Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Provisions in the budget to revive the economy-need for the fiscal stimulus, policies of the Government with respect to agriculture.
Context
The stimulus needs to continue and the reforms will help to keep the economy going. If gross savings and investment rates keep on falling it is difficult to revive the economy.
What was expected in the last budget?
- Increase in pubic investment: The first thing, it said, was to increase public investment and not play statistical or token announcement games.
- The upswing in manufacturing growth, from negative to slightly less than 3 per cent (not industrial growth, because that includes mining and electricity), needed consolidation.
- Real outlays in infra did not go up: Real outlays on the infrastructure needed to go up, but they did not.
- So the push to private demand and a virtuous cycle of growth was missed.
- The implicit numbers in the Budget math comprise growth of around 7 per cent, assuming a 5 per cent inflation rate.
Prospects of the Agri-sector
- A good sign in Agri in midterm: For agriculture, in the medium-term, we are alright. Kharif grain production was 6.4 per cent higher than the previous five-year average output.
- Kharif oilseeds output around eleven lakh tonnes above the earlier year.
- This was, however, based on a delayed monsoon which caused problems and anxieties in the second quarter of this year.
- Nightmare of government unloading grain in the market: Foodgrains are doing well and we have huge food stocks.
- But, instead of a blessing, the government turned public operations in grain into a nightmare by announcing that FCI will unload grain at a reserve price less than MSP.
- Rabi acreage recovered and is now 8 per cent more than last year, but the policy of government operations to reduce the market price of grain by its intervention is a nightmare.
- This is bound to affect input growth in the expanded acreage in the winter crops.
Wrong policy in Agriculture
- Terms of trade against agriculture: The terms of trade are going against agriculture, according to CACP (Commission for Agricultural Costs & Prices) estimates, and selling of the grain will make it worse.
- While the fundamentals are alright, to wallop the farmer with a “cut in the reserve price” would harm the farmers.
- The rabi report of CACP will say that the terms of trade have gone down more.
Conclusion
The Government should continue with the stimulus and opt for the reforms in the economy only to keep the economy going. If the gross savings and investment rates keep falling it would be difficult to revive the economy. If savings keep up, the government will have actual space to divert some real resources to infrastructure investment.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- 6th Schedule, Demand for separate states in North-East.
Context
It is to be seen if the pact will lead to true autonomy, true peace, and true development.
What the pact involved?
- Which groups signed the deal?
- Four factions of the National Democratic Front of Bodoland (NDFB), along with an influential Bodo students’ organization and a Bodo civilian pressure group, signed the peace agreement with the central and Assam governments.
- What are the major concessions given?
- The Bodoland Territorial Area Districts, the name given to Kokrajhar, Baksa, Chirang and Udalguri, the four contiguous districts bordering Bhutan and Arunachal Pradesh, will now be known as Bodoland Territorial Region.
- Acknowledgement of Bodo homeland: The changed nuance from districts to the region is significant as it acknowledges a Bodo homeland within the state of Assam, without separating from Assam.
- Why this acknowledgement matters: This is dialled down from earlier rebel demands for a breakaway state and later suggestions for Union territory status.
- What is the significance of the change from district to the region?
- Satisfying identity aspiration: The renaming is designed to satisfy the identity and aspirations of the Bodo people.
- Not ceding territory solved tricky matter: Renaming also solved the politically tricky matter of ceding territory for the government of Assam.
- Ceding territory would also have fuelled similar demands from the other parts of the state like- Karbi Anglong, Dima Hasao and Cachar, which also have homelands of non-Ahom ethnicities.
- Avoiding similar demand from other states: Indeed, it could have affected the ongoing Naga peace process, leading Naga rebels to demand territorial and administrative autonomy in Naga homelands in Manipur.
Scope of the success of the pact
- Inherent vulnerability: There is already an inherent vulnerability to the Bodo peace deal even without the overhang of ceding territory.
- This is rooted in the birth of the Bodo rebellion, which began in the 1980s on account of administrative and development apathy of the state of Assam.
- Feeling of subsuming in Bodo: A feeling that Bodo, the people, the language, the identity, was subsumed by the Assamese and migrants.
- The relation between NDFB and the Front: The Bodoland People’s Front, is in majority in the District council. Will the front be comfortable with newly peaceable colleagues of NDFB?
Conclusion
The Government of Assam needs to ensure that the pact signed changes the situation on the ground and leads to a development on the ground. The state also needs to allay the fears in the Bengali-speaking minority. Moreover, true autonomy, true peace, and true development are always worth more than the paper on which they are promised.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Digital payments in India, growth potential, various security challenges and how to tackle it.
Context
Digital payments in India are witnessing consistent growth at a compound annual growth rate (CAGR) of 12.7%.
Growth potential and challenges involved in digital payments
- Expected growth in mobile wallet payment: The mobile wallet market is expected to continuously grow at a CAGR of 52.2% by volume between 2019-23, according to a recent report by KPMG.
- This digital explosion can be seen in the accelerating rise in the download and use of electronic wallets as well as an unprecedented increase in digital transactions/payments.
- UPI/IMPS use growth: Payment systems such as UPI/IMPS are likely to register average annualised growth of over 100%, according to RBI’s 2021 vision document.
- Challenge of Cybersecurity: Cybersecurity is one of the most critical challenges faced by stakeholders of the digital payment ecosystem.
- Types of risks involved: With more and more users preferring digital payments, the chances of getting exposed to cybersecurity risks such as-
- Online fraud
- Information theft.
- Malware or virus attacks are also increasing.
- Digital payment frauds account for about half of all bank frauds in India.
Steps taken by the RBI
- Guidelines issued: In view of risks, the Reserve Bank of India (RBI) has also issued some guidelines as security and risk mitigation measures for digital payments.
- It has also issued guidelines that limit the liability of customers on unauthorised electronic banking transactions
- Steps taken: The central bank has taken steps for securing card transactions, internet banking, electronic payments, ATM transactions, and prepaid payment instruments (PPIs).
Securing the fintech revolution
- Fraudsters building advanced technologies: The changing nature of cybersecurity attacks such as-
- Web application attack.
- Ransomware.
- Reconnaissance.
- The DDoS attack clearly establishes cyber-risk as a new reality.
- What needs to be done to secure the fintech revolution?
- A robust regulatory framework.
- An effective customer redressal framework.
- Foolproof security measures to enable confidence and trust.
- Incentives for larger participation and benefits similar to cash transactions- are some measures that can help ensure long-term success for digital payments.
- Leveraging technology: Technology can be leveraged for making popular methods of cashless payments secure.
- Biometric authentication-enabled cards can provide a greater layer of security by enabling replacement of the traditional PIN.
- Through biometric authentication, consumers can authenticate transactions by placing their finger on a fingerprint sensor embedded in the card.
- Ensuring security: Safety is ensured as the consumer’s fingerprint is stored only in the secure chip within the card and the same chip is used to match the scanned fingerprint with the stored one.
- The biggest advantage: The biggest advantage is that the bank or merchant cannot access the consumer’s biometric data, which also counters potential privacy concerns.
Conclusion
To reap the advantages of the promising fintech revolution steps must be taken to secure the digital environment.
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Context
The policy currently being pursued is intended primarily to incentivise potential investors while social objectives and help in indigenisation are being jettisoned.
Call for more liberalisation and its possible impacts
- What reforms are asked for?
- Reforms such as labour market liberalisation and removal of constraints on the acquisition of land for industrial purposes are demanded.
- What could be their possible impacts?
- The negative impact such reform measures are likely to have on the incomes, living conditions and the economic security of the workers and the agricultural class.
- Counterproductive labour policy: The policy of freedom of hiring and firing of labour will be counterproductive as it would squeeze demand further in a situation of huge demand deficit.
Social sector and demand
- Neglect of human infrastructure: While talks of economic revival focus on infrastructure there is little talk of investment in human infrastructure, particularly in education and
- Conditional expenditure: On the contrary, the expenditure in social sectors is made conditional upon a higher rate of growth.
- The flawed premise of long term impact: Most mainstream economists believe that public expenditure in social sectors can only have a long- term impact on growth. Which is not entirely correct.
- The benefit of investment in human infrastructure:
- Increases demand in short-run: Investment in social sectors results in creating demand in the short run by way of opening avenues for large-scale employment.
- Competitiveness and sustainability: It imparts competitiveness and sustainability to the Indian economy in the medium and long run.
- Example of RTE, teacher employment and demand creation
- The recruitment of 5.7 million additional teachers over a period of, say, five years, can create huge scale demand.
- And, this is only one factor essential for universalising quality school education.
- There is also a large gap between the requirement of infrastructure in the schools and that available and built recently.
- The gap between requirement and availability: According to government data, only 12.5% of the schools covered by the RTE Act were compliant with RTE norms.
- Meeting these norms has the potential of creating employment on a large scale.
- Importance of health and education
- Education has a crucial role to play for an individual in gaining employment and retaining employability.
Conclusion
The gestation period of projects in social sectors is not as long as it is made out to be. It is, therefore, time for reprioritising education and health in the scheme of development strategy and the allocation of budgetary resources.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- The crowding out effect, effects of the Government borrowing on various variables.
Context
Market borrowings of the government do not always squeeze credit for the private sector in India.
What is ‘crowding out’ effect?
- Increased government spending and borrowing: It refers to how increased government spending, for which it borrows more money, tends to reduce private spending.
- Why does private spending reduce? This happens because when the government takes up the lion’s share of funds available in the banking system, less of it is left for private borrowers.
- Relationship with interest rate: Higher borrowing by the government and subsequent crowding out also impacts interest rates in the economy.
How the Government borrowing works and the role of RBI
- Local borrowing local spending: Typically, the government funds its fiscal deficit by borrowing from the domestic bond market.
- Its expenditure is also local in nature.
- Overdraft from RBI: The Reserve Bank of India (RBI) is the official banker to the government-which spends money by first taking an overdraft from the central bank.
- This overdraft gets repaid through bond market borrowings.
- Why overdraft? The understanding is that any such government spending should ideally not affect the availability of funds to other borrowers in the market.
- Excessive borrowing and effects on the interest rate: Excessive government borrowing from the bond market, many cautions, could lead to a rise in interest rates for the government itself and consequently for everyone else in the economy.
Analysis of the effects of borrowing on other variables
- Analysis of the data reveals the following trends.
- No impact on other variables: Local borrowing and spending by the Indian government does not impact any other macroeconomic variables like-
- The availability and cost of funds for other participants in the economy.
- Inflation.
- Deposit growth, at the current deficit level—that is, with the state and central combined figure above 6% of GDP.
- What impacts the interest rate the most?
- The two most important variables that impacted interest rates were inflation and the repo rate. Which tend to move together.
- What does it indicate? This clearly indicates that RBI is extremely proactive in the way it manages interest rates.
- Effects of funds on inflation: Such borrowings that are funded by the central bank could lead to inflation, the same is true for large external inflows to domestic money markets.
- The foreign borrowings finally get reflected in the country’s foreign exchange reserves, which have a very strong relationship with inflation.
- Effects on interest rates: Technically, any large inflow of a foreign currency sterilized by RBI does have the potential to move the inflation needle up, thus placing upward pressure on interest rates.
- Relationship between borrowing and growth: It is clear that government borrowing and spending actually drives GDP growth.
- Government borrowing should not impact bank lending to companies, as the sums borrowed return to the market almost immediately.
- How RBI controls bond yield?
- RBI ensures that bond yields don’t shoot up because of the excessive borrowing, by taking bonds onto its books to be released back into the market in good times.
The uniqueness of the Indian money market
- Why is it unique? India market is a unique money market, different from the rest of the world, for the following reasons-
- We have investors who are explicitly required to invest in government debt.
- Banks, non-banking financial companies, insurers, provident funds, and pension funds are all forced to invest in government debt as a condition for their licence to operate in India.
- We also find that RBI works towards aiding the government borrowing programme rather effectively, ensuring that interest rates do not change too adversely.
Conclusion
The government should not be excessively worried about the government living beyond its means at this juncture. Government spending being the main driver for the country’s GDP growth, it could be a good way to put the economy on a higher growth trajectory. Perhaps it is time to revisit the entire FRBM framework.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Bilateral trade opportunity with Australia and area of cooperation in Technology and innovation
Context
The challenge for India and Australia is to transform people-to-people ties into a trade relationship.
People-to-people the two countries
- Soft power: Soft power rather than hard economics has traditionally been the driving force behind India-Australia relations.
- Cricket is a dominant theme that connects the two countries.
- The Indian diaspora in Australia is a vibrant community that plays a robust role in connecting their country of adoption with their country of origin.
Trade relationship scenario
- $31 bn bilateral trade: The trade between the two countries has been at a modest $31 billion, largely composed of resources like coal and other minerals.
- No progress on FTA: Negotiations on a Free Trade Agreement, which began in 2011, have not moved forward significantly.
- No progress on coal mining projects in Australia: The problems faced by the Adani Group to begin work on a coal mining project in Queensland did not go down too well with investors from India.
- India Economic Strategy 2035 by Australia: One of the most widely commended initiatives has been the Australian government’s release of an India Economic Strategy 2035 Report.
- It observes that no single market over the next 20 years will offer more growth opportunities for Australia than India.
- It lays down a comprehensive road map for strengthening Australia’s trade engagement with India.
Development in digital technology and the role of youth
- Development of new architecture: Meanwhile India-Australia trade has been steadily evolving into a new architecture underpinned by developments in digital technology.
- There is a rise of a younger generation of entrepreneurs and a noticeable shift in the trade basket from resources to services.
- Technology and young entrepreneurship make a formidable combination and should set the agenda for the future of bilateral trade relations.
- About 80% of the Australian small and medium-sized enterprises are managed by young professionals.
- The young can see issues like immigration and outsourcing with far more equanimity than the older generation.
- An important role of young Australians: Young Australians are thus emerging as great champions of India-Australia trade relations.
Scope for engagement in innovation and trade relations
- Tech. expertise of Australia: There is also recognition that Australia is a laboratory of ideas, innovation, technology-led growth and university-industry partnerships.
- Scope for India in innovation and trade: India is a large and demographically young market with a love for innovation and an appetite for new products and services.
- These synergies should add momentum to a growing engagement in trade relations.
India’s weakness and Way forward
- Weakest link and way forward: The weakest link in India’s exports to Australia is in merchandise. India needs to look at three broad areas.
- First-Focus on Market Research: Despite globalisation, markets are country-specific and culturally sensitive.
- Indian companies will need to invest a little more in market research on Australian consumer expectations and lifestyles.
- Second-Brand creation: Australia is a brand-conscious market while India has not created a single consumer brand of international acceptance.
- Only when products are visible across the world’s shopping malls and supermarkets displaying their own brands that India will be recognised as a major player in the global markets.
- Third-Innovation: Innovation is emerging as the single-most-important factor for sustained success in every sphere. Global trade cannot be different.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Delays in NCRB data release, Increasing crime reporting, role played by the media.
Context
Delay in releasing the crime data by NCRB reduces the utility of the data for the policymakers.
Formidable challenges faced by NCRB
- The First-Casual approach of the States: The first is the lackadaisical approach of some of the States in providing data.
- The NCRB merely assembles the figures it receives from the State police forces and does not tinker with them to reach a predetermined conclusion.
- States’ irregularity: Data collection hits a roadblock when a few States either don’t bother to send the figures or send them much after the volume is published.
- The second-Utility of the released data: The second problem is that questions are raised over the utility of the data.
- There was a two-year delay in releasing the crime statistics for 2017.
- Just two months after it was published, the ‘Crime in India’ (CII) 2018 report was released.
- Reduced utility from a policy point of view: These numbers are only relevant to researchers, not policymakers as it does not carry us far in understanding what is happening on the ground.
- A fossilised CII is meaningless.
- The third- Third problem lies with the police and the public.
- The Reluctance of the police to register the complaint: The police are notorious the world over for not registering complaints.
- They do this so that they can present a false picture of a decline in crime.
- The reluctance of the public: The public is also not very enthusiastic about reporting crimes to the police.
- Catch-22 situation: Public is fearful of being harassed at the police station or do not believe that the police are capable of solving the crime. This is a Catch-22 situation.
Crimes difficult to bury
- The positive role played by the media: However, the problem has declined slightly over the years due to public awareness and intense media scrutiny.
- There are a few classes of offences which are becoming increasingly difficult to bury. This is attributable to the extraordinary interest evinced by the media in reporting crime.
- The crimes which are difficult to bury: The following cases of crime are becoming difficult to bury.
- Homicide: The first category of crimes that is difficult to bury is of homicides.
- Matter of distress: India reports an average of 30,000 murders every year (29,017 were registered in 2018). Every murder is a matter of distress.
- Nevertheless, the stabilisation of the figure at 30,000 is a mild assurance.
- The corresponding figure for the period in the U.S. was around 16,200.
- Need to study the US decline: Though the U.S. has about one-third of India’s population, the reported decline in murders in many major U.S cities is worth studying.
- Crime against women: The common man in India does not lag behind others in reacting strongly to attacks on hapless women and men.
- The growth of the visual media possibly explains this welcome feature in Indian society.
- The hope of a decrease in crime: The nationwide outrage over the gang-rape in Delhi and the subsequent tightening of laws on sexual crimes generated the hope that attacks against women would decrease.
The issue of under-reporting
- Under-reporting of crime in rural areas: In 2018, there were 33,356 rapes, a higher number than the previous year.
- But these figures do not fully reflect realities on the ground.
- There is still the unverifiable suspicion that while in urban areas sexual violence cases are reasonably well-reported, the story is different in rural India.
- The role played by money and caste: Money power and caste oppression are believed to play a significant role in under-reporting.
- What is more significant is that a substantial number of such crimes are committed by the ‘friends’ and families of victims.
Conclusion
- To be fair to the NCRB, we must concede that the organisation has more than justified its existence. The CII is used extensively by researchers.
- Need for educating the people on realities of crime and its reporting: There is scope for more dynamism on the NCRB’s part, especially in the area of educating the public on the realities of crime and its reporting.
- Greater pressure on the States to stick to a schedule: The NCRB will also have to be conscious of the expectation that it should bring greater pressure on States to make them stick to schedules and look upon this responsibility as a sacred national duty.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Cause of the emergence of trade disputes and how can emerging economies negotiate the deals
Context
Developing countries have argued for decades that the rules governing international trade are profoundly unfair. But similar complaints are now emanating from the developed countries that established most of those rules.
Why are developed countries complaining now?
- Competition: A simple but inadequate explanation is “competition.”
- Turning tide: In the 1960s and 1970s, industrialized countries focused on opening foreign markets for their goods and set the rules accordingly.
- Since then, the tide has turned.
- Left behind communities in developed countries
- Cheap labour-an advantage: One reason why emerging-market producers are competitive is that they pay workers less.
- Job creation in services by developed countries: To replace lost manufacturing jobs, developed economies have been creating jobs in services.
- Not everyone has moved to the service sector job: Unfortunately, not everyone in developed countries has been able to move to good service jobs.
- Efforts by the left-behind bring back the manufacturing job: The left-behind former manufacturing communities have a voice in the capital city now, and it wants to bring back manufacturing.
- Yet this explanation, too, is incomplete. The ongoing US-China trade war is not about manufacturing, it is about services.
- Services a reason behind US-China dispute: Much of the US dispute with China is not about manufacturing. It is about services.
- Emerging market competition increasing in services: Although eight of the top ten service exporters are developed countries, emerging-market competition is increasing.
- New services related rules: This increased competition from emerging markets is prompting a major push by advanced-economy firms to enact new service-related trade rules.
- An opportunity to protect the developed country producers: The new rules will ensure continued open borders for services. But it will also be an opportunity to protect the advantages of dominant developed-country producers.
Trade disputes- The combined effects of the two factors
- There are no easy trade deals anymore.
- Two conflicting factors: In sum, two factors have increased the uneasiness over international trade and investment arrangements.
- First-Left behind community: Ordinary people in left-behind communities in developed countries are no longer willing to accept existing arrangements.
- They want to be heard, and they want their interests protected
- Second-emerging economy demanding access to service sector: At the same time, emerging-economy elites want a share of the global market for services and are no longer willing to cede ground there. So, there is no easy trade deal anymore.
- Trade disputes-exercise in power politics
- High tariffs and ram tactics: Threats of sky-high tariffs to close off markets, for example, and battering-ram tactics to force “fairer” rules on the weaker party.
- The important difference from the past: One important difference is that the public in emerging markets is more democratically engaged than in the past.
- Short timed victory: Any success that rich countries have in setting onerous rules for others today could prove pyrrhic.
- No consensus on the rules: For one thing, it is unclear that there is a consensus on those rules even within developed countries. For example- rules to regulate social media.
Way forward
How should developed countries respond to domestic pressures to make trade fairer?
- Demand lower tariffs from developed countries: For starters, it is reasonable to demand that developing countries lower tariffs steadily to an internationally acceptable norm.
- Challenge the discriminatory barriers: Discriminatory non-tariff barriers or subsidies that favour their producers excessively should be challenged at the World Trade Organization.
- Go for less intrusive treaties: To go much beyond these measures—to attempt to impose one’s preferences on unions, regulation of online platforms, and duration of patents on other countries—will further undermine the consensus for trade.
- Less intrusive trade agreements today may do more for the trade tomorrow
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Reasons for the slowdown in the Indian economy, declining household saving, consumption driven growth.
Context
Setting aside the gloomy projections based on short-term economic trends, the long-term and comparative evidence reveal interesting trends about the health of the Indian economy.
Performance of the Indian economy after 1991
- Higher growth plateau reached after 1991: After the 1991 economic reforms, the Indian economy reached a higher growth plateau of 7% compared to a prior rate of 3. 85%.
- The high growth rate during 2003-2011: India witnessed a high growth momentum during 2003-04 and 2010-11 with a period average of 8.45% (GDP with base 2004-05) or 7% (base 2011-12).
- Ups and downs after 2012: The momentum lost steam in 2011-12 and 2012-13, gradually picked up again gradually to reach the 8% mark in 2015-16, and then started falling consistently to reach 6.63% in 2018-19.
- Structural dimension? This trend suggests that India’s current growth challenge has a structural dimension as it began in 2011-12.
- Comparison with China and the world
- Average at 7.07% after 2011-12: Despite these fluctuations from 2011-12, on average, India clocked a growth rate of 7.07% from 2011 to 2019, a decent figure compared to China’s and the world’s economic growth rates.
- Whereas like India, the growth of the world economy was fluctuating since 2011, China’s growth declined consistently from 10.64% in 2010 to 6.60% in 2018.
Why couldn’t India’s growth momentum be sustained after 2010-11?
- Analysis of five variables: To answer the above question, an in-depth analysis of trends in five key macroeconomic variables was done for two different periods: 2003-04 to 2010-11 and 2011-12 to 2018-19.
- Consumption.
- Investment.
- Savings.
- Exports.
- Net foreign direct investment (NFDI) inflows.
- What emerged from the analysis: The results reveal that compared to 2003-2011, investment and savings rates and exports-GDP ratio declined in the 2011-2019 period.
- How much the investment declined? The investment rate declined from 34.31% of GDP in 2011-12 to 29.30% in 2018-19.
- Household vs. corporate sector decline: The investment decline was caused mainly by the household sector and to some extent by the public sector, but not the corporate sector.
- The decline in investment compensated by NFDI: The slump in the domestic investment rate in the 2011-2019 period was compensated by increased NFDI inflows.
- On average, NFDI inflow was 1.31% of GDP during 2011-2019 compared to 0.89% during 2003-2011.
Why tax-cut not help the economy
- The justified policy of reviving the housing sector: The decline in household sector investment justifies the package of measures introduced by the Central government to revive the housing sector.
- Why corporate tax cut won’t help much? The questionable policy, however, is the steep cut in the corporate income tax rate from 30% to 22%, aimed at boosting private investment.
- Given that the corporate investment rate has not eroded severely during 2011-2019, the tax cut would help economic revival.
- Lost opportunity to spur rural consumption: A part of the largesse offered to Corporate India could have been used to spur rural consumption.
What the decline in saving rate mean?
- Importance of savings: The savings rate declined almost consistently from 27% of GDP to 30.51% between 2011 and 2018.
- This was also caused by a significant fall in the savings of the household sector in financial assets. Corporate savings did not fall.
- Why the fall in household financial savings needs to be increased? The fall in household financial savings is alarming and needs to be arrested.
- Savings are required to meet the requirements of those who want to borrow for their investment needs.
- Saving-investment relation: Lower household savings imply lesser funds available in the domestic market for investment spending.
- Economic growth powered by consumption: The decline in household savings has pushed up private final consumption expenditure consistently
- Private final consumption rose from 56.21% of GDP in 2011-12 to 59.39% in 2018-19.
- Consumption driven economic growth in 2011-19: The increase in private consumption suggests that economic growth during 2011-2019 was powered by consumption, not investment.
- Investment driven growth during 2003-2011: In contrast, during 2003-2011, growth was powered by investments.
- So, declining saving rate means a slowdown in the economy may not be due to structural issues.
- Re-examination of popular view: Thus, the popular view that economic slowdown was caused due to a slowdown in consumption demand needs to be re-examined.
- There is no concrete evidence to suggest that the economy is facing a structural consumption slowdown.
Export-GDP ratio decline and what it means
- Export-GDP decline from 24.54% to 19.74%: India’s exports-GDP ratio declined from 24.54% to 19.74% during 2011-2019.
- A trend similar to the rest of the world: The decline started from 2014-15, coinciding with a similar trend in the world export-GDP ratio.
- However, the drop in India’s exports was significantly larger than the world, a cause for concern.
- The exports- and NFDI-GDP ratio has deteriorated sharply and consistently in China after 2006.
- Indian economy doing better than China: Sharp decline in China’s export-GDP and NFDI-GDP, together with the consistent fall in China’s GDP growth after 2010, proves that the Indian economy is doing better than China.
Conclusion
The popular view that the slowdown in the Indian economy is due to the structural problems needs a re-examination in the view of the decline in investment in tandem with the world.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Pros and cons of strategic disinvestment.
Context
Air India is on the block.
Why disinvestment is not such a bad idea?
- Wisdom lies in the use of resources to meet the emergent needs: True wisdom lies in the use of resources, including the so-called “family silver”.
- To meet emergent needs.
- As also for better returns.
- Even individuals and private sector organizations committed to meeting their obligations or optimizing wealth creation take such initiatives routinely.
- The weakening of Indian economy
- This fiscal year’s second quarter growth in the gross domestic product (GDP) slipped to 4.5% and the portents of a slowdown have been quite apparent.
- Private sector investment is sagging. Gross capital formation has dipped.
- Aggregate demand has contracted.
- Public sector expenditure is the single engine that’s driving economic growth.
- Clamour for the government to open its purse and limited fiscal room.
- Shrunk revenue growth: There is a clamour for the government to open its purse and help out. However, its revenue growth has shrunk.
- Low direct tax collection: Direct tax collections registered a growth of only a little more than 6%.
- The cautious approach by the RBI: The Reserve Bank of India has taken a rate cut pause, inter alia, to watch the government’s approach to the fisc.
- Commitment to low inflation: The political executive seems determined to honour its commitment to low inflation and macroeconomic stability.
- India facing Hobson’s Choice: India is thus faced with a Hobson’s choice—either to significantly revise its fiscal deficit target or monetize state assets.
- The liberalized markets and optimizing wealth.
- Perception in the capital market: Capital markets operate on perceptions. Valuations of public sector enterprises tend to be much lower than those of private sector companies even if their profit numbers are the same.
- Why should India suffer suboptimal wealth creation?: The liberalized market philosophy that the country has pursued aims at optimizing wealth creation. In case a change in ownership structure can deliver higher wealth, why should Indian society retain the current ownership frame and suffer suboptimal wealth creation?
- Need to make policies aimed at value creation: Given the limits on India’s resources, it is all the more important to see that policies are geared to ensure that value is created.
- Stake sales can achieve value creation: For validation of this surmise, look at the rapid rise in the enterprise value of Bharat Petroleum, as indicated by its share price, since the announcement of its strategic disinvestment.
- Not all private sector companies perform well: In those cases, the losses are not funded by innocent taxpayers.
Twin angles to welcome strategic disinvestment
- One: The need for India to invest in fresh asset creation.
- The fresh asset can be created by way of roads, ports and airports that would result in a cascade effect for the economy’s growth.
- Two: The optimization of wealth generation from the country’s assets.
- This, incidentally, will benefit individual shareholders, including employees with shares, who have invested in the equity of listed public-sector companies such as Bharat Petroleum.
- Energy security of the country not harmed: As there are other state-owned petroleum companies undertaking exactly the same activities, such as refining and marketing crude oil, the sale of one company does not tamper with the energy security of the country.
Way forward
- Caution against undervaluation: The government, however, must ensure that it is not taken for a ride. It must make a good judgment of the value of the company it decides to disinvest from and if the market conditions are not favourable for the move it must wait for the opportune moment.
- Asset creation from the proceeds: Instead of using the proceeds from the disinvestment to fund revenue deficit the proceeds must be utilized strictly for new asset creation.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Effects of low growth rate on the State's finances.
Context
Lower tax devolution, delays in GST compensation are potential risks to the states.
Trends in the finances of the state
- The unaudited fiscal data of 21 states:
- These states account for around 90 per cent of India’s GDP in 2017-18. The data reveal some trends.
- First Trend: Revenue receipt sliding down
- From 15.6 to 4.6 %: At the aggregate level, revenue receipts of these 21 states have grown by a mere 4.6 per cent, sliding down from 15.3 per cent over the same period last year.
- Decrease in Central tax devolution: The analysis shows that the states’ share in Central tax devolution has slowed the most, contracting by 2.3 per cent during this period, after having grown by 12.1 per cent over the same period last year.
- Second trend: The Centre’s gross tax revenues are expected to fall short of the budgeted target by a considerable Rs 3- 3.5 trillion this fiscal year.
- The aggregate tax devolution to all states may be as much as Rs 1.7 – 2.2 trillion lower in the current fiscal year than what was budgeted.
- This is a key revenue risk staring at the state governments this year.
- Third trend: States own tax and non-tax revenue contracting.
- The states’ own non-tax revenues have contracted by 5 per cent during the first eight months of this fiscal year, after an expansion of 15.3 per cent over the same period last year.
- Decreasing tax revenue: Growth of states’ own tax revenues, the largest source of their revenue receipts, eased to a tepid 2.2 per cent during this period from a healthy 16 per cent over the same period last year.
- This is in part by the modest rise in collections of the State Goods and Services Tax (SGST).
- Fourth trend: Increase in the grants from the Centre
- The primary factor boosting the GST compensation seems to be the low growth in states’ GST revenues relative to the mandated 14 per cent annual growth for the five-year transition period.
Delay in receipt of the GST collection and the risk
- Some state has voiced concerns over the delays in receipt of the compensation amount in recent months.
- The delay has complicated their fiscal position and cash flow management.
- Risk for the states: The timing of receipt of the compensation is the second major revenue risk facing state governments.
- If compensation gets delayed to the next fiscal year, we may well find some traditionally revenue surplus states staring at a revenue deficit
- Case of no GST compensation: But it seems states will have to start gearing up for life without the GST compensation.
The Rise in State Development Loans or Market borrowing by states
- SDL rising in first three quarters: According to ICRA’s estimates, net SDL issuance of all states and UTs rose by 15.5 per cent to Rs 2,806 billion in the first three quarters of this fiscal year, up from Rs 2,429 billion last year.
- The combined gross SDL issuance has expanded by a significant 34.9 per cent to Rs 3,874 billion this fiscal year (April-December), up from Rs 2,872 billion last year.
- The calendar for state government market borrowings for the fourth quarter indicates tentative gross SDL issuances of Rs 2,086 billion in the quarter, implying a moderate 9.1 per cent growth.
- But, this conceals a large dip in redemptions.
- Net SDL issuances will expand by a staggering 55.7 per cent to Rs 1,766 billion in Q4FY20, up from Rs 1,134 billion last year, underlining the stress in state government finances this year.
- About 25 % rise in borrowing this fiscal: If market borrowings in the fourth quarter are in line with the amounts indicated, total gross borrowing this fiscal year would rise by 24.6 per cent to nearly Rs 6 trillion, up from Rs 4.8 trillion last year.
- Net borrowing by states as large as Central govt. borrowing: Net borrowings by states would rise by an even sharper 28.3 per cent to Rs 4.6 trillion this year, becoming nearly as large as the Central government’s net market borrowings of Rs 4.7 trillion that have been announced so far for this year.
Conclusion
The figure and the trends indicated the financial risk the states are staring at. The government must take measure to revive the economy in order to address the problems faced by the states and ensure that the states are not left in lurch while SGT compensation receipts get delayed.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Facial recognition technique and issues associated with it.
Context
Face recognition technology calls for a more comprehensive domestic framework that promotes the use of new technologies for the public good as well as imposes necessary constraints against their abuse.
Debate on finding the balance between regulation and promotion
- Google calls for partial ban: TheGoogle CEO’s recent support for a temporary ban on facial recognition technologies seems uncharacteristic.
- It is not often that companies developing a technology call for its ban.
- Their interest is in promoting the use of technology, not proscribing it.
- Not every one of the leading tech companies agrees with Google on facial recognition.
- Microsoft against the ban: Microsoft has questioned the idea of a ban. Calling facial recognition a “young technology”, it said “it will get better.
- To get better the technology has to be used: The only way to make it better is actually to continue developing it.
- And the only way to continue developing it actually is to have more people using it.
- IBM’s precision regulation: IBM has taken a step forward in developing the policies for the use of technology by setting up a “lab”.
- The lab will generate actionable ideas for policymakers to manage the emergence of new technologies like facial recognition that are shaping our digital future.
- Precision regulation vs. complete ban: The idea is to develop “precision regulation” rather than enforce “blunt” instruments like the ban.
- The EU’s plans for temporary ban: The debate on finding the right balance between regulation and promotion of emerging technologies comes in the wake of leaked plans of the EU to issue a temporary ban.
- The ban could be up to five years.
- Ban on use in public places only: The proposed ban is not a comprehensive one and will be applicable to the use of facial recognition in public spaces.
- India’s own plans for law enforcement agencies: The intensifying global debate also coincides with India’s own plans to roll out a massive project on deploying facial recognition technologies, essentially for law enforcement.
- The international discourse provides the context for developing a broad and effective Indian policy framework for the use of facial recognition.
Background of the backlash against the tech companies
- Techlash: Well before the EU had begun to discuss a temporary ban on facial recognition, there has been a “techlash” against the companies.
- The companies faced backlash because they have so dramatically altered our lives in the last few years.
- The idea of “digital is different”: For nearly two decades, the idea that “digital is different” and does not need public oversight had triumphed in most capitals of the world.
- Problems with regulations: The main argument was that regulation constrains technological innovation and retards progress.
- AI and Big data: The urge to regulate has triggered widespread concerns about the dangers of digitalisation, especially the use of big data and AI by private companies as well as governments.
Major concerns against facial recognition
- Surveillance capitalism and surveillance state: The companies were seen as monetising the data generated by the widespread use of digital platforms like Google and Facebook.
- Surveillance state: China became the prime example of states using data and information to exercise ever more control over its citizens.
- Accuracy: At the other end are concerns that facial recognition is not entirely accurate and could lead to punitive actions against innocent people.
- Racial bias misogyny: There is also a concern in the US that the algorithms behind facial recognition carry the baggage of racism and misogyny.
- Concerns in India: It also remains a fact that the Indian state has always been tempted to empower itself against its citizens in the name of collective security.
- It has also tended to weaponise information against political opponents and dissidents.
Potential Advantages
- In the control of crime.
- Better border controls and countering terrorism.
- Aid the Police: In India, a severely under-policed nation, facial recognition surely offers many benefits.
Conclusion
The foreign office must reclaim India’s place in the international discourse on AI and facial recognition and develop a productive alignment between India’s national interests and the development of new digital norms.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Globalisation-Convergence of the rich and the poor economies- hopes and the reality.
Context
Sound policies are needed to put emerging economies back on a higher growth path and ameliorate regional inequalities.
The theory of convergence
- The theory of convergence is one of the most powerful and noblest ideas in economics.
- What is it? It is the concept that other things being equal, poorer economies should catch up with richer ones so that inequality between the rich and the poor attenuates, and conceivably even disappears over time.
- Capital is more productive in poor economies: The premise driving convergence is that capital (whether physical or human) is more productive in poor economies than rich ones due to what economists call “diminishing marginal productivity”.
- In layman’s terms, a small amount of investment yields a greater increase in output where there is less capital than where there is more.
- Lesser the development more the development: Even more simply, the rate of return on investment is inversely related to the level of economic development.
- Experience of Japan and Germany after WW 2: The experience of advanced economies gave economists reason to be optimistic that convergence occurs according to the script.
- Thus, the devastated economies of Europe, along with Japan, quickly caught up with the advanced economies that had not been ravaged by World War II, most notably, the US.
- Germany and Japan closing the gap: At the end of the war, with their capital stocks destroyed, Germany and Japan were much poorer than the US; by the 1960s, they had closed the gap.
Globalisation and the unfulfilled hopes of convergence
- Replication of the rise of Japan and Germany? At one time, it appeared that the same play was at work between emerging economies and advanced economies.
- Rise of India and China: Economies such as China and India, as well as others, were far outstripping the growth rates of the US and other rich economies,
- Hope of closing gap: India and China gave hope that at least the more rapidly growing of the emerging economies would close the gap with the rich world within decades rather than centuries.
- Adoption of technology at low cost: There was presumed to be an additional powerful force working toward convergence.
- Poorer economies are, almost by definition, far away from the technological frontier at which the richest economies operate.
- There is thus ample room to absorb newer technologies at relatively low cost and in a relatively short span of time, without encountering slowing growth like the rich economies,
- In simpler terms, it is difficult and costly to innovate the latest Apple iPhone, but relatively easy to reverse engineers at least some of Apple’s technology.
Reality: Convergence is faltering
- Recent evidence suggests that convergence is faltering.
- World Bank report of retarding convergence: A recent World Bank report documents a worrying slowdown in productivity growth in emerging economies, significantly retarding convergence.
- Lower productivity: The report’s calculations suggest that emerging economies have 14% lower productivity than they would have had if previous trends of high productivity growth were maintained.
- Lower commodity exports: For commodity exporters, this is a whopping 19%.
- The silver lining for faltering economies: According to the World Bank, the main driver of falling productivity are-
- Insufficient investment in physical and human capital.
- Insufficient mobility of machines and workers from less productive to more productive sectors of the economy.
- India’s case: The Indian case clearly bears this out, with languishing investment and unfinished productivity-enhancing reforms, especially in the country’s labour market, being the key culprits behind the sharp slowdown in growth.
Way forward
- Repair financial systems: Governments, including India’s, need to do the heavy lifting of repairing damaged financial systems overladen with bad debt.
- Restore fiscal rectitude.
- Inflation focused monetary policy: Ensure that monetary policy remains focused on stable inflation rather than being excessively loose as a risky substitute for structural reforms.
- Reforms: Press ahead with unfinished reforms to capital, land and labour markets.
- Address the regional disparities: There is a further critical dimension in the case of large multi-region economies such as India.
- Not only has convergence been faltering between nations, but it has also been faltering between the richer and poorer regions of large nations such as India.
Conclusion
The data does not present an epistle of despair, but of hope. The pursuit of sensible and conventional sound economic policies ought to put emerging economies as a group back on a higher growth trajectory. Convergence may yet end up being a parable of promise rather than a fable of folly.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Avangard-HGV
Mains level: Paper 3- Hypersonic Glide Vehicle, whether India go for developing it- and challenges to Indian security.
Context
Russia announced that its new hypersonic glide vehicle (HGV), Avangard, had been made operational.
What HGV is and where the US and China stand
- What is HGV and what is it capable of?
- Speed over 5 Mach: A hypersonic delivery system is essentially a ballistic or cruise missile that can fly for long distances and at speeds higher than 5 Mach at lower altitudes.
- Invulnerable to interception: This allows it to evade interception from current Ballistic Missile Defence (BMD).
- High manoeuvrability: It can also execute a high degree of manoeuvres.
- Avangard-Developed by Russia: Russia claims that this HGV can fly at over 20 times the speed of sound.
- Invulnerable to interception: and is capable of such manoeuvring as to be invulnerable to interception by any existing and prospective missile defence means of the potential adversary.
- China and the U.S. are also close on the heels: The U.S. has moved from the research to the development stage.
- Where China stands: China demonstrated the DF-17, a medium-range missile with the HGV, at the military parade in October 2019.
- What were the reasons for the development: The U.S. walked out of anti-ballistic missile treaty in 2002, prompted by the U.S. exit from the treaty and fear of the U.S. anti-ballistic missile defence system.
How would hypersonics complicate the security concerns?
- First complication-Increase in the possibility of miscalculation: These missiles are being added to the military capabilities of countries that possess nuclear weapons.
- For these nations, the concern is always an attack on nuclear assets to degrade retaliation
- Destination ambiguities: Another layer of complication is added by the fact that these missiles bring in warhead and destination ambiguities.
- Increasing tendency to assume worst: In both cases, when an adversary’s early warning detects such missiles headed in its direction, but cannot be sure whether they are conventional or nuclear-armed, nor ascertain the target they are headed towards, the tendency would be to assume the worst.
- For an adversary that faces a country with a BMD but itself has a small nuclear arsenal, it would fear that even conventionally armed hypersonic missiles could destroy a portion of its nuclear assets.
- The tendency to shift to trigger-ready postures: The tendency could then be to shift to more trigger-ready postures such as launch on warning or launch under attack to ostensibly enhance deterrence.
- Risk of miscalculation: But such shifts would also bring risks of misperception and miscalculation in moments of crisis.
- Second complication-Offence defence spiral: According to reports, the U.S. has begun finding ways of either strengthening its BMD or looking for countermeasures to defeat hypersonics, besides having an arsenal of its own of the same kind.
- Possibility of arms race: The stage appears set for an arms race instability given that the three major players in this game have the financial wherewithal and technological capability to play along.
- This looks particularly imminent in the absence of any strategic dialogue or arms control.
- Third complication-Possibility of the arms race into outer space: A third implication would be to take offence-defence developments into outer space.
- Sensors are already placed into space: Counter-measures to hypersonics have been envisaged through the placement of sensors and interceptors in outer space.
- While none of this is going to be weaponisation of outer space would, nevertheless, be a distinct possibility once hypersonic inductions become the norm.
Conclusion
The induction of this technology would likely prove to be a transitory advantage eventually leading nations into a strategic trap. India needs to make a cool-headed assessment of its own deterrence requirements and choose its pathways wisely.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Evolutionary phases through which the interpretation of Constitution by judiciary passed.
Context
The ways in which the Constitution of India is interpreted has undergone changes through four phases.
Constitution-An Ambitious political experiment
- Indian Constitution was an ambitious political experiment for the following reasons-
- Universal Adult Franchise: India began its journey with the universal adult franchise.
- Federalism: Federalism in a region consisting of over 550 princely States.
- The promise of Equality: The Constitution was a sort of social revolution in a deeply unequal society with the promise of equality.
- Unique constitutional design: it was equally a unique achievement in terms of constitutional design.
The first phase of interpretation-Focus on text
- A textualist approach-focusing on the plain meaning of the words: In its early years, the Supreme Court adopted a textualist approach, focusing on the plain meaning of the words used in the Constitution.
- K. Gopalan v. State of Madras (1950) was one of the early decisions in which the Court was called upon to interpret the fundamental rights under Part III.
- The leader of the Communist Party of India claimed that preventive detention legislation under which he was detained was inconsistent with Articles 19 (the right to freedom), 21 (the right to life) and 22 (the protection against arbitrary arrest and detention).
- Fundamental rights separate from each other: The Supreme Court decided in A. K. Gopalan case that each of those articles covered entirely different subject matter, and were to be read as separate codes rather than being read together.
- Unlimited Amendment Power: In its early years, the Court read the Constitution literally, concluding that there were no limitations on the Parliament’s power to amend the Constitution.
The second phase of interpretation-Focus on ‘basic structure’
- Appeals to the structure and coherence: Appeals to the text of the Constitution were gradually overtaken by appeals to the Constitution’s overall structure and coherence.
- Limited Amendment Power-Kesavananda Bharati case: In the leading case of Kesavananda Bharati v. State of Kerala(1973), the Court concluded that Parliament’s power to amend the Constitution did not extend to altering its “basic structure”.
- What is the “Basic Structure”: The basic structure is an open-ended list of features that lie within the exclusive control of the Court.
- When Parliament attempted to overturn this decision by amending the Constitution yet again, the Court, relying on structuralist justifications, decisively rejected that attempt.
- Key takeaways from Kesavananda Bharati case
- Limited Amendment Power: In this case, the Court pronounced that Parliament’s power to amend the Constitution is not unlimited.
- Fundamental rights as a cohesive bill of rights: In this phase, the Court also categorically rejected the Gopalan approach in favour of a structuralist one.
- Maneka Gandhi v. Union of India (1978): Through decision, in this case, the Court conceived of the fundamental rights as a cohesive bill of rights rather than a miscellaneous grouping of constitutional guarantees.
- Incremental interpretation of Right to Life: The right to life was incrementally interpreted to include a wide range of rights such as clean air, speedy trial, and free legal aid.
- Courts playing role in governance: The incremental interpretation of Article 21 paved the way for the Supreme Court to play an unprecedented role in the governance of the nation.
- What was common in the first two phases?
- Interpretation done by Constitutional Benches: That significant decisions involving the interpretation of the Constitution were entrusted to Constitution Benches (comprising five or more judges of court) and were carefully (even if incorrectly) reasoned.
- Little scope for precedential confusion: There was limited scope for precedential confusion, since matters which had been decided by Constitution Benches and which demanded reconsideration were referred to larger Constitution Benches.
Third Phase of interpretation-Eclecticism
- Different opinions on the same issues: In the third phase the Supreme Court started to give different opinions on the same issues-i.e. it engaged in eclecticism.
- Lesser reasoning: The Court often surrendered its responsibility of engaging in a thorough rights reasoning of the issues before it.
- Two factors underpinned this institutional failure.
- First-Change in the structure of the SC: The changing structure of the Court, which at its inception began with eight judges, grew to a sanctioned strength of 31; it is currently 34.
- It began to sit in panels of two or three judges, effectively transforming it into a “polyvocal” group of about a dozen sub-Supreme Courts.
- Second-expansion of own role by the SC-The Court began deciding cases based on a certain conception of its own role -whether as a sentinel of democracy or protector of the market economy.
- The focus of the judgement on the result rather than reason: This unique decision-making process sidelined reason-giving in preference to arriving at outcomes that match the Court’s perception.
- Consequences of the eclecticism
- Rise of doctrinal incoherence and inconsistency: The failure to give reasons contributed not only to methodological incoherence but also to serious doctrinal incoherence and inconsistency across the law.
- Conflicting decisions and interpretations: This approach can be best described as panchayati eclecticism, with different Benches adopting inconsistent interpretive approaches based on their conception of the Court’s role, and arriving at conclusions that were often in tension with one another.
- Decision detached from precedents and established methods: The imagery that panchayati eclecticism is meant to invoke is that of a group of wise men and women (applying the analogy, sub-Supreme Courts), taking decisions based on notions of fairness that are detached from precedent, doctrine and established interpretive methods.
Fourth phase- based on the purpose
- Purpose of enactment of the Constitution as critical: In the fourth phase, the Court has acknowledged as critical to its interpretive exercise the purpose for which the Constitution has been enacted.
- The realisation of revolutionary and transformative potential: The Court is now beginning to interpret the Constitution in accordance with its revolutionary and transformative potential.
- Renaissance in decisions: With about a dozen significant Constitution Bench decisions from the Supreme Court since September 2018, there has been a renaissance in decision-making by Constitution Benches.
- The most important decisions of this period include-
- Court’s decisions striking down Section 377 and the criminal offence of adultery.
- And including the office of the Chief Justice of India within the scope of the Right to Information Act.
Conclusion
With the interpretation process entering in the fourth phase-realising the purpose of enactment of the Constitution- Indian judiciary is on the right track, however, facets of phase 3 continue to linger on it. The Supreme Court must avoid getting in phase three mode to in order to realise the purpose it was entrusted with.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- PDS and issue of excess food stock with FCI.
Context
A substantial rise in consumer food price inflation to 14.12% in December 2019, the highest ever in the past six years, has driven the retail price inflation in this country.
Discrepancies in the fiscal deficit
- Policy dilemma for the RBI: Though the CPI was at 14.12% in December but with the core inflation rate still not overshooting the Reserve Bank of India’s (RBI) medium-term target of 4(+/- 2)%.
- Speculations hover as to whether the RBI monetary policy committee will go for another rate cut in the coming month.
- This is a policy dilemma for the central bank
- Why is the dilemma? The dilemma is because the moot issues regarding the government’s key economic estimates, such as the fiscal deficit, largely remain unresolved.
- Discrepancies flagged by the CAG: The CAG has stated that the current figures on deficit have been kept at a 1.5% to 2% low by not including the government’s off-budget borrowings from public accounts, such as the National Small Savings Fund (NSSF).
- According to media reports, such off-budget expenditure of the current government stands at ₹1.5 lakh crore in 2019–20.
- The major portion of off budged expenditure on food subsidy: About three-fourths of the incremental off-budget expenditure is on account of under-recoveries in food subsidies of the Food Corporation of India (FCI).
- Low allocation but high expenditure on food subsidy: For instance, the 2019–20 Union Budget had provisioned food subsidy at₹1.84 lakh crore.
- While the overdue of the FCI is already at₹1.86 lakh crore.
- For these burgeoning overdue, FCI’s off-budget borrowings from the NSSF have been on the rise.
Excessive stock by the government and rising inflation
- Issue of supply management: The issues of agricultural supply management are relegated to the background by the standard causality argument of “crop damages” caused by excessive rains and that the inflation will ease out once the new harvest comes in.
- This argument can hold some water for horticulture crops like onions that saw an almost 200% rise in price in November and December.
- Unable to explain inflation in wheat and other cereals: This argument may not find traction in explaining the price inflation of wheat and other cereals.
- holding the excessive cereal stock: With the government currently stocking much higher quantities of cereals at the FCI than the buffer norms.
- 45.8 million tonnes of wheat as against the buffer norm of 27.5 million tonnes and nearly double the amount of rice vis-à-vis the buffer norm of 13.5 million tonnes.
- India is now a cereal surplus economy.
- Why then the inflation in cereal prices? Is this artificially created by the government through its irrational stocking practice?
- Some fundamental concerns are triggered at this juncture.
- Concerns with excess stocks
- First-Higher stock means higher subsidy bill-With the economic costs of the FCI being 12 times or more than the allocation cost of the grains through the public distribution system-higher stocks would imply higher subsidy bills.
- Second–No benefit of the stock: In tandem with the first, ad hoc releasing of the stocks will not bring about any major changes in the situation.
- Third–Hiding fiscal deficit from the public: In this context, off-budget borrowing can serve various politically expedient purposes.
- It has enabled the government to showcase a consistently low share (below 1%) of subsidies in national income.
- Thereby diverted the public attention from two critical facts: the FCI’s tipping financials and the country’s (grossly) underestimated fiscal deficit.
Conclusion
The government must recall that the “illusion” of this acceptable limit of inflation potentially rests upon the savings of the common consumers, which is being unduly misemployed by the government.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Face recognition technique, its uses and related issue.
Context
Facial recognition technology is set to become an integral part of the law enforcement toolkit, but we should regulate this technology before it pervades our public spaces.
What are the issues with the use of facial recognition?
- Enormous possibilities for law enforcement agencies:
- Detectives have been using facial recognition to solve crimes for almost as long as the camera has been in existence.
- Use of AI for facial recognition: It is but a logical extension of the modern crime solver’s toolkit to use artificial intelligence (AI) on the most identifiable physical feature of people, their face.
- Screening faces within hours: An image captured at the scene of a crime can now be screened against photographs of entire populations for a match within a matter of hours.
- Uneasiness with being watched: The idea of being watched by devices linked to vast databases far out of sight makes liberal societies uneasy.
- Invasion of privacy: The intrusion that is causing alarm, however, has nothing to do with the technology itself, and everything to do with the all-pervasive surveillance it enables.
Should there be no rules governing it?
- Issue of accuracy: How accurately faces are identified by machines is a major point of concern. Deployed in law enforcement, false matches could possibly result in a miscarriage of justice.
- Judicial scrutiny: Even a low rate of error could mean evidence faces judicial rejection. It is in the judiciary’s interest, all the same, to let technology aid police-work.
- Racial bias: First up for addressal is the criticism that facial recognition is still not smart enough to read emotions or work equally well for all racial groups.
- With iterative use, it will improve.
- Mala fide use: Since such tools can be put to mala fide use as-rogue drones equipped with the technology, for example, should never be in a position to carry out an assassination.
- Nor should an unauthorized agent be able to spy on or stalk anyone.
- Caution in the developed countries: Apart from California, the European Union has also decided to exercise some caution before exposing people to it.
- Privacy as fundamental rights in India: India, which has recently accepted privacy as a fundamental right, would do well to tilt the Western way on this.
Conclusion
- We need regulations that restrict the use of facial recognition to the minimum required to serve justice and ease commercial operations. For the latter, customer consent should be mandatory.
- There will be some overlaps. Its use at an aerobridge to board an aircraft, for example, could serve the interests of both state security and the airline, but data-sharing could risk leakage.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- India-US ties, what are the issues that introduces friction in the ties between the two.
Context
Persistent in their efforts to remake their countries and their engagement with the world, Mr Modi and Mr Trump are shaking up the bilateral ties between the two countries, and the resultant flux could outlive their tenures.
The emergence of both the leaders on similar promises
- Improvements over the legacy of their predecessors: Both leaders continuously reiterate that their predecessors were incapable of protecting national interest.
- The compulsion to reframe the national interest: Such premises commits them both to reframe the national interest, and both have articulated it with clarity and force.
- For instance, Mr Modi, in Houston in September 2019 and Mr Trump in Davos this week, went great lengths to lay out figures that presented their respective regimes as the most effective guardians.
- Both have cultural and economic agenda: Both dispensations believe that “the people” had been given a raw deal by earlier regimes.
- Both have a cultural and economic agenda.
- National awakening: They are now leading a national reawakening, and working hard for the hard-working people.
- Both believe that cultural nationalism is a force for the good.
- Securing borders and entry barriers: Both believe that national borders need to be strengthened by stricter monitoring and setting new bars for entry.
- Renegotiating the treaties: Both leaders try to renegotiate the contract between the union and the States, and between citizens and the state within their respective countries.
- The supremacy of executive: They assert the supremacy of the executive over the legislature and the judiciary.
- Shared values: The notion of shared values of India and the U.S. has acquired a whole new meaning under Mr Trump and Mr Modi.
Politics and governance
- Hopes of status-quo in bilateral relations shattered: It was hoped that the stronger U.S.-India ties- that have autonomous drivers of convergence-would not be impacted by the nationalist politics of these two leaders.
- But both leaders have been remarkably true to their politics in their governance.
- Current tumult in the India-US ties: Shared values notwithstanding, national interests as perceived by these leaders have several points of divergence and therein lies in the current tumult in India-U.S. ties.
- Opposition to the “world order”: Mr Trump has been outspokenly confrontational with the “world order” that he says has worked against American interests.
- Dismantling the treaties: America under Mr Trump has wrecked treaties such as the Paris climate agreement and institutions such as the World Trade Organization and the United Nations, disrupting the “rule-based order”.
- India’s relations with Bangladesh: India’s spirited outreach in the neighbourhood is still playing out. India’s historically warm ties with Bangladesh have been frayed after CAA.
- India’s ambitions on the global level
- The seat at the UNSC: India under continues to push for more space for itself in global affairs by seeking a permanent seat in the UN Security Council and membership.
- NSG membership: India is also pushing for the membership of the Nuclear Suppliers Group.
- The US actions at global levels
- Expansion of the principle of the pre-emptive strike: America expanded the principle of pre-emptive strike to include the assassination of a senior official of Iran.
- Renegotiating the treaties: After dismantling the North American Free Trade Agreement, Mr Trump forced Mexico and Canada to accede to his demands in a new trade deal.
- The India-US relations and impact of U.S. relations with other countries
- Impact on India-US ties: India’s ties with the U.S. are impacted by America’s ties with India’s adversaries and neighbours, China and Pakistan.
- Hopes of alignment in the Indo-US ties: Mr Trump’s bluster against both had lit hope that there would finally be a near-complete alignment between India and the U.S. on strategy.
- US-Iran conflict: Despite Mr Trump’s avowed opposition to America’s endless wars in West Asia, the US is going against Iran headlong, which is not in India’s interest.
- Relations with Gulf Countries: Trump and Mr Modi share a strong bonding with the Gulf Cooperation Council kings, but their courses in the region are diverging.
- US-Pakistan coming closer once again: The American President’s impatience to get out of Afghanistan has already pushed his administration closer to Pakistan, which is now further necessitated by his adventurist Iran policy.
- The US disregard for China’s expansionist policies: Mr Trump has been singularly focused on one question-trade. He cares little about China’s expansionism and at any rate that is not a factor in his ties with other Asian countries.
India-US ties- Points of fission
- On the trade front: Mr Trump has bracketed India and China as two countries that have duped his predecessors to gain undue advantage. Which is far from seeing India as deserving special concessions to counterbalance China as old wisdom demanded.
- Ending GSP: The US ended India’s status under the World Trade Organization’s Generalized System of Preferences and took other punitive measures.
- India trying to decrease the trade surplus: By increasing hydrocarbon imports from the U.S., the government is trying to reduce India’s trade surplus.
- Restrictions on H1-B visa: The US has tightened the restrictions on the H1-B visa which is used by the Indian companies.
- Decreasing bipartisan support in the US: The mobilisation of Indian diaspora in America by the government has resulted in the inevitable blowback.
- Diaspora divided and bipartisan support waning: The diaspora has been divided, and the bipartisan support for India is now squandered. Progressive sections on the Democratic side and religious libertarians and evangelicals on the Trump side are both concerned over India’s actions back home.
Conclusion
Partnership with America is critical to India. India must take the steps to align the interest but whenever it diverges India must take measures to minimise its impact on India while furthering its interests.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Skybot F-850: Robot sent by Russia to dock with the International Space Station.
Mains level: Paper 3-Vyommitra, India's human spaceflight in 2022.
Context
The first gaganaut-Vyomamitra- to head for space in an Indian craft will not be human, but humanoid.
What Vyomamitra would do on spaceflight?
- Test the technological environment: Vyomamitra unveiled by ISRO will fly two missions to test the technological environment which human gaganauts will inhabit on India’s first demonstration of human spaceflight in 2022.
- She will test the systems and instruments that they would use.
- Vyomamitra cannot test the cabin ecosystem, as she would not be able to breathe the air.
- Other functions: Vyomamitra is perfectly capable of issuing commands, activating switches and, obviously, communicating with earth.
- Give company to human travellers: Her prototype has already chatted with people at the Isro event where she was introduced to the public, and future iterations will be able to give company to human travellers at the loneliest frontier.
A shift from sending animals to humanoids
- Performing roles previously performed by animals: Vyomamitra will be executing the pioneering role which has traditionally been given to animals – testing systems for survivability.
- Fruit flies and monkeys were the first beings to lift off, riding V2 rockets with devices monitoring their vital signs.
- Why using humanoid is more useful: Using a humanoid robot is more useful because it can be used to replicate the behavioural and operational responses of a human.
- Indeed, robots need not remain pioneers testing survivability, or assistants to the human crew, but are expected to crew missions that are too prolonged or too dangerous for a human pilot.
Opportunities and the future of AI-powered humanoid
- Russian robot in space: As India prepared for human flight, in August 2019, the Russian space agency Roscosmos sent up the anthropomorphic robot Skybot F-850 to dock with the International Space Station.
- The mission has been halted because of technical issues.
- Goals beyond survivability testing: If the nation which pioneered human spaceflight with Yuri Gagarin’s mission in 1961 is sending humanoid robots into space, survivability testing is not the only legitimate goal of missions powered by artificial intelligence and robotics.
- Opportunity to develop new technologies: Humanoid in space also provide opportunities to test and develop these technologies under circumstances that do not prevail on earth.
- The inputs, goals and skills learned are different and while AI on earth specifically focuses on creating systems which do not think like humans,
- Human-like AI system need of industry: The space industry would value systems that are human-like, to stand in for crew.
Conclusion
Vyomamitra represents the very first iteration of AI in space, and later generations could prove to be as essential for spaceflight as cryogenic engines.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- BRICS- challenges and areas of cooperation.
Context
India has invited the Brazilian President to be a guest of honour for Republic Day 2020. It is also a good opportunity for focusing on intra-BRICS partnership and trade.
Future of the BRICS
- To move towards multi-polarity: This was set up as a move towards greater multi-polarity; hence the spread across three continents and both hemispheres.
- Infirmities in the group: The BRICS combination accounts for about one-third of global output, but a glance at the GDP t and growth rates will show the infirmities of the group.
- Differences in GDP: In terms of GDP, China occupies the second position; India the fifth; Brazil the ninth; Russia the 11th; and South Africa the 35th.
- Differences in growth rate: In terms of growth rates, China grew at 6%; India at 4.5%, Russia 1.7%, Brazil 1.2% and South Africa 0.1%.
- Both politically and economically, Brazil and South Africa have been the laggards in recent years. But there are certain similarities as well.
- Similarities in the group: Each country has different economic and political leverage and its own burden of domestic and external issues.
- Decision-making structure: They all share the benefits of autonomous decision making.
- Non-affiliation: The members of the group have non-affiliation with any binding alliances.
- Informal structure: The group’s informal structure is an advantage for coordination among the most influential non-Western countries.
- Challenges to the survival of the group: The BRICS group can survive only if its members maximise their congruencies to the extent possible. Following are the challenges to the existence of the group-
- The growing intensity of Sino-Russian ties.
- The pro-American leanings in Brazil.
- The socio-economic difficulties of South Africa after nine years under the controversial Jacob Zuma.
- India’s many difficulties with China, including its abstention from the Regional Comprehensive Economic Partnership.
Achievement of the grouping
- New Development Bank: The main achievement of BRICS is the New Development Bank, with each country contributing equally to its equity.
- The bank has so far financed over 40 projects at a cost of $12 billion.
- The BRICS countries are also developing a joint payments mechanism to reduce foreign trade settlements in U.S. dollars.
- BASICS: An offshoot of the group, dealing with climate change, is BASIC (BRICS without Russia).
- BASICS met at the Spain conference last month and reiterated its support to the Paris Agreement.
- India’s lead role: India is taking the lead role in-
- Digital health, Digital forensics
- Film technology.
- Traditional medicine.
- Sustainable water management,
- Internships and fellowships.
Brazil-India relation
- Visa waiver for Indians: Brazil declared the decision to waive visa requirements for Indian citizens.
- Potential for investments: There is potential for Brazilian investments in the sectors of space and defence, agricultural equipment, animal husbandry, post-harvest technologies, and bio-fuels.
- Low two-way trade: The total two-way trade is at a paltry $8 billion, and the prospect of closer economic ties, however desirable, would require considerable optimism.
Conclusion
Both India and Brazil need to further deepen the ties and increase cooperation in various areas of cooperation. BRICS, despite the various challenges, need to focus on congruencies between them and work towards greater cooperation.
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