4TH FEBRUARY CURRENT AFFAIRS

1. Nuclear Energy

News: In a written reply to a question in the Lok Sabha, it was said that Nuclear energy is a clean, environment friendly base load source of power available 24X7. It also has huge potential which can ensure long term energy security of the country in a sustainable manner.

What is Nuclear Energy?

  • Nuclear Energy is the energy in the nucleus or core of an atom. Tiny units that make up all matter in the universe are called atoms.
  • Nuclear energy is released by splitting the atom, using the process called Nuclear fission.
  • A nuclear reactor is a power plant that can control nuclear fission to produce electricity. In the nuclear reactor, uranium is used as fuel. Atoms of uranium are split, which creates fission products which cause other uranium atoms to split, thus creating a chain reaction.
  • The energy from this chain reaction is released in the form of heat. This heat is used to warm the nuclear reactors cooling agent, which results in the formation of steam. This steam turns the turbines, which drive the engines or generators to produce electricity.

Advantages:

  • It is a source of clean energy.
  • It helps in the development of a country’s economy without adversely contributing to climate change.
  • It does not emit any greenhouse gases.
  • It can be built in urban or rural areas.

Global Status:

  • Approximately 10% of the world’s electricity is produced using nuclear energy.
  • Worldwide, nuclear power plants are operational in around 30 countries.
  • In France, approximately 75% of the electricity is produced by Nuclear energy.
  • A total of around 450 nuclear reactors are operating worldwide for generating electricity.

Uses of Nuclear Energy:

  • Provides electricity to a nation without polluting its environment unlike electricity produced from thermal sources like coal.
  • Source of huge employment for a nation.
  • It helps in boosting the economy of a nation and helps in achieving Sustainable Development Goals.
  • Nuclear power is used for space explorations.
  • Used for providing potable water through desalination
  • Used in cancer treatment
  • Used for sterilizing medical equipment.
  • A country’s security needs are addressed by using nuclear-powered submarines and nuclear-powered Aircraft carriers.
  • Nuclear radiation is used in the treatment of food by killing bacteria, insects, and parasites that cause illness.
  • Nuclear energy could play a major role in transportation by acting as a substitute for fossil fuels.

Progress in India so far:

  • There are presently 22 reactors with a total capacity of 6780 MW in operation and one reactor, KAPP-3 (700 MW) has been connected to the grid on January 10, 2021.
  • In addition, there are 8 reactors (including 500 MW PFBR being implemented by BHAVINI) totaling to 6000 MW under construction at various stages.
  • The Government has accorded administrative approval and financial sanction for construction of 12 nuclear power reactors – 10 indigenous 700 MW Pressurized Heavy Water Reactors (PHWRs) to be set up in fleet mode & 2 units of Light Water Reactors (LWRs) to be set up in cooperation with Russian Federation.
  • On progressive completion of the projects under construction and accorded sanction, the nuclear capacity is expected to reach 22480 MW by 2031.
  • The Government has also accorded ‘In-Principle’ approval for five new sites for locating nuclear power plants in future.

 

2. APMCs as beneficiaries of AIF

 

News: In the Union Budget 2021-22, Finance Minister, Nirmala Sitharaman, announced that Agricultural Produce Marketing Committees (APMCs) will become eligible beneficiaries to utilize the 1 lakh crore financing facility under Agriculture Infrastructure Fund (AIF) to enhance infrastructure at regulated markets, commonly known as Mandis.

Background:

  • APMCs are state controlled markets that are setup to provide market linkages to farmers.
  • Market yards or Mandis provide space for auction to ensure that farmers obtain best possible price for their produce. However, these markets continue to require up gradation and set up of more modern infrastructure.
  • With access to low cost credit under AIF, they can setup post-harvest infrastructure such as sorting and grading units, assaying units, drying yards, cold storages, and warehouses for the benefit of farmers for better price realization of quality produce, ability to store and sell at a better price and minimize post of harvest looses.

Agriculture Infrastructure Fund:

  • The AIF is a medium – long term debt financing facility for investment in viable projects for post-harvest management infrastructure and community farming assets through interest subvention and credit guarantee.
  • The duration of the scheme is from FY2020 to FY2029. Under the scheme, Rs. 1 Lakh Crore will be provided by banks and financial institutions as loans with interest subvention of 3% per annum and credit guarantee coverage under CGTMSE for loans up to Rs. 2 Crore.
  • The beneficiaries include farmers, FPOs, PACS, Marketing Cooperative Societies, SHGs, Joint Liability Groups (JLG), Multipurpose Cooperative Societies, Agri-entrepreneurs, Start-ups, and Central/State agency or Local Body sponsored Public-Private Partnership Projects, and now APMC mandis.

Significance of the move:

  • Availability of post-harvest infrastructure will help the farmers to enhance their income through effective value chain. Availability of warehouses with financing facilities will help the farmers to store the agriculture produce and sell at optimal prices.
  • Perishables such as fruits, vegetables and flowers require low temperatures throughout the value chain to enhance shelf life and preserve quality. Hence, availability of cold storages at markets will result in direct benefit to the farmers on premium farm produce.
  • The suitable infrastructure will help to reduce the post-harvest losses, which can be as high as 5-10% of the produce. Hence, up gradation of infrastructure at regulated markets has the potential to enhance farm income and also support other stakeholders across the value chain, which also have the access to this infrastructure.

3. India’s Trade Policy

News: India’s Trade Policy Review (TPR) has been carried out by the World Trade Organization (WTO) under the Trade Policy Review Mechanism, wherein the trade related policies of Member countries are reviewed at regular intervals by the WTO.

India’s Foreign Trade Policy 2015-20

Background:

  • FTP 2015-20 provides a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in line with the ‘Make in India’ programme.
  • Government aims to increase India’s exports of merchandise and services from USD 465.9 billion in 2013-14 to approximately USD 900 billion by 2019-20 and to raise India’s share in world exports from 2 percent to 3.5 percent.
  • The FTP for 2015-2020 seeks to provide
  • a stable and sustainable policy environment for foreign trade in merchandise and services;
  • link rules, procedures and incentives for exports and imports with other initiatives such as „Make in India, “Digital India” and “Skills India” to create an “Export Promotion Mission;
  • promote the diversification of India’s export basket by helping various sectors of the Indian economy to gain global competitiveness;
  • create an architecture for India’s global trade engagement with a view to expanding its markets and better integrating with major regions, thereby increasing the demand for India’s products and contributing to the “Make in India” initiative;
  • and to provide a mechanism for regular appraisal in order to rationalise imports and reduce the trade imbalance.

Features

Role of State/UT Governments 

  • A major path breaking initiative is to mainstream State and Union Territory (UT) Governments and various Departments and Ministries of the Government of India in the process of international trade. State/UT Governments can play a crucial role in promoting exports and rationalising nonessential imports.
  • Many of the State Governments have nominated Export Commissioners. The Department of Commerce is also helping State Governments to prepare export strategies. An Export Promotion Mission will be constituted to provide an institutional framework to work with State Governments to boost India’s exports.

Addressing In-House Challenges –

  • The biggest challenge, however, is to address constraints within the country such as infrastructure bottlenecks, high transaction costs, and complex procedures, constraints in manufacturing and inadequate diversification in our services exports.

The Services Sector 

  • The Services sector is an area of great potential. Efforts will be made to gain effective market access abroad through comprehensive economic partnership agreements with important markets. A Global Exhibition on Services will be held annually, which will provide a forum for showcasing India’s strengths in the Services sector.

Building the India Brand –

  • A long term branding strategy has been conceptualised to enable India to old its own in a highly competitive global environment and to ensure that „Brand India ‟ becomes synonymous with high quality. Further, a programme to promote the branding and commercialisation of products registered as Geographical Indications and to promote their exports will be initiated.

Institutional Mechanisms for Trade Promotion –

  • Market Access Initiative (MAI) Scheme and the Market Development Assistance Scheme will continue. The present allocation for the MAI scheme is inadequate; efforts will be made to augment resources for the scheme.
  • Export Promotion Councils are being strengthened, both in terms of technical capabilities and management structures. Project exports will be encouraged in a big way, especially in the emerging markets with high infrastructure needs, through special lines of credit offered by the Ministry of External Affairs and the Buyers Credit Scheme of the Department of Commerce through EXIM Bank of India. This will, inter alia, enable Indian businesses to develop long term business relationships, facilitate easier acceptance of India’s exports and build visibility for Indian products.
  • Two institutional mechanisms are being put in place for regular communication with stakeholders, namely, a Board of Trade which will have an advisory role and a Council for Trade Development and Promotion which will have representation from State and UT Governments.

Trade Ecosystem –

  • Several initiatives are underway or in the pipeline for the simplification of procedures and digitization of various processes involved in trade transactions. Steps are being taken by various Ministries and Departments to simplify administrative procedures and reduce transaction costs based on the recommendations of two Task Forces constituted by the Directorate General of Foreign Trade.
  • Specific measures will be taken to facilitate the entry of new entrepreneurs and manufacturers in global trade through extensive training programmes. The Niryat Bandhu scheme will be revamped to achieve these objectives and also further dovetailed with the ongoing outreach programmes.

The Multilateral Trading System and India –

  • The current WTO rules as well as those under negotiation envisage the eventual phasing out of export subsidies. This is a pointer to the direction that export promotion efforts will have to take in future, i.e. towards more fundamental systemic measures rather than incentives and subsidies alone.
  • The three mega agreements that are currently being negotiated namely the Trans Pacific Partnership, Trans-Atlantic Trade and Investment Partnership and the Regional Comprehensive Economic Partnership (RCEP) add a completely new dimension to the global trading system. India is a party to the RCEP negotiations.
  • The mega agreements are bound to challenge India’s industry in many ways, for instance, by eroding existing preferences for Indian products in established traditional markets such as the US and EU and establishing a more stringent and demanding framework of rules. Indian industry needs to gear up to meet these challenges for which the Government will have to create an enabling environment.

Product Strategy

  • The focus will be on promoting exports of high value products with a strong domestic manufacturing base, including engineering goods, electronics, drugs and pharmaceuticals. The challenges posed to the pharmaceuticals sector by NTBs in Japan and regulatory hurdles in China have to be addressed.
  • A composite programme for promotion of healthcare products and services will be conducted in various regions to showcase and market India’s unique strengths.
  • Other sectors which require special attention, in light of India’s strengths and their contribution to employment generation, are leather, textiles, gems and jewellery and the sectors based on natural resources, which include agriculture, plantation crops, marine products and iron ore exports.
  • Revitalizing plantations, enabling a less controlled regime for agriculture and aiming at greater value addition and processing would help to increase the value of exports from these sectors. The North-Eastern States are a special focus area for organic product exports.

 

4. FDI in India

 

News: To promote Foreign Direct Investment (FDI), the Government has put in place an investor-friendly and enabling policy, wherein many sectors are open for 100% FDI under the Automatic route. This information was given by the Minister of State in the Ministry of Commerce and Industry, in a written reply in the Lok Sabha.

Background:

  • The intent is to make the FDI climate more investor friendly and remove the policy bottlenecks that have been hindering investment inflows into the country.
  • FDI policy reforms carried out by Government have resulted in increased FDI inflows. The country registered its highest ever FDI Inflow of US $74.39 billion (provisional figure) during the last financial year 2019-20
  • The policy on FDI is reviewed on an ongoing basis, to ensure that India remains an attractive and investor friendly destination.
  • Changes are made in the policy after rounds of intensive consultations with all stakeholders including apex industry chambers, associations, representatives of industries/groups and other organizations and taking into consideration their views/comments and suggestions.

What is FDI?

  • An FDI is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control.
  • FDI may be made either “inorganically” by buying a company in the target country or “organically” by expanding the operations of an existing business in that country.
  • Broadly, FDI includes “mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations, and intra company loans”.
  • In a narrow sense, it refers just to building a new facility, and lasting management interest.

FDI in India

  • Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA), driven by then FM Manmohan Singh.
  • There are two routes by which India gets FDI.
  • Automatic route: By this route, FDI is allowed without prior approval by Government or RBI.
  • Government route: Prior approval by the government is needed via this route. The application needs to be made through Foreign Investment Facilitation Portal, which will facilitate the single-window clearance of FDI application under Approval Route.
  • India imposes a cap on equity holding by foreign investors in various sectors, current FDI in aviation and insurance sectors is limited to a maximum of 49%.
  • In 2015 India overtook China and the US as the top destination for the Foreign Direct Investment.

 

5. One District One Product Scheme

 

News: One District One Product (ODOP) is an initiative which is seen as a transformational step forward towards realizing the true potential of a district, fuel economic growth and generate employment and rural entrepreneurship, taking us to the goal of AtmaNirbhar Bharat.

Details:

  • One District One Product (ODOP) initiative is operationally merged with ‘Districts as Export Hub’ initiative being implemented by DGFT, Department of Commerce, with Department for Promotion of Industry and Internal Trade (DPIIT) as a major stakeholder.
  • The Department of Commerce through DGFT is engaging with State and Central government agencies to promote the initiative of One District One Product.
  • The objective is to convert each District of the country into an Export Hub by identifying products with export potential in the District, addressing bottlenecks for exporting these products, supporting local exporters/manufacturers to scale up manufacturing, and find potential buyers outside India with the aim of promoting exports, promoting manufacturing & services industry in the District and generate employment in the District.
  • To increase exports and take export promotion to the District level, Department of Commerce through the Director General of Foreign Trade (DGFT) is engaging with State / UT Governments to implement the said initiative in all districts of the country in a phased manner, with the objective of mobilizing the potential of each district of the country to achieve its potential as an export hub.
  • Under the initial phase of the ODOP programme, 106 Products have been identified from 103 districts across 27 States.

 

6. Make in India 2.0

 

News: Since its launch, Make in India initiative has made significant achievements and presently focuses on 27 sectors under Make in India 2.0. Department for Promotion of Industry and Internal Trade is coordinating action plans for manufacturing sectors, while Department of Commerce is coordinating service sectors.

Background:

  • Make in India initiative was launched on September 25, 2014 with the objective of facilitating investment, fostering innovation, building best in class manufacturing infrastructure, making it easy to do business and enhancing skill development.
  • The initiative is further aimed at creating a conducive environment for investment, modern and efficient infrastructure, opening up new sectors for foreign investment and forging a partnership between government and industry through positive mindset.

Make In India 2.0:

  • The Government of India is making continuous efforts under Investment Facilitation for implementation of Make in India action plans to identify potential investors.
  • Support is being provided to Indian Missions abroad and State Governments for organising events, summits, road-shows and other promotional activities to attract investment in the country under the Make in India banner.
  • Investment Outreach activities are being carried out for enhancing International co-operation for promoting FDI and improve Ease of Doing Business in the country.
  • Recently, Government has taken various steps in addition to ongoing schemes to boost domestic investments in India.
  • These include the National Infrastructure Pipeline, Reduction in Corporate Tax, easing liquidity problems of NBFCs and Banks, trade policy measures to boost domestic manufacturing.
  • Government of India has also promoted domestic manufacturing of goods through public procurement orders, Phased Manufacturing Programme (PMP), Schemes for Production Linked Incentives of various Ministries.
  • India has registered its highest ever annual FDI Inflow of US $74.39 billion (provisional figure) during the last financial year 2019-20 as compared to US $ 45.15 billion in 2014-2015.
  • In the last six financial years (2014-20), India has received FDI inflow worth USD 358.30 billion which is 53 percent of the FDI reported in the last 20 years (USD 681.87 billion).
  • Steps taken to improve Ease of Doing Business include simplification and rationalisation of existing processes. As a result of the measures taken to improve the country’s investment climate, India jumped to 63rdplace in World Bank’s Ease of Doing Business ranking as per World Bank’s Doing Business Report (DBR) 2020.
  • This is driven by reforms in the areas of Starting a Business, Paying Taxes, Trading Across Borders, and Resolving Insolvency.

List of 27 Sectors under ‘Make in India’ initiative

Manufacturing Sectors

  • Aerospace and Defence
  • Automotive and Auto Components
  • Pharmaceuticals and Medical Devices
  • Bio-Technology
  • Capital Goods
  • Textile and Apparels
  • Chemicals and Petro chemicals
  • Electronics System Design and Manufacturing
  • Leather & Footwear
  • Food Processing
  • Gems and Jewellery
  • Shipping
  • Railways
  • Construction
  • New and Renewable Energy

Service Sectors

  • Information Technology & Information Technology enabled Services
  • Tourism and Hospitality Services
  • Medical Value Travel
  • Transport and Logistics Services
  • Accounting and Finance Services
  • Audio Visual Services
  • Legal Services
  • Communication Services
  • Construction and Related Engineering Services
  • Environmental Services
  • Financial Services
  • Education Services

 

 

7. Amendments in One Person Companies rules

 

News: As a measure which directly benefits Startups & Innovators in the country, especially those who are supplying products & services on e-commerce platforms, and in order to bring in more unincorporated businesses into the organized corporate sector, the incorporation of One Person Companies (OPCs) is being incentivized by amending the Companies (Incorporation) Rules.

The amendments to the Rules governing OPCs will cover the following, w.e.f  01st April 2021

  • Previously NRIs were not allowed to incorporate OPCs. Now any natural person, who is an Indian citizen, whether resident in India or otherwise would be allowed to form an OPC.
  • For being considered as a resident in India, the residency period has been proposed to be reduced to 120 days from 182 days for NRIs.
  • Rule relating to voluntary conversion unless OPC has completed two years from the date of incorporated is proposed to be omitted and with effect from 01.04.2021, Conversion of One Person Company into a Public company or a Private company shall be permitted any time. A One Person company may be converted into a Private or Public Company other than a company registered under section 8 of the Act, after increasing the minimum number of members and directors to two or minimum of seven members and three directors as the case may be,
  • Similarly the limitation of Paid up capital & turnover presently applicable for OPCs (paid up share capital of fifty lakhs rupees and average annual turnover during the relevant period of two crore rupees) is being done away with so that there are no restrictions on the growth of OPCs in terms of their paid up capital & turnover.
  • Rationalization of e-forms applicable for OPCs by omitting e-Form No.INC-5 and modification of e-form INC-6 (application for conversion from OPC to a Private company or a Public company and also Private company to OPC or )

Significance:

  • It aims to allow OPCs to grow without any restrictions on paid up capital and turnover, allowing their conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and also allow Non-Resident Indians (NRIs) to incorporate OPCs in India.
  • In addition, the fast track process for mergers under the Companies Act, 2013 has also been now extended to also include mergers of Startups with other Startups and with Small companies, so that the process of mergers & amalgamations is completed faster for such companies.

 

8. India’s Maritime Exercises

 

News: Indian Navy conducts/participates in bilateral/multilateral maritime exercises and coordinated patrols (CORPATS) with friendly foreign countries on a regular basis.

Background:

  • The aim and objective of these exercises include providing operational exposure to our Naval forces, enhance interoperability and undertake  mutual exchange of best practices, special operations tactics and to develop cooperation among the armed forces of participating nations etc.  In this  process the current tactical and technological practices/techniques etc., are exchanged during such exercises.
  • The expenditure incurred varies on the magnitude of our participation and assets deployed during such exercises and are met almost entirely from the budget of the Indian Navy.  Our Navy is represented by various units/troops in such exercises which are decided based on the nature and requirement of specific exercise.
  • The conduct and planning of such exercises is a continuous process.  The countries with which joint military exercise are proposed to be conducted during the coming year include most of the above countries, and these exercises are under the stage of discussions with respective countries.
  • The details of Joint Maritime Exercises conducted with foreign countries during the last three years i.e., from the year 2018-19 to 2020-21 are as under:-
Sl. No.CountryExercise
1.ADMM Plus CountriesADMM Plus Exercise
2.AustraliaAUSINDEX
KAKADU
Black Carillon (Multi-lateral)
3.BangladeshIN-BN CORPAT (Annual)
IN-BN BILAT (Annual)
IN-BN SF Exercise (Annual)
4.Brazil & South AfricaIBSAMAR
5.FranceVARUNA
6.IndonesiaIND-INDO CORPAT

(Bi-annual)

(Coordinated Patrol)

IND-INDO BILAT
7.IONSIONS Working Group Exercise (Multilateral)
8.JapanJIMEX
EOD J2A (Multilateral)
9.MalaysiaIN-RMN BILAT
10.MaldivesEx EKATHA
11.MyanmarIMCOR
IN-MN BILAT
12.OmanNaseem-al-Bahr
13.QatarZa’ir Al Bahr
14.RussiaINDRA NAVY
15.SingaporeSIMBEX
16.Singapore & ThailandIndia, Singapore, Thailand Trilateral Exercise (SITMEX)
17.Sri LankaSLINEX
IN-SLN SF Exercise
18.ThailandINDO-THAI CORPAT
19.UAEIN-UAEN BILAT
20.UKKONKAN
21USASPITTING COBRA (IN-USN EOD Exercise)
SANGAM(IN-USN SF Exercise)
IMX
CUTLASS Express (Multilateral)
RIMPAC (Multilateral)
22.USA & JapanMALABAR
23.USA, Japan & AustraliaMALABAR
24.VietnamIN-VPN BILAT
25.Friendly Foreign CountriesMILAN (Multilateral)
26.Western Pacific Naval SymposiumWPNS Exercise (Multilateral)

 

9. Ethanol Blended Petrol

 

News: Government has been promoting use of ethanol as a blend stock with main automotive fuel like petrol in line with the National Policy on Biofuels (NBP) -2018 under the Ethanol Blended Petrol (EBP) Programme. This policy envisages an indicative target of blending 20% ethanol in petrol by 2030.

Efforts made by the govt.:

  • Government has since allowed production of ethanol from sugarcane and food grain based raw-materials.
  • Department of Food & Public Distribution has informed that the cost of production of ethanol varies from distillery to distillery and depends upon various factors viz. cost of raw material, conversion cost, efficiency of distillery plants etc..
  • Further, keeping in view the above factors, the Government has fixed the ex-mill price of ethanol from sugarcane based raw-materials and Oil Marketing Companies (OMCs) have fixed the price of ethanol from damaged and surplus rice with FCI for Ethanol Supply Year (ESY) (period from Dec. to Nov.) 2020-21.
  • The remunerative prices of ethanol produced from different feedstock has been fixed to encourage supply of ethanol under EBP Programme.
  • In addition to remunerative prices, production of ethanol from various feedstock is also allowed to augment the supply of ethanol under EBP Programme.
  • Furthermore, Government, in order to augment production of ethanol, has notified interest subvention schemes for setting up of molasses and grain based new distilleries or expansion of existing distilleries, setting up of dual feed distilleries, installation of zero liquid discharge system, etc.

What is ethanol?

  • Ethanol is basically alcohol of 99%-plus purity, which can be used for blending with petrol.
  • Produced mainly from molasses, a byproduct of sugar manufacture.

About Ethanol Blended Petrol (EBP) Programme:

  • Launched in 2003 on pilot basis.
  • The aim is to promote the use of alternative and environmental friendly fuels.
  • Implemented by the Ministry or Oil Marketing Companies (OMCs).

Benefits of ethanol blending:

  • Reduction in import dependency.
  • Support to agricultural sector.
  • Environmental friendly fuel.
  • Additional income to farmers.

Concerns and challenges:

  • Consistent shortfall in supply of ethanol in the past, mainly on account of the cyclical nature of the sugarcane harvests in the country.
  • Lack of an integrated approach in the EBP across its value chain.

 

10. The budget bids goodbye to fiscal orthodoxy

 

Background:

  • With its fiscal deficit at 9.5% of GDP for FY21 and 6.8% in FY22 Budget for 2021-22 seems to signal “spend like there is no tomorrow”. For well over a decade-and-a-half, we have tried attaining deficit targets set out in the Fiscal Responsibility and Budget Management (FRBM) Act (2003).
  • In this Budget, target of FRBM Act has not been adhered to. The Budget thus marks an important departure from one of the key tenets of the Washington Consensus that was based on macroeconomic stability.
  • In previous years, Medium Term Fiscal Policy cum Fiscal Strategy Statement would give the indicators for the past two years as well as the projections for the next two years.
  • In this year’s Budget, the yearly projections are missing. The Finance Minister has promised to introduce an amendment to the FRBM Act to formalise the new targets.

Key Concepts:

  • The Economic Survey laid the groundwork for a departure from rigid adherence to fiscal consolidation. 
  • It has a quote from economist Olivier Blanchard, “If the interest rate paid by the government is less than the growth rate (IRGD), then the intertemporal budget constraint facing the government no longer binds.”
  • The “intertemporal budget constraint” means that any debt outstanding today must be offset by future primary surpluses.
  • The Survey argues that in India, the growth rate is higher than the interest rate most of the time. 
  • The Survey says that, in the current situation, expansionary fiscal policy will boost growth and cause debt to GDP ratios to be lower, not higher.

Areas of concern

  • An important factor for adhering to the fiscal constraint in the past was the fear that the rating agencies would downgrade India if total public debt crossed, say, 10%-11% of GDP. That is a risk that cannot be wished away unless the rating agencies have decided to toe the IMF-World Bank line on fiscal deficits.
  • Another concern is that a large fiscal deficit can fuel a rise in inflation.
  • A third concern is that, with the tax to GDP ratio not rising as expected, the sale of public assets has become crucial to reduction in fiscal deficits in the years ahead. This is a high-risk strategy.
  • A large-scale privatisation almost always involves substantial FDI. In South East Asia and Eastern Europe, privatisation of banks meant a large rise in foreign presence in the domestic economies.

Conclusion

  • If the nation’s political economy came in the way of our meeting the FRBM targets, it is also likely to pose an obstacle to large-scale privatisation. A departure from fiscal orthodoxy is welcome. But the government needs to think of ways to make it more sustainable.

Interest Rate Growth Differential

  • A key indicator of an economy’s long-run debt sustainability is the differential between interest paid on government debt and the economy’s nominal growth rate. When the cost of raising debt is lower than the gross domestic product (GDP) growth rate, public debt comes with low fiscal costs.
  • In such a situation, the debt-to-GDP ratio of the economy declines as debts are rolled over.