January 2021: Current Affairs Economy Notes | EduRev

Indian Economy for UPSC CSE

UPSC : January 2021: Current Affairs Economy Notes | EduRev

The document January 2021: Current Affairs Economy Notes | EduRev is a part of the UPSC Course Indian Economy for UPSC CSE.
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Issues in Agriculture in India

The protest by thousands of farmers at Delhi's borders has focused a range of agriculture issues in India. 

  • The protests are against the three farm bills that seek to replace ordinances issued in june 2020. 

Key Points 

Concerns of Protesting Farmers:

  • These laws signal the beginning of the end of open-ended procurement of wheat and paddy.
  • The success of states( Punjab and Haryana) in creating the infrastructure for procurement may now become the reason for withdrawal of support of the Centre.
  • Stocking by corporates, especially those which are in modern retail and e-commerce

Land Size: 

  • Decreasing Area: Area under agriculture has been shrinking, it reduced from 159.5 million hectares (mn ha) in 2010-11 to 157 mn ha in 2015-16. 
  • Increase in Land Holdings: The number of operational holdings has been rising (increased from 138.3 million to about 146 million) owing to increasing population. 
  • This leads to falling average landholdings' size of farmers, which has come down from 1.2 ha to about 1.08 ha.
  • Forced Selling: Smaller landholdings produce smaller pockets of produce, aggregation of which becomes essential for even a trolley-load to be carried to an Agricultural Produce Market Committee (APMC) mandi or a nearby market. 
  • Due to small holdings caused by fragmentation, small and marginal farmers are forced to sell their produce at the farm gate itself. 
  • This is especially so in states with a weak network of APMC mandis. 
  • No Access to Modern Technology: Bringing new technologies and practices to such a large number of smallholders scattered over a vast countryside and integrating them with the modern input and output markets is a huge challenge for Indian agriculture.

More Farm Labourers than Farmers:

  • A farmer is usually a farm owner, while employees of the farm are farm labourers, farmhands, etc. 
  • Employment in Agri-sector: As per recent estimates from the Labour Bureau, 45% of India's workforce is employed in agriculture. . 
  • Labours in Agri-sector: According to Census 2011, 55% of the agri-workforce comprises agri-labourers. 
  • No support for Labours: It is tough to drive or sustain agriculture growth since farm labourers get no policy support or incentive to invest in farming. 
  • Owners Getting the Benefit: All benefits like seed kit, fertilisers, pesticides, farm machinery, micro­irrigation, land development assistance etc. are meant only for those who can prove land ownership.

Falling Investment in Agriculture:

  • The Gross Capital Formation (GCF) in agriculture as a percentage of the total GCF in the economy has fallen from 8.5 % in Financial Year 2011-12 to 6.5 % in Financial Year 2018-19. This is because the share of private investment has shrunk. 
  • Though public investment has gone up it is not sufficient to check the slide or keep the GCF at FY12 level.

Subsidy and Related Issues:

  • Flowing to Businesses: Several subsidies meant for agriculture also flow to businesses, e.g grants given to food processing units and cold chain projects.
  • Net Loss of Farmers: As per the Indian Council for Research on International Economic Relations- Organisation for Economic Co-operation and Development (ICRIER-OECD) report, despite the plethora of schemes run to support and subsidise Indian farmers, because of regressive policies on the marketing side (both domestic and international trade policies) and the deficit of basic infrastructure for storage, transportation etc., Indian farmers suffered net losses and thus emerged to be net taxed despite receiving subsidies.

Minimum Support Price (MSP) and Related Issues: 

  • Selective Procurement: The government declares MSP for 23 crops, only wheat and paddy (rice) are procured in large quantities as they are required to meet the Public Distribution System requirement (PDS), which is about 65 million tonnes. 
  • Stagnant Rates of MSP: The government declaration of Minimum support prices does not increase at par with increased production cost. 
  • Unequal Access: This scheme's benefits do not reach all farmers and for all crops. There are many regions of the country like the north-eastern region where the implementation is too weak. 
  • Non Scientific Practices: MSP leads to non-scientific agricultural practices whereby the soil, water are stressed to an extent of degrading ground water table and salinisation of soil. 

Suggestions

  • If India has to move away from procurement-based support, at present restricted to certain crops only, a more attractive income support scheme has to be conceived coupled with much higher investment, both public and private, in agri-infrastructure. 
  • The Rashtriya Krishi Vikas Yojana (RKVY) incentivised the states, which increased their expenditure on agriculture. The Centre's assistance for such states should be higher. 
  • Focused research on crops grown in low-productivity states can deliver better seeds, which can withstand the challenge of higher temperature due to climate change. 
  • Democratic norms and processes like open public debate, dialogue with stakeholders, and detailed Parliamentary scrutiny to ensure every aspect and implication of a public policy go through meticulous examination before being adopted and implemented is crucial to fix agriculture issues.

Seventh Trade Policy Review of India at the WTO

Recently, the final session of India's seventh Trade Policy Review (TPR) concluded at the World Trade Organization (WTO) in Geneva, Switzerland.

  • The TPR is an important mechanism under the WTO's monitoring function. Member countries' trade and related policies are examined by the WTO to improve adherence to WTO rules.
  • India's last TPR took place in 2015.

Key Points

Appreciation for India:

  • Introduction of Goods & Services Tax in 2016. 
  • India's efforts in the implementation of WTO's Trade Facilitation Agreement. 
  • Role played by India in furthering "Ease of Doing Business" in the country.
  • India's improved ranking in "Trading across Borders" indicator under the Ease of Doing Business Report. 
  • Trade Facilitation Agreement (TFA),aims to speed up customs procedures and make trade easier, faster, and cheaper. 
  • The steps taken by India for liberalizing its Foreign Direct Investment (FDI) regime and India's National Intellectual Property Rights Policy, 2016.

Concerns for India:

  • India's trade policy remained largely unchanged since the previous review. 
  • India continues to rely on trade policy instruments such as the tariff, export taxes, minimum import prices, import and export restrictions, and licensing, WTO said.
  • These are used to manage domestic demand and supply requirements, protect the economy from wide domestic price fluctuations, and ensure conservation and proper natural resources utilization.
  • As a result, frequent changes are made to tariff rates and other trade policy instruments, which create uncertainty for traders.

India's Request:

  • The ongoing pandemic has again brought to the fore, the importance of food and livelihood security and urged for a permanent solution to Public Stock Holding (PSH) for food security.

Public Stockholding (PSH)

  • It is a policy tool used by governments to procure, stockpile and distribute food when needed.
  • Currently, public distribution programmes of developing countries are included under trade­distorting Amber Box measures that attract WTO reduction commitments.
  • India with the group of developing countries is demanding that the programmes for food security purposes be exempted from subsidy reduction commitments of WTO.
  • India has repeatedly demanded a permanent solution for public stockholding issues.
  • Trade Policy Review Mechanism
  • The Trade Policy Review Mechanism (TPRM) was an early result of the Uruguay Round.
  • It is the main transparency instrument of the WTO, affording opportunities for a process of collective evaluation of the trade policies and practices of individual members.

Objectives:

  • Facilitating the multilateral trading system's smooth functioning by enhancing the transparency of Members' trade policies. 
  • To examine the impact of a Member's trade policies and practices on the multilateral trading system.

Mechanism:

  • The reviews take place in the Trade Policy Review Body which is actually the WTO General Council — comprising the WTO's full membership — operating under special rules and procedures.

 Function: 

  • The trade policy review allows members to put the country's overall trade and economic policies under the scanner. 
  • The trade policies of developing countries are taken up for review every four years while developed ones face similar scrutiny every two years. 
  • The mandate of the TPRM was broadened to cover services trade and intellectual property. 

 All WTO Members are subject to review under the TPRM.

Extension RoDTEP Scheme

Recently, the Government has decided to extend the benefit of the Scheme for Remission of Duties and Taxes on Exported Products (RoDTEP) to all export goods.

Key Points

 Remission of Duties or Taxes on Export Product (RoDTEP ):

  • The scheme was announced in 2020 as a replacement for the Merchandise Export from India Scheme (MEIS), which was not compliant with the World Trade Organisation rules.
  • 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.
  • The RoDTEP scheme would refund to exporters the embedded central, state and local duties or taxes that were so far not being rebated or refunded and were, therefore, placing India's exports at a disadvantage.

Significance:

  • Indian exporters will meet the international standards for exports as affordable testing and certification will be made available to exporters within the country instead of relying on international organizations.
  • Also under it, tax assessment is set to become fully automatic for exporters. Businesses will get access to their refunds for GST via an automatic refund-route.
  • This would increase the country's economy and working capital for the enterprise.

Extension of Benefits:

  • The government has decided to extend the benefits of the RoDTEP to all export goods starting 1st january 2021.
  • Initially, the scheme was expected to be limited to around three sectors to start with due to limited resources.
  • The rates under this scheme, which are expected to be notified soon, will apply from 1st january 2021 to all eligible exports of goods.

 Reason for Extension

  • It will boost the export sector of the country. 
  • So far refunds were not taking place, adversely impacting exports. 
  • India's exports fell 8.74% in November, steeper than 5.12% dip in October.

New Industrial Infrastructure Projects

The Cabinet Committee on Economic Affairs (CCEA) has recently approved three infrastructure proposals worth Rs 7,725 crore for setting up greenfield industrial cities with connectivity to major transportation corridors.

  • The cabinet also approved a modified scheme for interest subvention for Ethanol production expanding the scheme to include grain based distilleries and not just molasses based ones. 
  • The scheme would encourage ethanol production from grains like barley, maize, corn and rice and boost production and distillation capacity to 1,000 crore litres and help meet the goal of 20% ethanol blending with petrol by 2030.

Key Points

  • These projects are based on major transportation corridors like Eastern & Western Dedicated Freight Corridors, Expressways and National Highways, proximity to ports, airports.
  • This will attract manufacturing investments and position India as a strong player in the global value chain.
  • These projects will generate ample employment opportunities through development of Industrial Corridors.
  • Industrial corridors offer effective integration between industry and infrastructure, leading to overall economic and social development.

Economic Significance:

  • Avenues for Exports: The Industrial Corridors are likely to lower the cost of logistics, thereby increasing industrial production structure efficiency. Such efficiency lowers the cost of production, making the Indian made products more competitive in international markets. 
  • Job Opportunities: Development of Industrial Corridors would attract investments for the development of Industries which is likely to create more jobs in the market.
  • Logistics: These corridors would provide necessary logistics infrastructure needed to reap economies of scale, thus enabling firms to focus on their core competence areas.
  • Investment Opportunities: The industrial corridor provides opportunities for private sector investment in the provision of various infrastructure projects associated with industrial opportunity exploitation.
  • Improved Functioning: Apart from infrastructure development, long-term advantages to business and industry along the corridor include benefits arising from smooth access to the industrial production units, decreased transportation and communications costs, improved delivery time and reduction in inventory cost.

Environmental Significance:

  • The establishment of Industrial Units in a scattered manner along the industrial corridor across the state's length will prevent concentration of industries in one particular location that exploited the environment beyond its carrying capacity and caused environmental degradation.

Socio-Economic Significance:

  • The cascading effect of industrial corridors in socio-economic terms is setting up industrial townships, educational institutions, and hospitals. These will further raise the standards of human development.
  • Moreover, people would find job opportunities close to their homes and would not have to migrate to far-off places (would prevent distress migration).

National Industrial Corridor Development Programme:

  • Aim: The Government of India is developing various Industrial Corridor Projects as part of the National Industrial Corridor programme to develop futuristic industrial cities in India that can compete with the best manufacturing and investment destinations in the world. o Administration:
  • National Industrial Corridor Development and Implementation Trust (NICDIT) is under the administrative control of Department for Promotion of Industry and Internal Trade (DPIIT) for coordinated and unified development of all the industrial corridors which are at various stages of development and implementation. 
  • It is India's most ambitious infrastructure programme aiming to develop new industrial cities as "Smart Cities" and converging next generation technologies across infrastructure sectors. 
  • 11 Industrial Corridors Projects are being taken up for development with 30 Projects to be developed in 04 phases up to 2024-25:

Single Window Clearance for Coal

Recently, the Union government has announced a new online single window clearance portal for the coal sector.

  • The coal sector can be the biggest contributor towards India's target becoming a USD 5 trillion economy by 2025.
  • Despite having the world's fourth-largest coal reserves, India is importing coal.
  • The next tranche of commercial mining auction would be launched in January 2021.

Key Points

Aim:

  • It aims to allow faster clearances, including environmental and forest clearances, from a single portal with progress monitoring, instead of having to go to multiple authorities.
  • Presently, about 19 major approvals or clearances are required before starting the country's coal mine.

Significance:

  • The portal will allow successful bidders to operationalise coal mines more quickly. 
  • It is in the spirit of minimum government and maximum governance.
  • It will further ease of doing business in the country's coal sector.
  • It will help in bringing huge investment and creating employment.

Future Plan:

  • PARIVESH Mechanism for forest and environment-related clearances would likely be merged into this single window clearance mechanism that is expected to help with the operationalisation of the coals blocks set to be auctioned in the upcoming auctions.
  • PARIVESH is a web-based application which has been developed for online submission and monitoring of the proposals submitted by the proponents for seeking Environment, Forest, Wildlife and Coastal Regulation Zones (CRZ) Clearances from Central, State and district level authorities.

Recent Initiatives in Coal Sector:

  • As a part of Atmanirbhar Abhiyaan:
  • Commercial mining of coal allowed, with 50 blocks to be offered to the private sector.
  • Entry norms will be liberalised as it has done away with the regulation requiring power plants to use “washed" coal.
  • Coal blocks to be offered to private companies on revenue sharing basis in place of fixed cost.
  • Coal gasification/liquefaction to be incentivised through rebate in revenue share.
  • Coal bed methane (CBM) extraction rights to be auctioned from Coal India's coal mines.
  • UTTAM (Unlocking Transparency by Third Party Assessment of Mined Coal): In April 2018, the Ministry of Coal launched UTTAM Application for coal quality monitoring.
  • Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India (SHAKTI): Launched in May 2017, for allocation of future coal linkages in a transparent manner for the power sector.

Digital Payments Index: RBI

The Reserve Bank of India (RBI) has constructed a composite Digital Payments Index (DPI) to capture the extent of digitisation of payments across the country.

Key Points

About the Index:

  • The RBI-DPI comprises 5 broad parameters that enable measurement of deepening and penetration of digital payments in the country over different periods.

5 Parameters:

  • Payment Enablers (weight 25%),
  • Payment Infrastructure - Demand-side factors (10%),
  • Payment Infrastructure - Supply-side factors (15%),
  • Payment Performance (45%) and
  • Consumer Centricity (5%).
  • It has been constructed with March 2018 as the base period, i.e. DPI score for March 2018 is set at 100.
  • It will be published on RBI's website on a semi­annual basis from March 2021 onwards with a lag of 4 months.
  • The DPI for March 2019 and March 2020 worked out to be 153.47 and 207.84 respectively, indicating appreciable growth.

Digital Payments Scenario:

  • Data Analysis:
    (i) During the second quarter (Q2) of 2020-21, Unified Payments Interface (UPI) payments recorded an 82% jump in volume and a 99% jump in value, compared with the same quarter last year to the Worldline India Digital Payments report.
    (ii) In Q2, 19 banks joined the UPI ecosystem, bringing the total number of banks providing UPI services to 174 as of September 2020 while the BHIM App was available for customers of 146 banks.
    (iii) In Q2, there were over 51.8 lakhs Point of Sale (PoS) terminals deployed by merchant acquiring banks, which is 13% higher than the same quarter of the previous year.
    (iv) A merchant acquiring bank is a bank that processes payments on behalf of a merchant.
    (v) In 2018, the Bank for International Settlements (BIS) ranked India seventh among the 24 countries where it tracks digital payments.
  • Recent Initiatives:
    (i) The National Payments Corporation of India (NPCI) has recently approved WhatsApp to go live with UPI in a graded manner, starting with a maximum registered user base of 2 crores.
    (ii) The NPCI has also issued a cap of 30% of the total volume of transactions processed in UPI, which applies to all Third-Party App Providers (TPAPs) and is effective from 1st January 2021.
    (iii) The RBI has created a Payments Infrastructure Development Fund (PIDF) to encourage acquirers to deploy Points of Sale (PoS) infrastructure — both physical and digital modes — in tier-3 to tier-6 centres and north eastern states.

RBI's Other Publications

  • Consumer Confidence Survey (CCS - Quarterly)
  • Inflation Expectations Survey of Households (IESH- Quarterly)
  • Financial Stability Report (Half-Yearly)
  • Monetary Policy Report (Half-Yearly)
  • Report on Foreign Exchange Reserves (Half-Yearly)

Payment Infrastructure Development Fund Scheme

Recently, the Reserve Bank of India (RBI) has announced the operationalisation of the Payment Infrastructure Development Fund (PIDF) scheme.

Key Points

Objective: 

  • Develop payment acceptance infrastructure in tier-3 to tier-6 cities (centres), with a special focus on the country's north-eastern states.

Time Period:

  • The fund will be operational for three years effective from 1st January, 2021 and may be extended for two more years.

Management:

  • An Advisory Council (AC) under the chairmanship of RBI deputy governor BP Kanungo has been constituted for managing the PIDF.

 Fund Allocated:

  • The PIDF presently has a corpus of Rs. 345 crore, with Rs. 250 crore contributed by the RBI and Rs. 95 crore by the major authorised card networks in the country. The authorised card networks shall contribute in all Rs. 100 crore.
  • Besides the initial corpus, PIDF shall also receive annual contributions from card networks and card issuing banks.
  • For example, Card networks will have to chip in 0.01 paisa per rupee of transaction.
  • The card network's role is to facilitate transactions between merchants and card issuers. E.g. Mastercard, Visa.

 Implementation:

  • The focus shall be to target those merchants who are yet to be terminalised (merchants who do not have any payment acceptance device).
  • Merchants engaged in services such as transport and hospitality, government payments, fuel pumps, public distribution system (PDS) shops, healthcare and kirana shops may be included, especially in the targeted geographies.
  • The fund will be used to subsidize banks and non-banks for deploying payment infrastructure, which will be contingent upon specific targets being achieved.
  • The Advisory Council will devise a transparent mechanism for allocating targets to acquiring banks and non-banks in different segments and locations.
  • The implementation of targets shall be monitored by the RBI with assistance from card networks, the Indian Banks' Association (IBA) and the Payments Council of India (PCI).
  • Acquiring banks (also acquirers or merchant banks) are financial institutions processing debit and credit card transactions on behalf of a merchant or business.
  • Tentatively, tier-3 and tier-4 centres will be allocated 30% of the acceptance devices, tier-5 and tier-6 centres will get 60% and the north eastern states will be given 10%.
  • Multiple payment acceptance devices and infrastructure supporting underlying card payments, such as physical Point of Sale, mobile Point of Sale, General Packet Radio Service (GPRS) , Public Switched Telephone Network (PSTN) and QR code-based payments will be funded under the scheme.

 Breakup of Subsidy:

  • A subsidy of 30% to 50% of cost of physical PoS and 50% to 75% subsidy for Digital PoS shall be offered.
  • The subsidy shall be granted on a half-yearly basis, after ensuring that performance parameters are achieved, including conditions for 'active' status of the acceptance device and 'minimum usage' criteria, as defined.

 Fixing Accountability

  • Acquirers of the subsidy shall submit quarterly reports on the achievement of targets to the RBI.

 Other Related Steps:

  • The setting of PIDF is in line with the vision document's measures on payment and settlement systems in India 2019-2021.
  • The RBI has constructed a composite Digital Payments Index (DPI) to capture the extent of digitisation of payments across the country.

Spectrum Auctions

Bidding for the sixth round of spectrum auction for radio waves worth Rs. 3.92 lakh crore will start from 1st March 2020. 

  • The long-awaited spectrum auction is being held after a gap of four years and over two years after the Telecom Regulatory Authority of India (TRAI) calculated and recommended base/reserve price for the radio waves.

Key Points

About the Spectrum Auctions:

  • Devices such as cellphones and wireline telephones require signals to connect from one end to another. These signals are carried on airwaves (medium of radio waves), which must be sent at designated frequencies to avoid any kind of interference.
  • Interference may prevent reception altogether, may cause only a temporary loss of a signal, or may affect the quality of the sound or picture produced by one's equipment.
  • The Union government owns all the publicly available assets within the country's geographical boundaries, which also include airwaves.
  • With the expansion in the number of cellphone, wireline telephone and internet users, the need to provide more space for the signals arises from time to time.
  • To sell these assets to companies willing to set up the required infrastructure to transport these waves from one end to another, the central government through the Department of Telecom (Ministry of Communications) auctions these airwaves from time to time.
  • These airwaves are called spectrum, which is subdivided into bands which have varying frequencies.
  • All these airwaves are sold for a certain period, after which their validity lapses, which is generally set at 20 years.

About the Latest Auction:

  • The last spectrum auctions were held in 2016. The need for a new spectrum auction has arisen because the validity of the airwaves bought by companies is set to expire in 2021.
  • In December 2020, the Union Cabinet cleared the sale of 2251.25 MHz of spectrum (for 4G) across seven frequency bands at Rs' reserve price. 3.92 lakh crore.
  • This is likely to provide a boost to government revenue collections at a time when its inflows from other sources such as direct taxes, indirect taxes such as goods and services tax, have fallen sharply on account of restrictions to prevent the spread of Covid-19.
  • However, the government has skipped the sale of the much-coveted 5G airwaves in this round, auctions for which could though be announced soon.
  • Airwaves in the 3500 MHz band are considered ideal for the first wave of the 5G.
  • Depending on the demand from various companies, the price of the airwaves may go higher, but cannot go below the reserve price.
  • A reserve price is a minimum price that a seller would be willing to accept from a buyer. If the reserve price is not met, the seller is not required to sell the item, even to the highest bidder.
  • The reserve price is recommended by Telecom Regulatory Authority of India.
  • The successful bidders will have to pay 3% of Adjusted Gross Revenue (AGR) as spectrum usage charges.
  • AGR is divided into spectrum usage charges and licensing fees that are fixed between 3-5% and 8% respectively.
  • It is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT).

Potential Buyers:

  • Apart from existing telecom players, new companies, including foreign companies, are eligible to bid for the airwaves.
  • Foreign companies, however, will have to either set up a branch in India and register as an Indian company, or tie up with an Indian company to be able to retain the airwaves after winning them.

Indian Digital Tax Discriminatory: USTR

Recently, the Office of the United States Trade Representative (USTR) has said that India, Italy, and Turkey's Digital services taxes discriminate against US companies and are inconsistent with international tax principles.

Key Points

 The Office of the United States Trade Representative (USTR):

  • It is responsible for developing and coordinating US international trade.
  • Section 301 (US Trade Act) gives the USTR broad authority to investigate and respond to a foreign country's action which may be unfair or discriminatory and negatively affect US commerce.
  • Adopted through the 1974 Trade act, the Section allows the US President to impose tariffs or other foreign nations' curbs.
  • However, the law mandates consultations with trading partners.

Digital Services Taxes (DSTs):

  • These are the adopted taxes on revenues that certain companies generate from providing certain digital services. E.g. digital multinationals like Google, Amazon and Apple etc.
  • The Organisation for Economic Cooperation and Development (OECD) is currently hosting negotiations with over 130 countries that aim to adapt the international tax system. One goal is to address the tax challenges of the economy's digitalization.
  • Some experts argue that a tax policy designed to target a single sector or activity is likely to be unfair and have complex consequences.
  • Further, the digital economy cannot be easily separated out from the rest of the global economy.

 India's Tax on Digital Companies:

  • The government had moved an amendment in the Finance Bill 2020-21 imposing a 2% digital service tax (DST) on trade and services by non­resident e-commerce operators with a turnover of over Rs. 2 crore.
  • This effectively expanded the scope of equalisation levy that, till last year, only applied to digital advertising services.
  • Earlier, the equalisation levy (at 6%) was introduced in 2016 and imposed on the revenues generated on business-to-business digital advertisements and allied services of the resident service provider.
  • The new levy came into effect from 1st April 2020. E-commerce operators are obligated to pay the tax at the end of each quarter.

USTR's Investigation Report:

  • The DST in India is discriminatory because it exempts Indian companies and targets non-Indian firms.
  • This hits US firms which dominate the technology industry.
  • 119 companies identified as likely liable under the digital services tax, 86, or 72%, were American.
  • USTR estimates that the aggregate tax bill for US companies could exceed USD 30 million per year. 
  • The USTR has determined that India's DST is unreasonable or discriminatory and burdens or restricts US commerce and thus is actionable under Section 301 (US Trade Act).

India's Stand:

  • India has described the equalization levy as a fair, reasonable and non-discriminatory tax aimed at all offshore digital economy firms accessing the local market and has denied it targets US companies.
  • It seeks to ensure a level-playing field concerning e-commerce activities undertaken by entities resident in India and those not residents in India or without permanent establishment in India.
  • The government of India will examine the determination/decision notified by the US in this regard, and would take appropriate action keeping in view the overall interest of the nation. 
  • There was no retroactive element or extra-territorial application involved in the levy, which applied only to India's revenue.
  • It is a recognition of the principle that in a digital world, a seller can engage in business transactions without any physical presence, and governments have a legitimate right to tax such transactions.

Concerns:

  • In the backdrop of an improper functioning of the World Trade Organization (WTO), the move could signal the start of more unilateral action by the US especially on the digital services front. 
  • In India's case, the probe could potentially affect the outcome of a bilateral trade deal that India has been looking to forge with the US.

Key Points

Retail Inflation:

  • Measured by the Consumer Price Index (CPI), eased to 4.59% in the month of December 2020. 
  • The retail inflation for Nov. was 6.93%. 
  • The December CPI data has come within the Reserve Bank of India's (RBI) upper margin of 6%.
  • The government has mandated the central bank to keep retail inflation within the range of 4% with a margin of 2% on either side as per its inflation targeting.
  • CPI inflation has been above RBI's upper bound inflation target of 4 +/-2% for more than 11 months.
  • RBI primarily factors in retail inflation while making its bi-monthly monetary policy.
  • In its bi-monthly monetary policy meeting in December 2020, the Indian central bank had kept its key interest rates unchanged (repo and reverse repo rates) and decided to maintain an 'accommodative stance' as long as necessary at least through the current financial year.

Causes of decline:

  • Decline in food prices: Inflation in the food basket eased to 3.41% in December, down from 9.50% in November.

 Factory Output

  • India's factory output, which is measured in terms of Index of Industrial Production (IIP), witnessed a contraction of -1.9% during Nov 2020. o The industrial growth so far in the fiscal year 2020-21 (April-November) has contracted -15.5%, compared to a 0.3% rise in the corresponding period in 2019. 

 Causes of Contraction:

  • Mining and Manufacturing sectors.
  • The mining sector saw a decline of -7.3% in November, while the manufacturing sector witnessed a fall of -1.7%.
  • However, the electricity sector grew 3.5%.
  • In November 2019, the manufacturing sector had witnessed a growth of 3.0%. During the same period, the mining sector had risen 1.9%, while the electricity sector had witnessed a fall of -5.0%.

Consumer Price Index

  • It measures price changes from the perspective of a retail buyer. It is released by the National Statistical Office (NSO).
  • The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
  • The CPI has several sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear.
  • At present, India has five consumer price indexes (CPIs), three of which are working-class specific. These are:
    (i) CPI for Industrial Workers (IW).
    (ii) CPI for Agricultural Labourer (AL).
    (iii) CPI for Rural Labourer (RL). 
  • These three indexes are compiled by the Labour Bureau in the Ministry of Labour and Employment.
  • CPIs AL and RL are used to fix minimum wages of agricultural labourers and rural unskilled employees.
  • The CPI-IW is mainly used for determining dearness allowance (DA) paid to central/state government employees and workers in the industrial sectors besides measuring inflation in retail prices, fixation and revision of minimum wages in scheduled employments.
  • The Base Year for CPI-IW has recently been changed to 2016 from previous 2001.
  • The Labour Bureau is also expected to bring out the new series of the CPI- AL/RL, which currently has the base year of 1986-87 by August 2021.
  • The other two are CPI-Urban and CPI Rural. These two indexes are compiled by the National Statistical Office (NSO) in the Ministry of Statistics and Programme Implementation.
  • The combined rise in retail prices is captured by CPI Combined.
  • Index of Industrial Production
  • The Index of Industrial Production (IIP) index shows the growth rates in different industry groups of the economy in a fixed period of time.
  • It is compiled and published monthly by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation.
  • IIP is a composite indicator that measures the growth rate of industry groups classified under:

Broad Sectors:

  • Mining, Manufacturing, and Electricity. o Use-based sectors:
  • Basic Goods, Capital Goods, and Intermediate Goods.
  • The eight core sector industries represent about 40% of the weight of items that are included in the IIP.
  • The eight core industries in decreasing order of their weightage: Refinery Products (28.04 %)> Electricity (19.85 %)> Steel (17.92 %) > Coal (10.33 %)> Crude Oil (8.98 %)> Natural Gas (6.88 %)> Cement (5.37 %)> Fertilizers (2.63 %).
  • Base Year for IIP calculation is 2011-2012.

World Economic Outlook: IMF

Recently, the latest World Economic Outlook of the International Monetary Fund (IMF) has estimated that India's Gross Domestic Product (GDP) will grow by 11.5% in the Financial Year (FY) 2021-22.

Key Points

India Specific Projections: 

  • FY 2020-21: For the current fiscal, the IMF had forecast a record 10.3% contraction. 
  • FY 2021-22: For the next fiscal, starting from April 1st, GDP growth projection is at 11.5%, 2.7% higher than the projection made in October, 2020. 
  • Last October, the IMF had projected an 8.8% real GDP growth for India in FY 2021-22, highest globally. 
  • FY2022-23: In FY 2022­23, the economy will likely grow 6.8%.

 Governments Projection for 2020-21:

  • The latest revision for the current fiscal is higher than the government's first advance estimate of 7.7% and also the RBI's estimate of 7.5%.

 Reason for Increase in the Estimates by IMF:

  • o India has taken very decisive action, very decisive steps to deal with the pandemic and dealing with its economic consequences.

 Other Economies with High percentage of Growth:

  • China would grow 8.1% in 2021, followed by Spain (5.9%) and France (5.5 %).
  • China, which was the only major country to register a growth rate of 2.3 % in 2020, will expand 5.6% in 2022.

Government Measures to Deal With the Pandemic: 

  • Reserve Bank of India's Covid19 Economic Relief Package
  • Pradhan Mantri Garib Kalyan Yojana: The government announced Rs 1.70 lakh crore relief package under the newly framed Pradhan Mantri Garib Kalyan Yojana for the poor to help them fight the battle against covid-19. 
  • Atmanirbhar Bharat Abhiyan (or Self-reliant India Mission): The Self-Reliant India Mission aims towards cutting down import dependence by focussing on substitution while improving safety compliance and quality goods to gain global market share.
  • Government announced liquidity measures for businesses, especially Micro, Small and Medium Enterprises (MSMEs) under the Atmanirbhar Bharat Abhiyan.

Global Projections

Global Economy:

  • The global economy is projected to grow 5.5% in 2021 and 4.2% in 2022.
  • The IMF also saw a narrower 3.5% contraction in world output in 2020 instead of a 4.4% decline seen earlier.
  • It attributed the 0.3% point upward revision for 2021 to "expectations of a vaccine-powered strengthening of activity later in the year and additional policy support in a few large economies.

 Global Trade Volumes:

  • They are forecasted to grow about 8% in 2021.
  • The IMF expects oil prices to rise in 2021 by just over 20% from the low base for 2020 but they will remain well below their average for 2019.
  • Non-oil commodity prices are also expected to increase with metals, particularly, projected to accelerate strongly in 2021.

 Increased Inequality:

  • The report highlighted the pandemic-induced acceleration in inequality by reiterating that close to 90 million people are likely to fall below the extreme poverty threshold during 2020-21 as workers with less education, women, youth, those in contact-intensive sectors, and those informally employed suffer disproportionate livelihood and income losses.
  • The pandemic is expected to reverse the progress made in poverty reduction across the past two decades.
  • It can be noted that recently, the Inequality Virus Report, released by Oxfam International, has also found that the Covid pandemic deeply increased the existing inequalities in India and worldwide.

➤ International Monetary Fund

  • The IMF was set up along with the World Bank after the Second World War to assist in reconstructing war-ravaged countries.
  • The two organizations were agreed to be set up at a conference in Bretton Woods in the US. Hence, they are known as the Bretton Woods twins.
  • Created in 1945, the IMF is governed by and accountable to the 189 countries that make up its near-global membership. India joined on December 27, 1945.
  • The IMF's primary purpose is to ensure the international monetary system's stability—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other.
  • The Fund's mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.

➤ Other Reports by IMF:

  • Global Financial Stability Report
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