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Subject: Economics

  • Mini-Seed Kits to boost pulses output in kharif 2021

    Central government to distribute mini-kits of seed

    • The government on said it will distribute over 20 lakh mini-kits of seeds worth Rs 82.01 crore as part of a strategy to boost pulses production in the kharif season of the 2021-22 crop year.
    • The total cost for these mini-kits will be borne by the central government to boost the production and productivity of tur, moong and urad.
    • In addition to this, the usual programme of inter-cropping and area expansion by the states will continue on a sharing basis between the Centre and state, it said.

    Increasing production and productivity

    • From a meagre production of 14.76 million tonnes in the 2007-08 crop year, pulses production has now reached 24.42 million tonnes in the 2020-2021 crop year, which is a phenomenal increase of 65 per cent.
    • India is still importing around 4 lakh tonnes of tur, 0.6 lakh tonnes of moong and around 3 lakh tonnes of urad for meeting its demand.
    • The special programme will increase the production and productivity of the three pulses of tur, moong and urad to a great extent and will play an important role in reducing the import burden.

  • RBI steps in to ease COVID-19 burden

    Term Liquidity Facility announced

    • Reserve Bank of India stepped in on Wednesday with measures aimed at alleviating any financing constraints for healthcare infrastructure and services reeling under the second Covid wave.
    • RBI Governor announced a Term Liquidity Facility of ₹50,000 crore with tenor of up to three years, at the repo rate, to ease access to credit for providers of emergency health services.
    • Under the scheme, banks will provide fresh lending support to a wide range of entities, including vaccine manufacturers, importers/suppliers of vaccines and priority medical devices, hospitals/dispensaries, pathology labs, manufacturers and suppliers of oxygen and ventilators, and logistics firms. 
    • These loans will continue to be classified under priority sector till repayment or maturity, whichever is earlier.

    Measures for individual and MSME borrowers

    • As part of a “comprehensive targeted policy response”, the RBI also unveiled schemes to provide credit relief to individual and MSME borrowers impacted by the pandemic.
    • RBI unveiled a Resolution Framework 2.0 for COVID-related stressed assets of individuals, small businesses and MSMEs.
    • To provide further support to small business units, micro and small industries, and other unorganised sector entities the RBI decided to conduct special three-year long-term repo operations (SLTRO) of ₹10,000 crore at the repo rate for Small Finance Banks.
    • The SFBs would be able to deploy these funds for fresh lending of up to ₹10 lakh per borrower.
    • In view of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller MFIs, SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to ₹500 crore) for onlending to individual borrowers as priority sector lending.

    Measure for States

    • To enable the State governments to better manage their fiscal situation in terms of their cash flows and market borrowings, maximum number of days of overdraft (OD) in a quarter is being increased from 36 to 50 days and the number of consecutive days of OD from 14 to 21 days, the RBI said.

  • Atmanirbhar Bharat & the informal sector

    The article highlights the important role the informal sector can play in the vision of Atmanirbhar Bharat.

    Economic development through Atmanirbhar Bharat

    • The vision of the Atmanirbhar Bharat is rooted in the classical paradigm of economic development, based on demand injection in the economy via two sources, domestic and external.
    • ‘Vocal for local’ exhorts a distinct and decisive shift in consumer preferences towards locally-produced goods and services.
    • ‘Make for the world’ is more ambitious and resembles the export-led growth strategy adopted in East Asia.
    • Thus, the Atmanirbhar Bharat categorically bestows the Indian economy with twin engines of growth.

    Important role informal sector can play

    • The strategy is based on an assumption of lack of adequate demand.
    • So a prognosis of supply side with respect to the ability of domestic producers of goods and services to seize the opportunity at the requisite scale and scope is pertinent.
    • The nature, character, structure and contributions of the informal sector require retrospection.
    • The size of India’s informal sector is massive, it accounts for about 50% of GVA and a major share in the export basket.
    • This position proffers it with growth opportunities emanating from domestic as well as external sources.

    Constraints faced by informal sector

    • Most firms are micro in size and deploy little capital.
    • They have a small scale of production, substandard/unbranded quality of products, and localised scope of procuring raw material and marketing their products.
    • They are vulnerable to business downturns and other market uncertainties, as reflected in high mortality.
    • Their access to cheap, reliable and long-term credit sources is highly restricted.
    • The sector also endures a lack of official identity and recognition of its existence and contribution.

    Three transformations informal sector need to adopt

    • Atmanirbhar Bharat promises enhanced demand for domestically-produced goods and services, but the exposure to stiff global competition, especially for informal sector units, is imminent.
    • In such a scenario, the informal sector must embrace for three tectonic shifts with respect to internal transformation, strategic positioning and labour-market dynamics.

    1)  Internal transformation

    • Enterprises must undergo drastic internal transformation, progressively converging at incremental formalisation through spontaneous and self-propelled transition into economically-viable units.
    • It requires infusion of capital to ensure enhanced labour productivity and higher wages.
    • A systemic disruption, fostering natural growth must be ushered in, which would also curb the birth of new informal enterprises.
    • Moreover, internal consolidation in the sector via merger and acquisitions of units would bring benefits accruing from scale economies.

    2) Strategic positioning

    • Two, because the vision of the Atmanirbhar Bharat exposes the informal sector to global competition, entrepreneurs must embrace the subtle art of strategic positioning in global mega-supply chains.
    • They must pick their products and markets with utmost care, and engrain two mantras of success at the global stage in the DNA of their business strategies.
    • Global mega-supply chains demand ultra-flexibility in production cycle in addition to heightened resilience to withstand headwinds emanating from not just domestic factors but also global.

    3) Labour market dynamics

    • The informal sector employs more than 80% of India’s workforce.
    • The changes in the first two spheres i.e. higher capital intensity-led enhanced labour productivity and ultra-flexibility in production cycles may have severe repercussions on the availability and quality of jobs in India.
    • To alleviate these concerns, the first assumption is that the proportionate increase in expected demand must be more than the enhanced labour productivity to at least retain the currently employed workers.
    • To generate good quality jobs, diversification (both horizontal and vertical) must be encouraged.
    • Vertical diversification entails products not just be partly produced or assembled in India, they must be the end-products of fully indigenised and integrated production and supply chains, from design to made in India.
    • Horizontal diversification involves expansion into newer products and markets, smartly aligning with India’s comparative advantage of surplus labour.

    Consider the question ” India’s vast informal sector is poised to play an instrumental, decisive and intriguing role in the vision of the Atmanirbhar Bharat.  But the sector, in its current form, appears severely constrained to harness the opportunities. In lights of this, examine the constraints faced by the sector and suggest the measures needed to transform the sector.” 

    Conclusion

    The vision of the Atmanirbhar Bharat is an inflexion point for India’s informal sector, which stipulates adroit manoeuvring between contrasting forces of continuity and change.

  • India should go all out in its Westward trade push

    After walking away from the RCEP, India needs to find alternative trading partners that can offer the potential for trade expansion. The article suggests a Westward trade push as an alternative.

    Forging trade deals with the Western countries

    • Our rejection of RCEP, which covers much of the eastern hemisphere, had exposed us to the risk of losing out on cross-border commercial relations in a highly dynamic part of the world.
    • To compensate for the opportunity cost of that decision, it was imperative to strike other alliances.
    •  As a part of this, India adopted a roadmap for the rest of this decade to elevate ties with the UK and also moving to revive free-trade talks with the EU.
    • An India-UK plan unveiled recently will raise our bilateral relationship to a ‘comprehensive strategic partnership in such areas as economic affairs, defence and health.
    • The two countries signed a £1-billion trade investment pact that is expected to generate jobs in both.
    • Separately, India and the EU are reportedly working out how to resume stalled negotiations for a trade deal.

    Issues India may face

    • The signing of pacts would involve mutual tariff reductions and the lowering of other barriers, both of which have proven thorny so far.
    • In general, while the West wants us to lower import duties, our negotiators have been citing India’s sovereign right to protect domestic businesses under World Trade Organization rules.
    • Globally, even before covid knocked the wind out of the sails of cargo ships, commerce across borders had been doing badly under the extended effects of a financial crisis that shook things up in 2008-09.
    • But world trade remains a reliable path to global prosperity and must therefore regain its gusto.
    • For us, deal-making would mean opening up markets to imports in lieu of easier access to foreign ones.

    Way forward

    • Concessions that cause very few job losses in India can easily be made. A broad cost-benefit analysis will have to guide our approach to talks, on complex issues like US visa rules which affect our software exports.
    • Since it is governments that thrash out deals, geopolitical convergences are often sought too.
    • We seem to be in a favourable position on this, given the West’s need to keep China’s rise in check.
    • The UK’s Rolls-Royce has just inked a memorandum with Hindustan Aeronautics Ltd for warship engines, a sign of our strategic ties.
    • Technology could come our way from the US, too.
    • If we can leverage an ability to play a role in Asia’s balance of power to our economic benefit, we should.

    Conclusion

    Mutually assured flexibility on tariff concessions would help India and its Western partners score economic gains and also counterbalance China’s growing dominance of world trade.

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    B2B

    [pib] India-UK Virtual Summit

  • Digital Service tax

    • Starting April 2022, overseas entities that don’t have a physical presence in India but derive significant financial benefit from Indian customers will come under the Indian tax net.
    • While the main legal provision was introduced in 2018, the revenue department notified the thresholds for the purposes of significant economic presence (SEP) on May 3.
    • The concept was introduced via Finance Act, 2018, to enlarge the scope of income of non-residents that accrues or arises in India, by establishing a “business connection” of the foreign entities.
    • The idea is to tax profits of those online and offline businesses that don’t have a physical presence in India but derive significant economic value from the country.
    • Only those entities will get impacted by the SEP provisions who come from non-treaty jurisdictions.
    • That’s because the treaties specify non-resident entities will come under the tax net only if they have a permanent establishment in India.
    • India currently has a Double Taxation Avoidance Agreement with 97 countries.

    Thresholds

    • Transaction Threshold: Any non-resident whose revenue exceeds Rs 2 crore for transactions in respect of goods, services or property with any person in India. This will include transactions on the download of data or software.
    • User Threshold: Any entity that systematically and continuously does business with more than 3 lakh users in India.

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    BACK2BASICS

    Revision of this topic further:

    What are Digital Services Taxes?

  • [pib] First supply of UCO-based Biodiesel flagged off

    Eco-system for collection and conversion of UCO into Biodiesel

    • Minister of Petroleum & Natural Gas flagged off the first supply of UCO (Used Cooking Oil) based Biodiesel blended Diesel under the EOI Scheme.
    • To create an eco-system for collection and conversion of UCO, Expressions of Interest had been initiated for “Procurement of Bio-diesel produced from Used Cooking Oil” on the occasion of World Biofuel Day on 10th August 2019.
    • Under this initiative, Oil Marketing Companies (OMC) offer periodically incremental price guarantees for five years and extend off-take guarantees for ten years to prospective entrepreneurs.

    Advantages

    • This is a landmark in India’s pursuance of Biofuels and will have a positive impact on the environment.
    • This initiative will garner substantial economic benefits for the nation by shoring up indigenous Biodiesel supply, reducing import dependence, and generating rural employment.

  • RBI to strengthen risk-based supervision (RBS) of banks, NBFCs

    About RBS model

    • The RBI uses the Risk-Based Supervision (RBS) model, including both qualitative and quantitative elements, to supervise banks, urban cooperatives banks, non-banking financial companies and all India financial institutions.

    Decision to review the model

    • The Reserve Bank has decided to review and strengthen the Risk-Based Supervision (RBS) of the banking sector with a view to enable financial sector players to address the emerging challenges.
    • The review process will help make the extant RBS model more robust and capable of addressing emerging challenges, while removing inconsistencies if any.
    •  Annual financial inspection of UCBs and NBFCs is largely based on CAMELS model (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Systems & Control).
    • It is intended to review the existing supervisory rating models under CAMELS approach for improved risk capture in a forward-looking manner and for harmonising the supervisory approach across all Supervised Entities.

    Source:

    https://www.financialexpress.com/industry/banking-finance/rbi-to-strengthen-risk-based-supervision-of-banks-nbfcs/2244259/

  • Don’t worry about the deficit

    The devastation caused by the second wave calls for the government to shed its worry over the fiscal deficit. The article deals with this issue.

    Role of fiscal policy to support economy through second wave

    • As India battles to contain the surge in COVID-19 cases, several states have already imposed severe restrictions at the local level.
    • The services sector has been hit the most as a consequence of these lockdowns and it would be difficult for India to deliver on this optimistic growth projection.
    • Against this background, the role fiscal policy can play to support the economy needs consideration.
    • The monetary policy is already accommodative and may not have enough room to further boost the economy.
    • With headline as well as core inflation inching up in recent months, the RBI may not be in a position to further cut the policy rate.
    •  As per the latest Union Budget, the fiscal deficit is estimated to moderate from 9.5 per cent of GDP in FY21 to 6.8 per cent of GDP in FY22.
    • This expected decline in fiscal deficit is not on account of lower fiscal spending but because of expectations of sharper revenue growth.
    • The revenue receipts are estimated to grow by 15 per cent and fiscal spending by 1 per cent this financial year.
    • With the debt to GDP ratio already more than 90 per cent, additional fiscal expansion will not be an easy choice for the government.

    Government need to create fiscal space

    • Extraordinary times call for extraordinary measures and the government will have to find ways to create fiscal space.
    • This has become especially important as the economy is yet to shrug off the impact of the previous lockdown.
    • Under these difficult circumstances, immediate measures must aim at providing the requisite social safety net to the poor and the vulnerable.
    • The central government has already announced it will distribute an additional five kg of grain to the 800 million beneficiaries of the National Food Security Act, which is welcome.
    • However, given the unprecedented uncertainty brought about by this COVID wave, the ration support under the PDS should be raised further.
    • The government should also consider transferring cash to the bank accounts of the poor, just as it did last time.
    • This becomes important as MGNREGA  may not provide the safety cushion that it is indeed to as long as lockdown measures remain in place.
    • The best stimulus perhaps would be to provide free vaccinations to the population as the benefits of faster and wider vaccine coverage more than outweighs its monetary cost.
    •  Immunisation is a public good. As we get over this crisis, the government must increase its outlay on physical and human health infrastructure.

    How to finance additional cost?

    •  Part of this additional cost may be financed by reducing non-essential government expenditures and use it for COVID-related expenditure.
    • The government may need to resort to additional borrowings from the market than budgeted earlier.
    • The RBI may allow inflation above the upper bound of 6 per cent only in the short run.
    • The plausible rise in interest rates may also be crucial to prevent capital outflows, given the global “economic outlook” when the US economy adopts an easy monetary policy combined with a huge fiscal stimulus.

    Conclusion

    The government should not be deterred by a worsening fiscal deficit in the short run as the additional growth that it generates may make debt consolidation easier when things normalise.

  • Clean energy innovation slowing, report warns

    Major findings of the report

    • It is a joint report titled “Patents and the energy transition” released by the European Patent Office and the International Energy Agency.
    • The average annual growth rate of patents for low carbon emissions technologies has fallen to 3.3 percent since 2017, the rate was 12.5 percent in the period 2000-2013.
    • The report found that around 35 percent of the cumulative CO2 emissions reductions needed to shift to a sustainable path to reach net-zero emissions by 2070 are still currently at the prototype or demonstration phase.
    • The report found that energy efficiency and fuel-switching technologies remained at the top of patent activities, accounting for about 60 percent of the total.

    Shifting trend withing renewable

    • Patent activity in renewable energy technologies such as wind and solar has been in decline for nearly a decade however, and represented just 17 percent of the total in 2019, report found.
    • The key driver of patent growth since 2017 has been innovation in cross-cutting technologies such as batteries, hydrogen and smart grids, along with carbon-capture, utilisation and storage.

    Source:

    https://energy.economictimes.indiatimes.com/news/renewable/clean-energy-innovation-slowing-report-warns/82270391

  • How IPR served as barrier to the right to access healthcare

    Request for waiver

    •  Last year, India and South Africa requested WTO for a temporary suspension of rules under the 1995 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
    • A waiver was sought to the extent that the protections offered by TRIPS impinged on the containment and treatment of COVID-19. 
    • The request for a waiver has, since, found support from more than 100 nations.
    • But a small group of states — the U.S., the European Union, the U.K. and Canada among them — continues to block the move.
    • These countries have already secured the majority of available vaccines.
    • But for the rest of the world mass immunisation is a distant dream.

    Grounds on which patent laws are justified

    • Patent laws are usually justified on three distinct grounds:
    • On the idea that people have something of a natural and moral right to claim control over their inventions.
    • On the utilitarian premise that exclusive licenses promote invention and therefore benefit society as a whole.
    • On the belief that individuals must be allowed to benefit from the fruits of their labour and merit.
    • These justifications have long been a matter of contest, especially in the application of claims of monopoly over pharmaceutical drugs and technologies.

    Patent laws in India

    • In 1959, a committee chaired by Justice N. Rajagopala Ayyangar objected to monopolies on pharmaceutical drugs through colonial-era patent law.
    • The committee found that foreign corporations used patents to suppress competition from Indian entities, and thus, medicines were priced at exorbitant rates.
    • The committee suggested, and Parliament put this into law through the Patents Act, 1970, that monopolies over pharmaceutical drugs be altogether removed, with protections offered only over claims to processes.
    • This change in rule allowed generic manufacturers in India to grow. 

    How TRIPS goes against the interest of developing countries

    • WTO has into its constitution a binding set of rules governing intellectual property.
    • Countries that fail to subscribe to the common laws prescribed by the WTO would be barred from entry into the global trading circuit.
    • It was believed that a threat of sanctions, to be enforced through a dispute resolution mechanism, would dissuade states from reneging on their promises.
    • With the advent in 1995 of the TRIPS agreement, this belief proved true.
    • The faults in this new world order became apparent when drugs that reduced AIDS deaths in developed nations were placed out of reach for the rest of the world.
    • It was only when Indian companies began to manufacture generic versions of these medicines as TRIPS hadn’t yet kicked in against India, that the prices came down.

     Argument in support of the patent regime

    • Two common arguments are made in response to objections against the prevailing patent regime.
    • One, that unless corporations are rewarded for their inventions, they would be unable to recoup amounts invested by them in research and development.
    • Two, without the right to monopolise production there will be no incentive to innovate.

    Issues with the argument in support of patent regime

    • Big pharma has never been forthright about the quantum of monies funnelled by it into research and development.
    • Moderna vaccine in the U.S. emanated out of basic research conducted by the National Institutes of Health, a federal government agency, and other publicly funded universities and organisations. 
    • Similarly, public money accounted for more than 97% of the funding towards the development of the Oxford/AstraZeneca vaccine.
    •  Therefore, the claim that the removal of patents would somehow invade on a company’s ability to recoup costs is simply untrue.
    • The second objection — the idea that patents are the only means available to promote innovation — has become something of a dogma.
    • The economist Joseph Stiglitz is one of many who has proposed a prize fund for medical research in place of patents.

    Consider the question “What are the issues with the patent regime under the TRIPS in the field of medicine?”

    Conclusion

    We cannot continue to persist with rules granting monopolies which place the right to access basic healthcare in a position of constant peril. In its present form, the TRIPS regime represents nothing but a new form of “feudal calculus”.