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Subject: Economics

  • [pib] Market Intervention Scheme

    The Union Cabinet has approved the extension of Market Intervention Scheme (MIS) for apple procurement in Jammu and Kashmir (J&K) for the current season.

    UPSC can ask a question on the difference between MSP and MIP. All the agricultural and horticultural commodities for which Minimum Support Price (MSP) are not fixed and are generally perishable in nature are covered under Market Intervention Scheme (MIS).

    Market Intervention Scheme

    • MIS is a price support mechanism implemented on the request of State Governments for the procurement of perishable and horticultural commodities in the event of a fall in market prices.
    • It is implemented when there is at least a 10% increase in production or a 10% decrease in the ruling rates over the previous normal year.
    • MIS works in a similar fashion to Minimum Support Price based procurement mechanism for food grains but is an ad-hoc mechanism.
    • Its objective is to protect the growers of these horticultural/agricultural commodities from making distress sale in the event of the bumper crop.
    • Under MIS, support can be provided in some years, for a limited but defined period, in specified critical markets and by purchasing specified quantities. The initiative has to emerge from the concerned state.

    Commodities covered

    • The MIS has been implemented in case of commodities like apples, garlic, oranges, grapes, mushrooms, clove, black pepper, pineapple, ginger, red chillies, coriander seed, chicory, onions, potatoes, cabbage, mustard seed, castor seed, copra, palm oil etc.

    Remuneration under MIS

    • MIS provides remunerative prices to the farmers in case of the glut in production and fall in prices.
    • Proposal of MIS is approved on the specific request of State/UT Government, if they are ready to bear 50% loss (25% in case of North-Eastern States), if any, incurred on its implementation.
    • Further, the extent of total amount of loss shared is restricted to 25% of the total procurement value which includes the cost of the commodity procured plus permitted overhead expenses.

    Implementation of MIS

    1) Market Intervention Price (MIP)

    • The Department of Agriculture & Cooperation is implementing the scheme.
    • Under the MIS, a pre-determined quantity at a fixed MIP is procured by NAFED as the Central agency.
    • There are other agencies designated by the state government for a fixed period or till the prices are stabilized above the MIP whichever is earlier.
    • The area of operation is restricted to the concerned state only.

    2) Funds transfer

    • Under MIS, funds are not allocated to the States.
    • Instead, central share of losses as per the guidelines of MIS is released to the State Governments/UTs, for which MIS has been approved, based on specific proposals received from them.

  • SC asks govt to implement ‘interest waiver’ scheme at the earliest

    The article examines the implications of the Supreme Court order dealing with the loan waiver and ban on the recognition of the bad loan.

    Significance of common man as a depositor

    • India’s Rs 144 lakh crore in bank deposits make our Rs 110 lakh crore in bank loans possible.
    • The “common man” is more likely a depositor than a borrower; banks have 21 crore deposit accounts but only 2.7 crore loan accounts.

    Issues with the court order

    • The Supreme Court has weighed in on the waiver scheme and recognition of the bad loan.
    • Waiving interest dues or banning bad loan recognition is economically ignorant because more than 20 per cent of Indians are depositors while less than 2 per cent are borrowers.
    • It has nothing to with economic justice defined as the greatest good for the greatest number.
    • It sabotages economic justice because fiscally funding banking diverts money from education, health and skilling expenditure.
    •  It’s commercially ignorant because any “annualised effective rate” is adjusted for interest payment frequency.
    • Resources are finite with total central government expenditure at Rs 29 lakh crore, scarce as COVID creates a Rs 3 lakh crore GST shortfall and fragile our fiscal deficit may exceed 12 per cent.
    • Also, it is hardly what our Constitution imagined as the role of courts.
    • Our Constitution writers made a distinction between fundamental rights and directive principles was not a lack of ambition but a measured assessment of state capacity, resources and sequencing.
    • The Constitution also envisaged distinct roles for the judiciary, executive and legislature to balance samaj (society), bazaar (markets) and sarkar (government).
    • Courts have become less mindful of these two distinctions.

    Cost of credit and availability issue in India

    • One of the reasons for small size of Indian enterprises in the availability and cost of credit in India.
    • India’s credit-to-GDP ratio stands at dismal  50 per cent  — Bihar is 12 per cent and Arunachal is 1 per cent.
    • The MSME lending is stuck at Rs 20 lakh crore — needs to rise to 100 per cent.
    • Despite lower inflation and fiscal discipline, most borrowers don’t get globally competitive interest rates due to high bad loans and financial statement uncertainty.
    • The availability of credit will not rise and cost will not fall till our banking system has strong competition, consistent regulation, effective supervision and non-fiscal sustainability.

    Consider the question “How the crisis in the banking sector is different from the crisis in other sectors? Also, examine the issues with the Supreme Court order on the loan waiver and recongnition of bad loan ban?” 

    Conclusion

    Institutional immunity needs balancing of independence and accountability; rising citizen concern about mandates and appointments should trigger court introspection.

  • [pib] Framework for Regulatory Sandbox

    The International Financial Services Centres Authority (IFSCA) has introduced a framework for Regulatory Sandbox to tap into innovative Fin-tech solutions.

    Try answering this simple question:
    Q.What is Regulatory Sandbox? What are its salient features?

    Regulatory Sandbox

    • A regulatory sandbox usually refers to live testing of new products or services in a controlled/test regulatory environment for which regulators may permit certain regulatory relaxations for the limited purpose of the testing.
    • The objective of the sandbox is to foster responsible innovation in financial services, promote efficiency and bring benefit to consumers.
    • It provides a secure environment for fintech firms to experiment with products under supervision of a regulator.
    • It is an infrastructure that helps fintech players live test their products or solutions, before getting the necessary regulatory approvals for a mass launch, saving start-ups time and cost.

    Its inception

    • The concept of a regulatory sandbox or innovation hub for fintech firms was mooted by a committee headed by then RBI executive director Sudarshan Sen.
    • The panel submitted its report in Nov 2017 has called for a regulatory sandbox to help firms experiment with fintech solutions, where the consequences of failure can be contained and reasons for failure analysed.
    • If the product appears to have the potential to be successful, it might be authorised and brought to the broader market more quickly.

    What is the new framework?

    • IFSCA has introduced a framework for “Regulatory Sandbox”.
      Under this Sandbox framework, entities operating in the capital market, banking, insurance and financial services space shall be granted certain facilities and flexibilities.
    • It will experiment with innovative FinTech solutions in a live environment with a limited set of real customers for a limited time frame.
    • These features shall be fortified with necessary safeguards for investor protection and risk mitigation. The Regulatory Sandbox shall operate within the IFSC located at GIFT City (Gandhinagar).
    • IFSCA shall assess the applications and extend suitable regulatory relaxations to commence limited purpose testing in the Sandbox.

    Other propositions

    • As additional steps towards creating an innovation-centric ecosystem, the IFSCA has proposed the creation of an “Innovation Sandbox”.
    • It will be a testing environment where Fin-tech firms can test their solutions in isolation from the live market.
    • This would be based on market related data made available by the Market Infrastructure Institutions (MIIs) operating in the IFSC.
    • The Innovation Sandbox will be managed and facilitated by the MIIs operating within the IFSC.

    Back2Basics: GIFT City, Gandhinagar

    • GIFT city is India’s first operational smart city and international financial services centre (much like a modern IT park).
    • The idea for GIFT was conceived during the Vibrant Gujarat Global Investor Summit 2007 and the initial planning was done by East China Architectural Design & Research Institute (ECADI).
    • Currently approximately 225 units/companies are operational with more than 12000 professionals employed in the City.
    • The entire city is based on concept of FTTX (Fibre to the home / office).The fiber optic is laid in fault tolerant ring architecture so as to ensure maximum uptime of services.
    • Every building in GIFT City is an intelligent building. There is piped supply of cooking gas. India’s first city-level DCS (district cooling system) is also operational at GIFT City.

  • [pib] Asafoetida (Heeng) cultivation in Himalayan Region

    Farmers of the remote Lahaul valley in Himachal Pradesh are taking up cultivation of asafoetida (Heeng) to utilize vast expanses of waste land in the cold desert conditions of the region.

    Try this PYQ:
    Q.Which one of the following reflects back more sunlight as compared to other three?
    (a) Sand desert
    (b) Paddy crop land
    (c) Land covered with fresh snow
    (d) Prairie land

    Asafoetida cultivation in India

    • Asafoetida is one of the top condiments and is a high-value spice crop in India.
    • Raw asafoetida is extracted from the fleshy roots of Ferula assafoetida as an oleo-gum resin.
    • Although, there are about 130 species of Ferula found in the world, but only Ferula asafoetidais the economically important species used for the production of asafoetida.

    Why cultivate it?

    • Heeng is not cultivated in India.
    • Government data states that India imports about 1,200 tonnes of raw heeng worth Rs 600 crore from Iran, Afghanistan and Uzbekistan.

    Regions for its cultivation

    • Asafoetida best grows in dry and cold conditions.
    • The plant can withstand a maximum temperature between 35 and 40 degree, whereas during winters, it can survive in temperatures up to minus 4 degree.
    • During extreme weather, the plant can get dormant.
    • Regions with sandy soil, very little moisture and annual rainfall of not more than 200mm are considered conducive for heeng cultivation in India.

  • India’s First Seaplane Project

    The first of the five seaplane services in Gujarat, connecting Sabarmati River in Ahmedabad to the Statue of Unity in Kevadia in Narmada district, will be inaugurated on October 31

    India’s first seaplane

    • A seaplane is a fixed-winged aeroplane designed for taking off and landing on water. It offers the public the speed of an aeroplane with the utility of a boat.
    • The first seaplane project of the country is part of a directive of the Union Ministry of Civil Aviation.
    • As per the directive, the Airports Authority of India (AAI) requested state governments of Gujarat, Assam, Andhra Pradesh and Telangana and the administration of Andaman & Nicobar to propose potential locations for setting up water aerodromes to boost the tourism sector.

    Where will the seaplane connect?

    • In Kevadia, the proposed Terminal will be spread over 0.51 acres in the premises of the Sardar Sarovar Narmada Nigam Ltd., located in the Panchmuli lake (Dyke 3) of the Sardar Sarovar Dam at Limdi village.
    • It is approximately 90 km from Vadodara, 150 km from Surat and 200 km from Ahmedabad — with an aerial distance of 74.6km from Vadodara airport.

    What impact will it have on the environment?

    • The water aerodrome is not a listed project/activity in the Schedule to the Environmental Impact Assessment Notification, 2006 and its amendments.
    • However, the activities proposed under the water aerodrome project may have a similar type of impact as that of an airport.
    • There has to be a bathymetric and hydrographic survey by Inland Waterways Authority of India (IWAI).
    • During seaplane operations, there will be turbulence created in the water while takeoff and landing of seaplanes. This will lead to more operation process i.e. mixing of oxygen in the water.
    • This will have a positive impact on the aquatic ecosystem near seaplane operations increasing oxygen content and decreasing carbon content in this system.

  • Places in news: Mullaperiyar Dam

    The Mullaperiyar dam has recently turned 125.

    Try this PYQ:

    Q. What is common to the places known as Aliyar, Isapur and Kangsabati?

    (a) Recently discovered uranium deposits

    (b) Tropical rain forests

    (c) Underground cave systems

    (d) Water reservoirs

    Mullaperiyar Dam

    • It is a masonry gravity dam on the Periyar River in the Indian state of Kerala.
    • It is located 881 m above mean sea level, on the Cardamom Hills of the Western Ghats in Thekkady, Idukki District of Kerala.
    • It was constructed between 1887 and 1895 by John Pennycuick and also reached in an agreement to divert water eastwards to the Madras Presidency area (present-day Tamil Nadu).
    • Pennycuick is widely worshipped as a hero by farmers in the four districts of southern Tamil Nadu, where water from the dam meets the drinking water needs and irrigates thousands of hectares.

    Why is the dam special?

    • The dam was constructed surmounting many odds, with malaria and thick jungles taking a toll on workers. It was a huge challenge before him to construct the dam and divert the river course.
    • Pennycuick sowed the seeds of river interlinking to bring barren and rain-starved areas under cultivation.
    • To fund dam construction, gold ornaments were donated by Chettiar families and farmers in Cumbom valley also gave their meagre savings to Pennycuick.
    • Pennycuick even sold his ancestral property in Britain and spent the amount for completing the works of the dam when the expenses exceeded the allotted funds.
    • The British government endowed him with the ‘Companion of Star of India’, a high civilian honour. He died on March 9, 1911, at Frimley in Britain.

  • What are Hybrid Funds?

    This newscard is an excerpt from an originally FAQ published in TH.

    Try this PYQ:

    Q.Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly?

    (a) Certificate of Deposit

    (b) Commercial Paper

    (c) Promissory Note

    (d) Participatory Note

    Hybrid Fund

    • A hybrid fund is one that invests in both equity and bonds. So, such funds ought to help investors with their asset allocation decision.
    • This refers to how you allocate your annual savings between equity and bond investments.
    • Suppose you are unsure of the proportion of equity and bond investments to have in your portfolio.
    • By investing in a hybrid fund, you could outsource your asset allocation decision to the manager of the fund, so the argument goes.
    • The issue is that each goal you pursue requires different asset allocation. For instance, the asset allocation for your child’s education portfolio must be different from your retirement portfolio.
    • Hybrid funds cannot consider your individual goal requirement as it is a collective investment vehicle.

    Tax efficiency of the fund

    • Based on current tax laws, a hybrid fund that holds 65% or more in equity is considered as an equity fund.
    • So, if you redeem your units in such hybrid funds after a holding period of more than 12 months, you have to pay long-term capital gains tax of 10%.
    • If a hybrid fund holds less than 65% in equity, you have to pay 20% capital gains tax with indexation if you sell your units after a holding period of more than 36 months.

    Back2Basics: Stocks vs. Bonds vs. Equity

    • A stock represents a collection of shares in a company which is entitled to receive a fixed amount of dividend at the end of the relevant financial year which are mostly called Equity of the company.
    • Bonds term is associated with debt raised by the company from outsiders which carry a fixed ratio of return each year and can be earned as they are generally for a fixed period of time.
    • Bonds are actually loans that are secured by a specific physical asset.
    • It highlights the amount of debt taken with a promise to pay the principal amount in the future and periodically offering them the yields at a pre-decided percentage.
    • Equity is ownership of assets that may have debts or other liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value of an asset.

  • Farm Bills latest step in sequential freeing up of farm sector

    The recently passed agri bills seek to expand the choices and opportunities available with the farmers and will help in increasing their income.

    Diversified product segment

    • The Minimum Support Price (MSP) evolved as a mechanism to guard farmers against supply and demand shocks in the cereals segment. 
    •  Now, however, farmers and agricultural producers have diversified their product segments, cereals no longer dominate production.
    • In the last decade itself, India has witnessed tremendous change in the GVA composition of the agri-sector.
    • The share of crops has decreased from 65.4% in 2011-12 to 55.3% in 2018-19, projected to further fall to 45.6% in 2024-25.
    •  In the same period, value add of livestock and fishing & aquaculture is steadily increasing, as are the total value outputs of sub-segments like horticulture, milk and meat.
    • With differentiated production strategies that are less reliant on cereals and more on other segments, farmers are accruing better incomes.
    • By diversifying their produce, they are moving away from one-crop risks.

    Government schemes and policies

    • Keeping farmers dependent on subsidies and restricted by APMCs, and acts like the Essential Commodities Act wasn’t in the nation’s long-term interests.
    • Recognising this, the government has been making sequential changes in the system.
    • It started with the introduction of the National Agriculture Market (e-NAM) to facilitate online trading of agri-produce.
    • Then PM-KISAN was introduced to provide minimum income support to nine crore marginal farmers, at Rs 6,000 annually.
    • The KISAN credit card with an allotment of a total of Rs 2 lakh crore credit to maintain larger workforces and implements during harvest season is helping farmers plan and organise their harvests better.
    • The Rs 1 lakh crore Agri Infrastructure Fund as part of Atmanirbhar Bharat Abhiyan will help by the creation of agri-infrastructure.

    Need for structural changes

    • The government recently passed three agri-bills, these are:-
    • 1) The Farmers’ Produce Trade and Commerce Bill.
    • 2) Farmers Agreement on Price Assurance and Farm Services Bill.
    • 3) Essential Commodities (Amendment) Bill.
    • They enable farmers the freedom to diversify their crops and produce, which reduces mono-crop dependence and increases income avenues.
    • They can also now sell their produce anywhere, to the highest bidder across the country.
    • The farmers are no longer are they required to go to the mandis where they are subject to middlemen and layers of bureaucracy.
    • Contract farming enable farmers them to boost the value-add of their products via contracts and assured procurement by the food processing industries.
    • Retaining the MSP system means the government is underwriting the whole network for certain crops to ensure farmers receive assured income for those crops.

    Focusing on the export market

    • The passage of agri bills gives India the long-awaited opportunity to orient its agriculture sector towards export markets.
    • By catering to just the Indian economy, the exposure is hardly $3 trillion ; instead, export-orientation caters to an $82 trillion global economy —a 27x expansion.
    • India’s agri exports in 2018 were at $38.5 billion.
    • India can comfortably triple this by providing infrastructure for grading, sorting, and supply chain distribution.

    Conclusion

    The farm Bills are liberating farmers at a pivotal juncture, the nation and farmers have a generational opportunity here to break out of a 70-year sectoral stagnation and aim bigger.

    Source:-

    https://www.financialexpress.com/opinion/agri-reforms-farm-bills-latest-step-in-sequential-freeing-up-of-farm-sector/2107611/

  • National Authority of Ship Recycling (NASR)

    The Central government has notified the Director-General of Shipping as the national authority for recycling of ships under the Recycling of Ships Act, 2019.

    The ‘Hong Kong Convention’ is the odd man out here. Read more about the convention at:

    https://www.civilsdaily.com/news/pib-hong-kong-international-convention-for-safe-recycling-of-ships-2009/

    About NASR

    • The national authority of ship recycling will be set up in Gandhinagar, Gujarat.
    • The location of the office will benefit the ship recycling yard owners situated in Alang, Gujarat which is home to the largest ship recycling industry in the world.
    • DG Shipping is authorized to administer, supervise and monitor all activities relating to ship recycling in the country.
    • DG Shipping will oversee the sustainable development of the ship recycling industry, monitoring the compliance to environment-friendly norms and safety and health measures for the stakeholders.
    • DG Shipping will be the final authority for the various approvals required by the ship-recycling yard owners and state governments.

    Recycling of Ships Act, 2019

    • Under the Ship Recycling Act, 2019, India has acceded to the ‘Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships’.
    • This was adopted by the International Maritime Organization (IMO).
    • DG Shipping is a representative of India in the IMO and all the conventions of IMO are being enforced by DG Shipping.

  • Nudge towards formalisation of MSMEs

    The lack of formalisation has several implications for MSMEs. Registering them could help them in various ways. The article deals with the issue of formalisation.

    Please read the link shared below for issues related to MSME

    The missing large in MSMEs

    Steps taken by Government to Formalize MSME

    • UAM: In 2015, the government notified the Udyog Aadhaar Memorandum (UAM), an online filing system for MSMEs.
    • As of January, 86 lakh MSMEs had registered on the UAM portal.
    • In 2016, the government notified rules under which MSMEs had to furnish information relating to their enterprises, online, in an MSME databank.
    • As of January, only 1.6 lakh units registered on it.
    • A new process of classification and registration for small businesses took off on July 1 called as “Udyam”.
    • As of October 1, the MSME ministry has confirmed that only 7 lakh registrations have taken place using the new system.Nudge by the government
    • In an attempt to nudge more enterprises to become lifetime Udyam, the government has integrated the system with the Trade Receivables Electronic Discounting System (TReDS) and the Government e-Marketplace (GeM).
    • In its updated Priority Sector Lending (PSL) guidelines, the RBI has established that for the purposes of PSL, MSMEs will be identified as per the gazette notification laying down the new process of classification and registration.

    Addressing the concerns

    • While the Udyam initiative holds more promise, it is important to assess if this will be detrimental to accessing formal finance.
    • To this end, the government and RBI should consider whether the registration requirement can be exempted for units with investment and turnover that falls in the lower end of the criteria.
    • In 2018, the International Finance Corporation estimated that the overall supply of finance from formal sources met only one-third of the credit demand of the MSME sector.
    • Enabling strategies such as PSL could provide a fillip to priority sectors including MSMEs which require increased formal financing.

    Conclusion

    The costs of formalisation and compliance are high and onerous in many states in India. In such an ecosystem, there are perverse incentives to remaining small and informal. Governments’ efforts towards formalisation should be directed towards addressing these issues.