Which of the following affect the building up or depletion of India’s forex reserves?
- Foreign Portfolio Investment
- Overseas remittances
- Trade balance
Select the correct answer code:
a) 2 only
b) 1, 2
c) 1, 3
d) 1, 2, 3
2) Countervailing duty is imposed on imports to
- Counter the impact of import subsidies on domestic producers.
- Raise the price of goods that were ‘dumped’ by sellers abroad in domestic market.
Which of the above statements is/are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) None of the above
3) Which of these combinations of macroeconomic situations is most suitable for attracting investment?
a) Low and stable inflation, high GDP growth, low current account deficit and low fiscal deficit
b) Low and stable inflation, low GDP growth, very high current account deficit and high fiscal deficit
c) High and volatile inflation, low GDP growth, low current account deficit and high fiscal deficit
d) High and volatile inflation, high GDP growth, high current account deficit and low fiscal deficit
Prelims specific News :-
1) Defence Testing Infrastructure Scheme :- What is the News?
In order to boost domestic defence and aerospace manufacturing, the Ministry of Defence (MoD) has launched the Defence Testing Infrastructure Scheme (DTIS).
About Defence Testing Infrastructure Scheme (DTIS):
Launched by: Ministry of Defence in 2020.
Aim: To create a state-of-the-art testing infrastructure in partnership with the private industry.
Key Features of the Scheme:
Target: The scheme aims to set up 6-8 Greenfield Defence Testing Infrastructure facilities that are required for defence and aerospace-related production.
A greenfield project is one that is not constrained by prior work. It is constructed on unused land where there is no need to remodel or demolish an existing structure.
Funding: The projects under the scheme will be provided with up to 75% Government funding in the form of ‘Grant-in-Aid’.
The remaining 25% of the project cost will have to be borne by the Special Purpose Vehicle(SPV). The SPV constituents will be the Indian private entities and state governments.
Duration of the Scheme: Five Years.
2) The district forest officer (DFO) of Karur district has recently submitted a proposal for implementing a species recovery programme to protect and improve the population of the endangered slender loris.
About Slender loris:
Slender loris (Loris tardigradus) is secretive and has nocturnal habits. It usually travels from the canopy of one tree to another.
Commonly found in the tropical scrub and deciduous forests as well as the dense hedgerow plantations bordering farmlands of Southern India and Sri Lanka.
It has been listed as ‘Endangered’ by the International Union for the Conservation of Nature
It is under Schedule I of the Wild Life (Protection) Act, 1972, to provide the highest level of legal protection
They are usually solitary, but sometimes found in pairs
It is believed that these animals have some medicinal properties, they are captured and sold.
Habitat loss, electrocution of live wires and road accidents are other threats that have caused its populations to dwindle.
3) The Union Agriculture Minister has inaugurated the world’s second-largest refurbished gene bank at the National Bureau of Plant Genetic Resources.
National Gene Bank
The National Gene Bank was established in the year 1996 to preserve the seeds of Plant Genetic Resources (PGR) for future generations.
It has the capacity to preserve about one million germplasm in the form of seeds.
Presently it is protecting 4.52 lakh accessions, of which 2.7 lakh are Indian germplasm and the rest have been imported from other countries.
National Bureau of Plant Genetic Resources is meeting the need of in-situ and ex-situ germplasm conservation through Delhi Headquarters and 10 regional stations in the country.
Key facilities provided
The NGB has four kinds of facilities to cater to long-term as well as medium-term conservation namely:
Seed Gene bank (- 18°C),
Cryo gene bank (-170°C to -196°C),
In-vitro Gene bank (25°C), and
Field Gene bank
4) PM in his I-day speech has announced the fortification of rice distributed under various government schemes, including the Public Distribution System (PDS) and mid-day meals in schools, by 2024.
What is Fortification?
FSSAI defines fortification as “deliberately increasing the content of essential micronutrients in a food so as to improve the nutritional quality of food and to provide public health benefit with minimal risk to health”.
What is Fortified Rice?
Rice can be fortified by adding a micronutrient powder to the rice that adheres to the grains or spraying of the surface of ordinary rice grains with a vitamin and mineral mix to form a protective coating.
Rice can also be extruded and shaped into partially precooked grain-like structures resembling rice grains, which can then be blended with natural polished rice.
Example : Golden Rice rich in Beta carotene ( replacement for Vitamin A)
Rice kernels can be fortified with several micronutrients, such as iron, folic acid and other B-complex vitamins, vitamin A and zinc.
These fortified kernels are then mixed with normal rice in a 1:100 ratio, and distributed for consumption.
5) What are Oil Bonds?
The Centre has argued that it cannot reduce taxes on petrol and diesel as it has to bear the burden of payments in lieu of oil bonds issued by the previous UPA government to subsidize fuel prices.
What are Oil Bonds?
- Oil bonds are special securities issued by the government to oil marketing companies in lieu of cash subsidy.
- These bonds are typical of a long-term tenure like 15-20 years and oil companies are paid interest.
- Before the complete deregulation of petrol and diesel prices, oil marketing companies were faced with a huge financial burden as the selling price of petrol and diesel in India was lower than the international market price.
- This ‘under-recovery is typically compensated through fuel subsidies allocated in the Union budget.
- However, between 2005 and 2010, the UPA government issued oil bonds to the companies amounting to Rs 1.4 lakh crore to compensate them for these losses.
Why do governments issue such bonds?
- Compensation to companies through issuance of such bonds is typically used when the government is trying to delay the fiscal burden of such a payout to future years.
- Governments resort to such instruments when they are in danger of breaching the fiscal deficit target due to unforeseen circumstances that lead to a collapse in revenues or a surge in expenditure.
- These types of bonds are considered to be ‘below the line’ expenditure in the Union budget and do not have a bearing on that year’s fiscal deficit, but they do increase the government’s overall debt.
- However, interest payments and repayment of these bonds become a part of the fiscal deficit calculations in future years.
Backgrounder: Deregulation of fuel prices
- Fuel price decontrol has been a step-by-step exercise, with the government freeing up prices of aviation turbine fuel in 2002, petrol in 2010, and diesel in 2014.
- Prior to that, the government would intervene in fixing the price at which retailers were to sell diesel or petrol.
- This led to under-recoveries for oil marketing companies, which the government had to compensate for.
- The prices were deregulated to make them market-linked, unburden the government from subsidizing prices, and allow consumers to benefit from lower rates when global crude oil prices tumble.
- Price decontrol essentially offers fuel retailers such as Indian Oil, HPCL or BPCL the freedom to fix prices based on calculations of their own cost and profits.
- However, the key beneficiary in this policy reform of price decontrol is the government.
Impact: Loss of consumers
- While oil price deregulation was meant to be linked to global crude prices, Indian consumers have not benefited from a fall in global prices.
- The central, as well as state governments, impose fresh taxes and levies to raise extra revenues.
- This forces the consumer to either pay what she’s already paying, or even more.
Why are the Oil Bonds in news?
- As prices of petrol and diesel climb steeply, the Centre has been under pressure to cut the high taxes on fuel.
- Taxes account for 58 per cent of the retail selling price of petrol and 52 per cent of the retail selling price of diesel.
- However, the government has so far been reluctant to cut taxes as excise duties on petrol and diesel are a major source of revenue, especially at a time the pandemic has adversely impacted other taxes such as corporate tax.
- The government is estimated to have collected more than Rs 3 lakh crore from tax on petrol and diesel in the 2020-21 fiscal year.
The blame game
- The present government has blamed the UPA regime for its inability to cut taxes.
- It pointed out that the bonds issued by the Manmohan Singh government have weakened the financial position of the oil marketing companies and added to the government’s fiscal burden now.
- It is an argument that has been often repeated since 2018.
What budget documents show
- Budget documents show that such bonds will be up for redemption over the next few years — beginning with two to be redeemed in the current fiscal year — till 2026.
- The government has to repay a principal amount of Rs 10,000 crore this year, according to these documents.
- The government has paid around Rs 10,000 crore annually as interest over the last decade.
- The government is likely to pay a similar amount of interest for the current fiscal as well.
Is the issuance of such special securities restricted to the UPA era?
- Besides oil bonds, the UPA era also saw the issuance of fertilizer bonds from 2007 to compensate fertilizer companies for their losses due to the difference in the cost price and selling price.
- However, the issuance of such special securities is not limited to the UPA regime.
- Over the years, the Modi government has issued bank recapitalization bonds to specific public sector banks (PSBs) as it looked to meet the large capital requirements of these PSBs without allocating money from the budget.
6) RBI unveils Financial Inclusion Index :-
The Reserve Bank of India (RBI) has announced the formation of a composite Financial Inclusion Index (FI-Index) to capture the extent of financial inclusion across the country.
Financial Inclusion Index
- The FI-Index will be published in July every year.
- The index captures information on various aspects of financial inclusion in a single value ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion.
- It has been conceptualized as a comprehensive index incorporating details of banking, investments, insurance, postal as well as the pension sector in consultation with the government and respective sectoral regulators.
- It has been constructed without any ‘base year’ and as such it reflects cumulative efforts of all stakeholders over the years towards financial inclusion.
Parameters of the index
- The FI-Index comprises three broad parameters viz.,
- Access (35%),
- Usage (45%), and
- Quality (20%)
- These parameters are the identification of the customer, reaching the last mile, and providing relevant, affordable and safe products.
- The index is responsive to ease of access, availability and usage of services, and quality of services for all 97 indicators.
This year’s highlight
- The annual FI-Index for the period ended March 2021 stood at 53.9 compared with 43.4 for the period ended March 2017.
7) What is RoDTEP Scheme?
The Centre has notified the rates and norms for the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme asserting that it would put ‘direct cash in the pockets of exporters’ soon.
- RoDTEP is a scheme for Exporters to make Indian products cost-competitive and create a level playing field for them in the Global Market.
- It has been kicked in from January 2021, replacing the earlier Merchandise and Services Export Incentive Schemes (MEIS and SEIS) that were in violation of WTO norms.
- The new RoDTEP Scheme is a fully WTO compliant scheme.
- It will reimburse all the taxes/duties/levies being charged at the Central/State/Local level which are not currently refunded under any of the existing schemes but are incurred at the manufacturing and distribution process.
Answer this PYQ:
Q.With reference to the international trade of India at present, which of the following statements is/are correct?
- India’s merchandise exports are less than its merchandise imports.
- India’s imports of iron and steel, chemicals, fertilizers and machinery have decreased in recent years.
- India’s exports of services ye more than its imports of services.
- India suffers from an overall trade/current account deficit.
Select the correct answer using the code given below:
(a) 1 and 2 only
(b) 2 and 4 only
(c) 3 only
(d) 1, 3 and 4 only
Why need such a scheme?
- The scheme was announced last year as a replacement for the Merchandise Export from India Scheme (MEIS), which was not found not to be compliant with the rules of the World Trade Organisation.
- Following a complaint by the US, a dispute settlement panel had ruled against India’s use of MEIS as it had found the duty credit scrips awarded under the scheme to be inconsistent with WTO norms.
Coverage of the scheme
- It covers about 75% of traded items and 65% of India’s exports.
- To enable zero-rating of exports by ensuring domestic taxes are not exported, all taxes, including those levied by States and even Gram Panchayats, will be refunded under the scheme.
- Steel, pharma and chemicals have not been included under the scheme because their exports have done well without incentives.
Editorial of the Day
Celebrating Einstein’s century :-
- In 1921, the Nobel Prize Committee concluded that Einstein would have to wait and the Committee decided not to award the Prize to anyone in 1921. Opinions changed in a year and when Einstein did receive the 1921 Prize in 1922.
- Noble Prize was not awarded for his theories of relativity but for “his services to Theoretical Physics, and especially for his discovery of the law of the photoelectric effect”.
- The citation harked back to the revolutionary theories that Einstein had established in 1905. ‘Annus Mirabilis’, or the Year of Miracles, is how 1905 is remembered by physicists because Einstein, only 26 then, published four remarkable papers that year.
- One of them explained that light was made of photons and when the light shone on metal, each photon’s energy correlated to the electron’s speed on the metal’s surface.
- This theory redefined the composition of light and Einstein himself dubbed it revolutionary.
- It was for this that he received the Nobel Prize.
Special theory of relativity
- The special theory of relativity was published in 1905.
- James Maxwell had established that light was an electromagnetic wave and the value of its speed was calculated. Building on this,
- Speed of light remains constant for all observers: Einstein understood that while moving from one frame of reference to another, which is moving at a different speed, the speed of light remains a constant.
- He gave a physical interpretation to the equations governing the transformation from one frame to another based on this fact.
- Time slows down when measured from the rest: Einstein’s theory establishes that time moves slower within a moving body when measured from a point at rest (but moves normally within the moving body itself).
- Length reduces: The length of the moving body contracts when measured from an outside point at rest.
- When a moving body emits light, the length contraction and time slowdown of the moving body are just exactly what are needed to restore the speed of light to its constant value.
- Einstein’s insight was that there was no absolute time because time was measured by the simultaneity of two events and this simultaneity would be observed differently.
- As lagniappe to the scientific community, Einstein published his famous mass-energy equivalence E=mc2 in late 1905.
- A mundane example of the application of the special theory of relativity is the use of GPS on our phones.
General theory of relativity
- The theory is general enough to apply to all forms of motion, including those where gravity does not appear.
- Einstein worked out equations using tensors, the mathematical implement to describe the transformation of different dimensions.
- In November 1915, Einstein completed the general theory of relativity.
- As per this theory, space and time form a continuum, like a fabric, and every object in the universe distorts this fabric, much like how dropping a large ball distorts a taut trampoline sheet.
- This distortion is gravity. It produces two effects.
- One, the fabric causes any other object in the vicinity to move towards the heavier object and this is why gravity causes an object to pull things towards it.
- Two, it bends light in the process of attracting it.
In just two decades, Einstein led physics out of its traditional moorings, laid the entablature of modern physics on Newtonian and Maxwellian pillars of classical physics and opened it up to newer questions.
Editorial 02 : More feed, better productivity through a Sub-Mission on Fodder and Feed
The government recently announced a Sub-Mission on Fodder and Feed.
Why availability of good and affordable quality feed and fodder matters
- A study by the Indian Grassland and Fodder Research Institute has observed that for every 100 kg of feed required, India is short of 23.4 kg of dry fodder, 11.24 kg of green fodder, and 28.9 kg of concentrate feed.
- Low milk productivity: The lack of good quality feed and fodder impacts the productivity levels of cattle.
- This is one of the chief reasons why Indian livestock’s milk productivity is 20%-60% lower than the global average.
- High input cost: If we break down the input costs, we find that feed constitutes 60%-70% of milk production costs.
- When the National Livestock Mission was launched in 2014, it focused on supporting farmers in producing fodder from non-forest wasteland/grassland, and cultivation of coarse grains.
- However, this model could not sustain fodder availability due to lack of backward and forward linkages in the value chain.
Why Sub-Mission on Fodder and Feed is significant
- As about 200 million Indians are involved in dairy and livestock farming, the scheme is important from the perspective of poverty alleviation.
- The Sub-Mission on Fodder and Feed intends to create a network of entrepreneurs who will make silage (the hub) and sell them directly to the farmers (the spoke).
- Bringing down the input cost: The large-scale production of silage will bring down the input cost for farmers since silage is much cheaper than concentrate feed.
- Objective: The revised scheme has been designed with the objectives of increasing productivity, reducing input costs, and doing away with middlemen (who usually take a huge cut).
- Since India has a livestock population of 535.78 million, an effective implementation of this scheme will play a major role in increasing the return on investment for our farmers.
About the Sub-Mission on Fodder and Feed
- The scheme will provide 50% capital subsidy up to ₹50 lakh towards project cost to the beneficiary for infrastructure development and for procuring machinery for value addition in feed such as hay/silage/total mixed ration.
- Private entrepreneurs, self-help groups, farmer producer organisations, dairy cooperative societies, and Section 8 companies (NGOs) can avail themselves of the benefits under this scheme.
- The scheme can be used for covering the cost of infrastructure/machinery such as bailing units, harvester, chaff cutter, sheds, etc.
Challenges and solution
- Seasonal availability: A major challenge in the feed sector emanates from the fact that good quality green fodder is only available for about three months during the year.
- Fermenting green fodder: Ideal solution would be to ferment green fodder and convert it into silage.
- Hence, under the fodder entrepreneurship programme, farmers will receive subsidies and incentives to create a consistent supply chain of feed throughout the year.
The mission will help marginal farmers reduce their input cost and help them in increasing the return on capital employed.