Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: Ensuring food supplies amidst COVID-19 crisis
This is perhaps the first time ever that India is facing a national disaster or a war-like situation amidst plentiful supplies of food even as a bumper Rabi crop beckons.
Bumper yield in crisis
- Farmers are currently about to harvest —if they haven’t already.
- Given the surplus and extended monsoon rains, which helped recharge ground water and fill up reservoirs, superabundant produce is round the corner.
- This comes even as there is demand destruction from the shutting down of HORECA (hotels, restaurants and catering) and other institutional segment businesses following the nationwide lockdown.
- It raises the possibility of a crisis similar to the one three years ago that followed demonetization. But the scale, it is feared, could be bigger.
- The post-demonetization rabi crop, also a bumper one, was at least harvested and marketed even if it didn’t fetch a good price.
The real challenge
- The food and civil supplies departments in states will ultimately ensure that the terminal markets in these centres major cities receive their required daily flow of produce anyhow.
- The problem will be in the remote towns and the rural hinterlands that are serviced through upcountry APMCs.
- The grocers there are at the greatest risk of running out of stocks if the lockdown continues without inter-state movement restrictions in agricultural commodities being removed.
How to transport produce
- This time, there are doubts being raised even on that.
- The simple reason for it is: Will farmers, labourers and machines (combines, threshers and tractor trolleys) be able to move freely to harvest the produce and take it to the mandis?
- The UP government has issued a direction to all district administrations and law-enforcement authorities to exempt all services, including labour, that are involved in agricultural production, processing and marketing from the current lockdown provisions.
- Other states, too, may follow. But the question remains of the directives being implemented on the ground.
Will there be workers?
- At the second stage comes the mandis, where marketing of the crop would happen.
- Here again, there is a possibility of shortage of labour (the people who do unloading, cleaning, bagging and reloading of the grain that is auctioned or sold) and even gunny bags.
- Further, it would be necessary to prevent crowding, and maintain social distancing.
Possible alternatives
- One way out could be to allow entry only to a limited number of farmers, who may be issued SMS alerts informing them about the date and time to bring their crop.
- Each farmer can also be given a maximum quantity — say, one tractor-trolley load of 30-40 quintals — that may be brought in a single day.
- The permission for the next trolley load will be only after other farmers have got their turn to sell.
- All this will obviously delay the process of marketing, raising the prospect of panic sales.
- This could be avoided if the government were to give a clear-cut assurance — at least in respect of crop where there is MSP-based procurement — that it will continue buying till the last grain is offered.
Safer places than APMC
- Besides, the marketing of produce needn’t be limited to the APMC (agricultural produce market committee) mandi yard.
- Any flour or dal mill, and even primary school premises can be designated as an APMC marketing area.
- The objective should be to ensure that the farmer’s produce gets marketed without resulting in overcrowding.
Way forward
- The risk of shortages today is really not in the metros or state capitals.
- Once marketing is done, the crop has to move beyond the mandi.
- This is probably the right time to dismantle all inter-state and intra-state movement restrictions in farm produce.
- Free movement is necessary for the context of both a bumper crop and the ongoing lockdown.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Schedule H1 drugs
Mains level: Coronovirus outbreak and its mitigation
Hydroxychloroquine is now a schedule H1 drug and can be sold on prescription only.
What are Schedule H1 drugs?
- The sale of the Hydroxychloroquine drug from now on should be in accordance with the conditions for sale of drugs specified in Schedule H1 to the Drugs and Cosmetics Rules, 1945.
- In exercise of the powers conferred by Section 26B of the Drugs and Cosmetics Act, 1940 (23 of 1940), the Central Government can direct that sale by retail of any drug.
Why such move?
- The Central Government is satisfied that the drug ‘Hydroxychloroquine’ is essential to meet the requirements of emergency arising due to pandemic COVID-19.
- And in the public interest, it is necessary to regulate and restrict the sale and distribution of the drug ‘Hydroxychloroquine’ and preparation based thereon for preventing their misuse.
Hydroxychloroquine
- Hydroxychloroquine is used to prevent or treat malaria infections caused by mosquito bites.
- It does not work against certain types of malaria (chloroquine-resistant).
Pls take a note-
- Hydroxychloroquine and a related drug, chloroquine, are currently under study as possible treatments for COVID-19.
- These drugs have not yet been approved for this use.
- Do not use these medications to treat COVID-19 unless your doctor recommends that you do so.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Indian Scientists’ Response to CoViD-19 (ISRC)
Mains level: Not Much
Several Indian scientists have come together to form a Google group to address some of the concerns that the COVID-19 outbreak has thrown up.
Indian Scientists’ Response to CoViD-19 (ISRC)
- It is a voluntary group of scientists who regularly discuss the rapidly evolving situation with its dire need for science communication.
- With nearly 200 members, the group has scientists from institutions such as the NCBS, the IISc, the TIFR, the IITs, the IISERs and many others.
- The group aims to study existing and available data to bring out analyses that will support the Central, State and local governments in carrying out their tasks.
Self-assigned tasks
- Several working groups have been formed by scientists.
- They include one on hoax busting to address disinformation spreading with respect to the coronavirus and one on science popularization to develop material that explains concepts such as home quarantine.
- Other groups work on resources in Indian languages, mathematical models and apps.
Why such a group?
- The scientific community has realized their social and democratic responsibility in the current situation, both in terms of analysing the situation and reaching out to the public.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- The US-Taliban pact and its implications for India.
Context
Attack on gurdwara underlines that the US-Taliban deal has brought Afghanistan no respite.
The futility of US-Taliban deal highlighted
- The attack on a gurdwara in Kabul, in which 25 people were killed, has shown that the coronavirus may well be vanquished by science, but human beings will continue to inflict barbarity upon each other.
- Within hours, it was claimed by the Islamic State, which later also said it had carried it out in revenge for Kashmir.
- The deal not leading to peace: If there were still doubts left on this score, it must be clear after this attack that the US-Taliban deal was not an arrangement to return Afghanistan to peace.
Why the attack matters for India?
- The gurdwara attack was the first strike after the agreement claimed by the IS.
- A provision in pact: Under the pact, the Taliban have committed themselves to eliminate the Islamic State from Afghanistan.
- Yet to start honouring commitment: If the IS claim is true, the Taliban have yet to begin honouring that commitment.
- India’s reaction: Appearing to hint at something more sinister, the ministry of external affairs called the attack “diabolical” and condemned the “perpetrators and their backers”, a formulation usually reserved for attacks suspected to have emanated from or to have the backing of Pakistan.
- Connection of attack with India: The Taliban’s operational leadership is now in the hands of Sirajuddin Haqqani of the Haqqani group, which has been blamed for several attacks on Indian targets, including the 2008 Indian Embassy bombing in Kabul.
- The Taliban have denied having anything to do with the gurdwara attack, and Pakistan has condemned it strongly.
- The question over IS in Afghanistan: Who, really, is the IS in Afghanistan is a question that security experts have been asking for some time now.
COVID-19 outbreak in Afghanistan
- Appeal for ceasefire: The UN Secretary-General made an appeal for an immediate ceasefire in theatres of conflict across the world, to enable governments, health workers and humanitarian aid agencies to access those who might be most vulnerable to COVID-19.
- The epicentre of the outbreak is Herat, where over 1,00,000 Afghans recently crossed over from Iran.
- After the number of confirmed cases rose to 58, the province has been placed under lockdown.
- But the government is hobbled in its efforts to contain the disease, both by a contested election result — Afghanistan has two presidents — and the burden of an agreement that has brought it no respite.
Conclusion
With the recently concluded US-Taliban deal delivering no peace and coronavirus spreading unabated, Afghanistan faces two contagions, new and old — COVID-19 and the relentless violence.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Banking rates and markets instrument.
Mains level: Paper 3- Steps taken by the RBI to revive growth and provide stability to economy.
Context
The RBI’s Governor’s ‘bazooka’ announcement earlier today has seen the usually conservative institution and its head pull out the big guns in word and action.
Four steps taken by the RBI
- One, increase the liquidity in the system.
- Two, make sure the lower policy rate is transmitted. Steps one and two are linked.
- Three, give a three-month window for a payback on all term loans.
- Four, take steps to reduce volatility and provide stability.
- Big cut in repo rate: He announced a big cut in the repo rate by 75 basis points (100 basis points make a per cent, so three-quarters of a percentage point) to 4.4%.
- What is the repo rate? Repo rate is the rate at which the banks borrow from the RBI. Banks give ‘eligible securities’ they hold for cash that RBI gives as an overnight loan.
- Banks pay the repo rate as interest for this borrowing.
First two steps of the RBI: Increasing liquidity and ensuring policy rate transmission
- Why lower repo rate matters? When the repo rate is high, banks find it costly to borrow and in turn raise the price of loans to their borrowers.
- Reducing interest for the system: A low repo rate has the overall effect of reducing interest rates for the system. Lower rates make it easier for entrepreneurs to take loans for working capital and for households for homes, vehicles and so on.
- Issue of policy rate transmission: Previous rate cuts have not been ‘transmitted’ by the banks who have not reduced lending rates and have preferred to keep money with the RBI at the ‘reverse repo rate’.
- What is reverse repo rate? This is the rate at which banks lend to the RBI.
How RBI is ensuring transmission now?
- The RBI has now reduced the reverse repo rate by 90 basis points to 4%.
- This cut in reverse rape sharper than the one on the repo rate to encourage banks to borrow from the RBI rather than lend to it.
- How reverse repo rate matters? Banks have preferred to deposit money with the RBI rather than lend it out with an average daily amount of ₹3 trillion being kept with the RBI.
- A reduction of the reverse repo to 4% makes it unattractive to banks to park it with the RBI and banks will be nudged to lend.
- Why bank lending matters for business? Bank lending provides the needed oxygen to businesses for their working capital and longer-term loans.
- Read this as a measure to help banks take the decision to lend rather than play it safe by keeping money with the RBI.
How lock-down slows down the economy?
- Rush to safety for money: If people are in a lock-down, the wheels of the economy begin to grind down and there is a rush to safety for money in the system.
- Freezing of the markets market: Investors begin to redeem their shares, bonds and mutual funds. These redemptions cause a fire sale of assets. Finally, when there are no buyers, markets begin to freeze.
What are the measures taken by RBI to stabilise the market?
- To keep the wheels of the markets well-oiled with cash, the RBI has made ₹3.74 trillion available. This it has done using four weapons.
- The first measure: It has used targeted long-term repo operations.
- RBI will lend money to banks (a total of ₹1 trillion) that can be invested in bonds and other forms of lending instruments.
- What is a hold-to-maturity way? Under the hold-to-maturity way, the portfolio is valued not on the market price but on what the price should be given the rate of interest of the bond, the holding period and the rating of the bond.
- Basically, it allows trades to happen at a price that is not confused with the current pandemic in the market.
- The second measure: The RBI reduced the cash reserve ratio (CRR) by a full percentage point down to 3% for a year.
- The CRR is the percentage of demand and time deposits banks have to keep with the RBI.
- Why CRR and not SLR was reduced? There is another 18.25% of deposits that is also not used for lending under the Statutory Liquidity Ratio (SLR), further reducing the money banks have to lend.
- RBI has reduced the CRR to 3%, freeing up ₹1.37 trillion for banks to lend. CRR has been chosen rather than SLR because this increases ‘primary liquidity’ with the banks a bit better.
- Not only is there CRR rate down, banks now need to maintain 80% of the limit on a daily basis instead of 90% till June 26, 2020.
- The third measure: ₹1.37 trillion will be made available under the emergency lending window called the marginal standing facility (MSF).
- Banks will now be able to borrow 3% of their deposits under this window, up from the current 2%. Basically, RBI is willing to lend more than before.
- How much more? ₹1.37 trillion under this window.
The third step of the RBI: Regulatory forbearance
The fourth step of the RBI: Measures to reduce volatility in the exchange rate
- Fourth is a measure to reduce the volatility of the price of the rupee in international markets by allowing banks to deal in off-shore non-deliverable rupee derivative markets.
- It looks like reform using the crisis to bring about this long-awaited change.
Conclusion
We don’t know if measures taken by the RBI and the government are enough. But what is comforting is that the government and the RBI are working in tandem to deal with this giant killer of a virus.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Payment Aggregators
Mains level: Regulation of online payment systems in India
The Reserve Bank of India released guidelines for regulating payment aggregators (PAs) and payment gateways (PGs), nearly six months after it first proposed regulating these entities in a discussion paper.
Payment Aggregators (PAs)
- PAs are entities that facilitate e-commerce sites and merchants to accept various payment instruments from the customers for the completion of their payment obligations.
- PGs are entities that provide technology infrastructure to route and facilitate the processing of an online payment transaction without any involvement in the handling of funds.
- With the new set of guidelines PAs and PGs such as Paytm, Pay Pal, Mobikwik, Razorpay, PayU, CCAvenue etc. will be regulated by RBI to ensure the safety of all our online transactions.
What are the new guidelines?
The new guidelines say that-
- A payment aggregator (entities that facilitate e-commerce sites and merchants to accept various payment instruments) should be a company incorporated in India under the Companies Act, 1956 / 2013.
- Non-bank entities offering payment aggregator services will have to apply for authorisation on or before June 30, 2021.
- E-commerce marketplaces providing payment aggregator services will have to be separated from the marketplace business and they will have to apply for authorisation on or before June 30, 2021.
- Pas existing today will have to achieve a net worth of ₹15 crore by March 31, 2021 and a net worth of ₹25 crore by the end of third financial year, which means or before March 31, 2023.
- The net-worth of ₹25 crore shall be maintained at all times thereafter.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: COVID 19 diagnosis
Mains level: Coronovirus outbreak and its mitigation
The ICMR invited bids for an estimated 10 lakh antibody kits (for serological tests) for the diagnosis of COVID-19.
What are serological tests?
- Viral infections are mainly identified by two kinds of tests– genetic and serological.
- Genetic tests can identify infections that are active but cannot be used to detect past infections.
- To trace how infections like the novel coronavirus have spread so far, it is important to detect people who contracted the disease in the past and have recovered.
- This is what serological tests seek to determine.
How are the two different?
- The genetic test is conducted on a swab collected from the back of the throat, a liquid sample from the lower respiratory tract, or a simple saliva sample.
- For SARS-COV-2, the virus’s RNA is first converted into DNA.
- By a process called polymerase chain reaction (PCR), DNA fragments in the sample are copied exponentially — one is copied into two, the two are copied into four, and so on.
- Unlike genetic tests, which look for RNA in swab samples, serological tests work on antibodies in blood samples. Hence, they are also called ‘antibody tests’.
How serological tests work?
- Antibodies, or protective proteins produced by the immune system to neutralize pathogens such as bacteria and viruses, are present in one’s bloodstream for a considerable period of time after the infection has gone.
- To disable a pathogen, the antibody latches to a unique protein molecule on pathogen’s surface, called an antigen.
- Serological tests use antigen molecules to detect the presence of antibodies relevant to the infection.
- Generally, a blood sample is placed in a test tube that is lined with antigens on the inside. If the relevant antibodies are present, they latch on to the antigens.
- Such tests are relatively inexpensive, and can display results within a few minutes.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: G-20 countries
Mains level: Global cooperation for COVID-19 pandemic
A Virtual G20 Leaders’ Summit was recently convened yesterday to discuss the challenges posed by the outbreak of the COVID-19 pandemic and to forge a globally coordinated response.
About G20
- Formed in 1999, the G20 is an international forum of the governments and central bank governors from 20 major economies.
- Collectively, the G20 economies account for around 85 percent of the Gross World Product (GWP), 80 percent of world trade.
- To tackle the problems or the address issues that plague the world, the heads of governments of the G20 nations periodically participate in summits.
- In addition to it, the group also hosts separate meetings of the finance ministers and foreign ministers.
- The G20 has no permanent staff of its own and its chairmanship rotates annually between nations divided into regional groupings.
Aims and objectives
- The Group was formed with the aim of studying, reviewing, and promoting high-level discussion of policy issues pertaining to the promotion of international financial stability.
- The forum aims to pre-empt the balance of payments problems and turmoil on financial markets by improved coordination of monetary, fiscal, and financial policies.
- It seeks to address issues that go beyond the responsibilities of any one organisation.
Member Countries
The members of the G20 consist of 19 individual countries plus the European Union (EU).
- The 19 member countries of the forum are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom and the United States.
- The European Union is represented by the European Commission and by the European Central Bank.
Who are the G20 Sherpas?
- A Sherpa is the personal representative of a head of state or government who prepares an international summit, particularly the annual G7 and G20 summits.
- Between the summits, there are multiple Sherpa conferences where possible agreements are laid out.
- This reduces the amount of time and resources required at the negotiations of the heads of state at the final summit.
- The Sherpa is generally quite influential, although they do not have the authority to make a final decision about any given agreement.
- The name is derived from the Sherpa people, a Nepalese ethnic group, who serve as guides and porters in the Himalayas, a reference to the fact that the Sherpa clears the way for a head of state at a major summit.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Project 'Isaac'
Mains level: Not Much
IIT, Gandhinagar has launched Project Isaac to engage its students in creative projects to enhance their critical skills while they are confined to their homes because of Coronavirus.
Project ‘Isaac’
- The project is inspired by Sir Isaac Newton, who was similarly sent home by Trinity College, Cambridge, because of the Great Plague of London in 1665.
- During this year, Newton, then a 22-year-old college student developed some of his most profound discoveries, including early calculus, as well as his theories of optics and gravity.
- As part of the project, four different competitions are being organized by IIT, Gandhinagar to cultivate new skills among students regarding writing, painting, coding, music, creative expression, and so on.
- Students can take part in competitions online.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Keqiang Index
Mains level: NA
China’s GDP numbers which are preferably represented by Keqiang Index has been recently seen in news amid coronavirus outbreak.
Keqiang Index
- Li Keqiang index or Keqiang index is an economic measurement index created by The Economist to measure China’s economy using three indicators, as reportedly preferred by Li Keqiang.
- It uses three other indicators:
- the railway cargo volume,
- electricity consumption and
- loans disbursed by banks
- Li Keqiang currently the Premier of the People’s Republic of China, suggest the index as better economic indicator than official numbers of GDP.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Learning from the experience of South Korea in designing the policies to deal with coronavirus.
Context
How this coronavirus pandemic threat will pan out no one knows but what we do know is that the intensity of the challenge and its impact on our well-being will depend greatly on how we reach out to ordinary people, and the policies we implement.
Historical perspective and comparison
- Compared to the fatality numbers of some earlier pandemics, such as the Asian flu, 1957-58 (1.1 million dead) and Hong Kong Flu, 1968 (2 million dead), the fatality numbers of the current coronavirus pandemic are, as yet, nowhere near.
- One of the most comprehensive studies on the pandemic, by the Imperial College of London, shows that the “case fatality rate”, or fatality among those who get coronavirus is 0.9 per cent — this means a 99.1 per cent survival rate among the people who get it.
- What makes this pandemic special is that it is happening in the age of digital connectivity and greater scientific knowledge than we have ever had.
- We can inform people quickly and take big steps to contain it.
- But this also has a danger we have never faced.
- Policy actions can have a mega backlash on the economy.
- We are in uncharted territory — never before have we taken the kind of collective action against a pandemic as we are doing now.
Time to collectively confront our common humanitarian challenge
- Using the experience of South Korea: There is some evidence from history, and from the country that has been the most successful in dealing with this pandemic —South Korea.
- The country’s success has saved lives, protected the economy from undue damage, boosted the popularity of the Korean President Moon Jae-In across political divides and raised the global standing of South Korea.
- France’s President Emmanuel Macron and Sweden’s Prime Minister Stefan Lofven have consulted Moon Jae-In for advice.
- We have some evidence and estimates about the kind of damage this pandemic can do.
- China’s industrial production in January-February 2020 declined by 5 per cent compared to a year ago.
- Goldman Sachs has estimated that the US’s GDP growth could decline 24 per cent for the second quarter this year.
- Data are coming in on recent US unemployment claims climbing by 30 per cent.
- This is clearly time to put political differences aside, and collectively confront our common humanitarian challenge.
Designing policy to deal with the pandemic
- Economic implications: In designing policy, it is important to realise that all interventions to contain the pandemic have economic implications.
- Some people react to this by saying that our first priority is to save lives, not the economy. This is a mistake. The two are not separate matters.
- A poorly-executed policy can damage the economy and this can end up taking more lives than the original problem.
- Examples of policy doing damage to lives: We have examples of the damage policies can do from history. In 1958, Mao Zedong initiated the Great Leap Forward to boost China’s production. This unleashed the biggest famine in modern times, which resulted in 20 to 40 million deaths.
- The Bengal Famine of 1943 occurred with no decline in food production but there were disruptions in supply chains from the farms to those who needed food.
- The death toll was two to three million. Such evidence from the past warns us that policies not designed well can cause more deaths than the pandemic itself.
Three lessons from South Korea
- We already have three lessons from Korea, which are being widely discussed in newspapers and the media around the world.
- First, you need strong leadership.
- Second, it is critically important to have trust between society and government. There is only that much you can do if people do not cooperate.
- Third, the need is for nuanced policies, with the government having the courage to make course correction as it goes along.
Way forward
- First, trust can be a casualty with the lockdown. There are reports of the police wielding the baton too quickly on ordinary vendors, small grocers and sellers. They need to explain to people so that they begin to actually cooperate, instead of complying only when under observation. That is the key difference between a trusting society and a trustless one.
- The government cannot be a substitute for the private firms: To believe that small traders and private firms can be substituted by the government is the mistake Communist China made in the 1960s and 1970s, before the arrival of Deng Xiaoping.
- An example of the importance of specialised knowledge — this applies to the US as well — pertains to the role of cash grants to the poor. Such grants work well in normal times but may need to be supplemented with the direct support of food and medical services.
Conclusion
Some say that the Korea analogy is of no use to us because it is a relatively small country. It is true that everything will not apply here. But on the other hand, Korea and Hubei province of China are very comparable. Korea’s population is 52 million, Hubei’s is 58 million. The number of people who died of the virus in Korea is 126. The figure for Hubei is 3,160. Korea, of course, had the follower’s advantage since the virus struck there later. But we too have that advantage.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Pricing mechanism of fuels in India.
Mains level: Paper 3- Implications of oil-price war for India.
Context
A “pass-through effect” of low crude prices is improbable given the constrained fiscal space.
The backdrop to the oil price war
- Against the backdrop of the covid-19 pandemic and the economic slowdown, Saudi Arabia-led oil cartel OPEC (Organization of the Petroleum Exporting Countries) wanted to curtail oil production by 1.5 million barrels per day.
- However, as Russia has not agreed to this proposal, Saudi Arabia has declared a price war by reducing the Brent crude oil price from $65 per barrel in end-December 2019 to $33 now.
- The race to the bottom to this extent by Brent is the first time ever since the 1991 Gulf crisis.
Would it impact India by providing a fiscal dividend?
- A $20 reduction in Brent oil prices can reduce India’s current account deficit.
- However, the instability in oil prices is a short-run phenomenon, and India cannot anticipate a prolonged fiscal dividend.
- Quite contrary to the expectations about a “pass-through effect” of low crude oil prices on consumers, the Government of India (GoI) raised the excise duty on petrol and diesel by `3 per litre.
- The special excise duty on petrol was hiked by 2 to 8 per litre in the case of petrol and to 4 in the case of diesel.
Fuel price determination in India
- There has been no “pass-through effect” primarily because the price determination of petrol and diesel in India is not linked to crude oil prices in the international market.
- Price determination is done through dynamic pricing, termed as “trade parity pricing,” based on the international prices of petrol and diesel (finished products) prevailing in the international markets, and not on crude oil per se.
- An obvious question here is whether the crude oil prices and the petrol-diesel prices move in tandem in the international market. Not always.
- Globally, the market mechanism of ad hoc configurations of demand and supply of crude oil is different from the demand-supply dynamics of petrol and diesel, and, in turn, their pricing behaviour will also be distinctly different.
- The goi fixes the price of petrol and diesel based on dynamic pricing and trade parity pricing by converting the price from dollars to Indian rupees.
Factors affecting fuel prices in India
- The rupee-dollar exchange rate mechanism also affects the pricing of petrol and diesel.
- This can offset the benefits India can reap from comparatively lower prices of crude oil in the international market, quoted in dollars.
- The other components of this pricing formula are: 1.The cost of inland freight marketing costs. 2. Taxes levied by the centre and the state governments. 3. The margins (charged by the oil companies) and (the dealer) commissions.
- It is, therefore, obvious that low international prices per se do not translate into lower prices for petrol and diesel in India as long as the centre and states levy exorbitant taxes on these products.
- The interstate variation in the prices of petrol and diesel is also significantly explained by the differentials in taxes imposed.
- Yet another factor to be borne in our minds is that the effect of international prices on the in-house pricing of petrol and diesel in India is not instantaneous or spontaneous.
- There is a time lag involved in the pricing process.
- Even though the goi uses the daily pricing mechanism in the dynamic pricing formula of petrol and diesel, the international prices component enters into the pricing equation as an international “benchmark price” of petrol and diesel.
- Today’s price in India reflects the average international prices of petrol and diesel of the previous fortnight.
- However, the fuel prices will not come down in a fortnight’s time.
- This is because, in the price equation, the international price component is just one among many components, whereas the tax component constitutes a dominant part in the equation.
The Covid-19 factor
- The covid-19 outbreak has started striking the financial markets and the real sector, and especially investment in the energy sector.
- So, the lowering of the oil price by Brent cannot help the global economy from recession.
- Overall, the oil price war can negatively affect the investment decisions in the energy sector and can be a drag on global growth.
- Due to the covid-19 outbreak, there could be reduced oil-drilling activities in the energy sector, and there will be some cutbacks in demand and, in turn, in the capex energy infrastructure.
- Analysts have revealed that every $10 fall in oil prices transfers around 0.3% of the global gross domestic product from oil-producing nations to oil-consuming nations.
- The interest rate strategists are also concerned as the Russian 10-year bond yields reached a record low of 2.56%, and Saudi Arabian government bonds maturing in April 2030 are currently at 2.38%.
Microeconomic policy to tackle oil price war?
- The US Federal Reserve has lowered the federal funds’ interest rate by 50 basis points (one-half of a percentage point) to 1.25%.
- The Bank of Canada also reduced the bank rate by 50 basis points to the US level. The stock market indexes fell to the levels of 2008.
- The 1.25% federal funds rate now is below the 2.5% US inflation rate. However, monetary policy has failed to trigger the economy.
- As mentioned by the European Central Bank, “targeting” rather than generalised public policy needs to be done.
Conclusion
- The Reserve Bank of India policy tools may be ineffective now to tackle the slowdown, especially against the backdrop of the worsening of the economy from the effects of covid-19. The re-dominance of fiscal policy by the North Block is what is keenly awaited, for an economic turnaround.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- What are the essential reforms essential for reshaping the India's economy.
Context
The fragility of the global economy has been exposed twice within the last two decades. In 2008, the collapse of a financial services firm in the US triggered a global financial meltdown. In 2020, the emergence of a novel virus in a food market in Wuhan has done it again.
The global economy and system theory
- Systems theory: It that systems take various forms. Broadly speaking, there are three types of systems-1. Chaotic systems. 2. Engineered Systems, and 3. Complex self-adaptive systems.
- As the weather in a storm, chaotic systems are unpredictable and uncontrollable.
- The global economy is behaving like a chaotic system.
- Engineered systems, on the other hand, can be controlled quite tightly, like machines.
- However, they are dull. A nuclear power plant is a well-engineered system. We would want it to do just what it is supposed to and not produce any surprises.
- In contrast to these systems is the design of nature. It is a complex self-adaptive system. It produces myriad innovations. It evolves. Yet, its fundamental stability is very reassuring.
- The realisation that mankind’s technologies and engineering marvels are disrupting nature’s stability, has raised alarms about the architecture of global economic governance.
- More about self-adaptive systems: The architecture of complex self-adaptive systems is formed by essential design principles. One is “permeable boundaries”.
- The many parts of a complex self-adaptive system have permeable boundaries between themselves. Each part has its integrity. The parts exchange information and energy across their boundaries as required.
- When there are no boundaries within, or they are too weak, an accident at one end will soon sink the whole ship.
Consequences of boundarylessness within the global financial system
- The drive for boundarylessness within the global financial system since the 1990s caused the sloshing around of contagion during the global financial crisis in 2008.
- Whereas global economic growth has undoubtedly been enabled by global supply chains, the vulnerability of economies everywhere to their disruption has become painfully evident with the COVID-19 pandemic.
- Complex adaptive systems exhibit “fractal-like” shapes. Their parts are complex, combining the same diverse energies that permeate across the whole.
- Social forces, economic forces, and environmental forces combine within all countries, and in parts within countries too, albeit in different ways.
- Though the parts are similar to each other, they are not the same. Therefore, the same solutions will not fit all.
- An insight from systems theory is that global systemic problems such as climate change, persistent economic inequality, among others, will require local systems solutions.
Six reforms for reshaping Indian economy
- Stress test: Crises create stress tests for the health of systems. The financial crisis of 2008 exposed the fragility of an inter-connected and under-regulated financial system.
- The COVID-19 pandemic has exposed the architectural weaknesses in the global economy.
- Instead of worrying too much about the reversal of globalisation, national leaders should now focus on the well-being of their citizens and the health of their own economies.
- Six reforms are essential for reshaping the Indian economy.
- First, focus on the provision of universal social security, rather than on the misdirected demand for even more “flexibility” in labour laws
- Second, respect the “informal” sector which provides the majority of Indians with opportunities to earn incomes, and give it more strength. It is also a great source for practical innovations and widespread entrepreneurship.
- Third, change the economic paradigm from “trickle-down” to “build up”. Build the internal engine of growth of India’s economy by increasing incomes of India’s citizens.
- Fourth, strengthen public health services. Medical tourism may put India’s private hospitals on the global map. However, they are not the solution to India’s huge health problems.
- Fifth, reform and strengthen the public education system. It will contribute greatly to creating a level playing field for all children.
- Sixth, strengthen local governance in India’s towns and districts to develop and implement local systems solutions. The well-being of Indian citizens will be improved, and India’s economy will be more resilient too.
Conclusion
- All governments are asking their citizens to increase “social distancing” between themselves to prevent the spread of a health contagion. It would be wise for countries to maintain sufficient “economic distancing” amongst themselves too. They should mind the health of their own economies. Thereby, they will improve the health of the global economy too.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Measures to mitigate the impact of steps taken to deal with the coronavirus on Indian economy.
Context
There are going to be the economic impact of the actions designed to combat the virus. The two major tools that the government has available before it are monetary policy and fiscal actions.
Impact of virus and additional slowdown
- The impact of the coronavirus pandemic is now felt by almost every country.
- First, there are the health effects of the virus.
- Second is the economic impact of the various actions that have to be taken to combat the virus.
- The world is experiencing an additional slowdown on top of the contracting tendencies already present and India is no exception.
- The economic impact on India can be traced through four channels: external demand; domestic demand; supply disruptions, and financial market disturbances.
Impact on export
- As the economies of the developed countries slow down (some people are even talking of recession), their demand for imports of goods will go down.
- This lower demand will affect our exports which are even now not doing well.
- In fact, after six months of negative growth, it was only in January that Indian exports showed positive growth.
- The extent of decline will depend on how severely the other economies are affected. Not only merchandise exports but also service exports will suffer.
- Besides these, the IT industry, travel, transport and hotel industries will be affected.
Oil price factor
- The only redeeming feature in the external sector is the fall in oil prices.
- India’s oil import bill will come down substantially.
- But this will affect adversely the oil-exporting countries which absorb Indian labour. Remittances may slow down.
Supply disruption
- To ward off the spread of the coronavirus, the government has declared a lockdown of the country.
- As passengers travel less, the transportation industry, road, rail and air, is cutting down schedules, sometimes drastically.
- This will affect in turn several other sectors closely related to them. The laying off of non-permanent employees has already started.
- As people, in general, buy less, shops stock less, which in turn affects production.
- Perhaps retail units will be first to be affected and they will, in turn, transmit this to the production units.
- One is unable to make an estimate of the reduction in economic activity at this point.
- If the situation is not reversed soon, there can be a serious decline in the growth rate during 2020-21.
- Supply disruptions can occur because of the inability to import or procure inputs.
- The break in supply chains can be severe. It is estimated that nearly 60% of our imports are in the category of ‘intermediate goods’.
- Imports from countries which are affected by the virus can be a source of concern.
- The domestic supply chain can also be affected as the inter-State movement of goods has also slowed down.
Financial market issue
- Financial markets are the ones which respond quickly and irrationally to a pandemic such as the coronavirus pandemic. The entire reaction is based on fear.
- The stock market in India has collapsed. The indices are at a three-year low.
- Foreign Portfolio Investors have shown great nervousness and the safe haven doctrine operates.
- In this process, the value of the rupee in terms of the dollar has also fallen.
- The stock market decline has a wealth effect and will have an impact on the behaviour of particularly high wealth holders.
- How does the government deal with this sudden decline in economic activity which has come at a time when the economy is not doing well? The two major tools that are available are monetary policy and fiscal actions.
Two major tools with government- Monetary Policy and Fiscal Action
- Monetary policy: In a situation like this can only act to stimulate demand by a greater push of liquidity and credit.
- The policy rate has already been brought down by 135 basis points over the last several months. There is obviously scope for further reduction.
- But our own history, as well as the experience of other countries, clearly show that beyond a point, a reduction in interest rates does not work.
- It is the environment of the overall economy that counts. Credit may be available. But there may not be takers.
- Any substantial reduction of policy rate can also affect savers. Interest is a double-edged sword.
- What the RBI needs to do? IT needs to go beyond cutting the policy rate.
- A certain amount of regulatory forbearance is required to make the banks lend.
- Even commercial banks on their own will have to think in terms of modifying norms they use for inventory holding by production units.
- Repayments to banks can be delayed and the authorities must be willing to relax the rules.
- Any relaxation of rules regarding the recognition of non-performing assets has to be across the entire business sector.
- The authorities must be ready to tighten the rules as soon as the situation improves. This is a temporary relaxation and must be seen as such by banks and borrowers.
- Fiscal Policy: Fiscal actions have a major role to play. Once again, the ability to play a big role is constrained by the fact that the fiscal position of the government of India is already difficult.
- Even without the pandemic, the fiscal deficit of the Central government will turn out to be higher than that indicated in the budgets for 2019-20 and 2020-21.
- Revenues are likely to go down further because of the virus-related slowdown in economic activity.
- In this context, the ability to undertake big-ticket expenditures is
- But there are some ‘musts’. The virus has to be fought and brought down. All expenditures to test and to take care of patients must be incurred.
- Now that private hospitals are allowed to test, the cost of the people going to private hospitals must also be met by the government.
- The involvement of private hospitals has become necessary. It is mentioned that a test costs ₹4,500. The total cost can be substantial if the numbers to be tested run in the thousands and more.
- This may sound exaggerated. But we must be prepared so that we avoid the tragedy of Italy.
- Therefore, the first priority is to mobilise adequate resources to meet all health-related expenditures which includes the supply of accessories such as masks, sanitisers and materials for tests.
- The challenge is not only fiscal but also organisational.
Mitigating the impact on the job sector
- Serious concerns have been expressed about people who have been thrown out of employment. These are mostly daily-wage earners and non-permanent/temporary employees.
- In fact, some of the migrant labour have gone back to home States. We must appeal to the business units to keep even non-permanent workers on their rolls and provide them with a minimal income.
- Some relief can be thought of by the government for such business units even though this can be misused.
- However, in general, in the case of sectors such as hospitality and travel, the government can extend relief through deferment of payments of dues to the government.
- Issues in making cash transfer universal: There is talk of providing cash transfer to individuals. There is already a programme for rural farmers with all the limitations.
- For a system of cash transfer to be workable, it has to be universal.
- At this moment when all the energies of the government are required to combat the virus, to institute a system of universal cash transfer will be a diversion of efforts.
- The burden on the government will depend upon the quantum of per capita cash transfer and the length of the period.
- The government should advise all business units not to retrench workers and provide some relief to them to maintain the workers.
- A supplemental income scheme for all the poor can be thought of once the immediate problem is resolved.
- Provision of food and other essentials must be made available to the affected as is done at the time of floods or drought. States must take the initiative.
Conclusion
The fiscal deficit is bound to go up substantially. The higher borrowing programme will need the support of the RBI if the interest rate is to be kept low. The monetisation of the deficit is inevitable. The strong injection of liquidity will store up problems for the next year. Inflation can flare-up. The government needs to be mindful of this. All the same, the government must not stint and go out in a massive way to combat the virus. This is the government’s first priority.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: PM Gareeb Kalyan Scheme
Mains level: Coronovirus outbreak and its mitigation
Union Finance Minister has announced the Pradhan Mantri Garib Kalyan Scheme, under which the government would provide a relief package of Rs 1.7 trillion to the underprivileged, poor and migrant workers affected by a lockdown amid the Covid-19 crisis.
PM Garib Kalyan Scheme
- PM Gareeb Kalyan scheme is to have two parts — cash transfer and food security.
- The package aims to take care of the welfare concerns of the poor and migrant workers who have been suffering because of a nationwide lockdown.
Two silos of the scheme
1) PM Gareeb Kalyan Anna Yojana
- 800 million poor people in the country to get 5 kg of rice/wheat per month free of cost, in addition to the 5 kg they already get.
- Additionally, each household to get 1 kg of preferred dal for free for the next three months
2) Cash transfer scheme
It has nine sub-parts
- Farmers: First instalment of the PM-KISAN payment of Rs 2,000 to be frontloaded; move to benefit 87 million
- MGNREGS: Wage increased from Rs 182 to Rs 202 per day. A wage increase to benefit 50 million families, as there will be about 2000 increase in their income
- Poor widows, aged, and divyang: Ex-gratia of Rs 1,000 for the next three months, in two instalments. 30 million people to benefit. transfers to be done through direct benefits transfer (DBT)
- Women with Jan Dhan Yojana accounts: 200 million to benefit from Rs 500 ex-gratia for the next 3 months
- Beneficiaries of the Ujjwala scheme: 80 million households benefit from the gas cylinders provided under the scheme. These beneficiaries will get free cylinders for three months in view of the disruption the coronavirus lockdown will cause.
- Women in self-help groups: 6.3 million SHGs get up to Rs 10 lakh collateral-free loans under the Deen Dayal Upadhyaya National Rural Mission scheme. The cap has been doubled to Rs 20 lakh. The move will benefit 70 million households
- Organised sector workers: Two parts to this. First, the Government of India will pay the EPF contribution of both employee and employer for the next three months. This will be for all those establishments which have up to 100 employees, 90 per cent of whom earn less than Rs 15,000 a month
- Construction workers: States to be directed to utilise the Rs 31,000 crore welfare fund for building and construction workers for the benefit of 35 million workers in the midst of the coronavirus crisis
- District mineral fund: State govts. to be urged to utilise this fund for medical screening, medical testing and providing health care services in the wake of the coronavirus crisis
Other initiatives
- Insurance cover for healthcare workers attending to Covid-19 patients: Rs 50 lakh per person.
- Two million health workers to benefit from the insurance scheme.
- In what will benefit 8 million employees and 400,000 establishments, the EPFO regulation will be amended to allow the withdrawal of up to 75 per cent of their corpus as non-refundable advance, or three months’ salary, whichever is less.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: MSP for MFP Scheme
Mains level: MSP for MFP Scheme
The Union government’s ‘mechanism for the marketing of minor forest produce (MFP) through minimum support price (MSP) and development of value chain for MFP’ scheme can offer respite to forest-dependent labourers in the wake of novel coronavirus (COVID-19) outbreak, according to experts.
About MSP for MFP Scheme
- The scheme, launched by the Centre in August 2013, provides fair price for MFP collected by tribals through MSP.
- It is designed as a social safety net for improvement of livelihood of MFP gatherers by providing them fair price for the MFPs they collect.
- MFP comprises all non-timber forest produce of plant origin such as bamboo, brush wood, stumps, cane, tussar, cocoons, honey, wax, lac, tendu or kendu leaves, medicinal plants and herbs, roots, tubers, etc, according to the Forest Rights Act, 2006.
- The Scheme was been implemented in eight States having Schedule areas as listed in the Fifth Schedule of the constitution of India.
- From November 2016, the scheme is applicable in all States.
Issues in implementation
- Almost 60-70 per cent income of forest dwellers depends on collection and sale of MFP, according to the tribal affairs ministry.
- However, the scheme has not been activated because in most cases, states have not given their 25 per cent share.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: ‘Contact tracing’ and its significance to control disease outbreaks
As the number of coronavirus cases in India increases, authorities in different states are relying on contact tracing, a concept in epidemiology that involves tracing the number of people an infected person comes in contact with.
The idea behind contact tracing is to stop the outbreak by breaking the transmission chains.
What is Contact Tracing?
- Contact tracing is not a novel concept and has been used as a method to track cases of the Ebola virus in Africa.
- It is one of the methods of detecting an outbreak and the number of infected people.
- In 2014, when the first Ebola cases began to be reported in Sierra Leone, a contact tracing mechanism was devised.
- According to the Centre for Disease Control (CDC), the system in the district was able to identify 13 Ebola cases, which would have been overlooked otherwise.
Various steps involved
According to WHO contact tracing can be broken down into three steps:
1) Contact identification:
- This involves identifying the contacts of the infected person by asking about the person’s activities and those of people around them since the onset of illness.
- In the case of the first positive COVID-19 patient from Chandigarh for instance, a chain of 119 people was traced directly or indirectly to the patient.
2) Contact listing:
- This means listing all those people who came in contact with the infected person.
- Efforts should be made to identify every listed contact and to inform them of their contact status, what it means, the actions that will follow, and the importance of receiving early care if they develop symptoms.
- In some areas across India, authorities are releasing lists of those who are quarantined and are identifying their houses by putting quarantine posters in front of their houses.
3) Contact follow-up:
- This step involves regular follow-ups with all the contacts to monitor for symptoms and test for signs of infection.
Limitations of Contact Tracing
- Since everyone has many contacts, contact tracing is useful when there are only a few cases.
- At this point, in many countries, we have so many cases that everyone would be contacted. This is essentially the lockdown — everybody isolates.
- However, while a fifth of the world’s population is currently isolated and under lockdown, it may not be feasible to trace contacts of all the infected patients given the scale of the current outbreak.
Way forward
- While contact tracing is an important step during a disease outbreak, it is insufficient alone in controlling it, requiring other interventions.
- Rapid and effective contact tracing can reduce the initial number of cases, which would make the outbreak easier to control overall.
- Effective contact tracing and isolation could contribute to reducing the overall size of an outbreak or bringing it under control over a longer time period.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: COVID 19
Mains level: Coronovirus outbreak and its mitigation
Amid diverse opinions on nationwide lockdown, there is a public health/epidemiological significance to the 21-day lockdown period announced by PM.
What led PM to impose 21-day lockdown?
- It seems that rich scientific data has fed this decision to announce a 21-day lockdown period.
- In fact, 21-day quarantines have been discussed elaborately in the context of Ebola and the calculations are based on the estimated incubation period of the virus in a human host.
- The 21-day quarantine value is derived from interpretations of outbreak data, past and present, public health experts said.
Median incubation period
- In epidemiological terms, the logic is that we have arrived at an incubation period of 14 days.
- Give another week for the residual infection to die out, for the tail end, to be entirely safe, and you arrive at 21 days.
- This being a new coronavirus, they have estimated that the median incubation period (the time between the entry of the virus to the onset of symptoms/ disease) falls within this period.
Significance
- This is the most effective way of preventing the spread of the infection from those already infected into the community.
- In fact, for infections that are transmitted in this manner, this is the one thing to prevent the rapid spread of infection within the community.
- The lockdown or quarantine also creates some breathing space — to convince people of the seriousness of the situation and build positive public opinion, carry out disinfection of all buildings, vehicles and surfaces, and allows hospitals to prepare themselves for the next phase of operations.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Regional Rural Banks (RRBs), CRAR
Mains level: Recapitalization of RRBs
The Cabinet Committee on Economic Affairs has given its approval for continuation of the process of recapitalization of Regional Rural Banks (RRBs) by providing minimum regulatory capital to RRBs which are unable to maintain minimum Capital to Risk weighted Assets Ratio (CRAR) of 9%, as per the regulatory norms prescribed by the RBI.
What is CRAR?
- CRAR also known as Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital to its risk.
- CRAR is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process.
- The Basel III norms stipulated a capital to risk-weighted assets of 8%.
- In India, scheduled commercial banks are required to maintain a CAR of 9% while Indian public sector banks are emphasized to maintain a CAR of 12% as per RBI norms.
- It is arrived at by dividing the capital of the bank with aggregated risk-weighted assets for credit risk, market risk, and operational risk.
- RBI tracks CRAR of a bank to ensure that the bank can absorb a reasonable amount of loss and complies with statutory Capital requirements.
- The higher the CRAR of a bank the better capitalized it is.
Why recapitalize RRBs?
- RRBs are primarily catering to the credit and banking requirements of agriculture sector and rural areas with focus on small and marginal farmers, micro & small enterprises, rural artisans and weaker sections of the society.
- A financially stronger and robust RRB with improved CRAR will enable them to meet the credit requirement in the rural areas.
- As per RBI guidelines, the RRBs have to provide 75% of their total credit under PSL (Priority Sector Lending).
- In addition, RRBs also provide lending to micro/small enterprises and small entrepreneurs in rural areas.
- With the recapitalization support to augment CRAR, RRBs would be able to continue their lending to these categories of borrowers under their PSL target, and thus, continue to support rural livelihoods.
Back2Basics
Regional Rural Banks (RRBs)
- RRBs are Scheduled Commercial Banks operating at regional level in different States of India. They are recognized under the Regional Rural Banks Act, 1976 Act.
- They have been created with a view of serving primarily the rural areas of India with basic banking and financial services.
- However, RRBs may have branches set up for urban operations and their area of operation may include urban areas too.
- The area of operation of RRBs is limited to the area covering one or more districts in the State.
Their functions
RRBs also perform a variety of different functions. RRBs perform various functions in following heads:
- Providing banking facilities to rural and semi-urban areas
- Carrying out government operations like disbursement of wages of MGNREGA workers, distribution of pensions etc.
- Providing Para-Banking facilities like locker facilities, debit and credit cards, mobile banking, internet banking, UPI etc.
- Small financial banks etc.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Laser surface micro-texturing
Mains level: NA
International Advanced Centre for Powder Metallurgy & New Materials (ARCI) an autonomous R&D Centre of Dept. of Science and Technology has developed ultrafast laser surface texturing technology, which can improve the fuel efficiency of internal combustion engines.
Laser surface micro-texturing
- This technology offers precise control of the size, shape and density of micro-surface texture features. This has gained momentum as a way to control friction and wear.
- In this technology, a pulsating laser beam creates micro-dimples or grooves on the surface of materials in a very controlled manner.
- Such textures can trap wear debris when operating under dry sliding conditions and sometimes provide effects like enhancing oil supply (lubricant reservoir) which can lower friction coefficients and may enable reduced wear rate.
- The texture surfaces were created on automotive internal combustion engine components, piston rings and cylinder liners using 100 fs pulse duration laser.
- The micro dimples of 10-20 μm diameter and about 5-10 μm deep which have been created with laser beams had a regular pattern.
Benefits of micro-texturing
- The created textures were tested in an engine test rig under different speeds and temperatures of coolant and lubrication oil, and it was observed that there was a 16% reduction in the lube oil consumption with the use of texture on the piston rings.
- The 10-hour lube oil consumption test shows that the blowby substantially reduced with textured rings.
- Fabrication of a pattern of micro dimples or grooves on the surface of materials results in a change in surface topography which generates additional hydrodynamic pressure, thereby increasing the load-carrying capacity of the surfaces.
- Hence these become useful for trapping wear debris when operating under dry sliding conditions and sometimes provide effects like enhancing oil supply (lubricant reservoir) which can lower friction coefficients and may enable reduced wear rate.
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