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Subject: Economics

  • [pib] Draft Blue Economy Policy of India

    The Ministry of Earth Sciences (MoES) has rolled out the Draft Blue Economy policy for India in the public domain inviting suggestions and inputs from various stakeholders.

    Blue Economy Policy

    • India’s draft blue economy policy is envisaged as a crucial framework towards unlocking country’s potential for economic growth and welfare.
    • The draft policy outlines the vision and strategy that can be adopted by the govt to utilize the plethora of oceanic resources available in the country.

    Objectives:

    The policy aims to-

    • Enhance the contribution of the blue economy to India’s GDP
    • Improve the lives of coastal communities
    • Preserve marine biodiversity and
    • Maintain the national security of marine areas and resources

    What comprises India’s blue economy?

    • India’s blue economy is understood as a subset of the national economy.
    • It comprises an entire ocean resources system and human-made economic infrastructure in marine, maritime, and onshore coastal zones within the country’s legal jurisdiction.
    • It aids the production of goods and services that have clear linkages with economic growth, environmental sustainability, and national security.
    • The blue economy is a vast socio-economic opportunity for coastal nations like India to utilize ocean resources for societal benefit responsibly.

    Need for such policy

    • With a coastline of nearly 7.5 thousand kilometres, India has a unique maritime position.
    • Nine of its 29 states are coastal, and the nation’s geography includes 1,382 islands.
    • There are nearly 199 ports, including 12 major ports that handle approximately 1,400 million tons of cargo each year.
    • Moreover, India’s Exclusive Economic Zone of over 2 million square kilometres has a bounty of living and non-living resources with significant recoverable resources such as crude oil and natural gas.
    • Also, the coastal economy sustains over 4 million fisherfolk and coastal communities.

    Key areas

    The policy recognizes the following seven thematic areas.

    1. National accounting framework for the blue economy and ocean governance.
    2. Coastal marine spatial planning and tourism.
    3. Marine fisheries, aquaculture, and fish processing.
    4. Manufacturing, emerging industries, trade, technology, services, and skill development.
    5. Logistics, infrastructure and shipping, including trans-shipments.
    6. Coastal and deep-sea mining and offshore energy.
    7. Security, strategic dimensions, and international engagement.

  • Drafting labour code keeping in mind the realities of informal sector workers

    The article highlights the vulnerabilities of workers in the informal sector and also highlights the issues in the draft rules in the labour codes.

    Context

    • The budget referred to the implementation of the four labour codes.
    • There is also a provision of Rs 15,700 crore for MSMEs, more than double of this year’s budget estimate.

    Impact of pandemic on informal workers

    • India’s estimated 450 million informal workers comprise 90 per cent of its total workforce, with 5-10 million workers added annually.
    • Nearly 40 per cent of these employed with MSMEs.
    • According to Oxfam’s latest global report, out of the total 122 million who lost their jobs in 2020, 75 per cent were lost in the informal sector.
    • The National Human Rights Commission recorded over 2,582 cases of human rights violation as early as April 2020.

    Issues with the draft rules in labour code

    • The rush to clear the labour codes and form the draft rules shows little to no intent on part of the government to safeguard workers.
    • The draft rules envisage wider coverage through the inclusion of informal sector and gig workers, at present the draft rules apply to manufacturing firms with over 299 workers.
    • This leaves 71 per cent of manufacturing companies out of its purview.
    • The draft rules mandate the registration of all workers (with Aadhaar cards) on the Shram Suvidha Portal to be able to receive any form of social security benefit.
    • This would lead to Aadhaar-driven exclusion and workers will be unable to register on their own due to lack of information on the Aadhaar registration processes.
    • A foreseeable challenge is updating information on the online portal at regular intervals, especially by the migrant or seasonal labour force.
    • It is also unclear as to how these benefits will be applicable in the larger scheme of things.

    Neglect of informal sector

    • The draft rules fail to cater to the growing informal workforce in India.
    • The growing informal nature of the workforce and the lack of the state’s accountability makes it a breeding ground for rising inequality.
    • The workers face the risk of violations of their human and labour rights, dignity of livelihood, unsafe and unregulated working conditions and lower wages.

    Consider the question “Assess the impact of covid pandemic on workers in the informal sector. Also examine the issues with the draft rules in the labour code.”

    Conclusion

    The Code on Social Security was envisaged as a legal protective measure for a large number of informal workers in India but unless the labour codes are made and implemented keeping in mind the realities of the informal sector workers, it will become impossible to bridge the inequality gap.

  • Cabinet approves PLI Scheme for telecom

    The Union Cabinet has approved the production-linked incentive scheme for the telecom sector with an outlay of ₹12,195 crores over five years.

    Why such a scheme?

    • The scheme aims to make India a global hub for manufacturing telecom equipment.
    • The sector is expected to lead to an incremental production of about ₹2.4 lakh crore, with exports of about ₹2 lakh crore over five years and bring in investments of more than ₹3,000 crores.

    PLI Scheme

    • The PLI scheme aims to boost domestic manufacturing and cut down on imports by providing cash incentives on incremental sales from products manufactured in the country.
    • Besides inviting foreign companies to set shop in India, the scheme aims to encourage local companies to set up or expand, existing manufacturing units.

    UPSC can directly as the sectors included in the PLI scheme. Earlier it was only meant for Electronics manufacturing (particularly mobile phones).

    Benefits for MSMEs

    • For inclusion of MSMEs in the scheme, the minimum investment threshold has been kept at ₹10 crores, while for others it is ₹100 crore.
    • For MSMEs, a 1% higher incentive is also proposed in the first three years.

    Employment generation

    • The scheme was also likely to generate 40,000 direct and indirect employment opportunities and generate tax revenue of ₹17,000 crores from telecom equipment manufacturing.

    Which equipments?

    • The telecom manufacturing would include core transmission equipment, 4G/5G Radio Access Network and wireless equipment, access and Customer Premises Equipment (CPE), IoT access devices, other wireless equipment.

  • Farm laws must reflect regional and crop diversities

    The article argues for consideration of the regional variation in the conditions of farmers and their concerns in the context of recently introduced farm laws.

    Argument against diversification

    • In Punjab, Haryana and western UP, minimum support price (MSP)-based agriculture has a logic.
    • Not all regions must diversify.
    • The region has great alluvial soil, good irrigation and almost a century-long tradition of the application of science to agriculture.
    • In south Punjab, with less irrigation, and parts of Haryana not covered by the Indira Gandhi Canal, some diversification to pulses, cotton etc. could work but the solid specialisation in this region remains.

    Issue of middlemen

    • Arhtiyas (middlemen) are important in Indian agricultural markets.
    • They are a part of the supply chain in north-west India.
    • Here they are not like the middlemen elsewhere.
    • They function simply as agents of the procurement agencies.
    • This was done by the past government to reduce overhead costs of procurement.

    Steps need to be taken

    • The e-markets, forwards and farmer-managed companies are not the dominant mode of rural organisations.
    • Agriculture is the one good sector in otherwise dismal year.
    • So, we need to strengthen it, not feed off on its glory, even outside north-west India.
    • We have the largest spread of agricultural markets in the world according to spatial maps.
    • But they are not APMCs.
    • With weak markets (outside of grains) and without first-stage processing and other infrastructure, the farmer knows he is at the mercy of the trader and comes out on the streets when that is not understood.

    Evolution of MSP

    • The MSP played a crucial role in the days of compulsory procurement and zonal restrictions.
    • Each crop had its own report then.
    • Later separate reports were replaced by two reports, one for kharif and another one for rabi, apart from one for sugarcane (an annual crop).
    • The 1982 rabi report stated that relative prices and, in that context, MSP had the role of an intervention mechanism when markets failed, outside the compulsory procurement area.
    • Later, the concept of transport costs and managerial costs became important.

    Way forward

    • The Essential Commodities Act should be ditched.
    • Good laws are good because progress starts with them, but not all laws are good everywhere.
    • A modified version of the laws with a roadmap can be on the agenda — not everywhere, but most places outside the lands of the five rivers.

    Conclusion

    The amended laws should be considered in the context of regional variation in the country and necessary changes should be made to address the concerns of the farmers.

  • [pib] Mahabahu-Brahmaputra

    PM will launch the ‘Mahabahu-Brahmaputra’, lay the foundation stone of Dhubri Phulbari Bridge and perform Bhumi Pujan for construction of Majuli Bridge Assam.

    Click here to read all North-East related news.

    Mahabahu-Brahmaputra

    • The program is aimed at providing seamless connectivity to the Eastern parts of India and includes various development activities for the people living around River Brahmaputra and River Barak.
    • It will consist of the Ro-Pax vessel operations between Neamati-Majuli Island, North Guwahati-South Guwahati and Dhubri-Hatsingimari.
    • The Ro-Pax services will help in reducing the travel time by providing connectivity between banks and thus reducing the distance to be travelled by road.
    • PANI (Portal for Asset and Navigation Information) will act as a one-stop solution for providing information about river navigation and infrastructure.

    Dhubri Phulbari Bridge

    • PMwill lay the foundation stone for the four-lane bridge over the Brahmaputra between Dhubri (on North Bank) and Phulbari (on South Bank).
    • The proposed Bridge will be located on NH-127B, originating from Srirampur on NH-27 (East-West Corridor), and terminating at Nongstoin on NH-106 in the State of Meghalaya.
    • It will connect Dhubri in Assam to Phulbari, Tura, Rongram and Rongjeng in Meghalaya.
    • It will reduce the distance of 205 Km to be travelled by Road to 19 Km, which is the total length of the bridge.

    Majuli Bridge

    • PM will perform Bhumi Pujan for the two-lane Bridge on the Brahmaputra between Majuli (North Bank) and Jorhat (South Bank).
    • The bridge will be located on NH-715K and will connect Neematighat (on Jorhat side) and Kamalabari (on Majuli side).
    • The Construction of the bridge has been a long demand of the people of Majuli who for generations have been dependent on the ferry services to connect with the mainland of Assam.

  • Indian investments and BITs

    The article examine the termination of agreement for the development of East Container Terminal by Sri Lanka in the context of unilateral termination of bilateral investment treaties by India.

    Context

    • Recently, Sri Lanka terminated 2019 agreement with India and Japan that aimed to jointly develop the strategic East Container Terminal (ECT) at the Colombo port.
    • Apart from analysing the diplomatic fallout of this problematic decision for India-Sri Lanka ties, the issue also needs to be looked at through the prism of the India-Sri Lanka bilateral investment treaty (BIT).

    India-Sri Lanka  BIT and its termination

    • In 1997, India and Sri Lanka signed a BIT to promote and protect foreign investment in each other’s territories.
    • It empowers individual foreign investors to directly sue the host state before an international tribunal if the investor believes that the host state has breached its treaty obligations.
    • This is known as investor-state dispute settlement (ISDS).
    • Article 3(2) of this treaty provides that investments and returns of investors of each country shall, at all times, be accorded fair and equitable treatment (FET) in the other country’s territory.
    • The normative content of the FET provision has been fleshed out by scores of ISDS tribunals in the last two decades.
    • The tribunals have persistently held that an important component of the FET provision is that the host state should protect the legitimate expectations of foreign investors. 
    •  In a case known as International Thunderbird Gaming Corporation v Mexico, it was held that the concept of legitimate expectations relates to a situation where the host state’s conduct creates reasonable and justifiable expectations on the part of an investor (or investment) to act in reliance on said conduct, such that a failure to honour those expectations could cause the investor (or investment) to suffer damages.
    • Sri Lanka, by signing the agreement to jointly develop the ECT at the Colombo port, created such expectations on the part of Indian investors.
    • However, the twist in the tale is that India unilaterally terminated the India-Sri Lanka BIT on March 22, 2017.
    • This termination was part of the mass repudiation of BITs that India undertook in 2017 as a result of several ISDS claims being brought against it.
    •  In cases of such unilateral termination, survival clauses in BITs assume significance because they ensure that foreign investment continues to receive protection during the survival period.
    • But, in the case of the investment in developing the ECT at the Colombo port, this survival clause will be inconsequential, since the agreement was signed in 2019, i.e., after India unilaterally terminated the BIT.

    Important lessons

    • As a consequence of the onslaught of ISDS claims in the last few years, India has developed a protectionist approach towards BITs.
    • However, an important attribute that perhaps has not received much attention is that BITs are reciprocal.
    •  BITs do not empower merely foreign investors to sue India, but also authorise Indian investors to make use of BITs to safeguard their investment in turbulent foreign markets.
    • Accordingly, given India’s emergence as an exporter, and not just an importer of capital, the government should revisit its stand on BITs.

    Consider the question “Examine the implications of unilateral termination of bilateral investment treaties(BITs) by India.”

    Conlcusion

    India needs to adopt a balanced approach towards BITs with an effective ISDS provision. This will facilitate Indian investors in defending their investment under international law should a country, like Sri Lanka, renege on an agreement.

  • Tax regime change

    Article explains the measures adopted in the Budget 2021-22 for increasing compliance and transparency.

    Maintaining the status quo

    • COVID-19 has upset fiscal maths around the world.
    • It is in this context that the Union budget assumed significance this year.
    • The expectations of tax breaks were rife on the presumption that this could boost economic activity.
    • Whereas others called for a tax on stock market gains.
    • Unyielding to such requests, the budget was based on a pragmatic approach to maintain the status quo.

    Why higher tax rates would not help much

    • Nearly 60 per cent of corporate taxes are paid by the 0.06 per cent of the companies belonging to the top income bracket.
    • On the other hand, among individual taxpayers, only 0.17 per cent report taxable incomes above Rs 25 lakh.
    • Therefore, higher taxes would either yield little revenue or adversely affect economic activity.

    Need to shift focus to compliance and greater transparency

    •  For increasing compliance and transparency, significant proposals have been made:
    • 1) Limited the window for reopening the case to 3 years.
    • 2) The introduction of the requirement for an assessment officer to provide facts on the basis of which he/she re-assesses.
    •  3) The faceless Income Tax Appellate Tribunal (ITAT).
    • By making the process of assessment faceless the major causes for litigation are addressed.
    • The limited window of re-opening cases for small taxpayers and due consideration of risk management strategy and the CAG’s observations in carrying out such assessments marks an improvement in the process.

    Dispute resolution mechanism with better interface

    • The Vivad se Vishwas scheme was launched in 2020 to address piling litigation and it is reported that collections under this scheme have been Rs 85,000 crore for 1,10,000 taxpayers.
    • This is a small fraction as compared to the Rs 4.34 lakh crore in corporate taxes and Rs 4.49 lakh crore in income taxes that are locked in dispute.
    • Therefore, a dispute resolution mechanism that allows for better interface between the taxpayer and the department may, in fact, be relatively beneficial.

    Consider the question “Examine the reasons for small tax base in India. Examine the measures adopted in the Budget 2021-22 for increasing compliance and transparency.”

    Conclusion

    The budget estimates suggest that corporate tax and income tax collections are expected to increase by 22 per cent. With an expected growth rate of 14 per cent in nominal GDP, the remaining gains in taxes are presumably expected from higher compliance or realisation of taxes due. Whether this will pan out remains to be seen.

     

  • Why are Petrol, Diesel prices rising?

    Diesel and petrol prices have hit record highs across the country.

    Govt explanation

    • The government reasons that global crude oil prices have risen by more than 50 per cent to over $63.3 per barrel since October, forcing oil retailers to increase pump prices.
    • That, however, is only partly true.
    • Indian consumers are already paying much higher than what they were paying last January, even though crude prices are yet to reach levels of early last year.

    Note: Petrol and diesel do not come under the purview of goods and services tax (GST).

    Fuel price dynamics in India

    • Retail petrol and diesel prices are in theory decontrolled — or linked to global crude oil prices.
    • It means that if crude prices fall retails prices should come down too, and vice versa.
    • But this does not happen in practice, largely because oil price decontrol is a one-way street in India.
    • When global crude oil prices fall and prices slide, the government slaps fresh taxes and levies to ensure that it rakes in extra revenues.
    • The consumer should have ideally benefited by way of lower pump prices, is forced to either shell out what she’s already paying or spend even more for every litre of fuel.
    • The main beneficiary in this subversion of price decontrol is the government.

    Why crude oil prices are rising now?

    • Prices collapsed in April 2020 after the pandemic spread around the world, and demand fell away.
    • But as economies have reduced travel restrictions and factory output has picked up, global demand has improved, and prices have been recovering.
    • The controlled production of crude amid rising demand has been another key factor in boosting oil prices, with Saudi Arabia voluntarily cutting its daily output.

    What is the impact of taxes on retail prices of auto fuels?

    • The central government hiked the central excise duty on petrol to Rs 32.98 per litre during the course of last year from Rs 19.98 per litre at the beginning of 2020.
    • It increased the excise duty on diesel to Rs 31.83 per litre from Rs 15.83 over the same period to boost revenues as economic activity fell due to the pandemic.
    • A number of states have also hiked sales tax on petrol and diesel to shore up their revenues.

    How much tax do we pay now?

    Currently, state and central taxes amount to around 180 per cent of the base price of petrol and 141 per cent of the base price of diesel in Delhi.

    How will these hikes impact inflation?

    • Experts note that the impact of rising fuel inflation has been counterbalanced by declining food inflation, but that consumers with greater expenditure on travel are feeling the pinch of higher prices.
    • Rising fuel inflation may pinch consumers who have to travel further for work and have access to affordable cereals etc.
    • The urban population would be more impacted by rising fuel prices than the rural population — however, a weak monsoon may lead to rural India being hit as farmers are forced to rely more on diesel-powered irrigation.

  • Farm lessons from China, Israel

    China and Israel offer two important lessons for India to transform its agriculture: agri-market reforms and water accounting.

    Lessons from Israel and China

    • India, China and Israel — started off their new political journey in late 1940s, but today China’s per capita income in dollar terms is almost five times that of India, and Israel’s almost 20 times higher than India.
    • China produces three times more agri-output than India from a smaller arable area.
    • China started off its economic reforms in 1978 by taking up agriculture first.
    • It dismantled its commune system of land holdings and liberated agri-markets that allowed farmers to get much higher prices.
    • As a result, in 1978-84, farmers’ incomes in China increased by almost 14 per cent per annum, more than doubling in six years.
    • Israel cultivates high-value crops for exports (citrus fruits, dates, olives) by using every drop of water and recycling urban waste water for agriculture, by de-salinisation of sea waters.
    • Water accounting in Israel is something exemplary.

    Need for agri-reform in India

    • The average holding size in China was just 0.9 ha in 2016-18, smaller than India’s 1.08 ha in 2015-16.
    • So there is no doubt that small holders can do wonders, if they are given the right incentives, good infrastructure and research support, and the right institutional framework to operate.
    • In India, the 1991 reforms did not include agriculture.
    • Indian agri-food policies remained more consumer-oriented with a view to protect the poor.
    • Export controls, stocking limits on traders, movement restrictions, etc all continued at the hint of any price rise.
    • The net result of all this was farmers’ incomes remained low and so did those of landless agri-labourers.

    Way forward

    • India needs to change its policy framework from being subsidy-led to investment-driven, from being consumer-oriented to producer-oriented, and from being supply-oriented to demand-driven by linking farms with factories and foreign markets, and, finally, from being business as usual to an innovations-centred system.
    • Until India breaks away from the policy of free power for agriculture, there would be no incentive for farmers to save water.
    • In a state like Punjab where almost 80 per cent of blocks are over-exploited or critical, meaning the withdrawal of water is much more than the recharge.
    • Highly subsidised urea and open-ended procurement have become a deadly cocktail that are eating away the natural wealth of Punjab.
    • Out-of-box thinking is needed to break this regressive cycle for a brighter future for Punjab, for our own children.

    Consider the question “What are the implications of subsidy oriented policies for Indian agriculture.”

    Conclusion

    Lessons from China and Israel suggest that India need reform in agri-food policies and water accounting to address several issues plaguing agriculture.

  • Major Port Authorities Bill, 2020

    Rajya Sabha has passed the Major Ports Authorities Bill 2020 with 88 votes for and 44 against it. The Bill was passed in Lok Sabha in September last year.

    Major Ports Authorities Bill 2020: Major: Highlights

    • The Bill provides for the regulation of major ports and will replace the Major Port Trusts Act of 1963, and a board of Major Port Authority for each major port will replace the current port trusts.
    • The Bill will apply to the major ports of Chennai, Cochin, Jawaharlal Nehru Port, Kandla, Kolkata, Mumbai, New Mangalore, Mormugao, Paradip, VO Chidambaranar and Vishakhapatnam.

    Boards to replace trusts

    • Under the 1963 Act, all major ports are managed by the respective Board of Port Trusts that have members appointed by the central government.
    • The Bill provides for the creation of a Board of Major Port Authority for each major port.
    • These Boards will replace the existing Port Trusts.
    • It will have a member each from the state governments, the Railways Ministry, the defence ministry, and the customs department.
    • The Bill allows the Board to use its property, assets and funds as deemed fit for the development of the major port.

    Board has financial powers

    • Under the 1963 Act, the Board had to seek the prior sanction of the Centre to raise any loan.
    • Under the new Bill, to meet its capital and working expenditure requirements, the Board may raise loans from any scheduled bank or financial institution within India, or any financial institution outside India.
    • However, for loans above 50% of its capital reserves, the Board will require prior sanction of the central government.

    The board will fix rates

    • At present, the Tariff Authority for Major Ports fixes the scale of rates for assets and services available at ports.
    • Under the bill, which now awaits President’s accent to become a law, the Board or committees appointed by the Board will determine these rates for services that will be performed at ports.
    • The services would include the access to and usage of the port assets, and different classes of goods and vessels, among others.

    Punishments

    • Under the 1963 Act, there are various penalties for contravening provisions of the Act.
    • The penalty for setting up any structures on the harbours without permission, for example, may extend up to Rs 10,000, and the penalty for evading rates may extend up to 10 times the rates.
    • Under the new Bill, any person contravening any provision of the Bill or any rules or regulations will be punished with a fine of up to Rs one lakh.

    Opposition criticism

    • Opposition parties had opposed the legislation terming it the move to privatize ports.
    • They said that this Bill is nothing but a retraction of the Singapore model.
    • When there were hue and cry that there cannot be the privatization of ports, it adopted a policy of so-called corporatization. Thereafter, it ultimately privatized its ports.
    • So, corporatization is the first step. The next in the offing is privatization said the opposition.

    What did the govt. say?

    • The government has brought in a provision that will allow ports to take their own decisions. To change tariffs, the ports have to now approach the ministry.
    • The port sector in the last six years has doubled the profit. Profit has increased, liabilities have come down. For modernization, 300 projects are ongoing.
    • This Bill is not to privatize any port, but it is to ensure that our ports can properly compete with private ports.