29th January Current Affairs

1.World Economic Forum

News: The Prime Minister, addressed the World Economic Forum’s Davos Dialogue today via video conferencing. He spoke on the ‘Fourth Industrial Revolution – using technology for the good of humanity’.

About World Economic Forum

  • Formerly known as the European Management Forum, the World Economic Forum (WEF) was founded by Klaus Schwab in the year 1971. The organisation changed its name to the World Economic Forum in the year 1987 with a vision to provide a platform for resolving international conflicts.
  • A new centre for the Fourth Industrial Revolution was announced by the WEF on October 10, 2016, which will provide a platform for interaction, insight, and impact on the scientific and technological changes that will soon change the way we live, work, and relate to one another.
  • A global initiative for epidemics was launched at WEF in Davos on 19 January 2017. This initiative was named Coalition for Epidemic Preparedness Innovations (CEPI), which aims to secure vaccine supplies for global emergencies and pandemics and to research new vaccines for tropical diseases.
  • Also in the year 2017, WEF launched the Fourth Industrial Revolution (4IR) for the Earth Initiative which is a collaboration between WEF, Stanford University, and PwC. The initiative is funded through the Mava Foundation and in 2018, WEF announced that one project within this initiative was to be the Earth BioGenome Project with an aim to sequence the genomes of every organism on Earth.
  • The 4 major global issues that were on the agenda of the World Economic Forum (WEF) 2020 were
  • To understand how to govern the new technologies that will drive the 4th Industrial Revolution.
  • How to tackle the challenges arising from environmental and climate changes.
  • As new political, economic, and societal priorities change trade and consumption patterns, this Forum will try to understand how industries can transform to achieve more sustainable business models.
  • How to adapt to the demographic, social, and technological trends reshaping education, employment, and entrepreneurship.
  • Some of the important observations and conclusions made at the 50th Annual Meeting of the World Economic Forum 2020 are given below.
  • To develop Vaccinesagainst Coronavirus, 3 programs were announced by the  Coalition for Epidemic Preparedness Innovations (CEPI)
  • To mobilize $ 500 million for achieving the Sustainable Development Goals (SDG’s) in emerging markets. To achieve this, SDG-500,a new multi-stakeholder partnership was launched
  • A new multi-stakeholder effortaimed at supporting efforts to grow, conserve and restore 1 trillion trees by the end of the decade was announced.
  • It was observed that Vietnam and Indonesiaare the new bright spots in the emerging world.
  • The National Business Council, incorporating 140 of the world’s largest companies, agreed to support efforts to develop a core set of common metrics and disclosures that could be used to measure private sector progress against key environmental, social and governance goals
  • Initiatives to promote entrepreneurship in Africa
  • Introduction of a Reskilling Revolution
  • Work with the Organisation for Economic Cooperation and Development (OECD)to promote inclusive and sustainable growth globally.

2.2021: Indo-French Year of Environment

News: Minister for Environment,Forest and Climate Change, and the French Minister for Ecological Transition launched the Indo-French Year of the Environment.

Objective:

  • The basic objective is to strengthen Indo-French cooperation in sustainable development, increase the effectiveness of actions in favor of global environment protection and give them greater visibility.

Details:

  • The Indo-French Year of the Environment over the period 2021-2022 would be based on five main themes: environmental protection, climate change, biodiversity conservation, sustainable urban development, and the development of renewable energies and energy efficiency.
  • It is also a platform for engaging in discussions on critical areas of collaboration relating to environment and allied areas.
  • From the French side, it will be held under the aegis of the Ministry of Ecological Transition, in close collaboration with the Ministry of Europe and Foreign Affairs with the support of the Embassy of France in Delhi and its partners.
  • From the Indian side, it will be coordinated by the Ministry of Environment, Forest and Climate Change (MoEFCC) along with the Ministry of External Affairs, Ministry of Housing and Urban Affairs, Ministry of New and Renewable Energy and other concerned Ministries/Departments/Organisations.
  • A joint screening committee will also be set up to finalise the calendar of the events for the Indo-French Year of the Environment.
  • Prior to the launch, a bilateral Meeting was also held between the French delegation and their Indian counterpart at the Environment Ministry wherein both the sides  deliberated on issues relating to climate change, bio-diversity, blue economy, international solar alliance, cooperation in the field of single-use plastic etc.

 3.ULB Reforms

 News: Rajasthan has become the 5thState in the country to successfully undertake Urban Local Bodies (ULB) reforms stipulated by the Department of Expenditure, Ministry of Finance and has thus become eligible for additional reform linked borrowing. Accordingly, the State has been granted permission by the Department of Expenditure to mobilise additional financial resources of Rs.2,731crore through Open Market Borrowings.
  • Rajasthan has joined four other States namely, Andhra Pradesh, Madhya Pradesh, Manipur and Telangana, who have completed ULB reforms. On completion of this set of reforms, these five States have been granted a total additional borrowing permission of Rs.10,212 crore.

Background:

  • In view of the resource requirement to meet the challenges posed by the COVID-19 pandemic, the Government of India had on 17thMay, 2020 enhanced the borrowing limit of the States by 2 percent of their Gross States Domestic Product (GSDP).
  • Half of this special dispensation was linked to undertaking citizen centric reforms by the States. The States get permission to raise additional funds equivalent to 0.25 percent of GSDP on completion of reforms in each sector.
  • The four citizen centric areas identified for reforms are:
  • Implementation of One Nation One Ration Card System
  • Ease of doing business reform
  • Urban Local body/ utility reforms
  • Power Sector reforms.
  • Linking mobilization of a part of additional financial resources to reforms has pushed reforms by many States in the four citizen centric areas. So far 11 States have implemented the One Nation One Ration Card System, 8 States have done ease of doing business reforms, 5 States have done local body reforms and 1 State has completed power sector reforms.
  • Total reform linked additional borrowing permission issued so far to the States who have done the refoms stands at Rs.­­­65,493 crore.

About ULB Reforms:

  • Reforms in ULBs and the urban utilities reforms are aimed at financial strenghtening of ULBs in the States and to enable them to provide better public health and sanitation services to citizens. Economically rejuvenated ULBs will also be able to create good civic infrastructure.
  • The set of reforms stipulated by the Department of Expenditure to achieve these objectives are:
  • The State will notify:
  • Floor rates of property tax in ULBs which are in consonance with the prevailing circle rates (i.e. guideline rates for property transactions) and;
  • Floor rates of user charges in respect of the provision of water-supply, drainage and sewerage which reflect current costs/past inflation.
  • The State will put in place a system of periodic increase in floor rates of property tax/ user charges in line with price increases.

 4.New START Treaty

 News: US, Russia agree to extend ‘New START’ nuclear arms treaty. The extension of the landmark arms control treaty will continue to limit the number of nuclear missiles and warheads each country can deploy.

Background:

  • In February 2020, the US withdrew from the 1987 Intermediate-Range Nuclear Forces Treaty (INF), accusing Moscow of violating the agreement. Russian then had proposed a one-year extension without conditions of the last major nuclear arms reduction accord, the New START Treaty between Russia and the U.S. If it had fallen, it could have been the second nuclear weapons treaty to collapse under the leadership of Trump.

Details:

  • Both houses of Russian Parliament (Kremlin) approved the extension of the New START treaty for five years.It was done after a recent telephonic conversation between the newly elected USA President and the Russian President.
  • At the World Economic Forum’s virtual meeting, the President of Russia hailed the decision to extend the treaty as “a step in the right direction,”but also warned about the rising global rivalries and threats of new conflicts. The pact’s extension doesn’t require congressional approval in the USA, but Russian lawmakers must ratify the move and its President has to sign the relevant Bill into law.

About the New START treaty:

  • It is a treaty between the United States of America and the Russian Federation on measures for the further reduction and limitation of strategic offensive arms. The term ‘strategic offensive arms’ applies to nuclear warheads deployed by Strategic Nuclear Delivery Vehicles (‘SNDVs’). SNDVs are Inter-Continental Ballistic Missiles (‘ICBMs’)with a range exceeding 5,500 kilometres, strategic bombers, warships (including strategic submarines) and cruise missiles, including air and sea-launched cruise missiles.
  • The New START (Strategic Arms Reduction Treaty), was signed in 2010 by former US President Barack Obama and his Russian counterpart at the time, Dmitry Medvedev.
  • The treaty limits each party to 700 deployed intercontinental ballistic missiles (ICBMs) or deployed submarine-launched ballistic missiles (SLBMs), 1,550 nuclear warheads on deployed ICBMs and SLBMs, and 800 deployed and non-deployed ICBM launchers. It also envisions a rigorous inspection regime to verify compliance.

Way Forward

  • This step by Russia is a welcome move after suspension of the Intermediate-Range Nuclear Force Treaty(INF Treaty) in 2019 and withdrawal of USA and Russia from Open Skies Treaty
  • An extension of the New START Treaty would mark a rare bright spot in the fraught USA-Russian relationship. This opportunity could be used by both the countries for conducting comprehensive bilateral negotiations on future control over nuclear missile weapons.

 5.Revise the text of Budget Speech

 Background:

  • Experience shows revenues beingmuch less than the Budget projections: each year, this mistake is repeated and even amplified. The expenditure estimates are even more disingenuous, because they understate the actual expenditures that should be counted.
  • This concern has been repeatedly brought up by the Comptroller and Auditor General of India (CAG).
  • A CAG report in 2018 identified at least three methods of reducing the stated expenditure:
  • Not paying for the full fertilizer subsidy.
  • Not paying the central government’s dues to the Food Corporation of India (FCI) for the food subsidy, and forcing the FCI to borrow from the market.
  • Using other special purpose vehiclesto pay for infrastructure investment, like the Long Term Irrigation Fund.
  • In 2017-18, just those three items amounted to ₹1,29,446 crore, or 1.8% of GDP.
  • These strategies are problematic because they are non-transparent and they also force other agencies (like State governments and public sector enterprises) to go in for expensive commercial borrowing.

CGA data and spending:

  • The data from the Controller General of Accounts show that between April and November 2020, revenues of the central government predictably collapsed, by around 18%, or ₹181,372 crore, compared to the same period of the previous year. But despite that, expenditures should have gone up, because the lockdown-induced collapse in economic activity meant that public spending would be the only thing keeping the economy afloat.
  • In three rounds of stimulus packages government claimed to inject amounts of ₹1.7-lakh crore in March, ₹20-lakh crore in May and then ₹2.65-lakh crore in November However, the public accounts show that total spending of the central government increased by only ₹86,301 crore.
  • That was only a 4.6% increase— not even enough to keep pace with inflation. In other words, the central government reduced its real spending over the period of the pandemic and economic crisis.
  • This fiscal stance obviously affects people and also adds to contractionary tendencies in the economy,and prolongs the severe demand recession.
  • Policies that destroy informal economic activities eventually come to harm the formal enterprises as well.

Conclusion

  • The Budget this year need to focus on moving to a more expansionary fiscal stance that prioritises employment generation and public service provision.

 6.Keep the wheels of economic recovery turning

 Background:

  • The first advance estimates of national income published on January 7 project a contraction of 7.7% for real GDP. The Q2 GDP estimates published by the National Statistical Office had suggested an economic recovery in India. An improvement in the rate of contraction from 23.9% in Q1 to 7.5% in Q2 was seen as the beginning of a sustained recovery.
  • The Ministry of Finance, in its Monthly Economic Review highlighted it as signifying a ‘V’ shaped recovery and as a reflection of the resilience and robustness of the Indian economy.
  • The Monetary Policy Statement of the Reserve Bank of India (RBI) released on December 4, 2020 also projects positive growth in the remaining quarters of the financial year.
  • Growth rate of the economy had collapsed from 8.2% in Q4 of 2017-18 to a mere 3.1% in Q4 of 2019-20, sliding continuously for eight quarters. The policy stance against this backdrop was premised on the hope thatprivate corporate investment will pick up momentum sooner than later.
  • The RBI did the heavy lifting through five consecutive lowering of repo rate along with liquidity infusion programmes. However, monetary-fiscal linkages are crucial to catalyse the demand.

Revise monetary framework

  • While being cautious of inflation, the RBI has decided to continue the accommodative stancein its latest monetary policy to support growth. The CPI inflation after crossing 7% has cooled off to 4.6% in December. Still, the real interest rates remain very low.
  • The efficacy of thenew monetary framework (NMF) — the agreement between the RBI and Government of India in February 2016 to adopt inflation targeting in India — will be reviewed in March 2021, and we flag the need for revising the framework. The RBI is continuing its liquidity infusion programmes including the on-tap Targeted Long Term Repo Operations (TLTRO).
  • This programme announced on October 9, 2020 for five stressed sectors has been extended to 26 stressed sectors notified under the Emergency Credit Line Guarantee Scheme (ECLGS 2.0).
  • The RBI is also continuing its ‘operation twist’  with Open Market Operations (OMO) of ₹10,000 crore scheduled for December 17, 2020. Nevertheless, the RBI Governor has rightly pointed out that the signs of recovery are far from being broad-based.

Stimulus by the state’s moves

  • According to the International Monetary Fund’sFiscal Monitor Database of Country Fiscal Measures, the fiscal stimulus for India is 1.8% of GDP. The IMF, in its Fiscal Monitor, highlights the need to scale up public investment to ensure successful reopening, boost growth and prepare economies for the future.
  • What we need is stimulus not based on “business cycle” but from the perspective of much needed targeted state interventions in public health, education, agriculture and physical infrastructure,and to redress widening inequalities.
  • As private final consumption expenditure is sluggish, contracting 26.7% and 11% in Q1 and Q2, respectively, a “fiscal dominance” is expected in India for sustained economic recovery. However, India cannot afford fiscal stimulus at the rates of advanced economies, due to a lack of fiscal space.

Way forward

  • Plummeting private corporate investment in India is a matter of concern. The fear of financial crowding out emanating from high fiscal deficit is misplaced in the context of India.
  • Economic recovery will be determined by the degree of containment of the pandemic and the sustained macroeconomic policies. Any abrupt withdrawal of ongoing economic policy support, both by the monetary and fiscal authorities, will be detrimental to growth in times of the pandemic.
  • The fiscal rules at the national and subnational government levels need to be made flexible.