The hindu editorials
https://www.thehindu.com/opinion/editorial/
Completed till 17th Jan.
January
A fortuitous trend: On wholesale inflation data
In Dec, 2022, inflation was at a much lower rate at 5.7%. The rates are the lowest since Nov 2021. Wholesale inflation was 5.88% in November. It fell to 4.95% in December which is a 22-month low. The wholesale price rise was too high in Dec 2021 at 14.2%. Wholesale inflation was at an all-time high in May 2022 at 16.6%. The succeeding 7 months saw a decline in wholesale inflation. Retail inflation was very high at 7.4% in September which cooled down in the coming four months. RBI has a threshold of 6% inflation which could be maintained in Nov and Dec 2022. Also, wholesale price rise has been lower than the consumer price rise for the first time. It means the input costs for producers is decreasing.
In the quarter of Oct-Dec 2022, inflation has been 6.1%. RBI predicts that for the coming quarter of Jan-Mar 2023, inflation will be an average of 5.9%.
But, why has the inflation of Nov-Dec 2022 been mild? It is because of a lower prices of vegetables. Prices of vegetables dropped to 8% and 15% in November and December of 2022 respectively. So, there was a reduction in food inflation. But, cereals are the largest components of the food basket and their inflation rose for the sixth successive month. Cereal prices rose by 13.8% and wheat prices rose by 22%. Inflation continues to rise for milk, eggs, fish, meat, spices, footwear, eduction, clothing, etc. If we exclude the vegetable prices then the retail inflation was 7% in Nov and rose to 7.2% in Dec.
Core inflation means inflation excluding food and energy. Core inflation rose as well. Private investments are being hampered due to a rise in inflation.
Exports drop by 12.2% in a year on slow demands
Lower exports have a negative impact on the currency, forex reserves, inflow of foreign currencies, and will raise inflation.
Trade is important for any nation. There are two types of trades: exports and imports. When imports are more than exports then trade deficit occurs and it not good for economy. It causes depreciation in currency and causes deflation, decreases currency rating, and impacts short-term investments. Our exports are increasing. But, India's imports are also rising. Trade deficit is also increasing. Oil imports need to decrease. India produces a large amount of sugar so there is a scope for ethanol blending. It will reduce dependence on imported oil. Electric Vehicles also play a major role in reducing oil imports. So, India needs to increase exports and decrease imports. Maximum imports of crude oils,gold and silver, defence equipment.
Sri Lankan economy saw so much trade deficit that it caused crisis in balance of payment. This condition also came about in India in 1991. Foreign currency from exports helps to raise forex reserves. Currency depreciation takes place. The greater the decrease in currency value the more the import bill rises. It again causes inflation.
Widening deficits
The balance of payment is also called the current account deficit or trade deficit.
Balance of payment deficit means:
The country imports more goods, services, and capital than it exports.
It must borrow from other countries to pay for its imports.
It fuels economic growth in the short term.
It goes into debt for its consumption in the long term.
Balance of payment surplus means:
The country exports more than it imports.
The country provides enough capital to pay for its domestic productions.
It boost economic growth in the short run.
In the long run, it becomes too dependent on export driven growth.
Social equaliser: On promoting digital payments
GoI has decided to give 26 crore rupees to banks as an incentive for digital payments. Digital payment is important for any economy. A robust payment system guarantees good economic growth. The payment system should be hassle-free. Banks are not for daily investment but for investment, loan, and credit. Its resources are being wasted on daily transactions. So, daily transactions have to follow an alternative route.
Digital transactions also empower the individual because there is no need to waste time to go to banks and transacting. Even the weaker sections of society can get financial inclusion by getting involved in the banking system to get payments digitally. So, the digital payment system is a socialistic system as well.
But, the digital payment system should also provide cyber security. There is a need for greater digital literacy.
For financial inclusion, banks were compelled to start a number of their branches in unbanked rural areas when they were nationalized.
Finanacial inclusion saves from exploitation while taking loans from sahukars and other unregulated money lenders.
RBI's payment vision 2025 states that payment systems foster economic development and financial stability.
RuPay cards and UPI have helped during covid to make transactions.
Demonetization and covid have enhanced digital payments.
Mastercard and visa are not Indian by origin by RuPay cards are. Visas and Mastercards were payment gateways that would deduct a lot of money for transactions.
Unified payments interface (UPI)
- UPI is a technology that consolidates various bank accounts.
- It provides an instant real-time payment system.
- It allows users to transfer money across multiple bank accounts without revealing the details of one's own bank account to the recipient.
- NPCI launched UPI in 2016 in conjunction with RBI and Indian Banks Association.
NPCI
- It is an umbrella organization for all retail payments in India.
- It is an initiative of RBI and the Indian Banks Association under the Payments and Selletlemnts systems act, 2007.
- NPCI was registered as a not-for-profit company under Sec 25 of the Companies Act, 1956. It is not section 8 of the companies act, 2013.
- The ten core promoter banks are:
- SBI
- PNB
- Canara bank
- Bank of Baroda
- Union Bank of India
- Bank of India
- ICICI bank
- HDFC bank
- City bank
- HSBC
- In 2016, the shareholding was broad-based to include 56 members.
Balance fiscal consideration with growth
If govt spending is too high then there are high chances of fiscal deficit. It means govt spends more than it earns. So, loans pay for the excess payments. In 1990s India sank into debts from the foreign countries. It had a bad impact on the currency. As currency depreciation takes place, more money is needed to repay the loans as compared to earlier levels when the loan had been accepted. There is a need to control fiscal deficit.
Economic growth is slow after covid and more expenditure is needed to boost economic growth. Capital expenditure of govt has increased so private investments have also increased.
Govt has to take a stand so that economic growth is not hampered but fiscal deficit is also controlled so fiscal consolidation has to take place.
Govt budget has two parts: Revenue budget and capital budget. Capital budget is related to asset creation or liability.
Both capital and revenue see receipt and expenditures. Receipt means inflow of money whereas expenditure means outflow of money.
Capital budget is related to an increase in assets or liabilities.
Capital expenditure occurs when govt builds roads, hospitals, schools, etc. It also occurs when govt gives loans to someone. It also occurs when Indian govt repays loans to the World Bank.
Capital receipt takes place when someone repays loans to the Indian govt. It also takes place due to privatisation and disinvestment.
Revenue expenditure includes payment of loans by Indian govt, giving of subsidies and salaries to govt employees, etc. No asset is increased in these cases.
Revenue receipt is of two types: Tax and non-tax.
Tax includes GST, and non-tax includes profits of dividends.
A green promise: On the National Green Hydrogen mission
January 06
Hydrogen is used in industries as a fuel. It is used to make ammonia or fuel cells, etc. ELectrolysis breaks water to make hydrogen. It uses electricity. Reenewable energy has to be used like solar, wind or tidal energy. Solar power is costlier than coal and thermal power. How to transport the power from electricity plant to hydrogen plant? Transmission companies are not cost efficient.
Hydrogen is an essential industrial fuel that helps in the manufacture of ammonia, cement and steel, and power cells to run buses and cars.
The cheapest way to produce hydrogen is to rely on coal and fossil fuels that increases carbon emissions.
It costs between Dollar 0.9 and 1.5 to produce per kg of hydrogen from coal. It costs between dollar 3.5 to 5.5 to produce hydrogen using renewable energy.
Goal by 2030:
At least 5 million metric tonnes of annual green hydrogen, electrolyser capacity of 60-100 GW and a 125 GW renewable energy capacity for green hydrogen and its associated transmission network.
Nodal agency: Ministry of new and renewable energy
Expected mission outcomes:
- Development of Green Hydrogen Production Capacity of at least 5 Million metric tonnes per annum.
- Renewable energy capacity addition of about 125 GW in INdia by 2030.
- Saving over 1 lakh crore in fossil fuel import.
- Reduction in about 50 MMT of greenhouse gas emission by 2030.
Mixed signals: On macro-economic data
Many signals are important in an economy. IIP is such an index within an industry which signals at rising productions. It means an incrase in deamands and investements. It menas more job creation. PMI conducts surveys. If there are better orders in service or produciton section then it signals at a growing economy. But, unemplyment is also increasing. While determining the mood of the market, the GoI released IIP to know how the production is by NSO. Private surveys are also released by IHS Markit, Global S&P etc. All this data shows that production is increased but infaltion and unemployment are also incresing.
PMI survey shows taht overall economic data for the eight core industries for November and S&P GLobal's survey based Purchasing Manager's Index (PMI) manufacturing and service sectro for decemeber underlines the momentum.
In 8 core industries, ouitput has grwon by 5.4% on an yearly basis. There is a double-digit expansion in cement, coal, electricity.
Since Feb 2021, more orders have been received by the manufacturers.
Overall output cahrge inflation across the private sector is increasing. The input costs are getting higher beccause of inflation so gains are being minimized. So, inflation is a mjaro concern in our economy today.
PMI-
- It is an indicator of business activity in manufacture and service sector.
- It is a service based measure that asks the respondents about thier perceptions in key business variable.s.
- The index is built separatly for manufacture and service sectors then a composite index is formed by combining the two.
- PMI is based on IHS Markit based on answers by around 400 manufacturers to their questionnaires.
Gaming and gambling
Problems with online gaming is addiction and ill-effect on society. The states try to stop gambling. It is easy to stop physical forms of gambling but how can it stop in online forms? Karnatake and Tamil Nadu stopped online gaming and gambling. They went to high courts and said that it is the skills of the gamblers and not luck based. So, whether a game is gamble or not will be determined on whether it is skill or luck based. China has allowed gaming only for a specific number of hours per day after which they are closed. Gambling and gaming have a negative effect on families and people invest money to gamble. But, gaming and gambling help to give income on the basis on export and import of technology. The society is getting monotonous so there are issues of mental pressure. People do not indulge in physical activities giving rise to health issues. But, gambling also increases online theft and crimes. But, investment R&D, new tech etc will be impacted. Govt has tried to regulate these things and brought about a draft. It makes KYC mandatory for users. Online gaming platforms must go for self regulation.
SC order on demonetisation
For demonetisation, there were cases in Supreme Court. These cases were on two basis: The citizens had a lot of problems due to a sudden demonetization. The process used by the govt was wrong for doing demonetisation. A bench of 5 SC judges was setup. 4/5 believed that the govt was correct in case of demonetisation.
RBI Act 1934 Section 26 (2):
Relases, devaluation and demonetisation of notes. The Act says that it will be initiated by Board of Governors and give suggestions to the GoI. This is the due porcess for demonetisation.
There was a question raised by judge Nagaratna about wehther the Govt had discussed the process of demonetisation with the RBI. GoI needs recommendation from Borad of Governors of RBI to demonetize or pass an act or ordinance in the parliament. Earlier demonetisations were on the basis on amendments in the parliament.
Nagaratna was the only woman judge in the 5-member panel.
The four members found that it was not wrong by the GoI to demonetize Rs. 500 and Rs. 1000 banknotes by issuing an official gazette on 8th Nov 2016.
The demonetisation was legal according to the Supreme Court but there were questions regarding whether processes were followed by the GoI or not.
Opposition alleges whether the GoI discussed about the demonetisation with the RBI or not.
Objectives of demonetisation by GoI:
Black money in homes
Fake notes printing
Terrorists use black money
But GoI did not take oppositon into confidence or discuss it wit the RBI. But the GoI wanted it to be a surprise to wash out all black money from the economy.
RBI has said that demonetisation has promoted social inclusion.
The Finance Ministry has said that it has increased our tax base.
National economic advisor says that demonetisation has led to formalisation. Formalisation means money in economy not in formal channel does not get used.
Demonetisation has increased the capital of bank and increased their lending capacity.
Benefits of demonetisation:
Cashless economy and online payment and importance of UPI although it was a forced measure. Without demonetisation, the transition to cashless economy would be a behavorial change and wouild take much longer times.
Formalisation of economy: Almost all moeny reenters the banks and reboots the economic system. The unaccounted money in our homes entered into the banks and hte economy.
Tax base has increaed: Many people have been forced to declare their holdings and give tax
Terror funding and left wing organizations or insurgents in Northeast had this old currency money.
Fake currency networks got crushed: DIfferetn printing paper and media were used which made fake currency making difficult in the future.
Financial inclusion according to RBI: Many small vendors and sellers have opened their bank accounts only to receive online payments.
Demerits of demonetisation:
People are stocking Rs. 2000 notes and can further lead to easy black money.
Fake currencies also entered into the banks.
Banking system failure: The elite groups were targeted but they had backdoor relatiosn with the banks so they did not suffer much. The poor and the MSME sector suffered maximum.
24th
25th
Tourism and economy
India allows all weather tourism. It has economic benefits. The region that promotes tourism also grows and preserves its culture and cultural exchange. In G20, India wants to reflect herself as a tourism hub. It can help to build a 5 trillion economy. It creates jobs, improves forex reserves. Tourism also improves soft power.
25th Jan- National Tourism day
Theme: 'Rural and Community Centric Tourism'
Ken Betwa river link project
Ken has surplus water. It is a tributary of Yamuna. A canal will transfer its water to Betwa river in Bundelkhand of UP. Bundelkhand is a part of both MP and UP. Water will be available for irrigation, domestic use, and will provide hydel power using dams. But, this project will disturb the ecosystem to Panna tiger reserve in MP. The central govt has allowed it with Rs. 44,600 budget. The canal will be of 230km long. People from a water deficient area migrate and face irrigation problems. Brahmaputra floods every year so it is also being suggested to draw this water to the southern areas.
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