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Subject: Economics

  • What are Bulk Drugs Parks?

    Himachal Pradesh is one of the states vying for the allotment of a bulk drug park under a central government scheme announced earlier this year for setting up three such parks across the country.

    Try this question:

    Q.The drug pricing system in India is an indirect outcome of the growing dependence on China for APIs. Discuss.

    What are Bulk Drugs or APIs?

    • A bulk drug also called an active pharmaceutical ingredient (API), is the key ingredient of a drug or medicine, which lends it the desired therapeutic effect or produces the intended pharmacological activity.
    • For example, paracetamol is a bulk drug, which acts against pain.
    • It is mixed with binding agents or solvents to prepare the finished pharmaceutical product, ie a paracetamol tablet, capsule or syrup, which is consumed by the patient.
    • APIs are prepared from multiple reactions involving chemicals and solvents.
    • The primary chemical or the basic raw material which undergoes reactions to form an API is called the key starting material, or KSM.
    • Chemical compounds formed during the intermediate stages during these reactions are called drug intermediates or DIs.

    Why is India promoting bulk drug parks?

    • India has one of the largest pharmaceutical industries in the world (third largest by volume) but this industry largely depends on other countries, particularly China, for importing APIs, DIs and KSMs.
    • This year, drug manufacturers in India suffered repeated setbacks due to disruption in imports.
    • Factories in China shut down when the country went into a lockdown, and later, international supply chains were affected as the Covid pandemic gripped the entire world.
    • The border conflict between India and China exacerbated the situation.

    What is the Centre’s scheme?

    • The Centre’s scheme will support three selected parks in the country by providing a one-time grant-in-aid for the creation of common infrastructure facilities.
    • The grant-in-aid will be 70 per cent of the cost of the common facilities but in the case of Himachal Pradesh and other hill states, it will be 90 per cent.
    • The Centre will provide a maximum of Rs 1,000 crore per park.
    • A state can only propose one site, which is not less than a thousand acres in area, or not less than 700 acres in the case of hill states.

    What does a bulk park offer?

    • A bulk drug park will have a designated contiguous area of land with common infrastructure facilities for the exclusive manufacture of APIs, DIs or KSMs, and also a common waste management system.
    • These parks are expected to bring down manufacturing costs of bulk drugs in the country and increase competitiveness in the domestic bulk drug industry.

    Why Himachal?

    • Himachal already has Asia’s largest pharma manufacturing hub, that is the Baddi-Barotiwala-Nalagarh industrial belt, and the state produces around half of India’s total drug formulations.
    • Himachal offers power and water at the lowest tariffs in the country, and the state also has an industrial gas pipeline.
    • It jumped nine places in this year’s ease-of-doing-business rankings declared by the Centre last month, securing the seventh position in the country.

  • Index of Eight Core Sector Industries

    The Office of Economic Advisor within the Department for Promotion of Industry and Internal Trade (DPIIT) has released the Index of Eight Core Industries (ICI) for September 2020.

    Try this PYQ:

    Q.In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?

    (a) Coal production

    (b) Electricity generation

    (c) Fertilizer production

    (d) Steel production

    What is the Index of Core Industries?

    • As the title suggests, this is an index of the eight most fundamental industrial sectors of the Indian economy and it maps the volume of production in these industries.
    • It gives the details of these eight sectors — namely Coal, Natural Gas, Crude Oil, Refinery Products (such as Petrol and Diesel), Fertilizers, Steel, Cement and Electricity.
    • Since these eight industries are the essential “basic” and/or “intermediate” ingredient in the functioning of the broader economy, mapping their health provides a fundamental understanding of the state of the economy.
    • In other words, if these eight industries are not growing fast enough, the rest of the economy is unlikely to either.

    ICI this year

    • This data is to focus on the trend of ICI growth over the past 6 months — that is, since the start of the Covid-19 pandemic and associated lockdowns.
    • A crucial factor in this regard would be the next wave of Covid-19 infections.
    • If there is a surge in the winter months — as is being witnessed in most Europe and the US — then India’s recovery will be dented yet again.

  • What is NAFED?

    The central cooperative NAFED will soon begin importing onions in a bid to tame soaring prices before the festive season.

    UPSC can frame statements based MCQ over the functions of NAFED.

    NAFED

    • National Agricultural Cooperative Marketing Federation of India Ltd (NAFED) is an apex organization of marketing cooperatives for agricultural produce in India.
    • It was founded on 2 October 1958 to promote the trade of agricultural produce and forest resources across the nation.
    • It is registered under the Multi-State Co-operative Societies Act.
    • NAFED is now one of the largest procurement as well as marketing agencies for agricultural products in India.
    • With its headquarters in New Delhi, NAFED has four regional offices at Delhi, Mumbai, Chennai and Kolkata, apart from 28 zonal offices in capitals of states and important cities.

    Functions of the NAFED

    • To facilitate, coordinate and promote the marketing and trading activities of the cooperative institutions, partners and associates in agricultural, other commodities, articles and goods
    • To undertake purchase, sale and supply of agricultural, marketing and processing requisites, such as manure, seeds, fertilizer, agricultural implements and machinery etc.
    • To act as a warehouseman under the Warehousing Act and own and construct its own godowns and cold storages
    • To act as agent of any Government agency or cooperative institution, for the purchase, sale, storage and distribution of agricultural, horticultural, forest and animal husbandry produce, wool, agricultural requisites and other consumer goods
    • To act as an insurance agent and to undertake all such work which is incidental to the same
    • To collaborate with any international agency or a foreign body for the development of cooperative marketing, processing and other activities for mutual advantage in India or abroad

    Now try this PYQ:

    Q.In, India, markets in agricultural products are regulated under the:

    (a) Essential Commodities Act, 1955

    (b) Agricultural Produce Market Committee Act enacted by States.

    (c) Agricultural Produce (Grading and Marking) Act, 1937

    (d) Food Products Order, 1956 and Meat and Food Products Order, 1973

  • [pib] Sardar Sarovar Dam

    The PM has inaugurated dynamic lighting for the Sardar Sarovar Dam.

    Try this PYQ:

    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

    Sardar Sarovar Dam

    • It is a concrete gravity dam on the Narmada River in Kevadiya near Navagam, Gujarat.
    • Four Indian states, Gujarat, Madhya Pradesh, Maharashtra and Rajasthan, receive water and electricity supplied from the dam.
    • The foundation stone of the project was laid out by then PM Jawaharlal Nehru on 5 April 1961.
    • The project took form in 1979 as part of a development scheme funded by the World Bank to increase irrigation and produce hydroelectricity, using a loan of US$200 million.

  • Allaying the fears of farmers over MSP regime

    Question of MSP regime while arguing in favour of recently passed agri bills has made the farmers apprehensive of the purpose of the bill. The article argues for allaying the fears of the farmers and explains the salience of the MSP.

    Flawed argument over MSP

    • The recently enacted farm bills have triggered debate on the desirability of the MSP regime.
    • But, the bills do not facilitate a policy to do away with Minimum Support Prices (MSPs).
    • The bills allow free entry to agents who wish to set up markets — whether they be private individuals, producer collectives or cooperatives.
    • This means that the Food Corporation of India (FCI) and other associated agencies can procure in the traditional mandis, or in a new market established under this law — or in their own backyard.
    • So, the argument that if the mandis cease to exist, the procurement will also cease is, in fact, flawed.
    • Supporters of the bills have quoted the Shanta Kumar committee’s figures to argue that MSPs are anyway irrelevant for most of the farmers in the country.
    • This linkage of the farm bills with the MSP only adds to the apprehension that farmers have about the bills.

    Significance of MSP

    • It is true that the procurement has remained confined to only a few crops.
    • But the benefits to the farmers even beyond Punjab and Haryana are certainly not negligible.
    • It is true that only a small fraction benefits directly from the procurement.
    • But one cannot ignore the indirect benefit of this to all foodgrain producers in the country.
    • As the procurement significantly exceeds the PDS requirement, this creates additional demand in the foodgrain market, pushing up the prices.
    • This has been a great help for all the grain producers in the country, especially when the international prices have remained low for a long time now.
    • The RBI’s annual report of 2017-18 on impact of MSP on the food prices conclusively shows that MSP is a leading factor influencing the output prices of the farm produce in the entire country.
    • The issue of MSP is all the more important for rain-fed agriculturists, being deprived of irrigation, they don’t derive benefit from subsidies on electricity and fertiliser as their use is limited.
    • So, at the moment, the only state support these farmers (primarily cotton and pulse producers) have is that of MSPs.

    Conclusion

    The debate on whom and how the state should support is an issue that should be addressed independently of the farm acts. Presenting these acts as an alternative to MSPs will not persuade farmers.

  • [pib] Electricity Access & Utility Benchmarking Report

    NITI Aayog, Ministry of Power, Rockefeller Foundation, and Smart Power India have together launched the ‘Electricity Access in India and Benchmarking Distribution Utilities’ report.

    About the report

    • It is based on a primary survey conducted across 10 states––representing about 65% of the total rural population of India.
    • Aimed at capturing insights from the demand (electricity customers) as well as supply-side (electricity distribution utilities), the report seeks to:
    1. Evaluate the status of electricity access in India across these states and distribution utilities along all dimensions that constitute meaningful access
    2. Benchmark utilities’ capacity to provide electricity access and identify the drivers of sustainable access
    3. Develop recommendations for enhancing sustainable electricity access

    Key findings of the report:

    • As much as 92% of customers reported the overall availability of electricity infrastructure within 50 metres of their premises; however, not all have connections, the primary reason being the distance of households from the nearest pole.
    • Overall, 87% of customers have access to grid-based electricity. The remaining 13% either use non-grid sources or don’t use any electricity at all.
    • The hours of supply have improved significantly across the customer categories to nearly 17 hours per day.
    • Nearly 85% of customers reported to have a metered electricity connection.
    • Access to electricity is observed in 83% of household customers.
    • Considering the overall satisfaction level, a total of 66% of those surveyed were satisfied––74% of customers in urban areas and 60% in rural areas.

    Recommendations made

    The key recommendations provided in the report are in the areas of policy and regulation, process improvement, infrastructure and capacity-building of utilities. Other recommendations included:

    • prioritizing the release of new connections for non-household customers
    • transfer of subsidies or other benefits directly into a customer’s account
    • enhanced technology-driven customer service; ensuring 100% metering of customers
    • segregation of feeder lines

  • Controlling the distorting power of the global capital

    Issues with free trade are making themselves more evident in the aftermath of the Covid pandemic. The article analyses the growing influence of the capital and how it is benefiting the few.

    Issues with free trade

    • Debates about free trade revolves around value of economic growth vs. the values of justice.
    • The Economist (October 5) says “Investor-state dispute-settlement (ISDS) clauses of international trade and investment agreements give foreign investors the right to resort to a secretive tribunal to seek compensation when they are in disagreement with a host government.
    • They threaten governments who want to pass laws that seem self-evidently in their country’s and even the world’s interests.
    • The interests of remote financial investors are considered superior to the rights of local people represented by their own democratically elected governments.
    • TRIPS (the Agreement on Trade-Related Aspects of International Property Rights) is another egregious example.
    • Lobbies of multinational pharma companies want to protect their investors with intellectual monopolies under TRIPS, denying affordable medicines to the world’s poorer people.
    • New business models are throwing more workers into short-term contractual arrangements to make it easier for investors to do business.

    How it is relevant in India

    • The Environmental Impact Assessment (EIA) notification 2020 make it easier for investors to take over lands for projects by debilitating the assessment process which requires that communities be heard.
    • The new labour codes passed by Parliament to simplify regulations have also weakened the rights of workers to be represented by unions.
    •  In India, terms of trade have been stacked against small farmers to keep prices low for consumers.
    • Terms are also against small enterprises in financial markets, and also when they supply to large buyers in global supply chains.
    • The terms of trade are unfair for all workers who are on the supply side of labour markets vis-à-vis those who pay them.
    • Small people do not have clout in any market. Those with more money set the terms of trade.

    Governance crisis

    • Capitalism runs on the principle of property rights: Those who own more must have a greater say in the governance of the enterprise.
    • Money is speaking too much in fixing the rules of the game: It influences elections; it controls the media; it powers lobbies for reforms at international and national levels.

    Conclusion

    The way the rules of the economy and trade are made must change to create a more just and resilient world. Voices of the poorest people and their associations must be heard more loudly than the opinions of the rich and their lobbies.

     

  • Give reforms a chance

    Agri-bill passed by the Parliament resulted in the protest from farmers from several states. The bills have also been challenged on the legal footing as well. This article explains how the bills will benefit the farmers and also examines the legal basis used for their passage.

    States trying to nullify the agri bills passed by Parliament

    • Parliament has passed three bills on agriculture reform. This has evoked protests, largely in Punjab and Haryana.
    • Taking recourse to Article 254 of the Constitution, the Punjab government has passed its own bills to nullify some provisions of the central acts.
    • Similar action by the Chhattisgarh and Rajasthan governments seems to be on the anvil.

    Legal justification for Parliament passing the laws related to agriculture

    • The Constitution has placed agriculture on the state list.
    • Various petitions have also been filed in the Supreme Court claiming that the central laws infringe upon the jurisdiction of state governments.
    • However, it is the Centre which decides and announces support prices for major crops for the entire country.
    • It also decides issues such as bank loan waivers.
    • International agreements and multilateral trade in agricultural products also fall in the Union government’s domain.
    • Agricultural and dairy products, in fact, had a prominent role in India not joining the Regional Comprehensive Economic Partnership (RCEP).
    • Entry 33 in the concurrent list limits the power of states in agriculture, by empowering both governments to legislate on production, trade and supply of a range of agricultural foodstuffs and raw material.

    Use of Article 254 to bypass Central law

    • The Punjab bill has set in motion the process of states taking refuge under Article 254 to pass their own pieces of legislation.
    • All state bills that seek to nullify central acts have to be approved by the President after they have received the consent of the governor of the state.

    Way forward

    • Reformist chief ministers and astute policy planners should grab this opportunity and encourage investment in private infrastructure to create supply chains and give the farmer the benefit of demand-led prices.
    • They should also take appropriate action to create institutional mechanisms, such as farmer producer organisations or aggregators, to ensure greater farmer participation.

    Conclusion

    It would be in the interests of the farming community and state governments to give the much-delayed reform measures a fair chance by giving them access to competitive purchases, affording better prices.

  • How to improve the financial picture of the DisComs

    The article analyses the factors responsible for financial difficulties faced by the DisComs and suggests the ways to deal with the issues.

    Important role of the DisComs

    • Distribution Companies (DisComs) are the utilities that typically buy power from generators and retail these to consumers.
    • For all of India’s global leadership for growth of renewable energy, or ambitions of smart energy, the buck stops with the DisComs.
    • The days of scarcity of power are over.
    • The physical supply situation has mostly improved.
    • But the financial picture has not brightened much.

    Analysing the data on liabilities of the DisComs

    •  ₹90,000 crore (later upgraded to  ₹1,25,000 crore) was earmarked for DisComs in ₹20-lakh crore package announced in the wake of Covid-19’s economic shock.
    • The Power Finance Corporation (PFC)’s Report on Utility Workings for 2018-19 showed dues to generators were ₹2,27,000 crore, and this is well before COVID-19.
    • It also showed similar Other Current Liabilities.
    • DisComs have delayed their payments upstream (not just to generators but others as well) — in essence, treating payables like an informal loan.

    But why do DisComs not pay on time?

    • Ideally, DisComs should not incur losses as they enjoy a regulated rate of return.
    • While AT&C losses can explain part of any gap. Major reasons are as discussed below:

    1) Regulatory issue and cash-flow gap due to it

    • The first problem starts at the regulatory level where even if DisComs performed as targeted, across India, they would face a considerable cash flow gap.
    • This cash flow gap was ₹60,000-plus crore in FY18-19 compared to their then annual cost structure of ₹7.23-lakh crore.

    2) Payabeles issue: Due from consumers, state and regulatory gap

    •  These dues are of three types.
    • First, regulators themselves have failed to fix cost-reflective tariffs thus creating Regulatory Assets,which are to be recovered through future tariff hikes.
    • Second, about a seventh of DisCom cost structures is meant to be covered through explicit subsidies by State governments.
    • Third, consumers owed DisComs over ₹1.8 lakh crore in FY 2018-19, booked as trade receivables.
    • State governments are the biggest defaulters, responsible for an estimated a third of trade receivables, besides not paying subsidies in full or on time.

    3) Challenge of renewable energy

    • The rise of renewable energy means that premium customers will leave the system partly first by reducing their daytime usage.
    • And as battery technologies mature, their dependence on DisComs may wane entirely.
    • Even without batteries, regulations permitting, they may want to find third party suppliers under competitive models.

    Impact of Covid pandemic

    • COVID-19 has completely shattered incoming cash flows to utilities.
    •  The revenue implications were far worse since the lockdown disproportionately impacted revenues from so-termed paying customers, commercial and industrial segments.
    • Reduced demand for electricity did not save as much because a large fraction of DisCom cost structures are locked in through Power Purchase Agreements (PPAs) that obligate capital cost payments, leaving only fuel savings with lower offtake.

    Way forward

    • We will probably need a much larger liquidity infusion than has been announced thus far, but it also must go hand-in-hand with credible plans to pay down growing debt.
    • We need a complete overhaul of the regulation of electricity companies and their deliverables.
    • We need to apply common sense metrics of lifeline electricity supply instead of the political doleout of free electricity even for those who may not deserve such support.
    • For the rest, regulators must allow cost-covering tariffs.

    Consider the question “Examine the factor responsible for making the DisComs financial unviable? Sugget the pathways to deal with the issues faced by the DisComs”

    Conclusion

    The financial problems of DisComs have been brewing for many yearsHowever, if business as usual was not even good enough before COVID-19, it will not be workable for the current national needs of quality, affordable, and sustainable power.

  • Natural gas to come under GST

    Officials have indicated that the government is considering bringing natural gas under the ambit of the GST regime.

    Try this question from CSP 2018:

    Q.Consider the following items:

    1. Cereal grains hulled
    2. Chicken eggs cooked
    3. Fish processed and canned
    4. Newspapers containing advertising material

    Which of the above items is/are exempt under GST (Goods and Services Tax)?

    (a) 1 only

    (b) 2 and 3 only

    (c) 1, 2 and 4 only

    (d) 1, 2, 3 and 4

    Why such demands?

    • Global energy MNCs have called on the government to bring natural gas under the GST regime.
    • Currently petrol, diesel, aviation turbine fuel, natural gas and crude oil fall outside India’s Goods and Services Tax (GST) regime.

    Why is it important to bring natural gas under the GST regime?

    • Bringing natural gas under the GST would lead to a reduction in the cascading impact of taxes on industries such as power and steel, which used natural gas as an input.
    • This would do away with the central excise duty and different value-added taxes imposed by states.
    • This would lead to an increase in the adoption of natural gas in line with the government’s stated goal to increase the share of natural gas in the country’s energy basket from 6.3% to 15%.

    Back2Basics: GST

    • GST launched in India on 1 July 2017 is a comprehensive indirect tax for the entire country.
    • It is charged at the time of supply and depends on the destination of consumption.
    • For instance, if a good is manufactured in state A but consumed in state B, then the revenue generated through GST collection is credited to the state of consumption (state B) and not to the state of production (state A).

    Must read:

    Goods and Services Tax