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Subject: Economics

  • What is Green-Ag Project?

    The Union government has launched the Green-Ag Project in Mizoram, to reduce emissions from agriculture and ensure sustainable agricultural practices.

    Note the following things about Green-Ag Project:

    1)Core objective

    2)Implementing agencies

    3)Regions of Implementation

    Green-Ag Project

    • The Green-Ag project is designed to achieve multiple global environmental benefits in at least 1.8 million hectares (ha) of land in five landscapes, with mixed land-use systems.
    • It aims to bring at least 104,070 ha of farms under sustainable land and water management.
    • The project will also ensure 49 million Carbon dioxide equivalent (CO2eq) sequestered or reduced through sustainable land use and agricultural practices.

    Implementing agencies

    • The project is funded by the Global Environment Facility, while the Department of Agriculture, Cooperation, and Farmers’ Welfare (DAC&FW) is the national executing agency.
    • Other key players involved in its implementation are the Food and Agriculture Organization (FAO) and the Environment Ministry (MoEF&CC).

    Regions of implementation

    The project has been launched in high-conservation-value landscapes of five States namely

    • Madhya Pradesh: Chambal Landscape
    • Mizoram: Dampa Landscape
    • Odisha: Similipal Landscape
    • Rajasthan: Desert National Park Landscape
    • Uttarakhand: Corbett-Rajaji Landscape

  • Nutrition security along with food security

    • The “State of Food Security and Nutrition in the World” was recently released.

    About the report

    • It is published by the UN Food and Agriculture Organization (FAO) and other UN agencies including the WHO.
    • The report estimated that 820 million people worldwide did not have enough to eat in 2018, up from 811 million in the previous year.
    • At the same time, the number of overweight individuals and obesity continue to increase in all regions.

    Highlights of the report

    • The number of people going hungry has risen for the third year running to more than 820 million. After decades of decline, food insecurity began to increase in 2015.
    • Africa and Asia account for more than nine out of ten of the world’s stunted children, at 39.5% and 54.9% respectively.
    • However at the same time, obesity and excess weight are both on the rise in all regions, with school-age children and adults affected particularly.

    India scenario

    • The number of obese adults in India has risen by a fourth in four years, from 24.1 million in 2012 to 32.8 million in 2016.
    • While India’s undernourished population has dropped by roughly the same fraction in 12 years, from 253.9 million in 2004-06 to 194.4 million in 2016-18.

    Compared with China

    • The report has a section on economic growth in China and India, and its effect on poverty.
    • Between 1990 and 2017, the two countries had an average GDP per capita growth rate of 8.6 per cent and 4.5 per cent respectively, the report said, citing World Bank.
    • In both countries, the increase in GDP per capita has been accompanied by poverty reduction.

  • Kashmir saffron gets GI certificate

    The J&K administration has issued the certificate of geographical indication (GI) registration for saffron grown in the Kashmir Valley.

    Must read:

    GI Tags in news for 2020 Prelims

    All time GI tags in news

    Kashmir saffron

    • It is cultivated and harvested in the Karewa (highlands) in some regions of Kashmir, including Pulwama, Budgam, Kishtwar and Srinagar.
    • It is a very precious and costly product. Iran is the largest producer of saffron and India is a close competitor.
    • It rejuvenates health and is used in cosmetics and for medicinal purposes.
    • It has been associated with traditional Kashmiri cuisine and represents the rich cultural heritage of the region.
    • Saffron cultivation is believed to have been introduced in Kashmir by Central Asian immigrants around 1st Century BCE. In ancient Sanskrit literature, saffron is referred to as ‘bahukam’.

    3 Types

    The saffron available in Kashmir is of three types —

    • ‘Lachha Saffron’, with stigmas just separated from the flowers and dried without further processing;
    • ‘Mongra Saffron’, in which stigmas are detached from the flower, dried in the sun and processed traditionally; and
    • ‘Guchhi Saffron’, which is the same as Lachha, except that the latter’s dried stigmas are packed loosely in air-tight containers while the former has stigmas joined together in a bundle tied with a cloth thread

    Whats’ so special about Kashmir Saffron?

    • The unique characteristics of Kashmir saffron are its longer and thicker stigmas, natural deep-red colour, high aroma, bitter flavour, chemical-free processing, and high quantity of crocin (colouring strength), safranal (flavour) and picrocrocin (bitterness).
    • It is the only saffron in the world grown at an altitude of 1,600 m to 1,800 m AMSL (above mean sea level), which adds to its uniqueness and differentiates it from other saffron varieties available the world over.

  • RBI signs $400 mn currency swap facility for Sri Lanka

    The RBI has agreed to a $400 million currency swap facility for Sri Lanka till November 2022.

    Practice question for mains:

    Q. What are Currency Swaps? Discuss the efficacy of Currency Swap Agreements for liberalizing bilateral trade.

    Why such move by RBI?

    • The RBI’s action follows a recent bilateral ‘technical discussion’ on rescheduling Colombo’s outstanding debt repayment to India.
    • Following the outbreak of COVID-19 in the region, India had proposed a virtual meeting to discuss the request. Sri Lanka owes $960 million to India.
    • In turn, Sri Lanka would facilitate, protect and promote a liberal ecosystem for Indian investors.

    What are Currency Swaps?

    • A currency swap, also known as a cross-currency swap, is an off-balance sheet transaction in which two parties exchange principal and interest in different currencies.
    • Currency swaps are used to obtain foreign currency loans at a better interest rate than could be got by borrowing directly in a foreign market.

    How does it work?

    • In a swap arrangement, RBI would provide dollars to a Lankan central bank, which, at the same time, provides the equivalent funds in its currency to the RBI, based on the market exchange rate at the time of the transaction.
    • The parties agree to swap back these quantities of their two currencies at a specified date in the future, which could be the next day or even three months later, using the same exchange rate as in the first transaction.
    • These swap operations carry no exchange rate or other market risks, as transaction terms are set in advance.

    Why does one need dollars?

    • FPIs investors look for safer investments but the current global uncertainty over COVID outbreak has led to a shortfall everywhere in the global markets.
    • This has pulled down foreign exchange reserves of many small and developing countries.
    • This means that the government and the RBI cannot lower their guard on the management of the economy and the external account.

    Benefits of currency swap

    • The absence of an exchange rate risk is the major benefit of such a facility.
    • This facility provides the flexibility to use these reserves at any time in order to maintain an appropriate level of balance of payments or short-term liquidity.
    • Swaps agreements between governments also have supplementary objectives like the promotion of bilateral trade, maintaining the value of foreign exchange reserves with the central bank and ensuring financial stability (protecting the health of the banking system).

  • Gold and forex reserves cannot finance stimulus

    The article analyses the issues with suggestions like printing of currency and using forex reserves to finance the stimulus. They also lead to an increase in government debts.

    Context

    • Prime Minister announced a stimulus package of ₹20 trillion to fight the economic fallout of the covid pandemic.
    • Since then, several unorthodox ideas have been floated to raise funds for it without straining government finances.
    • Among the suggestions are the printing of currency, and using foreign exchange reserves or household gold.

    Let’s look at entries in the RBI’s balance sheets

    • On the liabilities side of it is the currency in circulation, commercial bank reserves  and government reserves.
    • On the asset side of it is forex reserves, government securities and gold.
    • The balancing item represents the central bank’s equity and accumulated surplus.

    Let’s look at 3 options suggested above and issues with them-

    1) Printing currency

    • Doing this would increase the liabilities of the RBI under “currency in circulation”.
    • But it first needs to acquire assets to offset this increase in liability.
    • These assets could be government securities, forex reserves or gold.
    • Thus, one way for the government to finance its expenditure would be to issue government bonds and ask RBI to print currency with which to subscribe to such bonds.
    • This is known as deficit monetization.
    •  It is important to note that for the central bank to print money, the government would have to issue bonds to it.
    • It will increase government debt.

    2) Monetisation of gold held by household

    • This would first involve the government buying gold from households in exchange for its bonds.
    • Then, the accumulated gold would be bought by RBI from the government with newly printed currency.
    •  In this case, instead of creating new money to acquire government bonds, RBI would be doing the same to acquire gold.
    • This too involves the Centre taking on additional debt.
    •  Moreover, gold monetization schemes in the past have yielded only mild success.

    3) Using RBI’s forex reserves

    • Against every dollar of forex reserves shown by RBI on the asset side, an equivalent rupee amount has already been created on the liability side.
    • This is because whenever RBI acquires foreign currency, it pays for it using the Indian rupee.
    • Thus, no additional currency can be printed against such already-acquired reserves.
    • The only way our forex reserves can be used for generating additional resources is by pledging them to a third party.
    • The pledging of RBI’s assets to raise funds is done only under extreme circumstances, for instance, during the 1991 balance of payments crisis.
    • We are certainly not in a situation that warrants a repeat of an exercise where RBI’s assets, be it gold or forex reserves, have to be mortgaged.

    So, what is the way out?

    • There are only three ways to finance government expenditure: taxes, debt and asset sales.
    • Taxes and asset sales can pitch in a bit towards the stimulus bill.

    Consider the question “Examine the ways in which government can raise the funds to finance the stimulus package and also discuss the issues with each move.”

    Conclusion

    There is no escaping the fact that we are staring at a higher build-up of government debt in the future. When we stop harbouring the notion that we can pay the stimulus bill without any deterioration in government finances, we will be able to see the bitter truth: There is no such thing as a free lunch.

    Read more about the issue here:

    India’s rising Forex Reserves

  • Open Credit Enablement Network (OCEN)

    A new credit protocol infrastructure called the OCEN protocol is set to be launched very soon.

    Practice question for mains:

    Q. What is Open Credit Enablement Network (OCEN)? How it is expected to be a gamechanger in the micro-credit facilitation services in India?

    Open Credit Enablement Network (OCEN)

    • OCEN is a credit protocol infrastructure, which will mediate the interactions between loan service providers, usually fintech and mainstream lenders, including all large banks and NBFCs.
    • It is developed by a think tank, Indian Software Products Industry Round Table (iSPIRT).
    • With this, a credit will become more accessible for a large number of entrepreneurs and small businesses in the country.
    • Private equity and venture capital players, angel investors, high net worth individuals and others also could be part of this exercise as investors.

    How will it work?

    • iSpirit is partnering with key leaders such as SBI, HDFC Bank Ltd., ICICI Bank Ltd., IDFC First Bank Ltd., Axis Bank Ltd. etc. for this new credit rail.
    • Account Aggregators which will be using these APIs to embed credit offerings in their applications, and will be called ‘Loan Service Providers’, which will play a crucial role in democratizing access to credit, and lowering interest rates for customers.

    Why need OCEN?

    • The cost of lending being too high in India, small value loans becomes very unfeasible.
    • OCEN which seeks to connect lenders to marketplaces and thereby to borrowers is a technology system.
    • If implemented, the technology can democratize lending to micro-enterprises and street vendors in a big way.

  • What are Strategic and Non-strategic Sectors of Industries?

    The government will soon come out with a policy on strategic sectors and simultaneously kick into motion a process of complete privatization for companies in the non-strategic sectors.

    Try this question for mains:

    Q. “Privatisation of CPSEs can lead to the conversion of public monopoly to a private monopoly.” Analyse.

    What are Strategic and Non-strategic Sectors of India?

    • An industry is considered strategic if it has large innovative spillovers and if it provides a substantial infrastructure for other firms in the same or related industries.
    • Earlier, the strategic sectors were defined on the basis of industrial policy.
    • The government classified Central Public Sector Enterprises (CPSEs) as ‘strategic’ and ‘non-strategic’ on the basis of industrial policy that keeps on changing from time-to-time.

    According to this, the Strategic sector PSUs are:

    • Arms & Ammunition of defence equipment
    • Defence aircraft & warships
    • Atomic energy
    • Applications of radiation to agriculture, medicine and non-strategic industry
    • Railways

    Banking, insurance, defence, and energy are likely to be part of the strategic sector list. All other PSUs apart from the strategic sectors fall under Non-strategic Sector including Power Discoms.

    A change in policy post-Atmanirbhar

    • Under the Self-sufficiency move, the proposed policy would notify the list of strategic sectors requiring the presence of at least one state-owned company along with the private sector.
    • In all other sectors, the government plans to privatize public sector enterprises, depending upon the feasibility.
    • The number of enterprises in strategic sectors will be only one to four, and others would be privatized/merged/brought under a holding company structure.

    Will it help privatization?

    • The government has already set in motion privatization plans for large PSU companies BPCL, Air India, Container Corporation of India, and Shipping Corporation of India.
    • Budget 2020-21 had announced plans to sell part of the Centre’s stake in LIC through an initial public offer (IPO), and the sale of equity in IDBI Bank to private, retail and institutional investors.
    • The emphasis on privatization could see companies in chemicals and infrastructure space being privatized, while the government has stated its intent to reduce the number of state-owned banks.
    • This could see some smaller banks being privatized in due course.

  • Comparing fiscal responses to Covid on qualitative and quantitative basis

    For all the talks over the size of Atmanirbhar package, India’s response turns out to be inadequate when compared with the other countries with similar levels of per capita income. This article analyses the same.

    Context

    • India’s fiscal response is compared to countries which are similar in GDP per capita, state capacity, and structure of the labour force.
    • Before the Atmanirbhar Bharat package, India lagged significantly behind comparable developing countries.
    • As of early July, the gap seems to have narrowed.

    Comparison and challenges

    •  Due to the blurring of the distinction between fiscal and monetary components, ensuring comparable and accurate figures for fiscal responses is a challenge.
    • For example, the total Atmanirbhar package is billed at 10% of GDP by the government.
    • While the headline number for India’s fiscal response in international databases is around 4% of GDP.
    • But some estimated that the new fiscal outlay is around 1.7% of GDP.
    • Vietnam, Indonesia, Pakistan, and Egypt, all while averaging less stringent measures than those in India, have announced stimulus measures that are as large or more substantial, as a share of GDP.

    Demand-side interventions in the package

    • The one significant demand-side intervention in the Atmanirbhar Bharat package was ₹40,000 crore of additional outlay for the MGNREGA.
    • Most other demand-side measures involve the frontloading, consolidation, or rerouting of existing funds.

    How developing countries are financing responses

    • Developing countries are resorting to drastic means to finance COVID-19 responses.
    • Actions so far include the amendment of legal budget limits.
    • Some are also exploring enhanced issuance of bonds-including a ‘pandemic bond’ by Indonesia.
    • Central banks in many emerging economies are experimenting with purchases of public and private bonds in the secondary market (quantitative easing).
    • Or some are directly purchasing government bonds on the primary market (monetising the deficit).
    • In India, the debate continues over whether the Indian government should invoke the “escape cause” in the FRBM Act.
    • Escape clause will enable the central bank to directly finance the deficit.

    Cash transfer: Lessons for India

    • Demand-side interventions announced by other developing countries could provide lessons for additional measures in India.
    • Of the World Bank’s list of 621 measures across 173 countries, half were cash-based. 
    • While only 2% related to public works, a clear indication of the popularity of cash transfers over public works for income support,
    • Countries have also significantly expanded coverage of their cash transfer programmes from pre-COVID-19 levels.
    • Bangladesh and Indonesia have increased the number of beneficiaries by 163% and 111%, respectively.
    • Indonesia’s cash schemes now cover more than 158 million people or 60% of the population.
    • Additionally, the Indonesia central government has directed village authorities to focus their budgets on a cash-for-work programme.

    Suggestions for India

    • India could take these actions about cash transfers into account in decisions about expanding existing transfer programmes or even creating new ones.
    • India has been a leader in employment guarantee policies with its flagship MGNREGA programme.
    • This is the right time to expand entitlements MGNREGA.
    • There is a need to introduce an urban version of the MGNREGA.
    • In India, one reason for the subdued fiscal response and the resort to monetary measures is a concern with the debt-to-GDP ratio.
    • However, aggregate demand and confidence in the economy have slumped and may not recover for many months.
    • Additional fiscal outlay -would save lives and jobs today and might prevent a protracted slowdown.

    Consider the question “How India fares in comparison with other countries over its fiscal response to Covid? Also examine the utility of income support schemes related to public works against the cash transfer schemes adopted by the other countries.”

    Conclusion

    Not spending more now, therefore, might only worsen the debt-to-GDP ratio if growth remains depressed. The fiscal outlay in the form of cash and in-kind transfers and expanded public works schemes is the need of the hour.

    Original op-ed:

    https://www.thehindu.com/opinion/op-ed/the-covid-19-fiscal-response-and-indias-standing/article32154153.ece

  • Privatisation of Indian Railways

    Indian Railways has launched the process of opening up train operations to private entities on 109 origin-destination (OD) pairs of routes using 151 modern trains.

    Objectives of privatisation

    • To introduce modern technology rolling stock with reduced maintenance.
    • Reduced transit time.
    • Boost job creation.
    • Provide enhanced safety.
    • Provide world-class travel experience to passengers.
    • Reduce demand-supply deficit in the passenger transportation sector.

    Issues with the move

    1) Responsibility issue

    •  Railway crew will work the trains (151 trains in 109 routes) which will be maintained by the private investor.
    • All the other infrastructure, track and associated structures, stations, signalling, security and their daily maintenance owned by the Railways will be fully utilised in running trains.
    • Thus, the responsibility of the private investor ends with investment in the procurement and maintenance of coaches.
    • Train operation, safety and dealing with every day problems rests with the Railways.
    • In case of an unfortunate event, fixing responsibility will be an issue.

    2) Day-to-day problems

    • Provision of an independent regulator to resolve disagreement, discords and disputes.
    • But this regulator will not be able to solve day-to-day problems of dichotomy unless the basic issue is resolved.

    3) Speed issue

    • Nearly all trunk routes in the existing network are speed limited to 110 kmph very few permit speeds of upto 120-130 kmph.
    • To raise it to 160 kmph, as proposed, there has to be track strengthening, elimination of curves and level crossing gates and strengthening of bridges.
    • There is no appreciable reduction in transit time for most proposed trains, when compared with the timings of the fastest train now operating on that route.

    4) Passenger fare issue

    • In the proposal, the Railways or government have no role in fixing passenger fares.
    • Fares will be beyond the common man’s reach.
    • Fare concessions extended to several categories of people will not be made available by the private investor.
    • The very objective of commissioning the Railways as a public welfare transport organisation is defeated.

    5) Reservation in Jobs

    • The private investor is not bound to follow reservation regulations in employment.
    • This, in turn, will deprive employment opportunities for those who are on the margins of society.

    6) Limited Coverage:

    • An advantage of Indian Railways being government-owned is that it provides nation-wide connectivity irrespective of profit.
    • Privatisation of railways would mean the railways will become a profit-making enterprise, this would lead to the elimination of railways routes that are less popular.
    • Thus, the privatisation of railways can have a negative impact on connectivity and further increase the rural-urban divide.

    7) Impact on the Economy:

    • Indian Railways is the backbone of India, it provides low fare transportation to agricultural and industrial trade.
    • Therefore, privatisation of Indian railways shall definitely affect the Indian economy at large.
    • Way forward
    • There should be no need for the government to take a dual role of a facilitator as well as a participant.
    • In the case of the metro railway services, Hyderabad, for example, an ideal PPP project, the concessionaire is solely responsible for daily maintenance, operation, passenger amenities and staff issues.
    • The State government steps in when it comes to land, power, permissions, law and order, etc. Fare determination is in consultation with the government.
    • Instead of a private entrepreneur, Indian Railway Catering and Tourism Corporation, a government undertaking which has gained experience in running the Tejas Express trains, could have been given the role.

    Consider the question “Indian Railways often hailed as the lifeline of the country continues suffering from several issues. In light of this, evaluate the pros and cons of the privatisation of railways.”

    Conclusion

    This project of privatisation of trains should not result in the common man being deprived of travel facilities. The Indian Railways is a strategic resource for the nation hence it should not be judged solely on its profit-generating capability or market-based return on investment.

  • APMC Act is not the main problem

    The APMC Act, which is often blamed for the woes of the farmers is not the main problem. This article argues that the root of the problems of Indian agriculture lies somewhere else.

    Agriculture post-1991

    • The priority post-1991 has been given to industry as well as services.
    • Middle-class consumers have been favoured by at the expense of farmers.
    • This neglect of agriculture resulted in an equally unprecedented gap between the standard of living in the rural and urban parts of the country.
    • As a result, the urban/rural ratio, in terms of monthly per capita expenditures, has jumped from 1.84 to 2.42 between 2012 and 2018.
    • This means that an average urban-dweller today can consume almost 2.5 times more than an average person in a village.

    Reforms by the government

    • Government has decided to liberalise India’s agriculture by amending the APMC Act and the Essential Commodities Act.
    • Contract farming will also be introduced in such a way that the buyer can assure a price to the farmer at the time of sowing.

     APMC Act in the context of Shanta Kumar Committee report

    • The argument against the APMC Act is that it does not allow the free market to function due to government intervention.
    •  It denies farmers the opportunity to determine the prices of crops in the marketplace.
    • In theory, this is a valid argument.
    • But, Shanta Kumar Committee observed in 2015 that only 6 per cent of farmers get the Minimum Support Price (MSP).
    • This is because of barriers to access for farmers as only 22 crops are procured under MSP.
    • Infrastructure is also inadequate as there are only an estimated 7,000 APMC mandis across India.
    • Procurement depends on the stocks required by the state.

    Why the APMC Act is not the problem

    1) Farm Pricing is the problem

    • The living costs of farmers was considered while determining agricultural pricing by the Agricultural Prices Commission (APC).
    • CACP that replaced the APC in 1985 added a 10 per cent mark-up over the MSP to account for entrepreneurial costs.
    • Such practices have been gradually eroded post-1991.
    • The problem, therefore, is not state intervention but the way the government deals with agriculture.

    2) APMC Act helped India build up food stocks

    • India managed to weather the 2008 global food crisis only because it had enough food stocks as Indian agriculture was not linked to the international futures market.
    • This was possible due to the procurement done through the APMC Act.

    3) APMC Act reformed already by States

    • Since agriculture is a state subject, the Act has been modified in 17 states.
    •  On the contrary, the condition of peasants has often been affected when the APMC Act has been diluted.
    • Bihar is a case in point.
    • The APMC Act was revoked in 2006 with the same rationale that further deregulation will attract private investment in infrastructure.
    • Not only has that not materialised, but the existing APMC market infrastructure was also dismantled.

    Reforms that Indian Agriculture needs

    1) Subsidy Reforms

    • Indian Agriculture is still too heavily subsidised in favour of the big players.
    • In the Union Budget 2019-20, the allocation for the Ministry of Agriculture was Rs 1,30,485 crore and the fertiliser subsidy alone was estimated at Rs 79,996 crore.
    • But these subsidies are concentrated on a few crops.
    • Agriculture economist Bruno Dorin has shown, only three crops receive more than 60 per cent of the so-called “non-product-specific” support to agriculture — rice, wheat and sugarcane.
    • This has led to environmental degradation like the depletion of groundwater levels and monocultures which are a threat to biodiversity.
    • It has also led to the industrialisation of agriculture, that results in the strengthening of a handful of multinational companies, which supply chemical inputs.
    • Liberalisation would only strengthen the role of large companies — including those in the agri-food sector.

    2) Agriculture needs to be ecologically viable

    • Structurally, farming needs to be made economically and ecologically viable in India.
    • State intervention for better pricing, investments in water harvesting and an agroecological transition could ensure a more resilient system to weather shocks like the current one.
    • The government could draw inspiration from the Andhra Pradesh Community Managed Farming model.
    • It promotes agroecological principles with the use of locally-produced, ecologically-sustainable inputs focusing on soil health..
    • Since the agro-ecological system of farming is more biodiverse in nature, it will make the system more resilient overall.
    • It will provide a safety net for farmers in case of crop damage due to various factors such as climate change or droughts.

    Consider the question “Though the APMC Act has been blamed for the farmers’ issues, it has historically been part of the solution. Critically analyse.”

    Conclusion

    By investing again in agriculture and following, at last, the recommendations of the M S Swaminathan Committee, the Government of India would also help bridge the drastic urban-rural divide.

    To read more about the issue:

    Marketing of Agricultural Produce in India: Definition; Role; APMC Act, Model APMC Act, 2003

    Original article:

    https://indianexpress.com/article/opinion/columns/rural-india-coronavirus-farm-trade-ordinance-apmc-act-6515414/