Note4Students
From UPSC perspective, the following things are important :
Prelims level: Incremental Capital output ratio
Mains level: Paper 3- Highlights of the Budget 2021-22
The article analyses the key features of the Union Budget, including the increase in overall expenditure and jump in capital expenditure in FY22.
Explaining the Rs 4.1 lakh crore jump in expenditure in FY21
- The budget has moved clearly from off-balance-sheet funding [borrowing by FCI and arrears of fertiliser subsidy] to headline-deficit funding.
- That possibly explains the surge in fiscal deficit in the current fiscal at 9.5 per cent of GDP.
- However, by excluding such off-balance-sheet funding, the headline-fiscal deficit declines to 8.6 per cent of GDP.
- A closer look at the food subsidy, juxtaposed with outstanding FCI liabilities shows that Rs 1.2 lakh crore (0.6 per cent of the GDP) is a pure accounting shift, while the rest Rs 1.9 lakh crore is new spending this fiscal.
- Hence, the incremental spending in FY21 comes to around Rs 2.9 lakh crore (net of Rs 1.2 lakh crore/ 1.5 per cent of the GDP).
- Interestingly, the government has also spent an additional Rs 62,638 crore on fertiliser subsidy, the entire amount of which has been front-loaded.
Focus on capital expenditure in FY22
- Increase in the expenditure in FY22 is noticeable as the pie has decisively shifted towards capital expenditure.
- The budgeted raise in FY22 is 4.6 times larger than the trend increase in the last two decades.
- The proposed capital expenditure amounts to 3.4 per cent of the GDP if we also include allocation for capital expenditure for autonomous bodies.
- Assuming an Incremental Capital Output Ratio (ICOR) of 4.5, one can expect a GDP growth contribution of 0.8 per cent on account of the capital expenditure.
- The other number in the budget that deserves admiration is the significant decline in extra budgetary resources of the government and PSUs. All this augurs well even for rating agencies if we go by purely fiscal transparency as a rule.
Steps to clean up NPAs in the banking sector
- The most notable development in the financial system is announcement of setting up an Asset Reconstruction Company (ARC) and an Asset Management Company (AMC).
- The approach is to set up an AMC, which in partnership with an ARC, takes over large stressed assets ( approximately Rs 3.5 lakh crore) spread across multiple banks that have a clear potential for turnaround.
- An operational turnaround of the asset creates value for the overall system.
- The AMC/AIF-led approach could enable a move towards true price discovery, consolidating debt into one single entity ensuring faster decision-making, freeing up blocked capital/funds and an operational turnaround of assets.
- A better price discovery could be ensured by having an independent investment committee comprising of senior management professionals.
Increase in FDI limit in insurance sector
- The Union budget also has a proposal to increase the FDI limit in insurance companies to 74 per cent from the present 49 per cent, with Indian management control.
- It is expected that fresh capital will bring a new wave in technical know-how, innovation, and new products to the advantage of consumers, pushing up insurance penetration in the country.
- However, we must ensure that foreign investors become interested in the Indian insurance sector as the current FDI used limit is at 33.8 per cent in private insurers.
Role of RBI
- With the government set for a fiscal push, the baton has passed to the RBI.
- Overall, monetary and fiscal policies need ideal co-ordination for macroeconomic management.
- If the central bank pursues its monetary objectives by not accommodating debt financing in its strategy, the macroeconomic outcome may be worse for both the fiscal and monetary authorities, as well as for the economy.
- Fortunately, the RBI and government have worked in perfect harmony during the pandemic.
- As it continues, we can have a stable interest rate regime which will be rewarding for all, particularly the government.
Conclusion
The Union Budget for FY22 is a budget to consolidate (C), spend (S) and revive (R) and shows that the government is set for fiscal push. Now, the baton has passed to the RBI.
Back2Basics: What Is the Incremental Capital Output Ratio (ICOR)?
- The incremental capital output ratio (ICOR) is a frequently used tool that explains the relationship between the level of investment made in the economy and the consequent increase in the gross domestic product (GDP).
- ICOR indicates the additional unit of capital or investment needed to produce an additional unit of output.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Iran Nuclear Deal
Mains level: Irritants in the deal and threats posed by Iran's nuclear programme
Iranian President Hassan Rouhani ruled out changes to Iran’s nuclear accord with world powers and dismissed calls to broaden the terms of the deal and include regional countries.
Do you know how the enmity between Iran and the US came into reality? We hope you have watched the Argo (2012) movie for sure!
What is the news?
- The election of Joe Biden, who supports a US return to the agreement, has spurred some expectations of renewed diplomacy.
- But Rouhani’s refusal puts this possibility at the end.
The United States since 1979 has applied various economic, trades, scientific and military sanctions against Iran. U.S. economic sanctions are administered by the Office of Foreign Assets Control.
Iranian Nuclear Agreement
- The Iran nuclear agreement, formally known as the Joint Comprehensive Plan of Action (JCPOA), is a landmark accord reached between Iran and several world powers, including the US, in July 2015.
- Under its terms, Iran agreed to dismantle much of its nuclear program and open its facilities to more extensive international inspections in exchange for billions of dollars’ worth of sanctions relief.
What were the goals of JCPOA?
- The P5+1 wanted to unwind Iran’s nuclear program to the point that if Tehran decided to pursue a nuclear weapon, it would take at least one year, giving world powers time to respond.
- Heading into the JCPOA negotiations, U.S. intelligence officials estimated that, in the absence of an agreement, Iran could produce enough nuclear material for a weapon in a few months.
Who are the participants?
- The JCPOA, which went into effect in January 2016, imposes restrictions on Iran’s civilian nuclear enrichment program.
- At the heart of negotiations with Iran were the five permanent members of the UN Security Council (China, France, Russia, the UK, and the US) and Germany—collectively known as the P5+1.
- The European Union also took part.
- Prior to the JCPOA, the P5+1 had been negotiating with Iran for years, offering its government various incentives to halt uranium enrichment.
Disruptions after trump
- The deal has been in jeopardy since President Donald J. Trump withdrew the US from it in 2018.
- In response to the U.S. departure, as well as to deadly attacks on prominent Iranians in 2020, including one by the United States, Iran has resumed some of its nuclear activities.
Why isn’t the deal yet enforced?
- In April 2020, the United States announced its intention to keep back sanctions.
- The other P5 members objected to the move, saying the US could not unilaterally implement the mechanism because it left the nuclear deal in 2018.
- Meanwhile, the wide range of U.S. sanctions unrelated to the nuclear program has added to the damage.
Iran’s current nuclear activity
- Iran since Trump’s decisions started exceeding agreed-upon limits to its stockpile of low-enriched uranium.
- It began enriching uranium to higher concentrations (though still far short of the purity required for weapons).
- It also began developing new centrifuges to accelerate uranium enrichment; resuming heavy water production at its Arak facility.
Did you know?
Mined uranium has less than 1 percent of the uranium-235 isotope used in fission reactions, and centrifuges increase that isotope’s concentration. Uranium enriched to 5 percent is used in nuclear power plants, and at 20 percent it can be used in research reactors or for medical purposes. High-enriched uranium, at some 90 percent, is used in nuclear weapons.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Smart fencing
Mains level: Border security of India
The new US President has stopped the construction of the much-publicized “border wall” between the U.S. and Mexico.
Q.Smart fencing along with physical fencing can protect major infiltration areas of Indian borders. Analyse its feasibility for India.
What is the news?
- The Mexico–US barrier also known as the border wall is a series of vertical barriers along the border intended to reduce illegal immigration to the US.
- Biden’s decision was confirmed, however, that an alternative has been offered — a ‘smart’ wall that replaces the physical and armed patrolling with advanced surveillance tech is the proposed future of border security now.
What is the Smart Wall?
- The ‘smart wall’ technology could solve border security issues without the need for a physical barrier.
- The wall would use sensors, radars, and surveillance technology to detect and track border break-ins, and technology capable of performing the most difficult tasks dedicated to border security.
- The complete system of a virtual wall would consist of a radar satellite, computer-equipped border-control vehicles, control sensors and underground sensors.
- Along with surveillance towers and cameras, thermal imaging would be used, which would help in the detection of objects.
- The system would even be capable of distinguishing between animals, humans, and vehicles, and then sending updates to handheld mobile devices of the patrol agents.
Not a new concept
- The concept is not new and the novelty of it cannot be directly associated with Biden.
- Interestingly, the U.S.-Mexico border wall proposed by Donald Trump envisaged this concept.
- A technology firm was sought to be hired by the Trump administration, and it was indicated that artificial intelligence shall be used at a novel scale to complement the steel barrier (border wall).
Feasibility for India
- A question that now arises is whether such a project can be undertaken to secure Indian borders.
- India has been struggling with the problem of terrorists and smugglers infiltrating into the country and efforts are ongoing to secure our borders and curb cross-border infiltration.
- Therefore, it is proposed that it is high time we start envisaging the use of technology to help India secure its borders.
Various challenges
- A critical factor that must be considered to enable the usage of such a system along Indian borders is that the terrain in the region is rugged, and, furthermore, not even clearly defined.
- Hence, erecting fences, walls or any physical structures is extremely difficult.
- A “smart” wall, however, makes use of systems that would be designed in such a way that they can operate even in rugged areas.
- Imperatively, in the US various other benefits, such as cost-effectiveness, less damage to the environment, fewer land seizures, and speedier deployment are being noted.
- This gives the concept an edge over traditional borders.
Benefits that Indian can reap
- Notably, such a system, even if not feasible for our long boundaries, may still be deployed to enhance critical security establishments of the country and complement the already-existing physical fencing and walls.
- This can no doubt secure the major infiltration areas.
Way forward
- The attack on the Pathankot Airbase highlighted that often, it may become difficult to secure establishments due to their vast size.
- Further, it is imperative for Indian armed forces to be well-equipped and simultaneously have the latest technological advantage over its enemies.
- Experts must explore this idea to effectively counter the problem of cross-border infiltration.
- Is it unfathomable to deploy a security system that clubs technology with traditional set-ups due to terrain and other problematic factors? This is a question for Digital India to answer.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Cryptocurrency, Blockchain technology
Mains level: Digital Currency
With the likely scenario of India’s government banning private cryptocurrencies, the Reserve Bank of India (RBI) is planning to introduce an official digital currency for the country.
What is the news?
- An earlier government bill on cryptocurrency in 2019 reportedly sought to ban cryptocurrency and criminalise its possession in India. However, it was not introduced in Parliament.
- The detailed text of the bill has not been released in the public domain so far.
- The bill also says that there will be a regulation to help RBI create its own CBDC (central bank digital currency).
What are Cryptocurrencies?
- A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerized database.
- It uses strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.
- It typically does not exist in physical form (like paper money) and is typically not issued by a central authority.
- Cryptocurrencies typically use decentralized control as opposed to centralized digital currency and central banking systems.
Hues over the Bill
- The past year has seen a surge in the number of cryptocurrency investors in India and in trading volumes.
- Cryptocurrency exchanges such as CoinDCX and Coinswitch Kuber have also raised early-stage funding for their operations.
- The bill may spark an end to the nascent cryptocurrency industry in the country.
What were the provisions of 2019 Bill?
Definition of cryptocurrencies:
- The 2019 Bill defined cryptocurrency as any information, code, number or token, generated through cryptographic means or otherwise, which has a digital representation of value and has utility in business activity, or acts as a store of value or a unit of account.
Ban:
- The 2019 Bill bans the use of cryptocurrency as legal tender or currency.
- It also prohibits mining, buying, holding, selling, dealing in, issuance, disposal or use of cryptocurrency.
- Mining is an activity aimed at creating a cryptocurrency and/or validating cryptocurrency transactions between a buyer and a seller.
In particular, the use of cryptocurrency was prohibited for:
- use as a medium of exchange, store of value or unit of account,
- use as a payment system,
- providing services such as registering, trading, selling or clearing of cryptocurrency to individuals,
- trading it with other currencies,
- issuing financial products related to it,
- using it as a basis of credit,
- issuing it as a means of raising funds, and
- issuing it as a means for investment.
Why the govt wants to ban cryptocurrencies?
Sovereign guarantee
- Cryptocurrencies pose risks to consumers. They do not have any sovereign guarantee and hence are not legal tender.
Market volatility
- Their speculative nature also makes them highly volatile. For instance, the value of Bitcoin fell from USD 20,000 in December 2017 to USD 3,800 in November 2018.
Risk in security
- A user loses access to their cryptocurrency if they lose their private key (unlike traditional digital banking accounts, this password cannot be reset).
Malware threats
- In some cases, these private keys are stored by technical service providers (cryptocurrency exchanges or wallets), which are prone to malware or hacking.
Money laundering
- Cryptocurrencies are more vulnerable to criminal activity and money laundering. They provide greater anonymity than other payment methods since the public keys engaging in a transaction cannot be directly linked to an individual.
Regulatory bypass
- A central bank cannot regulate the supply of cryptocurrencies in the economy. This could pose a risk to the financial stability of the country if their use becomes widespread.
Power consumption
- Since validating transactions is energy-intensive, it may have adverse consequences for the country’s energy security (the total electricity use of bitcoin mining, in 2018, was equivalent to that of mid-sized economies such as Switzerland).
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Article 328
Mains level: EVM issues
Maharashtra Assembly Speaker has directed the State Law and Justice Department to prepare the draft of a Bill which provides an option to voters to exercise their franchise on ballot papers along with electronic voting machines (EVMs).
Manner of holding elections
- Article 328 of the Indian Constitution and number 37 of the State List of the seventh schedule of the Constitution provide rights to the State legislature to formulate a law on the manner of holding elections within the State.
- The state cannot abolish the EVMs completely.
- They are just demanding an additional provision of ballot paper as well for whoever wants to use that.
- Directions have been given to check the constitutional validity of the argument and prepare the draft of a Bill.
Background
- The Election Commission has been conducting all elections through EVMs since 2001.
- The Indian EVM is a direct recording device, which is a stand-alone machine.
- The Election Commission has clarified several times that Indian EVMs don’t talk to any machine outside its own system – be it through a wired network, internet, satellite, and WiFi or Bluetooth.
- The EVM is not connected to the server, so cyber hacking of Indian EVMs is not possible unless an authorised person acts with malafide intention.
- In 2014, a whopping 55.38 crore people cast their votes in EVMs in the parliamentary elections.
Considerations behind such a move
- On EVMs, a voter can never be 100% sure about whom he or she has voted and whether that particular candidate has received the vote.
- It is a right of every voter to be 100% sure about it and also essential for the democratic process.”
- Over the past few years, serious concerns and doubts had been raised over the EVMs and whether those could be manipulated.
- The option of ballot voting would boost people’s confidence in the electoral process which would ultimately lead to an increase in voting percentage.
Q.The EC’s role in ensuring the people’s faith in democracy is paramount. The loss of public faith in democracy and its protector institutions spells nothing but disaster. Discuss.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Yuddh Abhyas
Mains level: NA
The 16th edition of Indo-U.S. joint military exercise ‘Yudh Abhyas’ is set to be held in Rajasthan between February 8 and 21.
Yudh Abhyas
- The exercise near the India-Pakistan border aims at enhancing cooperation and interoperability between the two armies and will focus on counter-terrorism operations under the UN mandate.
- The drill comes days after the air forces of India and France held a five-day joint exercise in Rajasthan in January.
- Exercise with U.S. Army is significant in terms of security challenges faced by both the nations in the backdrop of global terrorism.
- The joint military exercise will enhance the level of defence cooperation between both armies which will also foster the bilateral relations between both nations.
- It reiterates India’s key role as a key partner in the Indo-Pacific region.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: MSP
Mains level: Paper 3- Budget 2021-22 and missed opportunities
The article highlights the areas of economy for which the allocation in the Budget has either been kept unchanged or reduced, signaling the missed opportunity to revive the economy.
Including the off-budget items
- An important feature of the Budget is the transparency on including the off-budget items.
- The step will result in cleaning up of the balance-sheet of the Food Corporation of India (FCI).
- The FCI was saddled with a debt of Rs 3.75 lakh crore by the end of December 2020, a significant part of which is now paid by the government.
- So is the case of the fertiliser subsidy for which the pending Rs 65,000 crore was cleared.
What was the increase in expenditure due to pandemic
- The total expenditure of the government in 2020-21 hardly increased compared to the pre-pandemic budget estimates (BE).
- The total increase in revised estimates (RE) for 2020-21 is only Rs 33,000 crore, around 1 per cent more than what was budgeted.
- The government did raise the expenditure on food subsidy, direct benefit transfer to Jan Dhan accounts (Rs 33,000 crore) and the increase in the Mahatma Gandhi National Rural Employment Guarantee (MGNREGA) (Rs 50,000 crore) and so on.
- But it did so not by generating resources and expanding the fiscal deficit but by cutting down essential expenditure such as agriculture (Rs 18,000 crore), education (Rs 14,000 crore) and social welfare (Rs 14,000 crore).
No increase in health budget
- The Budget announced increase in the health budget to Rs 2.23 lakh crore.
- This number was achieved by adding one-time expenditures on the vaccine, Finance Commission grants and inclusion of expenditure on drinking water, sanitation and nutrition.
- However, the budget of the health ministry for 2021-21 is lower at Rs 74,602 crore compared to the revised estimates of Rs 82,445 crore for the current year.
No increase in agriculture budget
- Like in many other essential ministries, the agriculture ministry also witnessed a cut with estimates of 2021-22 lower by Rs 11,000 crore than last year.
- Real investment in agriculture has been lower than 2013-14 for every year of this government.
Lack of attention on employment generation in rural area
- The lifeline provided by expenditure in rural areas on infrastructure creation and employment generation has either seen a decline in budgeted expenditure or remained stagnant.
- The budget for the ministry of rural development is lower by Rs 66,000 crore compared to the RE of last year.
- The MGNREGA budget of Rs 73,000 crore is barely enough to cover the increase in wages by 11 per cent announced in March.
- It is only 1.8 per cent higher than the actual expenditure of 2019-20, but 52 per cent lower than the RE of last year.
- Similarly, for the Pradhan Mantri Gram Sadak Yojna (PMGSY), the budget for 2021-22 has been cut by Rs 4,500 crore, not even enough to cover inflation between the two years.
Consider the question “The Budget 2021-22 has been hailed for bringing in more transparency to the budgeting exerciese? Examine the context for this, how it will benefit the country?”
Conclusion
Estimates for next year point to missed opportunities to use fiscal measures to revive the ailing economy. Unlike the pandemic, where the arrival of vaccines has given hope, the ailing economy needs much more than this budget.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Interest Rate-Growth Differential
Mains level: Paper 3- Departure from fiscal conservatism
A whopping fiscal deficit at 9.5% of GDP for FY21 highlights departure of India’s fiscal policy from the path of fiscal consolidation. The article highlights the issues related to such departure.
Important departure
- With its fiscal deficit at 9.5% of GDP for FY21 and 6.8% in FY22 Budget for 2021-22 seems to signal “spend like there is no tomorrow”.
- For well over a decade-and-a-half, we have tried attaining deficit targets set out in the Fiscal Responsibility and Budget Management (FRBM) Act (2003).
- In this Budget, target of FRBM Act has not been adhered to.
- The Budget thus marks an important departure from one of the key tenets of the Washington Consensus that was based on macroeconomic stability.
- In previous years, Medium Term Fiscal Policy cum Fiscal Strategy Statement would give the indicators for the past two years as well as the projections for the next two years.
- In this year’s Budget, the yearly projections are missing.
- The Finance Minister has promised to introduce an amendment to the FRBM Act to formalise the new targets.
The theoretical basis for departure
- The Economic Survey laid the groundwork for a departure from rigid adherence to fiscal consolidation.
- It has a quote from economist Olivier Blanchard, “If the interest rate paid by the government is less than the growth rate (IRGD), then the intertemporal budget constraint facing the government no longer binds.”
- The “intertemporal budget constraint” means that any debt outstanding today must be offset by future primary surpluses.
- The Survey argues that in India, the growth rate is higher than the interest rate most of the time.
- The Survey says that, in the current situation, expansionary fiscal policy will boost growth and cause debt to GDP ratios to be lower, not higher.
Key concerns
- An important factor for adhering to the fiscal constraint in the past was the fear that the rating agencies would downgrade India if total public debt crossed, say, 10%-11% of GDP.
- That is a risk that cannot be wished away unless the rating agencies have decided to toe the IMF-World Bank line on fiscal deficits.
- Another concern is that a large fiscal deficit can fuel a rise in inflation.
- A third concern is that, with the tax to GDP ratio not rising as expected, the sale of public assets has become crucial to reduction in fiscal deficits in the years ahead. This is a high-risk strategy.
- A large-scale privatisation almost always involves substantial FDI.
- In South East Asia and Eastern Europe, privatisation of banks meant a large rise in foreign presence in the domestic economies.
Consider the question “The Budget 2021-22 is characterised by its departure from the path of fiscal consolidation. Examine the theoretical basis for such departure. What are the key concerns?”
Conclusion
If the nation’s political economy came in the way of our meeting the FRBM targets, it is also likely to pose an obstacle to large-scale privatisation. A departure from fiscal orthodoxy is welcome. But the government needs to think of ways to make it more sustainable.
Back2Basics: Interest Rate Growth Differential
-
- A key indicator of an economy’s long-run debt sustainability is the differential between interest paid on government debt and the economy’s nominal growth rate.
- When the cost of raising debt is lower than the gross domestic product (GDP) growth rate, public debt comes with low fiscal costs.
- In such a situation, the debt-to-GDP ratio of the economy declines as debts are rolled over.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Various ports of Sri Lanka
Mains level: China as deterrent in India's neighbourhood policy
After the strong opposition from within, the Sri Lankan government was forced to revoke a 2019 agreement with India and Japan to develop the strategic East Container Terminal (ECT) at the Colombo Port.
Map Reading: Note all these major ports and try recalling their sequences in the clockwise and counter-clockwise direction.
What is the news?
- PM Mahinda Rajapaksa made a statement that the operation of the east terminal would be done by Sri Lanka Ports Authority on its own.
- Its cabinet has approved a proposal to develop the West Terminal at the Colombo Port as a PPP with India and Japan, which is seen as a bid to compensate India.
- It is unclear whether India would accept the latest proposal.
What is the Project?
- The tripartite agreement, signed by India, Sri Lanka and Japan, proposes to develop the ECT, which is located at the newly expanded southern part of the Colombo Port.
- The ECT is located 3 km away from the China-backed international financial city, known as Port City, currently being built in Colombo.
- A Chinese company was behind the controversial 2018 Hambantota port project, signed its first contract in the Port City last month.
- It is also on the map of China’s Belt and Road Initiative (BRI).
India’s reaction
- A few weeks ago EAM S. Jaishankar visited Sri Lanka where he discussed the development of the stalled project.
- India’s first response was that the island nation should not be taking a decision in a unilateral manner on an existing tripartite agreement.
Compensatory offer to India
- After the decision on revoking the 2019 agreement, SL has approved another proposal to develop the west terminal of the Colombo port with Japan and India.
- Commercially, the west terminal offer is better for India as it gives 85% stake for developers of the West Terminal against the 49% in ECT.
Sri Lanka expects India to rethink. Why?
- Indian response to this compensatory offer is unclear since there was no formal communication by SL authorities.
- Geo-politically, west terminal is almost the same India considers the security aspect and the necessity to have a port terminal in Sri Lanka.
- There is no difference between East and West Terminals except for the fact that development of the ECT is partially completed while the development of the West Terminal has to start from scratch.
SL version of the revocation
- Incumbent PM Mahinda Rajapaksa said the pressure was immense on the President Gotabaya Rajapaksa to cancel the 2019 agreement.
- The pressure was brewing so much that he was becoming so unpopular among the people.
- As per the agreement signed by the former Maithripala Sirisena-Ranil Wickremesinghe administration, India and Japan together were to hold 49% stake in ECT.
- What had finally made the government surrender before trade unions were the increasing support of many more sections in the society for the protests against privatization.
The inevitable factor: China
- This move can be easily interpreted as a reaction to Chinese communication to Sri Lanka.
- China has reportedly instigated trade unions and civil societies against this project.
Q.The threat of Chinese presence in South Asia can be tackled more effectively if India changes course in its dealings with its neighbours and becomes more sensitive to their concerns. Critically analyse.
Outcome: Souring of the ties
- For India, the strategic ECT project was important. Even the EAM has visited Colombo in January in this regard.
- Critics of the Sri Lankan government anticipate many national and international impacts surrounding the latest decision on ECT.
- Meantime, internationally an offended India can make life tough for Sri Lanka, isolating the tiny island nation, geo-politically and on the economic front.
- The economic isolation will not help Sri Lanka at a time when the country is taking steps to revive the economy amid a pandemic.
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From UPSC perspective, the following things are important :
Prelims level: India Justice Report
Mains level: State of justice delivery, law and order in India
The second edition of the Indian Justice Report (IJR) was recently launched.
Note the findings of this report. It is the only such report of its kind published in India.
India Justice Report
- The IJR is an initiative of Tata Trusts in collaboration with Centre for Social Justice, Common Cause and Commonwealth Human Rights Initiative among others.
- It was first published in 2019.
- It brings together otherwise siloed statistics from authoritative government sources, on the four pillars of justice delivery – Police, Judiciary, Prisons and Legal Aid.
Major highlights of the Report
- The report highlights stark conclusions when aggregated for an all-India picture.
- Women comprise only 29 per cent of judges in India.
- Two-thirds of the country’s prisoners are yet to be convicted.
- In the last 25 years, since 1995, only 1.5 crore people have received legal aid, though 80 per cent of the country’s population is entitled to.
- The report gives ranks Maharashtra once again at the top of the 18 large- and mid-sized states (with a population of over one crore each), followed by Tamil Nadu, Telangana, Punjab and Kerala.
- The list of seven small states (population of less than one crore each) was topped by Tripura, followed by Sikkim and Goa.
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From UPSC perspective, the following things are important :
Prelims level: Jal Jeevan Mission
Mains level: Drinking water scarcity in Urban India
The urban water supply mission under the Jal Jeevan Mission announced in the Budget would include rejuvenation of water bodies as well as 20% of supply from reused water.
Access to safe drinking water has been a grave problem for India, especially in rural areas where lack of usable water has resulted in decades-old sanitation and health problems.
Jal Jeevan Mission
- Jal Jeevan Mission, a central government initiative under the Ministry of Jal Shakti, aims to ensure access of piped water for every household in India.
- The mission’s goal is to provide to all households in rural India safe and adequate water through individual household tap connections by 2024.
- The Har Ghar Nal Se Jal programme was announced by FM in Budget 2019-20 speech.
- This programme forms a crucial part of the Jal Jeevan Mission.
- The programme aims to implement source sustainability measures as mandatory elements, such as recharge and reuse through greywater management, water conservation, and rainwater harvesting.
Urban component of the mission
- The mission is meant to create a people’s movement for water, making it everyone’s priority.
- There are an estimated gap of 2.68 crore urban household tap connections that the Mission would seek to bridge in all 4,378 statutory towns.
- The Mission would also aim to bridge the gap of 2.64 crore sewer connections in the 500 cities under the existing Atal Mission for Rejuvenation and Urban Transformation (AMRUT).
- The mission would include rejuvenation of water bodies to boost the sustainable freshwater supply and the creation of green spaces.
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From UPSC perspective, the following things are important :
Prelims level: Chauri Chaura Incident
Mains level: Mass movements for freedom struggle
PM will inaugurate the centenary Celebrations at Chauri Chaura at Gorakhpur Dist. Uttar Pradesh.
‘Chauri Chaura’ Incident
- The incident took place on 4 February 1922 at Chauri Chaura in the Gorakhpur district of the United Province.
- A large group of protesters participating in the Non-Cooperation Movement clashed with police who opened fire.
- In retaliation the demonstrators attacked and set fire to a police station, killing all of its occupants.
- The incident led to the death of three civilians and 22 policemen.
- Mahatma Gandhi, who was strictly against violence, halted the non-co-operation movement on the national level on 12 February 1922, as a direct result of this incident.
Try this PYQ:
Q.The ‘Swadeshi’ and ‘Boycott’ adopted as methods of struggle for the first time during the
(a) Agitation against the Partition of Bengal
(b) Home Rule Movement
(c) Non-Cooperation Movement
(d) Visit of the Simon Commission to India
Background
- In the early 1920s, Indians, led by Mahatma Gandhi, were engaged in a nationwide non-cooperation movement.
- Using non-violent methods of civil disobedience known as Satyagraha, protests were organised by the INC to challenge oppressive regulations such as the Rowlatt Act.
Course of the incident
- Two days before the incident, on 2 February 1922, volunteers participating in the Non-cooperation Movement led by a retired Army soldier named Bhagwan Ahir.
- The protest was planned against high food prices and liquor sale in the marketplace.
- Several of the leaders were arrested and put in the lock-up at the Chauri Chaura police station.
- In response to this, a protest against the police was called on 4 February, to be held at the local marketplace.
- Infuriated by the gunfire into their ranks, the crowd set the chowki ablaze, killing all of the Indian policemen and other staff trapped inside.
Aftermath
- Appalled at the outrage, Gandhi went on a five-day fast as penance for what he perceived as his culpability in the bloodshed.
- In reflection, Gandhi felt that he had acted too hastily in encouraging people to revolt against the British Raj without sufficiently emphasizing the importance of non-violence.
- On 12 February 1922, the Indian National Congress halted the Non-co-operation Movement on the national level as a direct result of the Chauri Chaura tragedy.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Ramsar Convention, Wetlands
Mains level: Wetland conservation in India
The Ministry of Environment, Forest and Climate Change has announced the establishment of a Centre for Wetland Conservation and Management (CWCM).
What are Wetlands?
- A wetland is a distinct ecosystem that is flooded by water, either permanently or seasonally, where oxygen-free processes prevail.
- The primary factor that distinguishes wetlands from other landforms or water bodies is the characteristic vegetation of aquatic plants, adapted to the unique hydric soil.
- Wetlands provide a wide range of important resources and ecosystem services such as food, water, fibre, groundwater recharge, water purification, flood moderation, erosion control and climate regulation.
Ecological significance of wetlands
- Wetlands provide a wide range of important resources and ecosystem services such as food, water, fibre, groundwater recharge, water purification, flood moderation, erosion control and climate regulation.
- They are, in fact, a major source of water and our main supply of fresh water comes from an array of wetlands which help soak rainfall and recharge groundwater.
- Just as forests are called the ‘lungs of the earth’, wetlands are the ‘kidneys’ that regulate water and filter waste from the landscape.
About CWCM
- WCM would serve as a knowledge hub and enable exchange between State/ UT Wetland Authorities, wetland users, managers, researchers, policy-makers and practitioners.
- It would function as a part of the National Centre for Sustainable Coastal Management (NCSCM), Chennai.
- It would address specific research needs and knowledge gaps and will aid in the application of integrated approaches for conservation, management and wise use of the wetlands.
Why need such a centre?
- India has nearly 4.6% of its land as wetlands, covering an area of 15.26 million hectares and has 42 sites designated as Wetlands of International Importance (Ramsar Sites), with a surface area of 1.08 million hectares.
- The year 2021 also commemorates the 50th anniversary of the signing of the Ramsar Convention on Wetlands on 2 February 1971 in Ramsar, Iran, celebrated annually as World Wetlands Day.
Back2Basics: Ramsar Convention
- The Convention on Wetlands of International Importance (better known as the Ramsar Convention) is an international agreement promoting the conservation and wise use of wetlands.
- It is the only global treaty to focus on a single ecosystem.
- The convention was adopted in the Iranian city of Ramsar in 1971 and came into force in 1975.
- Traditionally viewed as a wasteland or breeding ground of disease, wetlands actually provide fresh water and food and serve as nature’s shock absorber.
- Wetlands, critical for biodiversity, are disappearing rapidly, with recent estimates showing that 64% or more of the world’s wetlands have vanished since 1900.
- Major changes in land use for agriculture and grazing, water diversion for dams and canals and infrastructure development are considered to be some of the main causes of loss and degradation of wetlands.
Enthusiasts can read this document:
Faunal Diversity in Ramsar Wetlands of India
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Development Finance Institution
Mains level: Paper 3- Crucial misses in the Budget 2021-22
The article highlights the key aspects of the budget and also mention the failure to address the challenge of employment and rising inequality.
Significance of the Budget
- At its simplest, is the government’s tentative income and expenditure statement.
- At its broadest, the Budget is a pious statement of the government’s policy and ideological intentions.
- It is also the government’s statement of how it seeks to tackle the immediate political (electoral) and economic challenges.
Stepping up public investment and challenge of financing
- The present Budget’s focus on stepping up public investment by 34.5% in the coming fiscal year (compared to the current year) is a welcome sign.
- The government will borrow an additional ₹80,000 crore for the purpose in the next two months.
- Realisation of these investments would crucially depend on tax revenue realisations, disinvestment proceeds, sale of rail and road assets and the government’s ability to raise resources from the market, without raising interest rates for the private sector.
- There is no mention of the government’s recourse to debt monetisation.
- While the investment intentions are evident, its financing efforts seem to have too many loose ends.
Development Finance Institution
- To deal with the poor industrial and infrastructure investment during the last decade the Budget proposed setting up of Development Finance Institution.
- One of the reason for poor investment was a lack of long-term credit for infrastructure,which yields low rates of return spread over a long period of time.
- Commercial banks, whose deposits are for short to medium term, find it difficult to lend for long term (more than five years) for the fear of maturity mismatch.
- Moreover, as banks were laden with rising non-performing assets on account of poor corporate sector performance during the last decade.
- Also, most successful industrialising economies have relied on DFIs for providing long-term credit.
Financing challenge DFI could face
- Weakness of DFI lies in securing stable long-term, low cost sources of finance.
- The proposed DFI will be financed by foreign portfolio investments (FPI), which is a cause for concern.
- By definition, FPI represents short term inflows with exchange rate risks, while infrastructure investment is for long term whose revenues will be mostly in rupees.
- Such an investment will inevitably lead to currency and maturity miss-match, raising cost of capital.
- Hence, there is a need to consider alternative long-term sources, preferably from domestic sources, or international development agencies.
Health infrastructure
- A substantial annual fixed investment in improving urban sanitation, drinking water and sewage facilities, it is indeed a welcome step.
- A lessons from rural Swachh Bharat Abhiyan is that complementary facilities need to be constructed in a coordinated manner to maximise the effectiveness of such investments.
No effort to address rising inequality
- There is no targeted employment programme to alleviate the immediate crisis is a matter of concern.
- There is no mention of the stupendous rise in economic inequality during just the last year.
- While the poor lost their jobs and livelihoods in 2020, corporate India’s profits increased.
- The Budget could have consider a special tax on the super-rich — as many countries are now mooting.
Consider the question “What necessited the Development Finance Institution? Examine the challenge it would face in its functionig?”
Conclusion
In summary, if the capital expenditure plan outlined in the Budget speech is credible, and implemented with assured financial backing, it could revive the investment cycle. The proposed development bank for term lending for infrastructure is welcome, provided its sources of finance are cheap, long term and mostly domestic. Investments in urban public health infrastructure — sanitation, water supply and sewage — are in the right direction if implemented in a coordinated manner.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Union Budget
Mains level: Paper 3- Transparency in the Budget, bias towards subsidies and neglect of RD in allocation to agriculture sector
The article analyses the Union Budget and highlights the emphasis on transparency by showing the borrowing of the FCI and arrears of the fertiliser companies in the Budget.
Transparency in food subsidy and arrears of fertiliser industry
- Year after year, a substantial part of the food subsidy was being put under the carpet by increasing the Food Corporation of India’s (FCI) borrowings.
- The amount had crossed Rs 3 lakh crore.
- The revised estimate (RE) for FY 2020-21 is 3.66 times the budgeted figure, indicating that almost all borrowings of FCI have been cleared.
- This is indeed a historic step towards introducing transparency in the Union Budget.
- The Budget also cleared off the fertiliser industry’s arrears.
- Against the budgeted figure of Rs 71,309 crore for FY 2020-21, the revised estimate is Rs 1,33,947 crore, an increase of Rs 62,638 crore.
Neglect of R&D
- From a policy perspective one must point to the huge bias towards subsidies as compared to investments, especially research and development.
- The allocation for agri-R&D is a meagre Rs 8,514 crore in FY 2021-22 against a RE of Rs 7,762 crore in FY 2020-21.
- The marginal returns in terms of agri-growth from expenditures on agri-R&D are almost five to 10 times higher than through subsidies.
- India spends not even half of what a private global company like Bayer spends on agri-R&D — almost Rs 20,000 crore every year.
- This is why growth momentum in agriculture remains subdued and India keeps spending on freebies with sub-optimal results.
Subsidies needs a rethink
1) Food subsidy
- The FCI’s economic cost of rice is Rs 37/kg and of wheat about Rs 27/kg.
- This economic cost is roughly 40 per cent higher than the procurement price.
- This calls for giving the public distribution system’s beneficiaries the choice of direct cash transfers.
- This could create a more diversified demand which, in turn, will support diversification in agriculture.
- Further, in food subsidy, it is time to revise the issue prices for beneficiaries except for the antyodaya (most marginal) category.
- Percentage of population covered by the food subsidy should be brought down to 40 per cent.
2) Fertiliser subsidy
- Massive subsidisation of urea, to the tune of almost 70 per cent of its cost, is leading to its sub-optimal usage.
- It is time to move towards direct cash transfers to farmers based on a per hectare basis and free up prices of fertilisers.
- This will help reduce leakages and imbalance in NPK (nitrogen, phosphorus, potassium) usage and lead to efficiency, equity and environmental sustainability.
Consider the question “If one looks at India’s Union Budget, it is easy to notice huge bias towards subsidies and neglect of the research and development in agriculure in the allocation for agriculture sector. What are the implications of such bias?”
Conclusion
Overall, the expenditure on agri-R&D needs to be doubled or even tripled in next three years, if growth in agriculture has to provide food security at a national level and subsidies on food and fertilisers need to be contained. At the same time, food subsidy and fertiliser subsidy needs rationalisation.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Budget
Mains level: Paper 3- Lack of income support in the Budget
The article takes broad overview of the Budget and highlight the recovery led by the goverment spending.
Faster and sharper recovery
- The economy has been recovering sharply and faster in the last two quarters than suggested by official growth numbers.
- Official growth number remain based on antiquated year-on-year comparisons.
- Comparisons from a year ago have a serious problem in that they depend on what happened four quarters earlier and tell us very little about growth momentum.
- J.P. Morgan estimates suggest that, on a quarterly basis, India’s GDP plunged 25 per cent in the second quarter of 2020 and grew 21.5 per cent in the third quarter of the same fiscal year.
- This is a narrative markedly different from that portrayed by the official numbers.
What is the basis of optimis
- The economy is likely to have grown another 10.5 per cent in the fourth and is expected to deliver a growth rate of negative 6.5 per cent for the full fiscal year and then rise by 13.5 per cent in FY 2022.
- The basis of this optimism is two-fold.
- First, by accident or design, India has managed to break the link between infection and mobility.
- The second is the recent shift in the government’s fiscal stance.
- After delaying for nearly six months, the government began to speed up spending in September.
Government spending to boost economy
- With the economy recovering and the equity market surging, taxes and privatisation would reasonably be expected to rise.
- The revenue increase could be used to reduce the deficit while keeping spending broadly at its current share of the Gross Domestic Product (GDP).
- This would allow spending to grow 17-18 per cent, in line with the nominal GDP.
- The choice really boiled down to where to spend.
Higher fiscal deficit
- For this year, the Budget pegged the deficit at 9.5 per cent of GDP, much higher than market estimates of around 7 per cent and a 5 per cent-point rise over the previous year.
- Instead of funding food procurement through off-balance-sheet borrowing by the Food Corporation of India (FCI), as has been the case in the last few years, this year’s Budget has rightly brought some of that spending back on its accounts.
- Excluding subsidies and interest payments, the increase in the deficit is just 2 percentage points of GDP.
Continues lack of income support
- In the details, while there is a welcome emphasis on public health, infrastructure projects, and on privatisation, the glaring omission is the continued lack of income support.
- This lack of income support is important.
- Underlying the strong headline recovery in growth, imbalances in the economy have widened significantly.
- The scarring in the labour market is extensive and the likely damage to household and SME balance sheets substantial.
- While a debt moratorium and other regulatory forbearance have concealed the extent of the damage, these measures simply postpone the eventual reckoning.
- A key risk is that not only is medium-term growth impaired because of the scarring, but also that banks turn risk-averse and do not extend credit exactly when the recovery is expected to gather strength once mobility fully normalises.
Consider the question “While the Budget for 2021-21 rightly health, infrastructure and privatisation, the lack of income support could threaten the prospects of recovery. Comment.”
Conclusion
While the Budget is constructive and has helped to allay fears of excessive fiscal tightening, it did not go far enough to mitigate the tail risk that the current economic recovery does not turn into a “dead cat bounce”.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: BNO visa
Mains level: Hong-Kong/ Taiwan Issue
Hong Kong residents can apply for a new visa offering them an opportunity to become British citizens after Beijing’s imposition of a national security law last year.
What is the news?
- The move comes as China and Hong Kong have said they will no longer recognise the British National Overseas (BNO) passport as a valid travel document from Sunday, January 31.
- Britain and China have been arguing for months about what London and Washington say is an attempt to silence dissent in Hong Kong after pro-democracy protests in 2019 and 2020.
What is the British move for citizenship?
- The scheme, which was first announced last year, allows those with BNO status to live, study and work in Britain for five years and eventually apply for citizenship.
- BNO is a special status created under British law in 1987that specifically relates to Hong Kong.
- Britain says it is fulfilling a historic and moral commitment to Hong Kong people after Beijing imposed the security law on the semi-autonomous city.
- Britain says breaches the terms of agreements under which the colony was handed back to China in 1997.
- The U.K. government forecasts the new visa could attract more than 300,000 people and their dependants to Britain.
Chinese stance on the move
- China says the West’s views on its actions over Hong Kong are clouded by misinformation and an imperial handover.
- Beijing also said that it would no longer be recognising BN(O) passports, saying that the citizenship offer “seriously infringed” on China’s sovereignty.
- It is unclear, however, how this could deter Hong Kongers from leaving since city residents are usually known to use Hong Kong passports while leaving for another country.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Stardust-1, Biofuels
Mains level: Not Much
Stardust 1.O was recently launched from Maine, the US has become the first commercial space launch powered by biofuel.
UPSC may puzzle you with the following type of MCQ asking:
Q.Which of the following is the unique feature of the Stardust 1.0 Spacecraft recenlty seen in news?
(a) It is propelled by Bio-fuels.
(b) It has the largest payload capacity.
(c) It is re-usable launch vehicle.
(d) All of the above
What is Stardust 1.O?
- Stardust 1.O is a launch vehicle suited for student and budget payloads.
- The rocket is manufactured by bluShift, an aerospace company based in Maine that is developing rockets that are powered by bio-derived fuels.
- The rocket is 20 feet tall and has a mass of roughly 250 kg.
- The rocket can carry a maximum payload mass of 8 kg and during its first launch carried three payloads.
- The payloads included a cubesat prototype built by high-school students, a metal alloy designed to lessen vibrations.
Why such missions are important?
- Such efforts are a part of a growing number of commercial space companies that are working to provide easier and cheaper access to space to laypeople.
- It also makes access to space cost-effective for purposes of academic research, corporate technology development and entrepreneurial ventures among others.
Back2Basics: Biofuel
- Biofuels are obtained from biomass, which can be converted directly into liquid fuels that can be used as transportation fuels.
- The two most common kinds of biofuels in use today are ethanol and biodiesel and they both represent the first generation of biofuel technology.
- Ethanol, for instance, is renewable and made from different kinds of plant materials.
- Biodiesel on the other hand is produced by combining alcohol with new and used vegetable oils, animal fats or recycled cooking grease.
Categories of biofuels
Biofuels are generally classified into three categories. They are
- First-generation biofuels – First-generation biofuels are made from sugar, starch, vegetable oil, or animal fats using conventional technology. Common first-generation biofuels include Bioalcohols, Biodiesel, Vegetable oil, Bioethers, Biogas.
- Second-generation biofuels – These are produced from non-food crops, such as cellulosic biofuels and waste biomass (stalks of wheat and corn, and wood). Examples include advanced biofuels like biohydrogen, bioethanol.
- Third-generation biofuels – These are produced from micro-organisms like algae.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: MITRA scheme
Mains level: Textile sector of India
The Finance Minister has proposed setting up of a scheme of Mega Investment Textiles Parks (MITRA) Scheme in her budget speech.
Do not get confused over Sahakar Mitra Scheme and this one.
MITRA Scheme
- MITRA aims to enable the textile industry to become globally competitive, attract large investments, and boost employment generation and exports.
- It will create world-class infrastructure with plug and play facilities to enable create global champions in exports.
- It will be launched in addition to the Production Linked Incentive Scheme (PLI).
- It will give our domestic manufacturers a level-playing field in the international textiles market & pave the way for India to become a global champion of textiles exports across all segments”.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Forest produces, MSP
Mains level: MSP for MFPs
14 new Minor Forest produce items have been included under the Mechanism for Marketing of Minor Forest Produce through Minimum Support Price scheme.
Which are the 14 new MFP?
Tasar Cocoon, Cashew Kernel (Anacardiumoccidentale), Elephant Apple Dry, Bamboo Shoot (Phyllostachys edulis), Malkangani Seed, Mahul Leaves, Nagod (Vitex negundo), Gokhru (Tribulus terrestris), Pipla/ Uchithi, Gamhar/ Gamari (dry bark), Oroxylumindicum, Wild Mushroom dry, Shringraj (Eclipta Alba), Tree Moss (Bryophytes).
Now try this PYQ from CSP 2018:
Q. Consider the following:
- Areca nut
- Barley
- Coffee
- Finger millet
- Groundnut
- Sesamum
- Turmeric
The Cabinet Committee on Economic Affairs has announced the Minimum Support Price for which of the above?
(a) 1, 2, 3 and 7 only
(b) 2, 4, 5 and 6 only
(c) 1, 3, 4, 5 and 6 only
(d) 1, 2, 3, 4, 5 and 7
About MSP for MFP Scheme
- Under the scheme, Minimum Support Price for Minor Forest Produce (MFP) has been fixed for select MFP.
- The scheme is designed as a social safety net for improvement of livelihood of MFP gatherers by providing them fair price for the MFPs they collect.
- The Scheme has 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.
Back2Basics: Forest Produce in India
- Forest produce is defined under section 2(4) of the Indian Forest Act, 1927.
- Its legal definition includes timber, charcoal, catechu, wood-oil, resin, natural varnish, bark, lac, mahua flowers, trees and leaves, flowers and fruit, plants (including grass, creepers, reeds and moss), wild animals, skins, tusks, horns, bones, cocoons, silk, honey, wax, etc.
- Forest produce can be divided into several categories.
- From the point of view of usage, forest produce can be categorized into three types: Timber, Non-Timber and Minor Minerals.
- Non-timber forest products [NTFPs] are known also as minor forest produce (MFP) or non-wood forest produces (NWFP).
- The NTFP can be further categorized into medicinal and aromatic plants (MAP), oilseeds, fibre & floss, resins, edible plants, bamboo, reeds and grasses.
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