1.Cause for caution, not gloom (The Hindu)

2.Getting charged up (The Hindu)

 

1.Cause for caution, not gloom (The Hindu)

Synoptic line: It throws light on issue caution by Economic Survey Volume II. (GS paper II)

Overview

  • The Economic Survey 2016-17 Volume-2, which was released by the Department of Economic Affairs, recently came out with some valuable insights for economy watchers. On the bright side, it mentions about a ‘rekindled optimism’ on structural reforms, driven by launch of GST, positive impacts of demonetisation, rationalization of energy subsidies and actions to address the twin balance sheet challenge, however downward sides shows ‘deflationary impulses’ weighing on the economy, rising from factors like stressed farm revenues, farm loan waivers and fiscal tightening, power and telecommunication sector worries.

Innovative volume II of Economic survey

  • This is the first time that a second volume is being presented containing a “backward looking review” and “historical data tables”, and it also subsumes the mid-term economic analysis. Some key chapters included in this volume on agriculture, industry, infrastructure should normally have come in Volume I itself. These were displaced by the dominance of more preferred themes like Universal Basic Income, and “India on the Move”. Over the years both the presentation and the format of the Economic Survey have under gone fundamental changes.
  • Earlier the Economic Survey was presented on the eve of the Annual Financial Statement. It was, by and large, an analytical underpinning and precursor of the Budget. There was a meaningful connection between the Economic Survey and the Budget proposals, but for some time, this relationship has ceased.
  • Now the Economic Surveys have come to increasingly reflect the predilections and preferences of its authors, raising the question whether Economic Surveys are designed to trigger intellectual debate and become incubators of nascent ideas.

Key conclusions

  • Overall, the growth outlook presented by the second version of the survey is more subdued than the first one, but it sounds less worrying and more normal. Initially GDP growth was pegged at 6.75 percent to 7.5 percent for 2017-18, on the expectations of global recovery, a post- demonetisation catch-up in consumption and monetary easing after demonetization, but since then a number of new factors like real exchange rate appreciation, agricultural stress, farm loan waivers, increased balance sheet stress in power and telecommunications sectors, implementation of GST have appeared, and the survey rightly takes them into account.
  • On inflation, the Economic Survey seeks to demonstrate that for sustained 14 quarters the actual inflation (WPI-CPI) has undershot the projections made by the Reserve Bank (RBI). It argues that India has moved to a low inflation trajectory, given supply-side elasticity in agriculture and long-term softening of global oil prices due to alternatives such as shale and increasing competitiveness of renewable fuels, particularly solar.  In short, a deeper cut in the interest rates would be warranted, given that current inflation at 1.5% is running well below the 4% target.
  • On monetary policy, data suggest that both the consumer price index (CPI) and the whole-sale price index (WPI) have risen quickly, primarily led by food inflation and the housing index reflecting the 7th Pay Commission recommendations.
  • On the exchange rate, real effective interest rates have appreciated significantly. The RBI has the unenviable challenge of managing significant inward capital flows with exchange rates which do not penalise domestic industry through a premium on cheaper imports.
  • Export competitiveness needs interventions which can go beyond dependence on the exchange rate by way of improved logistics, infrastructure and altering the mix of commodities and destinations to meet new demand preferences.
  • Fiscal tightening by States due to Ujwal DISCOM Assurance Yojana (UDAY), farm loan waivers, declining profitability of some key sectors like power and telecom, the shadow of unresolved twin balance sheet problems and transitional issues of the GST are contributory to deflationary pressures.
  • UDAY is designed to clean up the balance sheets of electricity boards in the short run and is expected to improve management of electricity boards. Appropriate action on tariff fixation, regular billing cycles, and monitoring timely collection by distribution companies is an integral part of the UDAY package; it would also benefit States’ finances.
  • The recent initiatives will improve the fertilizer mix through extensive soil-testing along with the Pradhan Mantri Fasal Bima Yojana will prove beneficial to stabilise farm incomes.

Way ahead

  • The Economic Survey II cautions policymakers of a possible deflationary cycle. Faster resolution of the twin balance sheets is critical to rekindling private investment. There is need to accelerate the pace of agricultural reforms, targeted capital expenditure, improving ease of doing business and the multiple infrastructure initiatives, particularly in roads and power for any coherent action.

Question– What are the prospects of cheer for Indian Economy in present context?

 

2.Getting charged up (The Hindu) 

Synoptic line: It throws light on the Electric vehicles (EV) and the need to require a significant push as far as vehicle-charging infrastructure. (GS paper II)

Overview

  • Pollution levels across the India are alarming. According to an analysis of 2015 data for 168 cities 154 were found to have an average particulate matter level higher than the national standard.  None of the cities studied had air quality matching the standard prescribed by the World Health Organisation.
  • The step by Minister of State for Power and Renewable Energy, which mentioned that the centre is preparing a road map to ensure that only Electric vehicles (EV) will be produced and sold in the country by 2030, will be a much needed effort to control pollution. Replacing these with EVs would require a significant push as far as vehicle-charging infrastructure and batteries are concerned.

Opportunity

  • According to the reports, the NITI Aayog is preparing the road map for the same. Different ministries had given their inputs and ideas, which are being worked out by experts, as part of a national mission to promote solar energy power plants and electric vehicles. As a significant step is the centre plans to procure atleast 10,000 electric cars to phase out the government vehicles in New Delhi.
  • The current National Electric Mobility Mission Plan (NEMMP) has set a sales target of only 5-7 million EVs and hybrid electric vehicles annually by 2020.
  • This gigantic demand for batteries is an ideal opportunity for the domestic manufacturing industry and job creation. The transition would require a battery capacity of about 400GWh each year, equivalent to increasing the current global EV battery production by a factor of five, just to cater to the Indian EV market.
  • However, India has missed many such opportunities to be integrated in the global value chain for solar cells and electronics manufacturing due to a lack of suitable policy support. This has led to an ever-increasing import bill for electronics products, currently the highest after oil and gold. The annual EV battery market is expected to be around $30-55 billion and India cannot afford to fulfil the demand solely through imports.
  • Usually variants of lithium-ion batteries such as lithium-titanate, lithium-cobalt, and lithium-sulphur are predominantly used in electric vehicles. According to a study on India’s critical non-fuel minerals by the Council on Energy, Environment and Water (CEEW), manufacturing lithium-ion batteries would require critical minerals such as cobalt, graphite, lithium and phosphate.
  • Among them, lithium is of particular importance. Today it is primarily used in pharmaceuticals, ceramics and glass, metallurgy and lubrication industry, though in much smaller quantities. But the resource endowment is limited to only nine countries and 95% of global lithium production comes from Argentina, Australia, Chile and China.
  • The recent demand surge in the electric mobility market has already resulted in a twofold increase in lithium price. It is estimated by the CEEW that India would require about 40,000 tonnes of lithium to manufacture EV batteries in 2030, considerably higher than the current annual global lithium production of 32,000 tonnes.

Lithium reserves

  • China, with the second largest reserves of lithium, is making strategic moves to control the majority of international lithium mining assets. China also holds a majority share in the expansion of the Lithium plant in Australia, which would make it the single largest producer of lithium globally upon completion. Also, its equity investors are planning to buy stakes in Chile’s lithium mining companies.
  • Similarly, U.S. based lithium mining companies have already secured mines in Chile and also hold significant shares in several upcoming mining projects in Australia.
  • India has long-term trade relations with lithium-producing countries in Latin America through preferential trade agreements (PTAs). A recent extension of the PTA with Chile also provides India some tariff concessions for lithium carbonate imports. However India needs to further diversify the supply risk by including lithium in existing PTAs or establishing new PTAs with other lithium-producing countries.

Way ahead

  • There is a need to formulate policies incentivising domestic public and private mining companies to invest in overseas lithium mining assets. Also we need to focus on creating a vibrant battery research and development ecosystem domestically.
  • Currently, the domestic battery market is largely dominated by lead-acid battery technologies. Research should focus on developing alternative technologies containing minerals with low supply risks and battery recycling techniques to recover associated minerals and materials. Recycling lithium batteries present in the waste stream will significantly reduce the burden in procuring fresh resources.
  • To address the need for virgin resources and recycling of used batteries, while constantly pushing R&D for substitutes and alternatives are vital to secure electric mobility.

Question– Examine the importance of Electronic vehicles for India’s pledges to curb emissions.