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Subject: Economics

  • Cryptocurrencies

    With cryptocurrencies such as Bitcoin gaining popularity among citizens, the Centre has been compelled to take a stance on the legal status of cryptocurrencies.

    Background

    • The Union Government is said to be considering a proposal to tax cryptocurrency transactions in the country.
    • The move would bring cryptocurrency trading, which has till date happened outside the ambit of the law, into the formal economy.

    Defying RBI ban

    • RBI has been vehemently opposed to the idea of legalizing cryptocurrencies.
    • It had banned financial institutions such as banks from facilitating transactions involving cryptocurrencies back in 2018.
    • The RBI’s order was overturned by the Supreme Court in 2020, and this led to a tremendous surge in cryptocurrency transactions through exchanges.

    Why did RBI propose a ban?

    • Financial stability: The RBI has characterized private cryptocurrencies as a threat to financial stability.
    • Threat to the sovereignty of Rupee: It perceives cryptocurrencies rise as a threat to the sovereignty of the rupee.
    • Beyond regulatory scope: The widespread acceptance of cryptocurrencies could interfere with the ability of the RBI to conduct monetary policy effectively.
    • Digital currency in the pipeline: It should be noted that RBI and other central banks are also looking to come up with digital versions of their own currencies.
    • Competition of currencies: The rupee or central bank digital currencies may not be able to outcompete cryptocurrencies just because they are digital.

    Legislative opinion on Cryptocurrencies

    • Not in favour of ban: This week, a Parliamentary Standing Committee recommended that cryptocurrencies be regulated rather than banned.
    • Making a legal framework: The Government is also expected to table a bill that clarifies its position on cryptocurrencies in Parliament next year.
    • Taxing cryptocurrencies: There is a proposal to classify cryptocurrency exchanges as e-commerce platforms and tax them under the GST framework comes.

    Why has the Government chosen to regulate rather than ban cryptocurrencies?

    • Popularity amongst Public: The growing popularity of cryptocurrencies among citizens may have played a role in the Government opting for regulation over an outright ban.
    • Lack of evident threat: There is no clear evidence of the misuse of cryptocurrencies and their risks.
    • Boosting with policy: The Union govt may also not want to kill the nascent cryptocurrency industry which many believe can be a hub for financial innovation.
    • Revenue generation: Fiscal revenues can be adversely impacted by the increased tax evasion opportunities that crypto-currencies can facilitate.
    • Capitalizing the market: The govt wants to capitalise on the recent surge in the usage of cryptocurrencies to tax them and shore up its revenues.
    • Financial innovation: Blockchain technology has multiple uses beyond just facilitating cryptocurrency transactions.

    Issues with the ban

    • Brain-Drain: Ban of cryptocurrencies is most likely to result in an exodus of both talent and business from India, similar to what happened after the RBI’s 2018 ban.
    • Capital inflows will be restricted: If cryptos begin to get mined onshore, they will induce capital inflows.
    • Killing financial innovation: A ban will deprive India, its entrepreneurs and citizens of a transformative technology that is being rapidly adopted across the world.

    Other generic concerns:

    • Safety (cyber-attacks and fraud)
    • Financial integrity (money laundering and evasion of capital controls)
    • Energy usage (outsized energy needs to mine cryptos)

    Way forward

    • Thus it can be inferred that cryptocurrency is better classified as an asset rather than as a currency, in order to gain acceptance and avoid a ban.

    Conclusion

    • There is no doubt that the acceptance of cryptocurrencies by the Government is likely to be limited.
    • While cryptocurrencies may be accepted as speculative assets, it is highly unlikely that they will be accepted as full-fledged currencies competing against the rupee.

     

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  • RBI panel brings law to regulate Digital Lending

    A Reserve Bank of India (RBI) Working Group (WG) on digital lending has recommended separate legislation to oversee such lending as well as a nodal agency to vet the Digital Lending Apps.

    Digital Lending

    • Digital lending is the process of availing credit online.
    • Its increased popularity amongst new-age lenders can be attributed to expanding smartphone penetration, credit range flexibility, and speedy online transactions.

    Significance of Digital Lending

    India has a huge growth potential when it comes to the Digital Lending landscape:

    • Alternate source of finance: Digital lending is mostly preferred by those who are generally not able to avail any credit through the formal sources of finance, like banks.
    • Lender of the last resort: Digital lending is mostly preferred by those who are generally not able to avail any credit through the formal sources of finance, like banks.
    • Financial inclusion: Digital lending is a powerful tool that can be used for financial inclusion.
    • Cost-efficient lending: With new innovations underway, digital lending offers much better products to the masses at a much faster rate which is even more cost-efficient.
    • Exception for red-tapism: Online lending has played a pivotal role in evading cumbersome red-tapism usually involved while availing loans offline in a traditional setting.
    • Preference by MSMEs: The online lending platforms have gained massive popularity among MSMEs post-Covid as they were unable to secure finance through traditional lending.
    • Easy onboarding: The quick turnaround time and onboarding, easy KYC, as well as disbursement within minutes have attracted the cash-crunched MSMEs towards these digital routes to secure credit.

    Issues with Digital Lending

    • No business model: There are many gaps that are existent in this model of digital lending like any new business operation.
    • High interest: Unauthorised lenders provided credit to customers without any collateral and at exorbitant rates coupled with unachievable deadlines to pay off these humongous debts.
    • Coercing and harassment for recovery: Resultantly, borrowers were coerced by the lenders to recollect when they were unable to pay off these debts. We see many cases of suicides due to such harassment.

    Key recommendations by RBI

    • Self-Regulation: RBI has mooted a Self-Regulatory Organisation for participants in the digital lending ecosystem.
    • Developing a Baseline Technology: Development of certain baseline technology standards and compliance with those standards as a pre-condition for offering digital lending solutions.
    • Direct loan disbursement: Disbursement of loans directly into the bank accounts of borrowers; disbursement and servicing of loans only through bank accounts of the digital lenders.
    • Data collection: With the prior and explicit consent of borrowers with verifiable audit trails.
    • Standardized code of conduct: for recovery to be framed by the proposed SRO in consultation with RBI.

    Way forward

    • There is a growing need for regulation in this space or unauthorized players like pointed out above will keep popping up.
    • Stringent provisions must be formulated which can be enforceable legally.
    • Regulation must be enforced in this industry soon to ensure consumer trust remains unfettered.

     

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  • What is Cartelization?

    The Competition Commission of India (CCI) has slapped certain penalties on paper manufacturing companies from agricultural waste and recycled wastepaper against Cartelization.

    What is a Cartel?

    • According to CCI, a “Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”.
    • The International Competition Network, which is a global body dedicated to enforcing competition law, has a simpler definition.
    • The three common components of a cartel are:
    1. an agreement
    2. between competitors
    3. to restrict competition

    What is Cartelization?

    • Cartelization is when enterprises collude to fix prices, indulge in bid rigging, or share customers, etc.
    • But when prices are controlled by the government under a law, that is not cartelization.
    • The Competition Act contains strong provisions against cartels.
    • It also has the leniency provision to incentivise a party to a cartel to break away and report to the Commission, and thereby expect total or partial leniency.
    • This has proved a highly effective tool against cartels worldwide.
    • Cartels almost invariably involve secret conspiracies.

    How do they work?

    • According to ICN, four categories of conduct are commonly identified across jurisdictions (countries). These are:
    1. price-fixing
    2. output restrictions
    3. market allocation and
    4. bid-rigging
    • In sum, participants in hard-core cartels agree to insulate themselves from the rigours of a competitive marketplace, substituting cooperation for competition.

    How do cartels hurt?

    • While it may be difficult to accurately quantify the ill-effects of cartels, they not only directly hurt the consumers but also, indirectly, undermine overall economic efficiency and innovations.
    • A successful cartel raises the price above the competitive level and reduces output.
    • Consumers choose either not to pay the higher price for some or all of the cartelized product that they desire, thus forgoing the product, or they pay the cartel price and thereby unknowingly transfer wealth to the cartel operators.

    Are there provisions in the Competition Act against monopolistic prices?

    • There are provisions in the Competition Act against abuse of dominance.
    • One of the abuses is when a dominant enterprise “directly or indirectly imposes unfair or discriminatory prices” in purchase or sale of goods or services.
    • Thus, excessive pricing by a dominant enterprise could, in certain conditions, be regarded as an abuse and, therefore, subject to investigation by the Competition Commission if it were fully functional.
    • However, it should be understood that where pricing is a result of normal supply and demand, the Competition Commission may have no role.

    How might cartels be worse than monopolies?

    • It is generally well understood that monopolies are bad for both individual consumer interest as well as the society at large.
    • That’s because a monopolist completely dominates the concerned market and, more often than not, abuses this dominance either in the form of charging higher than warranted prices or by providing lower than the warranted quality of the good or service in question.

    How to stop the spread of cartelization?

    • Cartels are not easy to detect and identify.
    • As such, experts often suggest providing a strong deterrence to those cartels that are found guilty of being one.
    • Typically this takes the form of a monetary penalty that exceeds the gains amassed by the cartel.
    • However, it must also be pointed out that it is not always easy to ascertain the exact gains from cartelization.
    • In fact, the threat of stringent penalties can be used in conjunction with providing leniency — as was done in the beer case.

    Back2Basics: Competition Commission of India (CCI)

    • The CCI is the chief national competition regulator in India.
    • It is a statutory body within the Ministry of Corporate Affairs.
    • It is responsible for enforcing The Competition Act, 2002 in order to promote competition and prevent activities that have an appreciable adverse effect on competition in India.

     

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  • Formal sector and fine print

    Context

    A recent study by SBI has reported that the Indian economy witnessed accelerated formalisation under the distressed conditions of the pandemic and the lockdown last year. The study estimates that the share of the informal economy has fallen to a mere one-fifth of GDP — a figure comparable to many advanced economies.

    Understanding informality

    • ILO definition: The ILO’s globally accepted framework for definitions is as follows: Informal sector enterprises are defined as private unincorporated enterprises owned by individuals (or households) that are not constituted as separate legal entities independently of their owners.
    • They are not registered under specific national legislation (such as Factories’ or Commercial Acts).
    • Definition of a formal worker in India: Formal workers in India, on the other hand, are defined as those having access to at least one social security benefit such as a provident fund or healthcare benefits.

    What explains the decline of informal sector in GDP

    • Significance of informal sector: In 2017-18, as per the latest official statistics, India’s informal sector accounted for approximately 52 per cent of its GDP, employing 82 per cent of the total workforce.
    • These ratios have broadly remained unchanged over the last decade.
    • Most affected due to pandemic: As the informal (unorganised) sector bore much of the brunt of the economic contraction during 2020-21, a decline in its share in GDP is unsurprising.
    • Lack of financial strength: The sector had neither the financial strength nor the technical wherewithal to face the Covid shock.
    • Inadequate policy support: Additionally, policy support, mostly supply-side measures, was mainly focused on firms in the formal sector, with the informal sector left to fend for itself.

    Issues with decline

    • Undeniably, the informal sector’s share in GDP is likely to have shrunk due to the Covid shock.
    • However, alarmingly, the purported decline in the informal sector’s share in GDP has not been accompanied by an expected reduction in its employment share. 
    • Data from the official annual Period Labour Force Survey (PLFS) 2017-18 and 2019-20, where the latter includes the period of the Covid shock from April to June 2020, shows that the employment share in non-agricultural informal enterprises has increased from 68 per cent in 2017-18 to 69.5 per cent in 2019-20.
    • These figures do not include the agricultural sector, where employment is almost entirely in the informal sector.
    • The increasing share of the formal sector in terms of GDP but declining share in employment only widens the schism (or dualism) between the two sectors.
    • The increasing share of the formal sector in terms of GDP but declining share in employment only widens the schism (or dualism) between the two sectors.

    Implications

    • Impact on investment and growth: The lack of remunerative jobs for the vast majority of Indian consumers implies that eventually the lack of growth in demand will adversely impact investment and economic growth.
    • After all, a mere 17-18 per cent of the workforce in the organised sector cannot sustain growth of the economy in the long run.
    •  Squeezing out informal enterprises: The increase in the formal sector’s share in GDP due to Covid-19 is a result of large, formal enterprises squeezing out informal enterprises.
    • It is important to note here that the increase in formalisation is not a consequence of micro and small informal firms transitioning to formality.

    Increasing productivity: A way forward to formalisation

    • Promoting formalisation: Over the last five years, the economy has officially witnessed a significant drive towards formalisation.
    • Multiple reasons for avoiding formalisation: It is crucial to recognise that firms exist in the informal sector for various reasons and not simply to evade regulations and taxation.
    • Significance of productivity: Many own account enterprises and MSMEs cannot afford to survive in the formal sector due to their low productivity.
    • It is essential to view the process of formalisation as a development strategy that requires stepping up investment in physical and human capital to boost productivity and the extension of social security benefits for all workers, not just a registration strategy on myriad portals.

    Consider the question “Informal sector has been affected disproportionately in the wake of the pandemic. What are the implications of this for the economy? Suggest the way forward for the formalisation.”

    Conclusion

    The informal sector will come back to life as much of it represents the survival efforts of the working poor. Celebrating formalisation based on the misery and devastation of poor informal workers (and their meagre productive assets) is not just misplaced but also callous.

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  • Universal Service Obligation Fund (USOF)

    The Union Cabinet has approved the provisioning of mobile services in over 7,000 uncovered villages through the Universal Service Obligation Fund (USOF).

    What do you mean by Universal Service?

    • In the modern world, universal service refers to having a phone and affordable phone service in every home.
    • It means, providing telecommunication service with access to a defined minimum service of specified quality to all users everywhere at an affordable price.
    • In 1837, the concept was rolled on by Rowland Hill, a British educator and tax reformer, which included uniform rates across the UK and prepayment by sender via postage stamps.

    What is USOF?

    • The Universal Service Obligation Fund (USOF) was formed by an Act of Parliament, was established in April 2002 under the Indian Telegraph (Amendment) Act 2003.
    • It aims to provide financial support for the provision of telecom services in commercially unviable rural and remote areas of the country.
    • It is an attached office of the Department of Telecom, and is headed by the administrator, who is appointed by the central government.

    Scope of the USOF

    • Initially, the USOF was established with the fundamental objective of providing access to ‘basic’ telecom services to people in rural and remote areas at affordable and reasonable prices.
    • Subsequently, the scope was widened.
    • Now it aims to provide subsidy support for enabling access to all types of telecom services, including mobile services, broadband connectivity and the creation of infrastructure in rural and remote areas.

    Funding of the USOF

    • The resources for the implementation of USO are raised by way of collecting a Universal Service Levy (USL), which is 5 percent of the Adjusted Gross Revenue (AGR) of Telecom Service Providers.

    Nature of the fund

    • USOF is a non-lapsable Fund.
    • The Levy amount is credited to the Consolidated Fund of India.
    • The fund is made available to USOF after due appropriation by the Parliament.

     

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  • 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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