Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- How the government should utilise the windfall from fall in the oil prices?
Context
Amid the coronavirus scare came India’s silver lining in the form of a failure of the Organization of the Petroleum Exporting Countries (Opec) and Russia to reach an agreement on oil production cuts.
Reasons for Russia’s decision and its aftermath
- Why Russia declined to sign the agreement: Russia declined to cut its oil supply with an intention to compete with the US shale industry.
- Start of the price war: Consequently, a price war has started as Saudi Arabia plans a big increase in its oil supply. Saudi Arabia, which is the world’s largest oil exporter, has started offering unprecedented discounts in Europe, the Far East and the US to increase its supplies at the cost of other oil producers.
- Immediate fallout: An immediate fallout of the Russia-Opec meeting was a 9% fall in oil prices on Friday. Monday saw a sharper drop.
Supply and demand shocks and implications for India
- The demand shock: The impact of Covid-19 will be felt on the global demand for oil, too, as a dramatic increase in Covid-19 cases has put further downward pressure on demand for commodities, including oil.
- Thus, both supply and demand shocks have coalesced to roil the crude oil market.
- How much was the drop in price: Since the start of the year, oil prices have fallen by about a third.
- Prices may drop further under the weight of the twin assault of higher supply and lower demand.
- It is, therefore, not a stretch to expect oil prices over the coming financial year to be lower than they were in the previous two.
- Implications for India: This has positive implications for India’s economy and policymaking, as it comes at a time when it has embarked on an uncertain and hesitant recovery.
Opportunity for India
- Precarious fiscal situation: The growth slowdown in the last two years has resulted in a precarious fiscal situation because of tax revenue shortfalls.
- Implications of the fiscal constraints: A direct casualty is the ability of the government to spend or meet its fiscal commitments in the form of budgetary transfers to states, payment of dues and compensation for revenue shortfalls to state governments under the goods and services tax (GST) framework.
- Constraints holding back the government from offering stimulus: Budgetary constraints combined with the Fiscal Responsibility and Budget Management Act have held the government back from fully offsetting a private sector demand slowdown with its own spending.
- Opportunity in the low oil prices: Low oil prices offer an opportunity to raise some revenue and improve its fiscal balance.
Way forward
- First- Passing half the benefit to consumers: As oil prices slide below levels in the previous two years and also below the price of India’s oil basket of $65 per barrel reportedly assumed for 2020-21, there’s an opportunity to pass on about half the benefit of lower global prices to consumers, while the other half can be used to shore up revenue by levying higher excise duty.
- The Union government did something similar between 2014 and 2016.
- Improving the fiscal health: It used low oil prices to improve its fiscal health, as the budget deficit it inherited from the previous government was higher than what the official figures suggested.
- Second-Revenue generated should be used to clear dues: The additional tax revenue thus generated through higher excise duty should be used to clear all dues of the central government, whether to private companies, state governments, or others awaiting tax refunds.
- Putting cash back in the hands of households and small businesses will go a long way in maintaining the growth of domestic demand, besides improving the credibility of the Union government as a trustworthy counter-party.
- Third-Fiscal leeway: The potential excise duty windfall from oil prices could come in handy for the government to provide relief to beleaguered telecom companies.
- The government will have fiscal leeway to allow a staggered and a longer schedule for the payments they have to make, arising out of the Supreme Court ruling on adjusted gross revenues.
- The telecom growth story is an important component of the broader India story, and the sector needs an urgent breather to ensure we are adequately prepared for a 5G roll-out, whenever it happens.
- Fourth-Recalibrate: A slowdown in economic activity, which is inevitable with restrictions placed on mobility and human interaction, will have adverse fiscal implications.
- Tax collections will decline. So will remittances from Indian workers in the Gulf, if that region is buffeted by oil and virus shocks.
- Hence, the quantum of the windfall from lower oil prices will need to be constantly re-assessed and fiscal strategies recalibrated.
- Fifth-Hedging against the higher prices: Even as it should nimbly take advantage of the lower prices now, the government should seriously consider hedging against possible higher oil prices in the medium- to long-term through appropriate instruments available in financial markets. This idea should be extended to hedging against a fall in the rupee relative to the US dollar too.
- Finally-Consider assembling the crack team: It may be worthwhile for the government to consider assembling a crack team of former and current bureaucrats, who have proven their mettle in different crises and in different sectors, to advise it on policy measures that should be adopted in these extraordinary times. Much policy innovation and courage, combined with integrity, will be needed for India to emerge stronger from 2020. For the country’s leadership, there isn’t much to lose from breaking free of old policy and behavioural shackles.
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Note4Students
From UPSC perspective, the following things are important :
Mains level: Paper 3-Measures to revive the Indian economoy.
Context
The root cause of the present malaise in our economy is the “death of demand”.
How demand matters for growth?
- The relation between demand and growth: Growth in any economy depends on the growth in demand, both for investment as well as consumer goods.
- How slackened demand leads to a vicious cycle: If demand slackens, then the installed capacity will not be fully utilised, the fresh investment will not take place, employment will slacken and the economy will get caught in a vicious cycle, as we are experiencing today.
What needs to be done to break the vicious cycle?
- What sequence to follow in reviving demand? The basic challenge, therefore, is to revive demand in the economy in a sequence where the revival takes place first in the investment goods sector, automatically followed by a boost in demand for consumer goods through enhanced employment opportunities.
- Past precedents: This is the prescription we had followed in the Atal Bihari Vajpayee government when we were faced with the East Asian crisis and the post-Pokhran global economic sanctions soon after the government assumed office in March 1998.
Demand in India
- No dearth of demand in India: In a developing country like India, there is no dearth of “good” demand.
- We still have to provide so many goods and services to our people in order to improve their “quality of life”.
- Need to create new infrastructure: Simultaneously, we have to create new infrastructure and improve the existing ones to reduce the transaction cost in our economy and make it more competitive.
- How infrastructure creation lead to the creation of demand: The emphasis on the construction of roads of all kinds — rural, state and national highways, the new telecom policy, the investment in railways, the emphasis on housing construction and development of the real estate, the improvement in rural infrastructure and reform in the agricultural sector were all meant to lead to the creation of demand in the economy.
- Creation of the virtuous cycle: The creation of demand should be in such a way that the demand for investment goods picks up first and faster, which creates the virtuous cycle of full capacity utilisation.
- Demand for consumer goods: Demand for investment goods is followed by fresh investment for new capacity creation, larger employment opportunities of various kinds — unskilled, skilled and highly skilled — which reached money into the pockets of people leading to a surge in demand for consumer goods.
How the government should deal with the situation
- Deal with the demand side instead of supply-side: All commentators are agreed now that instead of tackling the demand side government is dealing with the supply side.
- Tax relief to corporates: For instance, if, instead of wasting a precious amount of Rs 1,45,000 crore on tax relief to a limited number of corporates the government had spent that money on rural infrastructure and agriculture and a part of it on railways and highways, it would have led to the creation of demand both for investment goods as well as consumer goods.
- Issue of sticking to the fiscal deficit target: There is also the issue of resources. The government claims that it has stuck to the fiscal deficit targets.
- But the provisions of Fiscal Responsibility and Budget Management (FRBM) Act have been treated in a cavalier manner by all subsequent governments.
- What was the basic purpose of the act? The basic purpose of the act was to eliminate the revenue deficit completely within a short period of time and live with a limited fiscal deficit.
- The original FRBM Act, therefore, mandated that revenue deficit should be eliminated completely and the rest of the fiscal deficit should be limited to one per cent of GDP.
- In special circumstances like today, the fiscal deficit should be allowed to go up to even two per cent of the GDP, which will mean an amount of Rs four lakh crore.
Figures of the latest budget and need for the reforms
- Fiscal deficit figures: The government has taken credit in the Budget for the fact that it has successfully restricted total fiscal deficit for this fiscal to 3.8 per cent and for next fiscal at 3.5 per cent of the GDP.
- The issue involved in fiscal deficit figures: The revenue deficit for the current fiscal is 2.4 per cent of the GDP and for the next fiscal it is 2.7 per cent. In other words, minus the revenue deficit the fiscal deficit is only 1.4 per cent of GDP for this year and for the next year, it is 1.7 per se.
- Need for managing the expenditure: So, the real villain of the piece is revenue deficit and not fiscal deficit per se.
- Need for the reforms: It is clearly the government’s responsibility to manage its expenditure and carry out reforms in it, including austerity in expenditure.
- How will the reforms help? Controlled fiscal deficit will make more money available in the market for private sector investment and help RBI in reducing interest rates — things which will have an overall benign influence on the economy.
Conclusion
A lot of other things apart from austerity majors will have to be done, no doubt, like preventing companies, especially banks from failing, to further strengthen the growth impulses but in the present situation, the key is government spending and in the desired sequence.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Dominance of China in international trade and its implications for national security.
Context
Although the slowdown in Chinese manufacturing has disrupted the supply chains of many goods, the impact on the drug industry has helped highlight the national security implications of China’s dominance over the pharmaceutical industry.
Implications of the coronavirus disruption in China
- Global dependence on China in focus: As the coronavirus spreads far and wide, the global dependence on China for drugs and medical supplies has come into sharp focus.
- The argument for domestic production of medicine: In both the US and Europe, the shortage of essential drugs to treat the victims of the virus is strengthening the arguments for restoring some domestic production of pharmaceuticals.
- National security implications: Although the slowdown in Chinese manufacturing has disrupted the supply chains of many goods, the impact on the drug industry has helped highlight the national security implications of China’s dominance over the pharmaceutical industry.
China’s dominance in pharmaceutical production
- Two factors that contributed to China rise:
- Active state support from Beijing and-
- Western drug companies eager to shift production to cheaper destinations has facilitated China’s emergence as the most important global source for pharmaceutical products and medical devices.
- Global dependence on China for drugs: America and Europe are said to import nearly 80 per cent of their antibiotics from China.
- India’s dependence for API: India is also an important supplier of generic drugs to the Western world, but it is itself dependent on massive imports of active pharmaceutical ingredients (APIs) from China.
- Impact on India: The reduction in supplies from China after the virus breakout has been accentuated by the recent decision of Government of India to limit the export of common drugs like paracetamol.
- How the US is responding to dominance? Well before the current crisis, there had been warnings in the US about the national security risks from the massive reliance on external sources for basic medicines.
- Weaponising the dominance: Late last year, the US-China Security Review Commission, established by the US Congress, pointed to the prospects of China weaponising its dominance over pharmaceutical production and its massive consequences for healthcare in the US.
- Government support in China: The report also pointed out that the Chinese government promotes and protects the nation’s pharmaceutical companies to the disadvantage of foreign competitors and that leaves other nations little leverage with China.
- Need to limit the exposure to China in other sectors: While the current international focus is on the supply chains in the pharmaceutical sector, there has been growing recognition of the need to limit the expansive exposure to China in many different sectors.
National security argument of the dominance
- National security dimension of trade war: Trump’s case for bringing manufacturing back to America — by challenging the traditional framework of international trade — was not just economic.
- It also had a strong national security argument — that the US cannot rely on China for servicing its national security needs in a range of sectors from digital components and drugs.
- What supporters of the globalisation said? Supporters of economic globalisation had countered these arguments by saying that tight interdependence will reduce the incentives for taking unilateral advantage by nations.
- China using trade dominance into leverage: The critics have pointed to the fact that China was turning its role as the “world’s factory” into powerful leverage.
- Why did the West start regarding China as a challenge? The Chinese decision to stop rare earth exports to Japan during 2010 in relation to a minor political dispute had led many to put up red flags.
- Since then, China’s greater political assertiveness and challenge to Western dominance in critical areas have strengthened the case in the West to regard China as a challenge if not an outright threat.
- De-coupling gaining traction: As the bipartisan political consensus in the US and Europe in favour of a strong economic partnership with China began to break down in recent years, the case for de-coupling has gained much traction.
How using economic leverage for strategic gains undergone changes?
- Use of economic leverage and stockpiling: The history of statecraft suggests that it was quite common for states to use economic leverage for strategic gains.
- Use of strategy during the cold war: Through the Cold War, both America and Russia sought to corner strategic resources around the world. They also adopted policies for stockpiling special materials for use during conflicts. Sustaining a strategic petroleum reserve, for example, was a major priority for the US during the Cold War.
- Changes due to globalisation: The importance of hoarding resources at home and denying it to one’s adversaries seemed to diminish amidst great power harmony and economic globalisation that flourished after the Soviet Union collapsed.
- Recent challenges due to weakening of globalisation: The erosion of that moment in the last few years has set up new tensions between the competing imperatives on Western governments.
- Capital vs. Security issue: While the logic of security compels the state to limit strategic economic exposure, the logic of capital demands policies that reduce costs of production and increase the margins of profit.
- This tension has been at the heart of the recent Western debates on the China question.
Conclusion
While the world finds ways to deal with the Chinese dominance in the other sector, meanwhile, in the health sector, large continental entities like the US, Europe and India are likely to insure against over-reliance on a single source for life-saving drugs. They are likely to find ways to shorten the supply chains, expand domestic production and explore coordination among like-minded nations.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Sir Creek
Mains level: Disputes over Sir Creek
Former Pakistan Minister recalls plan for Sir Creek pact.
Sir Creek
- Sir Creek is a 96-km strip of water disputed between India and Pakistan in the Rann of Kutch marshlands. Originally named Ban Ganga, Sir Creek is named after a British representative.
- The Creek opens up in the Arabian Sea and roughly divides the Kutch region of Gujarat from the Sindh Province of Pakistan.
What’s the dispute?
- The dispute lies in the interpretation of the maritime boundary line between Kutch and Sindh. Before India’s independence, the provincial region was a part of the Bombay Presidency of British India.
- But after India’s independence in 1947, Sindh became a part of Pakistan while Kutch remained a part of India.
- Pakistan claims the entire creek as per paragraphs 9 and 10 of the Bombay Government Resolution of 1914 signed between then the Government of Sindh and Rao Maharaj of Kutch.
- The resolution, which demarcated the boundaries between the two territories, included the creek as part of Sindh, thus setting the boundary as the eastern flank of the creek popularly known as Green Line.
- But India claims that the boundary lies mid-channel as depicted in another map drawn in 1925, and implemented by the installation of mid-channel pillars back in 1924.
The Genesis
- The marshland of Sir Creek first became disputed in the early 20th century when the Rao of Kutch and the Chief Commissioner of Sindh Province of British India, due to different perceptions of the boundaries, laid claims over the creek.
- The case was taken up by then Government of Bombay, which conducted a survey and mandated its verdict in 1914.
- This verdict has two contradictory paragraphs, which make the India and Pakistan contenders on the same issue.
- Paragraph 9 of this verdict states that the boundary between Kutch and Sindh lies ‘to the east of the Creek,’ (Green Line) which effectively implied that the creek belonged to Sindh and, therefore, to Pakistan.
- On the other hand, Paragraph 10 states that since Sir Creek is navigable most of the year.
- According to international law and the Thalweg principle, a boundary can only be fixed in the middle of the navigable channel, which meant that it has be divided between Sindh and Kutch, and thereby India and Pakistan.
- India has used this para to consistently argue that the boundary needs to be fixed in the middle of the creek.
- Pakistan, however, claims that Sir Creek isn’t navigable but India claims that since it’s navigable in high tide, the boundary should be drawn from the mid channel.
What’s the importance of Sir Creek?
- Apart from the strategic location, Sir Creek’s core importance is fishing resources. Sir Creek is considered to be among the largest fishing grounds in Asia.
- Another vital reason for two countries locking horns over this creek is the possible presence of great oil and gas concentration under the sea, which are currently unexploited thanks to the impending deadlock on the issue.
UNCLOS supports India’s stand
- If Thalweg principle is to be upheld, Pakistan would lose a considerable portion of the territory that was historically part of the province of Sindh.
- Acceding to India’s stance would mean shifting of the land/sea terminus point several kilometres to the detriment of Pakistan, leading in turn to a loss of several thousand square kilometres of its Exclusive Economic Zone under the United Nations Convention on Law of the Sea (UNCLOS).
War in 1965 and tribunal
- After the 1965 war, British Prime Minister Harold Wilson successfully persuaded both countries to end hostilities and set up a tribunal to resolve the dispute.
- The verdict of the tribunal came in 1968 which saw Pakistan getting 10% of its claim of 9,000 km (3,500 sq. miles).
- Since 1969, 12 rounds of talks have been held over the issue of Sir Creek, but both sides have denied reaching any solution.
- The region fell amid tensions in 1999 after the Pakistan Navy shot down a MiG-21 fighter plane, but the last rounds of talks were held in 2012. Since then it’s been status quo.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Quota within Quota
Mains level: Making reservation system more efficient
The Haryana Assembly last week passed a Bill to split the 20% quota for Scheduled Castes (SCs) in the state’s higher educational institutions into two, creating a quota within the quota for a new group of “Deprived Scheduled Castes”.
Deprived Scheduled Castes
- This category has 36 communities including Valmiki, Bazigar, Sansi, Deha, Dhanak, and Sapera.
What does the new law say?
- Fifty per cent of the 20 per cent seats reserved for SCs for admission in any Government educational institution shall be set aside for candidates belonging to DSCs.
- Where a seat set aside for candidate from deprived Scheduled Castes is not filled up in any academic year due to non-availability of such candidate; it shall be made available to candidate of Scheduled Castes.
Constitutional Provisions incited
- Article 15(5) of the Constitution authorizes the State to make special provisions for the advancement of any socially and educationally backward classes of citizens or for SCs/STs for admission to educational institutions.
- However Article 15(5) did not mention powers to bifurcate the quota.
Is this sub-quota a new idea?
- The present Haryana government has replicated the initiative of the state government in 1994.
- Then government bifurcated the Scheduled Caste quota into two categories: Block A and Block B.
Why such move?
- The Statement of Objects and Reasons of the Act says that the representation of the SCs now categorised as DSCs” is “only 4.7%, 4.14% and 6.27% in Group A, Group B and Group C services respectively, even though their population is about 11% of the total State population.
- The population of other SCs in Haryana is also about 11% of the total State population but in respect of representation in Government Services their share is 11%, 11.31% and 11.8% in Group A, B and C, respectively.”
- The reason for the poor representation of the DSCs in government jobs can be found in their educational qualifications.
- Thus, even though the “minimum prescribed educational qualification for majority of the posts of Group A, B & C services… is Graduation, the Socio-Economic Caste Census data reveals that in terms of education.
- Only 3.53% population of the DSCs is Graduate, 3.75% of them are Senior Secondary level and 6.63% are Matric/Secondary level. Also 46.75% of them are illiterate.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: Political funding in India
As much as 67% of donations to national parties in 2018-19 came from “unknown sources,” an increase from 53% in the previous financial year, said a report released by the Association for Democratic Reforms.
About ADR
- The Association for Democratic Reforms (ADR) is an Indian non-partisan, non-governmental organization which works in the area of electoral and political reforms.
- Along with National Election Watch (NEW), ADR is striving to bring transparency and accountability in Indian politics and reducing the influence of money and muscle power in elections.
- The ambit and scope of work in this field are enormous, hence, ADR has chosen to concentrate its efforts in the following areas pertaining to the political system of the country:
- Corruption and Criminalization in the Political Process
- Empowerment of the electorate through greater dissemination of information relating to the candidates and the parties, for a better and informed choice
- Need for greater accountability of Indian Political Parties
- Need for inner-party democracy and transparency in party-functioning
income sources of Political Parties
- The total income of the parties was ₹3,749.37 crore, of which ₹951.66 crore was from known donors.
- Electoral bonds accounted for 78% of the ₹2,512.98 crore, or 67%, income from unknown sources.
- While parties are required to give details of all donations above ₹20,000, donations under ₹20,000 and those via electoral bonds remain anonymous.
- Out of the total income from unknown sources, 64% went to the BJP and 29% to Congress.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Read the attached story
Mains level: Not Much
Photosynthesis is a life-sustaining process by which plants store solar energy as sugar molecules. However if sunlight is in excess it can lead to leaves being dehydrated and damaged.
What is Photosynthesis?
- Photosynthesis is the process used by plants, algae and certain bacteria to harness energy from sunlight and turn it into chemical energy.
- There are two types of photosynthetic processes: oxygenic photosynthesis and anoxygenic photosynthesis.
- The general principles of anoxygenic and oxygenic photosynthesis are very similar, but oxygenic photosynthesis is the most common and is seen in plants, algae and cyanobacteria.
- During oxygenic photosynthesis, light energy transfers electrons from water (H2O) to carbon dioxide (CO2), to produce carbohydrates.
- Ultimately, oxygen is produced along with carbohydrates. Oxygenic photosynthesis is written as follows:
6CO2 + 12H2O + Light Energy → C6H12O6 + 6O2 + 6H2O
Here, six molecules of carbon dioxide (CO2) combine with 12 molecules of water (H2O) using light energy. The end result is the formation of a single carbohydrate molecule (C6H12O6, or glucose) along with six molecules each of breathable oxygen and water.
How do plants dissipate heat?
- To prevent such damage, plants dissipate extra light as heat.
- While this was known there has been a debate over the past several decades over how plants actually do so.
- Now for the first time researchers have directly observed one of the possible mechanisms through which plants dissipate extra sunlight.
- The new research has been able to determine–by using a highly sensitive type of spectroscopy–that excess energy is transferred from the pigment chlorophyll, which gives leaves their green colour, to other pigments called carotenoids.
- The carotenoids then release the energy as heat. After the carotenoids accept excess energy, most of it is released as heat, thus preventing damage to the cells.
Why does plant dissipate light?
- During photosynthesis, light-harvesting complexes play two seemingly contradictory roles.
- They absorb energy to drive water-splitting and photosynthesis, but at the same time, when there’s too much energy, they have to also be able to get rid of it.
- Plants quickly adapt to changes in sunlight intensity. Even in very sunny conditions, only 30 per cent available sunlight is converted into sugar, and the rest is released as heat.
- The excess energy, if not released, leads to the creation of free radicals that can damage proteins and other important cellular molecules.
Significance of the research
- So far, it had been difficult to observe the heat dissipation phenomenon, given that it occurs on a very fast time scale, in femtoseconds or quadrillionths of a second.
- Using the new technique, researchers could observe that chlorophylls absorb red light and carotenoids absorb blue and green light, thus being able to monitor energy transfer.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Pyramid of Djoser
Mains level: NA
Last week, Egypt reopened the Pyramid of Djoser, the first pyramid ever built, after a 14-year restoration. The structure is believed to be designed by Imhotep, described by some as the first architect of the world.
The Pyramid of Djoser
- The 4,700-year-old pyramid is 60 metres tall, and consists of six stacked steps over a burial shaft tomb 28 metres deep and seven metres wide.
- It is located at the Saqqara archaeological site, 24 km southwest of Cairo, outside the royal capital of Memphis. A complex of halls and courts is located around the pyramid.
- It is the world’s oldest monumental stone building.
- Today a UNESCO world heritage site, the pyramid was constructed during the era of Pharaoh Djoser, the second king of Ancient Egypt’s Third Dynasty (2650 BC– 2575 BC).
- The Pharaoh’s 19-year reign saw significant technical innovations in stone architecture.
- The pyramid’s architect, Imhotep, was also a physician and astrologer, and served as Djoser’s minister.
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