Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Overhauling India's digital payments, accounting and transactions.
This article examines the issues with governments account problems and their implications. It also suggests the ways to deal with the problems with data management in India.It is is line with the suggestions made by the CAG in this regard.
Problem with government account keeping
- The Union budget grew from Rs 197 crore in 1947 to Rs 30 lakh crore last year.
- Total government expenditure may be higher than Rs 70 lakh crore. (states+union)
- But the form and manner of keeping accounts have more or less remained unchanged since Independence.
- Manual transactions and manual payments often lead to manually entered data at different stages in different databases on different systems.
- This makes data unreliable, violates the principle of “single source of truth”.
- This also sabotages transparency and good governance.
Issues with computerisation by government
- Government “computerisation” has often mechanised manual processes rather than “re-engineered processes”.
- This has created siloed IT systems.
- It has created various separate databases that lack modern data sharing protocols for organic linking like APIs (Application Programming Interfaces).
- It leaves fiscal data being incomparable as basic as salary expenditure across states.
- It creates the problem of obscurity in which large expenditures are booked under omnibus head called other.
- Non-traceable actual expenditure against temporary advances drawn or funds drawn on contingent bills.
- It creates the problem of misclassification so that grants in aid is classified as capital expenditure and bookings under suspense heads.
3 Steps to deal with the issues
1) 100% end-to-end data capture
- All receipts and expenditure transactions including demands, assessment, and invoices should be received, processed, and paid electronically.
2) Data governance for standards
- Data standards are rules for describing and recording data elements with precise meanings that enable integration, sharing, and interoperability.
- Prescribing data elements for all transactions will ensure standardisation.
- This standardisation will clarify ambiguity, minimise redundant data, and create protocols for integration across different databases across entities receiving government funds.
- It will also integrate entities collecting revenues on behalf of the government, and those discharging core functions on behalf of the government.
- Government-wide data standards coupled with real-time data captured end-to-end will enable the use of cognitive intelligence tools like analytics, artificial intelligence, machine learning.
- These tools, will support the establishment of budget baselines, detecting anomalies, data-driven project/activity costing, performance comparisons across departments and agencies, and benchmarking.
3) Technology architecture
- The element of technology architecture must ensure that all IT government systems should conform to a prescribed open architecture framework.
- This framework should ensure robust security and maintaining privacy.
How will these 3 steps help
- It will help in recognising off-budget transactions, the last Union budget took steps towards this fiscal transparency and consolidation.
- These steps will ensure business continuity: electronic records cannot be lost or misplaced like files or paper records.
- It will also provide an incontrovertible audit trail.
- It will enable Parliament and legislatures to draw “assurance” that each rupee due to the government has been collected, and each rupee has been spent for the purpose it was allocated.
Consider the question “Government expenditure has increased manifold since 1947 but the form and manner of keeping data have remained more or less the same. In light of this examine the issues with payments, accounting and transactions data system of the government. Suggest the measures to improve it.”
Conclusion
A citizen-centric view of a single source of truth encompassing every rupee of public money would make the 299 remarkable people who wrote India’s Constitution proud of this 21st-century citizen empowerment innovation.
Original Op-ed
https://indianexpress.com/article/opinion/columns/digitising-the-state-6496692/
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Article 16 (4A)
Mains level: Paper 2- Reservations and issues with it
Provision of reservation has helped in correcting the historical injustice in some way. However, the recent decline in government jobs and policy changes could undermine the provision of reservation.
How reservation helped SCs and OBCs: Some figures
- In the Central Administrative Services, SCs reached 14 per cent of the Class C in 1984.
- They reached 14.3 per cent of Class B in 2003.
- In Class C,13.3 per cent in 2015.
- In the Central Public Sector Enterprises (CPSEs), their proportion rose from 14.6 per cent in 2004 to 18.1 per cent in 2014.
- In parallel, the SCs’ literacy rate jumped from 21.38 per cent in 1981 to 66.1 per cent in 2011.
- After the Mandal Commission report was implemented, OBCs started to benefit from it.
- In 2013, OBCs – 52 per cent of India’s population according to the Mandal report – represented 8.37 per cent of Class A in the Central Government Services, 10.01 per cent of Class B and 17.98 per cent of Class C.
- Their percentage in the CPSEs jumped from 16.6 per cent in 2004 to 28.5 per cent in 2014.
Number of jobs declining
- First, the number of vacancies has surged, from 5.5 lakh in 2006 to 7.5 lakh in 2014 so far as central government employment is concerned.
- Second, the total number of employees has dropped between 2003 and 2012, from 32.69 lakh to 26.30 lakh in the Central Government Services.
- The number of Dalits benefiting from reservations has been reduced by 16 per cent from 5.40 lakh to 4.55 lakh.
- While the number of OBCs benefiting from reservations had jumped from 14.89 lakh in 2008 to 23.55 lakh in 2012, it has dropped to 23.38 lakh the year after.
- Reservations have also been undermined by lateral entry into the bureaucracy.
- This new procedure undermined the reservations system because the quotas did not apply.
Judgements that affect the idea of reservation
- In one judgment the UGC was allowed to shift the unit of provision of reservations from a university as a whole to the departmental level.
- Such a shift has reduced the quantum of reserved seats and restricted the entry of lower castes.
- Small departments, where vacancies are few, would be indivisible — thereby no seats would be reserved.
- As a result, only 2.5 per cent posts were reserved for SCs, none for STs and 8 per cent for OBCs.
- However, the impact of the ordinance and the subsequent Bill passed by the Parliament in March and July 2019, reversing the Supreme Court’s judgment, is yet to be seen.
- In another judgement, Supreme Court ruled that reservation in job promotions was not a fundamental right.
- This ruling undermined the effect of an amendment to the Constitution that had been introduced by the Narasimha Rao government in 1995 and that had resulted in article 16(4A).
- Article 16(4A) had circumvented a facet of the 1992 decision of the Supreme Court to allow reservation for SCs and STs in promotions.
- In 2001 the 85th amendment extended the benefit of reservations in favour of the SCs/STs in matters of promotion with consequential seniority.
- This time, in 2020, the Government of India has decided not to contest the decision of the Supreme Court.
Policy changes that affect the reservation
- The National Commission for Backward Classes has issued a notice to the health ministry complaining that the post-Mandal 27 per cent quota was not implemented systematically.
- The funds earmarked for Dalit education in the Indian budget were reduced by the previous government.
- While this budget item, within the Special Component Plan is supposed to be proportional to the demographic weight of the Dalits, 16.6 per cent, it fluctuated between 9 and 6.5 per cent.
Conclusion
Reservations have been one of the most effective techniques of positive discrimination in India and helped in the goal of delivering social justice. So, any policy that affects it must be reconsidered.
Original link
https://indianexpress.com/article/opinion/columns/reservation-in-india-privatisation-push-nirmals-sitharaman-backward-castes-6494931/
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: CEA
Mains level: Paper 3- Challenges renewable energy faces and solutions
The article analyses the problems renewable energy faces in India and suggests the pathways to overcome these challenges.
India’s commitments and goals
- India has committed in the 2015 Paris Agreement to reduce GHG emissions intensity by 33-35% below 2005 levels.
- It also committed to achieve 40% of installed electric power capacity from non-fossil sources by 2030.
- At the UN General Assembly in 2019, we announced a target of 450 GW of renewable energy (RE) by 2030.
Let’s look into CEA study
- The optimal electricity mix study of the Central Electricity Authority (CEA), estimated 430 GW non-hydro renewables (280 GW solar + 140 GW wind + 10 GW bio) by 2030.
- Study put thermal capacity at 266 GW by 2030.
- So, it puts the percentage of non-fossil fuel (RE + hydro + nuclear) in installed capacity by 2030 at 64%.
- Which is much higher than India’s Paris commitment.
Coal contradiction
- The target for coal production at 1.5 billion tonnes, which was set in 2015, has been reinforced recently to be achieved by 2024.
- Privatisation of coal mining and recent auctions have given a meaningful thrust to this.
- Looked at the target set for renewable energy, targets for cola production convey contradictory signals.
- The targeted coal production of 1.5 billion tonnes, even by 2030, would mean thermal generation capacity could double over the current 223 GW.
- In that case, even with targeted RE capacity, we will not achieve our emissions intensity Paris commitment.
- Can a global green champion announce doubling its coal production in five years?
Problems with Renewables
1. Policy Issues
- Solar deployment has seen policy challenges both from Centre and states, these include-
- Continuous changes in duty structure.
- Renegotiation of PPAs.
- Curtailment of solar power.
- Extremely delayed payments in some states.
- Policy flip-flops on open access and net metering.
- Delays by state agencies and regulators.
- Land possession difficulties.
- Transmission roadblocks even in solar parks.
2. Solar cell manufacturing constraints
- Our capacity for cell manufacture is 3 GW, though workable capacity is actually around 2 GW.
- Domestically manufactured cells are more expensive and less efficient.
- There is little upgrade in a rapidly changing world of technology.
- 90% of cells and 80% modules are imported largely from China or Chinese companies elsewhere.
- Wafer imports are 100% as we don’t manufacture ingots/wafers.
- For every GW with an average cost of Rs 5,000 crore in 2019, more than half goes to China.
3. Storage constraints
- Hydro pump storage is limited in quantity and there will be an issue of costs.
- The other project is a solar-wind hybrid with batteries installed after a few years.
- Neither intends to meet peak power demand or even the baseload.
- Forecasts suggest lowering of battery costs by 50% by 2030.
- It makes sense to wait before we go for large-scale storage.
Manufacturing domestically
- 1) At the least plan to make 5 GW of ingot/wafer manufacturing capacity urgently.
- We may require electricity supply at about Rs 3 per unit, and dedicated power plants.
- The risk of technology obsolescence would need to be factored in.
- Policy, fiscal and financial support prescriptions should aim at creating globally competitive industry.
- 2) We need to develop batteries suitable for extreme Indian weather conditions but globally benchmarked.
- This demands a mission approach, getting our best people and institutions together, properly funded and tasked to get a battery out in the next three years.
- 3) We must also simultaneously launch a hydrogen mission—target heavy vehicle mobility through fuel cells.
- It may become a solution for RE storage, too.
The issue of supply-demand mismatch
- In the last two decades, we have been overestimating demand and increasing supply.
- Our demand projections for 2030 are wildly high.
- PLF in 2018-19 was 60.30, declining to 56.08 in 2019-20 and hovering around 50% with the Covid-19 impact.
- Even the latest CEA review of ‘optimal’ mix talks of thermal PLF of 59% in 2030!
- This is inefficient and costly.
- Thermal PLF must be taken to over 80%.
The suggested pathways
- 1. Build thermal capacity as per CEA estimates and quickly. None after 2030. Retire inefficient plants. Plan for miner rehabilitation.
- 2. Accelerate RE after 2030 with storage. Aim for 10 GW solar and 5 GW wind annually.
- 3. Develop 5-10 GW ingot/wafer manufacturing capacity urgently and diversify import sources even at some extra cost.
- 4. Develop a battery for Indian conditions in three years; full battery manufacturing in India in five years.
- 5. Revisit the manner of solar generation. Prioritise decentralised and solar agriculture.
- 6. Plan for hydrogen economy with pilot projects and dedicated highways for long and heavy haul traffic.
- 7. Put a strong energy demand management system into place with much stronger energy efficiency and the conservation movement.
Consider the question “Central Electricity Authority finalised the optimal electricity mix study recently setting the targets for the future. Examine the constraints that expansion of solar energy faces and suggest the pathways to overcome the challenges.”
Conclusion
Embracing the RE will help India economically and strategically. It will also help it achieve its targets in its fight against climate change.
Back2Basics: Central Electricity Authority
- Central Electricity Authority (CEA) is an organization originally constituted under Section 3(1) of the repealed Electricity (Supply) Act, 1948, since substituted by Section 70 of the Electricity Act, 2003.
- It was established as a part-time body in 1951 and made a full-time body in 1975.
- The functions and duties of CEA are delineated under Section 73 of the Electricity Act, 2003
Plant Load Factor (PLF)
- Plant Load Factor (PLF) is the ratio of average power generated by the plant to the maximum power that could have been generated for a given time period.
Original Op-ed
https://www.financialexpress.com/opinion/what-india-should-do-to-get-its-energy-transition-right/2016648/
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Achievements of Indians
Prasanta Chandra Mahalanobis, India’s ‘Plan Man’ and the architect of the country’s statistical system is more relevant now in times of Covid pandemic when we grapple with the lack of data.
Analysing 1944 Bengal famine
- He conducted a large-scale sample survey of Bengal’s famine between July 1944 and February 1945.
- Sample survey helped in causal analysis and to assess the extent of the disaster and an estimate of the number of people affected.
Relevance today
- Bengal’s famine survey reminds us that we need estimates of the millions who will lose jobs or livelihoods in today’s pandemic.
- The extent of feasibility, success and problem of online access also needs to be properly estimated in this new dawn.
- Mahalanobis is perhaps more relevant today when the accuracy of different sorts of data is under the scanner.
- Mahalanobis envisaged large-scale sample surveys as statistical engineering rather than pure theory of sampling.
- He was instrumental in establishing the National Sample Survey (NSS) in 1950 and the Central Statistical Organization in 1951.
Data accuracy
- Mahalanobis was very careful about data accuracy in his surveys.
- In Kautilya’s Arthashastra, there is mention of the need for cross-checking by an independent set of agents for data collection.
- This, according to Mahalanobis, was the “striking feature in the Arthashastra”.
- This might have prompted him to have an independent supervisory staff during the conduct of field operations by the NSS.
- His initial training in Physics might have made him conscious about errors in measurement and observation.
- The desire to have built-in cross-checks and to get an estimate of errors in sampling led him to introduce the Inter-Penetrating Network of Subsamples.
- The network is considered as the curtain-raiser for re-sampling procedures like Bootstrap.
- Bootstrap is a revolutionary concept of statistics.
Difficulties in conducting surveys
- Even Mahalanobis could have faced hardship had he wished to conduct surveys now.
- First, even in pre-COVID-19 India, it’s widely reported that surveyors were facing tremendous resistance from people due to some sociopolitical reasons.
- Pronab Sen, Chairman of the Standing Committee on Economic Statistics, and former Chief Statistician, expressed his concern that the survey system is already in “deep trouble”.
- Conducting household surveys with the Census as the frame would be “very tough” going ahead.
- The problem will intensify due to COVID-19.
Use of technology for survey
- Mahalanobis never shied away from technology.
- He was instrumental in bringing computers to India.
- The Mahalanobis-led Indian Statistical Institute procured India’s first computer in 1956 and the second in 1959.
Consider the question asked in 2019 “How was India benefitted from the contributions of Sir M.Visvesvaraya and Dr M. S. Swaminathan in the fields of water engineering and agricultural science respectively?”
Conclusion
Mahalanobis wrote: “Statistics are a minor detail, but they do help.” This is an eternal truth. What Mahalanobis didn’t spell out is that one needs a top statistician for listening to the heartbeats of data and for framing data-based policy decisions for human welfare and national development.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: The East China Sea, the Bohai Sea, the Yellow Sea, the South China Sea
Mains level: Paper 2-India's Indo-Pacific vision and China's BRI
As India tries to diffuse the tension along the disputed northern border with China, it must focus on the other potential fronts that China could open. India Ocean could be the next one. This article examines the centrality of the Indian Ocean for China and their approach to the region.
India’s Indo-Pacific vision
- This vision is based on our historical associations with this region.
- This vision also acknowledges the importance of the Indian Ocean in building prosperity in this century.
- So, the key points of this vision are thus-
- 1) Inclusiveness, openness and ASEAN centrality and unity.
- 2) India does not see the Indo-Pacific Region as a strategy or as a club of limited members.
- 3) It is not directed against any country.
China should have equal access
- China is not a littoral state in the Indian Ocean.
- Historically, Chinese naval activity was limited to the East China Sea, the Bohai Sea, the Yellow Sea, and the South China Sea.
- In today’s context, China is the second-largest economy and the world’s largest trading nation.
- The sea-lanes of communication in the Indian Ocean are vital to her economy and security.
- Under international law, China should have equal access to the Indian ocean.
China’s “Malacca Dilemma”
- China thinks that others would block the Malacca Straits to “contain” the Chinese.
- So, China has strategized to dominate not just the Malacca Straits, but the ocean beyond it.
- The PLA Navy (PLAN) made its first operational deployment in the Gulf of Aden in 2008.
- In 2009 China planned for overseas base or facility.
- In 2010 a China State Oceanic Administration report alluded to plans to build aircraft carriers.
BRI: Overcoming the deficiencies China face in India Ocean
- The US hegemony and India’s regional influence in the Indian Ocean are thought of as a challenge to China.
- So, China focused on 3 inherent deficiencies that they wanted to overcome.
- (a) China is not a littoral state.
- (b) Its passage through key maritime straits could be easily blocked.
- (c) The possibility of US-India cooperation against China.
- How to overcome these deficiencies?
- (1) carefully selecting sites to build ports — Djibouti, Gwadar, Hambantota, Sittwe and Seychelles.
- (2) By conducting activities in a low-key manner to “reduce the military colour as much as possible”.
- (3) By not unnerving India and America by cooperating at first, then slowly penetrating into the Indian Ocean, beginning with detailed maritime surveys, ocean mapping, HADR, port construction and so on.
China acting on the plans
- The PLA’s new base in Djibouti is the prototype for more “logistics” facilities to come.
- More port construction projects like Gwadar and Hambantota, are being offered to vulnerable countries.
- These projects are commercially unviable but have military possibilities,
- Chinese “civilian” vessels routinely conduct surveys in the EEZ of littoral states.
- In January 2020 the PLA Navy conducted tripartite naval exercises with Russia and Iran in the Arabian Sea.
- They have the largest warship building programme in the world.
Consider the question “What constitutes India’s Indo-Pacific vision? Elaborate on the factors that explain China’s reluctance to subscribe to this vision.”
Conclusion
The idea of Indo-Pacific might potentially derail the carefully crafted Chinese plan. So, they now wish to cause alarm by raising fears about Great Power “strategic collision” caused by the so-called American-led “containment” strategy. It is important to look past their propaganda.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Policy changes and reforms needed for growth of India
There is no doubt that an economically prosperous India will be well placed to deal with China effectively. So, to achieve this prosperity India urgently needs to embark upon the path of reforms.
How much China has moved ahead
- In 1987, both countries’ nominal GDPs were almost equal.
- China’s economic opening-up has left India behind, contributing to a military imbalance.
- China’s economy was nearly five times larger than India’s in 2019.
- Not coincidentally, from rough parity in 1989, China’s military spending last year more than tripled India’s.
- Heightened vigilance along the LAC demands summoning scarce resources.
- If India cannot close the economic gap and build military muscle, Beijing may feel emboldened to probe the subcontinent’s land and maritime periphery.
Reforms: Key to progress
- In 1991, India enacted changes allowing markets to set commodity prices.
- But it did not similarly liberalise land, labour and capital.
- Now, the government has delivered mixed messages about a revitalised reform agenda.
- Some States have temporarily lifted labour restrictions.
- Some others intend to make land acquisition easier.
But a call for self-sufficiency could do harm
- India emphasis on self-reliance could inhibit growth and constrain investment in a more vigorous foreign and defence policy.
- Greater self-sufficiency is desired.
- Home-grown manufacturing of critical medicinal ingredients or digital safeguards on citizens’ personal data would reduce vulnerabilities.
- Imposing restriction to help the local defence industry would hamper acquisitions helping balance China.
Competition from other countries
- China is facing intense scrutiny for its role in the pandemic, geopolitical competition, trade wars, and economic coercion.
- Businesses are revisiting whether or not to diversify suddenly exposed international value chains.
- India’s competitors [like Bangladesh, Vietnam] are trying to attract the businesses shifting out form China.
- These countries are highlighting their regulatory predictability, stable tax policies, and fewer trade obstacles.
- While India remains outside the Regional Comprehensive Economic Partnership, competitors are wooing companies seeking lower trade barriers.
- Asian countries are pushing ahead: Vietnam just inked a trade deal with the European Union that threatens to eat into India’s exports.
Way forward
- India needs increased exports and investments to provide more well-paying jobs, technology.
- Before committing to long-term, multi-billion investments, companies often want to test India’s market through international sales.
- Liberalisation remains the tried-and-true path to competitiveness.
- If India can unite its people and rapidly strengthen capabilities, it will likely discover that it can deal with China effectively.
Consider the question “Do you agree with the view that slowdown in the reforms in land, labour and capital after the reforms of 1991 restricted Indias economic progress? Give reasons in support of your argument.
Conclusion
The choices that India makes to recapture consistent, high growth will determine its future. Bold reforms offer the best option to manage Beijing and achieve greater independence on the world stage.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Export of India's agricultural products
Mains level: Paper 3- Increasing India's net agri-exports
India has been the net exporter of agricultural commodities since 1991, however, there is scope for increasing its net export. This article suggests the strategy to achieve this.
Foreign exchange reserve: then and now in terms of grains
- In the mid-1960s the country had about $400 million.
- If India had spent all its foreign currency reserves just on wheat imports, it could have imported about seven million tonnes (mt) of wheat.
- Today, India has foreign exchange reserves of more than $500 billion.
- Even if the country has to buy 20 mt of wheat at a landed cost of $250/tonne, it will spend just $5 billion it is just one per cent of its foreign exchange reserves.
- In that sense, the biggest reform in the last three decades that has led to “aatma nirbharta” in food is the correction of the exchange rate.
- Another factor is coupling and the gradual integration of India with the world economy.
- This has helped India increase its foreign exchange reserves from $1.1 billion in 1991 to more than $500 billion today.
India: Net exporter of agricultural products
- India has been the net exporter of agricultural products ever since the economic reforms began in 1991.
- The golden year of agri-trade was 2013-14 when net agricultural trade surplus was $24.7 billion.
- In 2019-20, agri-exports were just $36 billion, and the net agri-trade surplus at $11.2 billion.
- With this dull performance doubling agri-exports by 2022 looks almost impossible.
Let’s look at what India exports
- Marine products with $6.7 billion exports top the list.
- The second is rice at $6.4 billion of which basmati is at $4.6 billion and common rice at $2.0 billion.
- Next is spices at $3.6 billion.
- Other items are buffalo meat at $3.2 billion, sugar at $2.0 billion, tea and coffee at $1.5 billion, fresh fruits and vegetables at $1.4 billion, and cotton at $1 billion.
Strategy to increase export
- If one chalks out a strategy we would need to keep in mind the principle of “comparative advantage”.
- That means exporting more where we have a competitive edge, and importing where we lack competitiveness.
- Together power and fertiliser subsidies account for about 10-15 per cent of the value of rice and sugar produced on a per hectare basis.
- So, we should offer similar incentives for exports of high-value agri-produce like fruits and vegetables, spices, tea and coffee, or even cotton, as we do for rice and sugar?
Decreasing the edible oil imports
- On the agri-imports front, the biggest item is edible oils — worth about $10 billion i.e. more than 15 MT.
- India needs to decrease imports through augmenting productivity and increasing the recovery ratio of oil from oilseeds and in case of palm oil, from fresh fruit bunches.
- The maximum potential of increasing production lies in oil palm.
- This is the only plant that can give about four tonnes of oil on a per hectare basis.
- India has about 2 million hectares that are suitable for oil palm cultivation — this can yield 8 mt of palm oil.
- But it needs a long term vision and strategy.
Issue of subsidy to rice and sugar
- Rice and sugar cultivation are subsidised through free power and highly subsidised fertilisers, especially urea.
- It is leading to the virtual export of water because of their high water requirements.
- One kg of rice requires 3,500-5,000 litres of water for irrigation, and one kg of sugar consumes about 2,000 litres of water.
- This leads to increased pressure on scarce water and highly inefficient use of fertilisers.
- It may be worth noting that almost 75 per cent of the nitrogen in urea is not absorbed by plants.
- It either evaporates into the environment or leaches into groundwater making it unfit for drinking.
Consider the question “While India has been the net exporter of agricultural products ever since the economic reforms of 1991, it is far from realising its potential to become the leading agri-produce exporter. In light of this, suggest the strategy that India should follow to increase India’s net agri-exports.”
Conclusion
The government must focus on augmenting export and decrease import dependence in agricultural products which will further its goal of aatmanirbharta and doubling the farmers’ income.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: FDI
Mains level: Paper 3- Differentiating between trade and investment
Differentiating between trade and investment is necessary for reaping the benefits that come with foreign investment in firms. However, the concerns over the source of funds are not unfounded. So, some caution is warranted in dealing with FDI.
Let’s look into the debate
- Government is asking its citizens to aim for self-reliance.
- So, should India continue to allow investment inflows from China? This is the debate.
- China has invested $4 billion in Indian startups in the past 5 years.
- This amount would be higher if funds located in tax havens with Chinese ownership are also accounted for.
Some of the questions raised in the debate
- Is trade of products like buttons, crockery same as long-term foreign investments in high-risk new age technology-driven products?
- Is it economically prudent for a country to fulfil all its capital requirements or compromise on innovation due to lack of thereof?
Trade vs FDI
- Trade just helps the country fulfil its requirements of those goods and services (G&S) that may not available in the country.
- Investments provide the capital to build infrastructure that can plug the G&S deficit, even, sell it to other markets.
- Trade just provides entry of G&S.
- FDI inflow is a route for transferring capabilities, technology, building linkages, business capabilities etc.
- FDI helps generate employment, public assets, tax revenues and develop markets, none of this is contributed by the trade of merchandise.
- Foreign investment does have an adverse impact on domestic markets in the short-run by crowding out domestic competition or investment.
- In fact, attracting FDI in employment-intensive sectors can create positive economic and social spillovers.
- Possibilities to increase exports often arise from companies with significant levels of FDI.
- Foreign investor exposes itself to regulatory, economic and geo-political risks of the country.
Foreign investment in Indian firms: Two aspects to consider
- While discussing the funding composition of the likes of Paytm, OYO hotel chain or Ola, two aspects need to be considered.
- 1) These companies are Indian companies operating under the law of land, creating economic opportunities for the youth and contributing to the welfare of the Indian community.
- 2) Success of these ventures is not solely due to the investment, but because of the novelty of the product offering.
- Investments in start-ups involve high risk; the list of failed start-ups with Chinese investment is bound to be much longer.
- In the absence of technology giants in India, we may also end up draining the brain to countries with a stronger financial ecosystem for fresh ideas.
Apprehension over FDI in India
- Apprehensions related to investments from any country per se, are not unwarranted in India.
- This is mainly because history suggests foreign investment can potentially lead to economic colonisation.
- However, times have changed and so has the world order.
- Steady inflow of investments can exist without impacting the economic or political stability of the country.
- To do so we should practice some of the following recommendations.
How to address the concern over FDI
- Investment funds can be set up outside the home country of the investor or be routed through companies located at tax havens.
- It is not always possible to map the investor to the country.
How to solve this problem
- To solve this identify sectors based on sensitivity, the investment required, technology, employment and social impact.
- Tighten regulations related to data storage and access by companies through data localisation in these sensitive sectors.
- Modify the offset policy in defence to ensure a certain portion of the profits is invested in the SMEs.
- To further India’s interests in nascent sectors such as machine learning, HealthTech, maximum period for an investor to be invested in a greenfield should be limited to 10 years.
- All firms receiving foreign investment should have a plan to contribute to India’s exports within the product lifecycle and minimum employment generation.
- Ease listing norms for firms so that funds through public and private placement can be raised by wholly Indian owned companies.
- BSE SME & Start-ups Platform has helped 322 companies raise Rs. 3,320.48 crores from the market. Start-ups should be encouraged to make use of the platform wherever possible.
- Domestic procurement of raw material and intermediate goods has to be non-negotiable as far as possible.
Consider the question “What are the challenges and opportunities associated with foreign investment and suggest the ways to address the challenges.”
Conclusion
From being treated as a ‘dumping bazaar’ to now attracting investors, India does not need to shy away from investments; it certainly needs to be wary of pure trade which limits India’s potential and drive to produce indigenously.
Back2Basics: Offset policy
- The offset policy, introduced in 2005, mandates foreign suppliers to spend at least 30% of the contract value in India.
- It was first revised in 2006 and then again in 2011 and in 2016. Another round of tweaking is currently underway.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: APIs
Mains level: Paper 3- Indian pharmaceutical industry
Abrupt ban on import from China would harm the India pharmaceutical industry and disrupt the supply of several essential medicines. Any attempt at reducing the dependence on China for APIs should be strategies, argues the author.
Dependence of Indian pharma industry on China
- India is the third-largest producer of finished drugs in the world.
- However, India relies significantly on China for supplies of active pharmaceutical ingredients APIs.
- An estimated 70 per cent of API requirements of India’s pharmaceutical industry are sourced from China.
- For some drugs, such as paracetamol and ibuprofen, this dependence is almost 100 per cent.
- This import reliance has been fuelled by environmental controls in India and competition with China, which has higher volumes of production and lower costs.
Implications of banning import from China
- Restricting or banning the import of APIs would cause significant disruption to the Indian pharmaceutical industry
- The pharmaceutical industry had $40 billion in revenues in 2018-19, according to Pharmexcil.
- Such a prospect is especially of concern to potential patients.
- Indian pharmaceutical industry annually exports $20 billion worth of medicine.
- An ad hoc or reactive decoupling could disrupt the production of a wide range of medicines in India and globally.
- Such disruption could affect the availability of Dexamethasone and painkillers, such as paracetamol and ibuprofen, as well as antibiotics, such as penicillin.
- The impacts would be especially high in low and middle-income countries.
- In many African countries, in fact, India supplies almost 50 per cent of the medicines in value terms.
Lessons from the past: Policy initiative matters
- Market share of foreign-owned multinationals in India was 80-90 per cent in 1970 in the pharmaceutical industry.
- It fell to 50 per cent by the early 1980s, and down to 23 per cent today.
- The prices of medicines in India fell from being amongst the highest in the world to amongst the lowest.
- But this did not happen through sudden decoupling from foreign multinationals or a complete boycott or ban on imports.
- The 1970 Indian Patent Act removed product patent protection in pharmaceuticals.
- So, the 1970 Patent Act is widely lauded for facilitating the growth of India’s industry.
- India also benefited from the 1973 Foreign Exchange Regulation Act (FERA) and the subsequent New Drug Policy (1978).
- Thus, a series of policy initiatives succeeded in tilting the balance in favour of Indian-owned firms.
But does it mean we have to depend on China forever?
- No, but reducing dependence on China will not be easy to achieve.
- In India, any decoupling from China must be strategic, with significant policy support.
- It will take time for a paced indigenisation.
Government moves to reduce dependence for API
- In March, the government announced Rs 3,000 crore to develop three bulk drug parks.
- The government also announced Rs 6,940 crore to manufacturers of 53 bulk drugs over the next eight years.
- Planning ahead towards greater domestic production of APIs, as well as reduced dependence on China, is an understandable and sensible policy objective.
- Despite a decline in recent decades, India has a stronger starting point than most countries given the continued presence of some API production capabilities.
- Indian firms have capacities, for instance, to produce COVID-19 treatments, including Remdesivir.
Consider the question “What are the APIs? Why India depends on other countries for it and what are implications of it? Suggest ways to reduce this dependence.”
Conclusion
In the short run, boycotts or bans would be counter-productive for the Indian industry, while also affecting access to much-needed medicines to India’s citizens and beyond. In the long run, however, reducing dependence on China would be strategically prudent.
Back2Basics: What are APIs?
- Active pharmaceutical ingredient (API), is the term used to refer to the biologically active component of a drug product (e.g. tablet, capsule).
- Drug products are usually composed of several components.
- The API is the primary ingredient.
- Other ingredients are commonly known as “excipients” and these substances are always required to be biologically safe, often making up a variable fraction of the drug product.
- The procedure for optimizing and compositing this mixture of components used in the drug is known as “formulation.”
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: UNSC
Mains level: Paper 2- India as non-permanent member of the UNSC
As a non-permanent member of the UNSC for the next two years, India will have to navigate through a tumultuous world. Anti-terrorism will be top priority for India.
India at UNSC
- India will be back in the United Nations Security Council for a two-year term beginning January 1, 2021.
- Two-year term will be a critical time in the history of the UN.
- It is hoped that by then COVID-19 will have subsided, a U.S. President will have been elected.
- And the contours of a new world order may have emerged.
How elections take place
- The basic contest for the non-permanent seats takes place in the respective regional groups and their sub-groups.
- Voting in the General Assembly is to fulfil the requirement of countries having to secure a two-thirds majority of the member states.
- But regional endorsement is becoming difficult.
- Last time, it was Kazakhstan which vacated the place for India.
- This time, it was Afghanistan. India could not have got the endorsement without such gestures from friendly countries.
What will be India’s priorities as a member of UNSC
- India will continue to provide leadership and a new orientation for a reformed multilateral system.
- How far the UN will be able to reform itself in the new situation remains uncertain.
- The UN did not succeed in either defining terrorism or in adopting the Comprehensive Convention on International Terrorism.
- Counter-terrorism will be one of the highest priorities for India at the UNSC.
Permanent member of India issue
- India’s election as a non-permanent member has understandably ignited the hope that its quest for permanent membership.
- Nothing is farther from the truth.
- Seeking to amend the Charter to add new permanent members is difficult task.
- None of the proposals has the possibility of securing two-thirds majority of the General Assembly and the votes of the five permanent members.
- A majority of the UN members are against the privileges of the permanent members, particularly the veto.
- India’s performance in the Council will not lead to its elevation to permanent membership as the opposition to any expansion is not India-specific.
Role of India as non-permanent member
- The non-permanent members have a collective veto over every resolution in the Council.
- As a part of collective veto, India will have a higher profile at the UN for the next two years
- Permanent members can prevent the adoption of resolutions by themselves through veto.
- But they need at least nine votes to get a resolution passed.
- India will also have a rare peep into the consultations chamber of the UNSC, which is closed to non-members of the Council.
- India will get involved in many issues in which it may not have any direct interest.
- Since India does not have a veto, it shall have to proceed cautiously not to offend anyone.
Consider the question “India has been chosen as the non-permanent member of the UNSC and will be there at the critical time in the history of the UNSC. What should be India’s priority and approach as a member of the UNSC?”
Conclusion
India’s mission in New York has earned a reputation that it is next only to the permanent members in influence. But whether it will be able to deal with traditional challenges in novel ways will depend on the turns and twists in an uncertain world.
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From UPSC perspective, the following things are important :
Prelims level: MGNREGA
Mains level: Paper 3- Minimum income and issues
Providing a minimum basic income post-Covid will require some novel approach. This article proposes an approach with the mix of direct cash transfer and changes in the employment guarantee scheme.
Non-universal targeted programs
- It is true that a universal schemes are easy to implement.
- Non-universal targeted programmes face the problem of identification.
- Narrowly-targeted programmes will run into complex problems of identification.
- And the problem of identification gives rise to exclusion and inclusion errors.
How to solve identification problem
- There are three proposals which meet the objective of providing a minimum basic income.
- 1) Give cash transfers to all women above the age of 20 years.
- 2) Expand the number of days provided under MGNREGA.
- 3) Have a national employment guarantee scheme in urban areas.
- In all the three proposals, there is no problem of identification.
- A combination of cash transfers and an expanded employment guarantee scheme can provide a minimum basic income.
1) Cash transfer to all women
- One way of doing it will be to give it to all women say above the age of 20.
- This is an easily identifiable criterion because the Aadhaar cards carry the age of the person.
- The female population above the age of 20 is around 42.89 crore.
- Making available a minimum of Rs 4,000 annually as a cash transfer to all of them will cost Rs 1.72 lakh crore.
- Which is 0.84 per cent of GDP.
- The cost of the scheme to the government will be less if the well-off women choose not to take the cash transfer.
2) Expanding MGNREGA
- The Act guarantees 100 days of employment.
- At present, MGNREGA is availed of only for 50 days of employment.
- One way to help the poor and informal workers is to strengthen it.
- The government needs to increase the number of days under the scheme from 100 to 150 in rural areas.
3) Employment guarantee scheme for urban areas
- Introducing Employment Guarantee Act in urban areas would help also provide income.
- Providing employment for 150 days instead of 100 days will also prove beneficial.
Some facts and figures
- In 2019-20, the government spent Rs 67,873 crore for providing 48 days of employment to 5.48 crore of rural households.
- Out of this, the wage expenditure was Rs 48,762 crore.
- The government has increased the per day wage rate from Rs 182.1 in 2019-20 to Rs 202.5 in 2020-21.
- So, the estimated expenditure for 150 days of employment to 5.48 crore households in rural areas and 2.66 crore households in urban areas — together they account for 33 per cent of total households in the country.
- The additional expenditure needed for the new proposal proposal is Rs 1.9 to 2.5 lakh crore.
- This additional expenditure is around 1 to 1.22 per cent of GDP.
- The total cost of the three proposals would be Rs 4.9 lakh crore or 2.4 per cent of GDP.
But the total cost could be lower
- As the Employment Guarantee Programme is a demand-based programme, the number of days availed could be lower.
- This is happening even now.
- Second, on cash transfers, some women, particularly from richer classes, may voluntarily drop out of the scheme.
- Alternatively, we can provide that everyone receiving cash transfer must declare that her total monthly income is less than Rs 6,000 per month.
Where the additional money will come from
- Removing all exemptions in our tax system would give enough money.
- Tax experts advocate removing exemptions so that the basic tax rate can be reduced.
- Perhaps, out of the Rs 4.2 lakh crore which is needed, Rs 1 lakh crore can come out of phasing out of some of the expenditures.
- While another Rs 3 lakh crore must come out of raising additional revenue.
- Some of the non-merit subsidies, another item of expenditure, can be eliminated.
Consider the question “What are the issues non-universal schemes faces? Suggest the ways to do with the issue of identification which such schemes face.”
Conclusion
In the post-COVID-19 situation, we need to institute schemes to provide a minimum income for the poor and vulnerable groups and trying the mixed approach of cash transfer to women and modification of Employment Guarantee Acts could do that.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Paris agreement
Mains level: Paper 2- Challenges the global order face
The corona crisis has laid bare the fissures in the global order. This article examines the four issues that are principal global challenges. Pandemic has accentuated these challenges.
Principal global challenges
- 1) Geopolitical tensions 2) Climate crisis. 3) Global mistrust. 4) The dark side of the digital world — are four issues which U.N. Secretary-General Guterres listed as primary threats.
- The four challenges have, for now, been overshadowed by the corona pandemic crisis.
1.Climate change challenge
- The drop in emissions in 2020 is projected to be about 8 per cent down on last year.
- This drop will just put us on track to where we should be if we are to reach the Paris agreement goal of limiting warming to 1.5 C.
- The threat of climate change, although raising its head again, has been constrained.
2.Digital space and its dark side
- Cyberspace has been a digital saviour during the corona crisis.
- Virtual communications enhanced through various services, new apps, expanded coverage has been key to enhanced virtual lives for millions by increase of the avenues for working from home, video chat connectivity and online delivery of goods.
- Companies that have deftly used cyberspace have prospered the most: Amazons net capital gain has been over $400 billion in 2020.
- However, a surge in cybercrime and cyber fraud is anticipated, if not there already.
- The logic being that cyberspace use has expanded without commensurate growth in security features.
- Thee are dire projections of an impending “cyber Pearl Harbour”.
3.Geopolitical tensions
- Accentuation of geopolitical tensions during the corona crisis is well-documented.
- The US-China relationship was already deteriorating, the blame game over the virus has exacerbated it.
- The brazen behaviour of China in matters relating to Taiwan, Hong Kong, Australia, South China Sea and the India-China border has added to the inflammable state of geopolitics.
- Rarely has the world seen such paucity of international cooperation since World War II.
- The unravelling of the international institutions and partnerships that have been built since World War II is stark.
4.Trust deficit among states
- Trust amongst states has plummeted to its worst since World War II.
- When faced with corona crisis shortages, almost all EU states responded at the national level.
- Globally, at one time, more than 70 per cent of the world’s ports of entry — air, sea and land — restricted travel.
- According to a Global Trade Alert study, nearly 90 governments blocked the export of medical supplies while 29 restricted food exports.
Efficiency to self-sufficiency
- Lack of trust is also impacting diversified supply chains.
- The corona crisis is driving a shift from efficiency to self-sufficiency.
- Japan is paying companies to relocate factories from China.
- President Emmanuel Macron has pledged “full independence” for France in crucial medical supplies by year-end.
- Prime Minister Modi has called for self-reliance and being vocal for local in India.
- In the US, support for “Buy American” benchmarks for government health spending has growing bipartisan support.
India’s role
- Challenges that transcend borders are of cardinal importance to India’s well being.
- It is, therefore, time to conceptualise, in concrete terms, pathways to address them.
- This will need to include our envisaging the new order and India’s own role in it as well as who our partners in this venture are to be.
- Others are already working on their game plans.
Consider the question “The cracks in the global order were apparent but the pandemic has accentuated the challenges to the global order. In light of this, examine the challenges to global order is facing the role that India should play.”
Conclusion
If India wants to be “rule shapers” rather than being “rule takers”, then we need to start working in partnership at blueprints for change. It is never too early to plan for the future
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From UPSC perspective, the following things are important :
Prelims level: Data privacy
Mains level: Paper 3- Importance of digital services for Indian economy
Pandemic has been ravaging the economies across the globe but digital services have escaped the onslaught and are thriving. For India, this could be an opportunity. This article highlights the importance of the sector and how some proposed measures could have an adverse impact on the sector.
Emerging trends in economies
- Economic growth has dropped, and the competition for foreign investment is intensifying.
- There are national campaigns to shift supply chains and the urgent necessity to reverse recessionary trends.
- The United Nations Conference on Trade and Development just released its latest World Investment Report.
- The report projected that FDI to developing Asian economies could drop by as much as 45%.
Why digital services would beat this trend
- Digital services have become critical to every 21st century economy.
- Digital services are filling gaps when national or global emergencies interrupt more traditional modes of commerce.
- It enables access to and delivery of a wide array of products across multiple sectors.
How it matters for India
- India offers undeniable potential for innovative homegrown start-ups.
- India has a huge and increasingly digitised population.
- Indian government policies will be key determinants in how quickly and at what level the economy attracts new investment.
- Fostering innovation, and expanding its exporting prowess will also matter.
Three pending measure
- Three pending reform measures under consideration are-
- 1) Personal Data Protection Bill (PDPB).
- 2) The e-commerce policy.
- 3) The Information Technology Act Amendments.
Issues with these measures
- These regulatory reforms seem to emphasise a focus on protecting the domestic market for domestic companies.
- It also prioritises government access to data.
- It may be difficult to reconcile these approaches with India’s strong interest in i) promoting data privacy ii) protecting its democratic institutions iii) encouraging FDI and India’s position as a global leader in information technology.
India-US trade relationship issue
- The India-U.S. trade relationship is uncertain.
- The bilateral relationship is an important factor for greater trade and investment in digital services.
- India and the U.S. are yet to conclude negotiation on a bilateral trade agreement that could address some digital services issues.
- The U.S. just initiated a “Section 301” review.
- The review seeks whether digital services taxes in 10 countries constitute “unfair” trade measures, including India’s equalisation levy.
Consider the question “Digital services have become critical to every 21st-century economy and more so for Indian economy. In light, highlight the salience of digital services for the Indian economy and what are the issues that could affect the growth trajectory of the sector in India?”
Conclusion
Post-COVID-19 international cooperation and approaches to good governance in the digital sphere will be top-priority initiatives. The steps India takes now could well establish itself as a true global leader.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Issue of custodial deaths
This article enumerates the existing legal framework to avoid custodial torture and deaths. Judiciary played a major role in the evolution of these procedures. Yet, incidents of custodial deaths happen. This points to the lack of implementation of established guidelines and procedures.
Understanding the background of problem
- In wake of custodial deaths in Tamil Nadu, the debate on Roman dilemma: “Who will guard the guardians” rises again.
- Torture is anathema to democracy and cannot be tolerated in a civilized society.
- Answer to prevention of torture can be found in multiple sources like Royal Commissions in the UK, Law Commission report and Police Commission reports in India and also Supreme Court’s progressive case law, like Joginder Kumar (1994) and Nilabati Behera (1993).
- However, the basic loophole which exists even today is that most torture is done before the arrest is recorded by the police.
- Safeguards obviously kick in only after the arrest is shown. This is a perennial, insoluble dilemma and all devious police forces globally use it.
Supreme Court judgement in DK Basu case
- The DK Basu judgment since 1987 is crucial in dealing with issue of custodial deaths.
- The judgement has origin from a letter complaint in 1986, which was converted into PIL.
- 4 crucial and comprehensive judgments — in 1996, twice in 2001 and in 2015 — lay down over 20 commandments, forming the complete structure of this judgement.
Details of judgment:
First 11 commandments in 1996, focused on vital processual safeguards:
- All officials must carry name tags and full identification, arrest memo must be prepared, containing all details regarding time and place of arrest, attested by one family member or respectable member of the locality.
- The location of arrest must be intimated to one family or next friend, details notified to the nearest legal aid organisation and arrestee must be made known of DK Basu judgement.
- All such compliances must be recorded in the police register, arrestee must get periodical medical examination, inspection memo must be signed by arrestee also and all such information must be centralised in a central police control room.
- Breach to be culpable with severe departmental action and additionally contempt also, and this would all be in addition to, not substitution of, any existing remedy.
- All of the above preventive and punitive measures could go with, and were not alternatives to, full civil monetary damage claims for constitutional tort.
8 other intermediate orders till 2015:
- Precise detailed compliance reports of above orders to be submitted by all states and UT and any delayed responses to be looked into by special sub-committees appointed by state human rights body.
- Also where no SHRC existed, the chief justice of the high courts to monitor it administratively.
- It emphasised that existing powers for magisterial inquiries under the CrPC were lackadaisical and must be completed in four months, unless sessions court judges recorded reasons for extension.
- It also directed SHRCs to be set up expeditiously in each part of India.
The third and last phase of judgment ended in 2015:
- Stern directions were given to set up SHRCs and also fill up large vacancies in existing bodies.
- The power of setting up human rights courts under Section 30 of the NHRC Act was directed to be operationalised.
- All prisons had to have CCTVs within one year.
- Non-official visitors would do surprise checks on prisons and police stations.
- Prosecutions and departmental action to be made unhesitatingly mandated.
Where do we lack?
- In operationalising the spirit of DK Basu judgment, in punitive measures, in last mile implementation, in breaking intra-departmental solidarity with errant policemen and in ensuring swift, efficacious departmental coercive action plus criminal prosecution.
- A 1985 Law Commission report directing enactment of section 114-B into our Evidence Act, raising a rebuttable presumption of culpability against the police if anyone in their custody dies or is found with torture, has still not become law, despite a bill introduced as late as 2017.
- We still have abysmally deplorable rates of even initiating prosecutions against accused police officers. Actual convictions are virtually non-existent.
Consider the question “Custodial torture is an anathema to democracy. Examine the issues related to custodial torture and how is it against the basic fundamental rights? What steps should be taken to prevent such acts by the police functionaries?”
Conclusion
Monitoring and implementation of DK Basu by independent and balanced civil society individuals at each level, under court supervision, is sufficient to minimise this scourge. It is high time we take actions in this direction.
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From UPSC perspective, the following things are important :
Prelims level: India's foreign exchange reserves
Mains level: Paper 3-India's foreign exchange reserves.
India’s foreign exchange reserves touched an unprecedented level. Being reserves, the reserves also represent the lost opportunity. This article examines the reasons for and utility of maintaining huge reserves.
Reasons for surge in the forex reserves
- The recent forex reserves surge was a result of two things:
- 1) Foreign institutional investors reinvested in the Indian market in May-June after they exited their positions in panic in March.
- 2) A global fall in fuel prices has reduced India’s oil import bill, allowing it to save up forex reserves.
But why does India keeps huge forex reserves- 3 possibilities
- Sufficiency of forex reserves is sometimes measured on how many months’ worth of imports a country can afford.
- While six months is considered sufficient.
- The RBI in December 2019 said it had enough to sustain for 10 months, the forex reserves were then $0.4 trillion.
- Today, the cover is 12 months!
- This is despite having a sufficient credit line from the IMF, should there be a credit shock.
- So, there are 3 possibilities for why government maintains such huge reserves.
- 1) Excess forex reserves are likely the government’s contingency fund, in case the economy suddenly topples.
- The pandemic has increased the government’s insecurity.
- 2) Another possibility is that the government is accumulating these reserves as “Plan-B” savings should its strategic disinvestment plans fail.
- 3) Forex reserves are also likely a way for India now to maintain its global rating.
- The fundamental use of India’s foreign exchange should be to ensure the Rupee (INR) stability.
Stability of Rupee
- Despite steadily rising reserves, INR fluctuated between 77 and 75 against the US dollar in the last two months.
- INR has become one of Asia’s worst currencies.
- The RBI may allow it to devalue further to support its balance sheet,
- Devaluation would enable it to transfer a big chunk of its realised profits as dividend to the starving government.
Lost opportunity
- It is understandable for oil-rich countries to maintain high forex reserves.
- A single oil trade hiccup can derail their economy.
- Economists have theorised that holding high forex reserves is unnecessary.
- In fact, not using them to finance mega infrastructure projects are lost opportunities.
- And yet the Indian government has held these reserves in liquid, possibly for its feared D-day.
Perils of using forex reserves as emergency funds
- Over-reliance on these floating funds to stimulate the economy might be poorly informed.
- The potential of these funds to switch direction [i.e. they could exit as fast] should not be underestimated.
- In March alone, foreign institutional investments in India fell by Rs 65,000 crore.
- India’s foreign exchange reserves registered this impact.
- Reversing the dip, investments went up in May and now in June with some big corporate deals.
- If the government intends to use forex reserves as an emergency fund, it should ensure that they do not shrink just when they are most needed.
Consider the question “India’s foreign exchange reserves touched new height recently. This also giver rise to the argument of lost opportunity. In light of this discuss the utility of maintaining foreign exchange reserves and issue of optimum level of foreign exchange reserves.”
Conclusion
Maintaining high foreign exchange reserves definitely entails cost. The cost-benefit analysis and the lost opportunity must be the basis for deciding the level of the reserves.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Aggregate demand, components of India's growth
Mains level: Paper 3- Importance of spending of infrastructure
Spending on infrastructure can help kickstart the economy. This article highlights the importance of spending on infrastructure and suggests ways to find resources.
Gloomy prospects for Indian economy
- The IMF estimates the global economy to contract by -4.9 per cent this year.
- It could still contract should the virus not recede in the latter half of 2020.
- As for the Indian economy, growth has been decelerating for the past eight quarters.
- Indications by the RBI suggest that growth is contracting for the first time in four decades.
- We must address the elephant in the room — the need to further aid a demand recovery as the economy begins to reopen.
Components of Indias growth
- Growth in the Indian economy has been dominated by the following components respectively-
- 1) Consumption.
- 2) It is followed by investments.
- 3) Government expenditure.
- 4) Net exports.
- However, consumption and investment demand have been subdued for the past few quarters, dragging down overall growth.
- Keynesian theory suggests that for aggregate demand to increase, at least one of the components of GDP needs to expand.
Declining consumption demand
- These two components were perhaps casualties of a sharp deceleration in credit supply.
- The IL&FS debacle in September 2018 only made matters worse.
- The NBFC sector, suffered from funding crunches leading to a further squeeze in credit supply.
- Freeze in credit supply impacted consumption demand.
- This deceleration is likely to exacerbate going forward.
Declining rate of investment
- Broad-based utilisation levels, as represented by the RBI, dropped to 68.6 per cent in Q3FY20.
- This is well below the 75 per cent benchmark for new capacity addition, implying suboptimal levels of fresh investments.
- A higher rate of investments is essential for sustainable economic growth.
- The deteriorating economic scenario and increasing levels of debt with rating downgrades for industries are likely to aggravate existing problems.
Importance of expenditure on spending on infrastructure
- Government expenditure is the only exogenously determined element in a Keynesian framework.
- The positive push required to aid a demand recovery has to come through the government.
- However, with sparse resources that India has, we must deploy funds that yield a higher return.
- One key area that can provide the necessary support is infrastructure investment.
- A study by S&P Global estimates 1 per cent of GDP spend on infrastructure can boost real growth by 2 per cent while creating 1.3 million direct jobs.
- Historically, countries have used infrastructure to provide counter-cyclical support to the economy.
- Notably, infrastructure has strong links to growth and with both supply and demand-side features that help generate employment and long-term assets.
- India already has an upper hand here.
- Front-loading key projects with greater visibility from the recently announced National Infrastructure Pipeline (NIP) could aid in a quicker recovery.
Special infrastructure bond
- India already has several institutions for infrastructure development purposes from the likes of IIFCL, IRFC to more recently NIIF.
- Taking a cue from China, floating special infrastructure bonds through this organisation to accelerate the funding of the NIP could aid a speedier recovery.
- Further, taking a page from the New Deal and its Reconstruction Finance Corporation, this institution’s ability for greater leverage can be used to make amends to our credit channels.
- This ability could also be used for the development of state government and urban local body bond markets.
- This could help businesses and bankers overcome risk aversion and bring back trust in the system while financing new paths for growth.
Consider the question “Highlight the role of consumption and investment as the two largest contributors to India’s growth and explain how spending on the infrastructure could help revive the economy hit hard by the pandemic”
Conclusion
The exogenous component in the form of spending by the government could step-in in a greater way, perhaps because, it is the only one that can.
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From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- India-China standoff
How India overcomes the challenge posed by China would have far-reaching effects. Role of Russia and the U.S. is important for India. This article discusses these factors and the significance of the outcome of the conflict started at Galwan.
Two takes on India’s China policy
- Following Galwan encounter, there are two views about the future of India’s China policy.
- Some say that structural constraints would limit dramatic changes in policy once the heat of the moment dissipates.
- While others say that the Galwan clash comes amidst the deepening crisis in bilateral relations over the last decade.
- Stalled boundary talks, a widening trade deficit, the clash of national interests in the region, and Chinese opposition to India’s global aspirations have together strained Sino-Indian relations.
- Galwan is the last straw, the argument goes, that broke the camel’s back.
So, what will be the outcome
- The relationship is likely to depend on how the current military confrontation in Ladakh is resolved.
- If it ends with a quick return to the status quo that prevailed in April, inertia is likely to limit radical policy departures.
- If the Ladakh crisis ends in a setback for India, the pressure on Delhi to radically reorient its China policy will mount.
What if the standoff continues?
- In that case strengthening India’s military and political hand against China is the immediate objective of Delhi’s post-Galwan diplomacy.
- The long term steps suggested include the construction of a military alliance with the US and other Western partner.
- As as well as economic decoupling and diversification.
- Short term steps are about being able to stare down the Chinese in the current military confrontation and hold its ground.
Role of Russia
- Three decades after the collapse of the Soviet Union, India’s dependence on Russian arms remains substantive.
- Rajnath Singh’s visit to Moscow amidst the crisis with China underlines the weight of the past in India’s security policy.
- India is also pressing other major defence suppliers, including France and Israel, to accelerate deliveries on contracted defence equipment.
- There have been reports from Russia, that China is pressing Moscow not to sell the new fighter aircraft to India.
- Russia and China are strong strategic partners today.
- While the past suggests India has a special claim to Russian affections, there is a Sino-Russian strategic cohabitation today in opposition to America
- How Russia responds to India’s request will have a major bearing on the future evolution of Delhi’s ties with Moscow.
Role of the U.S.
- Unlike Russia’s public stance of neutrality between India and China, Washington has come out in favour of Delhi.
- There was vocal public support of the US defence and foreign policy establishment against Chinese aggression at Galwan.
- Media reports from Delhi say the US is already supplying valuable real-time military intelligence of value to the Indian armed forces.
- Washington is apparently willing to do more but is letting Delhi decide the pace and intensity of that cooperation.
Challenges in the U.S. cooperation
- The uncertain political moment in the US amidst the general election scheduled for early November can’t be underestimated.
- A change of guard in Washington will certainly slow things down as the new administration settles down and reviews its priorities.
- America’s stakes in China are far higher than Russia’s.
- Profound economic interdependence of the U.S. and China is a significant political constraint on the US’s options.
- On deeper military cooperation with Washington, Delhi would want to move with care rather than rush into it as it did in 1962.
How will outcomes of the crisis matter for India
- If Delhi comes out of this crisis wounded, its troubles at home and the world will mount significantly.
- A weakened India will find recasting its China policy even harder.
- But victorious India will find its international political stock rising and its options on China expanding.
- Successful Indian resistance to China’s expansionism would be a definitive moment in the geopolitical evolution of Asia.
- The stakes for India and the world, then, are far higher today than in 1962.
Consider the question “Examine the issues that introduce friction in India-China relations. Also, elaborate on the scope of India’s alliance with the U.S to counter the challenges posed by China.”
Conclusion
Outcomes of the resistance will have a profound impact on India’s standing and India’s destiny.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Galwan valley
Mains level: Paper 2- India-China relations, role of intelligence, limits of summit diplomacy
The role played by intelligence and emphasis on Summit diplomacy in relation with China are the two issues discussed in this article. So, what went wrong in Galwan incident from the intelligence point of view? And what are the perils of Summit diplomacy? Read to know...
Galwan-New and fractious phase
- What occurred in the Galwan heights on June 15, must not be viewed as an aberration.
- It would be more judicious to view it as signifying a new and fractious phase in China-India relations.
- Even if the situation reverts to what existed in mid-April India-China relations appear set to witness a “new and different normal”.
- China’s reaction has been consistent — India must move out of Galwan.
- This is something that India cannot ignore any longer.
- Galwan incident cannot be viewed as a mere replay of what took place in Depsang (2013), Chumar (2014) and Doklam (2017).
- This is a new and different situation and India must not shrink from addressing the core issue that relations between India and China are in a perilous state.
Close and careful analysis of China’s claim is necessary
- China’s assertion of its claim to the whole of the Galwan Valley needs close and careful analysis for following reasons-
- 1) Point 14 gives China a virtual stranglehold over the newly completed, and strategically significant, Darbuk-Shyok-Daulat Beg Oldie Road, which leads on to the Karakoram Pass.
- 2) The strategic implications for India of China’s insistence on keeping the whole of the Galwan Valley are serious as it fundamentally changes the status quo.
- 3) By laying claim to the Galwan Valley, China has reopened some of the issues left over from the 1962 conflict.
- And this demonstrates that it is willing to embark on a new confrontation.
LAC and claim line of China
- Ambiguity has existed regarding the Line of Actual Control (LAC) in this sector.
- The Chinese “claim line” is that of November 1959.
- For India the LAC is that of September 1962.
- In recent years, both sides had refrained from reopening the issue, but China has never given up its claims.
- By its unilateral declaration now, China is seeking to settle the matter in its favour. India needs to measure up to this challenge.
Importance of Aksai Chin
- The importance of Aksai Chin for China has greatly increased of late, as it provides direct connectivity between two of the most troubled regions of China, viz., Xinjiang and Tibet.
- This does not seem to have been adequately factored in our calculations.
- While Indian policymakers saw the reclassification of Ladakh as purely an internal matter.
- They overlooked the fact that for China’s military planners it posited a threat to China’s peace and tranquillity.
Intelligence capabilities
- Admittedly, the timing and nature of China’s actions should have aroused keen interest in intelligence circles about China’s strategic calculations.
- The Chinese build-up in the Galwan Valley, Pangong Tso and Hotsprings-Gogra did not require any great intelligence effort, since there was little attempt at concealment by the Chinese.
- India also possesses high-quality imagery intelligence (IMINT) and signals intelligence (SIGINT) capabilities.
- These capabilities are distributed between the National Technical Research Organisation, the Directorate of Signals Intelligence of the Ministry of Defence and other agencies.
- Which made it possible to track Chinese movement.
- Where intelligence can be faulted is with regard to inadequate appreciation of what the build-up meant, and what it portended for India.
- This is indicative of a weakness in interpretation and analysis of the intelligence available.
- And also of inability to provide a coherent assessment of China’s real intentions.
- Intelligence assessment of China’s intentions, clearly fell short of what was required.
- While India’s technological capabilities for intelligence collection have vastly increased in recent years, the capacity for interpretation and analysis has not kept pace with this.
- Advances in technology, specially Artificial Intelligence have, across the world, greatly augmented efforts at intelligence analysis.
Who has the responsibility of intelligence assessment and analysis
- The principal responsibility for intelligence assessment and analysis concerning China, rests with the National Security Council Secretariat (NSCS) and India’s external intelligence agency, the Research and Analysis Wing (R&AW).
- To a lesser extent, it remains with the Defence Intelligence Agency.
- The decision of the NSCS to dismantle the Joint Intelligence Committee has contributed to a weakening of the intelligence assessment system.
- In the case of the R&AW, lack of domain expertise, and an inadequacy of China specialists might also have been a contributory factor.
Adverse impact of certain policy measures
- The preference given recently to Summit diplomacy over traditional foreign policy making structures proved to be a severe handicap.
- Summit diplomacy cannot be a substitute for carefully structured foreign office policy making.
- Currently, India’s Summit diplomacy has tended to marginalise the External Affairs Ministry with regard to policy making, and we are probably paying a price for it.
- As it is, the Ministry of External Affairs’s (MEA) stock of China experts seems to be dwindling.
- And MEA’s general tilt towards the U.S. in most matters, has resulted in an imbalance in the way the MEA perceives problems and situations.
Conclusion
Along with the other factors, India should also focus on intelligence analysis and interpretation and make sure there are enough China experts in the MEA.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Companies Act 2013
Mains level: Paper 3- Governance issue in the banks
This article discusses the nitty-gritty of the recently released discussion paper by the RBI on governance. Governance in the commercial bank has been in the news following the failures of some banks.
Discussion paper by RBI
- Recently RBI released a discussion paper on ‘Governance in Commercial Banks in India’.
- Recently there have been high-profile instances involving governance failures in certain banks.
- These instances have called into question the adequacy of the existing legal regime for ensuring good governance in commercial banks.
- Internationally, the question of governance norms in banks is treated differently given the complex nature of functions performed by banks in comparison to other businesses.
- Functions of the banks make them critical for allocation of resources in the economy, protection of consumer interests and maintenance of financial stability.
Objectives of the discussion paper
- The stated objective of the discussion paper is to align the current regulatory framework on bank governance with global best practices.
- Best practices include the guidelines issued by the Basel Committee on Banking Supervision and the Financial Stability Board.
Current regulatory framework
- To this end, RBI adopts international standards for bank governance into the general corporate governance framework in India.
- This general governance framework comprises the Companies Act, 2013, and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Requirements, 2015.
- These governance norms focus on the responsibilities of the board of directors, board structure and practices.
- And it also includes aspects of risk management, internal audit, compliance, whistle-blowing, vigilance, disclosure and transparency.
Issue of connection between management and owner
- RBI also constituted an internal working group to review the extant regulatory guidelines relating to ownership and control in private sector banks.
- This group is expected to submit its report by September 30, 2020.
- But the assumption that deeper connections between the management and the owners necessarily lead to mismanagement needs to evaluated carefully and recalibrated to ensure balanced reforms.
- The governance risks attributable to such connections might be relevant for government-owned banks as well.
Key recommendations in the paper
- (1) The majority of a commercial bank’s board must comprise of independent directors.
- This is a standard higher than that prescribed under the Companies Act and the SEBI Regulations.
- (2) The chairperson of the board must be an independent director.
- (3) Chairpersons of crucial board committees (the audit committee, the risk management committee and the nomination and remuneration committee) must be independent directors who are not chairpersons of any other board committee.
- (4) The tenures of non-promoter CEOs and WTDs should be limited to 15 years.
Way forward
- In order to make the reform effective, the appointment process for independent directors also needs to be re-evaluated to limit the role of controlling-shareholders.
- The liability regime for directors on the boards of banking companies should also be revisited to balance the rights and liabilities of the directors.
- The efficacy of implementation of norms as prescribed will depend on adequate enforcement.
- The findings of the report of the working group have to be considered to formulate a comprehensive and effective governance framework for commercial banking in India.
Consider the question “Given the complex nature of functions performed by the banks in comparison to other businesses subjecting them to stricter norms of governance is necessary. In light of this examine the adequacy of existing governance norms and suggest ways to improve them.”
Conclusion
RBI must exercise caution to ensure that the reforms balance the interests of all the stakeholders and do not come at the cost of discouraging investments and entrepreneurship in the Indian banking industry.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: MOOC
Mains level: Paper 2- Adopting online mode for education amid pandemic
What are the benefits of Online Learning in distress situations?
- In pandemic situation like today’s, where due to nationwide lockdown, all schools, colleges, universities were shut down, online learning comes as a savior to students and provided them with an opportunity to continue learning even while at home.
- There was anxiety, particularly about the graduating batches of students, lest the ongoing session should be declared a ‘zero semester’. There were attempts from individual teachers to keep their students engaged. A few universities made arrangements for teachers to hold their classes virtually through video conferencing services such as Zoom. These are well-meaning attempts to keep the core educational processes going through this period.
- Many private and government colleges in the country had been conducting online classes. Very small aperture terminals (VSATs) are still used by top Business schools in the country to create a closed user group (CUGs), which offers online classes globally. However, COVID-19 has hastened
- Online education, a result of the digital world has brought a lot to the learning table at all levels of education, beginning from preschool up to higher level institutions. The move to remote learning has been enabled by several online tech stacks such as Google Classroom, Blackboard, Big Blue Button, Zoom and Microsoft Teams, all of which play an important role in this transformation.
- With the development of ICT in education, online video-based micro-courses, e-books, simulations, models, graphics, animations, quizzes, games, and e-notes are making learning more accessible, engaging, and contextualized.
- To ensure that learning never stops, the online education sector, and mobile networks have become the preferred platform. Teachers are preparing lessons using distance learning tools, and parents are learning new teaching techniques at home. Providing aid are the entrepreneurs offering online learning apps like BYJU’s, Adda24x7, Duolingo, Khan Academy, Witkali and several others.
- Universities like World University of Design, Jawahar Lal Nehru University, Jamia Millia Islamia, Amity, IP University, Lovely Professional University and Mumbai University are offering online classes across different subjects.
- Schools in 165 countries around the world have closed due to the Corona virus outbreak, according to UNESCO. And, according to the International Telecommunication Union(ITU), more than 1.5 billion school children around the world are using online education, following the global lockdown.
- Online learning is not for everyone. Schools located in remote areas of the country with limited availability of electricity and internet is making restricted use of WhatsApp to stay connected with their classrooms.
3.) Less intimidating
Many students in classroom environments aren’t comfortable speaking in public. In an online environment, it can be much easier to share thoughts with others
5.) Focus on ideas
With an estimated 93 percent of communication being non-verbal, online students don’t have to worry about body language interfering with their message. While body language can be effective sometimes, academics are more about ideas, and online education eliminates physical judgments that can cloud rational discussion.
5.) Focus on ideas
With an estimated 93 percent of communication being non-verbal, online students don’t have to worry about body language interfering with their message. While body language can be effective sometimes, academics are more about ideas, and online education eliminates physical judgments that can cloud rational discussion.
8.) Cost
Although the cost of an online course can be as much or more than a traditional course, students can save money by avoiding many fees typical of campus-based education, including lab fees, commuting costs, parking, hostels, etc. Imagine living in Dhule but going to college in Mumbai.
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