1.Investing in the ecosystem (The Hindu)

2.Economy outlook still cloudy (The Hindu)

3.Hyacinth to remove water toxicity (Down to Earth)

1.Investing in the ecosystem (The Hindu)

Synoptic line: It throws light on the issue that how natural capital can maximise the economic growth. (GS paper III)

Overview

  • India is one of the 17 most ecologically diverse countries comprising 11% of the world’s floral and faunal species, blessed with every major ecosystem, these biomes directly contribute billions of dollars to the Indian economy, annually.
  • Prime minister during inauguration of the third Asia ministerial conference on tiger conservation mentioned that the forest is a peculiar organism of unlimited kindness, the country’s natural ecosystems as its ‘natural capital’ and factoring in the economic, social, cultural and spiritual value of ecosystem services into the calculation of true economic growth and development.
  • Though natural resources are a critical, yet often ignored part of our country’s national infrastructure.

As an economic resource

  • Increasing economic activity has led to decline of natural capital assets, which directly affecting the quality of life and potentially giving rise to future inefficiencies in the economy. Scientists have identified ‘Nine earth system processes’ to have boundaries which mark the safe zones, beyond which there is a risk of ‘irreversible and abrupt environmental change’.
  • Four of these boundaries have now been crossed -climate change, loss of biosphere integrity, land system change and altered biogeochemical cycles, such as phosphorus and nitrogen cycles. This means that human activity has already altered the balance of a few delicate equilibriums, the effects of which are reflected by changing weather patterns, accelerated extinction events for both flora and fauna, and global warming. This stresses the need for a comprehensive evaluation system that takes these undesirable side-effects of economic activities into account.
  • 2nd of august is celebrated as ‘Earth Overshoot Day’, a figurative calendar date when humanity’s total annual resource consumption for the year overshoots the earth’s capacity to regenerate it, has advanced every year at an alarming rate. We have natural capital stocks so there is need to rethink the cascading effects that this would have on the economy, the environment and society.
  • Natural capital has the potential to optimise resources and thus maximise the net benefits of economic growth and development. There is often a chance of ignoring or undervaluing natural capital, effectively leading to projects with far higher negative externalities compared to the benefits.
  • Valuing natural capital would require internalising externalities and taking into account the myriad economic and ecological products and services that natural ecosystems make possible.
  • Unlike the economic value of goods and services, the intangible nature of natural assets is mostly invisible and hence remains unaccounted for. While it may be difficult to put a price tag on nature, unchecked exploitation of scarce natural resources and an inadequate response to India’s unique climate challenges can be a very costly mistake.
  • Natural capital thinking can also create opportunities to innovate and adopt newer, more efficient technologies. Thorough natural capital assessment can help in the risk management committee deliberations, legal and reputational risk framework. Projects can be reassessed on the basis of their vulnerability to impacts and dependencies associated with the value chain. We can consider environmental stress tests for issues such as natural disasters, air pollution, resource scarcity and climate.

Way ahead

  • Natural capital requires a strong policy push and the adoption of valuation frameworks such as the Natural Capital Coalition’s Natural Capital Protocol. Integrating natural capital assessment and valuation into our economic system is critical to usher in a truly sustainable future for India.

Question– What do you mean by the natural capital? How it can be leveraged for economic development?

2.Economy outlook still cloudy (The Hindu)

Synoptic line: It throws light on the issue of the slowdown in India’s economic growth. (GS paper III)

Overview

  • The Indian economy’s growth in the June quarter after removing the impact of inflation was only at 5.7%, much lower than expected. Economists expect the current quarter to see much higher growth.
  • The demonetisation-driven cash crunch hurt economic growth, especially small enterprises, and the imminence of GST spurred destocking and slowing of production, which brought down manufacturing growth. The fact that gross value added, or GVA (GDP minus product taxes) growth in the first quarter was the same as in the fourth quarter suggests that the waning demonetisation impact was offset by rising anxiety over GST.

Declining growth rate

  • For the past six consecutive quarters, the growth rate has gone down steadily, from 9.2% at the end of the quarter ending March 2016, to 7.9%, 7.5%, 7.0%, 6.1% and now 5.7% at the end of the June quarter.
  • The main reason behind slower growth can be due to manufacturing growth, which is at 1.2%, the lowest in the past five years. It’s the lowest since we switched to a new methodology (based on Gross Value Added).
  • Some of this downward movement was caused supposedly by the suspension of manufacturing activity prior to the rollout of the Goods and Services Tax (GST) in July, and consequent de-stocking of inventory. But it is also corroborated by data from commercial banks. From April to August bank credit shrank by 1.8%, i.e. negative growth.
  • Despite the push for ‘Make in India’, reforms for improving ‘Ease of Doing Business’, increased access to electricity, improvement in infrastructure and private investment are not picking up. This must become the big priority.
  • Initiatives such as Housing for All, Smart Cities and Digital India give room for huge opportunities for private entrepreneurs. Though the corporate sector and banks have been affected by the twin balance sheet squeeze wherein corporates are over-leveraged, and banks have mounting bad loans. Whether the new insolvency code and regulator and the Reserve Bank of India’s aggressive intervention will crack this puzzle remains to be seen.

Conducive combination of macroeconomic parameters

  • Though there is steady declining trend in the growth rate, which is troublesome but economy otherwise enjoys a rather conducive combination of macroeconomic parameters.
  • Inflation has been moderate, and touched a low of 1.5% recently. Both trade and fiscal deficits are moderate and manageable. So they don’t eat up investible resources or precious foreign exchange. Even the interest rate has been cut repeatedly over the past year and a half.
  • The inward rush of dollars is at a peak, both in financial markets (stocks and bonds) and as direct investment. No wonder the stock market index is at an all-time high. Even oil prices, the bane of the Indian economy, have been stable and comfortably low.
  • Finally, the monsoon has been normal. So despite these favourable macro factors, we have not managed to convert them into a higher growth rate.

Measurement of GDP

  • The GDP is measured in at least two different ways. The first is by looking at the production side while the second is by looking at the spending side. We can look at the aggregate of all spending, whether on consumption, or by foreigners buying our exports, or on investments into new factories and projects. In addition we also have government spending.
  • The growth in GDP can be traced to the growth and vigour of each of these components. Investment, which is between 30 and 35% of the total pie, needs to grow at least in double digits. Investment in future capacity creates GDP growth of the future. It needs to be led by the private sector. Currently, that component is barely growing at 1.5%.

Another challenge

  • There is significant challenge to the domestic industry is the ever-strengthening rupee. Since January the rupee is 7% stronger compared to the dollar. It is stronger than its Asian peer currencies too, including China, the Philippines, Indonesia and Thailand. This directly hurts our export prospects. Since last October, our export growth has begun showing positive growth, after a long phase of negative growth for 18 months.
  • The strong rupee hurts the domestic industry since cheaper imports flood the country and eat into the market share of domestic players. The GST regime has given an extra advantage to importer traders since the countervailing duty that they now pay as GST can be offset against other taxes, a concession which was not available earlier. The big jump in imports is also captured in the June quarter of GDP data, which also show a worrying jump in gold imports thanks to a strong rupee.
  • The rupee needs to be weakened or else it will hurt domestic manufacturing even more.
  • Another challenge is the continuing adverse impact of demonetisation. The period prior to demonetisation, recorded a real growth of 7.7%. The present April to June quarter’s growth at 5.7% certainly includes the negative impact on the informal and rural economy. Investment and consumption spending which were postponed due to cash shortage might recover.
  • The agriculture sector GDP shows nominal GDP growth to be lower than real GDP, which is very unusual. It means that farmers’ incomes will be depressed, and doubling of farm incomes in five years becomes that much more of a distant dream.

Way forward

  • As other macro parameters such as inflation, current account deficit and fiscal deficit of the Central government remains in the comfortable zone. Reviving the investment cycle and tackling bad loans will be the key challenges in the current fiscal.
  • The government currently lacks the muscle to kick-start the investment cycle. It can only help increase infrastructure investments. The manufacturing sector is dominated by private players, so it will take a sustained pick-up in consumption demand to spur investments. Meanwhile, bad loans in the banking system continue to remain high, although the pace of increase is reducing.
  • Intense focus of the government on implementation of announced reforms can trigger the next round of durable gains for the economy. We need is an immediate stimulus to re-inject the momentum to get us higher growth rate.

Question– What are the implications of demonetisation and other related event on the economic scenario of India?

 

3.Hyacinth to remove water toxicity (Down to Earth) 

Synoptic line: It throws light on the role of water Hyacinth to clean the contamination in water. (GS paper III)

Overview

  • Heavy metal poisoning is a growing concern in many parts of the country. A new method for removing chromium-6, a highly toxic heavy metal, from waste water has been developed by a group of scientists from India and Ethiopia. They claim it to be low-cost and safe.

Using Hyacinth to treat water contamination

  • The new method uses water hyacinth, a weed known for its ability to spread rapidly over water bodies. It is used for cleansing polluted water bodies owing to its remarkable capacity of absorbing pollutants.
  • In the new study, hyacinth was made into a powder and then mixed with water containing chromium-6.
  • The powder was allowed to settle down and after two minutes the liquid above the powder was removed and analyzed for chromium-6.
  • It was found that chromium-6 levels decreased significantly in water.
  • This is because water hyacinth particles attract chromium which then gets ‘stuck’ to it thereby leaving water chromium ‘free’. For every litre of water, only 0.04 grams of powdered water hyacinth is required to reduce the amount of chromium-6 to ‘safer’ levels over a period of 30 minutes.
  • Using higher amount of hyacinth or allowing the powder to stay in the water for longer did not have any further effect on chromium-6 levels. It was also found that acidic water further encouraged the ‘sticking’ (adsorption) of chromium-6 particles to the powdered water hyacinth.
  • Exposure to chromium is toxic to humans. Even in small amounts, chromium affects the liver, kidneys, nervous system and lungs. Chromium-6 is highly toxic and can cause cancer. Steel, paint and pigments, chemical industries, and those engaged in electroplating and leather tanning are a major source of this pollutant.
  • Though there are many methods being used to remove chromium-6 from industrial waste such as reverse osmosis, they are expensive and not very effective.

Way ahead

  • Use of water hyacinth as an adsorbent is a low-cost and very effective way of removing an extremely hazardous element from industrial waste before it becomes dangerous to humans. Moreover, it is a sturdy free-floating plant which can be harvested easily with the help of community participation.

Question– Use of Water Hyacinth to clean the water contamination is a novel and cost-effective method but there are certain concerns as well regarding the invasive nature of it. Comment.