Economic Development - 3 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

National Land Monetization Corporation

• The Finance Minister had announced plans to set up a special purpose vehicle for this purpose in the Union Budget 2021-22.
• In August, 2021, the government of India launched the National Monetisation Pipeline (NMP).

What is National Land Monetization Corporation (NLMC)?

• NLMC will undertake surplus land asset monetisation as an agency function, and assist and provide technical advice to the Centre in this regard.
• NLMC has been announced with an initial authorized share capital of Rs 5000 crore and paid-up share capital of Rs 150 crore.
• The Board of Directors of NLMC will comprise senior Central Government officers and eminent experts to enable professional operations and management of the company.
• The Chairman, non-Government Directors of the NLMC will be appointed through a  meritbased selection process.  The new company, which will be set up under the administrative jurisdiction of the finance ministry.
• NLMC will hire professionals from the private sector just as in the case of similar specialised
  government companies like theNational Investment and Infrastructure Fund (NIIF) and Invest India.

Benefits

• This will enable productive utilization of underutilized assets to trigger private sector investments, new economic activities, boost local economy and generate financial resources for economic and social infrastructure.
• NLMC is also expected to own, hold, manage and monetize surplus land and building assets of CPSEs under closure and the surplus non-core land assets of Government owned CPSEs under strategic disinvestment.
• This will speed up the closure process of CPSEs and smoothen the strategic disinvestment process of Government owned CPSEs.

Challenges
Among the key challenges that NLMC might face include lack of identifiable revenue streams in particular land assets, dispute resolution mechanism, various litigations and lack of clear titles, and low interest among investors in remote land parcels.

What will be the Function of the NLMC?

• NLMC will undertake monetization of surplus land and building assets of Central Public Sector Enterprises (CPSEs) and other Government agencies. CPSEs are those companies in which the direct holding of the Central Government or other CPSEs is 51% or more.
• At present, CPSEs hold considerable surplus, unused and under-used non-core assets in the nature of land and buildings.
• NLMC will also advise and support other Government entities (including CPSEs) in identifying their surplus non-core assets and monetizing them in a professional and efficient manner to generate maximum value realization.
• NLMC will act as a repository of best practices in land monetization, assist and provide technical advice to the Government in implementation of asset monetization programmes.

What is Asset Monetisation?

Need

• India needs more infrastructure but the public sector simply doesn’t have the resources to build it. There are two possible responses.
• For setting new infrastructure, one can think of bringing in the private sector with a contractual framework for what it has to do, and then let it bring its own resources.
• To recognise that there are more risks in the construction stage and it is perhaps better to let the public sector build the asset and then sell it off to private players or if not an outright sale, let the private sector manage it.
• Building new infrastructure has two constraints for any country including India –
  (i) Access to patient, predictable and cheap capital and
  (ii) Execution capability, where government and private agencies can take up multiple marquee projects simultaneously.

Related Challenges

• Lack of identifiable revenue streams in various assets.
• Slow pace of privatisation in government companies.
• Further, less-than-encouraging bids in the recently launched Public-private partnerships (PPP) initiative in trains indicate that attracting private investors’ interest is not that easy.
• Asset-specific Challenges:
  (i) Low Level of capacity utilisation in gas and petroleum pipeline networks.
  (ii) Regulated tariffs in power sector assets.
  (iii) Low interest among investors in national highways below four lanes.

Way Forward

• The success of the infrastructure expansion plan would depend on other stakeholders playing their due role. These include State governments and their Public Sector Enterprises and the private sector.
• In this context, the Fifteenth Finance Commission has recommended the setting up of a High-Powered Intergovernmental Group to re-examine the fiscal responsibility legislation of the Centre and States.
• Maintaining transparency is the key to adequate realisation of the asset value.
• Recent experience suggests that Public-Private Partnerships (PPP) now involve transparent auctions, a clear understanding of the risks and payoffs, and an open field for any and all interested parties.
• Thus, the utility of PPP in greenfield projects can not be neglected.

First Gati Shakti Cargo Terminal

Why in News

• This is the first such GCT commissioned in Indian Railways since the publication of GCT policy in December 2021
• It is expected to enhance Indian Railways’ earnings. The commissioning of this terminal and more such terminals will have a very positive impact on the economy of the nation.

What is the PM Gati Shakti Scheme?

In 2021 the government launched the ambitious Gati Shakti scheme or National Master Plan for multi-modal connectivity plan, with the aim of coordinated planning and execution of infrastructure projects to bring down logistics costs.

Aim

• To ensure integrated planning and implementation of infrastructure projects in the next four years, with focus on expediting works on the ground, saving costs and creating jobs. The Gati Shakti scheme will subsume the Rs 110 lakh crore National Infrastructure Pipeline that was launched in 2019. Besides cutting logistics costs, the scheme is also aimed at increasing cargo handling capacity and reducing the turnaround time at ports to boost trade.
• It also aims to have 11 industrial corridors and two new defence corridors - one in Tamil Nadu and other in Uttar Pradesh.  Extending 4G connectivity to all villages is another aim. Adding 17,000 kms to the gas pipeline network is being planned.
• It will help in fulfilling the ambitious targets set by the government for 2024-25, including expanding the length of the national highway network to 2 lakh kms, creation of more than 200 new airports, heliports and water aerodromes.

Expected Outcomes

• The scheme will help mapping the existing and proposed connectivity projects. Also, there will be immense clarity on how different  regions and industrial hubs in the country are linked, particularly for last mile connectivity.
• A holistic and integrated transport connectivity strategy will greatly support Make in India and integrate different modes of transport.  It will help India become the business capital of
  the world.

Need for Integrated Infrastructure Development:

• There exists a wide gap between macro planning and micro implementation due to the lack of coordination and advanced information sharing as departments think and work in silos.
   According to a study, the logistical cost in India is about 13% of GDP, which is higher than developed countries.
• Due to this high logistical cost, the competitiveness of India’s exports is greatly reduced.
   It is globally accepted that the creation of quality infrastructure for Sustainable Development is a proven way, which gives rise to many economic activities and creates employment on a large scale. The scheme is in synergy with the National Monetisation Pipeline (NMP).
• The NMP has been announced to provide a clear framework for monetisation and give
  potential investors a ready list of assets to generate investment interest.

What are the Challenges?

• Low Credit Off-take: Although the government had taken up ‘strong’ banking sector reforms and the Insolvency and Bankruptcy Code had yielded about Rs. 2.4 lakh crore of recoveries on bad loans, there are concerns about declining credit offtake trends. Banks give credit off-takes to help businesses acquire financing for future projects through the promise of future income and proof of an existing market.
• Lack of Demand: In the post-Covid-19 scenario,there is a lack of private demand and investment demand.
• Structural Problems: Due to land acquisition delays and litigation issues, the rate of implementation of projects is very slow on global standards.  Getting approvals is very difficult in terms of land access, environmental clearances; also impending litigation in court delays the infrastructure projects.

RBI’s Regulatory Framework for Microfinance Loans

Why in News?

• The guidelines will take effect 1st April 2022.
• Earlier in 2021, the RBI proposed to lift the interest rate cap on MFI.

What are the Highlights of the Guidelines?

• Definition of a Microfinance Loan: The RBI revised the definition of a microfinance loan to indicate a collateral-free loan given to a household having annual income of up to Rs. 3 lakh.
• Earlier, the upper limits were Rs.1.2 lakh for rural borrowers and Rs.2 lakh for urban borrowers.
• For Regulated Entities (REs): As per the revised norms, Regulated Entities (REs) should put in place a board-approved policy regarding pricing of microfinance loans, a ceiling on interest rate and all other charges applicable to microfinance loans.
• Each RE shall disclose pricing-related information to a prospective borrower in a standardised, simplified factsheet.
• Penalty on Microfinance Loans: There shall be no prepayment penalty on microfinance loans. Penalty, if any, for delayed payment shall be applied on the overdue amount and not on the entire loan amount.
• Any change in interest rate or any other charge shall be informed to the borrower well in advance and these changes shall be effective only prospectively.
• Recovery of Loans: RE would have to put in place a mechanism for identification of the borrowers facing repaymentrelated difficulties, engagement with such borrowers and providing them necessary guidance about the recourse available.
• To ensure due notice and appropriate authorisation, the RE will provide the details of recovery agents to the borrower while initiating the process of recovery.

What will be the Applicability of the Guidelines?

• All Commercial Banks (including Small Finance Banks, Local Area Banks, and Regional Rural Banks) excluding Payments Banks.
• All Primary (Urban) Co-operative Banks/ State Cooperative Banks/ District Central Co-operative Banks.
• All Non-Banking Financial Companies (including Microfinance Institutions and Housing Finance Companies).

What will be the Benefits?

• Expand Market Opportunity: The revision of the income cap to Rs. 3 lakh will expand the market opportunity and interest rate cap removal will promote risk-based underwriting.
• Encourage Healthy Competition: It will go a long way in harmonising the regulatory framework for different types of lenders, encouraging healthy competition and enabling customers to make an informed choice regarding their credit needs.
• Financial Inclusion: The new framework will help scale the industry further, ensure better risk mitigation and financial inclusion.
• Level Playing Field: It will create a level playing field and both borrowers and lenders will now have options.
• Cater the Needy: It will safeguard the interests of the borrowers and help the sector to cater to the needy borrowers.

What is a Microfinance Institution?

• MFI is an organisation that offers financial services to low income populations.  These services include microloans, microsavings and microinsurance.
• MFIs are financial companies that provide small loans to people who do not have any access to banking facilities.
• In most cases the so-called interest rates are lower than those charged by normal banks, certain rivals of this concept accuse microfinance entities of creating gain by manipulating the poor people’s money.
• Microfinance sector has grown rapidly over the past few decades and currently it is serving around 102 million accounts (including banks and small finance banks) of the poor population of India.
• Different types of financial services providers for poor people have emerged - Non-Government Organisations (NGOs); cooperatives; communitybased development institutions like self-help groups and credit unions; commercial and state banks; insurance and credit card companies; telecommunications and wire services; post offices; and other points of sale - offering new possibilities.
• NBFC-MFIs in India are regulated by the Non-Banking Financial Company -Micro Finance Institutions (Reserve Bank) Directions, 2011 of the Reserve Bank of India (RBI).

Strengthening of Pharmaceutical Industry Scheme

Why in News?

What are the Key Points?

• In order to upgrade the production facilities of SMEs and MSMEs (Micro, Small and Medium Enterprises) so as to meet national and international regulatory standards (World Health OrganizationGood Manufacturing Practice (WHO-GMP) or Schedule-M), interest subvention or capital subsidy on their capital loans will be provided, which will further facilitate the growth in volumes as well as in quality.
• WHO-GMP is the aspect of quality assurance that ensures that medicinal products are consistently produced and controlled to the quality standards appropriate to their intended use and as required by the product specification.
• Schedule M of drugs and cosmetics rules define the GMP requirements for the pharmaceutical industry in India.

Components
Assistance to Pharmaceutical Industry for Common Facilities (APICF), to strengthen the existing pharmaceutical clusters’ capacity for their sustained growth by creating common facilities.

• Under this, support for clusters for creation of common facilities with the focus on R&D (Research and Development) Labs, Testing Laboratories, Effluent Treatment Plants, Logistic Centers and Training Centres in this order of priority with an outlay of 178 Cr is proposed.  Pharmaceutical Technology Upgradation Assistance Scheme (PTUAS) to facilitate Micro, Small and Medium Pharma Enterprises (MSMEs) of proven track record to meet national and international regulatory standards.
• Under the PTUAS sub-scheme, support for SME Industries is proposed, either through up to a maximum of 5% per annum (6% in case of units owned and managed by SC/STs) of interest subvention or through Credit linked Capital subsidy of 10%.
• An outlay of 300 Cr has been earmarked for sub scheme for the scheme period of five years. Pharmaceutical & Medical Devices Promotion and Development Scheme (PMPDS) to facilitate growth and development of Pharmaceutical and Medical Devices Sectors through study/survey reports, awareness programs, creation of databases, and promotion of industry.
• Under the PMPDS sub-scheme, knowledge and awareness about the Pharmaceutical and MedTech Industry will be promoted.

What is the Significance?

• It will strengthen the existing infrastructure facilities and will make India a global leader in the Pharma Sector.
• This will not only improve the quality but also ensure the sustainable growth of clusters.
• The scheme will address the rising demand in terms of support required to existing Pharma clusters and MSMEs across the country to improve their productivity, quality and sustainability.

What are the Schemes Related to the Pharma Sector?

• Promotion of Bulk Drug Parks Scheme: The government aims to develop 3 mega Bulk Drug parks in India in partnership with States to reduce manufacturing cost of bulk drugs in the country and dependency on other countries for bulk drugs.
• The scheme will also help in providing continuous supply of drugs and ensure delivery of affordable healthcare to the citizens.
• Production Linked Incentive (PLI) Scheme:  The PLI scheme aims to promote domestic manufacturing of critical Key Starting Materials (KSMs)/Drug Intermediates and Active Pharmaceutical Ingredients (APIs) in the country

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.

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.

Revival of Nanar Refinery

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.

Rise in Food Price Index

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

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.