6/5/2019 GS PAPER 3 - Evernote Web

ECONOMICS

Fall Armyworm (Agriculture resources)

Indian Council for Agricultural Research (ICAR) has sounded the alarm after the invasive agricultural pest, Fall Armyworm (Spodoptera frugiperda), was
discovered in Karnataka.
Fall Armyworm is a major maize pest in North America, arrived in Africa in 2016. Since then, it has threatened the continent’s maize crop.
The Karnataka finding is the first report of the pest in Asia.
Scientists warn the insect could spread throughout Asia to become a major threat to global food security.
The discovery is more worrisome because the pest feeds on around 100 different crops, such as vegetables, rice, and sugarcane.

Past incidences

In 2008, the Papaya Mealybug, a Central American native, was reported in Tamil Nadu. Eventually, it spread across the
country, destroying papaya crop. Eventually it was contained by bio-control measures.

preventions steps:-
1) Go in for deep ploughing to expose more soil to the sun and avoid staggered sowing
2)I f an entire village goes in for sowing within a short time frame, the growth of crop would be uniform and the distribution of the pest will be uniform too, which
reduces the crop damage.
 3)“There is need for documenting the methods that farmers in Mahabubnagar and Ranga Reddy districts and in some places in Karnataka had used to control FAW.
Also, instead of using the deadly pesticides recommended for its control without carrying any research, farmers should go in for local solutions,

India has overly restrictive market barriers’

US is the largest export market for India(20%) on the other hand India is 13th.- Real Imbalance

Reasons - Both tariff and non tariff barriers, as well as multiple practices and regulations that disadvantage foreign Companies .

India’s average applied tariff rate of 13.8%, and that remains the highest of any major world economy.
t has, for example, a 60% tariff on automobiles; it has a 50% on motorcycles; and 150% on alcoholic beverages,.

The menace of Non-performing assets (NPAs):

Context: Non-performing assets (NPAs) at commercial banks amounted to 10.3 trillion, or 11.2% of advances, in March 2018. Public sector banks (PSBs)
accounted for 8.9 trillion, or 86%, of the total NPAs. The ratio of gross NPA to advances in PSBs was 14.6%. These are levels typically associated with a
banking crisis.

What caused this?

The credit boom of the years 2004-05 to 2008-09. In that period, commercial credit (or what is called ‘non-food credit’) doubled. Indian firms borrowed
furiously in order to avail of the growth opportunities they saw coming. Most of the investment went into infrastructure and related areas — telecom, power,
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roads, aviation, steel. Businessmen were overcome with exuberance, partly rational and partly irrational.

Problems in acquiring land and getting environmental clearances, several projects got stalled.

At the same time, with the onset of the global financial crisis in 2007-08 and the slowdown in growth after 2011-12, revenues fell well short of forecasts.
Financing costs rose as policy rates were tightened in India in response to the crisis.

The depreciation of the rupee meant higher outflows for companies that had borrowed in foreign currency.

This combination of adverse factors made it difficult for companies to service their loans to Indian banks.

The Reserve Bank of India (RBI), acting in the belief that NPAs were being under-stated, introduced tougher norms for NPA recognition under an Asset
Quality Review.

Impact of higher NPAs:

Higher provisions on the part of banks. Provisions rose to a level where banks, especially PSBs, started making losses. Their capital got eroded as a result.
Without adequate capital, bank credit cannot grow. Gross NPAs/advances rose sharply.

Why high NPAs in public sector banks?

PSBs had a higher exposure to the five most affected sectors — mining, iron and steel, textiles, infrastructure and aviation. These sectors accounted for 29% of
advances and 53% of stressed advances at PSBs in December 2014.

What needs to be done?

One immediate action that is required is resolving the NPAs.

An alternative is to set up a Loan Resolution Authority, if necessary through an Act of Parliament.

The government must infuse at one go whatever additional capital is needed to recapitalise banks — providing such capital in multiple instalments is not
helpful.

Over the medium term, the RBI needs to develop better mechanisms for monitoring macro-prudential indicators.

Actions needs to be taken to strengthen the functioning of banks in general and, more particularly, PSBs. Governance at PSBs, meaning the functioning of
PSB boards, can certainly improve.

Medium-term to Long-term Solutions:

PCA helps in increase profitability of banks through reduction of NPA. Unless, now they earn profit of it and also risky to lend to big borrowers as their
liquidity is less because of high NPA.

So Prompt Corrective Actions helps to bank to improve their business for the foreseeable future instead of hurting their operations.

Over the medium term, the RBI needs to develop better mechanisms for monitoring macro-prudential indicators. It especially needs to look out for credit
bubbles.

True, it’s not easy to tell a bubble when one is building up. Perhaps, a simple indicator would be a rate of credit growth that is way out of line with the trend
rate of growth of credit or with the broad growth rate of the economy.

Actions needs to be taken to strengthen the functioning of banks in general and, more particularly, PSBs.

Governance at PSBs, meaning the functioning of PSB boards, can certainly improve.

One important lesson from the past decades experience with NPAs is that management of concentration risk that is, excessive exposure to any business group,
sector, geography, etc. is too important to be left entirely to bank boards.

Conclusion:
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The task of accelerating economic growth is urgent. This is not possible without finding a solution to the problems that confront the banking system.

Succession planning at PSBs also needs to improve. Despite the constitution of the Banks Board Bureau to advise on selection of top management, the
appointment of Managing Directors and Executive Directors continues to be plagued by long delays.

There is ample scope for improving performance within the framework of public ownership. It can be done. What is needed is a steely focus on the part of the
government.

Overall risk management at PSBs needs to be taken to a higher level. This certainly requires strengthening of PSB boards. We need to induct more high-
quality professionals on PSB boards and compensate them better.

India needs a safe and efficient banking system to service the needs of a growing economy. The RBI as well in addition to government part would do well to
use the current opportunity to strengthen the banking system.

Insights into Editorial: A wake-up call on proprietary seeds

Context:

Multi-billion-dollar conglomerate PepsiCo sued four Gujarati farmers, asking them to pay 1.05 crore each as damages for ‘infringing its rights’ by
growing the potato variety used in its Lays chips.

Farmers groups have launched a campaign calling for government intervention.

According to the farmer groups, the law allows them to grow and sell any variety of crop or even seed as long as they don’t sell branded seed of registered
varieties, and warned that the case could set a precedent for other crops.

National and international pressure swiftly mounted, and in short order a humbled PepsiCo backtracked, announcing its withdrawal of the lawsuit.

Problems with proprietary seeds:

Gujarat and Rajasthan farmers have been cultivating FC-5 variety of potato which has been registered by PepsiCo under the Protection of Plant Varieties and
Farmers’ Rights Act 2001 (PPVFRA) for their own use.

The FC-5 variety, used to make Lay’s chips, is grown under a contract farming deal, by 12,000 farmers in Gujarat’s Sabarkantha district.

Concentration of Corporate power. This concentration has made a huge dent in farmer’s pockets.

Farmers who buy GMO seeds must pay licensing fees and sign contracts that dictate how they can grow the crop and even allow seed companies to inspect
th i f
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their farms.

GMO seeds are expensive and farmers must buy them each year or else be liable for patent infringement.

Farmers are not using genetically distinctive seeds adapted to local conditions and farming traditions, they are instead adapting local conditions and
traditions in order to use genetically standardised seeds, to ruinous effect.

Solution: Minimise harm, maximise gain: from a high-yield ideal to a high-value one:

How can a biodiversity-rich nation like India shift its agriculture from a high-yield ideal to a high-value one, where the ‘values’ include striving to minimise
environmental harm while maximising nutritional gains and farmer welfare.

1. First, small farmers must be educated and encouraged with proper incentive structures, to engage with agriculture that conserves and
improves traditional/desi (heterogenous) seeds in situ, rather than with “improved”, proprietary varieties.

Currently, in the garb of protecting this diversity against biopiracy, India is preventing its effective use, management and monetisation for the benefit of its
farmers.

2. Second, an immutable record-keeping system, perhaps blockchain or DLT, is needed to break the link between the profitable and the proprietary.

Such a system would allow India and its rural communities to keep proper track of where and how their seeds/propagation materials and the genetic
resources contained therein are being transferred and traded.

It would also ensure, through smart-contract facilitated micropayments, that monetary returns come in from users and buyers of these seeds, from around the
globe.

These monetary returns would effectively incentivise continuous cultivation and improvement of indigenous seeds on the one hand, and ensure sustainable
growth of agriculture and of rural communities on the other.

3. Third, and as a key pre-requisite to the execution of the first two plans, India’s invaluable traditional ecological knowledge systems need to be revived and
made a part of mainstream agricultural research, education and extension services.

Know-how contained in ancient Indian treatises like the Vrikshayurveda and the Krishi Parashar falls within the scope of what international conventions
such as the Convention on Biological Diversity refer to as indigenous and traditional technologies.

To protect Farmers Seed Sovereignty:

The Government of India had maintained an ominous silence on the legal situation in the country on farmer’s seed freedoms, taking cover of the matter being
sub-judice.

Now it must make it amply clear that such litigation is not acceptable,” said a statement from a newly formed association that seeks to protect farmers’ seed
sovereignty.

It said a public campaign would continue to urge the government to stand with farmers and instruct all registrants in the Plant Varieties Registry of India that
their registration is conditional to the rights guaranteed to farmers in the Protection of Plant Varieties and Farmers Rights Authority Act, 2001 .

Hailing this as a victory, farmers groups demanded that the State and Centre take a clear stand that plant variety registrations are subject to farmers rights to
grow and sell such registered varieties, as long as they do not sell branded seed.

Conclusion:
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Conclusion:

The revival of these technologies is central to promoting sustainable ‘high value’ agriculture, not least because of the growing global demand for organic and
Ayurvedic products.

It is time for a paradigm shift. To get a sense of what can be done, it may be useful to take a peep into recent regulatory efforts in Europe.

The withdrawal of the lawsuit by PepsiCo may be a welcome relief to several farmers who can neither afford to defend themselves in court, nor to abandon
the cultivation of proprietary varieties.

It must, however, be a wake-up call to the government and policymakers who need to do much more to secure sustainable rural societies, protect soil health
and promote seed sovereignty for the economic development of Indian farmers and of the entire nation.

CPI inflation

What to study?

For prelims and mains: CPI inflation- how is it measures? Its significance, effects of variations on economy.

Why in News? Retail inflation rose to a six-month high of 2.92 per cent in April due to a spike in food prices, according to data the Central Statistics
Office. CPI inflation in April is the highest since October 2018 when the rate was 3.38 per cent.

Why is CPI inflation rising?

Rising prices in the food basket, as well as jump in fuel prices, are contributing to the rising inflation.

Concerns:

Rating agency Crisil expects retail inflation to rise by 60 basis points to 4 per cent this fiscal from 3.4 per cent in 2018-19. Within CPI inflation, food inflation is
expected to rise in the current year, as last two months witnessed rise in prices of many farm commodities, mainly due to drought in large parts of western and
southern India, coupled with an early and harsher-than-usual summer.

What is the impact on interest rates?

Despite rising CPI inflation, analysts expect the Reserve Bank of India to cut repo rate – the rate at which it lends short-term funds to banks – as inflation
remains within the RBI’s target of 4 per cent even as growth of the Indian economy has been slowing down.

What Is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation,
food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

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Changes in the CPI are used to assess price changes associated with the cost of living; the CPI is one of the most frequently used statistics for identifying
periods of inflation or deflation.

Understanding Consumer Price Index (CPI):

The CPI measures the average change in prices over time that consumers pay for a basket of goods and services, commonly known as inflation. Essentially it
attempts to quantify the aggregate price level in an economy and thus measure the purchasing power of a country’s unit of currency. The weighted average of
the prices of goods and services that approximates an individual’s consumption patterns is used to calculate CPI.

Fund for rural agricultural start-ups

What to study?

For prelims: about NABARD and the proposed fund.

For mains: Need and significance of fund proposed.

Context: NABARD has announced Rs 700-crore venture capital fund for rural agricultural start-ups.

Key facts:

This project was launched by Nabventures, an auxiliary unit of NABARD.

NABARD proposed amount of Rs 500 crore with an option to retain over-subscriptions of Rs 200 crore.

NABARD has given an anchor commitment for the fund, which will be investing across startups engaged in agriculture, food and rural development space.

Significance and benefits of the fund:

The fund will have a high impact as it will provide a boost to investment ecosystem in the core areas of agriculture, food and improvement of rural livelihoods.

About NABARD:

It is an apex development and specialized bank established on 12 July 1982 by an act by the parliament of India.

Its main focus is to uplift rural India by increasing the credit flow for elevation of agriculture & rural non farm sector.

It was established based on the recommendations of the Committee set up by the Reserve Bank of India (RBI) under the chairmanship of Shri B.
shivaraman.

It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural
Refinance and Development Corporation (ARDC).

It has been accredited with “matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural
areas in India”.

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The Reserve Bank of India (RBI) recently sold its entire stakes in the National Bank for Agriculture & Rural Development (NABARD) and National Housing
Bank. The decision to divest its entire stake was taken based on the recommendations of the second Narasimham Committee. The government now holds a 100
per cent stake in both NHB and NABARD.

At WTO, India moots ‘unbiased’ assessment of trade policies

Context:

India has found problems with the current method under which the Organisation for Economic Cooperation and Development (OECD) ranks countries based on their
services trade policies, indicating the outcomes are biased and counter-intuitive.

Details:

India is trying to rally the support of other developing countries in the World Trade Organisation to reform the “biased” system of assessing a country’s services
trade policies.
The system, developed by the OECD, has significant flaws, said the Director of the Indian Institute of Foreign Trade, and author of the study commissioned by
the Ministry of Commerce, adding that it is biased towards developed countries.
The study also found that the OECD method resulted in several counter-intuitive results as compared with the real policies implemented by the countries in
question, such as ranking India very high in terms of restrictiveness.
Among other ‘flaws’, the Services Trade Restrictiveness Index (STRI) shows Indian services sector as highly restrictive in areas such as FDI. Which seems
surprising as – since 1991, the one area that has seen maximum liberalisation in India is FDI.
Launched in 2014, STRI, computed by the OECD, is now available for 2018 for a total of 45 economies (36 OECD and the rest non-OECD) and 22 sectors.

A reliable mechanism:

India has come up with a “better and more reliable” mechanism to measure restrictiveness in the services trade, and has approached China, Brazil, Indonesia,
Turkey and South Africa to highlight the importance of the new system.
Not only does the alternative indicator satisfy all the statistical properties, but it is also shown to be correct for most of the limitations of the OECD methodology,
and hence, can be used as a better indicator of the true [policy] position of an economy.
India has approached several developing countries during the recently-concluded World Trade Organization talks in New Delhi to try to build consensus around
the new method of measuring trade restrictiveness in the services sector.

Economic Census

What to study?

Fo Prelims and Mains: What is Economic Census, who conducts and coordinates, uses and significance.

Context: The 7th Economic Census -2019 is being conducted by MoSPI to provide disaggregated information on various operational and structural aspects
of all establishments in the country.

Implementing agency: MoSPI has partnered with Common Service Centres, CSC e-Governance Services India Limited, a Special Purpose Vehicle under the
MEITY as the implementing agency.

About Economic Censuses:

Launched in 1976 as a plan scheme.

Coverage: All entrepreneurial units in the country which are involved in any economic activities of either agricultural or non-agricultural sector which are
engaged in production and/or distribution of goods and/or services not for the sole purpose of own consumption.

Objective: It provides detailed information on operational and other characteristics such as number of establishments, number of persons employed, source
of finance, type of ownership etc.

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Significance: This information used for micro level/ decentralized planning and to assess contribution of various sectors of the economy in the gross
domestic product (GDP).

Total Six Economic Censuses (EC) have been conducted till date. First one was conducted in 1977 by CSO.

Services Trade Restrictiveness Index

What to study?

For Prelims: key features of STRI.

For Mains: Concerns and issues raised by India.

Context: Union Commerce ministry has found problems with the current method of Services Trade Restrictiveness Index (STRI) which ranks countries based
on their services trade policies, indicating the outcomes are biased and counter-intuitive.

The 2018 edition covers a total of 45 economies (36 OECD and the rest non-OECD) and 22 sectors.

About STRI:

Launched in 2014 and computed by the Organisation for Economic Cooperation and Development (OECD). The database is based on regulations currently in
force.

Uses and significance: It helps to identify which policy measures restrict trade. It provides policy makers and negotiators with information and measurement
tools to improve domestic policy environment, negotiate international agreements and open up international trade in services. It can also help governments
identify best practice and then focus their domestic reform efforts on priority sectors and measures.

Scores: STRI indices take the value from 0 to 1, where 0 is completely open and 1 is completely closed.

Issues and concerns raised by India:

Design issues that render STRI impractical for use. For example, the index seems to show the Indian services sector as one of the most restrictive, particularly
in policy areas like foreign entry. This seems surprising as since 1991, the one area that has seen maximum liberalisation in India is FDI.

Theoretical and empirical inconsistencies in the OECD methodology. For example, change in regulatory measures in one policy area can lead to dramatic
changes in the STRI in another policy area which is not very useful for policy purposes.

Developed country bias: The data seems to have been generated by rather arbitrary procedures and reflects a developed country bias.

RBI releases ‘Vision 2021’ for e-payment system

What to study?

For Prelims and mains: key features and significance, need for framework in this regard.

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Context: The Reserve Bank of India (RBI) has released ‘Payment and Settlement Systems in India: Vision 2019 – 2021’, a vision document for safe, secure,
quick and affordable e-payment system.

The core theme of the vision document is ‘Empowering Exceptional (E)payment Experience’, that stresses on empowering every Indian to access a bunch of e-
payment options safely and conveniently.

Highlights of Payment Systems Vision 2021:

It has 36 specific action points and 12 specific outcomes.

The main agenda of the vision document is the ‘no-compromise’ approach towards safety and security of payment systems.

It outlined the measures that the central bank will undertake to foster innovation, cybersecurity, financial inclusion, customer protection, and competition.

The vision document aims to achieve “a ‘highly digital’ and ‘cash-lite’ society through Goal Posts (4Cs):

1. Competition

2. Cost effectiveness

3. Convenience

4. Confidence

Key focus areas:

1. Boosting customer experience with robust grievance redressal

2. Empowering e-payment service providers

3. Enabling eco-system and infrastructure for the e-payment system

4. Putting down forward-looking regulations

5. Undertaking Risk-focused Supervision

Need:

The RBI has highlighted the need for a self-regulatory organisation for the digital payment space, which can serve as a two-way communication channel
between the players and the regulator.

The number of digital transactions is expected to increase more than four times, from 20.69 billion in December 2018 to 87.07 billion in December 2021.

The digital payment transaction turnover vis-à-vis gross domestic product (at current market prices) is expected to further increase to 10.37 per cent in 2019,
12.29 per cent in 2020, and 14.80 per cent in 2021.

Way ahead:

The RBI will implement the approach highlighted in the Vision document during the period 2019 – 2021. RBI’s efforts will focus towards facilitating the
operation of efficient and price-attractive payment systems. However, there will be minimal intervention of the RBI in fixing charges for customers to avail of
digital payments.
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Minimum Support Price (MSP)

What to Study?

For prelims: what is MSP, crops covered and other related facts.

For mains: issues related to MSP and the need for reforms.

Context: Haryana government is planning to discourage planting of the water-guzzling rice (paddy) crop, which threatens to deplete the State’s groundwater.
Meanwhile, farmers have asked the government to first come out with a mechanism to procure alternative crops at the Minimum Support Price (MSP) so that
farmers are not at the receiving end.

What necessitated This?

Water depletion in Haryana over the years has led to 60 dark zones in the State, which include 21 critical ones in 10 districts.

Challenges:

The government wants to save water but it seems to be unaware of the ground realities.

If the government wants farmers to give up rice and cultivate some other crop then there needs to be a mechanism to purchase the alternative crop at MSP.

The State government should enact a law, which guarantees that the produce of farmer is purchased at MSP .

Farmers will only leave rice cultivation if they are sure of reaping more profit with the alternative crop (maize and tuar), which the government is
suggesting.

About MSP:

What is it?

In theory, an MSP is the minimum price set by the Government at which farmers can expect to sell their produce for the season. When market prices fall below
the announced MSPs, procurement agencies step in to procure the crop and ‘support’ the prices.

Who announces?

The Cabinet Committee of Economic Affairs announces MSP for various crops at the beginning of each sowing season based on the recommendations of the
Commission for Agricultural Costs and Prices (CACP). The CACP takes into account demand and supply, the cost of production and price trends in the market
among other things when fixing MSPs.

Why is it important?

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Price volatility makes life difficult for farmers. Though prices of agri commodities may soar while in short supply, during years of bumper production, prices of
the very same commodities plummet. MSPs ensure that farmers get a minimum price for their produce in adverse markets. MSPs have also been used as a tool
by the Government to incentivise farmers to grow crops that are in short supply.

SEBI tightens disclosure norms for listed debt securities

Context:

To further safeguard the interest of investors in listed debt securities, the Securities and Exchange Board of India (SEBI) has tightened the disclosure norms for
entities that have issued such securities.

What are Debt Securities?

Debt security refers to a debt instrument, such as a government bond, corporate bond, certificate of deposit (CD), municipal bond or preferred stock, that can
be bought or sold between two parties and has basic terms defined, such as notional amount (amount borrowed), interest rate, and maturity and renewal date.
Listing debt securities on a stock exchange is usually carried out to gain access to a wider group of investors.

Details:

In a circular issued SEBI made it mandatory for such companies to disclose on their websites the schedule of interest and redemption obligations for the
complete financial year.
Further, the status of payments has to be updated within one day of the due date, which effectively means that any default or delay will be disclosed within a
day of the due date.
According to the SEBI, the enhanced disclosure norms have been issued to further secure the interests of investors in listed debt securities, enhance
transparency and to enable Debenture Trustees (DTs) to perform their duties effectively and promptly.
For privately-placed debt securities, SEBI has made it mandatory for the inclusion of a clause stating that at least 2% per annum interest would be paid over
the coupon rate in case of a default in meeting the payment obligations.
The additional interest would be payable by the company for the tenure of the defaulting period.

IMD Competitiveness Rankings

What to study?

For prelims: about the World Competitiveness Rankings- features, criteria and key findings.

For mains: India’s relative performance and measures needed to boost the competitiveness in the country.

Context: The 2019 edition of the International Institute for Management Development (IMD) Business School World Competitiveness Rankings has been
released.

About IMD World Competitiveness Rankings:

started in 1989, the report ranks 63 economies on 235 indicators which are incorporated from each of these economies.

The indicators are used to evaluate country’s ability to foster an environment where enterprises can achieve desirable sustainable growth, generate
employment and increase its citizen’s welfare.

IMD takes into account a wide range of statistics and hard data such as unemployment, GDP and government spending on health and education as well
as soft data from an international business executive opinion survey on topics such as social cohesion, globalisation and corruption.

The economies are judged in four categories:

1. Economic Performance

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2. Infrastructure

3. Government Efficiency

4. Business Efficiency.

Performance of India:

rd
India has moved up one place to rank 43 (Previously: 44th position in 2018, 45th in 2017 and 41st in 2016.)

This improved rank is result of India’s robust economic growth, a large labour force and its huge market size.

Global findings:

topped by Singapore. It has grabbed top position for the first time in nine years. In 2018 it stood at third rank.

Hong Kong Special Administrative Region (SAR) has held onto its second position same as last year.

The US slipped to the third place.

Asia-Pacific region has emerged as a global beacon with 11 out of 14 economies either improved or holded onto their ground.

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