Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- India-Afghanistan relations and return of Taliban after deal with the US.
Context
The recently negotiated peace deal between the United States and the Taliban is unlikely to bring peace to Afghanistan, is geopolitically disadvantageous for India, and has serious implications for our national security.
Power dynamics of the US-Taliban deal
- An honourable exit for India: The terms of the deal, the manner in which it was negotiated as well as the geopolitical context in which it was stitched up indicate that it was more about providing an honourable exit route for the U.S.
- Violence after concluding the deal: Within 24 hours of the much-publicised deal, violence and major disagreements about the deal began erupting in Afghanistan.
- Why there are the prospects of instability in Afghanistan: Given that the Taliban negotiated from a position of strength, the Trump administration from weakness and little political will, and that the Ashraf Ghani administration in Afghanistan was by and large a clueless bystander in all of this, means that the country is perhaps on the verge of yet another long-drawn-out and internecine battle.
The changed Taliban
- Taliban of the 1990s: When the Taliban came to power in the mid-1990s in Kabul, it had few backers in the world.
- Nor was it seen as a useful commodity by the great powers or the states in the region, except for Pakistan, Saudi Arabia, and the United Arab Emirates.
- United pushback from the rest of the world: The international community was almost united in offering a normative pushback against the violent outfit.
- As a result, the Taliban was at best reluctantly tolerated until it messed up towards the end of its regime in Kabul.
- The pressure of Northern Alliance: The Northern Alliance, supported by countries such as Russia and India, kept up its military pressure against the Taliban while it was in power.
- How today’s Taliban is different from the past: The situation today, at least for the moment, is perhaps the exact opposite of what was the case then.
- Lessons learned to deal with the international system: The Taliban today is also more worldly-wise and might have learned, during its exile, to deal with the international system and play the game of balance of power.
- Not necessarily the puppet: More so, it may not necessarily be a puppet of the Pakistani deep state once it returns to power.
International acceptance of the Taliban
- Lending the legitimacy to Taliban: Given the war fatigue and the geopolitical stakes in Afghanistan, most of the key players in the region and otherwise have been in negotiations with the Taliban one way or another, and for one reason or another, lending the terror group certain legitimacy in the process.
- Why countries want good relations with the Taliban: Anyone desirous of a stake in Afghanistan or does not want its domestic turmoil to spill over into their country would want to keep the Taliban in good humour.
- Suitable withdrawal of the US: There is another reason why the Taliban has many suitors — because of the U.S. withdrawal by and large suits everyone, be it China, Pakistan, Iran, or Russia.
- The US bigger challenge: Suddenly, the Taliban appears to have been forgiven for its sordid past and unforgivable sins because for most of these countries, the U.S. is the bigger challenge than the Taliban.
Why India’s strategy is diplomatically flawed?
- Only state at losing end: The only state that seems to be on the losing end, unfortunately, of this unfolding game of chess and patience in Afghanistan is India.
- Why the earlier Taliban was anti-India? The earlier Taliban regime was anti-India, it was also because India had militarily supported the Northern Alliance that kept up the military pressure against the Taliban.
- Today’s Taliban does not share the same animus for India.
- Need for Change in India’s approach: India, could have rejigged its approach to the Taliban this time around. However, it put all its eggs in the Ashraf Ghani basket, even on the eve of the signing of the peace deal in Doha.
- Not a diplomatic strategy by India: India also, for most intents and objectives, adopted a puritanical approach to the Taliban.
- There are 2 reason India is neither reaching out to the Taliban nor exploiting the fissures within it-
- Because it did not want to irk the elected government in Kabul and-
- It adopts a moralistic approach to dealing with extremist groups in general — not a smart diplomatic strategy.
- Self-defeating position: This moralistic attitude, also a diplomatically lazy one, I would say, that be it Pakistan or Afghanistan, India would only talk to the legitimate government in that country, is a self-defeating position.
- The world is not that perfect, nor state all that uniform, created in the shape and image of the Westphalian forefather.
- Smart statecraft, therefore, is dealing with what you have and making the best of it.
What would be the result of India’s strategy?
- Impact on relations with Afghanistan: India’s relations with Afghanistan will take a hit in the immediate aftermath of the deal.
- Limited ability to influence the outcomes: With China, India’s strategic adversary, deeply involved in the geopolitics and geo-economics of the region, including in Afghanistan, India’s traditional ability to influence the region’s political and security outcomes will be severely limited.
- This will be further exacerbated by the withdrawal of the U.S., India’s closest friend, from the region.
- India’s relation with the other players in the region: Other regional actors in Afghanistan are also less friendly towards India than ever before: Iran feels let down by India given how the latter has behaved towards it at the behest of the Americans.
- Relation with Russia: For Russia, India is only one of the many friends in the region — the exclusivity of Russia-India relations is a thing of the past — and Pakistan would consider targeting India a fair game.
- Counter Strategy: Unless New Delhi carefully envisages a counter-strategy, these factors will increasingly push India into a geopolitical tough spot in the region.
- Need to focus on the region: India should worry us that our political class is focused on domestic politics while the region is becoming ever more uncertain and evidently unfavourable to us.
Taliban and Kashmir Angle of the deal
- Negligible physical impact but the possibility of psychological impact: While the direct physical impact of the Taliban’s return to power in Afghanistan on Kashmir will be negligible, this will not be without serious implications for the unfolding situation in Kashmir’s restive regions.
- Psychological impact: The most important impact is going to be psychological.
- Interpretation of the event: Disenchanted Kashmiri youngsters, and there are a lot of them, will interpret the events in Afghanistan as follows: “If the mighty superpower USA could be defeated by the Taliban in Afghanistan with help from the Pakistan army, defeating Indian forces in Kashmir won’t be impossible after all.”
- This enthusiasm is completely misplaced, but that is not the point.
- That the Kashmiri youth might pick up guns drawing inspiration from the situation in Afghanistan is indeed the point.
- Increase in Pakistan’s utility: The U.S.-Taliban deal cannot survive without Pakistan’s assistance towards ensuring its success, and the U.S. and its allies recognise that. Such recognition of Pakistan’s utility provides the country with ability, as and when it wishes to, to up the ante in Kashmir.
- The geopolitical significance of Pok and Aksai Chin claim: India’s official statement which describes Afghanistan as a “contiguous neighbour” — meaning that India considers Pakistan-occupied Kashmir (PoK) a part of its sovereign territory — will make Pakistan and China sit up and take notice.
- Claim making reconciliation more difficult: India also made a similar claim about Aksai Chin in the wake of its August decision on Kashmir. Erstwhile rhetorical claims on PoK and Aksai Chin have suddenly assumed a lot more geopolitical significance today making conciliatory approaches to conflict resolution ever more difficult.
Conclusion
Given that a new Taliban-led dispensation in Afghanistan will be far more accepted by the international community than the last time around also means increased acceptability for such regimes in general, either out of necessity or as a function of geopolitical calculations. That the Taliban mass-murdered its opponents into statehood in the 21st century and that this might provide potential inspiration to other outfits in the region and outside should indeed worry us.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- How should India use the windfall from the fall in oil.
Context
Amid the gathering global crisis, its time India minds its own house.
Panic and dislocation in Global markets
- Panic at the level of the 2008 crisis: Global markets haven’t witnessed such panic and dislocation since the global financial crisis of 2008.
- Global equity markets have collapsed, the US’s 10-year bond is at its lowest level ever, and crude prices underwent their largest single-day fall in 30 years.
- Interaction of three global shocks: The market mayhem is the upshot of three global shocks interacting with each other.
What are the three global shocks?
- Negative demand shock due to Coronavirus: A negative demand shock around the world. As the coronavirus proliferates globally, households and businesses are understandably becoming risk-averse, and the consequent “social distancing” is expected to exert significant demand destruction around the world.
- Negative supply shock emanating from China: The widespread industrial closures in China on the back of the COVID-19 outbreak will impact imports and supply chains in other countries, and thereby constitute an adverse supply shock for the rest of the world.
- The magnitude of the shock: The 20-point drop in manufacturing output in the February PMI and the 17 per cent contraction in Chinese exports across January and February, suggests that the shock was large and immediate.
- Supply shock likely to fade: That said, with the virus, gradually being contained in China, this supply shock is likely to fade even as the demand shock in the rest of the world widens and deepens.
- Positive oil supply shock: The failure of oil producers to agree on production cuts has led to a price war with production increases on the anvil.
- Cumulatively, crude pieces are down almost 50 per cent — about $30/barrel — since January.
- A positive supply shock, which even adjusting for the concentrated stress in the oil sector, is growth-additive for the world and particularly for India.
- India specific shock: There is a fourth India-specific force at play. The resolution and reconstruction of YES Bank was inevitable, but, at least temporarily, it is likely to result in a “flight to quality” in India’s financial sector, with resources moving from the financial periphery to the core.
- Banks and NBFC may face difficulty in mobilising resources: To the extent that the periphery — smaller private banks and non-bank financial companies — will find it harder to mobilise resources, financial sector risk aversion could rise again.
Implications for India’s macroeconomic stability
- Significant negative impact due to export: India is a much more open economy than is widely believed with exports constituting almost 20 per cent of GDP. Therefore, the impact of the demand destruction around the world will not be trivial.
- 40 bps decrease in the growth: If global growth is marked down by 100 basis points in 2020, which increasingly appears to be the case, we estimate that this would shave off about 40 bps from India’s growth through the export channel alone.
- The cumulative drag to growth from exports and tourism would be a meaningful 60-70 bps.
- Positive impact due to oil price shock: The near $30/barrel decline since January constitutes a large positive terms of trade shock for India — equivalent to about 1.3 per cent of GDP even accounting for reduced remittances from the Middle East.
- Meaningful mitigant: If oil prices remain at this level for long, it would constitute a meaningful mitigant to India’s macro headwinds, boosting activity, dampening prices, creating fiscal space and reducing external imbalances.
- Offsetting the negative impact of trade and tourism: Every $10 reduction in crude prices, boosts growths by about 20-25 bps.
- Therefore, the $30 decline in crude, if it holds, should boost growth by about 60-70 bps, thereby largely offsetting the negative hit to growth from external trade and tourism.
- Space for monetary easing: Furthermore, crude at $35-40, along with the global demand destruction is expected to generate large disinflationary forces, opening up space for monetary easing.
- CAD would disappear: Finally, India’s current account deficit would virtually disappear, for the first time since 2003-04.
The growth offset conditioned on coronavirus spread
- The assumption in the offset: The above-mentioned growth offset, however, assumes that the coronavirus does not spread within India.
- If India witnessed a rapid domestic proliferation, heightened risk aversion by economic agents could meaningfully hurt domestic demand.
- A thought experiment on the impact on the economy: Discretionary services constitute about 35 per cent of GDP and have been growing at 8 per cent a year.
- If that growth rate were to halve, that alone would deduct 140 bps from growth, and swamp any growth tailwinds from lower oil prices.
- Furthermore, a “sudden stop” of demand to certain sectors may necessitate fiscal/liquidity support to ensure these don’t magnify into more disruptive credit events for the financial sector.
- The best antidote to prolonged growth hit: The best antidote would be to aggressively contain the virus domestically, as authorities appear to be doing.
- The experience from other countries suggests aggressive containment early in the process (isolation, quarantines, contract tracings, cancelled gatherings) reduces the growth rate of the virus from exponential to linear.
- Macroeconomic outlook: The key to India’s macro outlook is whether the crude price decline can sustain and whether India can avoid a sharp domestic proliferation of COVID-19.
Way forward
- Pass the oil windfall to the public: Given current fiscal pressures, it’s tempting to advocate that the public sector appropriate much of the windfall. But with consumption under such pressure, there’s a strong case to pass this on to households.
- A sharp cut in domestic fuel prices will boost household purchasing power and aggregate demand thereby creating contemporaneous counter-cyclical pressures.
- Stick to the asset sale plan: While the turbulence in equity markets could understandably delay the government’s asset sale programme, it should not be allowed to derail it, given the criticality of asset sales to this year’s fiscal math.
- Absorbing all the oil windfall through higher taxes as a substitute for asset sales would be a suboptimal mix.
- Continue with the reforms: The salutary effects of falling crude prices — which would boost India’s macros relative to other emerging markets — should not mask the imperative to continue with reforms, particularly recognising and resolving any further financial sector stress proactively.
Conclusion
Global markets are witnessing their most acute volatility since 2008. All we can do is mind our own house amidst the gathering global storm.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Lt Governor and Governor
Mains level: Administrative differences in governance of UTs
The Madras High Court has held that the role of Puducherry’s Lieutenant Governor and that of an elected government in the UT were intertwined as per law, and therefore they were expected to act in unison and not in division.
What did the court rule?
- The government headed by the CM and the Administrator/Lieutenant Governor of Puducherry shall work in unison and not in division.
- The Madras HC set aside a single bench judgment that had held that the Lieutenant Governor (LG) does not have the right to interfere in the daily affairs of the elected government of Puducherry.
- The HC has held that the Administrator is bound by the aid and advice of the Council of Ministers in matters where the Legislative Assembly is competent to enact laws.
- This power of Assembly is contemplated under Section 44 of the Government of Union Territories Act, 1962.
How is Puducherry different from other UTs?
- UT of Puducherry is headed by the Lieutenant Governor of Puducherry as its nominal head, with a democratically elected CM as real head of the executive.
- Other union territories don’t have an elected government and legislative assembly.
- Puducherry, National Capital Territory of Delhi and Jammu and Kashmir (newly formed UT) are the three territories which have democratically elected governments like Indian states.
- The State legislatures were a creation of the Constitution, whereas the UT legislatures were created under a law such as the Government of UTs Act, 1963.
- The constitutional provisions, the 1963 Act as well as the Rules of Business of the Government of Puducherry lay expect the Lieutenant Governor to act as a bridge between the local government and the Centre.
- The Administrator is expected to play the role of an umpire whenever there was a disagreement between the Lieutenant Governor and the Council of Ministers.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Epidemic Diseases Act, 1897
Mains level: Epedimics and their mitiagtion strategies
Till today, at least 60 COVID-19 cases have been confirmed in India. So it was decided in a Cabinet Secretary meeting that States and UTs should invoke provisions of Section 2 of Epidemic Diseases Act, 1897, so that Health Ministry advisories are enforceable.
History of the 1897 Epidemic Diseases Act
- The Epidemic Diseases Act is routinely enforced across the country for dealing with outbreaks of diseases such as swine flu, dengue, and cholera.
- The colonial government introduced the Act to tackle the epidemic of bubonic plague that had spread in the erstwhile Bombay Presidency in the 1890s.
- Using powers conferred by the Act, colonies authorities would search suspected plague cases in homes and among passengers, with forcible segregations, evacuations, and demolitions of infected places.
- Historians have criticised the Act for its potential for abuse.
- In 1897, the year the law was enforced, Lokmanya Tilak was punished with 18 months’ rigorous imprisonment after his newspapers Kesari and Mahratta admonished imperial authorities for their handling of the plague epidemic.
Provisions of the 1897 Epidemic Diseases Act
- The Act is one of the shortest Acts in India, comprising just four sections. It aims to provide for the better prevention of the spread of Dangerous Epidemic Diseases.
- The then Governor-General of colonial India had conferred special powers upon the local authorities to implement the measures necessary for the control of epidemics.
- Although, the act does define or give a description of a “dangerous epidemic disease”.
Its various sections can be summarized as under:
- The first section describes all the title and extent, the second part explains all the special powers given to the state government and centre to take special measures and regulations to contain the spread of disease.
- The second section has a special subsection 2A empowers the central government to take steps to prevent the spread of an epidemic, especially allowing the government to inspect any ship arriving or leaving any post and the power to detain any person intending to sail or arriving in the country.
- The third section describes the penalties for violating the regulations in accordance with Section 188 of the IPC. Section 3 states, “Six months’ imprisonment or 1,000 rupees fine or both could be charged out to the person who disobeys this Act.”
- The fourth and the last section deals with legal protection to implementing officers acting under the Act.
Examples of implementation
The act has been invoked several times since independence. Few recent incidents include-
- In 2018, the district collector of Gujarat’s Vadodara issued a notification under the Act declaring a town as cholera-affected.
- In 2009, to tackle the swine flu outbreak in Pune, Section 2 powers were used to open screening centres in civic hospitals across the city, and swine flu was declared a notifiable disease.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: COVID 19
Mains level: Global pandemics and their mitiagtion strategies
Scientists across the world are trying to develop a line of treatment and a possible vaccine for COVID-19. However, with the most optimistic timelines we don’t see a line of treatment or vaccine arriving before next year.
Genome sequencing of Coronavirus
- A global effort is on to collect and analyse the genetic composition of the new virus, which would be key to developing a cure and a vaccine.
- Genome sequence is the unique code of genetic material of any organism, and determines the characteristic of any organism.
- Whole genome sequencing is the process of determining the complete DNA sequence of an organism’s genome at a single time.
- The gene composition of novel coronavirus, for instance, is different from that of the influenza virus. Every organism has a unique genome sequence.
- Laboratories in various countries have been isolating and sharing the genome sequences of the virus on an international platform.
Why are so many genome sequences being isolated?
- When viruses multiply, or reproduce, there is a copying mechanism that transfers the gene information to the next generation.
- However, no copying mechanism is perfect. When the virus multiplies, there will be small changes, which are called mutations.
- These mutations accumulate over time, and after prolonged periods, are responsible for evolution into new organisms.
- Within a single reproduction, the changes are extremely minor. More than 95 per cent of the gene structure remains the same.
How it helps scientists?
- However, the small changes that occur are crucial to understanding the nature and behaviour of the organism.
- In this case, for example, the small changes could provide scientists with information about the origin, transmission, and impact of the virus on the patient.
- It could also hold clues to the differing effects the virus could have on patients with different health parameters.
How many genome sequences are required?
- India has far fewer positive cases compared to China, South Korea, Iran, Italy, or even the US.
- Patients who have been infected with the virus in similar conditions are unlikely to show any significant changes in the genome sequences.
- Patients with existing medical conditions could be other candidates from where genome sequences of this virus could be isolated.
- This could help scientists to look for clues to possible impact of virus amidst those existing medical conditions.
Currently, what is the most effective medication?
- As of now, there is none such. Right now, drugs are being repurposed, meaning old drugs for similar diseases are being checked for their efficacy against COVID-19.
- These drugs, if they work, will require clinical trials, and then can be made widely available for people.
- In most cases, symptomatic treatment for fever, body ache, and cough will be sufficient. More severe cases will require oxygen and respiratory support.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: SDGs, SDG India Index
Mains level: Ensuring sustainable development worldwide
Thirty-six major changes to the global indicator framework for the Sustainable Development Goals (SDGs) were approved and adopted by the UN Statistical Commission (UNSC).
Sustainable Development Goals
- The UN General Assembly in its 70thSession considered and adopted the Sustainable Development Goals (SDGs) for the next 15 years.
- The 17 SDGs came into force with effect from 1stJanuary, 2016.
- Though not legally binding, the SDGs have become de facto international obligations and have potential to reorient domestic spending priorities of the countries during the next fifteen years.
- Countries are expected to take ownership and establish a national framework for achieving these Goals.
- Implementation and success will rely on countries’ own sustainable development policies, plans and programmes.
About the changes
- These changes are based on the ‘2020 comprehensive review’ conducted by the UN Inter-Agency and Expert Group on SDG Indicators (IAEG-SDGs).
- The revised global framework will have 231 indicators, approximately the same number as in the original framework, the statement said.
- The global indicator framework was adopted by the UN General Assembly on July 6, 2017.
Eight additional indicators were added across six SDG goals — 2, 3, 4, 10, 13 and 16.
These include:
- Indicator 13.2.2 on the total greenhouse gas emissions per year for the SDG target 13.2 to integrate climate change measures into national policies, strategies and planning.
- Prevalence of anaemia in women aged 15-49 years, by pregnancy status (percentage) under the target 2.2 to end forms of malnutrition by 2030.
- A new indicator on reducing the percentage of bloodstream infections due to selected antimicrobial-resistant organisms has been added under the Global health goal (SDG 3).
- Indicator 10.7.3 on the number of migrants killed while attempting to cross maritime, land and air borders.
- Indicator 10.7.4 on the proportion of the population who are refugees, by country of origin.
Six indicators across six SDG goals — 1, 4, 8, 11, 13 and 17 — have been deleted.
These include:
- Indicator 1.a.1 on the proportion of domestically-generated resources allocated by the government directly to poverty reduction programmes.
- Indicator 4.2.1 on the proportion of children under five years of age who are developmentally on track in health, learning and psychosocial well-being, by sex.
- The portion of the indicator that measures progress for children between 0 and 23 months of age, which is currently in tier III was proposed for deletion by the IAEG.
- Under the SDG goal on combating climate change, the indicator 13.3.2, quantifying the number of countries that have communicated the strengthening of capacity-building for implementing adaptation, mitigation and technology transfer, and development actions has been deleted.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: AT-1 Bonds
Mains level: Read the attached story
India’s fourth-largest private lender YES bank was placed under a moratorium by RBI and its perpetual debt additional tier-1 (AT1 bonds) would become worthless if RBI does ask mutual funds to write down their value.
What are AT1 bonds?
- AT-1, short for Additional Tier-1 bonds, are a type of unsecured, perpetual bonds that banks issue to shore up their core capital base to meet the Basel-III norms.
- AT-1 bonds are complex hybrid instruments, ideally meant for institutions and smart investors who can decipher their terms and assess if their higher rates compensate for their higher risks.
- They carry a face value of ₹10 lakh per bond.
- There are two routes through which retail folk have acquired these bonds — initial private placement offers of AT-1 bonds by banks seeking to raise money; or secondary market buys of already-traded AT-1 bonds based on recommendations from brokers.
Why are they important?
AT-1 bonds have several unusual features lurking in their fine print, which make them very different from plain bonds.
- One, these bonds are perpetual and carry no maturity date. Instead, they carry call options that allow banks to redeem them after five or 10 years. But banks are not obliged to use this call option and can opt to pay only interest on these bonds for eternity.
- Two, banks issuing AT-1 bonds can skip interest payouts for a particular year or even reduce the bonds’ face value without getting into hot water with their investors, provided their capital ratios fall below certain threshold levels. These thresholds are specified in their offer terms.
- Three, if the RBI feels that a bank is tottering on the brink and needs a rescue, it can simply ask the bank to cancel its outstanding AT-1 bonds without consulting its investors. This is what has happened to YES Bank’s AT-1 bond-holders who are said to have invested ₹10,800 crore.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: ARI-516
Mains level: Not Much
Pune’s Agharkar Research Institute (ARI), an autonomous institute of the DST has developed a hybrid variety of grapes which is resistant to fungal diseases, high yielding and has excellent juice quality.
ARI-516
- The hybrid variety ARI-516 has been developed by interbreeding of two species from the same genus — Catawba variety of Vitis labrusca and Beauty seedless variety of Vitis vinifera.
- It is a result of collaboration between Maharashtra Association for the Cultivation of Science (MACS) and ARCI and can benefit farmers, the processing industry and consumers.
- This variety of grapes is resistant to fungal diseases, high yielding and has excellent juice quality.
- The fungal resistance of ARI-516 has been derived from Catawba, which is an American grape variety.
Commercial benefits
- It is also suitable for preparation of juice, raisin, jam and red wine and farmers are enthusiastically adopting the variety.
- It has superior quality fruits and higher yield per unit area.
- An early ripening hybrid, it matures in 110 – 120 days after pruning.
- Being moderately resistant to a majority of fungal diseases, its cost of production is lower.
Back2Basics
Grape production in India
- India ranks twelfth in the world in terms of grape production.
- About 78% of grape production in India is utilized for consumption, 17-20 % for raisin production, 1.5 % for wine and 0.5 % for juice.
- Maharashtra leads in the production of grapes in India with a share of 81.22 %. A negligible share of grapes is used for juice production.
- A majority of farmers in Maharashtra cultivate ‘Thompson seedless’ and its clones for table purpose or raisin making.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- How the government should utilise the windfall from fall in the oil prices?
Context
Amid the coronavirus scare came India’s silver lining in the form of a failure of the Organization of the Petroleum Exporting Countries (Opec) and Russia to reach an agreement on oil production cuts.
Reasons for Russia’s decision and its aftermath
- Why Russia declined to sign the agreement: Russia declined to cut its oil supply with an intention to compete with the US shale industry.
- Start of the price war: Consequently, a price war has started as Saudi Arabia plans a big increase in its oil supply. Saudi Arabia, which is the world’s largest oil exporter, has started offering unprecedented discounts in Europe, the Far East and the US to increase its supplies at the cost of other oil producers.
- Immediate fallout: An immediate fallout of the Russia-Opec meeting was a 9% fall in oil prices on Friday. Monday saw a sharper drop.
Supply and demand shocks and implications for India
- The demand shock: The impact of Covid-19 will be felt on the global demand for oil, too, as a dramatic increase in Covid-19 cases has put further downward pressure on demand for commodities, including oil.
- Thus, both supply and demand shocks have coalesced to roil the crude oil market.
- How much was the drop in price: Since the start of the year, oil prices have fallen by about a third.
- Prices may drop further under the weight of the twin assault of higher supply and lower demand.
- It is, therefore, not a stretch to expect oil prices over the coming financial year to be lower than they were in the previous two.
- Implications for India: This has positive implications for India’s economy and policymaking, as it comes at a time when it has embarked on an uncertain and hesitant recovery.
Opportunity for India
- Precarious fiscal situation: The growth slowdown in the last two years has resulted in a precarious fiscal situation because of tax revenue shortfalls.
- Implications of the fiscal constraints: A direct casualty is the ability of the government to spend or meet its fiscal commitments in the form of budgetary transfers to states, payment of dues and compensation for revenue shortfalls to state governments under the goods and services tax (GST) framework.
- Constraints holding back the government from offering stimulus: Budgetary constraints combined with the Fiscal Responsibility and Budget Management Act have held the government back from fully offsetting a private sector demand slowdown with its own spending.
- Opportunity in the low oil prices: Low oil prices offer an opportunity to raise some revenue and improve its fiscal balance.
Way forward
- First- Passing half the benefit to consumers: As oil prices slide below levels in the previous two years and also below the price of India’s oil basket of $65 per barrel reportedly assumed for 2020-21, there’s an opportunity to pass on about half the benefit of lower global prices to consumers, while the other half can be used to shore up revenue by levying higher excise duty.
- The Union government did something similar between 2014 and 2016.
- Improving the fiscal health: It used low oil prices to improve its fiscal health, as the budget deficit it inherited from the previous government was higher than what the official figures suggested.
- Second-Revenue generated should be used to clear dues: The additional tax revenue thus generated through higher excise duty should be used to clear all dues of the central government, whether to private companies, state governments, or others awaiting tax refunds.
- Putting cash back in the hands of households and small businesses will go a long way in maintaining the growth of domestic demand, besides improving the credibility of the Union government as a trustworthy counter-party.
- Third-Fiscal leeway: The potential excise duty windfall from oil prices could come in handy for the government to provide relief to beleaguered telecom companies.
- The government will have fiscal leeway to allow a staggered and a longer schedule for the payments they have to make, arising out of the Supreme Court ruling on adjusted gross revenues.
- The telecom growth story is an important component of the broader India story, and the sector needs an urgent breather to ensure we are adequately prepared for a 5G roll-out, whenever it happens.
- Fourth-Recalibrate: A slowdown in economic activity, which is inevitable with restrictions placed on mobility and human interaction, will have adverse fiscal implications.
- Tax collections will decline. So will remittances from Indian workers in the Gulf, if that region is buffeted by oil and virus shocks.
- Hence, the quantum of the windfall from lower oil prices will need to be constantly re-assessed and fiscal strategies recalibrated.
- Fifth-Hedging against the higher prices: Even as it should nimbly take advantage of the lower prices now, the government should seriously consider hedging against possible higher oil prices in the medium- to long-term through appropriate instruments available in financial markets. This idea should be extended to hedging against a fall in the rupee relative to the US dollar too.
- Finally-Consider assembling the crack team: It may be worthwhile for the government to consider assembling a crack team of former and current bureaucrats, who have proven their mettle in different crises and in different sectors, to advise it on policy measures that should be adopted in these extraordinary times. Much policy innovation and courage, combined with integrity, will be needed for India to emerge stronger from 2020. For the country’s leadership, there isn’t much to lose from breaking free of old policy and behavioural shackles.
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Note4Students
From UPSC perspective, the following things are important :
Mains level: Paper 3-Measures to revive the Indian economoy.
Context
The root cause of the present malaise in our economy is the “death of demand”.
How demand matters for growth?
- The relation between demand and growth: Growth in any economy depends on the growth in demand, both for investment as well as consumer goods.
- How slackened demand leads to a vicious cycle: If demand slackens, then the installed capacity will not be fully utilised, the fresh investment will not take place, employment will slacken and the economy will get caught in a vicious cycle, as we are experiencing today.
What needs to be done to break the vicious cycle?
- What sequence to follow in reviving demand? The basic challenge, therefore, is to revive demand in the economy in a sequence where the revival takes place first in the investment goods sector, automatically followed by a boost in demand for consumer goods through enhanced employment opportunities.
- Past precedents: This is the prescription we had followed in the Atal Bihari Vajpayee government when we were faced with the East Asian crisis and the post-Pokhran global economic sanctions soon after the government assumed office in March 1998.
Demand in India
- No dearth of demand in India: In a developing country like India, there is no dearth of “good” demand.
- We still have to provide so many goods and services to our people in order to improve their “quality of life”.
- Need to create new infrastructure: Simultaneously, we have to create new infrastructure and improve the existing ones to reduce the transaction cost in our economy and make it more competitive.
- How infrastructure creation lead to the creation of demand: The emphasis on the construction of roads of all kinds — rural, state and national highways, the new telecom policy, the investment in railways, the emphasis on housing construction and development of the real estate, the improvement in rural infrastructure and reform in the agricultural sector were all meant to lead to the creation of demand in the economy.
- Creation of the virtuous cycle: The creation of demand should be in such a way that the demand for investment goods picks up first and faster, which creates the virtuous cycle of full capacity utilisation.
- Demand for consumer goods: Demand for investment goods is followed by fresh investment for new capacity creation, larger employment opportunities of various kinds — unskilled, skilled and highly skilled — which reached money into the pockets of people leading to a surge in demand for consumer goods.
How the government should deal with the situation
- Deal with the demand side instead of supply-side: All commentators are agreed now that instead of tackling the demand side government is dealing with the supply side.
- Tax relief to corporates: For instance, if, instead of wasting a precious amount of Rs 1,45,000 crore on tax relief to a limited number of corporates the government had spent that money on rural infrastructure and agriculture and a part of it on railways and highways, it would have led to the creation of demand both for investment goods as well as consumer goods.
- Issue of sticking to the fiscal deficit target: There is also the issue of resources. The government claims that it has stuck to the fiscal deficit targets.
- But the provisions of Fiscal Responsibility and Budget Management (FRBM) Act have been treated in a cavalier manner by all subsequent governments.
- What was the basic purpose of the act? The basic purpose of the act was to eliminate the revenue deficit completely within a short period of time and live with a limited fiscal deficit.
- The original FRBM Act, therefore, mandated that revenue deficit should be eliminated completely and the rest of the fiscal deficit should be limited to one per cent of GDP.
- In special circumstances like today, the fiscal deficit should be allowed to go up to even two per cent of the GDP, which will mean an amount of Rs four lakh crore.
Figures of the latest budget and need for the reforms
- Fiscal deficit figures: The government has taken credit in the Budget for the fact that it has successfully restricted total fiscal deficit for this fiscal to 3.8 per cent and for next fiscal at 3.5 per cent of the GDP.
- The issue involved in fiscal deficit figures: The revenue deficit for the current fiscal is 2.4 per cent of the GDP and for the next fiscal it is 2.7 per cent. In other words, minus the revenue deficit the fiscal deficit is only 1.4 per cent of GDP for this year and for the next year, it is 1.7 per se.
- Need for managing the expenditure: So, the real villain of the piece is revenue deficit and not fiscal deficit per se.
- Need for the reforms: It is clearly the government’s responsibility to manage its expenditure and carry out reforms in it, including austerity in expenditure.
- How will the reforms help? Controlled fiscal deficit will make more money available in the market for private sector investment and help RBI in reducing interest rates — things which will have an overall benign influence on the economy.
Conclusion
A lot of other things apart from austerity majors will have to be done, no doubt, like preventing companies, especially banks from failing, to further strengthen the growth impulses but in the present situation, the key is government spending and in the desired sequence.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Dominance of China in international trade and its implications for national security.
Context
Although the slowdown in Chinese manufacturing has disrupted the supply chains of many goods, the impact on the drug industry has helped highlight the national security implications of China’s dominance over the pharmaceutical industry.
Implications of the coronavirus disruption in China
- Global dependence on China in focus: As the coronavirus spreads far and wide, the global dependence on China for drugs and medical supplies has come into sharp focus.
- The argument for domestic production of medicine: In both the US and Europe, the shortage of essential drugs to treat the victims of the virus is strengthening the arguments for restoring some domestic production of pharmaceuticals.
- National security implications: Although the slowdown in Chinese manufacturing has disrupted the supply chains of many goods, the impact on the drug industry has helped highlight the national security implications of China’s dominance over the pharmaceutical industry.
China’s dominance in pharmaceutical production
- Two factors that contributed to China rise:
- Active state support from Beijing and-
- Western drug companies eager to shift production to cheaper destinations has facilitated China’s emergence as the most important global source for pharmaceutical products and medical devices.
- Global dependence on China for drugs: America and Europe are said to import nearly 80 per cent of their antibiotics from China.
- India’s dependence for API: India is also an important supplier of generic drugs to the Western world, but it is itself dependent on massive imports of active pharmaceutical ingredients (APIs) from China.
- Impact on India: The reduction in supplies from China after the virus breakout has been accentuated by the recent decision of Government of India to limit the export of common drugs like paracetamol.
- How the US is responding to dominance? Well before the current crisis, there had been warnings in the US about the national security risks from the massive reliance on external sources for basic medicines.
- Weaponising the dominance: Late last year, the US-China Security Review Commission, established by the US Congress, pointed to the prospects of China weaponising its dominance over pharmaceutical production and its massive consequences for healthcare in the US.
- Government support in China: The report also pointed out that the Chinese government promotes and protects the nation’s pharmaceutical companies to the disadvantage of foreign competitors and that leaves other nations little leverage with China.
- Need to limit the exposure to China in other sectors: While the current international focus is on the supply chains in the pharmaceutical sector, there has been growing recognition of the need to limit the expansive exposure to China in many different sectors.
National security argument of the dominance
- National security dimension of trade war: Trump’s case for bringing manufacturing back to America — by challenging the traditional framework of international trade — was not just economic.
- It also had a strong national security argument — that the US cannot rely on China for servicing its national security needs in a range of sectors from digital components and drugs.
- What supporters of the globalisation said? Supporters of economic globalisation had countered these arguments by saying that tight interdependence will reduce the incentives for taking unilateral advantage by nations.
- China using trade dominance into leverage: The critics have pointed to the fact that China was turning its role as the “world’s factory” into powerful leverage.
- Why did the West start regarding China as a challenge? The Chinese decision to stop rare earth exports to Japan during 2010 in relation to a minor political dispute had led many to put up red flags.
- Since then, China’s greater political assertiveness and challenge to Western dominance in critical areas have strengthened the case in the West to regard China as a challenge if not an outright threat.
- De-coupling gaining traction: As the bipartisan political consensus in the US and Europe in favour of a strong economic partnership with China began to break down in recent years, the case for de-coupling has gained much traction.
How using economic leverage for strategic gains undergone changes?
- Use of economic leverage and stockpiling: The history of statecraft suggests that it was quite common for states to use economic leverage for strategic gains.
- Use of strategy during the cold war: Through the Cold War, both America and Russia sought to corner strategic resources around the world. They also adopted policies for stockpiling special materials for use during conflicts. Sustaining a strategic petroleum reserve, for example, was a major priority for the US during the Cold War.
- Changes due to globalisation: The importance of hoarding resources at home and denying it to one’s adversaries seemed to diminish amidst great power harmony and economic globalisation that flourished after the Soviet Union collapsed.
- Recent challenges due to weakening of globalisation: The erosion of that moment in the last few years has set up new tensions between the competing imperatives on Western governments.
- Capital vs. Security issue: While the logic of security compels the state to limit strategic economic exposure, the logic of capital demands policies that reduce costs of production and increase the margins of profit.
- This tension has been at the heart of the recent Western debates on the China question.
Conclusion
While the world finds ways to deal with the Chinese dominance in the other sector, meanwhile, in the health sector, large continental entities like the US, Europe and India are likely to insure against over-reliance on a single source for life-saving drugs. They are likely to find ways to shorten the supply chains, expand domestic production and explore coordination among like-minded nations.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Sir Creek
Mains level: Disputes over Sir Creek
Former Pakistan Minister recalls plan for Sir Creek pact.
Sir Creek
- Sir Creek is a 96-km strip of water disputed between India and Pakistan in the Rann of Kutch marshlands. Originally named Ban Ganga, Sir Creek is named after a British representative.
- The Creek opens up in the Arabian Sea and roughly divides the Kutch region of Gujarat from the Sindh Province of Pakistan.
What’s the dispute?
- The dispute lies in the interpretation of the maritime boundary line between Kutch and Sindh. Before India’s independence, the provincial region was a part of the Bombay Presidency of British India.
- But after India’s independence in 1947, Sindh became a part of Pakistan while Kutch remained a part of India.
- Pakistan claims the entire creek as per paragraphs 9 and 10 of the Bombay Government Resolution of 1914 signed between then the Government of Sindh and Rao Maharaj of Kutch.
- The resolution, which demarcated the boundaries between the two territories, included the creek as part of Sindh, thus setting the boundary as the eastern flank of the creek popularly known as Green Line.
- But India claims that the boundary lies mid-channel as depicted in another map drawn in 1925, and implemented by the installation of mid-channel pillars back in 1924.
The Genesis
- The marshland of Sir Creek first became disputed in the early 20th century when the Rao of Kutch and the Chief Commissioner of Sindh Province of British India, due to different perceptions of the boundaries, laid claims over the creek.
- The case was taken up by then Government of Bombay, which conducted a survey and mandated its verdict in 1914.
- This verdict has two contradictory paragraphs, which make the India and Pakistan contenders on the same issue.
- Paragraph 9 of this verdict states that the boundary between Kutch and Sindh lies ‘to the east of the Creek,’ (Green Line) which effectively implied that the creek belonged to Sindh and, therefore, to Pakistan.
- On the other hand, Paragraph 10 states that since Sir Creek is navigable most of the year.
- According to international law and the Thalweg principle, a boundary can only be fixed in the middle of the navigable channel, which meant that it has be divided between Sindh and Kutch, and thereby India and Pakistan.
- India has used this para to consistently argue that the boundary needs to be fixed in the middle of the creek.
- Pakistan, however, claims that Sir Creek isn’t navigable but India claims that since it’s navigable in high tide, the boundary should be drawn from the mid channel.
What’s the importance of Sir Creek?
- Apart from the strategic location, Sir Creek’s core importance is fishing resources. Sir Creek is considered to be among the largest fishing grounds in Asia.
- Another vital reason for two countries locking horns over this creek is the possible presence of great oil and gas concentration under the sea, which are currently unexploited thanks to the impending deadlock on the issue.
UNCLOS supports India’s stand
- If Thalweg principle is to be upheld, Pakistan would lose a considerable portion of the territory that was historically part of the province of Sindh.
- Acceding to India’s stance would mean shifting of the land/sea terminus point several kilometres to the detriment of Pakistan, leading in turn to a loss of several thousand square kilometres of its Exclusive Economic Zone under the United Nations Convention on Law of the Sea (UNCLOS).
War in 1965 and tribunal
- After the 1965 war, British Prime Minister Harold Wilson successfully persuaded both countries to end hostilities and set up a tribunal to resolve the dispute.
- The verdict of the tribunal came in 1968 which saw Pakistan getting 10% of its claim of 9,000 km (3,500 sq. miles).
- Since 1969, 12 rounds of talks have been held over the issue of Sir Creek, but both sides have denied reaching any solution.
- The region fell amid tensions in 1999 after the Pakistan Navy shot down a MiG-21 fighter plane, but the last rounds of talks were held in 2012. Since then it’s been status quo.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Quota within Quota
Mains level: Making reservation system more efficient
The Haryana Assembly last week passed a Bill to split the 20% quota for Scheduled Castes (SCs) in the state’s higher educational institutions into two, creating a quota within the quota for a new group of “Deprived Scheduled Castes”.
Deprived Scheduled Castes
- This category has 36 communities including Valmiki, Bazigar, Sansi, Deha, Dhanak, and Sapera.
What does the new law say?
- Fifty per cent of the 20 per cent seats reserved for SCs for admission in any Government educational institution shall be set aside for candidates belonging to DSCs.
- Where a seat set aside for candidate from deprived Scheduled Castes is not filled up in any academic year due to non-availability of such candidate; it shall be made available to candidate of Scheduled Castes.
Constitutional Provisions incited
- Article 15(5) of the Constitution authorizes the State to make special provisions for the advancement of any socially and educationally backward classes of citizens or for SCs/STs for admission to educational institutions.
- However Article 15(5) did not mention powers to bifurcate the quota.
Is this sub-quota a new idea?
- The present Haryana government has replicated the initiative of the state government in 1994.
- Then government bifurcated the Scheduled Caste quota into two categories: Block A and Block B.
Why such move?
- The Statement of Objects and Reasons of the Act says that the representation of the SCs now categorised as DSCs” is “only 4.7%, 4.14% and 6.27% in Group A, Group B and Group C services respectively, even though their population is about 11% of the total State population.
- The population of other SCs in Haryana is also about 11% of the total State population but in respect of representation in Government Services their share is 11%, 11.31% and 11.8% in Group A, B and C, respectively.”
- The reason for the poor representation of the DSCs in government jobs can be found in their educational qualifications.
- Thus, even though the “minimum prescribed educational qualification for majority of the posts of Group A, B & C services… is Graduation, the Socio-Economic Caste Census data reveals that in terms of education.
- Only 3.53% population of the DSCs is Graduate, 3.75% of them are Senior Secondary level and 6.63% are Matric/Secondary level. Also 46.75% of them are illiterate.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: Political funding in India
As much as 67% of donations to national parties in 2018-19 came from “unknown sources,” an increase from 53% in the previous financial year, said a report released by the Association for Democratic Reforms.
About ADR
- The Association for Democratic Reforms (ADR) is an Indian non-partisan, non-governmental organization which works in the area of electoral and political reforms.
- Along with National Election Watch (NEW), ADR is striving to bring transparency and accountability in Indian politics and reducing the influence of money and muscle power in elections.
- The ambit and scope of work in this field are enormous, hence, ADR has chosen to concentrate its efforts in the following areas pertaining to the political system of the country:
- Corruption and Criminalization in the Political Process
- Empowerment of the electorate through greater dissemination of information relating to the candidates and the parties, for a better and informed choice
- Need for greater accountability of Indian Political Parties
- Need for inner-party democracy and transparency in party-functioning
income sources of Political Parties
- The total income of the parties was ₹3,749.37 crore, of which ₹951.66 crore was from known donors.
- Electoral bonds accounted for 78% of the ₹2,512.98 crore, or 67%, income from unknown sources.
- While parties are required to give details of all donations above ₹20,000, donations under ₹20,000 and those via electoral bonds remain anonymous.
- Out of the total income from unknown sources, 64% went to the BJP and 29% to Congress.
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From UPSC perspective, the following things are important :
Prelims level: Read the attached story
Mains level: Not Much
Photosynthesis is a life-sustaining process by which plants store solar energy as sugar molecules. However if sunlight is in excess it can lead to leaves being dehydrated and damaged.
What is Photosynthesis?
- Photosynthesis is the process used by plants, algae and certain bacteria to harness energy from sunlight and turn it into chemical energy.
- There are two types of photosynthetic processes: oxygenic photosynthesis and anoxygenic photosynthesis.
- The general principles of anoxygenic and oxygenic photosynthesis are very similar, but oxygenic photosynthesis is the most common and is seen in plants, algae and cyanobacteria.
- During oxygenic photosynthesis, light energy transfers electrons from water (H2O) to carbon dioxide (CO2), to produce carbohydrates.
- Ultimately, oxygen is produced along with carbohydrates. Oxygenic photosynthesis is written as follows:
6CO2 + 12H2O + Light Energy → C6H12O6 + 6O2 + 6H2O
Here, six molecules of carbon dioxide (CO2) combine with 12 molecules of water (H2O) using light energy. The end result is the formation of a single carbohydrate molecule (C6H12O6, or glucose) along with six molecules each of breathable oxygen and water.
How do plants dissipate heat?
- To prevent such damage, plants dissipate extra light as heat.
- While this was known there has been a debate over the past several decades over how plants actually do so.
- Now for the first time researchers have directly observed one of the possible mechanisms through which plants dissipate extra sunlight.
- The new research has been able to determine–by using a highly sensitive type of spectroscopy–that excess energy is transferred from the pigment chlorophyll, which gives leaves their green colour, to other pigments called carotenoids.
- The carotenoids then release the energy as heat. After the carotenoids accept excess energy, most of it is released as heat, thus preventing damage to the cells.
Why does plant dissipate light?
- During photosynthesis, light-harvesting complexes play two seemingly contradictory roles.
- They absorb energy to drive water-splitting and photosynthesis, but at the same time, when there’s too much energy, they have to also be able to get rid of it.
- Plants quickly adapt to changes in sunlight intensity. Even in very sunny conditions, only 30 per cent available sunlight is converted into sugar, and the rest is released as heat.
- The excess energy, if not released, leads to the creation of free radicals that can damage proteins and other important cellular molecules.
Significance of the research
- So far, it had been difficult to observe the heat dissipation phenomenon, given that it occurs on a very fast time scale, in femtoseconds or quadrillionths of a second.
- Using the new technique, researchers could observe that chlorophylls absorb red light and carotenoids absorb blue and green light, thus being able to monitor energy transfer.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Pyramid of Djoser
Mains level: NA
Last week, Egypt reopened the Pyramid of Djoser, the first pyramid ever built, after a 14-year restoration. The structure is believed to be designed by Imhotep, described by some as the first architect of the world.
The Pyramid of Djoser
- The 4,700-year-old pyramid is 60 metres tall, and consists of six stacked steps over a burial shaft tomb 28 metres deep and seven metres wide.
- It is located at the Saqqara archaeological site, 24 km southwest of Cairo, outside the royal capital of Memphis. A complex of halls and courts is located around the pyramid.
- It is the world’s oldest monumental stone building.
- Today a UNESCO world heritage site, the pyramid was constructed during the era of Pharaoh Djoser, the second king of Ancient Egypt’s Third Dynasty (2650 BC– 2575 BC).
- The Pharaoh’s 19-year reign saw significant technical innovations in stone architecture.
- The pyramid’s architect, Imhotep, was also a physician and astrologer, and served as Djoser’s minister.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Significance of quarterly GDP estimates and revision.
Context
As the third-quarter GDP was marginally higher than the second-quarter figure of 4.5% many concluded that the economic slowdown witnessed during the last six quarters has “bottomed out”. Has it?
What closer examination of data reveal?
- Estimates revised upwards: A closer reading reveals that the latest data release has revised the estimates of the first two quarters of the current year (2019-2020) upwards to 5.6% and 5.1%, from the earlier figures of 5% and 4.5%, respectively.
- What the revision mean? The upward revisions have, perhaps unwittingly, changed the interpretation of the current year’s Q3 estimate: the slowdown has continued, not bottomed out; hence, there is no economic revival in sight as of now.
Competing views of the performance
- The question therefore is why did the current year’s Q1 and Q2 GDP estimates get revised upwards?
- The answer is this was simply because the corresponding figures for the previous year (2018-2019) got revised downwards.
- The question over the revision process: Many viewed the revision of last year’s estimates as evidence of lack of credibility of the NSO’s revision process.
- Questions over the veracity of data: Such doubts are well taken, given the long-standing debate and unresolved disputes on the veracity of GDP figures put out since 2015, when the statistical office released the new series of National Accounts with 2011-2012 as base year.
Why the GDP estimates undergo revisions?
- Lags in data: As there are lags and unanticipated delays in obtaining the primary data, the GDP estimates undergo several revisions everywhere (except in China).
- GDP is a statistical construct, prepared using many bits of quantitative information on an economy’s production, consumption and incomes.
- How frequently is data revised? GDP estimates are revised five times in India over nearly three years.
- The initial two rounds, the advanced estimates, are prepared mainly using high-frequency proxy indicators followed by three rounds based on data obtained from various sectors.
Quarterly GDP estimates and issues with it
- Since 1999, quarterly GDP estimates are being prepared, as per the International Monetary Fund (IMF)’s data dissemination standards.
- Subpar quality: Their quality is subpar as the primary data needed quarterly are mostly lacking.
- Why quality is subpar? Nearly one-half of India’s GDP originates in the unorganised sector (including agriculture), whose output is not easily amenable to direct estimation every quarter, given the informal nature of production and employment.
- Hence, the estimates are obtained as ratios, proportions and projections of the annual GDP estimates.
- Quarterly estimates are extrapolations: In general terms, quarterly estimates of GDP are extrapolations of annual series of GDP. The estimates of GVA by industry are compiled by extrapolating value of output or value-added with relevant indicators.
Way forward
- Little ground to question the present revisions: There were considerable variations at the sectoral estimates after the revision, which probably contained more noise than information. For now, there is little ground to question the revised estimates based on the publicly available information.
- Slowdown not bottomed out: If we accept the latest data, it is clear, though in an alarming way, that there has been an undeniable decline in the GDP growth rate over seven consecutive quarters, from 7.1% in Q1 of 2018-2019 to 4.7% in Q3 of 2019-2020.
- Considering that physical indicators of production, such as the official index of infrastructure output, or monthly automotive sales, continue to show an unambiguous deceleration, the economic slowdown has apparently not bottomed-out.
- More seriously, the quarterly GDP deceleration comes over and above the annual GDP growth slowdown for four years now: from 8.3% in 2016-17 to 5% in 2019-20 (as per the second advance estimate).
- Limited primary information: India’s quarterly GDP estimates have limited primary information in them. Their revisions are largely extrapolations and projections of the annual figures. Hence, one should be cautious in reading too much into the specific numbers.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Revision and estimates of GDP data.
Context
The latest GDP data witnessed significant revisions that have gone largely unnoticed.
The GDP data revision and its criticism
- Revisions an act of due diligence: In the last few years there has been a lot of noise regarding the data revisions.
- The need for closer examination: While part of revision requires closer examination, we must be fair to our statistical system as such revisions are, in large part, due diligence and happen globally.
- Schedule of NSO estimates
- First estimate: The NSO releases the first estimates of any fiscal year in January.
- Revises the January’s first estimates in February.
- And then again in May.
- Simultaneous revision in February: Simultaneously, it revises the previous year estimates in February, alongside the February data release.
- Suspicion of statistically protecting the 5% growth: The primary criticism, with the current year’s fiscal data, is that the revisions in February for 2019-20 and the 4th revision in 2018-19 are almost identical, implying that the sanctity of 5 per cent growth was statistically protected.
Examining the criticism purely on the data
- Precedence of 1st and 2nd quarter revision: There is precedence to the first and second quarter revisions for the current financial year that happen in February.
- For example, while in the current fiscal, the cumulative downward revision was close to Rs 30,000 crore.
- In FY19, there was even a greater upward revision of roughly Rs 86,000 crore in February.
- Is there precedence of such large first-time revisions? Yes, there has been since 2014-15. In 2018-19, the first-time data was revised by a sharp Rs 1.43 lakh crore, while in 2017-18, it was revised by an even larger Rs 1.69 lakh crore.
- Revision in the same direction: The simultaneous revisions are mostly in the same direction, though different in magnitude, and hence it is unfair to say that the 2018-19 data was revised downwards to protect the 2019-20 numbers.
What was the problem?
- Uncertainty: The problem has been that the global and domestic uncertainties in 2017-18 and 2018-19 have been so swift that it has been virtually impossible to predict the outcome initially.
- While in 2017-18, the final estimates were progressively higher.
- In 2018-19, while the interim estimates were higher, they were drastically scaled-down later as the impact of the NBFC crisis began to unfold.
- The US example: The US Fed had also missed the possibility of the US economy bouncing back in 2018 on the back of tax cuts when in 2015 it had projected the economy to expand by only 2 per cent, only to change it to 3 per cent in 2018 (almost at par with scale of revisions in India).
Why such unconditional biases arise?
- Asymmetric loss function: It is common for such unconditional bias to arise due to the fact that the statistical reporting agency produces releases according to an asymmetric loss function.
- For example, there may be a preference for an optimistic/pessimistic release in the first stage, followed by a more pessimistic/optimistic one in the later stage.
- Cost factor: Intuitively, one might argue that the cost of a downward readjustment of the preliminary data is higher than the cost of an upward adjustment.
- This asymmetric loss function is not so relevant at the reporting stage but at the forecasting stage.
- Interpreting the data revision: A statistical reporting agency like the NSO simply does not have all the data at hand and has to forecast the values of the yet to be collecting data.
- It is at that moment that the asymmetric loss function comes into play.
- So, we must be careful about interpreting data revisions by the NSO by attributing ulterior motives as we more often tend to do.
India lagging in the use of data analysis
- Unlike countries across the world, India is still significantly lagging in its use of data analysis.
- Methodologies based on thin surveys: Some of the current methodologies of data collection is based mostly on thin surveys.
- Not supported by the data in public domain: It is also not supported by data available in the public domain that are more comprehensive, less biased and real-time in nature, based on digital footprints.
- The end result is that we end up publishing survey results that are misleading.
Way forward
- Development of big data and AI bases ecosystem: We must develop an ecosystem that is high quality, timely and accessible.
- Big data and artificial intelligence are key elements in such a process.
- Big data helps acquire real-time information at a granular level and makes data more accessible, scalable and fine-tuned.
- Use of payment data: The use of payments data can also help track economic activity, as is being done in Italy.
- Different aggregates of the payment system in Italy, jointly with other indicators, are usually adopted in GDP forecasting and can provide additional information content.
Conclusion
To be fair to both the RBI and the NSO, the volatility of oil prices and structural changes in the economy make the forecasting of inflation and GDP a difficult job indeed. However, we should supplement our existing measurement practices with “big data” to make our statistical system more comprehensive and robust.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Solar Cycle, Sunspots, Solar Dynamo
Mains level: Read the attached story
The sunspots identified by researchers from IISER Kolkata herald the start of a new solar cycle called Cycle 25.
What are Sunspots?
- Sunspots are temporary phenomena on the Sun’s photosphere that appear as spots darker than the surrounding areas. They are relatively cooler spots on the Sun’s surface.
- They are regions of reduced surface temperature caused by concentrations of magnetic field flux that inhibit convection.
- Sunspots usually appear in pairs of opposite magnetic polarity with a leader and a follower.
What is Solar Cycle?
- From our safe distance of about 148 million km, the Sun appears to be sedate and constant. However, huge solar flares and coronal mass ejections spew material from its surface into outer space.
- They originate from sunspots, an important phenomenon that people have been following for hundreds of years. They originate deep within the Sun and become visible when they pop out.
- Their number is not constant but shows a minimum and then rises up to a maximum and then falls again in what is called the solar cycle.
- Every 11 years or so, the Sun’s magnetic field completely flips. This means that the Sun’s north and south poles switch places. Then it takes about another 11 years for the Sun’s north and south poles to flip back again.
- So far, astronomers have documented 24 such cycles, the last one ended in 2019.
How do they occur?
- Given the high temperatures in the Sun, matter exists there in the form of plasma, where the electrons are stripped away from the nuclei.
- The Sun is made of hot ionized plasma whose motions generate magnetic fields in the solar interior by harnessing the energy of the plasma flows.
- This mechanism is known as the solar dynamo mechanism (or magnetohydrodynamic dynamo mechanism).
- Simply stated, it is a process by which kinetic energy of plasma motions is converted to magnetic energy, which generates the magnetised sunspots, giving rise to the solar cycle..
- Because of the nature of the solar dynamo, the part of its magnetic field that gives rise to sunspots reverses direction when it moves from one solar cycle to another.
- This can be inferred by observing when the relative orientation of the sunspot pairs flips.
Features
- The solar cycle affects activity on the surface of the Sun, such as sunspots which are caused by the Sun’s magnetic fields. As the magnetic fields change, so does the amount of activity on the Sun’s surface.
- One way to track the solar cycle is by counting the number of sunspots.
- The beginning of a solar cycle is a solar minimum, or when the Sun has the least sunspots. Over time, solar activity—and the number of sunspots—increases.
- The middle of the solar cycle is the solar maximum, or when the Sun has the most sunspots. As the cycle ends, it fades back to the solar minimum and then a new cycle begins.
- Giant eruptions on the Sun, such as solar flares and coronal mass ejections, also increase during the solar cycle. These eruptions send powerful bursts of energy and material into space.
Impacts of Solar Cycle
- This activity has effects on Earth. For example, eruptions can cause lights in the sky, called aurora, or impact radio communications. Extreme eruptions can even affect electricity grids on Earth.
- Solar activity can affect satellite electronics and limit their lifetime.
- Radiation can be dangerous for astronauts who do work on the outside of the International Space Station.
- Forecasting of the solar cycle can help scientists protect our radio communications on Earth, and help keep satellites and astronauts safe.
Start of cycle 25
- Following a weakening trend in activity over the last few cycles, there were predictions that the Sun would go silent into a grand minimum in activity, with the disappearance of cycles.
- However, a team from IISER Kolkata has shown that there are signs that cycle 25 has just begun.
- They used the data from the instrument Helioseismic and Magnetic Imager aboard NASA’s space-based Solar Dynamics Observatory for their calculations.
Why is this so important to us on earth?
- After all the sunspots look small and are hardly even visible to us. Contrary to this, sunspot activity may be correlated with climate on earth.
- In the period between 1645 and 1715, sun spot activity had come to a halt on the Sun – a phenomenon referred to as the Maunder minimum.
- This coincided with extremely cold weather globally. So sunspots may have a relevance to climate on earth.
- Such links are tenuous, but definitely solar activity affects space weather, which can have an impact on space-based satellites, GPS, power grids and so on.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Role of RBI coping bank failures
Mains level: Read the attached story
On the advice of the Reserve Bank of India (RBI), the government imposed a moratorium on Yes Bank with effect from 6 p.m. on March 5 up to April 3. This has created a furore among the account holders of the bank.
What restrictions did RBI put?
- The RBI superseded the private sector lender’s board and appointed as an administrator.
- Under the moratorium, deposit withdrawals have been capped at ₹50,000.
- Within 24 hours, the RBI proposed a reconstruction scheme under which SBI could take a maximum 49% stake in the restructured capital of the bank.
Why was it imposed?
- The RBI cited a steady decline in Yes Bank’s financial position mainly due to the lender’s inability to raise adequate capital to make provisions for potential non-performing assets.
- This failing resulted in downgrades by credit rating agencies, which in turn made capital raising even more difficult — a vicious cycle that further worsened its financials.
- This apart there were serious lapses in corporate governance.
- The bank has also experienced serious governance issues and practices in the recent years which have led to steady decline of the bank.
When did it all start?
- As on March 31, 2014, the bank’s loan book was ₹55,633 crore and deposits were ₹74,192 crore.
- Since then the loan book expanded fourfold to ₹2,24,505 crore while deposit growth failed to keep pace and increased less than three times to ₹2,09,497 crore.
- Asset quality also worsened during the period with gross non-performing assets sharply rising from 0.31% as on March 31, 2014, to 7.39% at the end of September 2019.
- The exponential growth at Yes Bank during that period also came under the regulator’s scanner.
- The lender has substantial exposure to several troubled borrowers including the IL&FS.
What will be the likely impact on depositors?
- While deposit withdrawals have been capped at ₹50,000, there are exceptions under which a higher amount can be withdrawn, with the permission of the RBI.
- The RBI can allow a customer to withdraw more than ₹50,000 under the following conditions:
- in connection with the medical treatment of the depositor or any person actually dependent on the depositor;
- towards the cost of higher education of the depositor or any person actually dependent on him for education in India or outside India;
- to pay obligatory expenses in connection with marriage or other ceremonies of the depositor or his/her children or of any other person actually dependent upon depositor;
- or any other unavoidable emergency.
- The total withdrawal should, however, not exceed ₹5 lakh or the actual balance in the account, whichever is lower.
What about deposit insurance?
- In case Yes Bank goes belly up for any reason, depositors will not lose all their money since deposits up to ₹5 lakh are covered under deposit insurance.
- While the deposit insurance cover was ₹1 lakh till recently, this was increased to ₹5 lakh in the aftermath of the crisis at the Punjab and Maharashtra Cooperative (PMC) Bank Limited.
- Finance Minister has announced the increase in deposit insurance in this year’s Budget.
What do such bank failures imply?
- While the government and the regulator have asserted that the problem is solely related to this particular bank, the latest developments spotlight the governance risks in India’s banking sector.
- There is a risk that the already poor operating environment for the banking sector could suffer further impairment if the government’s efforts to tackle problems in the bank fail to provide reassurance to depositors and investors.
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