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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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Suggestions for revival of the Indian economy, unemployment in rural and urban areas and ways to increase it by investing in various sectors.
Context
With the unemployment rate at 6.1 (2017-18), not just the future of the economy, the future of the country’s youth depends on the Budget.
Unemployment and other indicators of the economy
- Unemployment in urban youth: The unemployment rate for urban youth in the 15-29 years category is alarmingly high at 22.5%.
- These figures, however, are just one of the many problems, as pointed out by the Periodic Labour Force Survey.
- The decline in labour force participation: The Labour Force Participation Rate has come down to 46.5% for the ‘15 years and above’ age category.
- It is down to 37.7% for the urban youth. Even among those employed, a large fraction gets low wages and are stuck with ‘employment poverty’.
- The decline in investment: The aggregate investment stands at less than 30% of the GDP, a rate much lower than the 15-year average of 35%.
- The decline in capacity utilisation: The capacity utilisation in the private sector is down to 70%-75%.
Where the Budget should focus to reduce rural employment?
- Revive demand: The Budget should also focus on reviving demand to promote growth and employment.
- PM-KISAN and MGNREGA: Schemes like PM-KISAN and Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) are good instruments to boost rural demand.
- Unutilised fund: a significant proportion of the budgetary allocation for PM-KISAN will go unutilised.
- Why income transfers through such schemes matter?
- Spend most of their income: Farmers and landless labourers spend most of their income. This means that income transfers to such groups will immediately increase demand.
- Consumes a wide range of goods: Further, rural India consumes a wide range of goods and services; so, if allocation and disbursement are raised significantly, most sectors of the economy will benefit.
- Immediate result: And such transfer will have the immediate payoff.
- Allocate to irrigation and infrastructure projects
- How allocation could matter: Rural unemployment can be reduced by raising budgetary allocation for irrigation projects and rural infrastructures like roads, cold storage and logistical chains.
- These facilities, along with a comprehensive crop insurance scheme, can drastically increase agricultural productivity and farmers’ income.
- The decrease in wastage and reduction in inflation shocks: Moreover, by integrating farms with mandis, such investments will reduce wastage of fruits and vegetables, thereby leading to a decrease in the frequency of inflationary shocks and their impact.
Where the Budget should focus to reduce urban unemployment?
- Focus on construction and related activities: In urban areas, construction and related activities are a source of employment for more than five crore people.
- Second only to agriculture: Across the country, the sector’s employment figures are second only to those of the agriculture sector.
- Construction as the backbone of other sectors: These projects, along with infrastructure, support 200-odd sectors, including core sectors like cement and steel.
- Problems with the construction sector:
- Construction sector at a halt due to legal disputes: Due to the crisis in the real estate and infrastructure sectors, construction activities have come to a grinding halt.
- At present, many real-estate projects are caught up in legal disputes-between home-buyers and developers; between lenders and developers; and between developers and law enforcement agencies like the Enforcement Directorate.
- Unsold inventories: The sector has an unsold inventory of homes, worth several lakh crores.
- Multiple authority as regulator and problem in liquidation: Multiple authorities -the Real Estate Regulatory Authority (RERA); the National Company Law Tribunal (NCLT); and the many consumer courts -have jurisdiction over disputes.
- Consequently, restructuring and liquidation of bad projects are very difficult, and in turn, is the main source of the problem of NPA faced by the NBFCs.
- What should be done to increase the demand in the construction sector?
- Raise the tax exemption limit: To revive demand for housing, the Budget can raise the limit for availing tax exemption on home loans.
- Use the bailout fund: The ₹25,000-crore fund set up by the centre to bailout 1,600 housing projects should be put to use immediately.
- The funds should be used to salvage all projects that are 80% complete and not under the liquidation process under the NCLT.
- Single adjudication authority: Several additional measures can also help. For example, there should be a single adjudication authority.
- NIP and its significance: The ₹102-lakh-crore National Infrastructure Pipeline (NIP) programme is a welcome step. If implemented successfully, it will boost the infrastructure investment over the next five years by 2%-2.5% of the GDP annually.
Problems with National Infrastructure Pipeline
- Problems of 60% investment: The problem is that more than 60% of the planned investment is expected from the private sector and the States.
- Regulatory certainty a must for the private sector: The government does not seem to realise that for private investment, regulatory certainty is as important as the cost of capital.
- Regulatory hurdles: Many infrastructure projects are languishing due to regulatory hurdles and contractual disputes between construction companies and government departments.
- The reason behind the non-availability of private capital: As a result of the regulatory hurdles infrastructure investment has come to be perceived as very risky.
- This is the major reason behind the non-availability of private capital for infrastructure.
- Role to be played by the Centre: This is a scenario, where the private sector has very little appetite for risky investments and State finances are shaky due to low GST collection.
- Responsibility of the Centre: The onus is on the Centre to ensure that the programme does not come a cropper. The budgetary support to infrastructure will have to be much more than the NIP projection at 11% of the GDP.
Way forward to revive the economy
- Focus on completing the incomplete projects:
- Bidding a lengthy process: Bidding and contracting for new roads, highways, railway tracks and urban development projects is a lengthy process.
- This is also the reason why several infrastructure-linked Ministries like those for civil aviation and roads have not been able to spend money allocated to them in the current fiscal year.
- Completing the projects a priority: Therefore, rather than earmarking budgetary support for new projects, the focus should be on projects that are currently under implementation so as to complete them as soon as possible.
- Funding should be front-loaded: That is, funding should be front-loaded. In addition to creating employment, timely completion of infrastructure projects will help increase the competitiveness of the economy.
- Address the distress in SMEs: The distress among Small and Medium Enterprises (SMEs) is another area of concern.
- GST anomaly and stuck money: For many products produced by these enterprises, the GST rates are higher for inputs than the final goods. Due to this anomaly, around ₹20,000 crore gets stuck with the government annually in the form of input tax credits.
- This has increased cost of doing business for SMEs, which employ over 11 crore people.
- Fill the vacancies in the Government jobs: According to some estimates, there are more than 22 lakh vacancies in various government departments.
- Focus on vocational training program: The government needs to provide affordable and good quality vocational training programmes.
- To stop the demographic dividend from becoming a national burden, there is a need to invest heavily in skilling of the youth.
- Besides, the Budget should give tax incentives to companies and industrial units to encourage them to provide internships and on-site vocational training opportunities.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3-Introduction of Bt cotton, and various cropping patterns
Context
This year, India is expected to be the world’s largest cotton producer, surpassing China in output. However, India’s productivity (yield per unit area), is much lower than other major cotton-producing countries.
India’s experience with cotton
- India is the only country growing hybrids: India is the only country that grows cotton as hybrids and the first to develop hybrid cotton back in 1970.
- What are hybrids: Hybrids are made by crossing two parent strains having different genetic characters.
- Greater yields: These plants have more biomass than both parents, and capacity for greater yields.
- Require more inputs: They also require more inputs, including fertilizer and water.
- Expensive seed production: Though hybrid cottonseed production is expensive, requiring manual crossing, India’s low cost of manual labour makes it economically viable.
- Rest of the countries: All other cotton-producing countries grow cotton, not as hybrids but varieties for which seeds are produced by self-fertilization.
- Key issues with the use of hybrids
- Hybrid seed cannot be propagated over generations: A key difference between hybrids and varieties is that varieties can be propagated over successive generations by collecting seeds from one planting and using them for the next planting.
- Purchasing the seeds is must: Hybrid seeds have to be remade for each planting by crossing the parents. So for hybrids, farmers must purchase seed for each planting, but not for varieties.
- Pricing control to the companies: Using hybrids gives pricing control to the seed company and also ensures a continuous market.
- Increased yield used as justification for high prices: Increased yield from a hybrid is supposed to justify the high cost of hybrid seeds.
- However, for cotton, a different strategy using high-density planting (HDP) of compact varieties has been found to outperform hybrids at the field level.
Cotton planting strategies
- What other countries do?
- Compact and short-duration varieties: For over three decades, most countries have been growing cotton varieties that are compact and short duration.
- 5kg seeds/acre: These varieties are planted at high density (5 kg seeds/acre).
- These varieties have 5-10 bolls per plant.
- What is done in India?
- Low density and long duration: Hybrids in India are bushy, long duration and planted at a ten-fold lower density.
- 0.5 kg seeds/acre: Hybrids are planted at a lower density of 0.5kg/acre.
- Which strategy is more beneficial?
- The lower boll production by compact varieties (5-10 bolls per plant) compared to hybrids (20-100 bolls/plant) is more than compensated by the ten-fold greater planting density.
- Experience of Brazil: The steep increase in productivity for Brazil, from 400 to 1,000 kg/hectare lint between 1994 and 2000 coincides with the large-scale shift to a non-GM compact variety.
Why should India opt for short duration variety?
- Cotton being a dryland crop: Cotton is a dryland crop and 65% of the area under cotton in India is rain-fed.
- Advantage of short duration variety in the rain-fed area: Farmers with insufficient access to groundwater in these areas are entirely dependent on rain. Here, the shorter duration variety has a major advantage as it reduces dependence on irrigation and risk.
- Particularly late in the growing season when soil moisture drops following the monsoon’s withdrawal.
- This period is when bolls develop and water requirement is the highest.
- Productivity and input costs of the varieties: It has more than twice the productivity.
- Half the fertilizer (200 kg/ha for hybrids versus 100 kg/ha for varieties).
- Reduced water requirement.
- And less vulnerability to damage from insect pests due to a shorter field duration.
Impact of Policy
- Why India persisted with hybrids during 1980-2002
- Two phases of policy have contributed to this situation.
- The first phase- Before GM cotton: The answers lie with the agricultural research establishment.
- The second phase: The phase where the question of hybrids versus compact varieties could have been considered, was at the stage of GM regulation when Bt cotton was being evaluated for introduction into India.
- International experience not taken into account: It would not have been out of place to have evaluated the international experience, including the context of the introduction of this new technology.
- Agro-economic conditions were not taken into account: Importantly, agro-economic conditions where it would be used should have been a guiding factor.
- The narrow scope of evaluation: The scope of evaluation by the GM regulatory process in India was narrow, and did not take this into account.
- Consequently, commercial Bt hybrids have completely taken over the market, accompanied by the withdrawal of public sector cottonseed production.
Key takeaways
-
- Frist–Outcome of technology depends upon the context: Outcome of using a technology such as Bt is determined by the context in which it is deployed, and not just by the technology itself.
- Negative fallout: If the context is suboptimal and does not prioritise the needs of the principal stakeholders (farmers), it can have significant negative fallouts, especially in India with a high proportion being marginal and subsistence farmers.
- Second–Better consultation in policy: There is a need for better consultation in policy, be it agriculture as a whole or crop-wise.
- Socioeconomic consideration in GMO risk assessment: India is a signatory to international treaties on GMO regulation (the Convention on Biological Diversity, and the Cartagena Protocol on Biosafety), which specifically provide for the inclusion of socio-economic considerations in GMO risk assessment.
- However, socioeconomic and need-based considerations have not been a part of the GMO regulatory process in India.
Conclusion
Given the distress, the cotton-growing farmers are facing this is the right time to review the grounds on which Bt cotton was introduced in India.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3-Climate change and India's SAPCCs. India acting at state level.
Context
The recent global climate summit, the annual Conference of the Parties (COP25), held in Madrid was a failure and that the multilateral process to address the climate crisis is broken. The growing global stalemate gives India the chance to focus on the State and sub-State levels.
COP 25 at Madrid and what future prospects
- Wealthy countries disowning responsibility: At several discussions on finance, ambition, transparency of support and pre-2020 action, wealthy countries were recalcitrant.
- Disavowing obligations: Although responsible for using the bulk of the carbon space in the atmosphere, they now disavow their obligations. With some even denying anthropogenic climate change.
- Complete severance of science from negotiations: At this stage, there is a complete severance of climate science from the negotiations and agreements at the global level.
- The question is, what can we do now?
- What can happen at the next COP?
- Hope of little change: The next COP will be held at Glasgow, U.K. (in late 2020) and there may be little change in the outcomes.
- The global political order may not alter much. The fact that we live in an unequal and unjust world is not going to change either.
- What else can happen on the global level?
- Right leader: The right political leaders could nudge action in a new direction.
- Green New Deal could pass: Younger members could be elected to the U.S. Congress and the Green New Deal could pass sometime in 2021.
- Growing activism: In the meantime, climate activism is increasing awareness and having some success in removing insurance and financial support for fossil fuel companies. But these kinds of changes will occur slowly.
- Participation of other stakeholders at next COP: At least one expert has called for a parallel action COP at future summits where sub-state actors, civil society groups, non-governmental organisations and academics can share ideas and nudge action.
The chance for India to develop climate change action at State and Sub-state level
- Chance to develop climate change action: The stalemate at the global level offers India the opportunity to focus earnestly on developing its climate change action at State and sub-State levels.
- Peripheral status of climate change: In the states, the environment and climate continue to be relegated to peripheral status.
- Damage to the environment: This neglect has led to the destruction of ecosystems, forests, water-bodies and biodiversity.
- Vulnerability and economic costs of the neglect: Numerous studies have shown the high economic and ecological costs and loss of lives due to extreme events.
- We do not need more data to stimulate action. As is also well recognised, India is extremely vulnerable to the effects of warming.
Progress made by the states so far
- The first round of SAPCCs: With support from bilateral agencies, States initially took different approaches in the first round of State Action Plans on Climate Change (SAPCCs).
- Some of them set up separate climate change cells while some collaborated with academic institutions.
- A few produced detailed action plans while others developed strategy documents.
- Still, others integrated improvements in energy efficiency (contributing to reducing emissions), while almost all focused on adaptation.
- The synergy between climate change and development:
- Attention to climate change offers co-benefits to India for development. For instance-
- Efficiency reduces pollution: Improving energy efficiency in industry reduces costs and local pollution.
- Transport and congestion: Improving public transport reduces congestion, pollution and improves access.
- Natural farming and fertilisers: Using natural farming methods reduces fossil fuel-based fertilizers, improves soil health and biodiversity.
- These examples show that there are synergies in the steps to be taken for good development and climate change.
- Next round of SAPCCs and strategies
- The next round of the SAPCCs is being drawn up, under recommendations from the Centre.
- Where should be the focus? The focus ought to be on integrating the response to climate change with the development plan in different departments.
- States together to contribute NDCs: Since the States together are to deliver the Nationally Determined Contributions (NDCs) that India has promised, it means that they require guidance from the Centre.
- Unfortunately, most State government departments are handling climate change as a fringe issue and do not seem to recognise its urgency.
Integration of various sectors for climate action
- Identification of sectors: Line departments for government schemes and programmes in key development sectors, such as agriculture, transport and water, should be identified for carefully integrating actions that respond to climate change.
- Integration at district level: This integration should also take place at district and sub-district levels. But only a demonstration of its success in some departments would show how this can be done.
- The realisation of climate as an important issue: But first and foremost, States need to get the signal that climate is an urgent issue.
- Funds for implementing SAPCCs
- How funds for implementing SAPCCs will be obtained is not clear.
- There will not be enough from the Green Climate Fund, Adaptation Fund and bilateral agencies to support all States unless new sources are found.
- Use of coal cess: The coal cess in India is a good initiative, and as others have pointed out, could be used for environment and climate-related expenses.
- Alternative sources: Alternative sources from high emissions’ industries and practices would be an option, but still probably insufficient.
Way forward
- Performance analysis of first SAPCCs: There is also needs to be a clear analysis of how the first round of action plans fared.
- Challenges and performance: What were the challenges and how did they perform?
- Reasons for success and failures: Which approaches and projects were successful and ought to be scaled up and what lessons do the failures offer?
- Finally, what institutional structure works best?
- Need for the greenhouse gas inventory: The country needs reliable greenhouse gas inventories.
- Individual research groups and the civil society initiative, GHG Platform India, have been producing such inventories.
- Such inventories would be useful in synchronising and co-ordinating State and Central mitigation programmes.
- Programmes with longer timelines: States must also develop their programmes with longer timelines.
- With mid-course correction based on lessons and successes that can be integrated into the next stage of the plan.
- If the second round of SAPCCs were treated as an entry point to long-term development strategy, the States and the country would be better prepared for climate change.
- Ultimately, climate should be part and parcel of all thinking on development.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Role of informal sector in Indian economy, How expansionary fiscal policy can help more than represented in the official data.
Context
That India is in the midst of a serious economic slowdown is no longer in question. The debates are now mostly about what to do about it.
Where is the GDP growth coming from?
Fall in consumption expenditure in absolute terms: The leaked National Sample Survey (NSS) consumer expenditure data -shows that real monthly per capita expenditure has in fact fallen in absolute terms between 2011-12 and 2017-18.
- 8 % decline in a rural area: In rural areas, consumption expenditure decreased by 8.8 per cent.
- 2% decline in an urban area: While in urban areas it increased by 2 per cent, leading to an all India decline of 3.7 per cent.
- Where is the growth coming from: If average consumer expenditure is down, then where is the GDP growth coming from?
- Consumer expenditure contribution: After all, according to National Accounts Statistics (NAS) consumer expenditure is around 60 per cent of the GDP.
- And given the other contributors to GDP-investment and government spending- are not growing spectacularly, consumer expenditure should be growing rather than decreasing.
- So, to get an overall 5 per cent growth rate, consumer expenditure should be growing at higher than 5 per cent.
- NSS vs. NAS- a genuine puzzle: How can consumption expenditure be going down in absolute terms according to the NSS estimates and be growing at more than 5 per cent according to the NAS?
- Variation in data a norm: That these two types of estimates of consumption expenditure do not match is well-known, and that is the case in other countries as well.
- The discrepancy at alarming proportions: In the 1970s, consumer expenditure according to NSS estimates was around 90 per cent of consumer expenditure according to NAS, but in 2017-18 it was only 32.3 per cent.
- Data from two different countries: It is as if we are looking at data from two different countries.
- One where the consumption expenditure growth is positive and propping up the GDP growth rate and the other where it is actually falling.
A few inferences that pertain to the state of the economy and the policy options.
- Reasons for the discrepancy between NSS data and NAS data.
- First- Presence of large informal sector:
- 50% contribution to GDP: Informal sector accounts for nearly half of the GDP and employs 85 per cent of the labour force.
- Guesswork on performance: In national income accounts, growth in the informal sector is estimated by extrapolating from the performance of the formal sector. Which is largely guesswork.
- Second- Making effects of the expansionary policy less pronounced:
- Expansionary fiscal policy more effective than appear to be: Because of the presence of the informal sector, expansionary fiscal policy will be more effective than what would appear from official statistics, as a big part of its impact will be felt in the informal sector.
- Why is it so? The reason is that a big segment of the population is located in the informal sector; they are poorer and tend to spend a much higher fraction of their income on consumption.
- This group has been seriously affected by the economic slowdown.
- Third-Results of expansionary policy would be apparent after a delay
- Apparent effects of policy much worse than what it would be: The effect of an expansionary policy on the budget deficit will look much worse than what it would be since the estimates of its effect on income expansion and tax collection will be largely based on the formal sector.
- Informal sector boosting the formal sector: Some of the income generated in the informal sector will boost demand in the formal sector through consumer demand for mass-consumption items (for instance, biscuits, as opposed to automobiles).
- Good medium-term pictures: Therefore, in the medium term, once the engine of the economy starts moving, the income expansion and deficit numbers will look better.
- Final-Tax cuts will achieve little
- Only 3-5% population affected: The tax cut will affect barely 3-5 per cent of the adult population.
- Contribution of taxes in GDP: Income tax revenues amount to around 5 per cent of the GDP and corporate income taxes around 3.3 per cent.
- Rich tends to save more: Most of the tax is paid by the richest among these groups (the top 5 per cent taxpayers contribute 60 per cent of individual income tax revenue), and the rich tend to spend a smaller fraction of their income (and save more).
- Little impact on GDP: Irrespective of the number of people affected, and even if they spend the entire increase in their income as a result of the tax cut, the overall economic impact will be small relative to the GDP.
- The futility of tax cut: Therefore, a tax cut for the rich would be less effective in raising spending compared to an equivalent amount being given to poorer groups who spend a much higher fraction of their incomes.
Conclusion
The government should not underestimate the role of the informal sector in the economy. To get the engine of the economy revving, an expansionary fiscal policy that harnesses the energy of the informal sector to boost aggregate demand is the order of the day.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3-Climate change and adoption of clean and sustainable energy to tackle with it.
Context
Significance of electricity in our life
- Interconnecting economic prosperity: Electrical energy is a juncture that inter-connects economic prosperity.
- Amplifies social equity.
- Ushers in a liveable environment for us.
- No development in its true sense is possible if we leave aside energy and specifically sustainable energy.
- It is almost indispensable for holistic and sustainable progress of any kind.
Burning of fossil fuel and climate change
- Singular reliance on fossil fuel: Ever since the industrial revolution, development has almost singularly relied on the burning of fossil fuels, emitting huge volumes of carbon dioxide into the atmosphere.
- 41% of electricity from coal: As per data by the World Coal Association, a little over 41% of all electricity generated is produced from coal.
- Problems with coal: Burning coal for electricity production leads to-
- High level of hazardous carbon emissions.
- Rising levels of pollution: water and air pollution during mining and air pollution during burning.
- Working condition of miners: Added to the disastrous working conditions of miners, coal cannot be regarded as a sustainable source of energy.
- Global warming and climate change: Despite increasing awareness, not much is being done to mitigate climate change.
- Rise over 1.5oC and Consequences: IPCC (Intergovernmental Panel on Climate Change) has reiterated that unless global temperature rise is not kept within 1.5 degrees Celsius, natural and human systems will be irreparably damaged.
- Rise over 2o C and Consequences: Even a slight increase in atmospheric temperature by 2 degrees Celsius will result in a substantial rise in sea levels.
- Consequences for human life: The rise in sea level would, in turn, translate into a whopping 10 million more people going homeless and another 50% people facing severe water scarcity.
- The aim of becoming carbon neutral: To join the efforts, many global public and private stakeholders have pledged their allegiance into becoming net-zero carbon emitters.
- But we are still far from achieving our objectives, as the IEA (International Energy Agency) recently reported that the Earth’s temperature rise will range between 1.8 degrees Celsius and 2.7 degrees Celsius soon.
Sustainable energy as a necessity
- Energy efficiency and energy management: As the world is evolving into an interconnected form of world-of work, life and more-energy efficiency and energy management have slowly come to be a central driving force.
- Sustainable energy a necessity: In order to power smart homes, industries, hospitals and other mission-critical operations, sustainable energy is no more a matter of choice, but of necessity.
- IoT to help achieve energy efficiency: Technology adoptions like IoT and connected services can greatly enhance energy efficiencies and many global behemoths are coming to terms with this reality.
- Demand for an alternative source of energy: Environmental factors, coupled with rising costs and stringent regulatory guidelines, are adding to the demand for alternative sources of energy.
- Alternate as well as sustainable: The alternate sources are expected not only to satiate the growing consumption needs but are proven to be a sustainable option in the long run.
Electricity 4.0
- Electricity 4.0: That is, sustainable methods of energy generation and efficient and cost-effective usage of produced energy.
- The sustainable energy need of the sustainable future: To lay the foundation stone for a sustainable future, there is a critical need to investigate how we create and consume energy.
- The answer lies in renewables becoming the dominant source of power, globally.
- A new form of energy mix: There is a growing need to build a new form of energy mix under Electricity 4.0, with renewable ways of electricity creation, at its very core. A new order where-
- Electrical internet of things (EIOT).
- Cloud computing.
- Artificial intelligence.
- And the tools of today’s digital era are fully leveraged to maximise energy efficiency.
Way forward
- Given that the major cause of global warming is Carbon Dioxide, so the first step to combat it would be-
- Electrifying the planet: The augmented proliferation of energy-efficient, electricity-based equipments that are prevalent now, such as e-mobility, electrical heating, innovative applications such as electric aviation fleets can be one way to do that.
- Scale up the production of renewable energy: The immediate need is to scale up the production of renewable electricity and build conducive public-policy frameworks to further this goal.
- Adoption of digital technology: It is imperative to adopt digital technology in order to optimise the efficiency of our energy consumption and electrical networks. Digital connectivity, software and artificial intelligence can well be dubbed as the fulcrum that will support our transition toward Industry 4.0.
- Concerted efforts from all stakeholders: To reduce carbon dioxide (CO2) emissions or to promote energy decarbonisation, concerted efforts are required from all stakeholders – the community, regions, government and the private sector.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Need to define the natural forests and effects of climate change on forests.
Context
Global warming, drought and El Niño may lead to increased forest fires.
The success story of India
- Reduced deforestation: India has succeeded in reducing deforestation to some extent through an effective Forest Conservation Act and large-scale afforestation programme.
- Comparison with other countries: India performed better when compared with other forest-rich tropical countries such as Brazil, Indonesia and the Democratic Republic of Congo.
- Without the Forest Conservation Act and its reasonably effective implementation, India would have lost significant extent of forest area.
- Increased afforestation: India has also been implementing significant scale afforestation, though the rates of afforestation have declined recently.
- Agro-forestry, involving raising fruit tree plantations contribute to some extent.
- Commercial plantations of eucalyptus, casuarina, teak, poplar, etc., have been raised by farmers for commercial purposes.
- The above steps have resulted in potentially reducing the pressure on natural forests.
Need to measure ‘natural forest’
- Increase in an area under forest: According to the latest biennial State of Forest Report (SFR) of the Forest Survey of India (FSI), an area under forests has been increasing.
- Natural forests not specifically measured: It is not clear what percentage of increase in forest area is due to changes in natural forests which are generally rich in biodiversity.
- The report doesn’t specify what percentage of change in area is due to commercial plantation and what percentage is contributed by horticulture or urban parks.
- Need to define ‘natural forest’: What will be of most concern to forest and biodiversity conservation is to understand the status of natural forest and biodiversity.
- India can use the same definition of forests but must estimate and report the area under natural forests and other forest plantation categories.
- India needs to define ‘natural forests’ first, further, this would involve additional staff time and resources.
- The resilience of natural forests to forest fires: Tropical forests rich in biodiversity are likely to be more resilient than monoculture dominated plantations or exotics.
- Vulnerability to forest fires varies from forests to forests: Studies by the Indian Institute of Science (IISc) have shown that degraded forests, fragmented forests and biodiversity-poor forests are more vulnerable to climate change.
Climate change and its impacts
- IPCC reports on large scale loss: The United Nations Intergovernmental Panel on Climate Change (IPCC) reports have repeatedly concluded that climate change will lead to large-scale loss of biodiversity, before the end of the current century or even earlier.
- Modelling studies by IISc.: Preliminary modelling studies by Indian Institute of Science (IISc) have shown that about 20% of forests will be impacted by climate change.
- No change to adapt: The modelling studies means that existing forest biodiversity and its structure and composition will not be able to adapt to the new climate and there could be mortality or forest dieback.
- The threat of forest fires: Further, warming, drought and El Niño will lead to increased forest fires, and may even be favourable to forest pests.
- Unfortunately, the models currently in use for assessing the impact of climate change are not suitable for the complex and highly diverse forest types that exist in India.
Conclusions
- Given that global warming will continue, India will have to brace itself to adapt to the impending impacts. In India, there is very limited research on climate change and its impacts on forests, putting our famed biodiversity-rich country status under threat.
- India needs to realistically assess, monitor and model climate change and its impacts and be prepared to adapt to impending climate change.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2-Foreign relations with Pakistan, Issues and need to resume the talks.
Context
Pakistan is changing significantly, which is good for itself and its neighbour as well.
Changing Pakistan
- Major stakeholders in favour of peace: The civil society, the political parties, and even the military establishment of Pakistan have come to favour peaceful and cooperative relations with India.
- Both the power-centre on the same page: Both Islamabad and Rawalpindi, Pakistan’s two centres of power, are now on the same page in seeking “honourable peace” with New Delhi on the basis of “sovereign equality”.
- Heavy price paid by Pakistan: There is a broad consensus in Pakistani society and polity that their country has paid a very heavy price by supporting the forces of Islamist extremism and terrorism.
- The futility of using terrorism as foreign policy: There is also consensus that using terrorism for achieving mistaken foreign policy ends in Afghanistan and India.
Conducive conditions for dialogues
- Four factors have influenced the welcome winds of change in Pakistan.
- First-Realisation that Pakistan has suffered a lot:
- Harm at home and to the global image: There is the across-the-board realisation that Pakistan has suffered a lot, both domestically and in terms of damage to its global image, by supporting religious extremism and terrorism.
- A large number of casualties: Terrorists have killed a shockingly large number of civilians -certainly far many more than in India. Several thousand soldiers have lost their lives in the army’s “war on terror”-more than the number of casualties in all the wars with India.
- The threat of FATF blacklisting: Furthermore, Islamabad is under relentless pressure from the Financial Action Task Force (FATF) to act decisively and irreversibly against terrorist organisations.
- Second-Decrease in religious radicalisation in Pakistan
- The decrease in the financial support to radicalism: What has contributed to the diminished importance of religious radicalism is also the shrinking inflow of petrodollars from Saudi Arabia and Gulf countries that promoted this agenda.
- The ideological influence of religious radicalisation on Pakistan’s civil society is clearly declining.
- Change in Saudi Government Policy: Export of Wahhabism is no longer a foreign policy priority of the Saudi Arabian government.
- Changing policies in UAE: The United Arab Emirates has gone a step further, under the leadership of Abu Dhabi’s Crown Prince Mohammed bin Zayed Al Nahyan, it is pursuing inter-religious tolerance with a zeal that has surprised Muslims and non-Muslims alike.
- Third-Interest of China
- Rise of China as an economic and security partner: The third factor is China, which has emerged as Pakistan’s most important economic and security partner.
- The China-Pakistan Economic Corridor (CPEC) and BRI: The flagship projects under Beijing’s BRI has begun to modernise Pakistan’s infrastructure spectacularly, but its security is which could be threatened by terrorism is also the concern for China.
- Connection with China’s Xinjiang Province: China has urged Pakistan’s ruling establishment to take firm steps to curb the activities of Islamist groups because they can easily foment trouble in China’s Muslim-majority Xinjiang province.
- India-China relation factor: Beijing is also engaged in a steady effort to improve relations with New Delhi, in recognition of India’s rising economic and geopolitical stature in Asia and globally.
- Possibility of India-China-Pakistan cooperation: China’s President Xi Jinping even mooted cooperation among China, India and Pakistan at Mamallapuram summit.
- Fourth-Military establishment in favour of peace.
- The military establishment seems to be fully convinced of the need for normalisation of India-Pakistan
- Opening of Kartarpur Sahib Corridor: The opening of the Kartarpur Sahib Corridor, perhaps the greatest confidence-building measure between the two countries since 1947, is almost entirely due to Gen. Bajwa’s personal commitment to the project.
- The economic crisis in Pakistan: Bajwa’s is also said to be convinced of the need to open the doors for economic and trade cooperation between the two countries given a serious economic crisis Pakistan is going through.
- Discussion on the Kashmir issue: The Pakistan Army may also be ready to discuss a solution to the Kashmir issue on the basis of a formula Gen. Pervez Musharraf had discussed with PMs Atal Bihari Vajpayee and Dr Manmohan Singh.
Conclusion
India needs to seize the opportunity to resume the talks with Pakistan on all the contentious issues and try to resolve the disputes so that the improved relations could help both the countries and the neighbouring countries.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Trade war, Globalization and effects on Indian economy.
Context
Given its increased heft in the global economic order, India ought to be at the leading edge of the current debate of the future of capitalism.
The emergence of “stakeholder capitalism”
- Interests of all shareholder: Klaus Schwab, who founded the World Economic Forum 50 years ago, wants capitalists to look beyond their shareholders and consider the interests of all the stakeholders.
- Long overdue debate: Some hope that the debate on stakeholder capitalism is a long-overdue recognition of the capitalist excesses of recent decades.
- Generating value for customers: Last August, the Business Roundtable in the US, which brings together some of the top American corporates, said American companies must now generate value for customers.
- Invest in their employees.
- Deal fairly with suppliers and support the communities in which they operate even as they service their shareholders.
- Scepticism over “interests of all shareholders”: Sceptics say that this is a nice way of saying the right things, repackaging old ideas on corporate social responsibility and creating illusions about reforming capitalism.
- Cynics insist that it will be business as usual for the world’s capitalists.
- Reflection of deeper crisis: Beyond this divide between optimists and pessimists, the discourse on “stakeholder capitalism” is a reflection of the deeper crisis afflicting the global economy today.
Three major challenges according to WEF
- In its annual survey on global risks, the WEF has identified many challenges. Three of them stand out.
- First Challenge: Polarised politics
- In the US Trump is unlikely to be defensive.
- While the dominant sentiments see Trump as the very embodiment of nationalism and populism that are polarising politics around the world.
- Others point to the structural conditions that have bred these forces.
- America’s working-class whose wages haven’t risen in decades, whose jobs are less secure than ever rallied behind Trump.
- Politics in the US: Much the same happened in the British elections last year.
- Tory leader Boris Johnson won a sweeping mandate by breaking into the working-class strongholds of the Labour Party.
- Second Challenge: Trade war
- Trump had a long record of denouncing free trade.
- Many had hoped that Trump will moderate his anti-globalist rhetoric once in office.
- Attack on a core principle of globalisation: Trump has taken a pickaxe to the core principles of the globalised economic order – free trade, open borders and multilateralism.
- Renegotiating the treaties: The US has renegotiated a 25-year old trade agreement with America’s neighbours, Canada and Mexico.
- The threat of all-out-trade war with China: Trump’s threat of an all-out trade war with China over the last couple of years has led to an interim agreement.
- The agreement commits Beijing to reduce its trade surplus with the US by importing more.
- The trade deficit of the US with EU: At Davos, Trump is expected to turn his ire on the EU, which has a near $200 billion trade surplus with the US.
- Third challenge: Technology
- War in technology domain: The trade wars among the world’s major capitalist centres is accentuated by the technological revolution, especially in the digital domain.
- Need for coordination: The Davos report on global risks argues that the realisation of the full potential of new technologies depends on unprecedented coordination among all stakeholders.
- Digital fragmentation: What is emerging instead is “digital fragmentation” marked by the extension of geopolitical and geo-economic rivalries into the new domain.
- Digital issues have come to the front and centre of American arguments with Europe.
Conclusion
- India must find ways to take advantage of the new opportunities from the unfolding rearrangement of the global capitalist system.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- India-EU relations and scope and areas of cooperation.
Context
The EU-India Strategic Partnership has come a long way in recent years. The relationship is based on long-standing shared values and interests. There are numerous opportunities to unleash the full potential of EU-India cooperation.
India-EU Cooperation on Climate Change
- The EU has committed to becoming carbon neutral by 2050.
- But EU member states together only account for 9 per cent of global emissions.
- Need to engage with the rest of the world: EU-India cannot solve this problem unless they engage with the rest of the world to address it.
- India’s commitment, as one of the biggest democracies in the world, is a key part of the solution.
- The mixed outcome of the COP25 Climate Conference shows how much more remains to be done.
- Clean Energy and Climate Partnership (CECP): In 2016 Prime Minister Narendra Modi and European leaders agreed on an EU-India Clean Energy and Climate Partnership (CECP).
- EU and International Solar Alliance: In 2018, the EU joined efforts with the International Solar Alliance, headquartered in India.
Cooperation in trade
- Both are the members of WTO: India and EU both agree on the vital role of the World Trade Organisation (WTO) and the need to overcome the crisis of the dispute settlement system.
- Ministerial dialogue: The launch of a regular ministerial dialogue on economic, trade and investment issues could give additional impetus to the relations.
Cooperation on security
- Indian Navy vessels are now escorting World Food Programme ships in the framework of the EU Atlanta operation against piracy off the coast of Somalia.
- Cooperation on anti-terrorism: Counter-terrorism experts from Europe and India exchange experiences and best practices.
- As a result, an enhanced working relationship between our police officers is taking shape.
Digital economy and cyber
- Need to deepen cooperation: EU and India should deepen cooperation to protect fundamental freedoms in cyberspace and the free flow of data – and counter the drift towards high-tech “de-coupling”.
- India-EU does not want a split in cyberspace, forcing both to “choose sides” between competing systems and standards.
- India and EU both believe in fair competition, based on global standards, for 5G, AI, big data and the internet of things.
Conclusion
There is much that the EU and India have accomplished in recent years. But there is even more to be done to further strengthen our dynamic dialogue and cooperation in all areas of mutual interest and as players on the world stage.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- National accounting and problems in associated with the data collection and methods.
Context
As official statistics is a public good, giving information about the state of the economy and success of governance, it needs to be independent to be impartial.
GDP calculation and its significance
- What is GDP:
- Assigning a value to products and services: In effect, it adds apples and oranges, tractors and sickles, trade, transport, storage and communication, real estate, banking and government services through the mechanism of value.
- GDP covers all productive activity for producing goods and services, without duplication.
- The System of National Accounting (SNA): It is designed to measure production, consumption, and accumulation of income and wealth for assessing the performance of the economy.
- What is the significance of GDP data?
- Influence the market: GDP data influence markets, signalling investment sentiments, the flow of funds and balance of payments.
- The input-output relations impact productivity and allocation of resources.
- Demand and supply influences prices, exchange rates, wage rates, employment and standard of living, affecting all walks of life.
- Issues over the present series of GDP:
- Nominal GDP: The data on GDP are initially estimated at a current price known as nominal GDP.
- Real GDP: Nominal GDP minus the inflation effect is real GDP.
- Price Index: There is a way of adjusting inflation effect through an appropriate price index.
- Pricing series issue with the service sector: The present series encountered serious problems for the price adjustment, specifically for the services sector contributing about 60% of GDP.
- Absence of price index: There is an absence of appropriate price indices for most service sectors.
- What the absence of series means: The deflators used in the new series could not effectively separate out price effect from the current value to arrive at a real volume estimate at a constant price.
- Methodical issue: Replacing Annual Survey of Industries (ASI) with the Ministry of Corporate Affairs MCA21 posed serious data and methodological issues.
Need for the change in the approach of data collection
- The approach for the collection of data remains largely the same for long.
- Price and production indices are constructed using a fixed base Laspeyres Index.
- The yield rate for paddy is estimated by crop cutting experiments.
- The organisation of field surveys for collection of data on employment-unemployment, consumer expenditure, industrial output, assets and liabilities continue.
- Why data collection for yields need to change?
- Productivity and remunerative price of output are major concerns for agriculture.
- Data collection from diverse factors: It is necessary to collect data on factors such as soil conditions, moisture, temperature, water and fertilizer use determining yield, the impact of intermediary and forward trade on farm gate price and so on.
- Israel collects these data for analysis to support productivity.
- Need to leverage the e-governance: The initiative under e-governance enabled the capturing of huge data, which need to be collated for their meaningful use for the production of official statistics.
Data Logistics
- Need of data from the other areas: Along with GDP, we need data to assess-
- Inclusive growth.
- Fourth-generation Industrial Revolution riding on the Internet of things.
- Robotics-influencing employment and productivity.
- Environmental protection.
- Sustainable development and social welfare.
- How to deal with the data inconsistency
- We need systems which have the capability to sift through a huge volume of data seamlessly to look for reliability, validity, consistency and coherence.
- Such a system is possible through a versatile data warehouse as a component of big–data technology.
- Rangarajan Committee recommendation: Setting up of such system has been wanting as thoughtful and well-meaning key recommendations of the Rangarajan Commission and subsequent recommendations from 2006 onwards by successive National Statistical Commissions.
Way forward
- The need for a new system: The present national accounting and analytical framework miss out on many important dimensions of the economy.
- We need a new framework for analysis for such a complex system and evolutionary process.
- The system needs to take into account automation, robotisation and other labour-replacing technologies affecting profitability, structural change and general welfare.
- Need to find alternative avenues for the unemployed and jobs lost: In order to inject efficiency and stability, there is a need to have detailed data on how: markets clear, prices are formed, risks build-up, institutions function and, in turn, influence the lifestyle of various sections of the people.
- Knowing market microstructure: It is also needed to know in greater detail about market microstructure and optimality therein, the role of technology and advanced research, changing demand on human skills, and enterprise and organising ability.
- Monopoly must be contained: The loss caused to the economy through monopoly power, inefficient input-output mix, dumping, obsolete technology and product mix must be contained.
- Ensure distribution of wealth: The consensus macroeconomic framework of analysis assumes symmetric income distribution and does not get into the depth of structural issues.
- In the changed situation of availability of microdata, there is a need to build a system to integrate the micro with the macro, maintaining distributional characteristics.
Conclusion
Data is the new oil in the modern networked economy in pursuit of socio-economic development. The economics now is deeply rooted in data, measuring and impacting competitiveness, risks, opportunities and social welfare in an integrated manner, going much beyond macroeconomics. There is a need for commitment to producing these statistics transparently.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Lack of coverage of the public health system, Role of private sector and regulation.
Context
As the government tries to overhaul the public health system in India, its time to take into account the advent and the role played by the private sector and its implications.
The advent of the private sector
- Increase in the role of the private sector in the post-Independence era: Post-Independence, the private sector increased its footprint in India.
- Perpetual sub-optimal investments in public health allowed the private sector to capitalise, flourish, and increasingly gain the confidence of the masses.
- The private sector went from having about 1,400 enterprises in 1950 to more than 10 lakh in 2010-11.
- To doctors, this promised greater professional liberty, lesser restrictions, and higher incomes.
- After liberalisation, the greater focus shifted to the lucrative tertiary-care sector and led to an onslaught of sophisticated private health care in cities.
The dominance of the private sector and malpractices
- The scale of dominance: Private sector has over 70% of the health-care workforce and 80% of allopathic doctors, has meant that it is scarcely possible for a health-care provider to function in defiance of its norms.
- Pervasive malpractices: The pervasiveness of malpractices in this market has come to ensure that few could survive without condoning them.
- Nexus of the private players: Players in this market, in much of their malpractices, have also learnt to function as a harmonious family.
- Organised form to safeguard interest: The family plays its role in safeguarding its members, acquainting them with its norms and interests, and leveraging the power of its patriarchs to defend its interests in society.
- Standards of success dictated by the markets: It is little wonder that the market has also come to dictate the avenues of aggrandisement and yardsticks of professional success for health-care professionals.
- Benchmark of quality changed: Business finesse and social adroitness rather than clinical excellence and empathy become the touchstones of calibre in this market.
Failure of the government
- Absence of national system: The larger chunk of Indian health care (and health workforce) could not be brought under a “national system” having some form of overarching state control or involvement.
- If such a system existed it could avail of essential health care without most people having to rely on a vagarious market, except as a luxury.
- Example of the UK’s NHS: The National Health Service of the United Kingdom, remains the single largest health-care provider.
- NHS employs nearly the entire health-care workforce.
- NHS makes essential health care available to all practically free at the point of service.
- Consequences of the absence of such system: The absence ensures is that the profit-driven private sector, the minor component, caters mainly to the affluent lot as largely a matter of deliberate choice rather than desperate compulsion.
- Hopes of benefits of free-market belied: The Indian example, much like the United States’, bespeaks the failure of the idea that a free market will compel players to be more efficient.
- The exploitation of the loops by the private players: Rather than increasing efficiency, the players have found it expedient to scrupulously exploit the prevailing cracks in the system and employ devious methods in order to maximise profits.
Conclusion
- Health-care providers, just like others, are moulded by their social surroundings. When necessary controls are loosened, the connatural vices are let loose; when the habitat is conducive to values, the right traits develop.
- A system that starts off with health care as an overt tradable commodity it threatens the development of virtues in the system.
- On the other hand, a system founded on the concept of equity cultivates a totally different culture of patient care.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- 'Make in India' , its performance, and reasons for not delivering on the set goals.
Context
Five years after its launch its appropriate time to take the stock of the progress made by ‘Make in India’.
Three major objectives of the initiative
- First- Manufacturing growth rate at 12-14 %: The first objective is to increase the manufacturing sector’s growth rate to 12-14% per annum in order to increase the sector’s share in the economy.
- Second-100 million jobs: The second objective is to create 100 million additional manufacturing jobs in the economy by 2022.
- Third-increase manufacturing’s contribution to GDP to 25%: The third objective is to ensure that the manufacturing sector’s contribution to GDP is increased to 25% by 2022 (revised to 2025) from the current 16%.
Assessment of the progress made so far
- As the policy changes were intended to usher growth in three key variables of the manufacturing sector — investments, output, and employment growth.
- Progress on the investment front:
- Slow growth: The last five years witnessed slow growth of investment in the economy.
- This is more so when we consider capital investments in the manufacturing sector.
- The decline in gross fixed capital formation: Gross fixed capital formation of the private sector declined to 28.6% of GDP in 2017-18 from 31.3% in 2013-14 (Economic Survey 2018-19).
- Gross Fixed Capital Formation is the measure of aggregate investment.
- Increase in private sector’s savings decrease in investment: Household savings have declined, while the private corporate sector’s savings have increased.
- This is a scenario where the private sector’s savings have increased, but investments have decreased, despite policy measures to provide a good investment climate.
- Progress on the output growth front:
- Double-digit growth only in two quarters: The monthly index of industrial production (IIP) pertaining to manufacturing has registered double-digit growth rates only on two occasions during the period April 2012 to November 2019.
- Below 3% for the most part: The data show that for a majority of the months, it was 3% or below and even negative for some months.
- The negative growth implies a contraction of the sector.
- Progress on the employment growth front:
- No progress: The employment, especially industrial employment, has not grown to keep pace with the rate of new entries into the labour market.
Problems with the policy
- The initiative had two major lacunae.
- First- Too much reliance on foreign capital: The bulk of these schemes relied too much on foreign capital for investments and global markets for produce.
- This created an inbuilt uncertainty, as domestic production had to be planned according to the demand and supply conditions elsewhere.
- Second-Lack of implementation: The policy implementers need to take into account the implications of implementation deficit in their decisions.
- The result of such a policy oversight is evident in a large number of stalled projects in India.
- The spate of policy announcements without having the preparedness to implement them is ‘policy casualness’.
- ‘Make in India’ has been plagued by a large number of under-prepared initiatives.
Three reasons why ‘Make in India’ failed to perform
- Too-much ambitious goals: It set out too ambitious growth rates for the manufacturing sector to achieve.
- Beyond capacity rate for the sector: An annual growth rate of 12-14% is well beyond the capacity of the industrial sector.
- Overestimation of implementation capacity: To expect to build capabilities for such a quantum jump is perhaps an enormous overestimation of the implementation capacity of the government.
- Dealing with too many sectors: The initiative brought in too many sectors into its fold.
- Lack of policy focus: Bringing in too many sectors under its fold led to a loss of policy focus.
- Lack of understanding of comparative advantages: Further, it was seen as a policy devoid of any understanding of the comparative advantages of the domestic economy.
- Ill-timed launch
- Given the uncertainties of the global economy and ever-rising trade protectionism, the initiative was spectacularly ill-timed.
Conclusion
- In order to revive the ‘Make in India’ there is a need to make necessary changes in the policy and root out the causes associated with the policy implementation.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3-Rationalization of subsidies on food in PDS and Fertilizers and need to reform them.
Context
As finance minister presents the budget the FM need to ensure transparency and to fully account for the food subsidy.
The excess buffer stock and need to reform
- A buffer stock norm and actual stock: A buffer stock norm is at 21.4 million tonnes (mt).
- Actual stock far exceeds the norm: The actual stocks of grains with the central pool stood at 75.5 mt.
- Which is 3.5 times what the government needs to hold.
- The economic cost of the excess stock: At its economic cost, the value of the excess stocks with the government stands at Rs 1.6 lakh crore.
- Potential for revenue: There is no better place to find revenue for the FM than to liquidate these stocks.
- Need for the reform in grain management system: Unless the grain management system is reformed, the inefficiency of the grain management system will keep on increasing and the nation will suffer.
Food subsidy reforms
- Link food prices to procurement price: It is the time to revise the central issue of price and link it to the procurement price-say at half the procurement price.
- Limit the population coverage: There is a need to limit this highly subsidised food of Rs 3/kg for rice and Rs 2/kg of wheat to say 40 per cent of the population.
- Move to DBT: The real fundamental reform would be to move towards direct cash transfers for the intended beneficiaries of food subsidy.
Fertiliser subsidy reforms
- Imbalance in the subsidisation: The real problem of this sector is the imbalance in the policy of fertiliser subsidisation.
- While urea (N) is subsidised to the extent of 75 per cent of its cost, phosphatic (P) and potassic (K) fertilisers are subsidised only to the tune of about 25 per cent of their cost.
- Consequences of this imbalance: The result is the highly imbalanced use of N, P and K on farmers’ fields. Which results in
- Giving a very low fertiliser-to-grain response ratio.
- Degrading the soil.
- Degrading underground water.
- Degrading the environment with excessive nitrogen use.
- Discouragement to natural farming: The current fertiliser subsidy discourages those who want to pursue natural farming as they don’t get subsidy anywhere near the amount chemical-based fertilisers do.
- Reforms: There are two ways in which the fertiliser subsidy regime can be reformed.
- Bring nitrogenous fertiliser under NBS: The solution to the imbalance in use is to bring nitrogenous fertilisers under the Nutrient Based Subsidy (NBS) scheme.
- Cash transfer based on per hectare basis: The second option is to move towards direct cash transfers for fertilisers on a per hectare basis, with some adjustment for irrigated tracts.
- 50,000 Crore saving: The above-mentioned reforms could result in the saving of Rs. 50,000 crores to the public exchequer.
Way forward
- Investing the savings where it matters the most: The savings from the reforms could be invested in-
- Better water management, especially drip irrigation.
- Infrastructure for agri-markets.
- Solar trees: The investments could also be made in setting up the solar trees in the farm to harvest solar power on farmer’s fields with buyback agreements for surplus production.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3-Potentials of UPI in increasing digital payments.
Context
UPI has brought digital payments to the common man and it has immense scope for growth.
Zero MDR rate
- Recently the finance minister made the announcement of the zero merchant discount rate (MDR) policy for payments through RuPay debit cards and Unified Payments Interface (UPI) instruments.
- What does it mean? This policy dictates that when a consumer pays a merchant using RuPay or UPI, the bank may not charge the merchant a commission on the sale value that it usually charges a merchant.
- Criticism of the move: Critics of this policy lament that it would begin to reverse the progress India has made in recent years to expand the digital payments network.
Some facts and figures
- Setting up of NPCI: In 2008 the National Payments Corporation of India (NPCI) was set up as an umbrella organization for operating retail payments and settlements in India.
- UPI: In 2016, NPCI introduced UPI.
- UPI has since registered 100 million users.
- UPI now clocks more than 1 billion transactions every month.
- Growth prospects for mobile payments: According to the NITI Aayog, mobile payments in India are expected to grow nearly 20-fold to $190 billion in the next three years.
- Digital payment for the common man: There are 1 billion mobile phone users in India.
- 420 million users have a feature phone, these users can use the *99# USSD service to dial into 13 different languages.
- Which would connect them to UPI and brings digital payments to the common man.
Need for innovation
- We are far behind: India is far behind china, where 55% of spending is done digitally, compared to only 11% in India.
- The outlook for future growth is mind-boggling.
- There is a need for innovation at three levels.
- First level-Adoption
- A better understanding of human behaviour, technology, use cases and dis-use cases will facilitate the 10x growth necessary in adoption rates to cover the entire population.
- Second level-Policy
- The government has the rare opportunity to develop a data-centric understanding of how the economy conducts itself and uses money, and can set taxes accordingly.
- Third level-Technology
- Voice for authentication: At the technology level, there is an opportunity to use voice as a means for authentication and conduct transactions across multiple local languages.
- Data analysis: Copious amounts of data from payment transactions can be analysed to understand user needs and develop personalized loans and financial solutions at scale.
Taking UPI to Global Level
- UPI in Singapore and UAE: The NCPI is gearing up to take UPI to other countries, beginning with Singapore and the United Arab Emirates.
- NCPI is working with its counterpart in Singapore, the Network for Electronic Transfers for Singapore, to bring UPI live in Singapore.
- The low hanging fruit is to provide payment solutions to Indians travelling abroad.
- Competition with global peers: The bigger and tougher game is to increase its usage among local people in countries outside India.
- This would put UPI in competition with the likes of PayPal and Skrill.
Conclusion
We have seen just the tip, albeit a very substantial tip, of the digital payments iceberg. In the coming years, young business leaders of today must learn to uncover the iceberg itself.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Reforms in banking sector and financial stability, Deposit Insurance and its significance.
Context
The amendments to the FRDI Bill, 2017—now renamed the Financial Sector Development and Regulation (Resolution) Bill, 2019—are being worked out.
Three crucial issues
- Specifics are being worked out in the bill on three crucial issues.
- First issue: The first issue is regarding the increase in the deposit insurance cover of customers.
- Second issue: To iron out the contentious issues related to the bail-in clause
- Third issue: To decide whether this resolution framework should apply to the public sector banks.
- Advantages of the move: At a time when the public sector banks have come under the stress of bad loans, increasing the deposit insurance coverage limit would be a welcome approach.
- Increasing the depositor’s confidence: The move will reinforce depositors’ confidence in the banking system in general, and the public sector banks in particular.
The issue of the government “ownership” of the banks and financial stability
- Ownership of government: The role of the “ownership” of banks towards financial stability is a much-debated issue in the country.
- RBI is positive about govt. ownership: The Reserve Bank of India (RBI) has attributed a positive role to the government ownership of banks in attaining financial stability.
- The issue of competitive neutrality: Committee to Draft Code on the Resolution of Financial Firms has blamed govt. ownership for causing a “lack of competitive neutrality” in the financial sector.
- Need of level playing field: Committee argued for the need of a “level playing field” for both the public and private sector financial firms for the sake of competitive neutrality.
- The concept of an overarching resolution framework for all financial firms gained traction.
Would the all-encompassing Resolution Corporation be efficacious?
- The FRDI Bill, 2017 sought to amend as many as 20 legislations for the diverse financial sector in this country, which is regulated by various institutions, like-
- RBI for the banks and the non-banking financial corporations.
- Insurance Regulatory and Development Authority (IRDA) for the insurance markets,
- Securities and Exchange Board of India (SEBI) for securities markets and mutual funds.
- The Pension Fund Regulatory and Development Authority for pension funds.
- The pertinent question
- The pertinent question is whether an all-encompassing resolution corporation can be really efficacious for the much-discussed financial stability of this country.
Fundamental issues
- Neutrality of ownership
- Different motives behind operations: While private financial institutions are predominantly governed by profit motives, for the public sector agencies, various social obligations, such as “financial inclusion,” assume primacy.
- Reason for commoner’s confidence: It is the sense of the government’s involvement (or ownership) that has forged commoners’ confidence to park their financial savings with them.
- The move may end up destabilising the financial sector: If the sovereign guarantee and resolving power are taken away from the government domain to some resolution corporation, it may destabilise the financial system.
- The Bail-in clause
- Deposit over 1 lakh included in bail-in mechanism: The FRDI Bill 2017 suggests that deposit amounts over and above the cover limit (which currently is at one lakh) will be included in the bail-in mechanism.
- Further, despite the RBI’s caution against financial instability, short-term debts and uncategorised client assets are also currently under this mechanism.
- The falling growth rate of deposits: These provisions and the bill per se came against the backdrop of the Financial Stability Report, 2017 that revealed a 3.3% drop in the year-on-year growth rate of deposits for all scheduled banks in the country.
Conclusion
In the context of decelerating financial stability, the government needs to undertake these resolution reforms with caution that the reforms do not end-up eroding depositors’ faith in the domestic financial institutions.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Relations with Pakistan and need to resume the talks to resolve the issues.
Context
India announced that it will invite all heads of government of Shanghai Co-operation Organisation member countries, including Pakistan.
Significance of the invitation
- First since 2014: The summit will assume significance should Pakistan Prime Minister accept the invitation.
- As it will be the first by a head of government or state of that country to India since former Prime Minister Nawaz Sharif attended the swearing-in ceremony of Prime Minister in 2014.
- Hopes belied: Nothing came from that meeting and hopes created by the invitation were belied.
- Failed attempts to engage: Attempts to engage after that failed, including at a previous SCO summit at Ufa in 2015.
Latest events that further reduced the engagement
- Pulwama attack: First, there was the February 2019 Pulwama attack, India’s Balakot response, and Pakistan’s counter-response.
- Article 370: After India did away with Jammu & Kashmir’s special status, India and Pakistan have downgraded even their diplomatic presence in each other’s countries.
- Both the countries withdrew their high commissioners after the Article 370 issue.
- Trade stopped completely: Bilateral trade, which had managed to survive earlier shocks to relations, has stopped completely.
Opportunities presented by SCO summit
- “Inputs of all stakeholders”: In deciding whether to accept the invitation, the Pakistan PM will have to take into consideration “inputs of all stakeholders”.
- A polite way of saying that the final yes or no will rest with the Pakistan Army.
- A chance for a high-level meeting: Even if Imran Khan stays away and sends a minister instead, it would still be a chance for a high-level bilateral meeting.
- The world wants India and Pakistan to engage: The world wants India and Pakistan to engage, and this was evident in the way the UNSC refused to take up the Kashmir issue, saying it was not the forum for it.
- Opportunity for India to make a start: India has declared several times recently that it wants to peel away from historical foreign policy baggage.
- India should make a start with Pakistan by making it possible for such a meeting to take place.
- Making acceptance of invitation easier: India can make it easier for the Pakistan Prime Minister to accept the invitation.
- Resuming trade: A start could be made by resuming trade, which has ground to a dead halt
- Sending High Commissioner back: India can start by sending India’s High Commissioner back to his office in Islamabad.
Conclusion
The SCO summit presents an opportunity for both the countries to end the long hiatus in the relations which is essential for both the countries to resolve the long-standing issues and progress of both the countries.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2-Protection of vulnerable section and mob lynching.
Context
The spate of incidents of lynching over the past few years has led to a heightened sense of insecurity among the marginalised communities. The Centre should specify penal action against officials and doctors accused of dereliction of duty.
2018 Supreme Court Judgement
- In 2018, the Supreme Court described lynching as a “horrendous act of mobocracy”.
- The Court exhorted the Centre and State governments to frame laws specifically to deal with the crime of lynching.
- The SC laid down certain guidelines to be incorporated in these laws including
- Fast-track trials.
- Compensation to victims, and
- Disciplinary action against lax law-enforcers.
The State laws
- Manipur bill for the law against lynching: The Manipur government came up first with its Bill against lynching in 2018, incorporating some logical and relevant clauses.
- Provision of nodal officer: The Bill specified that there would be nodal officers in each district to control such crimes.
- Compensation to the victim: The law provides for adequate monetary compensation to the victims or their immediate kin.
- Punishment for failure to enforce the law: Police officers who fail to prevent the crime of lynching in their jurisdiction are liable to be imprisoned for a term that may extend from one to three years with a fine limit of ₹50,000.
- No concurrence of state for the prosecution of the police: No concurrence of the State government is required to prosecute them for dereliction of duty.
- Rajasthan bill: The government has accepted only a few guidelines issued by the apex court.
- No action against police officers: The bill is also silent on any action to be initiated against police officers who may be accused of dereliction of duty.
- West Bengal bill: Most other guidelines of the Supreme Court have been adopted by the State.
- Stringent punishment: Punishment for lynching to death is punishable with the death penalty or life imprisonment and a fine of up to ₹5 lakh.
What the Centre can do
- Adoption of the SC guidelines: The Centre should adopt the guidelines provided by the SC to deal with the crime.
- Action against doctors: Centre would do well to incorporate sections in the law for penal action against doctors who stand accused of-
- Dereliction of duty.
- For delay in attending to victims of lynching.
- For submitting false reports without carrying out a proper and thorough medical examination of the victims.
- The compensation scheme for victims: Under the compensation scheme for the victims, the amount to be paid to the victims should be recovered from the perpetrators of the crime.
- Collective fines: Collective fines should be imposed on the villagers where the lynching takes place.
- Punishment for a political leader for inciting the mob: Centre could even provide for punitive action against political leaders found guilty of inciting mobs.
- Punitive action against police: Punitive action to be taken against police officers accused of dereliction of duty, as incorporated in the law enacted by Manipur government, could be replicated in the Central law too.
- Punitive action as a deterrent: It would deter police officials acting in a partisan manner in favour of the lynch mob.
Conclusion
Until a zero-tolerance attitude is adopted in dealing with mob lynching, this crime will continue to show a rising trend.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Threat of Left Wing Extremism and ways to deal with it.
Context
When much is made of peace talks with rebels in Northeast India, avoidance of peace talks with Maoist rebels is strange.
States left to deal with the Maoists
- Scale and extent of the problem: Officially in 2019, there are 11 states and 90 affected districts.
- State subject: This is because policing and maintaining law and order are matters devolved to states.
- The approach adopted to deal with the problem: According to MHA-
- Capacity building: Primarily by capacity building of the state governments.
- Areas of capacity building: Capacity building is to be carried out in areas of security and development. This will continue with the-
- Better police training.
- Better intelligence gathering.
- Reinforcing police stations in conflict zones.
- And recruiting locals into auxiliary forces.
- Support by MHA: MHA will continue to provide the Central Reserve Police Force (CRPF) and other paramilitaries under its command.
- Support of NTRO: Intelligence gathering outfits such as the National Technical Research Organisation (NTRO).
- NTRO has in the past year increased drone surveillance over the densely forested Abujhmad area in southwest Chhattisgarh, which remains the main rebel hub.
The success achieved so far
- Influence reduced to 90 districts: The policies so far has certainly contained the rebels across 90 affected districts.
- Surrender and rehabilitation policy: Most Maoist-affected states in India have a surrender and rehabilitation policy.
- Surrender policy along with search and destroy : Surrender policy rides in tandem with search-and-destroy missions that police and paramilitaries provide.
- This pincer has massively depleted rebel leadership and ranks with regular killings, arrests, and surrender of its leaders and cadres.
Return of conflict displaced people
- It is crucial for the conflict-displaced to return to their homes.
- Issues related to return of displaced: Agencies discourage those returning from going back to their old home and instead are offered state-mandated enclaves.
- No or little economic imperatives: Those returning are offered little economic imperative besides daily wage labour and scrambling for government handouts.
- Some government jobs: For some, jobs are offered in
- That is, in any case, the present for much of the 50,000 or so who did not manage to escape to Telangana and elsewhere.
Conclusion
- The central government would do well to focus here and in beginning negotiations for peace.
- The Left-wing rebellion, a reality for over 50 years, is difficult to end until poor governance is improved.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Inflation targeting by RBI, and other mandates of RBI.
Context
The RBI’s responsibility to regulate the financial sector may have taken a back seat after the adoption of inflation targeting as the main objective. Has a fixation with inflation rate made the RBI take its eyes off the loan books of the banks?
Evolution of the role of the Central Banks
- Maintaining financial stability: The establishment of some of the world’s oldest central banks was inspired by the goal of maintaining financial stability.
- Harm to the depositors: It was recognised that when private commercial banks fail, whether due to malfeasance or misjudgement, they harm their trusting depositors.
- Harm to the entire system: But when banks fail they not only harm the depositors they can also take down with them the rest of the financial system.
- Banks lending to one another: The entire financial system also gets harmed when banks have lent to one another, which is not uncommon.
- The collapse of credit: In the crisis that ensues, there is a collapse of credit which, in turn, leads to a downturn in economic activity.
- Lender of last resort: To avoid this, the central bank was conceived of as the lender of last resort.
- Prevention of run on the banks: Lender of last resort is the one that could pre-empt a run on banks and give them time to put their books back in order.
- Regulation of banks: However, this was to be accompanied by the adoption of a tough regulatory stance.
- Whereby the central bank would stay hawk-eyed towards the activities of banks, particularly risky lending.
- Rise of neo-liberalism and change in a role: With the rise of neoliberalism, the central tenet of which is that markets should be given free play, the regulatory role of central banks took a back seat.
- Inflation control as primary role: The Central banks came to be primarily mandated with inflation control.
Inflation targeting and regulation of the financial market by RBI
- Multiple indicator approach: In India, the RBI had earlier pursued a ‘multiple indicators approach’.
- What was the multiple indicator approach: The approach involves concern for outcomes other than inflation, including even the balance of payments.
- Discouraging the approach: Developments in economic theory discouraged ‘multiple indicators approach’.
- It was argued that having economic activity as an objective of monetary policy leads to higher inflation.
- Favouring low inflation over lower unemployment: Discouraging the ‘multiple indicator approach’ encouraged low inflation over low unemployment.
- Inflation targeting as the sole objective of monetary policy: The Indian government also instituted inflation targeting as the sole objective of monetary policy.
- The fixed target for the RBI: The RBI was permitted to exceed or fall short of a targeted inflation rate of 4% by a margin of 2 percentage points.
- But have the RBI’s original mandate as a central bank been met?
- IL&FS crisis: In 2018, within three years of the adoption of inflation targeting goal, a crisis engulfed IL&FS, a non-banking financial company in the infrastructure space.
- Not a small player: It operated over 100 subsidiaries and was sitting on a debt of ₹94,000 crores.
- Effects of default: Given this, IL&FS default had a chilling effect on the investors, banks and mutual funds associated with it both directly or indirectly.
- PMC bank crisis: In 2019, a run on the Punjab and Maharashtra Co-operative Bank had to be averted by imposing withdrawal limits.
- Outright fraud in PMC case: While in the case of IL&FS, some part of the problem may have been caused by a slowing economy, outright fraud underlay the crisis at PMC Bank.
- Raghavendra Sahakara Bank case: In early 2020, curbs have had to be placed on withdrawals from the Bengaluru-based Sri Guru Raghavendra Sahakara Bank.
- Pertinent question
- Regulatory sector at the backseat? It is not too early to ask if the RBI’s responsibility to regulate the financial sector may have taken a back seat after the adoption of inflation targeting as the main objective.
- Has a fixation with inflation rate made the RBI take its eyes off the loan books of the banks?
The recent rise in inflation and shortfall of currency notes
- Inflation at 7%: At over 7%, the inflation rate in December is the highest in five years.
- Not cause of concern: This may not be the reason to panic, for the price rise could be seasonal and may well abate.
- Question on inflation targeting: But it does raise a question on the efficacy of inflation targeting as a means of inflation control.
- Reason for moderate inflation so far: If the inflation rate was within the intended range so far, that may have been due to both declining food prices and, for a phase, oil prices.
- The shortfall of notes: The central bank has a monopoly on the issue of notes.
- There is an absolute shortage of small denomination notes in the bazaars of India.
- Small-denomination notes are mostly unavailable.
Conclusion
While focusing on the inflation, the Central bank also needs to keep the other mandates especially the regulation of the finance sector in check.
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