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List of Contents
Need of State Support for Agricultural development
Source: The Hindu
Syllabus: GS 3 – Major crops-cropping patterns in various parts of the country.
Synopsis: The current situation of the agricultural sector demands state support to tackle future challenges. This will ensure sustainable benefits for both – farmers and consumers.
- Countries across the globe are focusing on the gradual reduction of state’s role in almost every sector (including agriculture). Their objective is to bring greater economic development.
- In India, the government’s focus is more on developing the industrial and service sector since the 2nd five-year plan of 1956. Its aim is to move excess people from agriculture into other sectors and attain better growth.
- However, some experts still believe that state support is necessary for agricultural development.
Factors inducing the state support:
- Poor State of Resources: The fertility of agricultural land is declining coupled with scarce water availability.
- Resistance to other occupation: People in agriculture don’t shut down their farming in case of rising costs. Rather they employ family labour in farm and non-farm activities. This allows them to stick to farming despite lower returns and excessive work.
- Difficult to streamline the production: The production process can’t be strengthened by building an assembly line. It is connected to the annual climatic cycle which is volatile and makes farming difficult.
- Size of Farmers: Around 86% of farmers are small and medium. They can’t access good storage, transportation and marketing facilities. This leads to distress sales in agriculture.
- Price Inelastic nature: It means demand for Agri products will not witness a major change with a change in the price of Agri products.
- For instance, a bumper crop reduces the price of Agri product as supply gets increased. This is not followed by a corresponding increase in demand that can push the price upwards. Hence, less income is generated by farmers.
- Tackling Emergencies: State support is desirable to provide quality food grains at affordable price in case of emergencies like drought, pandemic etc.
- Accommodating the Demographic profile: Despite the push towards urbanization, the UN estimates that around 800 million people will reside in rural areas in 2050. It requires proactive action by the state.
Past Performance with State support:
The state initiated the green revolution in the 1960s. It established the Food Corporation of India (FCI) and Agricultural Prices Commission in 1965.
- Surplus production allowed India to attain food security.
- Farmers were incentivised to grow as they enjoy a safety cushion based on FCI’s procurement guarantee.
- Quality grains at low prices through the PDS enhanced consumer welfare.
- Post green revolution, a decline in quantity as well quality of water is witnessed.
- The yield from chemical-based farming is also declining.
- The sector is mainly growing rice and wheat due to MSP (minimum assured price) availability. This is hampering crop diversification and encouraging more water usage as they are water-intensive crops.
- Agriculture became unviable in some regions. It led to over 3 lakh farmer suicides in the last 3 decades. This is an unprecedented event for the country.
- The government should diversify the procurement basket. It should include more crops (like pulses, millets etc.) and more regions.
- It can procure 25% of the actual production of the commodity for that particular season. This was proposed under the 2018 Pradhan Mantri Annadata Aay SanraksHan Abhiyan (PM-AASHA) scheme.
- Further the procurement process should respect the regional agroecology. Eg – don’t procure water-intensive crops from water-stressed regions.
- The locally procured crops must be linked to Anganwadi and mid-meal centres. This will give a good market to farmers and improve nutrition of children.
- The government should do greater investment in specific infrastructure for pulses, millets, etc. crops that are low-priced and provide better nutrition.
- The network of Mandis should be expanded. This will protect farmers from exploitation of large retailers.
- Currently, there are 2,477 mandis and 4,843 sub-mandis and only 17% of farm produce pass through them. However, the need is to create a network of 42000 mandis that will enable the selling of goods within a 5 km radius.
India’s policy towards Climate change
Source: The Hindu
Syllabus: GS 3 – Conservation, environmental pollution, and degradation, environmental impact assessment
Synopsis: India adopted a liberal policy towards climate change in the pandemic era. This might generate significant negative impacts, thus demanding a comprehensive review.
- Recently a meeting took place between U.S. Special Presidential Envoy for Climate, John Kerry and PM Narendra Modi. The U.S has shown commitment to support India’s initiatives to combat climate change.
- After this, demand is raised to review India’s policy towards climate change and consider the proposal of adopting a net-zero emission target.
- It is a situation in which a country balances its emissions with sufficient removal measures.
Should India adopt Net Zero Emission Target?
- Arguments in Favour:
- India is among the top 5 largest emitters of carbon dioxide.
- An increase in intense storms, drought, and heat waves is seen in India due to enhanced climate change.
- Arguments against adoption:
- A substantial cost would be incurred towards this strategy. It can hamper India’s socio-economic programs. The country needs to focus on millions of people that live in energy poverty and underdevelopment.
- India is not a legacy emitter like the U.S, U.K, etc. Legacy emitters have a greater responsibility towards climate change.
However, whether it adopts a net-zero emission target or not, a review of the present approach is desired.
Why Government needs to review its policies?
- The government took various decisions (especially during the Covid pandemic) that will hamper the environment and enhance climate change. This includes:
- Giving approval to projects that might hamper the environment.
- Extending the deadline for coal plants to adopt strict pollution control.
- Drafting liberal environmental impact assessment norms.
- Similarly, the strategy of imposing a higher tax on fuel prices is not paying a significant environmental dividend. Rather the poor are facing undue problems due to rising inflationary pressures.
- India should come up with a comprehensive domestic climate plan before the next UN Convention on Climate Change.
- It should have reduction targets for every sector
- It should enlighten the citizens towards the government’s green development path for the next decade
- Such a plan will induce the biggest historical contributors (U.S, U.K, Europe, etc.) to do more reduction. It will provide greater support to the developing countries.
- They should provide more funds and technology as per the principle of common but differentiated responsibilities.
- In the meanwhile, India can impose an emission tax on luxury items like air conditioners, big properties or aviation, etc. The collected proceeds can then be used for specified green development outcomes.
Rupee depreciation and its management
Source: Indian Express
Gs3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
Synopsis: Rupee depreciation and its impact and solutions to protect from currency volatility risks.
Background of Rupee depreciation
- Recently, the rupee fell sharply by 105 paise. It is considered as one of the biggest single-session falls in 20 months.
- Currently, the rupee stands at 74.47 against the US dollar.
What are the reasons for rupee depreciation?
A combination of factors are responsible for rupee depreciation, such as
- One, concerns over Covid-19 has created uncertainty in the market. This affected the FDI(Foreign Direct Investment) and FII(Foreign Institutional Investment). So the rupee weakens further.
- Two, RBI’s Government Securities Acquisition Programme (G-SAP) that seeks to buy bonds worth Rs 1 lakh crore might be one of the reasons. It is a quantitative easing policy followed by RBI. The policy supported the government’s increased borrowing Programme through the infusion of liquidity.
- Three, the strengthening of the dollar against the euro also contributed to rupee depreciation.
- Four, RBI’s status-quo on policy rates is not helping to increase demand in the local economy. This will further impact the rupee.
- Further, the value of the rupee will also be impacted by the high bond yields in the US and the inflow of dollars into the US.
What are the impacts of Rupee depreciation?
It has both positive and negative impacts. For instance,
- Depreciation has a positive impact for an NRI. As they are sending money back home they will get more rupees per dollar.
- Similarly, Depreciation will have negative impacts on fuel costs and education cost in abroad. For example,
- One, A depreciating rupee increases the cost of crude import. A rise in cost of crude raises fuel prices and inflation. Crude import accounts for almost 20% of India’s imports.
- Two, higher education in the US might cost an annual fee of US$ 50,000. A 5% depreciation in the rupee (For example, from 72.5 to 76.125) will raise the cost for one year from Rs 36.26 lakh to Rs 38.06 lakh (Net loss Rs 1.8 lakh)
How to eliminate the Rupee depreciation and currency risk?
There are multiple options to cover the currency volatility risk. They are,
- Investing in international funds that invest in global markets through fund of funds. While the Indian investors invest in rupees, in the fund of funds the money gets invested in dollars at the current exchange rate. In case of rupee depreciation, this fund will fully protect against the currency depreciation risk.
- In this case, if a person planning for a quick investment (4-5 months) in foreign currency, there are two options to eliminate currency risk.
- One, creating a deposit account in the US and transferring the fund abroad.
- Two, going for a currency hedge in the exchanges by investing in future contracts that will mature in 4-5 months. For example,
- A future contract worth $50,000, maturing in July at the rate of 74.5, will pay Rs 37.25 lakh.
- If in December, the rupee depreciates to $77, Then the contract will yield a profit of Rs 1.25 lakh.
Why Pakistan Reverses its Decision on Trade with India?
Source: The Hindu
Gs2: India and its Neighborhood- Relations.
Synopsis: Pakistan recently took back its decision to allow trade with India. It is an evaluation of Pakistan’s reversal of trade decision with India.
- Recently, the decision by Pakistan to allow for the import of cotton and sugar from India has been withdrawn within a fortnight.
- It has been stated that restoration of J&K’s special status will be the precondition for opening up trade with India.
- However, Pakistan’s textile industry has not welcomed the decision. Because, for them, importing cotton yarn from India is an immediate need, else, it would impact their export potential.
Evaluation of Pakistan’s Decision
- First, Pakistan’s decision to import only three items from India, namely cotton, yarn and sugar was based on Pakistan’s immediate economic needs. It is not a political confidence-building measure to normalise relations with India. This is clear by the following observations.
- Cotton-related products (raw and value-added) earn close to half of the country’s foreign exchange.
- According to the latest Pakistan Economic Survey, 2019-20 cotton and sugarcane production were declining.
- The Cotton industry estimates that in 2021, there would be a 50% decline (2020-21) in cotton production mainly due to supply chain disruption and decreasing yield in cotton areas.
- This means that Pakistan’s cotton export would reduce, creating a domino effect on Pakistan’s garment industry.
- So, to balance the loss in output, Pakistan decided to import cotton from India which is more practical and the most economic for Pakistan.
- Second, the crisis in Pakistan’s sugar industry due to a shortage of sugar for local consumption and increasing cost. Market manipulation and hoarding further resulted in the increased sugar price.
- The sugar crisis was an outcome of Pakistan’s sugar policy that primarily focused on exports over local distribution.
- Again, in this case, importing sugar from India would not only be cheaper for the consumer market in Pakistan it will also help Pakistan’s exports.
- Third, the U-turn to overrule the decision to open trade with India highlights the supremacy of politics over economy and trade.
- Not only in Pakistan, but this situation is also true to the whole of South Asia. This is the reason for very low intra-South Asian Association for Regional Cooperation (SAARC) trade.
- Fourth, the emphasis on Jammu and Kashmir by Pakistan to start bilateral relations goes against any further developments in India-Pak relation. It also hints at Pakistan’s precondition of revoking India’s decision on Jammu and Kashmir to future engagements with India.
In conclusion, Pakistan has to move away from the politicization of all problems. Else it is only Pakistan that will suffer in the long run. So, it is only friendly India-Pakistan relations will benefit both.