Daily Prelims Notes 21 May 2022

May 21, 2022
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Daily Prelims Notes

21 May 2022

Table Of Contents

1. The report releaed by the Economic Advisory Council to the Prime Minister (EAC-PM)

Context : ‘The State of Inequality in India’ was released by EAC-PM’s Chairperson

Concept :

The government has reconstituted the Economic Advisory Council to the Prime Minister for a period of two years after its term came to an end last month.
Bibek Debroy continues to be the Chairman of the EAC-PM.
Economic Advisory Council to the Prime Minister (PMEAC)[1] is a non-constitutional, non-permanent and independent body constituted to give economic advice to the Government of India, specifically the Prime Minister.
The council serves to highlight key economic issues facing the country to the government of India from a neutral viewpoint.
It advises the Prime Minister on economic issues like inflation, microfinance, and industrial output.
It publishes reports on the annual Economic Outlook and Review of the Economy of India.
There is no fixed definition on the exact number of members and staff of the PMEAC.
For administrative, logistic, planning and budgeting purposes, the NITI Aayog serves as the Nodal Agency for the PMEAC.

2. Great Green wall Accelerator

Context: barely 18 percent of the Great Green Wall’s objectives for 2030 have been achieved

Content:

The Great Green Wall multi-actor Accelerator, announced by the President of France Emmanuel Macron and other world leaders at the One Planet Summit on January 11th, 2021, seeks to facilitate the coordination and collaboration of donors and stakeholders involved in the Great Green Wall Initiative. From an initial 14.3 billion US dollars pledged in January 2021, to over 19 billion US dollars to date, pledges in funding for the initiative, until 2025 were made by several multilateral and bilateral organizations at the Summit – a major boost for the Great Green Wall.
The Great Green Wall Accelerator aims to help all actors for the Great Green Wall (GGW) Initiative to better coordinate, monitor and measure the impact of their actions.
The Great Green Wall Accelerator will be coordinated through the Pan Africa Agency for the Great Green Wall (PAAGGW), with initial support from the United Nations Convention to Combat Desertification (UNCCD).
The Great Green Wall (GGW) Project to address desertification, land degradation and climate change in the Sahel region of Africa has hit a new low due to funds crunch.
The Great Green Wall project is conceived by 11 countries (Senegal, Mauritania, Mali, Burkina Faso, Niger, Nigeria, Chad, Sudan, Ethiopia, Eritrea, Djibouti) .
located along the southern border of the Sahara and their international partners, is aimed at limiting the desertification of the Sahel zone.
Led by the African Union, the initiative aims to transform the lives of millions of people by creating a mosaic of green and productive landscapes across North Africa.
The initial idea of the GGW was to develop a line of trees from east to the west bordering the Saharan Desert.
Its vision has evolved into that of a mosaic of interventions addressing the challenges facing the people in the Sahel and the Sahara.
The African initiative is still only 15% complete.
Once fully completed, the Wall will be the largest living structure on the planet – an 8,000 km natural wonder of the world stretching across the entire width of the continent.
African countries during the UNCCCD COP14 sought global support in terms of finance to make the Wall a reality in the continent’s Sahel region by 2030.
Sahel is a semiarid region of western and north-central Africa extending from Senegal eastward to Sudan.
It forms a transitional zone between the arid Sahara (desert) to the north and the belt of humid savannas to the south.

3. COP 15 of United Nations Convention to Combat Desertification (UNCCD)

Context: The 15th Conference of Parties (COP15) of the United Nations Convention to Combat Desertification (UNCCD), concluded May 20, 2022 significant outcomes of the COP 15 included three key declarations:

Abidjan Call issued by the Heads of State and Government to boost long-term environmental sustainability
Abidjan Declaration on achieving gender equality for successful land restoration
COP15 “Land, Life and Legacy” Declaration, which responds to the findings of the UNCCD’s flagship report, Global Land Outlook 2.

UNCCD’s COP15 is the first Conference of the Parties of the three Rio Conventions taking place in 2022, ahead of the UN Framework Convention on Climate Change COP27 and the UN Convention on Biological Diversity COP15.

4. Carbon farming and its significance

Industrialisation and global supply chains has transformed agriculture from “life source and a public common” into a global business opportunity.
It has now become a surgical economic activity leading to the new epoch of ‘corporate-environmental food monopolies’.
However it is a proven fact that industrial agriculture gets less food out of the ground, with fewer nutrients, less efficiently, more expensively, and with greater environmental devastation than small and organic farming.
It has resulted in differentiated access to nutritious food, reducing the biodiversity of our diet, injudicious ecological practices like monocropping and systematic erosion of soil and mounting cost of technology, chemicals — exiling the farmers out of their fair share of the progress and most importantly, deepening the climate change crisis.
In such a scenario, Carbon farming promises a bold new agricultural business model.

Carbon Farming

Carbon farming is a name for a variety of agricultural methods aimed at sequestering atmospheric carbon into the soil and in crop roots, wood and leaves with an aim to increase the rate of carbon sequestration into soil and plant material, creating a net loss of carbon from the atmosphere.
Advantages of Carbon Farming:
- It can incentivise our farmers to shift from improving yields to functioning ecosystems and sequestering carbon that can be sold or traded in carbon markets.
- It not only improves the health of soil but can also result in improved quality, organic and chemical-free food.
- It boosts secondary income from carbon credits for the marginalized farmers.

Statistics regarding Carbon Markets and GHG emission

The total value of the global carbon markets grew by 20 per cent in 2020.
The value of traded global markets for carbon dioxide (CO2) permits grew by 164 per cent to a record €760 billion ($851 billion) in 2021.
Studies show that soil removes about 25 percent of the world’s fossil-fuel emissions each year.
According to the Third Biennial Update Report submitted by the Union government in early 2021 to the UNFCCC, the agriculture sector contributes 14 per cent of the total GHG emissions.
Amongst these, greenhouse gas emissions from rice cultivation during 2018-19 accounted for 72,329 million tonnes “CO2 equivalent”,

Carbon Farming in India

In India, Meghalaya is currently working on a blueprint of a ‘carbon farming’ Act to create a prototype of sustainable agriculture model for the entire North-East region.
An extensive and pioneering carbon farming Act — with a robust transition plan can effectively demonstrate the idea of creating a carbon sink on working land and farm our way out of climate crisis, improve nutrition, reduce the punishing inequalities within farming communities, alter the land use pattern and provide the much-needed solution to fix our broken food systems.

5. 7-8 years tenure for Supreme Court judges

Recently, Supreme Court Judge Justice L Nageswara Rao remarked that those elevated as judges to the top court must get a “minimum 7-8 years” in office “if not 10 years” so as to get the best out of them.

Appointment and Tenure of Judges of the Supreme Court

Article 124 of the Constitution of India, caps the age of retirement for Supreme Court judges at age 65.
So, each Chief Justice’s tenure begins from the date of his/her elevation to the date of his/her retirement.
As a result, the tenure of each CJI is predicated upon their age at the time of their appointment to the Supreme Court, their rank in seniority and their date of elevation as the Chief Justice.
In the US, Supreme Court judges leave office only by death, or when they themselves, alone and individually, resign.
In order to be appointed as a Judge of the Supreme Court, a person must be a citizen of India and must have been, for at least five years, a Judge of a High Court or of two or more such Courts in succession, or an Advocate of a High Court or of two or more such Courts in succession for at least 10 years or he must be, in the opinion of the President, a distinguished jurist.

Article 124 in The Constitution Of India 1949

Establishment and constitution of Supreme Court

(1) There shall be a Supreme Court of India constituting of a Chief Justice of India and, until Parliament by law prescribes a larger number, of not more than seven other Judges

(2) Every Judge of the Supreme Court shall be appointed by the President by warrant under his hand and seal after consultation with such of the Judges of the Supreme Court and of the High Courts in the States as the President may deem necessary for the purpose and shall hold office until he attains the age of sixty five years:

6. FDI inflow hits all-time high of $83.57 bn in 2021-22

FDI Equity inflow in Manufacturing Sectors have increased by 76 per cent in 2021-22 to $21.34 billion compared to the previous year’s investments of $12.09 billion.
Karnataka received the highest FDi equity inflow among states with 38 per cent, followed by Maharashtra (26 per cent) and Delhi (14 per cent).
Majority of the equity inflow of Karnataka has been reported in the sectors ‘Computer Software & Hardware’ (35 percent), ‘Automobile Industry’ (20 percent) and ‘Education’ (12 percent) during FY22.
FDI inflows have increased by 23 percent post-Covid to $171.84 billion in comparison to pre-Covid FDI inflow of $141.10 billion.
In terms of top investor countries of FDI equity inflow, Singapore is at the top with 27 per cent, followed by the US (18 per cent) and Mauritius (16 per cent) for FY 2021-22.
Under the sector ‘Computer Software & Hardware’, the major recipient states of FDI Equity inflow were Karnataka (53 percent), Delhi (17 percent) and Maharashtra (17 percent).

7. India’s ethanol blending policy

The Union Cabinet recently approved amendments to the National Policy on Biofuels, 2018, to advance the date by which fuel companies have to increase the percentage of ethanol in petrol to 20%, from 2030 to 2025.
The policy of introducing 20% ethanol is expected to take effect from April 1, 2023.

History of ethanol blending in India

Since 2001, India has tested the feasibility of ethanol-blended petrol whereby 5% ethanol blended petrol was supplied to retail outlets.
In 2002, India launched the Ethanol Blended Petrol (EBP) Programme and began selling 5% ethanol blended petrol in nine States and four Union Territories that was extended to twenty States and four UTs in 2006.
Until 2013-14, however, the percentage of blending never crossed 1.5%.
In 2015, the Ministry of Road Transport and Highways notified that E5 [blending 5% ethanol with 95% gasoline] petrol and the rubber and plastic components used in gasoline vehicles produced since 2008 be compatible with the E10 fuel.
In 2019, the Ministry notified the E10 fuel [blending 10% ethanol with 90% gasoline].
The rubber and plastic components used in petrol vehicles are currently compatible with E10 fuel.
Standards for E20, E85 and even E100 fuel have already been laid. This includes standards for ethanol blended diesel.
Since 2020, India has been announcing its intent to achieve 10% blending by the end of 2022 and 20% blending by 2030.
The Centre has also targeted 5% blending of biodiesel with diesel by 2030.

Effect on Indian Reserves

India’s net import of petroleum was 185 million tons at a cost of $55 billion in 2020-21.
Most of the petroleum is used by vehicles and therefore a successful 20% ethanol blending programme could save the country $4 billion per annum, or about ₹30,000 crore.
India’s current ethanol production capacity consists of 426 crore litres from molasses-based distilleries, and 258 crore litres from grain-based distilleries.
This is expected to increase to 760 crore litres and 740 crore litres respectively and would suffice to produce 1016 crore litres of ethanol required for EBP and 334 crore litres for other uses.

Effect on engines

When using E20, there is an estimated loss of 6-7% fuel efficiency for four wheelers which are originally designed for E0 and calibrated for E10, 3-4% for two wheelers designed for E0 and calibrated for E10 and 1-2% for four wheelers designed for E10 and calibrated for E20.

Environmental costs of ethanol blending

Because ethanol burns more completely than petrol, it avoids emissions such as carbon monoxide.
However, tests conducted in India have shown that there is no reduction in nitrous oxides, one of the major environmental pollutants.
For India, sugarcane is the cheapest source of ethanol.
On average, a ton of sugarcane can produce 100 kg of sugar and 70 litres of ethanol but that would mean 1,600 to 2,000 litres of water to produce 1 kg of sugar, implying that a litre of ethanol from sugar requires about 2,860 litres of water.

8. Cotton Export and Export price parity

Why in the news?

Spiraling prices of cotton, resulting in demands by the textile and garment industries to ban exports of the fibre.

Details:

India is the world’s second largest cotton producer (after China) and third largest exporter (after the US and Brazil).

High global prices have pushed up domestic prices closer to export parity levels, thus making exports attractive, while simultaneously making imports more expensive.

How much have cotton prices gone up?

Fall in domestic production-This has been largely due to the diminishing benefits from the genetically-modified Bt cotton, as it has become increasingly susceptible to pink bollworm and white-fly insect pest attacks, making it riskier for farmers to grow the crop. Besides, the government does not permit testing or commercialisation of next-generation transgenic breeding technologies.
Rise in the international prices of cotton-The Cotlook ‘A’ Index price – an average of representative quotes in the Far East destination markets – is currently ruling at 167 cents per pound, up from 92 cents a year ago.
Higher Consumption-Demand has significantly increased, as mills and other users were operating at sub-optimal levels in the past few years.

How justified is the demand for a ban on exports?

Not supported by present export-import balance-India’s cotton exports are actually projected at 40 lb this year, down from the 78 lb of 2020-21.Imports are likely to be higher, given the elimination of import duty on cotton.
Potential of automatic decline-domestic prices already rising to international parity levels, exports would slow down in the natural course.
No potential decline-as crops already sold.
Wrong single to market-as sowing season near.

Concept:

Export Parity Price (EPP) is defined as the price a producer receives or can expect to receive for his/her product/produce when exported, equal to the Freight on Board price minus the cost of getting the product from the farm or factory to the border or destination country.Where a country or a region in a country has a surplus of a product that is exported, the EPP is determined by considering the Import Parity Price or International Benchmark Price of the commodity and other trade factors. The EPP applies only to the quantity that is exported and not to the quantity that is sold domestically.

EPP represents the price which exporters would realize on export of a product. This includes FOB price + Advance License benefit or ALB for duty free import of crude oil pursuant to export of refined products.

The Import Parity Price (IPP) is the price of a product that is imported at the border, which includes international transport costs and tariffs. If a product is cheaper abroad, i.e. the domestic price is higher than the IPP, traders have a strong incentive to import the item.

A comparison of the time series of domestic wholesale prices of the main staple food, import parity prices and import quantities can give an indication whether traders are responsive to price changes.

Thus, Import Parity Price (IPP) – IPP represents the price that importers would pay in case of actual import of product at the respective Indian ports and includes the elements of Free on Board (FOB) price + Ocean Freight + Insurance + Custom Duties + Port Dues, etc.

EPP and IPP together define a range of the possible equilibrium prices for an equivalent domestically produced good.

9. RBI Fund Transfer

The Reserve Bank of India (RBI) on Friday said its board had approved the transfer of ₹30,307 crore as surplus to the Union government for the fiscal year 2021-22, while deciding to maintain the Contingency Risk Buffer at 5.50%.

Concept:

The RBI, established in 1935, operates according to the Reserve Bank of India Act of 1934. The act mandates that profits made by the central bank from its operations be sent to the Centre.
RBI transfers the surplus – that is, the excess of income over expenditure – to the government, in accordance with Section 47 (Allocation of Surplus Profits) of the Reserve Bank of India Act, 1934.
As the manager of its finances, every year the RBI also pays a dividend to the government to help with the finances from its surplus or profit.

A technical Committee of the RBI Board headed by Y H Malegam (2013), which reviewed the adequacy of reserves and surplus distribution policy, recommended a higher transfer to the government.

Mechanism of Surplus transfer:

The Surplus Distribution Policy of RBI that was finalized is in line with the recommendations of the Bimal Jalan committee.

The RBI has decided to set the CBR level at 5.5% of the balance sheet, while transferring the remaining excess reserves to the government.
If CBR is below the lower bound of requirement, risk provisioning will be made to the extent necessary and only the residual net income (if any) transferred to the Government.

Bimal Jalan committee that was formed by the RBI, in consultation with the Government, to review the extant Economic Capital Framework of the RBI:

The panel recommended a clear distinction between the two components of the economic capital of RBI i.e. Realized equity and Revaluation balances.
- Revaluation reserves comprise of periodic marked-to-market unrealized/notional gains/losses in values of foreign currencies and gold, foreign securities and rupee securities, and a contingency fund.
- Realized equity, which is a form of a contingency fund for meeting all risks/losses primarily built up from retained earnings. It is also called the Contingent Risk Buffer (CBR).
The Jalan committee has given a range of 5.5-6.5% of RBI’s balance sheet for Contingent Risk Buffer.

RBI’s Earning:

Returns earned on its foreign currency assets, which could be in the form of bonds and treasury bills of other central banks or top-rated securities, and deposits with other central banks.
Interest on its holdings of local rupee-denominated government bonds or securities, and while lending to banks for very short tenures, such as overnight.
Management commission on handling the borrowings of state governments and the central government.

RBI’s Expenditure:

Printing of currency notes and on staff,
The commission it gives to banks for undertaking transactions on behalf of the government across the country, and to primary dealers, including banks, for underwriting some of these borrowings.