital currency would reduce the cost of currency management while enabling real-time payments without any inter-bank settlement.

    Features of CBDC

    • High-security instrument: CBDC is a high-security digital instrument; like paper banknotes, it is a means of payment, a unit of account, and a store of value.
    • Uniquely identifiable: And like paper currency, each unit is uniquely identifiable to prevent counterfeit.
    • Liability of central bank: It is a liability of the central bank just as physical currency is.
    • Transferability: It’s a digital bearer instrument that can be stored, transferred, and transmitted by all kinds of digital payment systems and services.

    Various benefits offered

    • It is efficient than printing notes (cost of printing, transporting, and storing paper currency)
    • It reduces the risk of transactions
    • It makes tax collection transparent
    • Prevents money laundering

  • Nord Stream 2 Pipeline Project

    The US, which had previously imposed sanctions to prevent the completion of a major new gas pipeline between Russia and Germany, has now signaled its approval for the project.

    Nord Stream 2 Pipeline

    • It is a system of offshore natural gas pipelines running under the Baltic Sea from Russia to Germany.
    • It includes two active pipelines running from Vyborg to Lubmin near Greifswald forming the original Nord Stream, and two further pipelines under construction running from Ust-Luga to Lubmin termed Nord Stream 2.
    • In Lubmin the lines connect to the OPAL line to Olbernhau on the Czech border and to the NEL line to Rehden near Bremen.
    • The first line Nord Stream-1 was laid and inaugurated in 2011 and the second line in 2012.
    • At 1,222 km in length, Nord Stream is the longest sub-sea pipeline in the world, surpassing the Langeled pipeline.

    Why is the pipeline controversial?

    • The US believed that the project would increase Europe’s dependence on Russia for natural gas.
    • Currently, EU countries already rely on Russia for 40 percent of their gas needs.
    • The project also has opponents in eastern Europe, especially Ukraine, whose ties with Russia have seriously deteriorated in the aftermath of the Crimean conflict in 2014.
    • There is an existing land pipeline between Russia and Europe that runs through Ukraine.
    • The country feels that once Nord Storm 2 is completed, Russia could bypass the Ukrainian pipeline, and deprive it of lucrative transit fees of around $3 billion per year.
    • Ukraine also fears another invasion by Russia once the new pipeline is operational.

  • [pib] India improves score in Ease of Cross-Border Trade

    As per the latest UN Global Survey on Digital and Sustainable Trade Facilitation, India’s rank moved up from 78.49% in 2019 to 90.32% in 2021.

    About the Survey

    • The Global Survey on Digital and Sustainable Trade Facilitation is conducted every two years by UNESCAP.
    • The 2021 Survey includes an assessment of 58 trade facilitation measures covered by the WTO’s Trade Facilitation Agreement.
    • The Survey is keenly awaited globally as it evidences whether or not the trade facilitation measures being taken have the desired impact and helps draw comparison amongst countries.
    • A higher score for a country also helps businesses in their investment decisions.

    Global performance

    • Among developed countries, Australia, New Zealand, Netherlands, Japan, and Belgium have scored more than 93%.
    • In South Asia, Bangladesh and Sri Lanka were behind India with a score of 64.5% and 60.2%, the survey showed.

    India’s improvement

    • India has scored 90.32% in United Nation’s Economic and Social Commission for Asia Pacific’s (UNESCAP) latest Global Survey on Digital and Sustainable Trade Facilitation.
    • The Survey hails this as a remarkable jump from 78.49% in 2019.

    India’s significant improvement in the scores on all 5 key indicators, as follows:

    1. Transparency:100% in 2021 (from 93.33% in 2019)
    2. Formalities: 95.83% in 2021 (from 87.5% in 2019)
    3. Institutional Arrangement and Cooperation: 88.89% in 2021 (from 66.67% in 2019)
    4. Paperless Trade: 96.3% in 2021 (from 81.48% in 2019)
    5. Cross-Border Paperless Trade: 66.67% in 2021 (from 55.56% in 2019)
    • The Survey notes that India is the best-performing country when compared to the South and southwest Asia region (63.12%) and the Asia Pacific region (65.85%).
    • The overall score of India has also been found to be greater than many OECD countries including France, UK, Canada, Norway, Finland etc. and the overall score is greater than the average score of EU.
    • India has achieved a 100% score for the Transparency index and 66% in the “Women in trade” component.