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GS III Indian Economy and Issues

GS III Indian Economy and Issues

Syllabus GS II Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

GS III Indian Economy and issues relating to planning, mobilisation, of resources, growth, development and employment. 

1.List out the reasons for the accelerating depreciation of the Indian rupee.Discuss

Rupee depreciation, they note, is a long-term phenomenon and reflects not just a weakening of the rupee but also a strengthening of the dollar against all currencies for “external” reasons.

Reasons for the accelerating depreciation of Indian rupee:

  • To start with, the high import bill is not on account of higher oil prices alone but also because of increased imports of commodities varying from gold to coal. Coal imports proved unavoidable because stocks with the thermal power plants had touched unsustainable lows, raising concerns about large-scale power outages.
  • When pushing for enhanced coal imports despite high prices, the government had suggested that this was a short-term problem created by factors such as unseasonal rains that have affected mining and transportation.
  • But it now appears that India’s coal crisis is the result of the failure of policies aimed at restraining the public sector’s role in coal production and getting the private sector to step in. While the objective of curbing public sector growth worked, the drive to get the private sector to fill the gap was a failure.
  • As a result, the Indian power sector’s dependence on imported coal has increased. In fact, the government is forcing all power plants to use imported coal despite high international prices.
  • Factors such as these could necessitate expensive and large imports in the medium term, keeping the import bill and the trade deficit high, with attendant pressure on the rupee.

Excess outflow of reserves a reason:

  • But more challenging is the evidence that the drying up of capital flows are intensifying these pressures emanating from the trade front.
  • In recent years, net capital inflows into India were more than adequate to finance deficits in the current account of the balance of payments. In most years, the country was left with a “surplus” that contributed to the rising and comfortable level of foreign reserves.
  • But this implied that India’s reserves had been built with foreign exchange liabilities, involving inflows of a kind that were prone to exit at short notice.
  • The principal driver of those excess inflows was the huge increase in cheap liquidity in the international financial system ensured by the easy money policies advanced country central banks adopted in response to the global financial crisis and the Great Recession that followed. It was becoming clear in recent years that these “unconventional monetary policies” that were feeding global financial speculation with cheap credit had to be unwound. As and when they were, capital flow reversals could occur, and India’s reserves built with the capital inflows that those policies triggered could begin to shrink. That would exert pressure on the rupee
  • A common and important driver of the depreciation was the outflow of capital. Fortunately for India, the net exit of capital caused by global uncertainty immediately after the onset of the COVID-19 pandemic was soon reversed as central banks chose to hold back on retreating from their cheap money policies for fear of aggravating the COVID-induced recession.
  • But now, inflation in the advanced nations which has defied expectations that it would be transient and which the Ukraine invasion has aggravated and is forcing a policy reversal: interest rates are being pushed up and bond buying to infuse liquidity has been stopped.
  • The impact on capital inflows to India has been immediate as the figures quoted earlier indicate.
  • This outflow of portfolio capital has two implications of relevance to the strength of the rupee. First, it ends the excess flow of dollars into the domestic market that had dampened the downward pressure that chronic trade and current account deficits exert on the value of the rupee.
  • Second, it reduces the level of foreign exchange reserves the central bank holds and curbs its appetite to intervene in the market to stabilise the rupee by selling dollars. It does appear that the RBI has not been too keen to resort to market intervention to stall the slide of the rupee.
  • In fact, despite outflows of capital, foreign reserve assets with the central bank have risen rather than fallen in most months since late 2019.

This was possibly because it fears that a fall in reserves may send out the signal that the defence of the rupee cannot be sustained. That would encourage speculators to bet that the rupee would fall even further, accelerating the slide.

The recent and rapid depreciation of the rupee vis-à-vis the dollar does give cause for concern. The drivers of the depreciation are not all short term. The trade deficit threatens to remain high for quite some time. And the excess inflow of capital that propped up the rupee even when deficits widened has all but dried up. In these circumstances, the depreciation may persist, attracting the attention of speculators who will resort to measures that accelerate the currency’s decline.

~Source FrontLine

Syllabus GS III Conservation, environmental pollution and degradation, environmental impact assessment. 

2.Carbon neutrality is not the sole responsibility of the government alone,Individuals, businesses, civil society organisations and even places of worship can also play a role in addressing the crisis. Discuss with the example of Mumbai’s Church’s recent initiatives.

India has about 2 million temples, 150,000 mosques, 10,000 churches, innumerable gurdwaras, agiaries and other places of worship. The impact will be huge if others follow in the church’s footsteps.

  • In simple terms, carbon-neutrality means reducing an organisation’s or individual’s carbon footprint to zero through a series of emission-reducing actions.
  • These can include switching to clean energy and taking public transport instead of a private car. Investing in carbon offsets such as planting trees on farms or public land is another way to achieve the neutrality goal.
  • Founded in 1534 as San Miguel in Portuguese Bombaim (later Bombay and now Mumbai), St Michael’s is one of the oldest churches in the city. It has about 5,000 members and 50,000 devotees attending various services every week.
  • One of the services called novenas attracts people of all faiths, many of whom bring garlands and wax figures of what they desire. The flowers and wax are both recycled.
  • The church is also a centre for recycling plastic,tetra pak and electronic waste. Its ‘green cell’ has been active in cleaning the nearby Mahim beach.
  • Recognising its green credentials, the church should consider becoming carbon neutral.
  • The priest, who is also a botanist, requested a concept note and an action plan. Installing solar panels on the roof and a biogas digester run on flower waste were a part of it.
  • The church’s carbon footprint for 2021 was calculated at 44 tonnes of carbon dioxide equivalent (tCo2e).
  • The emissions were low because of the pandemic, which resulted in the church being closed to the public for most of the year.
  • “The figure is a small amount by world standards, but our effort to reduce this to zero is a big step.”
  • Electricity consumption contributed 86 per cent to the emissions, while transport footprint was low at 11 per cent, mainly because most of the 30 church employees lived nearby and walked to work.
  • Going solar was one of the church’s best decisions since Mumbai has one of the highest electricity tariffs in the country. The emission factor for the local grid is also high at 0.91 tCo2e per megawatt hour (MWh) since it relies predominantly on coal.
  • To reduce the emissions to zero, the church will likely expand its solar coverage by a third from the present 20 KWh capacity and invest in community projects to offset the emissions balance.
  • The church is looking into planting trees, supplying smokeless chulhas (stoves), supporting conservation agriculture and building village community biogas systems.
  • The Mahim church’s pioneering effort at carbon-neutrality has found an echo in other places of worship.
  • A few temples in south India also wish to explore this possibility and a management team will visit the church.
  • The temples have considered several ideas like solar installations, tree plantation and turning waste into energy. Some have a large annadhanam (free meals for devotees) programme and some turn flowers into biogas to use as fuel in the kitchen.
  • St Michael’s decision dove tails the Mumbai Climate Action Plan (MCAP), which seeks to achieve neutrality by 2050 twenty years ahead of India.
  • A report prepared by World Resources Institute estimated the city’s carbon footprint at 23 million tCO2e in 2019 and set a reduction goal of 30 percent by 2030.

Additionally, several large Indian corporations have announced plans to reduce their carbon footprint. Indian Railways has a goal of becoming carbon neutral by 2030. Many others are expected to jump on the bandwagon to avert the climate disaster.

~Source DownToEarth