unacademy 18 June 2018 The Hindu Daily News & Editorial Analysis The Hindu(Completely) Indian Express(Very Imp pieces) Delivered by : Sumant Kumar B.Tech in Computer Science & Engg, NIT Allahabad * Have written UPSC Main Exam in 2016 and 2017 with Physics Optional
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India's Dutch disease? [IE Article 1] "Are foreign capital inflows India's 'Dutch disease'?" "Dutch disease" to refer to foreign currency inflows that keep the currency stronger than it should be, reducing the competitiveness of domestic enterprises, thereby boosting imports and hurting exports. The phrase harks back to the 1960s when new discoveries of crude oil had boosted Dutch exports for a while, making their currency appreciate sharply. This appreciation made other industries uncompetitive and they atrophied or disappeared; so when oil reserves ran out, it took a while for the Dutch economy to normalise For all but three years in the last three decades, India has consumed more goods and services than it produced - that is, it had a current account deficit (CAD) Foreign capital funded this excess consumption: In the form of foreign direct investment (FDI), foreign portfolio investment (FPI), or external commercial borrowings (ECB).
To be clear, foreign capital is not just about getting the dollars for consumption: Often these investors bring in technology and expertise, and also provide risk capital (which India is short of) and cheaper funding for long- term investments, But the persistence of the CAD and the consequent dependence on external flows to keep the currency stable raise questions on sustainability A point of serious concern is that the annual "rent" on foreign capital we have received thus far is already in excess of 1 per cent of GDP: Royalties and dividends paid by Indian firms to their foreign With volatility in the global currency markets up again, and the rupee already one of the weakest currencies in More so because of expectations of a 20 billion dollar deficit this financial year after several years of shareholders, and interest payments to foreign lenders, rose to 29 billion dollars last year. the world this year, the debate on the rupee's correct value has restarted. strong surpluses: Capital inflows of 55 billion dollars could be well short of the CAD estimated to be in the range of 75 billion dollars To keep the rupee from depreciating further, the clamour for another large dollar loan from non-resident Indians (like the one that stemmed the crisis in 2013) has already started. This may see strong demand again (most investors I met recently were almost gleefully waiting for such an announcement, indicating that this would be an attractive investment for them), underscoring the point that India has a liquidity problem (that is, a near-term shortage), and not a solvency problem (people do not doubt India' ability to repay the dollars in the future). But this would only kick the problem away for a year or two
Is a weaker currency the solution? OIn the near term, India's CAD is not very sensitive to changes in value of the currency o Half of our goods imports are things that we do not have, like crude oil, natural gas, gold, metallurgical coal, precious stones, uranium and copper. o Another fourth are things that we cannot make, like cellphones, aircraft, defence equipment and capital goods (these include solar panels, robots, blast furnaces and hot rolling mills for steel). OA weaker currency will only push local prices of these goods higher while this may bring down demand for them, this would also mean a broad-based slowdown in the economy Goods imported due to lack of cost competitiveness (like Ganesh idols, edible oil and small appliances), where a weaker rupee may help domestic manufacturers displace imports, are less than a sixth of total Similarly, on the side of exports, nearly a third of the export value add comes from agriculture, and another third from textile, leather and two-wheelers. A minor decline in the value of the rupee thus is unlikely to drive export acceleration that will narrow the CAD meaningfully. And a big depreciation could disrupt the economy for a few years.
The challenge with fiat currencies is that prices are set by crowds: A fundamentally justified level may only be discovered over a long period of time, and only in hindsight. Once panic sets in, like it did in 2013, it becomes very difficult to bring order again. In the interim, the volatility itself damages the economy, as o importers and exporters hedge at inappropriate levels, o savers start pushing money out of the country (advertisements for Dubai real-estate have started appearing again) or buying gold, and o foreign investors hold back on their investments waiting for an attractive entry point. Crowds look at anchors, and for the rupee, the exchange rate against the US dollar is the bellwether. So long as the dollar keeps weakening against other global currencies, the rupee-dollar exchange rate does not show stress. For now, the US dollar is taking a breather, but if the dollar starts to strengthen, the rupee's position becomes precarious. The conventional approach to protecting the currency is raising interest rates this signals to the currency markets that the economy is willing to bear the pain of a domestic demand slowdown to protect the currency's value But pushing down growth for the whole economy is perhaps too high a cost.
While much of public commentary stresses on oil prices, which are indeed a concern, a large part of the recent deterioration in India's balance of payments could be because of capital flight. Sustained high imports of precious stones and pearls (where given the subjectivity irn valuation, prices can be over-stated to send money out of India), and the surprising pick-up in FDI repatriation (that is, firms pulling back funds they had invested earlier) have together added more than 15 billion dollars to the balance of payments deficit over the past year. While both can have benign explanations too, one cannot help but suspect money escaping India fearing a crackdown on black money, helped along by the impact of unwinding of the Mauritius and Singapore tax treaties. OTargeted mechanisms to slow these down may help. OPolitically unattractive as they may be, higher retail prices of petrol and diesel may also help. OIndia is now a large part of the incremental demand for crude oil globally: If higher prices slow down demand growth, as they have done to some extent in the last two months, it may even cool oil prices. OOver the medium-term, measures like a change in our energy mix, greater indigenisation of electronics and defence manufacturing, and higher agricultural exports can help the economy get over the worryingly frequent bouts of currency volatility
Parched or polluted [TheHindu Ed 1] India's water crisis is clear and present, with implications for the health of the entire population. According to the Composite Water Management Index developed by Niti Aayog, 70% of the water resources are identified as polluted. O This is based primarily on data supplied by States for calculating the index. O If the water accessible to millions is contaminated, the problem is infinitely worse than that of availability The system of ratings for States is based on O their performance in augmenting water resources and watersheds, O investing in infrastructure, providing rural and urban drinking water, and O encouraging efficient agricultural use. It presumes that this 'hall of fame' approach will foster "competitive and cooperative federalism". Findings: O What emerges from the early assessment is that States such as Gujarat, Madhya Pradesh, Andhra Pradesh, Karnataka, Maharashtra, Puniab and Telangana have initiated reforms for iudicious water use, while populous ones such as Uttar Pradesh and Bihar have failed to respond to the challenge. OTamil Nadu, which has a middling score, does well on augmentation of water sources, but is abysmally poor in ensuring sustainable use for farming. The trends that the data reflect of high to extreme stress faced by 600 million people call for speedy reforms.
Two areas that need urgent measures are 1.augmentation of watersheds that can store more good water, for use in agriculture and to serve habitations, and 2.strict pollution control enforcement. Solution: In this context, the Committee on Restructuring the Central Water Commission and the Central Ground Water Board, chaired by Mihir Shah, has called for a user-centric approach to water management, especially in agriculture It advocates decentralisation of irrigation commands, offering higher financial flows to well-performing States through a National Irrigation Management Fund. o Clearly, awarding an index rank should help advance such schemes, making States feel the need to be competitive o Yet, such approaches may not resolve seemingly intractable inter-State river disputes o As the Cauvery issue has demonstrated, State governments would rather seek judicial intervention than be accused of bartering away the rights to a precious resource under a shared, cooperative framework Groundwater extraction patterns need to be better understood through robust data collection; less than 5% of about 12 million wells are now under study Steady urbanisation calls for a new management paradigm, augmenting sources of clean drinking water supply and treatment technologies that will encourage reuse. Pollution can be curbed by levying suitable costs. These forward-looking changes would need revamped national and State institutions, and updated laws. A legal mandate will work better than just competition and cooperation; it would make governments accountable
Change in Mexico? [TheHindu Ed 2] Mexico's ruling Institutional Revolutionary Party (PRI), which has dominated its politics for the better part of a century, seems at risk of a defeat in the July 1 election. Brisk economic growth, low inflation and a sharp fall in unemployment have not contained the steady political slide under the corruption-tainted rule of President Enrique Pe a Nieto. Simultaneously, the strong showing in opinion polls for the radical left-wing frontrunner, Andr s Manuel L pez Obrador of the National Regeneration Movement, is linked to the peso's sharp decline and a sense of drift. The threat of Washington quitting the North American Free Trade Agreement has loomed large over the latter part of Mr. Pe a Nieto's rule. But his challenges at home have been no less formidable. The fallout from the political mishandling of the mysterious disappearance of scores of children in 2014 has been severe. Mr. P government has also been at the centre of a political storm beginning with accusations that surfaced last year of illegal funding of his 2012 election. The sacking of the chief prosecutor investigating the allegations eroded the credibility of the government's attempts to combat graft. Earlier this year, Mexico's Congress blocked investigations into allegations of bribes received by public figures from a Brazilian firm. Official assertions that corruption was more a matter of perception than of scale have deepened public scepticism about the government's intentions Mr. L pez Obrador, a three-time contender for the presidency and former Mayor of Mexico City, has sought to capitalise on this widespread disenchantment. While his rhetoric may sound too simplistic, voters could well give him the benefit of the doubt for want of an alternative. All the same, Mr. L pez Obrador's rising popularity has sent jitters across the energy industry over the future of the contracts for oil exploration in the Gulf of Mexico. Meanwhile, the PRI has designated Jos Antonio Meade, who has held key ministerial portfolios in the present and earlier conservative governments, as a presidential candidate. (Presidents are allowed just the one term in Mexico.) The calculation is that the technocrat's independence from any party affiliation could broaden his appeal and, by implication, of the PRI with the electorate at large. Whatever the outcome on July 1, Mexico's transition through the ballot seems an integral feature of the country's polity. This is no mean achievement in Latin America, where extensions of presidential terms through constitutional fiat are routine. And going forward, FIFA's decision to award the 2026 World Cup to the three NAFTA nations - Mexico, with the U.S. and Canada will possibly lead to a more conducive overall climate in the region Nieto
Policy on the fly [IE Ed1] India's foreign policy has enjoyed a feel-good ride in the last couple of weeks the rebranding of the Asia- Pacific as the Indo-Pacific, a long overdue handshake and important agreements with the ASEAN powerhouse, Indonesia, and the renewed push at dialogue with China. The Indo-Pacific nomenclature has particularly been praised for its acknowledgement of India's importance as a regional power But the big picture is grainier. O It is no secret that India's relations with the Maldives are in a shambles, but what is worse is that Delhi seems to be clueless about how to rectify the situation Last week it emerged that the Maldives immigration authority has not been issuing work visas to Indians since March this year Clearly, this is retaliation from the Maldives for India's condemnation of Maldivian President Abdulla Yameen's declaration of emergency in February after the country's Supreme Court reversed the conviction of opposition leader, Mohammed Nasheed, and others .Around 2,000 visa applications are said to be held up. Maldives has also asked India to take back its gift of two Dhruv Advanced Light Helicopters, one manned by the Indian Coast Guard and another by the Indian Navy, by the end of June. Though the Maldivian government has said that these were not the helicopters it wanted, the real worry seems to be the presence of Indian defence personnel who are maintaining and operating the aircraft.
Piercing the haze [IE Ed2] Summer in Delhi is hot and oppressive But rarely is the city's air laden with toxic amounts of particulate matter The city's pollution levels worsened after a dust storm on June 12. O On June 14, PM 10 in the city's air skyrocketed to 938 microgrammes per cubic metre (ug/m3), significantly higher than the year's next highest of 650 ug/m3 on January 10 the safe limit for PM10 is 100ug/m3. With the Delhi government pressing in emergency measures, including a ban on construction activity, the city's air quality has improved somewhat. However, the city's PM 10 levels are still in the "severe" category. This is different from the localised storm that is a regular feature of the summer in most parts of North India Storms such as the one on June 12 are caused by prolonged dry spells and westerly winds blowing at high speeds. The haze they whip up is different from the winter pollution when lack of wind and low temperatures trap pollution inside Delhi. The dust carried by the June 12 storm was a mixture of particles released by the natural erosion of soil, pollen and microscopic organisms. This cocktail is, ipso facto, not hazardous. But the mixture carried by the storm was unhealthy because it had accumulated toxic substances from combustion sources in the wind's route pollution from vehicles, industry and biomass This means that local emergency measures, such as those instituted in Delhi, can, at best, mitigate the haze to a limited extent The most important lesson of Delhi's latest pollution problem is that the city will need a year-round strategy to ensure that its air remains healthy Pollution control agencies will have to scale up their coordination with the India Meteorological Department
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