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Subject: Economics

  • [pib] ASKDISHA Chatbot

     

    In order to resolve queries of railway passengers over the internet pertaining to various services offered, Indian Railways had introduced the services of Artificial Intelligence-based ASKDISHA chatbot in October 2018 for the benefit of the users.

    ASKDISHA Chatbot

    • IRCTC had launched this chat bot to answer various queries about ticket booking, cancellation and various value-added services.
    • The chatbot is a special computer programme designed to simulate conversation with users, especially over the internet.
    • It was jointly developed by IRCTC and CoRover Private Limited, a Bangalore-based startup.
    • The first-of-its-kind initiative by IRCTC is aimed at facilitating accessibility by answering users’ queries pertaining to various services offered to railway passengers.

    What is the new update?

    • The ASKDISHA Chatbot was initially launched in English language but in order to further enhance the customer services rendered.
    • To further strengthen the services of the chatbot, IRCTC has now powered voice-enabled ASKDISHA to converse with customers in Hindi language also in the e-ticketing site irctc.co.in.
    • The customers can now ask queries to ASKDISHA in Hindi language by voice as well as text.
    • On an average, around three thousand enquiries are being handled by ASKDISHA in Hindi language on daily basis and the figure is increasing day by day which also shows the acceptability of the new feature by the customer.
    • IRCTC plans to launch ASKDISHA in more languages along with many other additional features in the near future.

  • Conquering the green frontier

    Context

    India has to forge a different development model -one that will shift India’s workforce from agriculture to globally leading, resource-efficient businesses.

     How India can deliver sustainable prosperity?

    • The two intertwined forces: Just as liberalisation and globalisation transformed the economy in the past, two different yet intertwined forces will likely transform the economy in the future.
    • First–High competitiveness: India must have globally leading companies across a range of key sectors such as financial services and manufacturing.
      • Global productivity frontier: These super competitive businesses should define the global productivity frontier so that they can surpass the production processes of the best companies in the world.
    • Second-Long term sustainability: India must also adopt a resource-efficient, low-carbon development pathway to utilise scarce natural resources effectively. There is no other way.
      • Apocalyptic air pollution.
      • Dire water shortages.
      • Rising temperatures and-
      • Extreme climate events- have already brought us to the brink of an environmental crisis.
      • The need for India’s leadership for achieving the target: Moreover, note that the world needs India’s leadership to achieve the 2 degree Celsius global warming target.
      • In short, India’s growth has to be green.
    • What is the problem in achieving these goals?
      • No nation has ever attempted these twin transformations — high competitiveness and long-term sustainability — simultaneously.
      • The traditional development model: The traditional development model has been a farm-to-factory development model with economies transitioning from traditional agriculture to resource-intensive, urban manufacturing.
      • India has to forge a different development model — one that will shift India’s workforce from agriculture to globally leading, resource-efficient businesses.
      • Also, these companies must use the most advanced green technologies and business models.
      • India’s development model will, therefore, need to take the Indian economy from “the farm-to-green frontier”.

    Three focus area for green transformation

    • The productivity transformation driven by super competitive businesses is well underway.
      • We now need to consider a comprehensive policy package that will enable us to simultaneously undertake a green transformation.
      • Global best practices and India’s own experiences suggest three focus areas for such a transformation.
    • India has the third-largest start-up ecosystem in the world and our larger companies are also pursuing innovation-driven growth.
    • Specific and stable policy goals
      • Specific and stable policy goals need to be established to set detailed green targets for various sectors.
      • A macro-economic model that factors in-
      • Current skills.
      • Sectoral connections.
      • Relative emission and-
      • Financial constraints are necessary to inform such targets going forward.
      • Such a model can then be used to evaluate various green growth scenarios.
      • Decarbonisation approaches in the green frontier scenario will drive the growth of green industries, green jobs, green skills, green entrepreneurs and green finance.
    • Pursuing the policy goals: Global and Indian experience highlights that green targets will have to be pursued in a stable manner across decades.
      • Most large emitters and pollutants are associated with long-lived (20-30 plus years useful life) assets.
      • The basic requirement for investment in green assets: Investments in green assets will only be possible if there is the sanctity of contracts, pricing stability, and consistent policies that are backed up by the full force of law.
      • Implementation: Finally, these specific and stable policy goals need to be implemented urgently to avoid lock-in with high-carbon assets.
    • Revamp the institutional framework: India may need to revamp its existing institutional framework for environmental governance in order to align it with the country’s green transformation.
      • Four levels of institutional structure: As demonstrated by global best practices, a comprehensive institutional framework could include four levels — super sovereign, sovereign, state/province and city.
      • Council for monitoring: An independent council or board may also be required to monitor, report, and verify green targets.
    • Appropriate financing capacity: Indian policymakers and entrepreneurs will unleash market forces that will drive the growth of waste management, solar panels, electric vehicles, super-efficient appliances, recyclable food packaging, clean coal, etc.
      • These green industries will require massive investments and appropriate financing capacity will have to be created to support their growth.
      • Preliminary estimates suggest that India’s green transformation may require an average investment of $95 billion to $125 billion per year, aggregating over $1 trillion in the next decade.
      • A “green super fund” could be established to jumpstart green investments by pooling together international and domestic capital.
      • Dual roles of financial institution: Such a financial institution could play a dual role in mediating and mitigating risk for global capital, as well as identifying sectoral project pipelines.
      • The success of financial institution: Indian financial institutions have been very successful in building up new industries such as microfinance, EdTech, and affordable healthcare, which have delivered both financial and social returns; however, financial support for green industries will have to be orders of magnitude larger.
      • Moreover, the “green super fund” may have to be able to invest across the capital structure (debt plus equity) as well as across the company lifecycle (early stage, growth capital, infrastructure investments, and so on).

    Conclusion

    Our future depends on how we resolve our environmental challenges. Further, we are the world’s third-largest carbon emitter and will play a crucial role in getting the planet to a low-carbon trajectory. Simply put, we must urgently transform our economy to get to the green frontier.

  • Changes in Crop Insurance Scheme

    The Centre has decided to restrict its premium subsidy in its flagship crop insurance schemes to 30% for unirrigated areas and 25% for irrigated areas (from the existing unlimited), and to make enrolment of farmers in the Pradhan Mantri Fasal Bima Yojana (PMFBY) and Restructured Weather Based Crop Insurance Scheme (RWBCIS) voluntary from the 2020 Kharif season.

     Other changes in crop insurance schemes

    • The government has given flexibility to states/UTs to implement PMFBY and RWBCIS, and given them the option to select any number of additional risk covers/features like prevented sowing, localised calamity, mid-season adversity, and post-harvest losses.
    • Earlier, these risk covers were mandatory.

    Why such a move?

    By capping the subsidy for premium rates up to 30%, the Centre wants to dis-incentivize certain crops in such areas where growing these crops involve high risks in terms of crop insurance premiums.

    What were the schemes?

    • At present, under PMFBY and RWBCIS, farmers pay a premium of 2% of the sum insured for all foodgrains and oilseeds crops of Kharif; 1.5% for all foodgrains and oilseeds crops of Rabi; and 5% for all horticultural crops.
    • The difference between actual premium rate and the rate of insurance premium payable by farmers, which is called the Rate of Normal Premium Subsidy, is shared equally between the Centre and the states.
    • However, states and UTs are free to extend additional subsidy over and above the normal subsidy from their budgets.
    • Until now, there was no upper limit for the central subsidy.
    • The Cabinet decided to cap the Centre’s premium subsidy under these schemes for premium rates up to 30% for unirrigated areas/crops and 25% for irrigated areas/crops.

    How many farmers are covered under these two schemes?

    • During 2018-19, about 5.64 crore farmers are enrolled with PMFBY for an insured sum of Rs 2,35,277 crore, and 30% of the gross cropped is insured.
    • When the government approved PMFBY four years ago, it was described as a path-breaking scheme for farmers’ welfare” under which there was no upper limit on government subsidy.
    • Even if balance premium was 90%, it was to be borne by the Government
    • While PMFBY is based on yield, RWBCIS is based on proxies and farmers are provided insurance protection against adverse weather conditions such as excess rainfall, wind and temperature.
    • The number of insured farmers under RWBCIS is relatively low.

    Impact of the move

    This change will have two main implications.

    • First, it may bring down the rates of overall premium as the state governments now will not be required to invite bids factoring these risks.
    • Second, it will make these schemes less attractive for farmers.
    • However, states/UTs can offer specific single peril risk/insurance covers like hailstorm etc under PMFBY.

    Burden of premium

    • One interpretation of this decision is that the burden of premium subsidy will go up for the states.
    • Example: In the old regime, if a farmer’s Kharif crop was insured for Rs 1,00,000 and the rate of actuarial premium was 40%, then the premium paid by the farmer was 2% (Rs 2,000), and the remaining premium was shared by the Centre and the state equally (19% or Rs 19,000).
    • In the new regime, for the same sum insured (Rs 1,00,000) and the same rate of premium (40%), the Centre will give subsidy for premium rates up to 30%.
    • This means that from the Kharif 2020 season , the Centre will have to pay premium at the rate of 14% (out of 30%, the farmer’s share is 2%, and the Centre’s and state’s 14% each).
    • The state has to bear the entire burden of the premium subsidy in cases where the rate of premium goes beyond the threshold of 30%.

    No insurance of certain crops

    • Another interpretation is that the Centre may stop supporting insurance of certain crops in certain areas where the rate of premium is more than 30%.
    • The Department of Agriculture, Cooperation and Farmers Welfare in consultation with other stakeholders/agencies will have to prepare State specific, alternative risk mitigation programme for crops/areas having high rate of premium.
    • While the average premium rate under PMFBY and RWBCIS at the national level was 12.32% for 2018-19, for some crops in certain districts, the rate of premium has been higher than 30% in recent years.
    • For instance, the rate of premium for Kharif groundnut has reached 49% in Rajkot of Gujarat, and the rate for Rabi paddy crop Ramnathapuram (Tamil Nadu) has reached 42%.

    Impact on states

    • The states are already defaulting on their share, and the Centre’s new cap will put an additional financial burden on them.
    • Madhya Pradesh has not paid its share of premium even for Kharif 2018, which comes to Rs 1,500 crore. As a result, farmers have not got their claims.
    • In fact, most states have delayed the payment of their share of premium.
    • Sources said that in some states, the expenditure on premium of PMFBY is more than 50% of their budget for agriculture.

    Immediate implications

    • That move will lead to a rise in the rates of premium, as the area covered under insurance and the number of enrolled farmers is expected to come down significantly.
    • As of now the schemes are compulsory for all loanee farmers and optional for other farmers.
    • Non-loanee farmers under the crop insurance schemes are much fewer than loanee farmers.
    • If the latter opt out of the schemes, the number of insured farmers will drastically come down.
    • In such a scenario the rate of premium of certain crops in some areas may go beyond 30%.

    Back2Basics

    Pradhan Mantri Fasal Bima Yojana – Min Premium, Max Insurance

  • Buddah Nullah

    The Punjab govt. has approved ₹650 crore in the first phase for rejuvenation of the highly polluting Buddah Nullah — a seasonal tributary of Sutlej in Ludhiana.

    Buddah Nullah

    • Buddah Nullah or Budha Nala is a seasonal water stream that runs through the Malwa region of Punjab.
    • It passes through highly populated Ludhiana and drains into Sutlej River, a tributary of the Indus river.
    • It has also become a major source of pollution in the region as well the main Sutlej river, as it gets polluted after entering the highly populated and industrialized Ludhiana city, turning it into an open drain.
    • Also, since a large area in south-western Punjab solely depend on the canal water for irrigation, and water from Buddha Nullah enters various canals after Harike waterworks.

    Why such move?

    • The pollution in the Buddah Nullah is a major threat to public health and environment and the main sources of pollution in the nullah are direct flow of pollutants by industries and dairies.
    • Also, treated effluents from existing STPs, based on UASB technology, does not meet the required quality and overflow from sewer lines add to the problem.
    • The NGT has already directed the government to take proactive steps to immediately address the problem.

  • Trading with America

    Context

    Trump has made India’s trade headache more acute. But he has also opened up opportunities.

    Political polarisation in both countries

    • Impeachment attempt: The Democrats in the US have struggled to oust Trump from the White House and rarely find anything they can agree with their President on.
    • The deeper political divide in India: While ousting Narendra Modi through a legal process of impeachment is not an option in India, the political divide is even deeper.
    • No consensus on foreign policy
      • Under Trump, consensus on foreign policy in Washington has broken down.
      • In Delhi, the Opposition has never been willing to acknowledge the diplomatic successes of the government.
      • But the usually bipartisan support for foreign policy in the strategic community has eroded.
      • Many leading voices of the establishment who have a long and distinguished service have become major critics of foreign policy.

    Comparison of India’s trade with the US and China

    • Trade with the US: In 1995, total two-way trade, including goods and services, between India and the US was $11 billion.
      • In 2018, it crossed $140 billion.
      • It is reported to be around $150 billion in 2019.
      • In trade with the US, India enjoys a surplus of nearly $23 billion.
      • A 14-fold increase in trade turnover in 25 years is certainly not something to sneer at.
      • Can India and the US do better on trade? Yes, of course.
      • Only a few years ago, the two sides were looking at an annual trade target of $500 billion. That looks rather ambitious amidst the current disputes
    • Trade with China: India’s China trade too has risen, even more rapidly.
      • From a couple of hundred million dollars in the mid-1990s to nearly $90 billion in 2019.
      • India has a deficit of nearly $57 billion with China.

    Trade disputes between India-US

    • Trade has long been a contentious issue between Delhi and Washington.
    • There had been enduring tension since the late 1980s between the US demand for-
      • Greater market access.
      • Intellectual property protection.
      • And a host of other demands and India’s own cautious approach to economic liberalisation.
    • Rise in pressure under Trump administration: All recent US administrations have applied continuous pressure on India for trade agreements.
      • The pressure has significantly risen under President Trump.
    • Trade dispute at the centre of the relationship: If his predecessors were willing to cut some slack for India by citing larger political and strategic considerations in the bilateral ties, Trump has put trade disputes at the front and centre of the relationship.
      • Officials in the Department of Commerce and the US Trade Representative’s office have adopted extremely aggressive tactics in the negotiation with India.
    • Result of a radical reorientation of US trade policy: Trump has undertaken a radical reorientation of US trade policy.
      • For Trump, this is a matter of long-standing ideological conviction as well as a political convenience.
      • He has bet that the anti-free-trade White working classes in the American rust belt are the key to his re-election.
    • No option but to deal with it: Given America’s pole position in the global trading system, you have no option but to deal with it.
      • Trump is getting away with his demand for the restructuring of trade relations with key economic partners.
      • He has renegotiated the NAFTA with neighbours Canada and Mexico and has compelled China to start reducing the massive trade deficit with the US.
    • The difference in India and China’s response to the US: In response to Trump’s pressure, Xi reaffirmed his commitment to economic globalisation and domestic liberalisation and wooed American investors with even greater vigour than before.
      • India embracing protectionism: India appears to be sending the opposite signal — of a definitive drift towards protectionism. India’s trade troubles are certainly not limited to the engagement with the US.

    Problem with India’s trade policies

    • India walking away from RCEP: Delhi walked away at the very last minute from signing the RCEP agreement last year to deep disappointment among its partners including the ASEAN, Australia, Japan and New Zealand.
      • The trade deficit with China: One of the main arguments cited by India was the massive trade deficit with China and the potential danger of it widening further under RCEP.
    • Failure in negotiations with the EU: The European Union is reluctant so far to restart trade negotiations that ended in great frustration for Brussels some years ago.
    • No deal with Australia and New Zealand: Australia and New Zealand have given up.
    • Neighbours complaint: India’s immediate neighbours complain that India’s rhetoric on connectivity and regionalism is matched by the multiple non-tariff barriers that continue to constrain commerce across the South Asian frontiers.
    • Why so many deals are pending? It is certainly probable, statistically, one in a million, that the fault lies, always, with India’s partners. But one would think there might be a real problem with Delhi’s own trade policies.

    Conclusion

    • New opportunity: Trump has certainly made India’s trade headache more acute. But he has also opened up opportunities.
      • His trade war on China has put pressure on the global supply chains centred around China.
      • India not the beneficiary of the US-China trade war: Many companies are moving their production out of China, but only a few are turning towards India.
      • While Delhi has talked the talk on taking advantage of the US-China trade war, it is yet to get its act together.
    • No opposition against protectionism at home: What makes Delhi’s devaluation of trade as a key instrument of economic growth potentially irreversible is the fact that there is little domestic political opposition to it.
    • Time to take a hard look at trade policy: For now, though, India’s partnership with the US might not only survive the current trade tensions but advance during Trump’s visit.
      • There is so much happening elsewhere in the relationship — especially in the defence and security domain.
      • But the time has come for Delhi to take a hard look at its current trade policy that threatens to undermine India’s regional and international prospects.

     

     

     

     

  • [pib] Scheme for formation and promotion of Farmer Producer Organizations (FPOs)

    The Cabinet Committee has given its approval for 10,000 FPOs to be formed in five years period from 2019-20 to 2023-24 to ensure economies of scale for farmers.

    What are Farmer Producer Organizations?

    • A Producer Organisation (PO) is a legal entity formed by primary producers, viz. farmers, milk producers, fishermen, weavers, rural artisans, craftsmen.
    • A PO can be a producer company, a cooperative society or any other legal form which provides for sharing of profits/benefits among the members.
    • In some forms like producer companies, institutions of primary producers can also become member of PO.
    • FPO is one type of PO where the members are farmers. Small Farmers’ Agribusiness Consortium (SFAC) is providing support forthe promotion of FPOs.

    About the Scheme

    • It would be a new Central Sector Scheme titled “Formation and Promotion of Farmer Produce Organizations (FPOs)” to form and promote 10,000 new FPOs.
    • Initially there will be three implementing Agencies to form and promote FPOs, namely Small Farmers Agri-business Consortium (SFAC), National Cooperative Development Corporation (NCDC) and National Bank for Agriculture and Rural Development (NABARD).
    • States may also, if so desire, nominate their Implementing Agency in consultation with DAC&FW.
    • DAC&FW will allocate Cluster/States to Implementing Agencies which in turn will form the Cluster-Based Business Organization in the States.

    Modes for promotion

    • FPOs will be promoted under “One District One Product” cluster to promote specialization and better processing, marketing, branding & export by FPOs.
    • There will be a provision of Equity Grant for strengthening equity base of FPOs.
    • There will be a Credit Guarantee Fund of up to Rs. 1,000.00 crore in NABARD.

    Benefits

    • Small and marginal farmers do not have the economic strength to apply production technology, services and marketing including value addition.
    • Through the formation of FPOs, farmers will have better collective strength for better access to quality input, technology, credit and better marketing access through economies of scale for better realization of income.

  • USTR takes India off Developing Country List

    Context

    The United States’s annual exercise of designating developing, and least developed countries has assumed importance for India this year: it has been dropped from the list of developing countries.

     ‘Developing’ or ‘developed’ country designation by the US

    • Last week, the United States officially designated developing and least-developed countries for the purposes of implementing the countervailing measures.
      • The division is provided by the Agreement on Subsidies and Countervailing Measures (ASCM) of the World Trade Organisation (WTO).
    • Why the designation matters?
      • The higher level of subsidies allowed: According to the ASCM, developing countries are allowed to grant higher levels of subsidies as compared to the developed countries before countervailing duties (CVD) can be imposed.
      • What are the limits? The maximum limit of the subsidy is-
      • For developed country: Limit is maximum 1% of the import value of the investigated product.
      • For developing country: Limit is a maximum 2% of the import value of the investigated product.
      • If the limit is breached the importing country can impose a countervailing duty on the product.

    India as a target by the US

    • Provision of self-designation: Under the WTO rules, any country can “self-designate” itself as a developing country.
    • No criteria specified by the WTO: The WTO does not lay down any specific criteria for making a distinction between a developed and a developing country member, unlike in the World Bank where per capita incomes are used to classify countries.
    • Arbitrary criteria used to designate India: Despite this clearly laid down criterion in the WTO rules, the United States Trade Representative (USTR) employed an arbitrary methodology that took into consideration-
      • “Economic, trade, and other factors, including the level of economic development of a country (based on a review of the country’s per capita GNI) and a country’s share of world trade” to exclude India from list of designated developing countries.
    • Second such instance after denying GSP: Excluding India from the lists of developing countries for the purposes of using countervailing measures or denying benefits of GSP are but two of the more recent initiatives that the U.S. has taken to challenge India’s status as a developing country in the WTO.

    What would the impact on India?

    • Loss of Special and Differential Treatment (S&DT): India would lose the ability to use the special and differential treatment (S&DT) to which every developing country member of the WTO has a right.
      • What is S&DT? In short, S&DT lessens the burden of adjustment that developing countries have to make while acceding to the various agreements under the WTO.
      • How S&DT benefited India?S&DT has been particularly beneficial for India in two critical areas: one, implementation of the disciplines on agricultural subsidies and, two, opening up the markets for both agricultural and non-agricultural products.
    • Limits on subsidies: The WTO Agreement on Agriculture(AoA) provides an elaborate discipline on subsidies.
      • Subsidies are classified into three categories, but two of these are virtually outside the discipline since the WTO does not limit spending on these categories of subsidies.
      • Limits on price support measures: The discipline exists in case of price support measures (minimum support price) and input subsidies which is the more common form of subsidies for most developing countries, including in India.
      • Limits on spending on prices support measures: For developing countries, spending on price support measures and input subsidies taken together cannot exceed 10% of the total value of agricultural production.
      • In contrast, developed countries are allowed to spend only 5% of their value of agricultural production.

    Shifting to DBT

    • Why shifting to DBT necessary? India is a major user of price support measures and input subsidies.
      • And given the constraints imposed by the AoA, the government has spoken about its intention to move into the system of direct benefit transfer (DBT) for supporting farmers.
      • No limit on spending through DBT: A shift to DBT is attractive for India since there are no limits on spending, unlike in case of price support measures and input subsidies.
      • Rework subsidies’ programme: Faced with on-going farm distress, the government has had to rework its subsidies’ programme in order to extend greater benefits, especially to small and marginal farmers.
    • Challenges in the implementation of DBT
      • Implementation of DBT in agriculture has several insurmountable problems.
      • Difficulty in identifying the beneficiary: Targeting potential beneficiaries of DBT seems difficult at this juncture for a number of reasons, including inadequate records of ownership of agricultural land on the one hand, and the presence of agricultural labour and tenants on the other.
      • This implies that in the foreseeable future, India would continue to depend on price support measures and input subsidies.
      • How it matters: Given this scenario, the government needs the policy space to provide adequate levels of subsidies to a crisis-ridden agricultural sector.
      • And therefore it is imperative that continues to enjoy the benefits as a developing country member of the WTO.

    Issue of tariffs

    • The issue of market access, or the use of import tariffs, is one of the important trade policy instruments.
    • Provision of no reciprocal tariff cuts: It has some key provisions on S&DT, which the developing countries can benefit from. The most important among these is the undertaking from the developed countries that they would not demand reciprocal tariff cuts.
      • Over the past two years, the government of India has been extensively using import tariffs for protecting Indian businesses from import competition.
      • With the increasing use of tariffs, almost across the board, India’s average tariffs have increased from about 13% in 2017-18 to above 17% at present.
    • Why it matters? Developed country members of the WTO have generally maintained very low levels of tariffs, and, therefore, India’s interests of maintaining a reasonable level of tariff protection would be well served through its continued access to S&DT, by remaining as a developing country member of the WTO.

    Conclusion

    With the changing stance of the US towards India, the government must ensure its international trade and agriculture at home is not adversely impacted.

     

  • The $5 trillion arithmetic

    Context

    The Indian government has set itself a big target, namely, that the Indian economy will have an aggregate income or gross domestic product (GDP) of $5 trillion by 2024-25.

    Lack of clarity

    • There is little effort to take it beyond a slogan.
    • When it comes to targets and aims pertaining to the economy, it is important to have-
      • The officials and advisers go beyond the headline.
      • To lay out the details and the road-map for the target.
    • Matter for investors: For international observers and particularly investors, not to see these details creates doubts about professionalism.

    What growth rate is required to reach that target?

    • How long will it take to achieve the target at the present growth rate?
      • In 2018-19, India’s GDP was $2.75 trillion.
      • India’s latest official growth rate happens to be 5 per cent.
      • Target will be reached in 2032-33: Continue in the same fashion to compute the size of the GDP and it becomes clear that the target of $5 trillion will be reached not in 2024-25, but in 2032-33.
    • What is the required rate? Set the target as $5 trillion dollars for 2024-25 the required rate turns out to be 10.48 per cent or, approximately, 10.5 per cent.

    Why 10.5 rate is an ambitious target?

    • The only example of any nation growing for six consecutive years at an average annual rate of over 10.5 per cent was China from 2003 to 2009.
    • Can India achieve this rate?
      • From 1947 till now, India’s economy grew at over 10 per cent only twice — in 1988-89 and 2007-8.
      • Of these, the first may be dismissed because the previous year the economy had grown very slowly, by 3.5 per cent.
    • What we can learn from the past growth rate?
      • The only example to learn from: The only example from which we can learn is the remarkable growth in 2007-8, made all the more remarkable by the fact that India had been growing well for several years, starting from 2003.
      • And from 2005, India was actually growing over 9 per cent.
      • What factors played the role in high growth?
      • This was a period of professional fiscal policy and steady effort at building infrastructure.
      • India’s economy was making big news in the international media and investment poured in.
      • India’s investment-to-GDP rate climbed to an all-time record of 39 per cent.
    • Current investment-to-GDP ratio: Our investment-to-GDP ratio has crashed to 30 per cent and this takes time to re-build.
      • If we can get back to a growth rate of 7 per cent we will be lucky.

    Can inflation make the target achievable?

    • Combination of real growth and inflation can make it possible: Virtually all serious commentators agree that in purely real terms, the $5-trillion target is unreachable.
      • But maybe we can make it by a combination of real growth and inflation.
      • How the combination will work? One way India can get to the target is if alongside say 7 per cent growth, India has inflation of say 3.5 per cent.
      • Then India’s nominal GDP growth rate will be 10.5 per cent.
    • Why the inflation argument is flawed?
      • The five trillion target is in dollar terms.
      • Inflation will lead to depreciation: Typically, if India has higher inflation than the US, the rupee would depreciate vis-à-vis the dollar to account for that.
      • For the sake of pure arithmetic, assume US inflation is zero, India’s inflation is 10 per cent, and India’s real growth rate is 0.
      • In that case, in rupee terms, India’s economy will grow by 10 per cent. But how much will India’s economy grow in dollar terms?
      • The answer is zero.
      • Why is it so? This is because the rupee will typically depreciate by 10 per cent to match the inflation differential, and so the larger GDP of India in rupee terms, when converted to dollars will show no growth.
    • The other possibility of achieving the target?
      • What if the dollar loses value? But this should immediately make it clear that there is another way of getting to the target.
      • This can happen if the US dollar loses value.
      • We can then get to the target of $5 trillion because that will mean less in real terms.

    Conclusion

    There are two routes to achieve the target of $5 trillion: A huge policy initiative to boost real growth or the luck of dollar depreciation. The luck of dollar would mean nothing for us in the real term so the best course of action for the government is to seek the first option and try to achieve it.

  • RBI’s accounting year

    The Reserve Bank of India (RBI) is aligning its July-June accounting year with the government’s April-March fiscal year in order to ensure more effective management of the country’s finances.

    • Accordingly, the next accounting year will be a nine-month period which starts from July 2020 and ends on March 31, 2021. Thereafter, all the financial years will start from April every year, the RBI said.
    • The Bimal Jalan Committee on Economic Capital Framework (ECF) of the RBI had proposed a more transparent presentation of the RBI’s annual accounts and change in its accounting year from July to June to April to March from the financial year 2020-21.

    How did the RBI’s July-June accounting year come to be?

    • When it commenced operations on April 1, 1935, with Sir Osborne Smith as its first Governor, the RBI followed a January-December accounting year.
    • On March 11, 1940, however, the bank changed its accounting year to July-June.
    • Now, after nearly eight decades, the RBI is making another switch: the next accounting year will be a nine-month period from July 2020 to March 31, 2021, and thereafter, all financial years will start from April, as it happens with the central and state governments.

  • SUTRA PIC India Programme

     

    The government has unveiled SUTRA PIC programme to research on ‘indigenous’ cows.

    SUTRA PIC

    • SUTRA PIC stands for Scientific Utilization Through Research Augmentation-Prime Products from Indigenous Cows.
    • To be funded by multiple scientific ministries, the initiative, SUTRA PIC, is led by the Department of Science and Technology (DST).
    • It has the Department of Biotechnology, the CSIR, the Ministry for AYUSH (Ayurveda, Unani, Siddha, Homoeopathy) among others and the Indian Council of Medical Research as partners.
    • It has five themes:
    1. Uniqueness of Indigenous Cows,
    2. Prime-products from Indigenous Cows for Medicine and Health,
    3. Prime-products from Indigenous Cows for Agricultural Applications,
    4. Prime-products from Indigenous Cows for Food and Nutrition,
    5. Prime-products from indigenous cows-based utility items

    Aims and objectives

    The proposals under this theme aim to:

    • perform scientific research on the complete characterization of milk and milk products derived from Indian indigenous cows;
    • scientific research on nutritional and therapeutic properties of curd and ghee prepared from indigenous breeds of cows by traditional methods;
    • development of standards for traditionally processed dairy products of Indian-origin cow

    Other facts

    • In 2017, SEED constituted a National Steering Committee (NSC) for ‘Scientific Validation and Research on Panchgavya (SVAROP)’.
    • Panchgavya is an Ayurvedic panacea and is a mixture of five (pancha) products of the cow (gavya) — milk, curd, ghee, dung and urine.
    • Its proponents believe it can cure, or treat a wide range of ailments.