Economic Development: April 2022 Current Affairs | Indian Economy for State PSC Exams - BPSC (Bihar) PDF Download

1. Shrinkflation

• Due to high inflation globally, companies are resorting to the practice of ‘Shrinkflation’.
• Shrinkflation is a term made up of Shrink and Inflation. It is the practice of reducing the size of the product while maintaining its price. It is also referred to as package downsizing.
• The absolute price of the product doesn’t go up, but the price per unit of weight or volume increases. It is hoped that the small reduction in quantity will go unnoticed by the consumer.
• In some cases, the term may indicate lowering the quality of a product or its ingredients while the price remains the same.
  

Drawbacks

• Shrinkflation can have a negative impact on the consumer sentiment, leading to a loss of trust and confidence.
• Moreover, shrinkflation makes it harder to accurately measure price changes or inflation. The price point becomes misleading since the product size cannot always be considered in terms of measuring the basket of goods.

Read more on “Price & Inflation”

2. TEJAS

• TEJAS (Training for Emirates Jobs And Skills), a skill india international project to train overseas Indians, was launched recently in Dubai Expo 2020.
• It aims at skill enhancement, certification and overseas employment of Indians.
• It is aimed at enabling Indian workforce to get equipped for skill and market requirements in UAE. It aims at creating a 10,000 strong Indian workforce in UAE during the initial phase.
• As India has a high population of youth, the project will help this segment of the population to develop skills and get gainful employment.

3. Counter Cyclical Capital Buffer

• RBI recently said it is not necessary to activate counter cyclical capital buffer (CCyB) for scheduled commercial banks at this point.
• Following Basel-III norms, central banks specify certain capital adequacy norms for banks in a country. The CCyB is a part of such norms and is calculated as a fixed percentage of a bank’s risk-weighted loan book.
• However, one key respect in which the CCyB differs from other forms of capital adequacy is that it works to help a bank counteract the effect of a downturn or distressed economic conditions.
• Firstly, it requires banks to build up a buffer of capital in good times, which may be used to maintain the flow of credit to the real sector in difficult times.
• Secondly, it achieves the broader macro prudential goal of restricting the banking sector from indiscriminate lending in periods of excess credit growth that have often been associated with the building up of systemwide risk.
• The CCCB is supposed to be in the form of equity capital, and if the minimum buffer requirements are breached, capital distribution constraints such as limits on dividends and share buybacks can be imposed on the bank.

CCyB in India

• In India the framework on CCyB was put in place in 2015 by RBI as part of its Basel-III requirements.
• However, till now, it hasn’t actually required the CCyB to be maintained, keeping the ratio at zero percent ever since.
• As per the framework credit-to-GDP gap is the main indicator, which may be used along with other supplementary indicators like the growth in GNPA, the industry outlook assessment index, interest coverage ratio , as part of the first monetary policy of every financial year.

Risk Weighted Assets

• RWAs are used to determine the minimum amount of capital that must be held by banks and other financial institutions in order to reduce the risk of insolvency (bankruptcy).
• The capital requirement is based on a risk assessment for each type of bank asset.
• The assets are assigned a weight according to their level of credit risk. For example, cash in hand would have a weight of 0%, while a loan can carry different weights of 20%, 50%, or 100%, depending on how risky it is.

4. Revival of Nanar Refinery

The Union government has indicated that the Nanar oil refinery project in Konkan region may be revived as the Maharashtra government was reconsidering its decision about stalling the project

Reasons For Stalling The Project

• To start the project, the government required 14,000 hectares of land spread across 17 villages in the region. Thus, the locals felt that the oil refinery would be detrimental for the environment of Konkan region.
• They felt that the project would be hazardous to fishing and cultivation of paddy, mangoes and jack fruit, which are traditionally grown by local residents.
• In 2019, 14 gram panchayats adopted a resolution demanding scrapping of the project and local residents started protests.
• Finally, the project was scrapped ahead of the 2019 Assembly and Lok Sabha elections.

Future Outlook

• The current stand of the Maharashtra government is that it is not against the project provided the environmental concerns are addressed.
• Thus, the Centre is planning is to reduce the size of the project and build it in Konkan.

Read more on “Industry & Trade”

5. Rise in Food Price Index

UN Food and Agriculture Organization’s (FAO) food price index averaged 159.3 points in March, up from the previous month’s 141.4 points, which had itself broken a 11-year record of 137.6 points in February 2011.

Reasons For Rise In FPI

• There has been huge volatility in the index, in the last two years through the Covid-19 pandemic and now the Russia-Ukraine war.
• The index had crashed to a four-year low of 91.1 points in May 2020, due to reduction in demand due to pandemic-induced lockdowns across countries.
• But as demand returned, supply chain disruptions — from shortages of harvesting labourers to packaging materials and shipping containers — came to the fore.
• The FAO’s cereal and vegetable oil price indices hit record highs in March. This is due to Russia and Ukraine’s combined share of 28.3%, 19.5%, 30.8% and 78.3% in global exports of wheat, corn (maize), barley and sunflower oil, respectively.
• Port closures in Black Sea and Azov Sea, plus Russian banks being cut off from the international payments system, have resulted in massive shipping disruptions from this key agri-commodities supply region.
• FAO’s meat and dairy price indices, too, shot up significantly in March. These have been driven by the increased cost of cattle feed ingredients (maize, soyabean, groundnut, mustard and cotton-seed oilcake) and prices of animal fat (butter, ghee, beef tallow and pork lard) tracking vegetable fats (especially palm oil).
• Besides, lower milk production has been reported from major suppliers, including New Zealand, Western Europe and the US.

Impact on India

• From India’s standpoint, the comfortable level of public wheat and rice stocks should provide some protection against soaring international food prices.
• Further, high global prices have enabled the country’s agricultural exports to grow by 19.9% and reach a historic high of $50.21 billion in 2021-22.
• But the downside to this is that farmers are also paying much more for diesel, fertilizers and crop protection chemicals – whose prices have also gone up alongside Brent crude & other international commodity prices

6. Status of India’s Wheat Exports

• Wheat exports in 2021-2022 financial year were estimated at 7.85 million tonnes, a quadrupling from 2.1 million tonnes in the previous year.
• India expects to produce 112 million tonnes of wheat in the current crop year.
• The government requires 24-26 million tonnes a year for its food security programmes.
• India accounted for just 0.5% of wheat exports in 2020, despite it being the world's second-biggest grower of the commodity, placing it second only to China.

Reasons For Rise In Wheat Exports From India

• Globally, Russia is the market leader for wheat exports (almost 15% share) and Ukraine is also a major producer.
• However, exports from these two countries have been hit by war and sanctions, which is impacting food security in several countries, especially in Africa and West Asia.
• The disruption to global wheat supplies in turn has created opportunities for India’s grain exporters, especially due to surplus availability of wheat domestically.
• While the existing importers are buying more, new markets have emerged for Indian wheat. Exports this fiscal are expected to be almost 10 million tonnes worth $3 billion.
• More countries are turning to India because of the competitive price, acceptable quality, availability of surplus wheat and geopolitical reasons.

Challenges Ahead

• The WTO rules make it difficult for a country to export grains from official stocks if these have been procured from producers at a fixed price (minimum support price, in India’s case), instead of market rates.
  • Exports by private traders who buy grains from farmers at market rates are not impacted by the WTO norm.
• Issues of Quality: Fears remain that the quality of shipments and logistics could hold back the Indian economy from achieving its full market potential.
• Low profits: The sector has struggled with profitability in recent years, making it even more critical for India to capitalise on this opportunity
• Inflation in domestic market: As exports reduce India's stocks; this could push up the price of the grain by 8 to 10% on the year.
  • This would make wheat more expensive for households with India's retail inflation already close to 7%.
• There has also been a fall in the crop yield and shrunken grain size in the states of Punjab, Haryana, and Uttar Pradesh “due to excessive heat and improper use of fertilisers and pesticides.
• Insufficient port infrastructure to cater to surging demand, as well as higher freight costs could prove to be obstacles.

Steps To Facilitate Exports

• The Commerce Ministry has put in place an internal mechanism to facilitate wheat exports and get the paperwork ready for the related sanitary and phytosanitary applications to facilitate shipments.
• Talks are on at different levels with 20 countries. The aim is to reach early resolution on the Pest Risk Analysis by each of these countries so that exports can take off.
• • The Agricultural and Processed Food Products Export Development Authority (APEDA) and Ministry of Agriculture are also sending delegations to several countries to resolve market issues, if any.
• Wheat is going in full vessel loads and needs to be transported to the ports from the growing areas. Thus, the railways is providing rakes on priority to move the wheat.

7. Reserve Bank Innovation Hub

Why in News?
Recently, the Reserve Bank of India (RBI) governor inaugurated the Reserve Bank Innovation Hub (RBIH) in Bengaluru.

What is the RBIH?

• About:€ It has been set up as a Section 8 company under the Companies Act, 2013 with an initial capital contribution of Rs. 100 crore. It is is a wholly owned subsidiary of the RBI.
• Objective: € RBIH aims to create an ecosystem that focuses on promoting access to financial services and products for the low-income population in the country.
  This is in line with the objective behind establishment of RBIH i.e., to bring world-class innovation to the financial sector in India, coupled with the underlying theme of financial inclusion.
• The Hub is expected to build an ecosystem for development of prototypes, patents and proofs of concept and promote cross-thinking, spanning regulatory domains and national boundaries.  It had plans to identify and mentor start-ups having maximum potential.
• It is also expected to collaborate with various government Ministries, Departments and academia to identify problem statements in different domains and explore potential solutions.
• RBI Innovation hub hosted Swanari TechSprint to create sustainable solutions for women-owned enterprises.
• TechSprint is aimed at advancing digital financial inclusion for women in India.

What are the other Initiatives for Financial Inclusion?

• Pradhan Mantri Jan Dhan Yojana (PMJDY)
• Atal Pension Yojana (APY)
• Pradhan Mantri Vaya Vandana Yojana (PMVVY)
• Stand Up India Scheme
• Pradhan Mantri Mudra Yojana (PMMY)

Read more on “Ramesh Singh Summary: Banking in India”

8. Wings India 2022

Why in the News?
The Ministry of Civil Aviation, Airports Authority of India (AAI) and Federation of Indian Chambers of Commerce and Industry (FICCI) is jointly organising Wings India 2022 from 24th – 27th March 2022, Begumpet Airport, Hyderabad, India.

• It is Asia’s largest event on Civil Aviation (Commercial, General and Business Aviation).

What is the Objective of Wings India 2022?

• It is in synergy with India’s commitment to transform the country into World’s top aviation hub.
• It seeks to provide a congenial forum catering to the rapidly changing dynamics of the sector, focusing on new business acquisition, investments, policy formation and regional connectivity.
• It will provide a much-desired fillip to the aviation and restructured focused forums shall be instrumental in attaining the objective of connecting the Buyers, Sellers, Investors, and other stakeholders at a common vantage forum ‘Wings India 2022’.

What are highlights of the Indian Civil Aviation Market?

• Aviation Sector: India’s Civil Aviation is among the fastest-growing aviation markets globally and will be a major growth engine to make India a USD 5 trillion economy by 2024.
• Passenger Traffic: 3rd largest aviation market by domestic air passenger traffic which stood at 274.05 million in FY20. It grew at a Compound Annual Growth Rate (CAGR) of 12.91% during FY16-FY20.
• Airports: 75 airports opened in 75 years of Civil Aviation in India while under the aegis of Ude Desh Ka Aam Naagrik (UDAN), within a span of 3 years, work has been initiated to provide scheduled connectivity to 76 unserved / 20 underserved airports, 31 heliports and 10 water aerodromes.
• Fleet Strength: 713 aircraft of scheduled Indian carriers operating year around; private scheduled airlines plan to add over 900 aircrafts in the next 5 years
• Commitment to Greener Airspace: Comprehensive regulatory policies and strategies adopted to reduce aviation carbon footprints
• Ensuring Hassle-free Travel: Incorporated systematic approaches to redress passenger grievances, and improve operational efficiencies across the system

What are Opportunities Under Indian Aviation Market?

• FDI: 100% Foreign Direct Investment (FDI) allowed under Automatic route for Ground Handling Services and Maintenance Repair and Overhaul Services (MRO) and for both green and brownfield projects.
• Scope of Growth: The Indian civil Aviation MRO market, at present, stands at around USD 900 million and is anticipated to grow to USD 4.33 billion by 2025 increasing at a CAGR of about 14- 15%.
  The nation’s airplane fleet is projected to quadruple in size to approximately 2500 airplanes by 2038.
• Connecting New Airports: The government aims to develop 100 airports by 2024 (under the UDAN Scheme) and create world-class civil aviation infrastructure to be at par with global standards.

What is UDAN (Ude Desh Ka Aam Naagrik) Scheme?

• It is the world’s first Regional Connectivity Scheme to Connect un-served & Under-served airports at affordable prices contributing to boost regional tourism and economic growth of the country.
• With commencing of the desired operations, the Indian aviation sector will boom without accounting for the spillover traffic on commercial routes operating in the tier-1 and tier-2 cities.
• The UDAN scheme has been developed over the years by the government to support the economy.
  (i)€ UDAN 2.0 focused on priority areas and helicopter operations.
  (ii) UDAN 3.0 is based on Inclusion of seaplane routes.
  (iii) UDAN 4.0 to further enhance the connectivity to remote & regional areas of the country.
• With the advent of COVID-19, Lifeline UDAN was conceptualised to aid India in its fight against the pandemic.
• The scheme is benefiting the economy as a whole and promoting national integration.

What is the Airports Authority of India?

• Airports Authority of India (AAI) was constituted by an Act of Parliament and came into being on 1st April 1995 by merging erstwhile National Airports Authority and International Airports Authority of India.
• The merger brought into existence a single Organisation entrusted with the responsibility of creating, upgrading, maintaining and managing civil aviation infrastructure both on the ground and air space in the country.

What is the Federation of Indian Chambers of Commerce and Industry?

• FICCI is the largest & oldest apex organisation of Indian business & industry is the rallying point for free enterprises in India. It was established in 1927.
• With a nationwide membership of over 1500 corporates and over 500 chambers of commerce and business associations, FICCI speaks directly and indirectly for over 2,50,000 business units.
• FICCI organises a large number of events including Exhibitions, Conferences, Seminars, Business meets etc. for promoting business.

9. Surge in Oil and Natural Gas Prices

Why in News?
Recently, the U.S. announced the banning the import of Russian oil, liquefied natural gas, and coal to the country.

• The move is aimed at depriving Russia of the economic resources needed to continue its war in Ukraine.
• In the run up to the U.S. announcement, international oil prices surged to a 14-year high with Brent crude futures hitting USD 139.13 intraday.

What are the Reasons for Targeting Russia’s Energy Exports?

• Largest Oil Producer: Russia is the world’s third-largest oil producer, trailing only Saudi Arabia and the United States.  In January 2022, Russia’s total oil production was 11.3 million barrels per day (mb/d), of which 10 mb/d was crude oil, according to the Paris-based intergovernmental International Energy Agency (IEA).
• World’s Largest Exporter of Crude and Oil Products: €Russia is the world’s largest exporter of crude and oil products, having shipped 7.8 mb/d in December 2021, and the second largest supplier of crude to the world with only Saudi Arabia exporting more crude than it.
• Major Exporter of Natural Gas: Russia is also a major exporter of natural gas and supplied almost a third, or 32%, of the gas consumed in Europe (and the U.K.) in 2021. The revenue it made from the sales of oil and gas in 2021 accounted for 36% of Russia’s total revenue of 25.29 trillion rubles last year.

What will be the impact of the Move on Russia and on Global Crude Prices?

• Given that Russia exported substantially more than 7 million barrels per day of crude and oil products in 2021 the U.S. ban would impact about one-tenth of Russia’s oil exports.
  Also not all of its allies and partners around the world were currently in a position to join in its import ban.
  Among its allies, the U.K. announced that it would phase out the import of Russian oil and oil products by the end of 2022.
• Still, without the rest of Europe and China joining the import ban on Russian oil and gas, the impact would not be as severe on Russia’s economy.
• China, which is the world’s largest importer of crude oil, is Russia’s single-biggest buyer.
• OECD Europe (or European members of the Organisation for Economic Co-operation and Development) collectively accounted for 60% of Russia’s oil exports.
• An already tight oil market had been pushed over the edge with the loss of Russian supply of about 1.5 mb/d (Millions of Barrels per Day) of its benchmark Urals crude and about 1 mb/d of refined products.
• Urals is the most common export grade of crude oil from Russia and an important benchmark for the medium sour crude market in Europe.

How can it impact India?

• India is the world’s third-largest oil consumer at 5.5 million barrels a day, behind the US and China. The oil demand is growing at 3-4% a year in the country.
• By this estimate, in a decade, India could be consuming about 7 million barrels a day.
• India imports 85% of its oil from about 40 countries, the bulk coming from the Middle East and the US.
• From Russia, India imports 2% of its supplies, including oil which it converts to petroleum products after refining. So, it’s not Russian oil but oil in general and its rising prices that have India worried.