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(2/4) 29 June 2018 The Hindu + Indian Express DNA
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Sumant Kumar
B.Tech NIT Allahabad. Scored 136 & 120 in UPSC Prelims. YouTube Channel "Crackers' IAS Academy". Telegram - CrackersIASAcademy

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  1. The rise in international crude oil prices is one of the reasons behind the rupee's decline as importers have had to shell out more dollars to fund their purchases. India's current account deficit, which jumped to 1.9% of GDP in the fourth quarter of 2017-18 from just 0.6% a year earlier, is now expected to widen to 2.5% in FY 2019. OThis could spell even more trouble for the rupee as the demand for dollars could OThe dollar index, which gauges the value of the dollar against a host of major OThe rise in global trade tensions amidst the ongoing trade war could be another turn out to be overwhelmin global currencies, is up about 7.5% since February factor behind the rout in emerging market currencies, but its impact on the rupee remains unclear as of now. But by far the most important reason behind the fall in the rupee and other emerging market currencies is the tightening of U.S. monetary policy.

  2. nvestors attracted by higher yields in the United States have been pulling their capital out of India at an increasing pace over the last few months. Foreign portfolio investors, in fact, took out 29,714 crore in May, almost a doubling of outflow compared to 15,561 crore in April. OMost of the foreign fund outflow this year has come out of the bond market, which explains the steep fall in Indian bond prices. ONone of this turbulence in emerging markets, however, is surprising OThe tightening of monetary policy by the U.S. Federal Reserve has traditionally caused the turning of the global credit cycle, which eventually leads to various crises around the world. It is hard to determine if the worst is over yet for emerging market currencies. But the fact that the American central bank expects to raise interest rates further this year suggests that more pain could be in store. The government, as well as the Reserve Bank of India, which recently raised domestic interest rates in response to rising external economic risks, may need to think out of the box to avoid a crisis similar to the taper tantrum of 2013.

  3. Trends in global currency The rupee on Thursday fell to a historic low of 69.1 against the U.S. dollar. The currencies of several emerging economies ha been on the decline against thelr in the past year, with Pakistan and Brazil registering the biggest annual decline Pakistan Brazil Mexico Indonesia Philippines India Russia South Africa Hungary 9 15.88 13.72 11.05 6.34The chart 6.29 shows the % change in currency value from June -6.04 5.54 2017 to 2018 Qatar and UAE registered 0.55 no change. 0.27 Malaysia and Poland Qatar Czech Republic registered the highest increase South Korea Thailand China Chile Colombia Czech Republic Malaysia 1.87 +2.86 +3.0 +3.3 SOURCE: IMF, WORLD +4.14 +6.28

  4. [IE Ed1] An over-regulator JThe UGC, a body of academics and experts, was envisioned as a "buffer'" between the government and higher education institutions. lt wouldn't be an overstatement to say that India's higher education sector is in desperate need of reform. DA number of indicators, including the consistently poor performance of Indian universities at the World University Rankings, testify to the fact that the country's higher education regulator, the University Grants Commission (UGC), has not lived up to its mandate of "maintaining standards of teaching, examination and research in universities"

  5. A new draft law, the Higher Education Commission of India Bill, that proposes to revamp the governance of higher education in India, could, then, signal better days for the country's universities. But the draft that was put up for public comments on Wednesday could, instead, aggravate the failings of the UGC, particularly its propensity to over-regulate. OThe Bill proposes to replace the UGC Act, 1956, and rechristen the UGC as the Higher Education Commission of India (HECI) The regulator, in its new avatar, will focus on setting, maintaining and improving academic standards in universities O The Union Ministry of Human Resource Development will take over the grant-giving functions The separation between the regulator and the funder is in tune with the first principles of regulatory governance. OThe professed goal of the draft law, "autonomy for universities," is also welcome. However, making the HRD ministry the fund dispersal agency strikes against this objective, It is true that academic institutions in the country have never been completely free from government interference. But with the HRD ministry controlling university funding directly, the dangers of political interference in the running of these institutions increase manifold. The provision goes against the credo of universities as self-regulating spaces where decisions are shaped by intellectual debates-not funding or political pressures

  6. The UGC, a body of academics and experts, was envisioned as a "buffer" between the government and higher education institutions However, interference by successive governments stood in the way of the agency fulfilling this objective. At the same time, the regulator remained a spectator to the falling standards of university education OThe proposed new regulator, the HECI, intends to bridge this lacuna However, its mandate of "improving academic standards with a specific focus on learning outcomes, evaluation of academic performance by institutions and training of teachers," is bound to raise fears about the regulator micro-managing universities DAnd the fact that the proposed law empowers the Centre to remove the HECI's chairman and vice-chairman for reasons that include moral turpitude"--the UGC act did not have such a provision will raise questions about the government's sincerity on giving autonomy to universities. The draft is up for public comments till July7 Enforcing this deadline might enable the government to place the Bill before the Parliament in its monsoon session. But it will be well-advised not to rush through a piece of legislation that aims to fundamentally restructure higher education.

  7. Target incomes, not prices Our farm policy is so bad, the proverb 'you reap what you sow' isn't true any longer. Good rains, excessive sowing and the bumper harvest last year produced gluts in the ONone of the economic tools available for protecting farm incomes the price A bumper crop is no different from a drought, for it too depresses farm incomes. market that sent the prices of many crops, and therefore farm incomes, crashing support scheme, the price stabilisation fund and the market intervention scheme - was employed to the best advantage. OQuick and precise adjustments to the export and import rules could have arrested the price fall by diverting the excess supplies to overseas markets. But the changes required were not carried out in time, Instead, inflows of imports were allowed to go on, which worsened the price situation.

  8. The MSP issue This year's Budget promised that the Minimum Support Prices (MSPs) would be at least 150% of production costs, a longstanding demand of farmers and recommendation of experts. Even if the market prices fall below the MSP, as they did for major kharif crops in 2017, the government will procure the produce on MSIP. OAnd if it does not procure, it will provide a mechanism to ensure payments, equal to the gap between the MSP and the market price, would reach farmers. The intention of assuring 50% profit margin over the cost of production is to make farming remunerative DOn the formula for calculating production costs for plugging into the MSP formula, farmer groups and the government are not as yet on the same page. But howsoever production costs are calculated, simply announcing higher MSPs will not raise farmer incomes. The system is not geared for scaling up procurement.

  9. For several crops last year, the quantities procured were small portions of the total produce Although MSPs are announced for more than 20 crops, noteworthy procurement is conducted for three: paddy. wheat and sugarcane (procurement by sugar mills, not the government, givern cane must be crushed within a few hours of being cut, or it dries, impacting sugar recovery drastically) OFurther, procurement frequently takes places at prices below the MSP, as is happening this year, according to reports Finally, small and vulnerable farmers usually do not get paid MSPs at all, as they sell their produce to aggregators, not directly in mandis In these circumstances, and given an imminent general election, the government is likely to take recourse to payments compensating for the difference between market prices and the MSP to appear farmer-friendly. In principle, it is only right and fair that the government pay reparations to farmers OThe gluts, depressed market prices and mounting farmer losses are a direct consequence of the malfunction in agri-pricing policies. But price differential payments, no matter what mechanism is used for calculating and distributing them, would be yet another example of economic policies that get drafted purely on political appeal, without full grasp of the underlying economic principle, and backfire badly.

  10. Demand-supply mismatch OA set of estimates of the price differential payments likely this year, premised on realistic assumptions, from agriculture economists led by Ashok Gulati projects that the MSP of paddy for the 2018-19 kharif season will have to be raised 11-14%, cotton 19-28%, and jowar 42-44%, if the MSP pricing formula of 1.5 times the cost is employed OA rational response of farmers looking at this menu of MSPs would be to sow more jowar in the next season. The promise of profits is greatest for jowar. The policy will unwittingly lead to increased jowar production. There's no reason the demand for jowar would also rise. A demand-supply mismatch would be inevitable which would send the market prices for jowar way below the announced MSP, calling for significantly expanded jowar procurement at MSP OThe trouble is, pricing policies distort market prices and send the wrong signal to farmers on what to produce and how much. o Our inept policy system fails to correct such situations, which then spiral out of control. o But if the problem is volatile incomes, the solution must target incomes, not prices o Income support payments, paid on a per hectare basis through direct transfers, offer an administratively neater, economically far less distortionary and politically more attractive solution

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