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Daily Category  (Indian Economy )

Ayushman Sahakar Scheme

Context:

Ministry of Agriculture & Farmers' Welfare has launched AYUSHMAN SAHAKAR.

  • Objective: To assist cooperatives to play an important role in the creation of healthcare infrastructure in the country.
  • The scheme is formulated by the National Cooperative Development Corporation (NCDC).
  • The scheme covers establishment, modernization, expansion, repairs, renovation of hospital and healthcare and education infrastructure.

Features of the scheme:

  • NCDC would extend term loans to prospective cooperatives to the tune of Rs.10,000 crore in the coming years.
  • Any Cooperative Society with a suitable provision in its bylaws to undertake healthcare-related activities would be able to access the NCDC fund.
  • NCDC assistance will flow either through the State Governments/ UT Administrations or directly to the eligible cooperatives.
  • The scheme also provides working capital and margin money to meet operational requirements.
  • The scheme also provides interest subvention of 1% to women majority cooperatives.

Significance:

  • The scheme mainly focuses on the National Health Policy, 2017, covering the health systems in all their dimensions- investments in health, organization of healthcare services, access to technologies, development of human resources etc.
  • It is in line with the National Digital Health Mission and would bring transformation in rural areas.
  • It has comprehensive approach-hospitals, healthcare, medical education, nursing education, paramedical education, health insurance, and holistic health systems such as AYUSH.
  • There are about 52 hospitals across the country run by cooperatives. They have a cumulative bed strength of more than 5,000. The scheme would give a boost to the provision of healthcare services by cooperatives.
  • Cooperatives have a strong presence in rural areas, thus, cooperatives utilizing the scheme would revolutionize the way healthcare delivery takes place in rural areas.

National Cooperative Development Corporation (NCDC):

  • It was set up in 1963 under an Act of Parliament for the promotion and development of cooperatives.
  • It functions under the Ministry of Agriculture and Farmers Welfare.
  • Sahakar Cooptube NCDC Channel (Youth-focused), Sahakar Mitra (Internship Programme) are the other initiatives of NCDC.

Cooperatives:

  • International Labour Organisation (ILO) defines cooperative as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.
  • Provisions of Indian Constitution:
    • 97th Amendment of Indian constitution added Part IXB right after Part IXA (Municipals) regarding the cooperatives working in India.
    • The word “cooperatives” was added after “unions and associations” in Article 19(1)(c) under Part III of the Constitution.

Source: PIB

Framework for Regulatory Sandbox

Context:

The International Financial Services Centres Authority (IFSCA) introduces Framework for Regulatory Sandbox to tap into innovative FinTech solutions.

Framework for Regulatory Sandbox:

  • Facilities and flexibilities: The entities operating in the capital market, banking, insurance, and financial services space shall be granted certain facilities and flexibilities to experiment with innovative Fintech solutions.
  • Participation: All entities (regulated as well as unregulated) operating in the capital market, banking, insurance, and pension sectors as well as individuals and startups from India and FATF compliant jurisdictions, shall be eligible for participation in the Regulatory Sandbox.
    • The entities desirous of participating in the sandbox to showcase their innovative Fintech solutions, concepts, and business models shall apply to IFSCA.
  • Regulatory relaxations: The IFSCA shall assess the applications and extend suitable regulatory relaxations to commence limited purpose testing in the Sandbox.
  • Innovation Sandbox: The IFSCA has proposed the creation of an “Innovation Sandbox”, which will be a testing environment where Fintech firms can test their solutions in isolation from the live market.
    • The Innovation Sandbox will be managed and facilitated by the Market Infrastructure Institutions (MIIs) operating within the IFSC.

Regulatory Sandbox:

  • A regulatory sandbox is a framework set up by a financial sector regulator to allow small scale and live testing of innovations by private firms in a controlled environment.
  • Objective: To promote competition and efficiencies in financial services markets through innovation.
  • It introduces the potential to change the nature of the relationship between regulators and financial services providers toward a more open and active dialogue.

Features:

  • The sandbox entities are subject to restrictions such as the maximum number of customers served.
  • The regulatory sandboxes allow financial regulators to mitigate future risks by working with fintech innovators by having a ring-side view of the potential problems.
  • According to SEBI’s guidelines, all entities registered under the SEBI Act 1992 are eligible for testing in their sandbox even if they use the services of a fintech firm.
  • The IRDAI’s sandbox exclusively looks at products and services in the insurance sector and has set up a panel to review applications.

Source: PIB

Global Hunger Index 2020

Context:

According to the Global Hunger Index 2020, India has the highest prevalence of wasted children under five years in the world.

Key findings:

  • India ranks 94 out of 107 countries in the Index, lower than her neighbors such as Bangladesh (75) and Pakistan (88).
  • In the region of the south, east, and south-eastern Asia, the only countries which fare worse than India are Timor-Leste, Afghanistan, and North Korea.
    • Child stunting: Although it is still in the poorest category, however, child stunting has actually improved significantly, from 54% in 2000 to less than 35% now. 
    • Child wasting: It has not improved in the last two decades, and is rather worse than it was a decade ago.
    • Child mortality rates: India has improved in both child mortality rates, which are now at 3.7%, and in terms of undernourishment, with about 14% of the total population which gets an insufficient caloric intake.

The worldwide scenario of food security:

  • Worldwide nearly 690 million people are undernourished which warns that the COVID-19 pandemic could have affected the progress made on reducing hunger and poverty.

SDG Goals progress: 

  • The 2020 Global Hunger Index report presents a multi-dimensional measure of national, regional, and global hunger by assigning a numerical score based on several aspects of hunger.
    • It then ranks countries by GHI score and compares current scores with past results.
  • The 2020 report considers a One Health approach to linking health and sustainable food systems in order to achieve Zero Hunger by 2030.
  • The world is also not on track to achieve the second Sustainable Development Goal — known as Zero Hunger for short — by 2030. 
  • At the current pace, nearly 37 countries will fail even to reach low hunger, as defined by the Global Hunger Index Severity Scale, by 2030.

The Global Hunger Index (GHI):

  • It is a tool that measures and tracks hunger globally as well as by region and by country.
  • It is calculated annually, and its report issued in October each year.
  • The GHI was initially published by the US-based International Food Policy Research Institute (IFPRI) and Germany-based Welthungerhilfe.
  • In 2007, the Irish NGO Concern Worldwide also became a co-publisher

Calculation of GHI Scores:

  • The Global Hunger Index measures hunger on a 100-point scale, with 0 being the best score (no hunger) and 100 being the worst.
  • The GHI combines 4 component indicators:
    • the proportion of the undernourished as a percentage of the population;
    • the proportion of children under the age of five suffering from wasting, a sign of acute undernutrition;
    • the proportion of children under the age of five suffering from stunting, a sign of chronic undernutrition; and
    • the mortality rate of children under the age of five.

Source: Indian Express

Operation Greens (TOP to TOTAL) Scheme

Context:

The Union Minister of Food Processing Industries has stated that the subsidy under Operation Greens TOP to TOTAL is a big step towards Aatma Nirbhar Bharat.

Operation Greens (TOP to TOTAL) Scheme:

  • The Ministry of Food Processing Industries has extended the Operation Greens Scheme from Tomato, Onion, and Potato (TOP) to all fruits & vegetables (TOTAL) for a period of six months.
  • Objective: To protect the growers of fruits and vegetables from making distress sale due to lockdown and reduce the post-harvest losses.

Eligible Crops:

  • Fruits: Mango, Banana, Guava, Kiwi, Litchi, Mousambi, Orange, Kinnow, Lime, Lemon, Papaya, Pineapple, Pomegranate, Jackfruit, Apple, Aonla, Passion fruit, and Pear;
  • Vegetables: French beans, Bitter Gourd, Brinjal, Capsicum, Carrot, Cauliflower, Chillies (Green), Okra, Cucumber, Peas, Onion, Potato and Tomato.

Eligible Entities:

  • The Food Processors, FPO/FPC, Co-operative Societies, Individual farmers, Licensed Commission Agent, Exporters, State Marketing/Co- operative Federation, Retailers, etc. engaged in processing/ marketing of fruits and vegetables.

The pattern of Assistance:

  • The Ministry will provide subsidy at 50 % of the cost of the following two components, subject to the cost norms:
  • Transportation of eligible crops from surplus production cluster to consumption center; and/or
  • The hiring of appropriate storage facilities for eligible crops (for a maximum period of 3 months).

Operation Greens:

  • It was announced in the budget speech of 2018-19.
  • It is a Central Sector Scheme on the line of “Operation Flood”.
  • Objective: To stabilize the supply of Tomato, Onion, and Potato (TOP) crops and to ensure the availability of TOP crops throughout the country round the year without price volatility.

Source: All India Radio

Ordnance Factory Board (OFB)

Context:

The Centre’s move to corporatise the Ordnance Factory Board (OFB) has been strongly opposed by the federations of the workers from ordnance factories and allied units across the country.

Background:

  • In September 2020, an Empowered Group of Ministers (EGoM) for Corporatization was constituted under the chairmanship of the Defence Minister.
  • Objective: To oversee and guide the entire process, including transition support and redeployment plan of employees while safeguarding their wages and retirement benefits.
  • The corporatization will result in the conversion of the OFB into (single or multiple) fully (100%) government-owned entities under the Companies Act, 2013 like other public sector undertakings.

Ordnance Factory Board (OFB):

  • The OFB, an umbrella body for the ordnance factories and related institutions, is currently a subordinate office of the Ministry of Defence (MoD).
  • The organisation dates back over 200 years and is headquartered in Kolkata.
  • It is a conglomerate of 41 factories, nine Training Institutes, three regional marketing centres and five regional controllers of safety.
  • A major chunk of the weapon, ammunition and supplies for not just armed forces but also paramilitary and police forces comes from the OFB-run factories.
    • Their products include civilian and military-grade arms and ammunition, explosives, propellants and chemicals for missiles systems, military vehicles, armoured vehicles, optical devices, parachutes, support equipment, troop clothing and general store items.

The corporatisation of the OFB:

  • The corporatisation will result in the conversion of the OFB into one or more 100 % government-owned entities under the Companies Act, 2013 like other public sector undertakings.
  • While at least three committees on Defence reforms set by the governments between 2000 and 2015 have recommended the corporatisation, it had not been implemented till now.
  • The notion of corporatisation was listed as one of the 167 ‘transformative ideas’ to be implemented in the first 100 days of the government. 

Concerns:

  • One of the main apprehensions of the employees is that corporatisation would eventually lead to privatisation.
  • Another key concern has been that the corporate entities would not be able to survive the unique market environment of defence products that have very unstable demand and supply dynamics. They also fear job losses.

Source: Indian Express

World Economic Outlook October 2020

Context:

World Economic Outlook October 2020 report titled, “A Long and Difficult Ascent” mentioned that the Global output is projected to shrink 4.4% in 2020.

Details:

  • For the world as a whole, the 2020 growth projection has been revised upwards by 0.8 percentage points relative to June. After 2021, global growth is expected to ease off at 3.5% in the medium term.
  • The U.S. economy is expected to grow by -4.3 % this year and grow by 3.1% next year. The corresponding numbers for the Euro Area are -8.3% and 5.2%. For China, they are 1.9% and 8.2% respectively.

Indian Economy:

  • India’s economy is expected to contract 10.3% in the current fiscal year as the country and the world reel from the COVID-19 pandemic.
  • The projection for India is a downgrade of 5.8 percentage points from its June forecast.
    • India is expected to rebound in the fiscal year beginning in April 2021 with 8.8% growth — an upgrade of 2.8 percentage points relative to the June update.
  • Consumer prices in India are expected to grow at 4.9% this year and by 3.7% in the next fiscal. The current account balance is projected to grow by 0.3% this year and -0.9% next year.

Suggestions:

  • There is a need for greater international collaboration on tests, treatments, and vaccines. If these are made available faster than accounted for in the IMF mode’s baseline scenario, it could mean an increase in global cumulative income by $ 9 trillion by the end of 2025.
  • Policies should “aggressively” seek to limit persistent economic damage. Governments should support incomes by well-targeted cash transfers, wage subsidies, and unemployment insurance.
    • For firms that are viable but vulnerable recommended support such as tax deferrals, debt servicing moratoria, equity-like injections.
  • Policies should aid workers’ transition to growing sectors and away from sectors like travel which are likely to shrink.
  • Other measures include support to governments via institutional grants, concession financing, and debt relief so these governments can prioritize critical spending for health and transfers to the poor.

World Economic Outlook:

  • It is a survey by the IMF that is usually published twice a year in the months of April and October.
  • It analyzes and predicts global economic developments during the near and medium-term.
  • It is published in January and July between the two main WEO publications released usually in April and October.

Source: The Hindu

Generating consumption demand

Context:

FINANCE MINISTER Nirmala Sitharaman Monday announced two sets of measures to generate consumption demand and boost capital spending in the economy.

Key Points:

  • These measures, along with participation of states and the private sector, are projected to create “additional demand” of Rs 1 lakh crore, according to the government.
  • Some proposals are aimed at advancing expenditure while others are directly linked to increase in GDP (Gross Domestic Product).
  • The ministry will allow government and private sector employees to use their Leave Travel Concession (LTC) tax-free benefit for various types of purchases subject to certain conditions while giving an interest free festival advance of Rs 10,000 to government employees.
  • Measures have been announced to step up capital expenditure by the Centre and the states.

Impact of LTC benefit:

  • Central government employees will be provided tax benefits on LTC without having to actually travel.
  • These employees would, however, be required to spend three times their LTC fare component for purchasing items that attract 12% or more GST.
  • What this means is that if your fare component of LTC is Rs 40,000, you need to spend Rs 1.2 lakh on goods that fall in the 12%-or-more GST slab in order to save tax on Rs 40,000.
  • If you don’t spend that amount, you may have to pay tax as per your marginal tax rate on the LTC component. So, if you fall in the 10% tax slab, you will have to pay additional tax of Rs4,000 on the LTC fare component of Rs 40,000.
  • As for the leave encashment component, the employee will have to spend an equivalent amount towards the purchase of items that attract12% or more as GST.

Benefits to the economy:

  • Through the LTC consumption boost plan, the government expects a demand generation of Rs 28,000 crore—Rs 19,000 crore on account of demand from central government employees, and Rs 9,000 crore from state government employees.
  • Besides, the same benefits will be available to private sector employees if employers decide to offer the scheme and employees decide to avail it.

Government revenue:

  • While GST collections have been severely impacted in the first half of the fiscal due to the pandemic, a consumption boost from the LTC move will lift GST collections in the second half as the scheme calls for expenditure to be done until March 31, 2021.
  • If private sector employees also participate, it may lead to a significant jump in overall consumption and rise in GST collections.

Special festival advance scheme:

  • The government has restored festival advance, which was abolished in line with recommendations of the 7th Pay Commission, for one time until March 31, 2021.
  • All central government employees will get an interest-free advance of Rs 10,000 that the government will recover in 10 instalments. It will be given in the form of a pre-loaded Rupay card of the advance value and the government expect to disburse Rs 4,000 crore.
  • According to the Finance Ministry, if all states provide a similar advance, another Rs 8,000 crores is likely to be disbursed. This is expected to generate consumption demand ahead of festivals like Diwali.

Measures to boost capital expenditure

  • Special assistance will be provided to states in the form of interest-free 50-year loans of Rs 12,000 crore with certain conditions.
  • States have been categorised into three groups:
    • Group 1 comprising Northeast states (Rs 1,600 crore) and Uttarakhand and Himachal Pradesh (Rs 900 crore),
    • Group 2 of other states that will get Rs 7,500 crore in proportion of their share as per the Finance Commission’s devolution.
    • Group 3 of states which will get Rs 2,000 crore if they meet 3 of 4 reforms, including One Nation One Ration, as outlined in the Atmanirbhar package announced in May.
  • The funds, which need to be spent by March 31, 2021, can be used for ongoing and new projects and settling contractors' bills on these.
  • The funds provided to states will be over and about their borrowing ceilings.
  • For its part, the Centre has proposed an additional budget of Rs 25,000 crore for capital expenditure on roads, defence infrastructure, water supply and urban development.
  • Allocations will be made to various ministries in the upcoming discussions for formulating revised estimates.

Source: The Indian Express

Retail inflation jumped to its highest in eight months

Context:

Retail inflation jumped to an eight-month high of 7.34 percent in September, data released by the National Statistical Office (NSO) on Monday showed.

What does the data reveal?

  • Pushed up by the double-digit food inflation, the retail price inflation rate rose to an eight-month high of 7.34 per centin September from 6.69 percent in August.
  • This was the sixth consecutive month that the inflation rate remained above the Reserve Bank of India’s (RBI’s) comfort zone of 6 per cent.
  • Factory output continued to decline for the sixth consecutive month in August, recording an 8 percent contraction, mainly due to degrowth in manufacturing, capital goods, and consumer durables output, but showed a sequential improvement from 10.8 percent contraction in the previous month, separate set of data released by the NSO showed.

Food Inflation:

  • Food inflation based on the Consumer Food Price Index rose to 10.68 percent in September from 9.05 percent in August, with urban food inflation at a higher print of 10.94 percent compared with rural inflation print of 10.60 percent.
  • At 7.34 percent, the inflation print is much above the Reserve Bank of India’s medium-term target of 4+/- 2 percent.
  • Core inflation, which excludes the impact of food and fuel inflation, however, softened to 5.67 percent in September from 5.77 percent in August.
  • Food inflation rose because:
    • Vegetable prices saw inflation rate of 20.73 percent in September from 11.41 percent the previous month.
    • Meat and fish prices, too, saw a jump for rising 17.60 percent and 15.60 percent in this period, respectively.
    • Egg prices increased to 15.47 percent from 10.11 percent in August.
    • Transport and communication saw inflation rate of 11.50 percent, up from 11.05 percent. For personal care and effects, the rate reduced but remained elevated at 12.31 percent in September against 14.45 percent in August.
    • Health saw inflation rise to 4.90 percent from 4.71 percent.
    • Fuel and electricity gave some relief to consumers as the inflation rate fell to 2.87 percent from 3.10 percent.

Index of Industrial Production (IIP):chart

  • The Index of Industrial Production (IIP) has shown sequential improvement, but cumulatively, it has contracted by 25 percent for April-August against a growth of 2.4 percent in the same period last year. The IIP had contracted by 1.4 percent in August last year.
  • Manufacturing sector, which has a weight of 77.6 percent in IIP, contracted 8.6 percent in August, an improvement from 11.6 percent contraction in July.

NSO (National Statistical Office):

  • NSO is the central statistical agency of the Government mandated under the Statistical Services Act 1980 under the Ministry of Statistics and Programme Implementation.
  • It is responsible for the development of arrangements for providing statistical information services to meet the needs of the Government and other users for information on which to base policy, planning, monitoring and management decisions.
  • The services include collecting, compiling and disseminating official statistical information.
  • All business operations in NSO are done in compliance with international standards, procedures and best practices.

Inflation:

  • Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
  • Inflation measures the average price change in a basket of commodities and services over time.
  • Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This could ultimately lead to a deceleration in economic growth.
  • However, a moderate level of inflation is required in the economy to ensure that production is promoted.
  • In India, the Ministry of Statistics and Programme Implementation measures inflation.
  • In India, inflation is primarily measured by two main indices — WPI (Wholesale Price Index) and CPI (Consumer Price Index) which measure wholesale and retail-level price changes, respectively.
  • The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
  • The CPI has five sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear.

Source: The Indian Express

India should give up the fear of inflation and monetize its deficit

1. CONTEXT OF THE NEWS

Presently the world is reeling under the impact of the covid-19 and the associated economic crisis. To deal with the economic crisis, governments worldwide have begun deficit monetization without paying much attention to their fiscal deficits.

The Indian government, however, is vary of the inflationary trends in the economy, due to deficit monetization and therefore has resisted it.

The editorial weights in on the side of deficit monetization and discusses how the present global and domestic conditions call for deficit monetization by the Indian Government.

2. ATTITUDE TOWARDS FISCAL DEFICITS

2.1 Fall of Keynesian order

  • Almost 50 years ago, Richard Nixon said that Keynesian economics had become the global order of the time.
  • However, the next decade saw the downfall of Keynesian ideas amid rapidly rising inflation.

2.2 The Modern Monetary Theory (MMT)

  • Today the global economic order is of Modern Monetary Theory (MMT).
  • The theory argues that an obsession with government deficits is misguided and the governments should print more money if necessary to revive the economy given that there is an absence of rising inflation and real resource constraints.

2.3 Present day attitude towards deficits globally

  • Governments worldwide are barely paying any attention to their fiscal deficits.
  • Central banks are buying up more and more government and private paper in tune with the government directives.
  • Experts and analysts all around the world have expressed concerns towards the total neglect of governments towards the deficits.
  • Experts suggest that this absolute disregard for the alleged inflationary consequences of deficits will come back to haunt the world economy sooner or later in the same way as it did in the 1970s.

2.4 Present attitude towards deficits by the Indian governments

  • The inflationary episode earlier in the past decade is still fresh in the minds of the Indian policymakers.
  • Therefore, the Indian policymakers are paying huge attention to the fiscal deficit, resisting the temptation to print more money in order to revive the economy.
  • However, these distressing times call for the Indian policymakers to ward off the shackles imposed by misguided fears of high inflation.

3. MMT FRAMEWORK AND INDIA

3.1 India already following the MMT framework

  • Experts argue that India has effectively been following the MMT framework with Indian characteristics much before the term “MMT" was coined.
  • Discussion around the exponential rise in India's growth since the 1980s has largely centred on the supply-side reforms.
  • However, in the context of the exponential growth, the bigger deficits that India has sustained since 1980 are equally important.

3.2 Deficits and exponential growth of the Indian economy

  • Experts argue that sustained deficits have helped to propel the demand-constrained Indian economy towards an economy that was growing closer to its full potential.
  • As a consequence of this, India was able to successfully sustain a 7% average annual growth for 25 years, a feat only few countries could achieve.

3.3 Present day relevance of the MMT Theory

  • The following event dealt a major blow to the Indian economy
    • the 2008-09 global crisis
    • India’s subsequent banking problems
  • However, today the importance of the quasi-MMT framework is more relevant than ever before.

4. COVID-19 AND DEMAND CRISIS

4.1 Effect of the covid-19 crisis on Indian economy

  • The Indian economy was already struggling with a slow-paced demand and falling inflation even before the covid-19 crisis and the pandemic has only exacerbated the problems of the Indian economy.
  • The initial impact of the sluggish demand and falling inflation is a shutdown in supply.
  • However, the pandemic induced destruction of income and rising level of indebtedness imply that private demand will be impaired even after the covid-19 pandemic is well over.

4.2 Demand as more relevant to growth than supply

  • Therefore, the relevant constraint on growth of the Indian economy presently is demand rather than supply.
  • Paradoxically, continuing weak demand and economic growth is only going to worsen India’s deficit and debt problem, eventually leading to the dreaded inflationary consequences.
  • This will ultimately reduce supply by destroying capacity.
  • In addition, weak growth will lead to a high debt and deficit ratio, setting up a temptation to inflate them away.

5. DEFICIT MONETIZATION AND INFLATION

5.1 Deficit monetization

  • Therefore, in the present context, a large deficit is inevitable and this leads to two crucial questions:
    • Should India be monetizing part of its deficit?
    • Would this lead to high inflation?
  • This editorial answers the above questions as yes and no respectively.
  • Prior to 1997, India used to routinely monetize a part of its deficit.
  • As a matter of fact, the monetized portion of the overall fiscal deficit was called the budget deficit.
  • The monetization of the deficit was due the limitations of bond financing. This was due to a narrow demand for bonds by the investors.

5.2 Deficit monetization in present context

  • Presently, limitations on bond financing are again a constraint due to the following:
    • low investor demand
    • the threat of downgrades by rating agencies
  • Both these factors constrain the extent to which the bonds are issued and therefore, argue for deficit monetization.

5.3 Deficits, money supply and inflation

  • The relationship among the trio of deficits, money supply and inflation is not a straightforward one and is subjected to the broader macro-economic context.
  • Conditions in 2010-11
    • surging oil prices 
    • soaring global food prices
    • alarming current account deficit
    • overvalued rupee
    • sharp rise in short-term external debt
  • Present day conditions
    • Presently, oil is only about a third of its peak in July 2008
    • food prices are low, both domestically and globally and the Indian monsoon is normal
    • in contrast to the deficit earlier in the decade, presently India's current account is in surplus
    • the real exchange rate of the rupee has declined over the past year and is largely trendless
    • the danger of a sudden devaluation of the rupee stoking inflation is low
  • Therefore, the present domestic and global conditions weigh against any danger of sustained inflation.

6. WAY FORWARD AND CONCLUSION

  • Therefore, the real question is that if deficit monetization will compromise the RBI’s ability to manage inflation in the long run. The RBI's concern might be that if once the line is crossed there is no returning back to the previously existing state of affairs.
  • Experts have argued that instead of deficit monetization facilitating higher government spending and spurring private consumption and investment, India's current policy setting would lead to high excess money supply growth (over economic growth).
  • Incase of deficit monetization, excess money supply growth will decline, lowering the risk of an acceleration in inflation.
  • Another group of experts suggests that, in the absence of deficit monetization and outright fiscal support India’s private capital stock will suffer long-term damage and this is the more important risk.
  • The damage to private capital stock puts India to the risk of a multi-year loss in output and will also lead to a loss in government tax revenue.
  • A limited and coordinated fiscal-monetary intervention with well-defined end-uses for the fiscal resources or money created along with a clear exit for the central bank is very much possible and called for in these distressing times.

RBI keeps key rates unchanged

Context:

The Reserve Bank of India's Governor Shaktikanta Das announced the Monetary Policy Committee (MPC)'s decisions.

Major Announcement:

  • The central bank has kept repo rates unchanged at 4 percent and reverse repo rate at 3.35 percent.
  • The OMO amounts have also been increased to Rs 20,000 crore.
  • Announcement to allow banks to increase exposure to retail and small borrowers up to Rs 7.5 crore and rationalising risk weights for all new housing loans till March 31, 2022 are welcome from the borrower’s perspective but Banks need to beef up their credit appraisal processes.
  • RBI will buy bonds issued by state governments as a special case and also extended till March 31, 2022, its permission to banks to hold more government bonds without marking to market.
  • For exporters hit by the pandemic, the RBI discontinued the system-based automatic caution-listing to allow them to realise export proceeds.
  • In order to facilitate swift and seamless payments in real-time for domestic businesses and institutions, RBI decided to make available the RTGS (Real Time Gross Settlement) system round-the-clock on all days from December.
  • To boost the flow of funds to the real estate and retail segments, the RBI has relaxed the risk weights—the capital required to be set aside — on individual home loans, and raised the loan limit for retail and small business borrowers.
  • The bank has also decided to make available the RTGS (real time gross settlement) system — online transfer of funds above Rs 2 lakh— round the clock on all days from December 2020. With this, India will be among the few countries globally with a large value payment ecosystem.
  • The RBI has assured that the borrowing programme of the Centreandstatesfor the rest of 2020-21 will be completed in a non-disruptive manner, without compromising on price and financial stability.
  • The RBI will maintain comfortable liquidity conditions and will conduct market operations in the form of outright and special open market operations.
  • At 5.82 percent, the weighted average cost of borrowings by the central government during the first half of 2020-21 is the lowest in 16 years.

Inflation:

  • The RBI’s projections indicate that inflation would ease closer to the target by the fourth quarter of 2020-21.
  • In the September 2020 round of the RBI’s survey, households expected inflation to decline modestly over the next three months, indicative of hope that supply chains were getting mended.
  • Retail inflation is projected at 6.8 percent for the second quarter of 2020-21, 5.4-4.5 percent for the first six months of 2020-21, and 4.3 percent for the first quarter of 2021-22.

GDP Growth:

  • The policy panel said real GDP growth in 2020-21 was expected to be negative at (- )9.8 per cent in the second quarter of 2020-21 and (-)5.6 per cent in the third quarter, before improving to 0.5 percent in the fourth quarter.
  • Real GDP growth for the first quarter 2021-22 is placed at 20.6 percent.

Source: The Indian Express

Poverty and Shared Prosperity 2020: Reversals of Fortune

Context:

Recently, Poverty and Shared Prosperity Report 2020 was released by the World Bank.

About the Report:

  • It is a biennial report of the World Bank.
  • The Poverty and Shared Prosperity series provides a global audience with the latest and most accurate estimates on trends in global poverty and shared prosperity.
  • Poverty and Shared Prosperity 2020: Reversals of Fortune provides new data and analysis on the causes and consequences of this reversal and identifies policy principles countries can use to counter it.
  • The report presents new estimates of COVID-19’s impacts on global poverty and inequality.

Key findings in the latest report:

Extreme Poverty Projection:

  • Global extreme poverty is expected to rise for the first time in 20 years because of the disruption caused by COVID-19.
  • The pandemic may push another 88 million to 115 million into extreme poverty or having to live on less than $1.50 per day, resulting in a total of 150 million such individuals.
  • Some 9.1% to 9.4% of the world will be affected by extreme poverty in 2020.

Regions to be affected most:

  • Many of the newly poor individuals will be from countries that already have high poverty rates while many in middle-income countries (MICs) will slip below the poverty line, as per the report.
  • Sub-Saharan Africa, with 27-40 million new poor, and South Asia, with 49-57 million new poor, will be badly hit as per the Bank’s projections.

Shared Prosperity:

  • Shared prosperity is defined as the growth in the income of the poorest 40% of a country’s population.
  • Gains in shared prosperity, however, were unevenly distributed across country income categories and regions.
  • According to the Report, the average global shared prosperity is estimated to stagnate or even contract over 2019-2021 due to the reduced growth in average incomes.

Strategy Proposed:

  • In order to reverse this serious setback to development progress and poverty reduction, countries will need to prepare for a different economy post-COVID, by allowing capital, labour, skills, and innovation to move into new businesses and sectors.
  • Countries should continue to focus on foundational development problems, including conflict and climate change as the key areas.

Poverty and Shared Prosperity Report 2020 and India

  • The decision (to scrap the 75th round of survey by NSO) leaves an important gap in understanding poverty in India.
  • Consequently, the Bank has estimated India’s poverty numbers for 2017 based on “strong assumptions”, resulting in “considerable uncertainties”.
  • In fact, a number of results in the report are incomplete, or uncertain because of the lack of data from India which, as per the report, accounted for 139 million of the 689 million people living in poverty in 2017.

Source: DownToEarth

South Asia Economic Focus report- World Bank

Context:

The World Bank South Asia Economic Focus report released on Thursday.

Major Highlights of the Report:

South Asia region:

  • The entire South Asia region is set to plunge into its worst-ever recession as the “devastating impacts” of Covid-19 on the region’s economies linger on.
  • Growth Rate: It is estimated to contract by7.7 percent in 2020, after topping 6 percent annually in the past five years. South Asia’s growth is projected to rebound to 4.5 percent in 2021.
  • Income-per-capita: It will remain 6 percent below 2019 estimates, indicating that the expected rebound will not offset the lasting economic damage caused by the pandemic.
  • Highlighting the difference in this pandemic-induced recession from previous recessions, The World Bank said the earlier downturns were mainly due to falling investment and exports but this time, private consumption—traditionally the backbone of demand in South Asia and a core indicator of economic welfare—will decline by more than 10 percent, further spiking poverty rates.
  • A fall in remittances is also expected to accelerate the loss of livelihoods for the poorest in some countries.
  • The collapse of South Asian economies during Covid-19 has been more brutal than anticipated, worst of all for small businesses and informal workers who suffer sudden job losses and vanishing wages.

India:

  • GROSS domestic product (GDP): It is estimated to contract by 9.6 percent in 2020-21, a sharp cut from the June forecast of 3.2 percent contraction.
  • Growth Rate: India’s growth is estimated to rebound 5.4 percent in 2021-22, mainly reflecting base effects and assuming that COVID-related restrictions will becompletelyliftedby2022.
  • Reasons:
    • National lockdown against the outbreak of the Covid-19 pandemic.
    • Income shock experienced by households and small urban service firms.
  • Impact:
    • The slowdown in India is expected to depress manufacturing and exporting industries, and the construction sector (which relies On Indian migrant workers).
    • It is also likely to experience a protracted slowdown due to a limited pipeline of public sector infrastructure projects.

Other South Asian Countries(All estimates for July-June):

  • Maldives is estimated to record a 19.5 percent contraction.
  • Sri Lanka is estimated to clock a 6.7 percent contraction in the calendar year 2020.
  • Pakistan’s economy is estimated to grow 0.5 percent in 2020-21.
  • Bangladesh at 1.6 percent.
  • Bhutan at 1.8 percent.

About the South Asia Economic Focus report:

  • The South Asia Economic Focus is a biannual economic update presenting recent economic developments and a near-term economic outlook for South Asia.
  • It includes a Focus section presenting a more in-depth analysis of an economic topic of relevance for stability, growth, and prosperity in the region as well as country briefs covering Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.
  • It concludes with a data section providing key economic indicators for South Asia “at a glance."
  • This biannual series is prepared by the Office of the Chief Economist for the South Asia region.
  • Objective: Providing important background information and timely analysis of key indicators and economic and financial developments of relevance to World Bank Group operations and interaction with counterparts in the region, particularly during annual and spring meeting.

Source: The Indian Expres

Reforms in the Exploration and Licensing Sector

Context:

The Union Cabinet has approved the Policy framework on reforms in the exploration and licensing sector for enhancing domestic exploration and production of oil and gas.

  • Objective: To attract new investment in the Exploration and Production (E&P) Sector, intensification of exploration activities in hitherto unexplored areas, and liberalizing the policy in producing basins. 

Background:

  • In 2016 the Hydrocarbon Exploration and Licensing Policy was approved. It replaced the New Exploration Licensing Policy (NELP), 1997.
  • The policy aimed at increasing transparency and decreasing the administrative discretion in granting hydrocarbon licenses. 
  • Domestic production of oil and gas was declining, import dependence was rising and investment in E&P activities was reducing. Thus, policy reform in this sector was needed.

The New policy reforms focus on four major areas:

Increasing exploration activities in unexpected areas:

  • In basins where no commercial production is there, exploration blocks would be bid out exclusively on the basis of exploration work program without any revenue or production share to Government. Royalty and statutory levies, however, will be paid by the Contractor.
    • For unallocated/unexplored areas of producing basins, the bidding will continue to be based on a revenue-sharing basis but more weightage to work program. 
    • An upper ceiling on biddable revenue share has also been prescribed to prevent unviable bids. 
    • The policy also provides for a shorter exploration period and financial incentive for the commencement of early production. 
  • The contractor will have a full marketing and pricing freedom for crude oil and natural gas to be sold at arm's length basis through a transparent and competitive bidding process.

Incentivize enhanced gas production, marketing, and pricing freedom:

  • These have been granted for those new gas discoveries whose Field Development Plan (FDP) is yet to be approved.
  • The fiscal incentive is also provided on additional gas production from domestic fields over and above normal production 

Enhanced production profile:

  • To enhance production from existing nomination fields of ONGC and OIL, an enhanced production profile will be prepared by both PSUs. 
  • For production enhancement, bringing new technology, and capital, NOCs will be allowed to induct private sector partners.

Promoting ease of doing business:

  • Measures will be initiated for promoting ease of doing business through setting up coordination mechanisms and simplification of approval of DGH, alternate dispute resolution mechanism, etc.

Significance of policy:

  • Through this policy, a transparent, investor-friendly, and competitive policy framework is envisaged to accelerate exploration activities and provide impetus to expeditious production of oil and gas. 
  • The production enhancement scheme for the nomination field of NOCs is likely to augment production by leveraging new technology, capital, and management practices through private sector participation. 
  • With enhanced E&P activities, there would be a macro-economic benefit in terms of the development of support services, employment generation, transfer of advanced technology, etc.
  • The enhanced production would help in reducing import dependence, improve the energy security of the country, and save precious foreign exchange on import bills.

Natural Gas:

  • It is found with petroleum deposits and is released when crude oil is brought to the surface.
  • Russia, Norway, the UK, and the Netherlands are the major producers of natural gas.
  • In India, Jaisalmer, Krishna Godavari delta, Tripura and some areas offshore in Mumbai have natural gas resources.
  • In 1984 the Gas Authority of India Limited was set up as a public sector undertaking to transport and market natural gas.

Source: PIB

Minimum Support Price (MSP) for Farmers

Context:

The recently enacted law that dismantles the monopoly of APMC (agricultural produce market committee) mandis may not have faced serious farmer opposition had it included a provision safeguarding the continuance of the existing minimum support price (MSP)-based procurement regime.

What does the law say about MSP?

  • The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill does not give any statutory backing to MSP. There isn’t even a mention of either “MSP” or “procurement” in the Bill passed by both Houses of Parliament.
  • Recently, the protest by farmers over the three farm bills has a direct connection with the Minimum Support Price - Public Distribution System (MSP-PDS) regime.

Minimum Support Price (MSP):

  • MSP is a “minimum price” for any crop that the government considers as remunerative for farmers.
  • It is also the price that government agencies pay whenever they procure the particular crop.
  • The Centre currently fixes MSPs for 23 farm commodities i.e.:
    • 7 cereals: paddy, wheat, maize, bajra, jowar, ragi and barley
    • 5 pulses: chana, arhar/tur, urad, moong and masur
    • 7 oilseeds: rapeseed-mustard, groundnut, soya bean, sunflower, sesamum, safflower and nigerseed
    • 4 commercial crops: cotton, sugarcane, copra and raw jute.
  • The centre is not legally bound to pay the MSPs even if the open market rates for the said produce are ruling below their announced floor prices.

Announcement:

  • MSP is announced at the beginning of the sowing season for certain crops on recommendations by Commission for Agricultural Costs and Prices(CACP) and announced by Cabinet Committee on Economic Affairs (CCEA) chaired by the PM of India.

How are MSPs determined?

  • The Centre fixes MSPs for every Kharif and Rabi season based on the recommendations of the Commission of Agricultural Costs and Prices (CACP).
  • While calculating the Minimum Support Prices (MSPs), the CACP consider the following costs:
    • A2: Covers all cash and in-kind expenses incurred by farmers on seeds, fertilizers, chemicals, hired labour, fuel, irrigation etc.;
    • FL: Actual costs plus an imputed value of unpaid family labour; and
    • C2: Includes A2+FL along with revenues forgone on owned land (rent) and fixed capital assets (interests).

Source: Indian Express

Reforms that miss the point

1. CONTEXT OF THE NEWS

Indian economy is still reeling under the COVID-related economic crisis.

There is an urgent need to address the economic crisis in the rural regions, not only for the social dimension but also because the crisis has revealed the urgent need of structural reforms in the rural economy.

The editorial discusses the need of state intervention to makes agriculture economically and ecologically viable.

2. RURAL URBAN DIVIDE IN INDIA

2.1 Increasing economic unviability of Agriculture

  • Due to the policies adopted post the 1991 economic reforms, farming in India is becoming increasingly unviable.
  • This is largely because post 1991 policies cantered only around industry and services sector.
  • Successive governments in order to win over the hearts of the middle class consumers sacrificed the farming class who were not compensated adequately for their produce anymore.

2.2 Huge difference in consumption

  • The unprecedented neglect of the agricultural sector by successive governments has led to an equally unprecedented gap between the standard rural and urban India.
  • Under the reign of UPA-II the urban/rural ratio in terms of monthly per capita expenditures got reduced for the first time since 1974.
  • The ratio has sharply increased from 1.84 to 2.42 during the period 2012 to 2018.
  • Simply put, today an average person in urban India consumes 2.5 times more than an average person in rural India.

3. THE ‘1991 MOMENT’ FOR AGRICULTURE

3.1 Arguments against the  APMC Act

  • The primary criticism of the APMC Act is that the act does not allow for a free market for the agricultural produce due to government intervention.
  • This takes away the opportunity from the farmers of determining a fair price in the market for their own produce.
  • On the surface, this appears a sound criticism but as per the Shanta Kumar led High-Level Committee report in 2015, only 6% of the farmers get the Minimum Support Price (MSP) whilerest 94% already face the cruelty of the market.
  • This takes place because of the following reasons:
    • barrier to access the MSP for farmers
    • only 22 crops are procured under MSP
    • inadequate infrastructure
    • there are only around 7,000 APMC mandis across India
    • procurement by APMCmandisdepends on the stocks required by the state

3.2 Liberalisation of Indian Agriculture

  • Given the poor state of agriculture sector in India, the present regime has gone for  liberalisation of Indian agriculture by amending the Agricultural Produce Marketing Committee (APMC) Act and the Essential Commodities Act

3.3 Changes introduced by the Amendment

  • Primary motive of the amendment is to deregulate trading practicesin agricultural markets (mandis).
  • Amendment will allow the peasants to realise better monetary compensation of their produce by enabling the farmers to sell their produce wherever it is valuable for them.
  • The amendment will also ensure lifting of inter-state trade barrier in agriculture
  • It will also introduce Contract farming wherein the buyer can assure the remunerative price of the produce to the farmer at the time of sowing.
  • The amendment has been hailed as the “1991 moment” for the agriculture sector.

4. THE PROBLEM IS NOT THE APMC ACT

The editorial suggest that contrary to the popular belief, the APMC Act is not the main problem and in fact has been a part of solution (State intervention).

4.1 Realising farm pricing

  • Established in 1965, the Agricultural Prices Commission (APC) included the living costs of farmers while determining the prices for agricultural produce for agricultural - industry trade.
  • The APC was replaced by the Commission for Agricultural Costs and Prices (CACP) in 1985.
  • The CAPC added a 10 per cent mark-up over the MSP to account for entrepreneurial costs.
  • Such methods helped to contain the urban/rural divide.
  • However, post 1991 economic reforms, such practices have been gradually eroded.
  • Therefore, instead of government intervention, the problem lies with the way the government deals with agriculture.

4.2 Benefits of procurement through APMC

  • The APMC Act has enabled India to build up food stocks for an emergency situation like the current COVID induced economic crisis.
  • In June 2020, the food grain stock with the Food Corporation of India (FCI) at 832.69 lakh tonnes of rice and wheat is the most since 2005.
  • India successfully dealt with the 2008 global food crisis only because India had enough food stocks since Indian agriculture was not linked to the international futures market.
  • Therefore, procurement through the APMC Act is the reason behind India successfully dealing with the 2008 global food crisis.

4.3 Already modified

  • The APMC Act has already been reformed to a great extent.
  • Agriculture is a state subject in India and 17 states have already modified the APMC Act.
  • Some of the initiatives under the modification include
    • UzhavarSandhai in Tamil Nadu
    • Rythu Bazaar in Andhra Pradesh and Telangana
    • ApniMandi in Punjab
    • RaithaSanthe in Karnataka
    • Krushak Bazaar in Odisha.
  • Hence describing the APMC Act as a hindrance in alleviating rural distress would be inappropriate.
  • Furthermore, experts point out that dilution of the APMC Act has adversely affected peasant condition. Revoking of the APMC Act in Bihar in 2006 had the following turnout:
    • failure to attract private investment in infrastructure as the deregulation intended
    • dismantling of the existing APMC market infrastructure

5. IDENTIFYING PROBLEMS

The editorial suggests the following reforms instead of amending the APMC Act:

5.1 Removing Heavy Subsidy

  • Indian agriculture is still too heavily subsidised in favour of the big players.
  • The Ministry of Agriculture was allocated Rs 1,30,485 crore in the Union Budget 2019-20 with fertiliser subsidy alone accounting for Rs 79,996 crore.
  • These subsidies are concentrated only on a select few crops.
  • Only three crops - rice, wheat and sugarcane receive more than 60% of the so-called “non-product-specific” support to agriculture since the market price for these crops are competitive and remunerative.

5.2 Environmental Degradation

  • This also has led to ecological degradation including:
    • depletion of groundwater levels
    • threat to biodiversity due to monoculture
  • Furthermore, this has also led to industrialisation of agriculture resulting in the strengthening of a few multinational companies that supply chemical inputs.
  • Further liberalisation of the Indian agriculture will only strengthen the role of large companies primarily in those in the agri-food sector.

5.3 Understanding the problems

  • The present migrant workers’ crisis reveals that it was not economically viable for the peasants to stay in rural India in the first place.
  • If these workers continue to live back in the villages, the problem is only going to worsen. 

6. SUGGESTING REFORMS

6.1 Suggested reforms

  • Agriculture in India needs to be made more economically and ecologically viable.
  • Instead of any further liberalisation of agriculture, state intervention in the sector should aim at the following:
    • better pricing
    • investments in water harvesting
    • agro-ecological transition to ensure a more resilient system to weather shocks

6.2 Making agriculture sustainable

  • The government can draw inspiration from Andhra Pradesh Community Managed Farming model to make Indian agriculture sustainable.
  • The model promotes agro-ecological principles of using locally produced and ecologically sustainable input focusing on soil health, instead of depending on chemical fertilisers.
  • Agro-ecological system of farming has the following benefits:
    • It is more biodiverse in nature hence will make agriculture more resilient
    • provides a safety net for farmers in case of crop damage due to various factors such as climate change or droughts

7. CONCLUSION

The government can bridge the unprecedented and steadily increasing urban-rural divide by investing in agriculture and introducing structural reforms in the sector.

Further liberalisation of the Indian Agriculture will expose the already vulnerable framers to the whims of the free market and do more harm than good.

Only through structural reforms on the lines of MGNREGA for landless peasants can the farmers of India be benefitted substantially.

National Startup Awards (2020)

Context:

The results of the first edition of the National Startup Awards (2020) were recently released by the Ministry of Commerce & Industry.

  • Objective: To recognize and reward outstanding Startups and ecosystem enablers that are building innovative products or solutions and scalable enterprises, with high potential of employment generation or wealth creation, demonstrating measurable social impact. 

Sectors:

  • The first edition of the Awards invited applications across 12 sectors naming Agriculture, Education, Enterprise Technology, Energy, Finance, Food, Health, Industry 4.0, Space, Security, Tourism, and Urban Services.
  • Apart from these, startups are to be selected from those which create an impact in rural areas, are women-led, and founded on academic campuses.

Startup India Showcase:

  • The Startup India Showcase and Blockchain-based Certificate Verification System were also launched during the event.
  • It is part of the Startup India portal intended to be an online discovery platform for the most promising startups of the country.
    The startups showcased here shall be handpicked by experts and will span across different sectors like FinTech, EdTech, Social Impact among others.
  • The showcase will help industry, investors and public authorities find and connect with startups for potential partnerships, investments, and public procurement respectively.

Blockchain-based Certificate Verification System:

  • The system will enable instant verification and access to certificates of recognitions issued by DPIIT.
  • This feature introduces an added layer of security to the startup certificates.
  • It can be accessed by Government Departments, procurement entities, investors, and other third parties to verify the status of recognized startups for accessing different opportunities.

Startup India Initiative:

  • It was launched in 2016 by the Ministry of Commerce and Industry.
  • Objective: To catalyze startup culture and build a strong and inclusive ecosystem for innovation and entrepreneurship in India.

Definition of Startup:

  • Ministry of Commerce and Industry has described an entity as a ‘startup’:
    • Up to five years from the date of its incorporation/registration,
    • If its turnover for any of the financial years has not exceeded Rupees 25 crore, and
    • It is working towards innovation, development, deployment, or commercialization of new products, processes, or services driven by technology or intellectual property.

Source: PIB

Blessings of the visa gods

1. CONTEXT OF THE NEWS 

Non-residential Indians have flocked in huge numbers to attend the overseas rallies of Hon'ble Prime Minister Narendra Modi. However, only an insignificant number of the Indian diaspora would choose to return to India and work towards nation building.

On the contrary, the number of Indian seeking blessings of the 'visa gods' is increasing every year.

This editorial discusses the increasing tendency of the non-resident Indian to become the not-returning Indian and the contribution of the Indian diaspora towards India's “atmanirbharata” (self-reliance).

2. AMERICAN UNIVERSITIES AND COMPANIES JOIN HANDS 

2.1 Recent developments

  • Recently America’s Ivy League institutions and information technology giants joined hands to get the American President revoke his directives relating online courses offered by American Universities and international students.
  • The American President had earlier issued a directive that when an American university switches to online courses, the enrolled international students must go back to their native country and complete their education online.

2.2 Reason for the support of international students

  • The combined protest of the American universities and companies was no surprise because of the following reasons:
    • The Universities of America makeshuge income from international students
    • International Students are also welcomed by the American companies who hire imported talent helping the companies realise huge profits

3. EARNINGS THROUGH INTERNATIONAL STUDENTS

3.1Billion Dollar question

  • Earning of the American Universities in international student fee was estimated to be around US$45 billion by US department of commerce.
  • A UK study estimates losses to the tune of GBP19billion in case of a sharp decline in the intake of international students.

3.2 Increasing dependency on tuition fee

  • Universities and Educational institutions in many Anglophone countries, including Canada, Australia, New Zealand and Singapore are increasingly becoming dependent on the earnings through tuition feefrom foreign students.
  • In terms of these foreign students, Indian students are becoming the single largest group.

4. THE INDIAN VIEWPOINT

4.1 Remittance from India to abroad

  • Under its Liberalised Remittance Scheme (LRS), the Reserve Bank of India provides the data on foreign exchange remitted overseas by Indian nationals resident in India.
  • Research reveals that an amount between $10 to $13 billion is remitted by Indian students annuallyas tuition fee abroad.
  • While the annual average forex outflow was $1.07 billion in 2009-14, it has sharply risen to $11.33billion in 2014-20.
  • Of the total outward remittances in the period 2009-2014, 30% accounted for two items viz. payment for studies abroad and for maintenance of close relatives. This number has risen to 47% in 2014-20.
  • To put it in simple words, Indians are taking out more money from India to abroad to educate and maintain themselves in foreign land.

4.2 Remittances to India from Abroad

  • Indians who go abroad to work (H1-B visa holders) indeed remit a part of their earnings to India especially in case their family stays in India.
  • However, the number of such Indians is increasingly declining as these families are settling down permanently in foreign lands.

4.3 A Net drain

  • In the long run, students who go abroad in search of paid education and eventual citizenship are a net drain on the Indian economy, unless they return back home and contribute their share in India's development.
  • This can also be seen as a net drain of wealth and skill from India.

5. INCREASING TENDENCY IN STUDENTS TO STUDY ABROAD

5.1 Rise of an industry

  • The number of Indian students seeking education abroad is so huge that an entire industry has emerged in India to help students migrate abroad.
  • Presently there are 176 “world schools”offering International Baccalaureate (IB)certificates that help qualify school leaving Indian children for graduate education abroad.

5.2 Case of IB (International Baccalaureate) Schools

  • IB Schools charge a fee anywhere around Rs 75,000 per month to Rs 1,50,000 a month.
  • Many IB Schools employ experienced, elderly British and European teachers who have retired from the educational institutions in their original homeland.
  • Furthermore, there is no systematic effort to encourage these Indian students to contribute to national development, which can be done in the following two ways:
    • encouraging these students to return back to India after their education and contribute to India's development
    • paying a “brain drain tax” on similar lines of tax suggested by economist Jagdish Bhagwatiin the early 1970s

5.3 Expanding pool of Indian student migrants

  • In the 1970s, 1980s and most of 1990s, the majority of Indian migrants to developed countries came from middle class, mainly upper caste, families, however since the 2000s, such Indian migrants have come from all classes. 
  • Today the demands from middle class for a US Visa to access educational and employment opportunities in developed nations is as much as from upper class families.
  • Children from almost every influential section of society are seeking exit visas.

6. DOUBLE DRAIN

6.1 Low appeal for online education

  • Surveys and studies reveal that online education offered by western institutions has very low popularity and appeal among the Indian students.
  • This is because students seeking education in the western universities hope to eventually emigrate and settle down abroad.

6.2 The two drains

  • The outflow of educated and skilled Indians is not balanced by a return flow of income, knowledge, investment and talent.
  • This constitutes both
    • a drain of wealth, and
    • a drain of brain power
  • The policymakers of the developing world have consistently ignored the Bhagwati’s brain drain tax proposal.

6.3 Brain Banks

  • Indian Prime Ministers have hailed the overseas Indians as a “Brain Bank” on whom India can draw for its own development.
  • However, as it seems presently, this so-called Brain Bank is making massive financial and intellectual deposits only into the host country.
  • This is increasing the drain of wealth and intellect from India without any substantial gains and appreciable returns for India.
  • Indian workers in the Gulf region and some H1-B workers in the US are the majority of NRIs remitting money to India.
  • Well off Indians have settled in the developed world especially the Anglophone world and now make all financial, intellectual and emotional investments in the host country itself, away from their native land.

6.4 Movement of natural persons, a matter of great national interest

  • Over the years, the governments and policymakers in India have increasingly made out-migration of skills a matter of great national interest.
  • This is evident from:
    • increasing efforts by the Indian diplomacy to seek a favourable multilateral trade regime referred to as the “movement of natural persons” in the language of trade diplomacy
    • the hue and cry in the Indian government and media on declining opportunities for Indian out-migration

7.CONCLUSION 

India's rise was seen in a positive light in the early 2000s and there were hopes that much like the other East Asian communities in the United States of America (Japanese, Koreans and Chinese), Indians in the U.S.A. would also eventually return to India and contribute to India's development. However, this has not happened for a variety of reasons.

Non-residential Indians happily contribute and enthusiastically respond to overseas rallies of Indian Prime Minister and some of them also contribute financially to political campaigns, remit back earned foreign wealth and organise webinars and talk India up.

However, very few of those to respond to the call on Indian Prime Ministers in overseas rallies decide to return to India and contribute to India's development. The non-resident Indian is increasingly becoming the not-returning Indian.

ADDITIONAL INFORMATION

Taxing the Brain Drain

  • Jagdish Bhagwati proposed a way to compensate for the phenomenon of brain drain from less developed countries (LDCs) to the Developed Countries (DCs).
  • He proposed a supplementary income tax on the earning of the immigrants in developed counties.
  • Such funds could be routed back to the LDCs for developments and nation building through an international agency as the United Nations.
  • This would compensate for the losses that the less developed countries incur due to the outflow of some of their best trained minds to developing countries.

Question of Federalism on Farm Acts
 

Context:

Recently, the President of India gave assent to the controversial farm Bills passed by Parliament. There are protests going on in the country against the bill.

Arguments in favour of the Bills:

  • According to the government, the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 liberates farmers by giving them the freedom to sell anywhere.
  • The government claims these Acts will transform Indian agriculture and attract private investment.
  • The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, provides for contract farming, under which farmers will produce crops as per contracts with corporate investors for a mutually agreed remuneration.

Arguments against Farm Bills:

  • The farmers fear that powerful investors would bind them to unfavourable contracts drafted by big corporate law firms.
  • The liability clauses in the contract would be beyond the understanding of poor farmers in most cases.
  • The opposition believes that it would lead to the corporatisation of agriculture, with the market, along with the monsoon, becoming an unpredictable determinant of the destiny of farmers.

Question of Federalism on Farm Acts:

  • Federalism essentially means both the Centre and states have the freedom to operate in their allotted spheres of power, in coordination with each other.
  • As per the Union of India v H.S.Dhillon (1972), the constitutionality of parliamentary laws can be challenged only on two grounds i.e. the subject is in the State List or that it violates fundamental rights.
  • The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, and The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 do not mention the constitutional provisions under which Parliament has the power to legislate on the subjects covered.

The Seventh Schedule of the Constitution:

  • It contains three lists that distribute power between the Centre and states:
    • There are 97 subjects in the Union List, on which Parliament has exclusive power to legislate (Article 246);
    • The State List has 66 items on which states alone can legislate;
    • The Concurrent List has 47 subjects on which both the Centre and states can legislate; and
    • In case of a conflict, the law made by Parliament prevails (Article 254).
    • The Parliament can legislate on an item in the State List under certain specific circumstances laid down in the Constitution.

Source: Indian Express

Ambedkar Social Innovation and Incubation Mission (ASIIM)

Context:

Ministry of Social Justice and Empowerment has launched the Ambedkar Social Innovation and Incubation Mission (ASIIM) under Venture Capital Fund for SCs.

  • Objective: To promoting innovation and enterprise among SC students studying in higher educational institutions.

Venture Capital Fund for SCs:

  • The Ministry of Social Justice had launched the Venture Capital Fund for SCs in 2014-15 with a view to developing entrepreneurship amongst the SC/Divyang youth and to enable them to become 'job-givers’.
  • Objective: To provide concessional finance to the entities of the SC entrepreneurs.

Ambedkar Social Innovation and Incubation Mission (ASIIM):

  • Under this fund, 117 companies promoted by SC entrepreneurs have been sanctioned financial assistance to set up business ventures.
  • Under the ASIIM initiative, 1,000 SC youth would be identified in the next 4 years with start-up ideas through the Technology Business Incubators (TBIs) in various higher educational institutions.
  • They will be funded @ Rs. 30 lakhs in 3 years as equity funding so that they can translate their start-up ideas into commercial ventures.
  • Successful ventures would further qualify for venture funding of up to Rs. 5 Crore from the Venture Capital Fund for SCs.
  • The Ministry has also decided to launch ASIIM through the Venture Capital Fund for Scheduled Castes (VCFSC).

It’s objectives include:

  • To promote entrepreneurship among the SC Youth with special preference to Divyangs;
  • To support (1,000) innovative ideas until 2024 through a synergetic work with the Technology Business Incubators (TBIs) set up by the Department of Science and Technology;  
  • To support, promote, hand-hold the start-up ideas until they reach the commercial stage by providing liberal equity support; and
  • To incentivize students with an innovative mindset to take to entrepreneurship with confidence.

Eligibility:

  • Youth who have been identified by the TBIs.
  • Students who have been awarded under the Smart India Hackathon or Smart India Hardware Hackathon being conducted by the Ministry of Education.
  • Innovative ideas focusing on the socio-economic development of the society identified in the TBIs.
  • Start-ups nominated and supported by corporates through Corporate Social responsibility (CSR) funds.

Significance:

  • This initiative will promote innovation in the SC youth and would help them to become job-givers from job-seekers, and would further give a fillip to the ‘Stand Up India’ initiative.

Source: PIB

 

India must remain vocal for global

1. CONTEXT OF THE NEWS

In the wake of COVID-19 and its associated economic impact, Hon'ble Prime Minister gave a clarion call for Aatma-nirbhar Bharat and conveyed that India needs to be a self-reliant nation if it were to take the leadership of the world.

This editorial suggests that it will be a strategic mistake for India to undertake economic isolation in the current scenario.

2. INDIA, PROTECTIONISM AND GLOBALISATION

2.1 Rise of Protectionism

  • The present global economic relations and global trade is increasingly wrapped by protectionism.
  • The covid-19 pandemic has led to unprecedented economic dislocation all around the globe and as economies all around the world are displaced, there are resurrecting demands in nations to cut down interactions with the rest of the world.
  • India has only recently rediscovered its importanceas a trading nations and it would be a strategic mistake for India to take the isolation course given that India has been an important centre of trade since antiquity.

2.2 India and Protectionism

  • The colonial rule left India impoverished and Indian economy in ruins and as a consequence foreign trade was looked upon as a new form of colonialism by leaders across the political spectrum, after political freedom in 1947.
  • Development strategy in initial years of independence was to expand the Indian economy with minimal foreign trade.
  • The strategy of import substitution gave some initial success to India to develop a strategic depth through a diversified industrial structure but in the long run the strategy failed to meet its core objective of elimination of mass poverty to be achieved by rapid economic growth.

2.3 India and Globalisation

  • The isolationist strategy changed with India deciding to reintegrate with the world economy in the wake of 1991 economic crisis.
  • Indian economy went through deep reforms in industrial, trade, fiscal and financial policies and there was a shift in focus from isolation to economic openness.
  • Economic openness of India was endangered again when economic sanctions were imposed on India after 1998 nuclear tests.
  • However, the government of the day choose to deepen economic interaction with the rest of the world than to turn isolationist again and as a consequence millions of Indians have been lifter out of poverty.

3. REMAINING A TRADE NATION - THE RISK AND THE REWARD

The editorial gives four reasons to make a strong case for India to remain a strong trading nation.

3.1 Restricted market

  • Since the 1991 reforms, successive governments have steered economic expansion and have lifted millions of Indians from dire destitution. This has won India global praise.        
  • However, the economic growth of India is restricted by a limited domestic market particularly in context of spending on industrial goods and modern services.
  • Furthermore, India is a $3-trillion domestic economy, which is belittled by a $90-trillion global economy.
  • A focus only on the domestic market will reduce the potential demand for goods and services produced in India.

3.2 Taxing import equals taxing exports

  • In the modern global economy where cross border trade is dominated by intermediate goods rather than consumption goods, putting a higher tax on imports will result in higher taxation on exports.
  • For a product (say iPhone), that is designed in the US and assembled in China is build with inputs sourced from countries across Asia.
  • For India to become an essential hub for global supply chains we need to increase the ease with which intermediate goods can move across Indian borders.
  • In this context, the government has taken a welcome step to draw global supply chains into India in context of rising global anger against China.
  • However, high import tariffs will undermine the government's efforts.

3.3 Protectionism and reconfiguration of global supply chains

  • Growing protectionist sentiments will inevitably led to a reduced global trade but policymakers should also explore alternatives than focusing on risks alone.
  • A huge opportunity of reconfiguration of global supply chains presents itself in the present scenario.
  • The rising wage cost in China and rising strategic concerns by U.S. and its allies against China also favour a reconfiguration of global supply chains.
  • India needs to consider both trends in the global economy viz. Protectionism and reconfiguration of global supply chains and weigh the relative impact of both on Indian economy.
  • Many experts are of the view that benefits arising from a trade diversion from China will be far more that the cost of trade destructionto the Indian economy due to rising protectionism.

3.4. Surplus labour

  • Indian has a huge untapped potential of surplus labour, which is presently trapped in agriculture and small entities in the informal sector.
  • Export-oriented and labour-intensive industries are tailor made for present Indian economy.
  • Since 1950s, such industries have moved in successive waves from Japan to East Asia to China and presently Vietnam and Bangladesh are on the receiving end of these industries moving from China.
  • India needs to play its cards wisely and on the earliest.

4. LEARNINGS FROM 1991 REFORMS

4.1 Conditions before the 1991 reforms

  • Tariff rates just before the 1991 reforms
    • highest tariff rate was 355%
    • simple average of tariffs was 113%
    • average tariff rate weighted by imports was 87%
  • Share of India in global trade fell from 2% at the time of independence to 0.5% in 1990.

4.2 Import tariff and share in global trade

  • One of stated goals of 1991 economic reforms was to gradually bring Indian tariff rates down to East Asian levels.
  • India's share in global trade went hand in hand with reductions in import tariffs.
  • An open trading regime also fostered competition in domestic industry to use capital efficiently.
  • Since 1991 periods of accelerating growth in Indian economy have coincided with strong growth in export

4.3 Falling exports

  • Over the last 10 years, Indian export growth has remained particularly weak since the global economy is less conducive to rapid export growth this decade than it was in the previous two decades.
  • However, there are still large opportunities for India to boost its share of global trade.

5. BOOSTING EXPORTS

5.1 Effect of trade protectionism

  • Since 1991, India no longer has a dominant foreign exchange constraint.
  • However, India needs to keep earning dollars, as it is vital to Indian economy for funding import of natural resources not present in India in abundance like petroleum and rare earths.
  • India had tried to reduce trade deficit through compressing import than promoting exports.
  • The policy has backfired and led has resulted in creation of an inefficient industrial structure, both in costs and technology, in one of the most protected economies in the world.

5.2 Policy to boost exports

  • Experts suggest subsidy to be the best policy response to a domestic distortion than tariff.
  • In this context the correct policy response should be:
    • to ease constraints on the domestic production of tradable goods
    • lower transaction costs
    • better infrastructure
    • more flexible factor markets
    • competitive exchangerate
    • Trade policy and industrial policy
  • Trade policy is deeply coupled with industrial policy and both need to move in tandem.
  • Higher export growth will boost domestic investment while higher domestic investment will drive more exports.
  • A more liberal trade policy needs to be complimented by a more liberal investment policy.

5.3 Building domestic capabilities

  • To ensure resilient economic growth deepening global economic ties should be accompanied by building domestic technology capabilities.
  • In this context trade and investment links matter as well, since they allow India to plug into robust global innovation networks.
  • A case in point being outsourcing of research to India by global multinationals which leads to knowledge spillovers from such research laboratories.
  • This knowledge spill helps theIndian innovation ecosystem.
  • We need to expand the scope of this techno-globalism from goods for private consumption to public goods as well.

6. TECHNO-GLOBALISM AND INDIA

6.1 Rise of techno-globalism

  • The 21st century world is marred by several profound challenges as
    • public health
    • climate change
    • depletion of fossil fuels
    • a water crisis
    • protecting biodiversity
  • Forces of techno-globalism can be used to create public goods to tackle these emerging challenges.

6.2 Role for India

  • India can play an important role in using techno-globalism to tackle these new challenges. However, this can only be achieved if India does the following:
    • remains open to the flow of knowledge and ideas
    • participating in multilateral institutions
    • by becoming a centre of trade and investments
  • It is highly unlikely that the world goes back to techno-nationalism.
  • A more probable future is of selective techno-globalism with trade and technology favouring trustworthy nations.
  • Strategic shift of alliances such as “D10 Alliance” proposed by Britain on 5G and emerging technologies are likely to benefit India.
  • The “D10 Alliance" comprises of 10 democracies (G7 nations plus India, Australia and South Korea).

7. CONCLUSION

The new opportunities can be thought in terms of three Ts of talent, technology and trust. India is already well poised with respect to talent and technology.

To complete the trio, India needs to develop more trust not just in others but also in itself (more self-confidence).

The goal of atmanirbharta (self-reliance) can only be meaningfully realised after coupling it with Atma Vishwas (self-confidence).

Presently, India is a lower middle-income country,and it should avoid the middle-income trap. A confident India should not be afraid to engage with the world for trade, investment, ideas or innovation.

The global economy is bound to be reconfigured after the pandemic and India needs to take advanced of the anticipated reorientation by capturing an important place in global supply chains. This is only possible by deepening global engagement rather than moving towards protectionism.

The great games at play in wind and solar

1. CONTEXT OF THE NEWS

The India economy is going through a possible recession. There is also a collapse in power demand but the renewable sector is doing well.

However, instead of this brief period of optimism in the renewable sector, the immediate renewable energy targets remain out of reach.

This editorial discusses the future of renewable energy sector in India in context of the COVID-19 induced economic recession.

2. RENEWABLES RISE WHILE ELECTRICITY DEMAND FALLS

2.1 Fall in electricity demand

  • As the Indian government imposed a nationwide lockdown in its response to the COVID-19 pandemic to reduce the spread of corona virus, and Indian population of 1.2 billion stayed in their homes with most factories and economic activities at a halt, India's electricity demand declined by 22%.
  • In the wake of the fall in demand, Power generators hurriedly went for scaling down of operations and state-owned electricity utilities declined any expensive purchases.

2.2 Must run status

  • Due to the fall in demand, several utilities lowered the energy production. A case in point is of Punjab, which told some of the solar power suppliers to not feed electricity into the grid anymore.
  • This was in violation of the “must-run" status which the renewable power energy sector in India is subjected to.
  • Shortly after Punjab's dictum, the Ministry of New and Renewable Energy intervened and clarified that despite the fall in energy demand, all utilities must compulsorily continue to procure renewable energy at the same rate and if the electricity distribution companies needed to reduce power supply they could curtail purchase from the coal power plants instead.

3. PRESENT STATUS OF RENEWABLES IN INDIA

3.1 Unprecedented rise

  • The data shows that during the lockdown period, utilities indeed adhered to the government directives.
  • Aggregate demand for power fell in April and May yet renewable sector in the same period made giant strides.
  • Data from the national load despatch centre reveals that:
    • Electricity procurement from coal-based power plants in India’s energy basket was reduced to 63% in May from 75% in early March.
    • During the same period, the share of clean energy sources (solar, wind and hydroelectric power) rose from 16% to unprecedented levels of 28%.

3.2 Closer analysis

  • India has set itself an ambitious target of achieving 40% of the national energy requirement through clean energy (renewables, small hydro and nuclear) by 2030.
  • Given that this share reached the unprecedented levels of 28% gives very high hopes of achieving the highly ambitious target within the stipulated time.
  • However, this sudden and unexpected change is occurring in world fighting a war against the COVID-19 pandemic.
  • India too is fighting the COVID-19 epidemic, and COVID-19 induced economic slowdown through a series of policy and social measures and therefore the rise of renewables in India's energy mix needs closer analysis.

3.3 India and renewables

  • India has aggressively and ambitiously pushed for solar and renewable and has also aspires to assume global leadership in the sector.
  • However, the push for clean energy by India is marred by contradictions and paradoxes like:
    • Presently India imports nearly 80% of solar equipment from China
    • Despite signs of stress and worry in the solar energy sector there was a continued regular inflow from foreign private equityfunds
    • There are hopes of revival of the sector in the present year when the future is riddled with uncertainties due to the COVID-19 pandemic and associated economic recession and the overall power demand is expected to fall.

4. FOREIGN INVESTMENT IN RENEWABLES

4.1 Reasons troubling the Indian Solar energy sector before the lockdown

  • Developers in the solar energy sector are already operating at razor-thin margins and in a an attempt to further lower the already falling clean energy tariffs are compromising on the quality of the new power plants being set up.
  • Bills at state utilities are piling up with some states even refusing to pay.
  • Even before the nationwide lockdown, the growth in India's electricity demand was crawling due to an economic slowdown and developers had stopped bidding for new projects.
  • The renewable sector in India was on the verge of a collapse however was saved by a key factor.

4.2 Foreign capital as the saving grace

  • Foreign capital has few avenues to chase in the Indian economy that was under slowdown and has kept the Indian renewable industry afloat.
  • The COVID-19 induced economic crisis is only going to increase the quest for safe havens and would turn India’s renewable energy farms into a terrain for great games.

4.3 The bets

  • About $10 billion have already been pledged by foreign pension funds, sovereign wealth funds and private equity towards infrastructure assets in the Indian renewable energy space.
  • Return in Indian renewable sector in higher than anything that global capital can earn in OECD countries.
  • In the infrastructure space in India only the following sectors have grown significantly in terms of returns profile and stable government policies:
    • renewable energy projects
    • transmission lines
    • operating toll roads
  • While the infrastructure avenues in the following sectors are reeling
    • thermal energy
    • waste management
    • water management
    • power distribution
    • urban infrastructure
  • These segments have not been able to scale up to absorb the massive foreign investments.
  • Some segments like thermal energy are not considered a safe bet for overseas capital with sustainability goals

4.4 Diversifying pool of investors

  • The type and pool of foreign investors willing invest in India is also deepening.
  • Few years back large foreign investments came mostly from
    • pension funds
    • sovereign wealth funds from Canada, the Middle East and Singapore
    • energy firms in Europe with green commitments
  • Now new players are making direct investments in India from across Europe, the Middle East, Asia and South Asia

4.5 Changing ownership structure

  • Every gigawatt of capacity requires close to $600-700 million of investment across debt and equity.
  • Influx of massive capital is changing the ownership structure of Indian renewable energy assets.
  • The largest home-grown developers from a few years ago have sold either controlling or significant equity stake to overseas investors, injecting the latter with the cash necessary to place bids at lower and lower tariffs.

5. THE FUTURE IN RENEWABLES

5.1 Crashing prices

  • Tariffs are the key determinant in a utility’s decision to buy or forgo power from a new project. Access to cheap capital by the developers is lowering the tariffs.
  • There is a strong movement in overseas private companies to reduce their carbon footprint.

5.2 Why huge investment in renewables?

  • Globally, natural gas, hydro and nuclear energy for a considerable portion of a country's energy basket when compared to India.
  • In India, renewable power is the only viable alternative to coal.
  • 15 years age when generation of electricity was first privatised in India, companies were free to set up power plants but the access to fuel (coal) was controlled.
  • However, the case with renewables is fundamentally different as the resource is free and the investment is being done in a country where the consumption rates are bound to go up in the longer run.

5.3The challenges

  • Despite the temporary surge in the sector, long time developers in Indian renewable sector issue a note of caution.
    • Structural issues like land acquisition and issues in right of way while setting up new plants still persist.
    • Power utilities have a combined dueover ?1 trillion in June showing signs of a need of government bailout.
    • Some state government (Andhra Pradesh and Punjab) are in alitigation with its renewable suppliers looking to renegotiate older power purchase agreements (PPAs) at higher tariffs for lower ones that match prevailing market rates.
  • India is also pushing for self-reliance in the energy sector, whichraises the project cost in the short run.
  • To reduce Chinese imports and encourage domestic manufacturing of solar photovoltaic cells, the Central government has replaced the existing safeguard duty of 15% with a 20% customs duty on modules, cells and inverters.

6. WAY AHEAD AND CONCLUSION

6.1 Realising the true cost of renewable energy

  • Last year domestic developers bid for solar and wind energy prices had corrected to ?2.7 per unit in central and state government auctions.
  • However, last month foreign capital investors with heavy pockets have brought prices down to an all-time low of ?2.36 per unit.
  • However, we also need to realise the true cost of renewable energy, which experts put at over ?5 a unit.

6.2 Conclusion

  • Despite the optimist in India's renewable sector recently, immediate targets in renewables, that India has set for itself is still out of reach.
  • By 2022, the Indian government aspires to build a total capacity of 100 GW of solar power, 60 GW of wind, 10 GW of biomass and 5 GW of small hydroelectric projects.
  • However, as of today the aggregate installed capacity is a mere 87 GW
  • To achieve a cleaner energy and self-reliance success of India’s renewable programme is extremely crucial but it also requires realising the true cost of renewables.

ESG Funds

Context:

Recently, the ESG funds which imbibe environment, social responsibility, and corporate governance in their investing process, are witnessing a growing interest in the Indian mutual fund industry too.

  • ESG stands for environment, social responsibility, and corporate governance which use these parameters as filters while picking stocks for investment.

About ESG Funds:

  • ESG investing is used synonymously with sustainable investing or socially responsible investing.
  • The ESG fund shortlists companies that score high on the environment, social responsibility, and corporate governance and then seek financial factors.
  • The schemes focus on companies with environment-friendly practices, ethical business practices, and an employee-friendly record.

Increase in focus on ESG Funds:

  • The ESG way of investing will be the new normal in India as most of the millennial and young population in India is more conscious while making an investment decision.
  • The majority of studies highlighted that companies with good ESG scores tick most of the checkboxes for investing, tend to mitigate environmental and social risks, and tend to have stronger cash flows, lower borrowing costs, and durable returns.

Possible changes by ESG Funds in India:

  • The companies will be forced to follow better governance, ethical practices, environment-friendly measures, and social responsibility, amid the growing momentum of ESG funds in India.
  • Globally there has been a big shift as many pension funds, sovereign wealth funds, etc. don’t invest in companies that are seen as polluting.
  • The companies need to do function responsibly, utilize the technology available, effluent treatment, should not discharge untreated waste in soil, water or air, and should also take care of their minority shareholders and society.

ESG schemes:

  • There are currently three ESG schemes managing close to Rs 4,500 crore, while at least five more fund houses have lined up new schemes.
    • These schemes are SBI Magnum Equity ESG (Rs 2,772 crore), Axis ESG (Rs 1,755 crore), and Quantum India ESG Equity (Rs 18 cr) — following the ESG investment strategy.
      • ICICI Prudential Mutual Fund, which launched its ESG fund on September 21, has already raised over Rs 500 crore in its ongoing NFO. 
  • There are over 3,300 ESG funds globally and the number has tripled over the last decade. The value of assets applying ESG to investment decisions today is $40.5 trillion.

Source: Indian Express

World Tourism Day

Context:

Ministry of Tourism celebrated World Tourism Day on 27th September.

  • The theme for 2020: ‘Tourism and Rural Development’.
  • The theme encourages the celebration of the unique role played by tourism in job creation outside of the big cities.

Details:

  • This year United Nations World Tourism Organisation (UNWTO) has designated 2020 as the Year of Tourism and Rural Development.
  • Objective: To promote the potential of tourism to create jobs and opportunities. It can also advance inclusion and highlight the unique role tourism can play in preserving and promoting natural and cultural heritage and curbing urban migration.

Initiatives to promote tourism in India:

SAATHI:

  • It is an initiative of the Ministry of Tourism with Quality Council of India to assist the hospitality industry to continue to operate safely and thereby instill confidence among the staff, employees, and the guests about the safety of the hotel.

Pathik:

  • It is an initiative on the Incredible India Tourist Facilitators Certification Programme (IITFC).
  • Objective: To communicate a positive message for welcoming events to India when competing destinations are already actively marketing their products.
  • The tone of joy and confidence in getting back to business, warm hospitality, safety protocols in place, and assurance of a delightful experience is the core message of the film.

Dekho Apna Desh:

  • The Ministry of Tourism has launched the Dekho Apna Desh (DAD) initiative in January 2020.
  • Objective: Create awareness among the citizens about the rich heritage and culture of the country, encouraging citizens to travel widely within the country and enhancing tourist footfalls leading to the development of the local economy and creation of jobs at the local level.

Swadesh Darshan Scheme:

  • It is a Central Sector Scheme and was launched in 2014 for the integrated development of theme-based tourist circuits in the country.

PRASHAD Scheme:

  • The ‘National Mission on Pilgrimage Rejuvenation and Spiritual, Heritage Augmentation Drive’ (PRASHAD) was launched by the Ministry of Tourism in 2014.
  • Objective: Holistic development of identified pilgrimage destinations.

Source: PIB

Domestic Systemically Important Insurers (D-SIIs)

Context:

The Life Insurance Corporation of India (LIC), General Insurance Corporation of India, and The New India Assurance Co have been identified as Domestic Systemically Important Insurers (D-SIIs) for 2020-21 by insurance regulator IRDAI.

  • The IRDAI would identify D-SIIs on an annual basis and disclose the names of such insurers for public information.

Domestic Systemically Important Insurers:

  • It refers to insurers of such size, market importance, and domestic and global interconnectedness whose distress or failure would cause significant dislocation in the domestic financial system.
  • These are perceived as insurers that are ‘too big or too important to fail’.
  • The continued functioning of D-SIIs is critical for the uninterrupted availability of insurance services to the national economy.

Significance:

  • The three public sector insurers have been asked to raise the level of corporate governance.
  • Identify all relevant risks and promote a sound risk management culture.
  • The D-SIIs will also be subjected to enhanced regulatory supervision of the IRDAI.

Issues:

  • Given the nature of operations and their systemic importance, the failure of D-SIIs has the potential to cause significant disruption to the essential services they provide to the policyholders and, in turn, to the overall economic activity of the country
    • These considerations require that D-SIIs should be subjected to additional regulatory measures to deal with systemic risks and moral hazard issues.
  • Systemic risk is the possibility that an event at the company level could trigger severe instability or collapse an entire industry or economy.
  • Moral hazard is a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost. It arises when both parties have incomplete information about each other.

Insurance Regulatory and Development Authority of India (IRDAI):

  • It is an autonomous, statutory body tasked with regulating and promoting the insurance and re-insurance industries in India.
  • It was constituted by the Insurance Regulatory and Development Authority Act, 1999.
  • The agency's headquarters are in Hyderabad, Telangana, where it moved from Delhi in 2001.
  • IRDAI is a 10-member body including the chairman, five full-time and four part-time members appointed by the government of India.

Source: The Hindu

Vodafone case, and the Hague Court Ruling

Context:

The Permanent Court of Arbitration at The Hague ruled that India’s retrospective demand of Rs 22,100 crore as capital gains and withholding tax imposed on Vodafone Group for a 2007 deal was “in breach of the guarantee of fair and equitable treatment”.

  • The court has asked India not to pursue the tax demand any more against Vodafone Group.

About the case:

  • In 2007, Vodafone had bought a 67% stake in Hutchison Whampoa for $11 billion. This included the mobile telephony business and other assets of Hutchison in India.
  • Later, the Indian government for the first time raised a demand of Rs 7,990 crore in capital gains and withholding tax from Vodafone, saying the company should have deducted the tax at source before making a payment to Hutchison.
  • Vodafone challenged the demand notice in the Bombay High Court, which ruled in favor of the Income Tax Department.
    • Subsequently, Vodafone challenged the High Court judgment in the Supreme Court, which ruled that Vodafone Group’s interpretation of the Income Tax Act of 1961 was correct and that it did not have to pay any taxes for the stake purchase.
  • The same year, the then Finance Minister, circumvented the Supreme Court’s ruling by proposing an amendment to the Finance Act, thereby giving the Income Tax Department the power to retrospectively tax such deals.
    • Once Parliament passed the amendment to the Finance Act in 2012, the onus to pay the taxes fell back on Vodafone. ???????
  • The Act was passed by Parliament that year and the onus to pay the taxes fell back on Vodafone. The case had by then become infamous as the ‘retrospective taxation case’.

Retrospective taxation:

  • It allows a country to pass a rule on taxing certain products, items, or services, and deals and charge companies from time behind the date on which the law is passed.
  • Countries use this route to correct any anomalies in their taxation policies that have, in the past, allowed companies to take advantage of such loopholes.
  • Governments use a retrospective amendment to taxation laws to “clarify” existing laws.
  • Apart from India, many countries including the US, the UK, the Netherlands, Canada, Belgium, Australia, and Italy have retrospectively taxed companies.

Bilateral Investment Treaty:

  • In 1995, India and the Netherlands had signed a BIT for the promotion and protection of investment by companies of each country in the other’s jurisdiction.
  • The treaty had then stated that both countries would strive to “encourage and promote favorable conditions for investors” of the other country.
  • Under the BIT, the two countries would ensure that companies present in each other’s jurisdictions would be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other.
  • While the treaty was between India and the Netherlands, Vodafone invoked it as its Dutch unit, Vodafone International Holdings BV, had bought the Indian business operations of Hutchinson Telecommunication International Ltd. This made it a transaction between a Dutch firm and an Indian firm.
  • In 2016, the BIT between India and the Netherlands expired.

Permanent Court of Arbitration:

  • One of the major factors for the Court of Arbitration to rule in favor of Vodafone was the violation of the BIT and the United Nations Commission on International Trade Law (UNCITRAL).
  • In 2014, when the Vodafone Group had initiated arbitration against India at the Court of Arbitration, it had done so under Article 9 of the BIT between India and the Netherlands.
    • Article 9 of the BIT:  Any dispute between “an investor of one contracting party and the other contracting party in connection with an investment in the territory of the other contracting party” shall as far as possible be settled amicably through negotiations.
    • Article 3 of the arbitration rules of UNCITRAL: Constitution of the arbitral tribunal shall not be hindered by any controversy with respect to the sufficiency of the notice of arbitration, which shall be finally resolved by the arbitral tribunal”.
  • In its ruling, the arbitration tribunal also mentioned that now since it had been established that India had breached the terms of the agreement, it must now stop efforts to recover the said taxes from Vodafone.

Source: Indian Express

Reset rural job policies to recognise women’s work

1. CONTEXT OF THE NEWS

As the Indian economy comes out of the lockdown restrictions while the health implications of the COVID-19 is still looming, the labour market policy should be designed in a way to reverse the gender-differentiated impact the COVID-19 has had on the Indian economy.

This editorial discusses the need to designing and implementation policies to assist women.

2. GREATER IMPACT OF COVID-19 ON WOMEN

2.1 Effect on jobs

  • The adverse economic effects of the COVID-19 pandemic are adversely huge on women but very little attention is paid on the adverse impacts of the pandemic on women due to paucity of official statistics on women workers.
  • Due to the inadequate and inaccurate data available on women's work, there is also a lack of specific policies and programmes to assist them.
  • A survey conducted by Azim Premji University on 5,000 workers across 12 States, 52% of whom were women workers revealed that the adverse impact of the nationwide lockdown are disproportionately higher on women worker.
  • The survey revealed that while 71% of women rural casual workers lost their jobs during the lockdown, the number stands at 59% for men.
  • Data from the Centre for Monitoring Indian Economy (CMIE) also confirms the above finding. It reveals that job losses in April 2020 were larger for rural women than men when compared to the data for April 2019.

2.2 Effect on health and nutrition

  • As the nationwide lockdown significantly lowered employment in agriculture and allied activities and halted non-agricultural employment completely, the burden of care on women mounted up.
  • All the members of the family were at home during the lockdown. Men out of jobs or working from home, children out of schools, the chores of cooking, cleaning, childcare and elderly care became more onerous.
  • Managing the increased amount of household work that too during a crisis when provisioning has to be done at reduced levels of income and tight budgets will surely have significant long-term effects on the physical and mental health of women.
  • High levels of malnutrition among rural women is most likely going to worsen as rural families survive on reduced food intake.

3. PRE COVID-19 SITUATION

  • For a thorough examination of COVID-19 impact on women workers, we analyse the situation before the pandemic.
  • 25% of adult rural women were counted as “workers” in official data for the year 2017-18 in the national labour force surveys.
  • However, the situation changes drastically when we examine the data from time-use survey.
  • A time-use survey collects information on all activities undertaken during a fixed time period (usually 24 hours).
  • Presently, there are no official time-use survey data available.
  • Although, the National Statistical Office conducted a time-use survey in 2019  but the results are not available.
  • This editorial uses time-use survey from a village in Karnataka.

4. FEATURES OF RURAL WOMEN WORKFORCE

4.1 Crisis of regular employment

  • Rural women face a crisis of regular employment.
  • It suggests that women not reported as 'workers' in official surveys are so because of lack of employment opportunities and not due to “withdrawal” from the labour force.
  • The crisis of regular employment has definitely intensified during the COVID-19 pandemic and the nationwide lockdown.

4.2 Participation by women from all sections

  • Several independent surveys have revealed that women from almost all sections of the peasantry participate in paid work outside the home barring some regional exceptions.
  • Therefore while considering 'potential workforce' women from a majority of rural household should be taken into account and not just women from sections of rural labour or manual worker households.

4.3 More participation by older women

  • Relatively younger and more educated women often do not seek work because they aim at finding work in skilled non-agricultural sectors while older women are more likely to work as manual labour.

4.4 Rising wage gaps

  • Another crucial finding is that wages for the same work for women are rarely equal to wages for men, barring some exceptions.
  • The gap between the wages is highest for non-agricultural works, which is the new and expanding source of employment.

4.5 Exceedingly high work hours

  • A women's workday in rural India is significantly higher.
  • When all forms of work are included viz. economic activity and care work (which includes household chores as cooking, cleaning, childcare, elderly care) the total work hours for women is exceedingly long.
  • Surveys reveal that total work hours for women (in economic activity and care) ranges from 61 to 88 hours in the lean season and up to as high as 91 hours (or 13 hours a day) in the peak season. All women have at least a 60-hour workweek.

5. EFFECT OF THE LCOKDOWN ON JOBS

5.1 Effect on jobs in agriculture sector

  • Various surveys have shown that during the lockdown period no agricultural activity was undertaken during the lean months of March to May in large parts of the country where rain-fed agriculture is prevalent.
  • In parts of India where irrigated agriculture has significant presence there were some harvest operations (such as for rabi wheat in northern India) but these activities were largely mechanised.
  • In yet other harvest operations like that of vegetables there was a low tendency to involve hired labour out of the fear of infection and a majority of households relied on family labour.
  • Hence, summing up even as agricultural activity continued during the lockdown period, employment avenues for women were severely restricted.
  • Similar was the case for agriculture-allied activities like animal rearing, fisheries and floriculture. Both income as well as employment in agriculture-allied activities were adversely affected by the lockdown.
  • Village studies show that women are inevitably a part of the labour process in case the family owns animals whether milch cattle or chickens or goats.
  • During the lockdown, demand for milk fell by at least 25% due to closing up of hotels, restaurants and eateries as well as fear of infection by households.
  • Incomes from the sale of milk to dairy cooperatives fell down for women throughout the nation.
  • In the fisheries sector as well women could not process or sell fish and fish products as fishermen could not go to sea due to the lockdown.

5.2 Effect on jobs in Non-agricultural sector

  • Jobs in non-agricultural sector too halted completely as construction sites, brick kilns, petty stores and eateries, local factories and other firm were completely shut down in the lockdown period.
  • Studies have shown that women have accounted for more than half of workers in public works. But there was a dearth of employment available through the National Rural Employment Guarantee Scheme (NREGS).
  • Therefore, in the first month of lockdown there was a total collapse of non-agricultural employment for women although there was a big increase in demand for NREGS employment.
  • Government schemes most importantly those in health and education sectors have been one of the new sources of employment for women in the last few years like women working as Anganwadi workers or mid-day meal cooks.
  • During the pandemic, Accredited Social Health Activists or ASHAs, 90% of whom are women, have become frontline health workers, although they are not recognised as “workers” or paid a regular wage.

6. WAY AHEAD

  • First and foremost we need to redefine the contours of rural labour market by including the contribution of women as the country emerges from the lockdown.
  • For the immediate and short run provisioning of employment for women, the NREGS can be expanded with special focus on women.
  • A medium to long provisioning of women-specific employment can be done by generating more employment in skilled occupations and in businesses and new enterprises.
  • Women have already been playing a significant role in health care at the grass-root level and therefore in the proposed expansion of health infrastructure in the country, they must be given recognition as 'workers' and should be duly compensated.
  • The announcement of rural infrastructure expansion by Finance Minister is a laudable step but at the same time, safe and easy transport for women from their homes to workplaces needs to be ensured.
  • As the lockdown is slowly opening up, the children and elderly remain at home. The burden of care for them rests on the shoulders of women.
  • In addition, men have seen to have a higher likelihood to contract COVID-19 infection than women do which in turn increases the burden on women to earn the family bread.
  • Given these facts, we also need to reduce the drudgery of care work for women like delivering healthy meals for schoolchildren, elderly and the sick can significantly reduce the burden of home cooking.

7. CONCLUSION

Women should be seen as equal partners in rural workforce and in transforming the rural economy.

To achieve this we need to accurately capture workforce data on women and use it to design and implement policies specific to women.

Plastic Park Scheme

Context:

Union Ministry for Chemicals & Fertilizers has come up with a scheme of Setting up Plastic Parks with a state-of-the-art infrastructure through a cluster development approach.

  • A Plastic Park is an industrial zone devoted to plastic enterprises and its allied industries.

Objectives:

  • Increase the competitiveness, polymer absorption capacity and value addition in the domestic downstream plastic processing industry through adaptation of modern, research and development led measurers.
  • In the petrochemical supply chain, the plastics industry can be classified into two categories.
    • First, the manufacturing of polymers, which is called ‘upstream’.
    • The second one is the conversion of processable polymers into useful end products, which are classified as ‘downstream’.

Details:

  • The Department of Chemicals and Petrochemicals has approved setting up of 10 Plastic Parks in the country.
    • Out of 10 parks, 6 parks have been given final approval in the States of Assam, Madhya Pradesh (two parks), Odisha, Tamil Nadu, and Jharkhand.
    • These 6 Plastic Parks are under various stages of implementation.
  • For the setting up of the remaining 4 Plastic Parks, the Detailed Project Reports (DPRs) for setting up Plastic Parks in the States of Uttarakhand and Chhattisgarh are under evaluation, and proposal for setting up of two new Plastic Parks are under process.

Funding:

  • Under the scheme, Central Government provides grant funding up to 50% of the project cost, subject to a ceiling of Rs. 40 crore per project.
  • The remaining project cost is to be funded by the State Government, beneficiary industries, and by a loan from financial institutions.

Implementation:

  • A Special Purpose Vehicle (SPV) shall complete the setting up of the Plastic Park in a period of three years from the date of final approval.

Details of the 6 Plastic Parks:

  • Madhya Pradesh: Plastic Park at Tamot has completed physical infrastructure and the purchase of equipment for common facility centers is in progress. One unit is functional in Plastic Park.
  • Madhya Pradesh: Plastic Park at Bilaua is at the implementation stage and work of development of physical infrastructure is in progress.
  • Odisha: Plastic Park at Paradeep is at the implementation stage and work of development of physical infrastructure is almost completed.
  • Jharkhand: Plastic Park at Deoghar is at the implementation stage and work of development of physical infrastructure is in progress.
  • Tamil Nadu: The work at Plastic Park at Thiruvallur has started recently and landfilling on the site is in progress.
  • Assam: Plastic Park at Tinsukia is at the implementation stage and work of development of physical infrastructure is in progress.

Source: The Hindu

CAG Report on Utilization of Funds

Context:

The Comptroller and Auditor General (CAG) observed that the Centre has only transferred 60% of the proceeds from cess/levies in Fiscal Year 2018-19 to the relevant Reserve Funds and retained the balance in the Consolidated Fund of India (CFI).

Mechanism of Utilisation:

  • Cesses and levies collected are required to be first transferred to designated Reserve Funds and utilised for the specific purposes intended by Parliament.
  • Funds collected through Central taxes along with cesses and other levies go to the CFI.
  • Taxes and surcharges in CFI are parked in a divisible pool and 42% of the total is given to States as devolution.

Details:

  • The Centre retained in CFI more than Rs 1.1 lakh crore out of the almost Rs 2.75 lakh crore collected in 2018-19 through various cesses.
  • Rs 1,24,399 crore collected as cess on crude oil over the last decade had not been transferred to the designated Reserve Fund.
  • GST Compensation Cess, which has become a bone of contention between the States and the Centre, was also ‘short-credited’ to the relevant reserve fund to the extent of Rs 40,806 crores in 2018-19.
  • The CAG noted that erroneous Integrated GST (IGST) accounting also led to States receiving less funds from the Centre.
  • A sum of Rs 15,001 crore collected as IGST was erroneously transferred and accounted as States’ share of net proceeds of IGST instead of being apportioned between Centre and States.
  • A balance of Rs 13,944 crores was also left ‘unapportioned’ and retained in the CFI, even though the amended IGST Act now provides for ad-hoc apportionment of IGST.

Consolidated Fund of India (Article 266):

Composition:

  • All revenues received by the Centre by way of taxes (Income Tax, Central Excise, Customs and other receipts) and all non-tax revenues.
  • All loans raised by the Centre by the issue of Public notifications, treasury bills (internal debt) and from foreign governments and international institutions (external debt).
  • All government expenditures are incurred from this fund (except exceptional items which are met from the Contingency Fund or the Public Account) and no amount can be withdrawn from the Fund without authorization from the Parliament.

Surcharge:

  • It is an extra fee, charge, or tax that is added on to the cost of a good or service, beyond the initially quoted price.
  • The surcharge is added to an existing tax and is not included in the stated price of the good or service.
  • It is levied for extra services or to defray the cost of increased commodity pricing.

Cess:

  • It is a form of tax levied over and above the base tax liability of a taxpayer. It is not a permanent source of revenue for the government, and it is discontinued when the purpose of levying it is fulfilled.
  • Cess is resorted to only when there is a need to meet the particular expenditure for public welfare.
  • It can be levied on both indirect and direct taxes.

Source: The Hindu

Kritagya Hackathon

Context:

A hackathon named “KRITAGYA” has been planned by the Indian Council of Agricultural Research (ICAR) under the National Agricultural Higher Education Project.

  • Objective: To promote potential technology solutions for enhancing farm mechanization with special emphasis on women-friendly equipment.

About KRITAGYA:

  • KRI-TA-GYA explains KRI for Krishi (Agriculture), TA for Taknik (Technology), and GYA for Gyan (Knowledge).
  • It is planned by the Indian Council of Agricultural Research (ICAR) under the National Agricultural Higher Education Project (NAHEP).
  • It is an Ag-Tech Hackathon to promote innovation in farm mechanization.
  • It is a joint initiative by NAHEP and Agricultural Engineering Division.

Eligibility:

  • Students, faculties, and innovators/entrepreneurs from any university / technical institution across the country can apply and participate in the event in the form of a group.
  • In one group maximum of 4 participants can compete, with not more than one faculty and/or more than one innovator or entrepreneur.
  • Participating students can collaborate with local start-ups, students from technology institutes, and can win Rs. 5 lakhs, Rs 3 lakhs, and Rs. 1 lakh as first, second and third prize. 

Significance:

  • The development and promotion of women-friendly equipment through innovative technology solutions would play an important role in enhancing farm productivity and profitability.
  • This event will give an opportunity to the students, faculties, entrepreneurs, innovators, and other stakeholders to showcase their innovative approaches and technology solutions to promote farm mechanization in India.
  • The initiative will also help in enhancing the learning capabilities, innovations, and disruptive solutions, employability, and entrepreneurial drive in the Farm Mechanization sector.
  • The event will also help in taking forward the vision of high-quality higher education with equity and inclusion as envisaged in NEP-2020.

National Agricultural Higher Education Project (NAHEP):

  • It was launched in 2017 by the Government of India with the support of the World Bank.
  • It has been formulated by ICAR with a total cost of US$ 165 million for five years starting from 2017-18.
  • Objective: To support the National Agricultural Research and Education System in providing more relevant and better quality education to the students.
  • The project aims to develop resources and mechanisms for supporting infrastructure, faculty, and student advancement and providing means for better governance and management of agricultural universities.

Source: The Hindu

Minimum Support Prices (MSP)

Context:

The Cabinet Committee on Economic Affairs (CCEA) has approved the increase in the Minimum Support Prices (MSPs) for all mandated Rabi crops for marketing season 2021-22.

  • This increase in MSP is in line with the recommendations of the Swaminathan Commission.

Minimum Support Price:

  • It is the rate at which the government buys grains from farmers.
  • Objective: To counter the price volatility of agricultural commodities due to variation in supply, lack of market integration, and information asymmetry.
  • Fixation of MSP: The MSP is fixed for 23 crops based on the recommendations of the Commission for Agricultural Costs and Prices (CACP), Ministry of Agriculture.

Factors for fixing MSP include:

  • Cost of cultivation, Demand, and supply, Price trends in the market, both domestic and international,
  • Inter-crop price parity,
  • Terms of trade between agriculture and non-agriculture,
  • A minimum of 50% as the margin over the cost of production, and
  • Likely implications of MSP (inflation) on consumers of that product.

MSP Calculation:

  • Right now, the Commission for Agricultural Costs and Prices (CACP), under the Ministry of Agriculture and Farmers Welfare, has the responsibility of fixing the MSP in the country.

Parameters:

  • In 2004, the Union government formed the National Commission on Farmers with MS Swaminathan as its chairman. The main aim of the committee was to come up with a sustainable farming system
  • Swaminathan committee talked about the cost of farming at three levels:
    • A2: Swaminathan committee covered all the types of cash expenditure under the A2 to generate the crop. In it, things like seeds, manure, chemicals, labor costs, fuel costs, and irrigation costs were added.
    • FL: Under the FL, the Swaminathan Committee added the estimated cost of work to the total members of the farmer's family.
    • C2: Under C2, the estimated land rent and the cost of interest on the money taken for farming were added to A2 and FL.

Details:

  • The wheat MSP has seen an increase of just 2.6 %. It is the lowest increase in 11 years.
  • The MSPs for the other crops such as barley, gram, lentil, rapeseed and mustard, and safflower too have seen a lower hike compared to last year.
  • The wheat MSP for the rabi crop of 2020-21 has been fixed at Rs 1,975 per quintal which is 2.6 % higher than Rs 1,925 in 2019-20. In percentage terms, the increase in wheat MSP is the lowest in 11 years. In 2009-10, wheat MSP was hiked by only 1.85 %—Rs 1,100 per quintal in 2009-10 against Rs 1,080 in 2008-09.
  • The highest increase in MSP has been for lentil (Masur). It has been fixed at Rs 5,100 per quintal— 6.25 % or Rs 300 higher than in 2019-20. Last year, the lentil MSP was hiked by Rs 325 per quintal or 7.26 %.
  • The MSP for gram has been increased to Rs 5,100 per quintal—Rs 225 or 4.62 % higher than last year. Last year, it was hiked by Rs 255 per quintal or 5.52 %.

Source: Indian Express

Guidelines for Pottery Activity and Beekeeping Activity

Context:

The  Ministry of Micro Small and Medium Enterprises (MSME) has now come out with new guidelines for schemes related to ‘Pottery Activity’ and ‘Beekeeping Activity'.

Details:

  • For ‘Pottery Activity’ Government will provide assistance of a pottery wheel, Clay Blunger, Granulator, etc. It will also provide Wheel Pottery Training for traditional pottery artisans and Press Pottery training for pottery as well as non-pottery artisans in Self Help Groups.
  • There is also a provision to provide a Jigger-Jolly training program for pottery as well as a non-pottery artisan in Self Help Groups.

Objectives:

  • To enhance the production, technical knowhow of pottery artisans and to develop new products at reduced costs;
  • To enhance the income of pottery artisans through training and modern equipment;
  • To provide skill-development to SHGs of pottery-artisans on focused /decorative products, with new pottery designs;
  • To encourage the successful traditional potter to set up a unit under the PMEGP scheme;

Schemes for POTTERY improvements:

  • Skill-development training on products like cooking-wares, khullad, water bottles, decorator products, mural, etc. to SHGs of pottery-artisans has been introduced.
  • The focus of the new Scheme is to enhance the production, technical knowhow of pottery artisans, and efficiency of potter energy kilns to reduce the cost of production to support 6075 artisans.
  • An amount of Rs.19.50 crore will be expended for the year 2020-21
  • An additional amount of Rs. 50.00 crore has been provisioned for setting up clusters in Terracotta, Red clay pottery under the SFURTI scheme of the Ministry.

Scheme for ‘Beekeeping Activity’:

  • The government will provide assistance to Bee boxes, tool kits, etc. Under this scheme, Bee boxes, with Bee colonies, will also be distributed to Migrant workers in Prime Minister Gareeb Kalyan Rozgar Abhiyaan (PMGKRA) districts.
  • A 5 days’ beekeeping training will also be provided to the beneficiaries through various Training Centres /State Beekeeping Extension Centres/ Master Trainers as per the prescribed syllabus.
  • Financial support of Rs.13.00 crore during 2020-21 has been provisioned to support 2050 artisans.
  • An additional amount of Rs. 50.00 crore has also been kept for developing Beekeeping honey clusters under the ' SFURTI scheme of the Ministry.

Objectives:

  • To create sustainable employment for the beekeepers/farmers;
  • To provide supplementary income for beekeepers/farmers;
  • To create awareness about Honey and other Hive Products;
  • To help artisans adopt scientific Beekeeping & Management practices;
  • To utilize available natural resources in beekeeping;

Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

  • It was launched in 2005 by the Ministry of Micro Small and Medium Enterprises (MSME).

Objectives:

  • To organize the traditional industries and artisans into clusters to make them more competitive.
  • To provide sustained employment for traditional industry artisans
  • To equip traditional artisans of the associated clusters with the improved skills and capabilities through training and exposure visits;

The following schemes are being merged into SFURTI:

  • The Scheme for Enhancing Productivity and Competitiveness of Khadi Industry and Artisans
  • The Scheme for Product Development, Design Intervention, and Packaging 
  • The Scheme for Rural Industries Service Center

Source: PIB

Protest Against Three Ordinances

Context:

Farmers in Punjab and Haryana and other parts of the country have been protesting against three ordinances promulgated by the Central government.

  • The government has introduced three Bills to replace these ordinances and recently Lok Sabha passed these bills.

Three ordinances:

  • The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020
  • The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020
  • The Essential Commodities (Amendment) Ordinance, 2020

Details:

  • Indian farmers are protesting against all three ordinances.
  • Their objections are mostly against the provisions of the first. And their concerns are mainly about sections relating to “trade area”, “trader”, “dispute resolution” and “market fee” in the first ordinance. 

Trade area:

  • Section 2(m) of The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 defines “trade area” as any area or location, place of production, collection and aggregation including:
    • farm gates; factory premises; warehouses; silos; cold storages; or any other structures or places, from where the trade of farmers’ produce may be undertaken in the territory of India.
  • The definition does not, however, include “the premises, enclosures and structures constituting:
    • Physical boundaries of principal market yards, sub-market yards and market sub-yards managed and run by the market committees formed under each state APMC (Agricultural Produce Market Committee) Act”.
    • It also excludes “private market yards, private market sub-yards, direct marketing collection centres, and private farmer-consumer market yards managed by persons holding licences or any warehouses, silos, cold storages or other structures notified as markets or deemed markets under each State APMC Act in force in India.

Concerns:

  • The existing mandis established under APMC Acts have been excluded from the definition of trade area under the new legislation.
  • As per the government, the creation of an additional trade area outside of mandis will provide farmers with the freedom of choice to conduct trade in their produce.
  • Farmers mentioned that this provision will confine APMC mandis to their physical boundaries and give a free hand to big corporate buyers.

Trader:

  • Section 2(n) of the first ordinance defines a “trader” as “a person who buys farmers’ produce by way of inter-State trade or intra-State trade or a combination thereof, either for self or on behalf of one or more persons for the purpose of wholesale trade, retail, end-use, value addition, processing, manufacturing, export, consumption or for such other purpose”.
    • Thus, it includes processor, exporter, wholesaler, miller, and retailer.
  • According to the Ministry of the Agriculture and Farmers’ Welfare, “Any trader with a PAN card can buy the farmers’ produce in the trade area.”
    • A trader can operate in both an APMC mandi and a trade area.
      • However, for trading in the mandi, the trader would require a licence/registration as provided for in the State APMC Act. In the present mandi system, arhatiyas (commission agents) have to get a licence to trade in a mandi.

Concern:

  • Arhatiyas have credibility as their financial status is verified during the licence approval process. “But how can a farmer trust a trader under the new law?

The provision on ‘market fee’ :

  • Section 6 states that “no market fee or cess or levy, under any State APMC Act or any other State law, shall be levied on any farmer or trader or electronic trading and transaction platform for trade and commerce in scheduled farmers’ produces in a trade area.
  • As per the government, this provision will reduce the cost of the transaction and will benefit both the farmers and the traders.
  • Under the existing system, such charges in states like Punjab come to around 8.5% — a market fee of 3%, a rural development charge of 3% and the arhatiya’s commission of about 2.5%.

Concern:

  • This provision does not provide a level playing field to APMC mandis. 
  • The provision of dispute resolution under Section 8 does not sufficiently safeguard farmers’ interests.
  • In case of a dispute arising out of a transaction between the farmer and a trader, the parties may seek a mutually acceptable solution through conciliation by filing an application to the Sub-Divisional Magistrate. 
    • The Sub-Divisional Magistrate shall refer such dispute to a Conciliation Board to be appointed by him for facilitating the binding settlement of the dispute.
  • Farmers fear the proposed system of conciliation can be misused against them. They say the ordinance does not allow farmers to approach a civil court.

Source: Indian Express

Essential Commodities (Amendment) Bill, 2020

Context:

Lok Sabha passes Essential Commodities (Amendment) Bill, 2020.

  • The Bill will replace the Essential Commodities (Amendment) Ordinance which was promulgated on 5th June 2020.

Highlights of the Ordinance:

  • The ordinance allows intra-state and inter-state trade of farmers’ produce beyond the physical premises of APMC markets.  State governments are prohibited from levying any market fee, cess, or levy outside APMC areas. 
  •  The ordinance creates a framework for contract farming through an agreement between a farmer and a buyer prior to the production or rearing of any farm produce.  It provides for a three-level dispute settlement mechanism: the conciliation board, Sub-Divisional Magistrate and Appellate Authority.
  •  It allows the central government to regulate the supply of certain food items only under extraordinary circumstances (such as war and famine).  Stock limits may be imposed on agricultural produce only if there is a steep price rise. 

Key Issues:

  • The ordinance aims to increase the availability of buyers for farmers’ produce, by allowing them to trade freely without any license or stock limit, so that an increase in competition among them results in better prices for farmers.  
  • While the Ordinances also aim to liberalize trade and increase the number of buyers, de-regulation alone may not be sufficient to attract more buyers.
  •  The Standing Committee on Agriculture noted that the availability of a transparent, easily accessible, and efficient marketing platform is a pre-requisite to ensure remunerative prices for farmers.  
    • Most farmers lack access to government procurement facilities and APMC markets.  It noted that small rural markets can emerge as a viable alternative for agricultural marketing if they are provided with adequate infrastructure facilities.  
  •  The Standing Committee also recommended that the Gramin Agricultural Markets scheme (which aims to improve infrastructure and civic facilities in 22,000 Gramin Haats across the country) should be made a fully funded central scheme and scaled to ensure the presence of a Haat in each panchayat of the country.

Essential Commodities (Amendment) Bill, 2020:

  • The Bill seeks to amend the Essential Commodities Act, 1955, and empowers the central government in terms of production, supply, distribution, trade, and commerce of certain commodities.
  • The bill also seeks to increase competition in the agriculture sector and enhance farmers’ income.  The bill aims to liberalize the regulatory system while protecting the interests of consumers.
  • The bill empowers the central government to designate certain commodities including food items, fertilizers, and petroleum products as essential commodities.
  • Supply of certain food items including cereals, pulses, potato, onions, edible oilseeds, and oils, can be regulated by the government under extraordinary circumstances as per the provisions of this bill.  
    • The extraordinary circumstances include war, famine, extraordinary price rise, and natural calamity of grave nature.
  • The bill empowers the central government to regulate the stock of an essential commodity that a person can hold.  
  • The provisions of the bill regarding the regulation of food items and the imposition of stock limits will however not apply to any government order relating to the Public Distribution System or the Targeted Public Distribution System.

Source: The Hindu

Supplementary Demands for Grants

Context:

Recently, Finance Minister tabled the first batch of Supplementary Demands for Grants for this financial year in the Lok Sabha.

  • The Centre has sought Parliament approval for a gross additional expenditure of Rs 2.35 lakh crore for 2020-21.
  • Out of the Rs 2.35 lakh crore gross additional expenditure, the proposals involving net cash outgo add up to almost Rs 1.67 lakh crore. The rest of the money will come either through savings or reallocation of funds allocated to other ministries.

Supplementary Grant:

  • It is granted when the amount authorized by the Parliament through the appropriation act for a particular service for the current financial year is found to be insufficient for that year.
  • It is specified by Article 115 of the constitution of India, along with Additional and Excess Grants.

Need for the grants:

  • The grants are needed for government expenditure over and above the amount for which Parliamentary approval was already obtained during the Budget session.
  • The emergency situation caused by the COVID-19 pandemic means that this year’s supplementary demand includes additional allocations to pay for relief measures announced as part of the Pradhan Mantri Garib Kalyan Yojana and the Aatmanirbhar Bharat stimulus package.
  • The State governments will get Rs 44,340 crore in post-devolution revenue deficit grants, and Rs 2,262 crore as grants-in-aid for the State Disaster Response Funds, in accordance with the interim recommendations of the 15th Finance Commission

Allocation of funds:

  • Public sector banks: The Department of Financial Services has included a sum of Rs 20,000 crore for meeting expenditure towards recapitalization of public sector banks through the issue of government securities.
    • The Centre had not allocated any funds for bank recapitalization in this year’s Budget, but the economic impact of the lockdown led the RBI to announce in July that infusing money into banks had become necessary. The allocation will not involve cash outgo, as the money is being raised through bonds.
  • MGNREGA: The other large allocation is for the Rs 40,000 crore additional funding promised to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme.
  • The additional funds, which take the scheme’s budget for the year up to Rs 1 lakh crore, were announced as a highlight of the Aatmanirbhar package.
  • Health Sector: The Health Ministry included demands worth Rs 6,852 crore for containment of the pandemic, plus additional grants for procurement of materials and machinery, equipping government hospitals, and research.

Grants:

  • In addition to the budget, various other grants are made by the Parliament under extraordinary circumstances these include:
    • Additional Grant: When a need has arisen during the current financial year for additional expenditure upon some new service not contemplated in the budget for that year.
    • Excess Grant: When money has been spent on any service during a financial year in excess of the amount granted for that service in the budget for that year. It is voted by the Lok Sabha after the financial year. Before the demands for excess grants are submitted to the Lok Sabha for voting, they must be approved by the Public Accounts Committee of Parliament.
    • Vote of Credit: It is granted for meeting an unexpected demand upon the resources of India when on account of the magnitude or the indefinite character of the service, the demand cannot be stated with the details ordinarily given in a budget.
      • Hence, it is like a blank cheque given to the Executive by the Lok Sabha.

Source: The Hindu

The Economic Freedom of the World Report

Context:

India’s rank in the Global Economic Freedom Index 2020 dropped 26 spots from 79 to 105, according to the Economic Freedom of the World: 2020 Annual Report.

The Economic Freedom of the World Report:

  • The report is prepared by Canada’s Fraser Institute, was released in India in collaboration with the New Delhi-based think tank Centre For Civil Society.
  • The first Economic Freedom of the World Report was published in 1996.
  • This is the 24th edition of the report and this year’s publication ranks 162 countries and territories for 2018, the latest year for which data is available.
  • The report pointed out that the prospect of improved economic freedom in India depended on the next generation of reforms in factor markets and in being more open to global trade.
  • The objective of the report:  To measure economic freedom, levels of personal choice, ability to enter markets, the security of privately owned property, rule of law, among others by analyzing policies and institutions of 162 countries and territories.

Details:

  • The report highlighted that the prospect of increasing economic freedom in India depends on the next generation of reforms in factor markets including greater openness to international trade.
  • India reported marginal drops in:
    • Size of government from 8.22 to 7.16,
    • The legal system and property rights from 5.17 to 5.06,
    • Freedom to trade internationally from 6.08 to 5.71 and
    • Regulation of credit, labor, and business from 6.63 to 6.53.
    • A higher score on a scale of 10 indicates higher economic freedom.
  • The report once again gave top spots to Hong Kong and Singapore, which continued their streak as first and second respectively.
  • India ranks higher than China, which has been accorded the 124th spot. However, the ranking is based on 2018 data, several new curbs on global trade, tightening of the credit market due to non-performing assets, and Covid-19’s impact on debt and deficits were not taken into consideration in India’s score.

Ranking of other countries:

  • The United States has also dropped to sixth place, it ranked 5th in the previous two years. The rankings of some other major countries are Japan (20th), Germany (21st), Italy (51st), France (58th), Mexico (68th), Russia (89th), Brazil (105th), and China (124th).
  • The 10 lowest-ranked countries on the latest index are the African Republic, Democratic Republic of Congo, Zimbabwe, Republic of Congo, Algeria, Iran, Angola, Libya, Sudan, and Venezuela.

Source: Economic Times

The Singapore Convention on Mediation

Context:

Recently, The Singapore Convention on Mediation came into force.

  • The convention will provide a more effective way of enforcing mediated settlements of corporate disputes involving businesses in India and other countries that are signatories to the Convention.

About the convention:

  • The convention is also known as the United Nations Convention on International Settlement Agreements Resulting from Mediation.
  • This is the first UN treaty to be named after Singapore.
  • Singapore had worked with the UN Commission on International Trade Law, other UN member states, and non-governmental organizations for the Convention.
  • As on September 1, the Convention has 53 signatories, including India, China, and the U.S.

Importance:

  • Now with the Convention in force, businesses seeking enforcement of a mediated settlement agreement across borders can do so by applying directly to the courts of countries that have signed and ratified the treaty instead of having to enforce the settlement agreement as a contract in accordance with each country’s domestic process.
  • The simplified enforcement framework under the Convention translates to savings in time and legal costs, which is important for businesses in times of uncertainty, such as during the current COVID-19 pandemic.
  • The convention would boost India’s ‘ease of doing business’ credentials by enabling swift mediated settlements of corporate disputes.
  • Businesses in India and around the world will now have greater certainty in resolving cross-border disputes through mediation, as the Convention provides a more effective means for mediated outcomes to be enforced.

Source: The Hindu

Krishna-Godavari Basin Source of Methane Fuel

Context:

A research conducted by the Agharkar Research Institute (ARI) finds that the methane hydrate deposits are located in the Krishna-Godavari (KG) basin.

  • The study was conducted as a part of the DST-SERB young scientist project titled ‘Elucidating the community structure of methanogenic archaea in methane hydrate’.
  • Agharkar Research Institute works under the government's Department of Science and Technology.

Methane Hydrate:

  • Methane hydrate is formed when hydrogen-bonded water and methane gas come into contact at high pressures and low temperatures in oceans.
  • The study identified the methanogens that produced the biogenic methane trapped as methane hydrate, which can be a significant source of energy.
  • It is a crystalline solid that consists of a methane molecule surrounded by a cage of interlocking water molecules.
  • Methane hydrate is an "ice" that only occurs naturally in subsurface deposits where temperature and pressure conditions are favorable for its formation.
  • The four Earth environments have the temperature and pressure conditions suitable for the formation and stability of methane hydrate i.e.
    • Sediment and sedimentary rock units below Arctic permafrost;
    • Sedimentary deposits along continental margins;
    • Deep-water sediments of inland lakes and seas; and
    • Under Antarctic ice.

Key findings:

  • The methane hydrate deposit in Krishna-Godavari (KG) basin is a rich source that will ensure adequate supplies of methane, a natural gas.
  • The presence of methane hydrate deposits in the Krishna-Godavari basin is of biogenic origin.

Krishna-Godavari (KG) Basin:

  • It is an extensive deltaic plain formed by two large east coast rivers, Krishna and Godavari in the state of Andhra Pradesh and the 16 adjoining areas of Bay of Bengal.
  • It is a petroliferous basin of continental margin located on the east coast of India.
  • The basin contains about 5 km thick sediments with several cycles of deposition, ranging in age from Late Carboniferous to Pleistocene.

Godavari River:

  • The source of the Godavari River is situated near Trimbak in Nashik District of Maharashtra.
  • It is the second-longest (1465 km) river in the country (after the Ganges). The river is also named as Southern Ganges or Dakshin Ganga.
  • The drainage basin of the river is present in six states of India: Chhattisgarh, Maharashtra, Andhra Pradesh, Madhya Pradesh, Karnataka, and Orissa.
  • Tributeries: Manjira River, Indravati, Sabari River, and Bindusara River.

Krishna River:

  • It is originated from Mahabaleswar in the vicinity of Jor village in the state of Maharashtra.
  • Krishna River is the fourth largest river in India after Ganga, Godavari, and Brahmaputra.
  • Tungabhadra River is the most important tributary of the river which is the result of the union between two rivers - the Tunga River and Bhadra River.
  • Other tributaries: Koyna, Venna, Malaprabha, Bhima, Yerla, Ghataprabha, Dindi, Warna, Musi, Paleru, and Dudhganga.

Source: The Economic Times

Sonamura-Daudkandi Inland Waterway Route

Context:

Tripura has opened its first-ever inland waterway with Bangladesh from Sonamura in the Sepahijala district.

  • The route connecting Sonamura (India) and Daudkandi (Bangladesh) was included in the list of Indo-Bangladesh Protocol (IBP) routes.

Tripura’s foreign trade:

  • Tripura’s cross-border trade commenced in 1995. Currently, Tripura exports goods and materials worth only Rs 30 crore to Bangladesh annually but imports good worth Rs 645 crore.
  • This huge trade deficit is due to abnormally high import duty in Bangladesh and the absence of many commodities abundant in the state in the list of goods allowed for export as well as port restrictions. 

The benefit of the Route:

Connectivity:

  • The route will improve the connectivity of Tripura and the adjoining States with Indian and Bangladesh and will help the hinterland of both the countries.
  • It provides inland waterways connectivity between the two countries, particularly with the North Eastern Region of India, and also enhances bilateral trade.

Protocol on Transit and Trade:

  • Both countries have a long-standing and time-tested Protocol on Transit and Trade through inland waterways which was first signed in 1972.
  • It was last renewed in for five years with a provision for its automatic renewal for a further period of five years.

Making Gomati navigable:

  • River Gomati is the largest and longest river of Tripura. It is also considered a sacred river and devotees converge along its banks at Tirthmukh every Makar Sankranti.
  • Gomati is also a regulated river. Due to the high altitude of in its upper catchment and the Dumber dam built-in 1974 as part of the Gumti hydro-electric power project, the river erodes a lot of sand and rocky particles in its upper segment.
  • The flow slows down a lot after it reaches the plains and at Maharani barrage in Gomati district, a large volume of the water is extracted for irrigation and is held back for the beautification of the Dumbur dam as a tourist spot.
  • A river needs at least 4-5 feet depth for goods carriers to navigate on a regular basis. Gomati riverbed remains navigable for less than four months a year, that too only during monsoon days.
  • For the rest of the year, scanty rainfall in the hills results in low volume while accumulating sediments raise the average riverbed, rendering Gomati even shallower. In comparison, the inland waterway route with Bangladesh at Karimganj in Assam operates small ships to large boats for nearly six months a year.

Source: Indian Express

Rajiv Mehrishi Committee 

Context:

The government has constituted a three-member expert committee to assist in the assessment of relief to bank borrowers.

  • The committee chaired by former CAG Rajiv Mehrishi.

Background:

  • The move comes against the backdrop of the Supreme Court adjourning a case on whether interest should accrue on loans under a moratorium for the last time
    • The court granted the central government, RBI, and banks two weeks to file a ‘concrete’ reply on the matter.
  • The court also extended an interim loan moratorium to 28 September 2020 and told banks not to tag any loans as non-performing until further orders.
  • On 3 September, the court had first directed banks not to label loans that were standard as on 31 August as non-performing even if there is a default. 
  • The court’s interim decision came after RBI’s six-month-long moratorium on loans ended on 31 August. RBI has, however, announced that stressed retail and corporate borrowers can avail of a one-time debt recast, which could include another round of moratorium as well.
  • On 7 September, RBI published the recommendations of the K.V. Kamath Committee that was tasked with selecting the parameters that will make stressed companies eligible for loan recasts.

Details:

  • State Bank of India will provide secretarial support to the committee. The Committee may consult banks or other stakeholders, as deemed necessary, for the purpose.
  • The panel will submit its report within one week.
  • The Expert Committee shall be as under:
    • Shri Rajiv Mehrishi, former CAG of India – Chairperson
    • Dr. Ravindra H. Dholakia, former Professor, IIM Ahmedabad & ex- Member, Monetary Policy Committee of Reserve Bank of India
    • Shri B. Sriram, Former Managing Director, State Bank of India & IDBI Bank

The terms of reference of the committee shall be as under:

  • Measuring the impact on the national economy and financial stability   of waiving of interest and waiving of interest on interest on the COVID-19 related moratorium
  • Suggestions to mitigate financial constraints of various sections of society in this respect and measures to be adopted in this regard
  • Any other suggestions/observations that may be necessary given the current situation.

Source: All India Radio

An agriculture led revival as flawed claim

Context of the news

In the midst of India’s COVID­19­induced economic slowdown, some government spokespersons and some observers are stating that agriculture will show the early green shoots and will lead India’s economic revival but the facts and figures are against this and mentioning this as a flawed claim.

ARGUMENTS IN FAVOUR OF AGRICULTURE LED ECONOMIC REVIVAL

  • Increase in food production: India witnessed an increase of 3.7 percent in food grain production in 2019-20 as compared to the 2018­19.
    • There is also an increase in procurement of rabi wheat in 2020­21. It is 12.6 percent higher than in 2019­20. It is seen as resilience in the agricultural sector.
  • Higher Food inflation: In the Q1 of 2020­21 there was 9.2 percent increase in food inflation as compared to the previous year. It is being claimed that it is due to ‘sustained demand for food’. This shows a shift of terms of trade in favour of agriculture.
  • Increase in Kharif Sowing area: The area under kharif sowing in 2020­21 was 14% higher than in 2019­20. Higher kharif sowing was accompanied by higher tractor and fertilizer sales, which bodes well for economic recovery.
  • Economic package for agriculture: The government’s economic package for agriculture such as part of the ? 20­lakh crore Atmanirbhar Bharat package boost the agriculture position as the engine of revival.

Aatmanirbhar Bharat Abhiyaan

The Rs. 20 lakh crore economic package under the Aatmanirbhar Bharat will further support the doubling the farmers' income (DFl) drive. Under this, following special provisions have been made for the poor, including migrants and farmers:

  • 25 lakh new Kisan Credit Cards sanctioned.
  • Approximately 63 lakh loans of worth Rs.86,600 crore approved.
  • Support of Rs.4,200 crore provided under Rural Infrastructure Development Fund to states.
  • Rs.3 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) especially for the Micro, Small and Medium Enterprises (MSMEs).
  • Various benefits have also been given under the MUDRA scheme. Rs.1500 crore Shishu loan shall be provided along with interest discount of 2 percent for fast recipients for a period of 12 months.
  • Wage rate under MGNREGA has been increased to Rs. 202 (from Rs.182).
  • Free food grain supply (5 kg of grains per person and 1 kg Chana per family per month) to the migrants.
  • Through Pradhan Mantri Kisan Yojana, Rs.2000 has been transferred directly to the 8.7 crore farmers.
  • Vocal for Local: The locally available product will be given importance in order to promote the rural economy. Rs.10000 crore has been assigned to the unorganised food processing industries in this context.

ARGUMENTS AGAINST AGRICULTURE LED ECONOMIC REVIVAL

What ‘Rabi procurement’ claim hides:

  • Due to the lockdown, extra attention was given by the state governments to ensure that procurement did not su?er.
  • Procurement of wheat was higher for 2020-21 but as per official data, only 13.5% of paddy farmers and 16.2% of wheat farmers sell their harvest to a procurement agency at an assured Mini­ mum Support Price (MSP). The rest sell their output to private traders at prices lower than MSP.
  • It means focused should be on market arrivals and not on procurement. 15 crops have shown lower market arrival in 2020 than in 2019.
    • Only the market arrivals of paddy, lentil, tomato and banana in 2020 constituted more than 75% of market arrivals in 2019.
    • In wheat, barley, potato, cauliflower, cabbage and lady’s finger, market arrivals in 2020 were between 50% and 75% of market arrivals in 2019.
    • For gram, pigeon pea, onion, peas and mango, market arrivals in 2020 were less than half of market arrivals in 2019.
    • In wheat, the most important rabi crop, only 61.6% of the arrivals in 2019 was recorded in 2020.
  • During lockdown, farmers lost the access to market, supply chain was disrupted, mandis were closed and higher procurement was hardly alleviating.
  • There were also major losses in the milk, meat and poultry sectors. As per an industry associations estimate the total loss for the poultry industry was ? 25,000 crore.

Claims on Inflation and prices

  • The Inflation rates by estimating using consumer price indices are not representative of farmer’s prices.
  • Inflation is largely due to disruptions in supply chains and rise in trader margins.
  • By examining the wholesale market prices for 15 agricultural commodities between March 15 and June 30, 2020 it has been noticed out that prices of most crops have been declined.
    • The average paddy prices were about ? 1,730 per quintal on March 23, but ? 1,691 per quintal on June 30.
    • Average wheat prices were ? 2,045 per quintal on April 1, but ? 1,865 per quintal on June 30.
  • It has been found that in rural areas small and marginal farmers are not net sellers, but net buyers of food. So, it was not just that farmer’s prices fell; most were also forced to pay more for food purchases.
  • As per evidences from small sample surveys rural households reduced food purchases during the lockdown. So, it means that the claims that higher rural inflation benefited farmers, and that it was due to higher food demand, are misplaced.

Higher Kharif Sowing

  • It is true that Kharif sowings has been increased in 2020 and it has many reasons for this.
  • When Rabi incomes fell during the lockdown, many rural households returned to farming or intensi?ed farming for food and income security, it increased the area for Kharif.
  • Lakhs of migrant workers returned to their villages from urban areas and have taken up agriculture in previously fallow or uncultivated lands. As per data on monthly employment for Monitoring Indian Economy (CMIE), the number of persons employed as ‘farmers’ in June and July 2019 were 11.2 crore and 11.4 crore, res­pectively but in June and July 2020, these numbers rose to 13 crore and 12.6 crore, respectively.
    • Such indicators cannot be termed as sign of prosperity. These are indicators of distress.
    • The rural unemployment rates also rose sharply in 2020, to 22.8% (April), 21.1% (May) and 9.5% ( June). Even in August 2020, rural unemployment rates were higher than in February 2020 or August 2019.

Analysis of package

  • Rural expectations were high with the announcement of Atmanirbhar Bharat package but the total fresh spending for agriculture in the package is a trickle. It is less than ? 5,000 crore. The rest are schemes already included in the past Budgets and announcements.
  • The package also failed to provide ?nancial support to farmers.
  • As we know agriculture contributes only about 15 percent to India’s Gross Value Added (GVA). Thus, even 4 percent of agriculture growth will contribute only 0.6 percentage points to GVA growth.
    • To contribute a full one percentage point to GVA growth, agriculture will need to grow by 6%, which is unlikely in 2020­21.

WAY FORWARD

  • Instead of frontloading the installments of PM­KI­ SAN, the government should have doubled the payments to farmers from ? 6,000 a year to ? 12,000 a year.
  • The government should have set all MSPs at 150% of the C2 cost (comprehensive cost) of production instead of raising the minimum support price (MSP) for kharif paddy and cotton.
  • Need to waive the interest on loans taken by farmers in 2019 and 2020.
  • Government should announce a package of direct assistance for the crisis ridden poultry and meat sectors amounting.
  • Arrange direct financial assistance to small milk producers, for whom milk prices have literally plummeted.

CONCLUSION

There is a potential rise in demand from higher Rabi procurement, higher kharif sowing and flow of cheap credit but the counteracting tendencies in rural areas like lower crop prices, lower market arrivals and higher unemployment are also there. Government’s strategy seems to squeeze farmers without investing in agriculture or rural employment. Such an approach would fail and rural incomes will remain depressed, and this can push the economy further into a vicious cycle of poor demand, low prices and low growth. The government should discard its role as a passive observer, and decisively intervene in rural India with a substantial fiscal stimulus.'

Facts about Agriculture sector

  • Agriculture sector contributes 265 billion dollars which is 17 percent of GDP.
  • It employs approximately 60-70 percent of the Indian population (directly or indirectly).
  • India has 1/4th of the world's farmers and contains 48 percent of the world's arable land.
  • India is the world's top producer of pulses, milk, 2nd largest producer of wheat, rice, vegetables, fruits, 3rd largest producer of food-grains.
  • lts share in the economy of India is around 17 percent.
  • For the fiscal year 2O2O-21-, the food grain production target for India is set at 298.3 million tonnes, compared to 291.95 million tonnes in 2019-20 and 285.20 million tonnes in 2018-19.

Source: The Hindu

EASE 2.0 Banking Reforms Index

Context:

Ministry of Finance has released the EASE 2.0 (Enhanced Access and Service Excellence) Banking Reforms Index.

EASE Reforms Agenda:

  • EASE Agenda is aimed at institutionalizing CLEAN and SMART banking.
  • It was launched in January 2018 jointly by the government and PSBs.
  • It was commissioned through Indian Banks’ Association (IBA) and authored by Boston Consulting Group.
    • IBA formed in 1946 is an association of Indian banks and financial institutions based in Mumbai.

EASE Reforms Index:

  • It measures the performance of each PSB on more than 120 objective metrics.
  • Objective: To continue driving change by encouraging healthy competition among PSBs.
  • The Index follows a fully transparent scoring methodology, which enables banks to identify their strengths as well as areas for improvement.
  • EASE 1.0 report: It showed significant improvement in PSB performance in the resolution of Non Performing Assets (NPAs) transparently.
  • EASE 2.0: EASE 2.0 builds on the foundation of EASE 1.0 and introduces new reform Action Points across six themes to make reforms journey irreversible, strengthen processes and systems, and drive outcomes.
  • Themes of EASE 2.0: There are six themes:
    • Responsible Banking;
    • Customer Responsiveness;
    • Credit Off-take;
    • PSBs as UdyamiMitra (SIDBI portal for credit management of MSMEs);
    • Financial Inclusion & Digitalisation; and
    • Governance and HR

Doorstep Banking Services by PSBs:

  • Doorstep Banking Services is envisaged to provide the convenience of banking services at the doorstep through the universal touchpoints of Call Centre, Web Portal, or Mobile App. Customers can also track their service requests through these channels.
  • The services shall be rendered by the Doorstep Banking Agents deployed by the selected Service Providers at 100 centers across the country. 
  • At present only non-financial services viz. Pick up of negotiable instruments (cheque/demand draft/pay order, etc.), Pick up new checkbook requisition slip, Pick up of 15G / 15H forms, Pick up of IT / GST challan, etc are available to customers.  Financial services shall be made available from October 2020.
  • The services can be availed by customers of Public Sector Banks at nominal charges. The services shall benefit all customers, particularly Senior Citizens and Divyangs who would find it at ease to avail of these services. 

Performance of PSB on EASE 2.0 Index:

  • PSBs have shown a healthy trajectory in their performance over four quarters since the launch of EASE 2.0 Reforms Agenda
  • Overall Score: Increased by 37% between March-2019 and March-2020, with the average EASE index score improving from 49.2 to 67.4 out of 100.
  • Responsible Banking: Significant progress is seen across six themes of the Reforms Agenda, with the highest improvement seen in the themes of responsible Banking’, ‘Governance and HR’, ‘PSBs as Udyamimitra for MSMEs’, and ‘Credit off-take’.
  • Digital Banking: Currently,  Nearly 4 crore active customers on mobile and internet banking.
  • 50% of financial transactions through digital channels.
  • Customer service: Increase in the number of call centers and inclusion of 13 regional languages in customer service, enhanced doorstep banking support by around 75,000 Bank Mitras, etc.
  • Easy loans: Turnaround time for retail loans reduced by nearly 30 days to nearly 10 days.
  • NPAs and Frauds: Gross NPAs reduced from Rs. 8.96 lakh crore in March-2018 to Rs. 6.78 lakh crore in March-2020.

Source: PIB

Foreign Direct Investment (FDI) Policy in the Defence Sector

Context:

The Union Cabinet has approved a new Foreign Direct Investment (FDI) policy in the defence sector.

  • The new policy raising the cap of FDI through automatic approval in the defence sector from 49 % to 74 % now has a ‘National Security’ clause as a condition. 

Scrutiny on the ground of National Security:

  • Now, FDI in the Defence Sector shall be subject to scrutiny on the ground of National Security and the Government reserves the right to review any foreign investment in the Defence Sector that may affect national security.
  • Investment route: Under the existing policy, the defence industry can bring FDI up to 49 % under the automatic route, and above it “under government route.
  • The national security clause is in addition to the existing four conditions specific to FDI in the defence manufacturing sector, including security clearance and some guidelines of the Ministry of Defence.

Significance:

  • The government has been focusing on the defence sector to act as an engine for boosting the manufacturing sector.
  • The government aims to achieve a turnover of Rs 1.75 lakh crore, including exports worth Rs 35,000 crore, by 2025. 
  • Through a more liberalised FDI policy, the government wants foreign original equipment manufacturers to shift operations to India, and also encourage private players to play a larger role.

Defence Production and Export Promotion Policy 2020 (DPEPP 2020):

  • The government has brought a draft Defence Production and Export Promotion Policy 2020 (DPEPP 2020).
  •  Objective: To provide an overarching guiding document to provide a focused, structured and significant thrust to defence production capabilities of the country for self-reliance and exports.
  • Negative imports list: The government has also brought a negative imports list for defence equipment and a dedicated budget for capital acquisition from the domestic industry. It was done with an aim to reduce the defence import bill.
    • This list contains a list of weapons that will not be imported and can only be purchased from within the country.
  • The government has inaugurated two defence industrial corridors, in Tamil Nadu and in Uttar Pradesh, to boost the flagship 'Make in India' programme that in turn would attract investments as well as encourage employment generation.

Source: PIB

Pradhan Mantri Matsya Sampada Yojana (PMMSY)

Context:

The Prime Minister of India has launched the Pradhan Mantri Matsya Sampada Yojana (PMMSY).

Pradhan Mantri Matsya Sampada Yojana:

  • It is a flagship scheme for focused and sustainable development of the fisheries sector with an estimated investment of Rs. 20,050 crores for its implementation during a period of 5 years from FY 2020-21 to FY 2024-25 in all States/Union Territories.
  • The investment of Rs. 20,050 crores under PMMSY is the highest ever in the fisheries sector.
    • Out of this, an investment of about Rs 12340 crores is proposed for beneficiary-oriented activities in Marine, Inland fisheries and Aquaculture and
    • About Rs 7710 crores investment for Fisheries Infrastructure.

Objectives:

  • To enhance fish production by an additional 70 lakh tonne by 2024-25.
  • Increasing fisheries export earnings to Rs.1,00,000 crore by 2024-25.
  • Doubling of incomes of fishers and fish farmers,
  • Reducing post-harvest losses from 20-25% to about 10%, and generation of an additional 55 lakhs direct and indirect gainful employment opportunities in the fisheries sector and allied activities.
  • It also aims to consolidate the achievements of the Blue Revolution Scheme

Significance:

  • PMMSY is designed to address critical gaps in fish production and productivity, quality, technology, post-harvest infrastructure and management, modernization, etc.
  • PMMSY envisages many new interventions such as fishing vessel insurance, support for new/up-gradation of fishing vessels/boats, Bio-toilets,  Aquaculture in saline/alkaline areas, Sagar Mitras, FFPOs/Cs,  Nucleus Breeding Centres, etc.
  • PMMSY scheme primarily focuses on adopting a Cluster-based approach and the creation of Fisheries clusters through backward and forward linkages.
  • Special focus will be given for employment generation activities such as seaweed and ornamental fish cultivation. It emphasizes interventions for quality brood, seed, and feed, special focus on species diversification, critical infrastructure, marketing networks, etc.

e-Gopala App

  • e-Gopala App is a comprehensive breed improvement marketplace and information portal for the direct use of farmers.
  • At present no digital platform is available for farmers managing livestock including buying and selling of disease-free germplasm in all forms (semen, embryos, etc); There is also no mechanism to send alerts on the due date for vaccination, pregnancy diagnosis and inform farmers about various government schemes and campaigns in the area.
  • The App will provide solutions to farmers in all these aspects.

Semen Station:

  • The state of the art facility has been established under Rashtriya Gokul Mission in Purnea, Bihar with an investment of Rs. 84.27 crores.
  • It is one of the largest semen stations in the government sector with a production capacity of 50 lakh semen doses per annum.
  • It will give a new dimension to the development and conservation of indigenous breeds of Bihar and meet the demand of semen doses of eastern and northeastern States.

Source: PIB

Multidimensional Poverty Index (MPI)

Context:

NITI Aayog is going to release a Multidimensional Poverty Index (MPI) parameter dashboard.

  • Objective: To rank states and Union Territories, along with a State Reform Action Plan (SRAP).

Details:

  • The Global MPI is part of the government’s decision to monitor the performance of the country on 29 select global indices.
  • The objective of the Global Indices to Drive Reforms and Growth (GIRG) exercise is to fulfill the need to measure and monitor India’s performance on various important social and economic parameters.
  • It also enables the utilization of these indices as tools for self-improvement, brings about reforms in policies while improving last-mile implementation of government schemes.

Global MPI:

  • It is an international measure of multidimensional poverty covering 107 developing countries.
  • The dimensions of poverty range from deprivations of health facilities, education, and living standards.
  • The MPI measures acute poverty and people experiencing multiple deprivations, for example, those who are both undernourished and do not have safe drinking water, adequate sanitation, and clean fuel. These indicators are set to minimum international agreed standards in basic functioning.

Multidimensional Poverty Index (MPI):

  • The index measures the poor people's lives, individually and collectively, each year. It uses various indicators to calculate a summary poverty figure for a given population, in which a larger figure indicates a higher level of poverty.
  • In 2010 it was first developed by Oxford Poverty and Human Development Initiative and United Nations Development Programme for UNDP’’s Human Development Reports.
  • It uses indicators namely health, education, and standard of living to determine the incidence and intensity of poverty experienced by a population. 

Dimensions and Indicators:

  • MPI identifies how people are being left behind across three dimensions health, education, and standard of living, comprising 10 indicators:
    • Nutrition, Child mortality, Years of schooling, School attendance, Cooking Fuel, Sanitation, Drinking water, Electricity, Housing, Assets

Multidimensional Poverty Index: India Scenario:

  • Between 2005-06 and 2016-17, at least 271 million people were lifted out of multi-dimensional poverty.
  • As per global MPI, over 640 million people across India were in multidimensional poverty in 2005-2006.
  • The number of people living in poverty decreased to around 369.55 million by 2016-2017.

Poverty in India:

  • In 2005-2006, 55.1 % of the population lived in India under multidimensional poverty as per the study and in 2015-16, it came down to 27.9 %.
  • The intensity of deprivation was 43.9 % in 2015-16 whereas the population under severe multidimensional poverty was 8.8 %
  • 37.7 crore people in India lived under multidimensional poverty as of 2018, as per the study.
  • The percentage of people who were deprived of nutrition in India was 21.2 % as of 2016. Around 26.2 % of people were deprived of cooking fuel.
  • Those people who were deprived of sanitation and drinking water were 24.6 % and 6.2 % respectively. People who were deprived of electricity and housing are at 8.6 % and 23.6 % of the year.

Source: Indian Express

RBI-Government tango

CONTEXT OF THE NEWS

In this editorial we discuss what economic policy should be proposed by the government and the RBI to kick-start the economy which is under stress due to Covid-19 Pandemic.

NEED FOR COORDINATED INEQUILIBRIUM STRATEGY

  • In the present pandemic context, a coordinated inequilibrium strategy between the RBI and the government is the most effective policy response and for such coordinated inequilibrium an effective communication from both RBI and government is needed.

Concern:

  • In all over the world, including India, coordination between monetary and fiscal authorities has been a thorny issue in recent years. It was mostly raised after the global financial crisis.fiscal policy.JPG
    • We have seen perfect coordination between the monetary and fiscal policy, when there is statistically significant negative correlation between the two.
    • India too has seen dominance of fiscal over monetary policy in its last three decades.
    • Fiscal policy affects aggregate demand through changes in government spending and taxation. Those factors influence employment and household income, which then impact consumer spending and investment.
    • Monetary policy impacts the money supply in an economy, which influences interest rates and the inflation rate. It also impacts business expansion, net exports, employment, the cost of debt, and the relative cost of consumption versus saving—all of which directly or indirectly impact aggregate demand.

The options for RBI and Government

  • There are two options for both the government and the RBI— either a contraction or an expansion. Through this there would be effectively four policy options and each of the options will have a particular benefit/payoff for the RBI and government. The four options are —
    • A fiscal policy expansion and a monetary policy contraction.
    • A fiscal policy expansion and monetary policy expansion.
    • A fiscal policy contraction and a monetary policy contraction: This is not helpful in current crisis.
    • A fiscal policy contraction and a monetary policy expansion.
  • In this hard situation we want to find which policy option can result in a Nash Equilibrium.
  • Nash equilibrium occurs when neither the government nor the RBI can increase its payoff by unilaterally changing its action.
  • The benefits would be accrued to the government and the RBI separately whatever will be their policy options either Contraction or expansion.

Nash Equilibrium

  • It is a game theory concept that determines the optimal solution in a non-cooperative game in which each player lacks any incentive to change his/her initial strategy.
  • Under this, a player does not gain anything from deviating from their initially chosen strategy, assuming the other players also keep their strategies unchanged.
  • A game may include multiple Nash equilibria or none of them.
  • John Nash, American mathematician, discovered Nash Equilibrium. He was awarded the Nobel Prize in Economics in 1994 for his contributions to the development of game theory.

Cases of maximum payoff

  • Government always favour the expansionary policy, it means fiscal expansion. But payoff is also maximum when RBI expands- means monetary expansion or contraction.
  • Monetary authority gets maximum payoff from a monetary contraction, either with a fiscal contraction or expansion, when it wants to contract the economy to fight inflation. It means payoff can be maximum when government also contracts.

WHICH POLICY WOULD BE HELPFUL?

Fiscal contraction and monetary expansion

  • The government always wants a tight fiscal policy for obvious reasons and expects the RBI to provide the necessary liquidity support through an expansionary monetary policy.
  • It means government prefers the payoff matrix of fiscal contraction and monetary expansion which is not at all suitable in these conditions. It has its own reason of failure-
    • If the RBI opts for such a monetary expansion, the government also opts for an expansion as the payoff is higher, it will compel the RBI to then opt for contraction, since that gives it a higher payoff.

Fiscal expansion and monetary contraction

  • It seems that the government’s best strategy is for an expansion, so that the outcome will be always being a fiscal expansion with a simultaneous monetary contraction. This seems be the Nash equilibrium for this game and the most plausible outcome of an uncoordinated but intelligent behaviour.
    • But in the current pandemic, which is defying all economic principles, this strategy must find a solution that is purely rational.
    • In the first fiscal quarter the growth we have seen touching new lows. In this uncertainty with too much unknown factors India’s economic outlook has become incalculable. As per the economist Frank Knight’s ‘Knightian Uncertainty’, uncertainty cannot be measured.
    • So this is not the desirable option.

Fiscal expansion and a monetary expansion

  • It seems that invoking Herbert Simon’s explanation of ‘procedural rationality’ can solve the present problem.
  • A brilliant exposition of such ‘procedural rationality’ show how the current pandemic is resulting in behavioural changes of individuals in terms of risk- taking.
    • In the Indian context too, there is a massive jump in health insurance in the current fiscal, indicating behavioural changes in terms of risk-taking. People now prefer small and medium size compact cars to avoid public transport.
    • Many of the current companies were also born during the financial crisis, like Uber (2009), Microsoft (1975), Disney (1923), General Motors (1908) and General Electric (1890).
  • Echoing such ‘procedural rationality’ in the current unprecedented circumstances, fiscal expansion and a monetary expansion is the desirable outcome and is a policy of ‘coordinated in equilibrium’.

Knightian Uncertainty

Frank Knight was an economist who formalized a distinction between risk and uncertainty in his 1921 book, Risk, Uncertainty, and Profit.

  • As Knight saw it, an ever-changing world brings new opportunities for businesses to make profits, but also means we have imperfect knowledge of future events.
  • According to Knight, risk applies to situations where we do not know the outcome of a given situation, but can accurately measure the odds. Uncertainty, on the other hand, applies to situations where we cannot know all the information we need in order to set accurate odds in the first place.

Way Forward

  • To make an unconventional policy like Fiscal expansion and a monetary expansion successful there should be an effective communication by both the RBI and the government, with both speaking in unison.
  • The RBI has been largely successful in communicating to the market about its intentions and now the government should manage expectations with coordinated communication and leave matters of financing the fiscal deficit, through measures like monetisation, to the RBI.

Source: Indian express

India’s Forex Reserves

Context:

As per the Reserve Bank of India (RBI) data, India's foreign exchange (forex) reserves touched a record high of USD 541.431 billion in the week ended 28th August 2020.

  • At the time of the major financial crisis in 1991, India had forex reserves of $5.8 billion.

Forex reserves:

  • These are external assets in the form of gold, special drawing rights of the IMF (SDRs), and foreign currency assets (capital inflows to the capital markets, FDI, and external commercial borrowings) accumulated by India and controlled by the RBI.

Benefits:

  • As per the International Monetary Fund (IMF), forex reserves help in supporting and maintaining confidence in the policies for monetary and exchange rate management including the capacity to intervene in support of the national currency.
  • Forex reserves limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis.

Reasons for rising forex reserves:

  • Foreign Portfolio Investments: The rise in investment in foreign portfolio investors in Indian stocks and foreign direct investments (FDIs). Foreign investors have acquired stakes in several Indian companies over the past several months.
    • After pulling out Rs 60,000 crore each from debt and equity segments in March, Foreign Portfolio Investments (FPIs), who expect a turnaround in the economy later this financial year, have now returned to the Indian markets.
  • The fall in crude oil prices: The fall has brought down the oil import bill, saving precious foreign exchange. Similarly, overseas remittances and foreign travels have fallen steeply.
  • Cutting corporate tax rates: The sharp jump in reserves started after India's announcement on September 20, 2019, cutting corporate tax rates.

Significance of rising forex reserves:

  • The rising forex reserves give comfort to the government and the RBI in managing India’s external and internal financial issues at a time of major contraction (23.9%) in economic growth.
  • It serves as a cushion in the event of a Balance of Payment (BoP) crisis on the economic front.
  • It is enough to cover the import bill of the country for a year.
  • Assist the government in meeting its foreign exchange needs and external debt obligations.
  • The rising reserves have also helped the rupee to strengthen against the dollar.

Role of RBI: 

  • RBI functions as the custodian and manager of forex reserves and operates within the overall policy framework agreed upon with the government.
  • The RBI allocates the dollars for specific purposes. For example, under the Liberalised Remittances Scheme, individuals are allowed to remit up to $250,000 every year.
  • The RBI uses forex reserve for the orderly movement of the rupee. It sells the dollar when the rupee weakens and buys the dollar when the rupee strengthens. 
  • When the RBI mops up dollars, it releases an equal amount in rupees. This excess liquidity is sterilized through the issue of bonds and securities and LAF operations.

India’s forex reserves:

  • The RBI Act, 1934 provides the overarching legal framework for the deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, issuers, and counterparties.
  • As much as 64 % of the foreign currency reserves are held in securities like Treasury bills of foreign countries, mainly the US; 28 % is deposited in foreign central banks; and 7.4 % is deposited in commercial banks abroad.
  • India also held 653.01 tonnes of gold as of March 2020, with 360.71 tonnes being held overseas in safe custody with the Bank of England and the Bank for International Settlements, while the remaining gold is held domestically.
  • In value terms (USD), the share of gold in the total foreign exchange reserves increased from about 6.14 % as at end-September 2019 to about 6.40 % as at end-March 2020.

Source: Indian Express

RBI’s Loan Recast Plan

Context:

RBI has released guidelines for banks to follow while restructuring COVID-stressed loan exposures, across 26 sectors.  

  • The guidelines are based on the recommendations given by the KV Kamath Committee.

Key Recommendations:

  • Five financial metrics need to be taken into account while deciding on a recast plan:
    • Total outstanding liabilities/ adjusted tangible net worth,
    • Total debt/Ebitda,
    • The current ratio,
    • Debt service coverage ratio, and
    • Average debt service coverage ratio.
  • For each of these parameters, RBI has prescribed either a floor or a ceiling.

Features:

  • As per the experts, some of the ratios were strict like the current ratio and DSCR (debt service coverage ratio) in all cases shall be 1.0 and above, and adjusted SCR shall be 1.2 and above.
  • Lenders are expected to ensure that the ratio of the total outside liabilities to the adjusted tangible net worth is complied with when the recast is implemented.
  • RBI mentioned this ratio needs to be maintained, in all cases, as per the plan, by March 31, 2022, and on an ongoing basis thereafter.  
    • However, wherever there is equity infusion, the ratio may be suitably phased-in over the period.
  • All other key ratios shall have to be maintained as per the resolution plan by March 31, 2022, and on an ongoing basis thereafter.

Duration:

  • The committee sets 180 days to implement the plan and makes an inter-creditor agreement mandatory.
  • The tenure of a loan may be extended by a maximum of two years, with or without a moratorium.

The Resolution plans:

  • The resolution process shall be treated as invoked once lenders representing 75% by value and 60% by number agree to invoke the same.
  • The resolution plans “shall take into account the pre-COVID-19 operating and financial performance of the borrower and impact of Covid-19 on its operating and financial performance’ to assess cash flows for FY21/FY22 and subsequent years.

Severe stress case:

  • Exceptions to thresholds were made for five sectors naming:
    • Auto manufacturing, aviation, real estate, roads, and trading wholesale.
  • Any default by the borrower with any of the signatories to the inter-creditor agreement during the monitoring period shall trigger a review period of 30 days.
  • If the borrower is in default with any of the signatories to the inter-creditor agreement at the end of the review period, the asset classification of the borrower with all lending institutions, including those who did not sign the ICA, shall be downgraded to NPA from the date of implementation of the plan or the date from which the borrower had been classified as NPA before the implementation of the plan, whichever is earlier.

Source: Indian Express

 Development Finance Institution (DFI)

Context:

The central government is planning to set up a new  Development Finance Institution (DFI) with the objective to fill the gap in long-term finance for infrastructure sectors of the country.

Details:

  • The DFI will be used to finance both social and economic infrastructure projects identified under the National Infrastructure Pipeline (NIP).
  • Role of Government in DFI:
    • The DFI can have two types of character:
      • Either it should be promoted by the government.
      • Or it should be given a private sector character with the government restricting its holding to 49%.
  • Recently, the Finance Ministry inaugurated a NIP online dashboard which provides details on investment opportunities. This feeds from an earlier report of a high-level task force under Economic Affairs Secretary which had drawn up projects totalling investments of Rs 111 lakh crore across roads, railways, energy and urban sectors over the coming five years 2020-25.

Advantages of DFI:

  • The DFI is fully held by the government and it would be helpful in fund-raising. 
  • The securities from the DFI could be made SLR (Statutory Liquidity Ratio) eligible. This will encourage banks to subscribe to the securities issued by DFI and fulfil their SLR obligations.
    • RBI requires banks to set aside 18 % of their net demand and time liabilities towards SLR.
  • However, the issue involved in this is that the senior management of the DFI may be hounded by investigative agencies such as CBI, and be subject to the scrutiny of CAG and the CVC.

Development Finance Institution (DFI):

  • DFIs are specialized institutions set up to provide development/ Project finance and owned by central governments.
  • DFIs usually get funds from national or international development institutions.
  • DFIs strikes a balance between commercial operational norms as followed by commercial banks.
  • DFIs are not just plain lenders like commercial banks but they act as companions in the development of several sectors of the economy.

Classification of DFIs:

  • Sector-specific financial institutions: These institutions are focusing on a specific sector to provide project finance. Ex: National Housing Bank is solely related to Housing projects, EXIM bank is mainly focused on import-export operations.
  • Investment Institutions: These institutions facilitate business operations, such as capital expenditure financing and equity offerings, including initial public offerings (IPOs). Ex: LIC, GIC and UTI.

Way forward:

There is a huge funding gap that existed in the infrastructure space. Banks are unable to provide long-term finance to projects. If India has to grow 8-10 % continuously, credit growth must be 12-14 %. Infrastructure projects require long-term funds, and given the scale of investment required, a large DFI is a good idea.

Source: Indian Express

The Foreign Contribution Regulation Act (FCRA)

Context:

Union Home Ministry has suspended the license of four Christian associations (NGO) under the Foreign Contribution Regulation Act (FCRA).

FCRA license:

  • An FCRA license is mandatory for a non-profit organization to receive foreign funds. 
  • Any organization, association, or NGO in India cannot receive foreign funds if they do not have a license under the FCRA, which is regulated by the Home Ministry.
  • The suspension of the FCRA license means that the NGO can no longer receive fresh foreign funds from donors pending a probe by the ministry.
  • As of now, there are 22,457 NGOs or associations registered under the FCRA, while the licenses of 20,674 were canceled and 6,702 are deemed to have expired.

Details:

  • The reasons for the suspension or violation were not specified.
  • The four Christian groups whose FCRA was suspended are:
    • The Evangelical Churches Association (ECA): It was founded in 1952 in Manipur and Its origins can be traced to a Welsh Presbyterian missionary who visited in 1910.
    • Northern Evangelical Lutheran Church: It was established in 1987 in Jharkhand and is part of a global communion of 148 churches in the Lutheran tradition, representing over 77 million Christians in 99 countries
    • New Life Fellowship Association (NLFA) in Mumbai
    • Ecreosoculis North Western Gossner Evangelical in Jharkhand

Foreign Contribution Regulation Act (FCRA)

  • It is a law enacted by Parliament to regulate foreign contributions (especially monetary donation) provided by certain individuals or associations to NGOs and others within India.
  • FCRA Act was originally passed in 1976 and majorly modified in 2010.
  • The government has used the act over the years to freeze bank accounts of certain NGOs whom it found were affecting India’s national interest for wrong purposes.
  • As per the FCRA Act 2010, all NGOs are required to be registered under the Act to receive foreign funding.
  • According to terms stipulated in the FCRA, an organization cannot receive foreign funding unless it is registered under the 2010 Act, except when it gets government approval for a specific project.
  • Under the FCRA Act, registered NGOs can receive foreign contributions for five purposes social, educational, religious, economic, and cultural.

Source: The Hindu

SVAYEM Scheme

Context:

Assam government has re-launched the SVAYEM scheme with the objective of providing self-employment to around 2 lakh youths of the state.

Unemployment in Assam:

  • According to a survey conducted by the Centre for Monitoring Indian Economy, in April 2020 Assam's unemployment rate hit a 19-month high of 11.1%,
  • Unemployment in Assam was less than than the national rate of 23.5%. Nationwide, unemployment was highest in Tamil Nadu, Jharkhand, and Bihar at 49.8%, 47.1%, and 46.6% respectively. It was lowest in Punjab, Chhattisgarh, and Telangana at 2.9%, 3.4%, and 6.2% respectively. Tap or mouseover on a state in the map below to see unemployment numbers for it.

About SVAYEM scheme:

  • SVAYEM stands for Swami Vivekananda Assam Youth Empowerment (SVAYEM), the scheme worth Rs 1000 crore, would provide Rs 50,000 each as seed money to selected youths to start business ventures.
  • Since independence, this is the biggest self-employment program launched by any government in Assam. The Rs 1000 cr would come from our own revenue without any banking linkage.
  • The scheme was part of the central government’s budget (2017-18), but instead of benefitting 1 lakh youths as planned, it managed to get only around 7,000 beneficiaries due to a lack of adequate support from banks.
    • Now, SVAYEM is redesigned with a budget of Rs 1000 crore which will be spent in the next three months without any banking linkage.
  • The 2 lakh beneficiaries would have to be part of self-help groups, joint liability groups, etc. before September 1.
  • To avail, the benefits of the scheme individuals will be able to register themselves at a new portal which will be launched on September 16. The scheme could also get repeated annually with the possibility of increasing the number of beneficiaries.

Eligibility:

  • The eligibility criteria for the beneficiary under the scheme are:
    • Residents of Assam above 18 years of age. 
    • There will be no income ceiling for getting assistance under this scheme.
    • The individual should have skills, experiences, knowledge to undertake income-generating activities.
    • The beneficiary should possess the educational qualification of at least Class VII standard.
    • PMEGP beneficiaries of the last 5 years will not be eligible under the scheme.

Source: The Hindu

Revised Priority Sector Lending (PSL) Guidelines

Context:

RBI has released revised priority sector lending (PSL) guidelines to augment funding to segments including start-ups and agriculture. Commercial banks have been instructed to adhere to the revised guidelines.

  • The PSL guidelines were last reviewed for commercial banks in April 2015 and for UCBs in May 2018 respectively.

Objective: To address regional disparities in the flow of priority sector credit. Higher weightage has been assigned to priority sector credit in ‘identified districts’ where priority sector credit flow is comparatively low.

  • These measures are also aligned to focus areas of development as per the extant policy environment and will support funding requirements in these specific sectors.

Benefits:

  • The revised PSL guidelines will enable better credit penetration to credit deficient areas
  • Increase lending to small and marginal farmers and weaker sections,
  • Boost credit to renewable energy, and health infrastructure
  • The RBI’s revision in PSL guidelines will incentivize credit flow to specific segments like clean energy, weaker sections, health infrastructure, and credit deficient geographies,.

Revised guidelines:

  • Bank finance: Bank finance of up to Rs 50 crores to start-ups, loans to farmers both for installation of solar power plants for solarisation of grid-connected agriculture pumps and for setting up compressed biogas (CBG) plants have been included.
    • Loan limits for renewable energy have been doubled.
  • Small and marginal farmers: The targets prescribed for ‘small and marginal farmers’ and ‘weaker sections’ are being increased in a phased manner and a higher credit limit has been specified for farmer producer organizations (FPOs)/farmers producers companies (FPCs) undertaking farming with assured marketing of their produce at a pre-determined price.
  • Ranking of districts: To address regional disparities in the flow of priority sector credit at the district level, it has been decided to rank districts on the basis of per capita credit flow to the priority sector and build an incentive framework for districts with the comparatively lower flow of credit and a dis-incentive framework for districts with a comparatively higher flow of priority sector credit.
    • From FY 2021-22, a higher weight (125%) would be assigned to the incremental priority sector credit in the identified districts where the credit flow is comparatively lower (per capita PSL less than Rs 6,000).
    • Lower weight (90%) would be assigned for incremental priority sector credit in the identified districts where the credit flow is comparatively higher (per capita PSL greater than Rs 25,000), the circular said.
    • The list of both categories of districts has been provided. This list will be valid for a period up to FY 2023-24 and will be reviewed thereafter. The districts other than those mentioned in both the lists will continue to have an existing weightage of 100%, the circular added.

Priority Sector Lending (PSL)

  • PSL sectors are those which RBI and the central government consider important for the development of the basic needs of the country and are to be given priority over other sectors. 
  • RBI guidelines for PSL for scheduled commercial banks:
    • 40% of the total net bank credit should go to priority sector advances.
    • 10% of the priority sector advances or 10% of the total net bank credit, whichever is higher should go to the weaker sections.
    • 18% of the total net bank credit should go to agricultural advances. Within the 18 percent target for agriculture, a target of 8 % of Adjusted Net Bank Credit or Credit  Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher is prescribed for Small and Marginal Farmers, to be achieved in a phased manner.
    • 5 of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher should go to Micro enterprises.
  • Priority Sector categories: Agriculture, Micro, Small and Medium Enterprises (MSME), Export Credit, Education, Housing, Social Infrastructure, Renewable Energy, Others.

Source: The Hindu

G-20 Foreign Ministers Meet

Context:

Recently, Saudi Arabia has hosted the G-20 foreign ministers’ meeting.

Details:

  • The meeting was convened in the backdrop of the pandemic. The core agenda of the meeting was on strengthening international cooperation across borders in the wake of Covid-19.
  • The ministers also exchanged national experiences learned from cross-border management measures taken in response to the COVID-19.
  • Currently, Saudi Arabia holds the presidency of G-20. It is the first Arab nation to take over the G20 Presidency.
  • India also commended Saudi Arabia for its proactive approach in bringing G-20 countries together for dealing with the pandemic.

India's proposal:

  • India proposed the development of voluntary ‘G-20 Principles on Coordinated Cross-Border Movement of People’ with three elements:
    • Standardization of testing procedures and universal acceptability of test results;
    • Standardisation of ‘Quarantine procedures’;
    • Standardization of ‘movement and transit’ protocols.”
  • India also called on governments around the world to ensure that the interests of foreign students are protected and movement of stranded seafarers back to their home country is facilitated.

Recent Initiatives of G-20:

  • In the 3rd G-20 meeting held in July 2020, Finance Ministers and Central Bank Governors (FMCBG) came up with the G20 Action Plan to deal with the pandemic.
  • The Action Plan includes a list of collective commitments under the pillars of Health Response, Economic Response, Strong and Sustainable Recovery, and International Financial Coordination.
  • The G-20 also organized a virtual meeting of G-20 Digital Economy Ministers to highlight the digital initiatives taken by the countries to deal with Covid-19.

G-20:

  • It is an informal group of 19 countries and the European Union.
  • Its membership comprises a mix of the world’s largest and emerging economies, representing about two-thirds of the world’s population, 85% of global gross domestic product, 80% of global investment, and over 75% of global trade.
  • Members: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the European Union.
  • International Monetary Fund and the World Bank are also representatives of the G-20.

Source: Indian Express

Merchandise Exports from India Scheme (MEIS)

Context:

The government has decided to cap export incentives under the MEIS scheme at Rs 2 crores per exporter on outbound shipments made during September-December, 2020.

Merchandise Exports from India Scheme (MEIS):

  • It was introduced in the Foreign Trade Policy 2015-20 w.e.f. 1st April 2015.
  • Objective: To offset infrastructural inefficiencies and associated costs involved in exporting products that are produced /manufactured in India including products produced/manufactured by MSME Sector.
  • Under the scheme, the government provides duty benefits depending on the product and country.
  • Rewards under the scheme are payable as a percentage of the realized free-on-board value (of 2%, 3%, and 5%) and MEIS duty credit scrip can be transferred or used for payment of a number of duties including the basic customs duty.

About the Decision:

  • The ceiling would be subject to a downward revision to ensure that the total claim doesn’t exceed the allocated Rs. 5,000 crore for the period.
  • The new Import Export Code (IEC) obtained on or after 1st September will be ineligible to submit any MEIS claim for exports.

Impact:

  • The sudden change will affect exporters’ financially as buyers were not going to revise their prices upwards.
  • It seriously affects exporters whose numbers may not be very large, but their contribution to exports warrants a revisit to the imposition of the cap.
  • The Federation of Indian Export Organisations (FIEO) also expressed concern over the outlay of  Rs 5,000 crores given for exports during September-December, 2020 with the condition that if claims exceeded this limit, the ceiling may further be revised downwards.
  • This will create huge uncertainty as those eligible for a cap of  Rs 2 crore will not be able to factor in even such benefits in their exports,” he added. He urged the Centre to extend the MEIS till March 31, 2021, coterminous with the existing Foreign Trade Policy.

Measures:

  • Remission of Duties or Taxes on Export Product committee has started the work, but the export-import industry is facing challenges in providing the data due to lockdowns, non-availability of transport, and non-functioning of auditors.
  • The extension in the MEIS Scheme till March 2021 will help in a smooth rolling of the RoDTEP scheme as well since the scheme is going to stay for zero-rating of exports

Remission of Duties or Taxes On Export Product (RoDTEP):

  • It is a WTO compliant proposed scheme to replace the present scheme of MEIS.
  • The Ministry of Finance has set up a committee under the chairmanship of former commerce and home secretary GK Pillai to finalize the rates under RoDTEP that will allow reimbursement of all embedded taxes including local levies paid on inputs by exporters.
  • RoDTEP reimburses all the taxes/duties/levies being charged at the Central/State/Local level which are not currently refunded under any of the existing schemes but are incurred at the manufacturing and distribution process.

Federation of Indian Export Organisations (FIEO):

  • It was set up in 1965.
  • It is the apex trade promotion organization set up by the Ministry of Commerce.
  • FIEO is responsible for representing and assisting Indian entrepreneurs and exporters in foreign markets
  • It provides the crucial interface between the international trading community of India & the Central and State Governments, financial institutions, ports, railways, and all engaged in export trade facilitation.

Source: The Hindu

Global Innovation Index 2020

Context:

India climbed four spots on the Global Innovation Index 2020 and is now at 48th position in the list of top 50 innovative countries in the World Intellectual Property Organization (WIPO) annual ranking.

Details:

  • Switzerland, Sweden, the US, UK, and the Netherlands are in the top spots of this year's ranking.
  • India occupied the 52nd position in 2019 and was ranked 81st in the year 2015.
  • According to WIPO, India as one of the leading innovation achievers of 2019 in the central and southern Asian region, as it has shown a consistent improvement in its innovation ranking for the last 5 years.
  • The improvement in the global innovation index rankings is owing to capital knowledge, the vibrant startup ecosystem, and work done by the public and private research organizations.
  • In 2019, the India Innovation Index released by the NITI Aayog has been widely accepted as the major step in the direction of decentralization of innovation across all the states of India.

The Global Innovation Index (GII):

  • It is an annual ranking of countries by their capacity for, and success in, innovation.
  • It is published by Cornell University, INSEAD, and the World Intellectual Property Organization.
  • The index was started in 2007 by INSEAD and World Busines.
  • The index is based on both subjective and objective data derived from sources, including the International Telecommunication Union, the World Bank, and the World Economic Forum.

The World Intellectual Property Organization (WIPO):

  • It is one of the specialized agencies of the United Nations.
  • Objective: To promote the protection of intellectual property on the globe the world through cooperation among states, and collaboration with any other international organization.

Origins:

  • In 1883 WIPO was originated during the Paris Convention for the Protection of Industrial Property when 14 countries signed the Convention for the Protection of Industrial Property. 
    • From that convention, the intellectual-property protections for inventions, trademarks, and industrial designs were created.
  • WIPO was formally created by the Convention Establishing the World Intellectual Property Organization, which entered into force in 1970.
  • Under this Convention, WIPO seeks to "promote the protection of intellectual property throughout the world." 
  • In 1974 WIPO became a specialized agency of the UN.
  • Headquartered: Geneva, Switzerland.

Members:

  • WIPO currently has 191 member states.
  • 188 of UN member states as well as the Cook Islands, Holy See, and Niue are members of WIPO.
  • All member states of the UN are entitled, though not obliged, to become members of the specialized agencies like WIPO.

Source: Business Standard 

Status of NPA in Self-help Groups

Context:

The status of non-performing assets (NPAs) in bank loans given to self-help groups (SHGs) seeing a steady rise in the previous financial year.

  • NPA is a loan for which the principal or interest payment remained overdue for a period of 90 days.

Details:

  • The Union Ministry of Rural Development has directed the state government to monitor the status of NPA district-wise and take corrective measures.
  • In some states, NPAs make up more than a quarter of the loans taken by SHGs, with Uttar Pradesh seeing a 15% jump.
  • The issue was raised in the review meeting of the Deendayal Antyodaya Yojana-National Rural Livelihoods Mission.

SHG Loans:

  • About Rs 91,130 crore have been given to about 54.57 lakh SHGs across the country by the end of March 2020 as loans.
  • Around 2.37% or Rs. 2,168 crore of this total outstanding bank loans turned out to be NPAs.
  • The proportion of NPAs in bank loans given to SHGs has significantly increased over the last decade from 2.90% in 2008 to 6.12% in 2018.
  • There has been a rise of 0.19% in overall NPAs in SHG loans in 2019-20 compared to the financial year 2018-19.
  • The State Rural Livelihood Missions are asked to work out the amount to be deposited with banks before Sept 20 to avoid the account becoming irregular/ NPA.

Statewise data:

  • Uttar Pradesh, which has 71,907 SHGs, reported that 36.02% of the loans taken by the groups were NPAs at the end of March 2020, from 22.16% at the beginning of the last financial year.
    • UP was followed by Punjab, which had an NPA share of 19.25%, Uttarakhand (18.32%), and Haryana (10.18%). In Arunachal Pradesh, the NPA proportion stood at an alarming 43%, though the number of SHGs there is just 209.
  • In seven states (Madhya Pradesh, Assam, Gujarat, Maharashtra, Nagaland, Himachal Pradesh, and Tripura), NPAs comprised 5-10% of the loan amounts to SHGs.
  • In 10 others (Chhattisgarh, Goa, Tamil Nadu, Odisha, Rajasthan, Meghalaya, Jharkhand, Telangana, Karnataka, and Kerala), the NPAs made up less than 5% but were higher than the national figure of 2.37%.
  • Only six states and UTs had NPA share below the national average these are:
    • Manipur (2.13%), Sikkim (1.44%), West Bengal (1.38%), Bihar (1.29%), Jammu & Kashmir (1.07%), Andhra Pradesh (0.78%) and Mizoram (0.62%).

Deendayal Antyodaya Yojana-National Rural Livelihoods Mission

  • It is a poverty relief program and launched as ‘Aajeevika – National Rural Livelihoods Mission (NRLM)’ by the Ministry of Rural Development in 2011.
  • In 2015 it was renamed as DAY-NRLM.
  • DAY-NRLM is supported partially by the World Bank.
  • NRLM set out with an agenda to cover 7 Crore rural poor households, across 600 districts, 6000 blocks, 2.5 lakh Gram Panchayats and 6 lakh villages in the country through SHGs and federated institutions and support them for livelihoods collectives in a period of 8-10 years.

Source: Indian Express

Supreme Court gives Telecom Firms 10 Years to Pay AGR Dues

Context:

The Supreme Court has given 10 years to telecom companies to pay their adjusted gross revenue (AGR) dues to the government.

  • Adjusted gross revenue (AGR) is a fee-sharing mechanism between the government and the telcos who shifted to the 'revenue-sharing fee' model in 1999, from the 'fixed license fee' model.
  • In this course, telcos are supposed to share a percentage of AGR with the government.

Details:

  • The government had proposed in court a 20-year “formula” for telcos to make payments of the dues. However, the Supreme Court considers that the period of 20 years fixed for payment is excessive.
  • Even after part payment, the dues still run to Rs 1.43 lakh crore.

Background:

  • In 2019 judgment in the AGR issue wanted the telcos to make the repayments in three months. The court had concluded that the private telecom sector had taken advantage of the Centre’s liberalized mode of payment by the revenue sharing regime. The sector has benefited under the scheme as apparent from the gross revenue trend from 2004 to 2015”.
  • However, SC now allows the companies a “reasonable time” of a decade to pay their dues in “equal yearly installments”. 
  • The concession is granted only on the condition that the dues shall be paid punctually within the time stipulated by the Supreme Court. Even a single default will attract the dues along with interest, penalty, and interest on a penalty at the rate specified in the agreement.

Directions are given by the Supreme Court:

  • Raise no dispute: The apex court directed the telecom companies shall raise no dispute nor will they be any reassessment of the dues.
  • Payment of dues: The telecom operators would make the payment of 10% of the total dues as demanded by the Department of Telecom by March 31, 2021.
  • Yearly installments: The yearly installments would commence from April 1, 2021, up to March 32, 2031. The installments would be paid by March 31 every year.
  • Payment of arrears: The Managing Director/Chairman or other authorized officer should give an undertaking within four weeks, to make payment of arrears.
  • Bank guarantee: The telcos shall keep alive the existing bank guarantees they had submitted regarding the spectrum until the payment is made. Telecom majors like Vodafone had mentioned they were in no position to give fresh bank guarantees for repayment of the AGR dues. 
    • In the event of any default in making payment of annual installments, interest would become payable as per the agreement along with penalty and interest on penalty automatically without reference to the court. Besides, it would be punishable for contempt of court. 
  • The court wants the tribunal to decide whether a scarce natural resource like spectrum can be used without payment of requisite dues. The court wants the NCLT to decide the issue within the “outer limits of two months”.

Source: The Hindu

Measures to Ensure the Smooth Functioning of Financial Markets

Context:

The Reserve Bank of India (RBI) has announced several measures to ensure the smooth functioning of financial markets.

Details:

  • These measures include two more tranches of special Open Market Operations (OMOs) in bonds and a hike in the Held-To-Maturity (HTM) limit under the Statutory Liquidity Ratio (SLR) for banks.

Open Market Operations (OMOs):

  • The RBI will conduct additional special OMO involving the simultaneous purchase and sale of government securities for an amount of Rs 20,000 crore in two tranches of Rs 10,000 crore each.
  • The auctions would be conducted on September 10 and September 17. 
    • OMOs are conducted by RBI by way of sale and purchase of G-Secs (government securities) to and from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.
    • When RBI feels that there is excess liquidity in the market, it resorts to the sale of securities thereby sucking out the rupee liquidity. Similarly, when the liquidity conditions are tight, RBI may buy securities from the market, thereby releasing liquidity into the market.

Repo operations:

  • RBI will also conduct term repo operations for an aggregate amount of Rs 1,00,000 crore at floating rates in the middle of September to assuage pressures on the market on account of advance tax outflows.
  • In order to reduce the cost of funds, banks that had availed of funds under long-term repo operations may exercise the option of reversing these transactions before maturity.
  • Thus, the banks may reduce their interest liability by returning funds taken at the repo rate prevailing at that time (5.15 %) and availing funds at the current repo rate of 4 %.
    • The Repo rate is the rate at which RBI lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.
    • In inflation, RBI increases the repo rate as this acts as a disincentive for banks to borrow from the central bank. This reduces the money supply in the economy and thus helps in controlling inflation.

Fresh acquisitions of SLR:

  • The RBI has also decided to allow banks to hold fresh acquisitions of SLR securities acquired from September 1, under HTM up to an overall limit of 22 % of Net Demand and Time Liabilities (NDTL) up to March 31, 2021.
    • SLR is the minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold, or other securities. The SLR is fixed by the RBI and is a form of control over the credit growth in India.
    • NDTL is the difference between the sum of demand and time liabilities (deposits) of a bank (with the public or the other bank) and the deposits in the form of assets held by the other banks.

Source: Indian Express

GDP Contracts By 23.9 percent in June Quarter 

Context:

The National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation released the data for the first quarter (April, May, June) of the current financial year.

Details:

  • India’s economy posted its steepest contraction on record in the April-June quarter of the current fiscal year.
  • Asia’s third-largest economy in April-June suffered a contraction for the first time since India began maintaining quarterly records in 1996.