7 Feb 2024

#GS3 –01. Divestment

For the fifth year in a row,the government is set to miss its divestment target. It has now adopted a new strategy and has decided against fixing a divestment target.

The Union government has decided to approach its investments in central public sector enterprises (CPSEs) from a capital management point of view rather than looking at it through the prism of fiscal deficit.It will look at both divestment and dividends from CPSEs holistically and has decided against setting a specific divestment target in the budget. In the interim budget, it has thus budgeted ₹50,000 crore as ‘miscellaneous capital receipts’ for 2024-25 and this includes asset sales apart from divestment.It has also clarified that it will take a “pragmatic and calibrated” approach toward divestment.

The Air India sale in 2020-21is the biggest.The government also offered 3.5% of its Stake in LIC through an initial public Offering and raised₹20,516 crore.IREDA’s IPO earlier this fiscal raised ₹ 858 crore. A Small number of offers for sale—Coal India,Rail Vikas Nigam,IRCON,ONGC,IRCTC and HAL—account for a large share Of divestment realization in recent years.

From 2017-18to2021-22, CPSEs incurred a loss of ₹1.54 trillion. Air India, before its sale,was losing ₹20 crore a day.Funding these Losses is a bad way to deploy public finances. Divestment will make CPSEs efficient and help raise money that can be used to pare government debt and reduce the fiscal deficit.This will ensure better allocation of resources and catalyze economic growth.
– Commentary in News
Key Terms/Issues : Divestment, Fiscal Deficit

#GS3 — 02. India’s Energy Demand

India’s primary energy demand is expected to nearly double from around 19 million barrels of oil equivalent per day to 38 million barrels by 2045 (From about 6.5% of the world’s totaltosome10.5%, that is). The project will require big investments about $67 billion over the next five or six years. Despite being home to 17% of the world’s population, India’s carbon emission share is only 4%. We are committed to further improving our energy mix by focusing on the development of environmentally sensitive energy sources.
– PM Modi

Note : Since we import much of our fossil-fuel energy,rapidly rising demand could also have some adverse economic side-effects.The investment drive, thus, is aimed at self-reliance to the extent possible, which blends well with a push for renewable towards net zero emissions by 2070.Progress on this front has been pacy, even if round-the-clock electricity still eludes large swathes of India.The elephant in our energy room,as in many other countries, is nuclear power.Technology is expected to make it safer and cheaper,but even a small risk must be set against the vast potential fallout of an accident.
–FM Nirmala Sitharaman
Key Terms/Issues : Net Zero, Carbon Emission

#GS3 –03. Forex Reserves

Emerging market economies,including India, should build up foreign exchange reserves as protection against the “populist and extreme” policies in advanced countries.
– Ex-RBI Governor Raghuram Rajan

Note : As of 26 January,the central bank held $616.7 billion as reserves,a remarkable doubling in a decade. India ranks among the top10 countries of the world on this metric. Traditionally,them a in reason for holding reserves was to pay for imports.A widely-cited macroeconomic in dicator, “import cover” is the ratio of reserves to monthly imports, that is,the number of months of prospective imports that can be financed by reserves incase all other forex in flows

dryup.Fewer months of import cover can signal distress in the balance of payments.The International Monetary Fund (IMF) benchmark or import cover is three months,but most countries hold reserves well in excess of that norm.

The Greenspan-Guidotti rule Recommends that a nation’s reserves should at least equal its short-term external debt.For emerging markets, an expanded version of the rule,which requires reserves to cover the total of short-term debt and current account deficit, is more suitable.

Nations prefer to insure themselves against forex drains as seen in currency crises.India’s recent external stress episodes were caused by demand shock (2008), fuel prices hock (2013,2022) and US rate hikes (2018,2022). As implescenario analysis suggests that reserves are fairly adequate, with a cushion of around $150-275 billion.

Key Terms/Issues : Import cover, Greenspan-Guidotti rule

#GS3 — 04. Hot Money

India will monitor flows of foreign funds after its Inclusion into JP Morgan’s emerging market debt index and will take steps to avoid ‘hot money’ that can trigger volatility in its currency and bond markets. The aim will be to “prevent volatility or volatile in flows” but “never” to restrict out flows.
–Finance Secretary TV Somnathan
Key Terms/Issues : Hot Money

#GS3–#GS2 — 05. India-Myanmar Border

India has decided to fence the entire 1,643-km-long India-Myanmar border.
– MoH Amit Shah

Note : The move could virtually put an end to the Free Movement Regime (FMR) Prevalent along the porous border. The FMR allows people residing close to the India-Myanmar border to venture16 km in to each other’s territory without any document.

The1,643-km-longIndia-Myanmar border,which passes through Mizoram, Manipur, Nagaland and Arunachal Pradesh,currently has FMR. It was Introduced in 2018 as part of India’s Act East policy.Fencing along the border Has been a persistent demand of the Imphal Valley-based Meitei groups which Have been alleging that tribal militants of ten enter in to India through the Porous border. The Meitei groups also allege that narcotics are being smuggled Into India taking advantage of the unfenced international border.

Key Terms/Issues : Free Movement Regime(FMR), Meiteis, Act East

#Essay–#GS3 –06. Free Trade

Free trade is not based on utility but on justice. -Edmund Burke

#GS4 –07. Regulatory Violations

Audit reports revealed persistent non-compliances by the Paytm Payments bank and continued material supervisory concerns over it.
– RBI

Many venture capitalist-funded new-age startups in the digital space have ended up under-estimating their regulatory risk. Companies operating in the games/gambling space and in the crypto space are good examples. Maybe they did not under-estimate the regulatory risk, but just thought that they’ll be able to scale up their businesses quickly, and then get the regulator to talk to them on equal terms.