Exam view: Current and capital account deficit, fiscal deficit, reasons for current account deficit, trends of current account deficit in India

In News: India needs stable capital flows to help the country finance its current account deficit.

As per the RBI’s quarterly statistics, the current account deficit (CAD) widened to 4.4% of GDP in the second quarter of 2022-23, down from 2.2% in the preceding quarter.

• The overall trade deficit has declined to $37.73 billion in the third quarter, from $49.1 billion in the second quarter of 2022-23. The latest statistics also reveal a sharp decline in the trade deficit to $1.27 billion in January on the back of a significant rise in net services exports.
• Policy measures must facilitate exports by focusing on structural reforms to improve trade competitiveness, alongside which the government must sign free trade agreements to:
  • Arrest the negative spillovers from the slowdown in global trade on merchandise exports.
  • Control imported inflation arising due to weaker currency, sticky import basket and further rate hikes by the US Fed leading to capital outflows leading to additional exchange rate market pressures.
• A comfortable external environment can be maintained by ensuring stable financing, along with using exchange rates as a shock absorber to weather the adverse global economic situation.

Is the Current Account Deficit a cause for concern for India?

India’s CADs have both desirable and undesirable components.

• A desirable CAD: It is a natural reflection of rising investment, portfolio choices and the demographics of the country.
• Large and persistent CAD: It can be undesirable if they reflect bigger problems such as poor export competitiveness and are financed by unstable financing.
  • Large and persistent CADs expose India to the risks associated with its financing.
  • As per Economic theory, if CADs can be financed by stable capital inflows, such as FDI inflows, they are desirable as they are less prone to capital flight. They yield long-term productive gains and foster higher economic growth
  • However, if deficits are financed by volatile capital flows such as portfolio flows, there may be a cause of concern. Portfolio flows are capricious and more susceptible to reversals in case of any global financial shock.
  • While FDI inflows were enough to finance the deficit in 2021-22, these inflows have been weak in the current fiscal year.
• Countercyclical CAD: It is a matter of concern. The country’s CAD rises when output falls rather than when demand rises, indicating the dominance of external shocks.
  • For instance, if oil prices rise, and as oil is an input in the production process, it raises the cost of production and leads to a fall in economic growth.
  • In this case, CADs rise with falling growth due to both the inelasticity of oil import demand as well as its major share in India’s total imports.
• Remittances and services exports: They have provided a counter-balance to rising merchandise trade deficits. India’s services exports grew at 23.5% in 2021-22. Alongside, remittances have reached $48 billion in April-September 2022, an increase of 25%.

India is currently facing the twin-deficit problem of high fiscal and CADs. While aggressive fiscal consolidation may be undesirable in the face of rising fears about a global slowdown, a comfortable external environment can be maintained by ensuring stable financing, along with using exchange rates as a shock absorber to weather the adverse global economic situation.

https://indianexpress.com/article/opinion/columns/why-india-needs-stable-capital-flows-8470030/

In News: Union Fisheries, Animal Husbandry, and Dairy Minister inaugurated and launched three national flagship programmes for the fisheries sector at the ICAR-CIBA campus in Chennai.

About Fisheries Sector in India:

• India is the third-largest fish-producing country with a fish production of 14.73 million metric tonnes i.e 7% of global fish production.
• India is one of the largest exporters of farmed shrimp at around 7 lakh tonnes.
• Fisheries sector provides employment to about 16 million fish farmers at the primary level and almost twice the number along the value chain,
• Fisheries sector has been recognized as a ‘Sunrise Sector’ and has demonstrated an outstanding double-digit average annual growth of 10.87% since 2014-15.

Three National Flagship Schemes launched

National Surveillance Programme for Aquatic Animal Diseases (NSPAAD) Phase-II:

• Need for the Scheme:
  • Early detection and managing the spread of diseases among the reared aquatic fauna is crucial for sustaining income and export feasibility. Diseases cost around 7200 crores per year.
• Objectives:
  • NSPAAD phase-I was launched in 2013, with an objective of strengthening the farmer-based disease surveillance system and to ensure immediate reporting and investigation of disease cases.
  • NSPAAD Phase-II under the Pradhan Mantri Matsya Sampada Yojana (PMSSY) will be implemented across India, with the help of all the state fisheries departments and Marine Products Export Development Authority (MPEDA).

Genetic improvement program of Penaeus indicus Phase-I

• Need for the Scheme:
  • Farmed shrimp accounts for approximately 70% of India’s seafood exports worth Rs. 42000 crores. However, the sector mostly depends on one exotic Specific Pathogen Free stock of Pacific white shrimp (Penaeus vannamei).
  • Hedging of risk is necessary in a sector that depends on only one species for the production of 10 lakh tonnes of shrimps and involves huge investments on farming infrastructure.
  • It also jeopardizes the livelihoods of two lakh farm families directly and around ten lakh families indirectly associated with the ancillary sectors.
• Objectives:
  • Genetic improvement program of Indian white shrimp, Penaeus indicus, by ICAR-CIBA will be done to break over-dependence on single species and promote indigenous species.
  • The Department of Fisheries has sanctioned Rs. 25 crores under the PMMSY for the scheme, to establish a National Genetic Improvement Facility for shrimp breeding.
  • These programs will lead to ‘Atmanirbharta’ for shrimp broodstock, which is at present imported from other countries.

Shrimp Crop Insurance product

• Need for the Scheme:

• • Poor penetration of banking and insurance institutions in the Shrimp Farming industry, as it is labelled as a risky venture. However, India achieved 430% growth in shrimp production displaying its overall profitability and growth potential.
  • Lack of access to institutional credit to small aquaculture farmers who own 2–3 ponds and face huge obstacles to raising working capital for the crop.
  • Vulnerability of farmers to natural calamities or viral diseases makes them fall into deep debt as they are required to repay the loans taken and raise money for next crop season.
  • CIBA has estimated Rs 1000 to Rs 1500 crores as the business potential of shrimp crop insurance per year and a microcredit requirement of over Rs 8,000 to 10,000 crores per annum, which is now being serviced by informal creditors at higher interest rates.
• Objectives:
  • The scheme aims to establish farmers’ access to insurance and institutional credit, facilitated by an insurance scheme that will help them double their income.

Source:

https://newsonair.com/2023/02/28/three-national-flagship-programmes-focused-on-fisheries-launched/#:~:text=These%20programmes%20include%20the%20Genetic,and%20the%20Genetic%20Improvement%20Facility.

In News:

• The National Oceanic and Atmospheric Administration (NOAA) has recently predicted a 55-60% possibility of an El Niño year in 2023.
• Although the forecast is not sufficient to conclude that El Niño will occur this year, as in the past, only three out of six times when NOAA predicted a 45% or higher probability of El Niño actually saw El Niño occurring.
• In general, the India Meteorological Department issues monsoon forecasts in April, which can help determine the severity of El Niño's impact on India's weather patterns.

Key Findings:

• El Niño could have an adverse impact on India's agricultural output and inflation by creating dryer and hotter summers and a deficient monsoon.

• A prolonged summer followed by deficit rainfall could lead to lower sowing, hurting rural incomes, and affecting food supply, causing select food items' prices to spike due to lower supply.
• The overall retail and food inflation are not highly correlated with a subdued monsoon, but the spatial distribution of rainfall can impact farm output.
• The inflationary impact of El Niño on food inflation has been mixed, with the average food inflation in El Niño years being lower than that in non-El Niño years.
• A drought this year is likely to lead to worse price fluctuations, given the already tight supply situation and entrenched price pressures.
• To maintain crop yield amid muted monsoon, the increased usage of fertilizers could push the government's already elevated fertilizer subsidy bill

What is El Nino?

• It is a complex weather pattern characterized by the warming of the surface of the Pacific Ocean which can have significant effects on weather patterns around the world, including India.
• It occurs when the surface waters of the central and eastern Pacific Ocean become abnormally warm.
• This warming happens irregularly, typically every two to seven years, and can last for several months to a few years.
• During an El Niño, trade winds weaken or even reverse, and the atmosphere and ocean become highly interconnected.
• This can lead to global weather changes, including droughts in some areas and flooding in others.
• In India, El Niño can lead to dryer and hotter summers and deficient monsoons, which can negatively impact agricultural output and inflation.

Difference from La Nina:

• El Niño is the warm phase of the El Niño Southern Oscillation (ENSO) cycle, with La Niña being the cold phase.
• La Niña occurs when the surface waters of the central and eastern Pacific Ocean become abnormally cold.

https://www.livemint.com/market/mark-to-market/spectre-of-el-ni-o-is-back-to-haunt-11677511539994.html

In News: India to suggest principles to check economic offences at the G20 Anti-Corruption Working Group

Key Takeaways:

• India is expected to pitch for four 'high-level principles' at the G20 meeting focussing on steps to tackle corruption.
• Four Proposals:
  • Improving information sharing for action against economic crimes, including corruption-related offences.
  • Strengthening asset recovery mechanisms and improving asset-tracing and identification systems.
  • Strengthening law enforcement cooperation for action against economic crimes, including corruption-related offences.
  • Promoting integrity among specialized authorities involved in preventing and combating corruption.
• These 'High-level principles' will serve as guiding policy documents to which the G20 nations are expected to align their rulebooks.

Other proposals on the table:

• India has proposed that the Annual accountability report 2023 should also include timelines for providing responses to Mutual Legal assistance requests, the reasons for any delay, and so on.
• The working group will also emphasize the need to update the various G20 Guides on Asset tracing, Asset recovery, international cooperation in civil and administrative proceedings related to corruption, and requesting of MLA in criminal matters from G20 countries.
• Need for Institutional frameworks through regulatory and oversight bodies to fight corruption besides leveraging ICT for combating corruption in the public sector.

https://economictimes.indiatimes.com/news/india/india-to-suggest-4-principles-to-check-economic-offences/articleshow/98283755.cms?from=mdr

In News: International digital rights organisation released a report on internet disruptions in India.

Context:

• Recently, International digital rights organisation Access Now in collaboration with the #KeepItOn coalition has released a report on internet shutdowns in India.
• While shutdowns were lower than in 2021, the Union government's refusal to document and publish orders for them and technical challenges in tracking likely mean not all disruptions were recorded.
• Previously, the Supreme Court called access to the internet a fundamental right by extension in 2020 and said the blackout cannot go on indefinitely.
• The court has also stressed that orders on blackouts must now be published with specific reasons and should be proportional to the concerns necessitating such suspension.

Key findings of the report:

• India topped the global list of internet shutdowns for the fifth year in a row in 2022 with at least 84 disruptions.
• India accounted for approximately 58% of all documented shutdowns globally since 2016.
• Jammu & Kashmir witnessed at least 49 internet disruptions last year, including 16 back-to-back orders for three-day-long curfew-style shutdowns.
• Rajasthan had 12 shutdowns, West Bengal had 7 shutdowns, and Haryana and Jharkhand had 4 shutdowns each.
• The report highlights those authorities interfered with access during high-profile events such as protests, conflict, school exams, and elections.

https://www.hindustantimes.com/india-news/india-topped-global-list-of-internet-shutdowns-for-5th-year-in-row-in-2022-101677567146942-amp.html

In News:

The mines ministry has notified draft amendments to the Offshore Area Mineral (Development & Regulation) Act, 2002 (OAMDR Act), which will open the auction route for private sector mining of mineral resources in India’s territorial waters and a continental shelf along its 7,517-km coastline.

About:

While OAMDR Act was enacted in 2002, it came into effect only in 2010 after the rules were notified. Several benefits of these draft amendments are:

• India’s potential for mineral mining can be tapped with the help of private sector investment that will bring in new technology and expertise.
• It will reduce the country’s dependency on China for mineral wealth.
• It has become necessary to mine maritime resources as new-age sectors, from renewable energy to electric vehicles, requires some key minerals.
• The proposed changes seek to facilitate offshore mining by introducing a transparent mechanism for the allocation of concessions.
  • For the first time, it has been proposed to grant production leases through auction to the private sector and state-controlled firms for non-atomic minerals besides a composite exploration-cum-production licence.
• It also proposes a lease period of 50 years to draw in the private sector, ending the renewal regime.
• Size of the standard block production lease area has been restricted to ensure due regulation.
• A joint venture model with PSUs holding 74% stake is also mooted.
• A non-lapsable Offshore Areas Mineral Trust is to be setup. It is a fund under the Public Accounts of India for mitigation of the adverse impact of offshore mining.

Source:

https://economictimes.indiatimes.com/industry/indl-goods/svs/metals-mining/government-likely-to-open-up-offshore-mining-of-non-atomic-minerals-for-private-players/articleshow/98161479.cms?from=mdr

In news:

India ranks 42 among 55 countries on the International Intellectual Property (IP) Index.

About:

• The ranking is released by the S. Chambers of Commerce. By analysing the IP landscape in global markets, the Index aims to help nations navigate toward a brighter economic future marked by greater innovation, creativity, and competitiveness.
• According to the report India is ripe to become a leader for emerging markets seeking to transform their economy through IP-driven innovation.

Source:

https://www.thehindu.com/business/india-ranks-42-among-55-countries-on-international-ip-index/article66553738.ece

Why in news? UIDAI rolls out a new security mechanism for Aadhaar-based fingerprint authentication & faster detection of spoofing attempts.

About

• This security feature is an amalgamation of both Artificial Intelligence (AI) and Machine Learning (ML) technologies.
• It has been designed in-house by effectively using a "combination of both finger minutia and finger image" which was put forth with the aim of checking the liveness or genuineness of the fingerprint captured.
• The move will be of immense use in segments including banking and financials, telecom, and government sectors.
• It will also benefit the bottom of the pyramid as it will further strengthen the Aadhaar-enabled payment system and curb malicious attempts by unscrupulous elements.

https://newsonair.com/2023/02/28/uidai-rolls-out-new-security-mechanism-for-aadhaar-based-fingerprint-authentication-faster-detection-of-spoofing-attempts/#:~:text=The%20artificial%20intelligence%20and%20machine,even%20more%20robust%20and%20secure

Why in news? Japan has extended the ODA for Mumbai Trans-Harbour Link Project.

About

• It is a part of Japan’s Official Development Assistance (ODA) loan.
• ODA is defined as government aid designed to promote the economic development and welfare of developing countries.
• India has been the largest recipient of Japanese ODA loans for the past decades.
• Japan has granted us some $35.5 billion worth of concessional loans since 1966.
• These loans are very “soft,” carrying a 0.1 percent interest rate, with a 40-year term and 10-year grace period.
• Loans and credits for military purposes are excluded.

https://www.philstar.com/opinion/2023/03/01/2248325/reliable-japan

Why in news? ASI stumbles upon a 1,300-yr-old Buddhist Stupa at the Khondalite stone mining site in Odisha

About

• It was found at Parabhadi which is situated near Lalitagiri, a major Buddhist complex, has a large number of stupas and monasteries.
• The stupa could be 5 meters tall and initial assessment showed it may belong to the 7^th or 8^th century.
• Stupa, Sanskrit for heap, is a mound-like (hemispherical) burial structure containing relics of Buddhist monks. E.g., Sanchi Stupa was built over Buddha relics.
• Central pillar supporting a triple-umbrella form (chattra), representing three jewels of Buddhism.

Khondalite

• Khondalite is a foliated metamorphic rock.
• It is also called Bezwada Gneiss and Kailasa Gneiss.
• It was named after the Khond tribe of Odisha and Andhra Pradesh.

https://www.thehindu.com/news/national/other-states/asi-stumbles-upon-1300-yr-old-buddhist-stupa-at-khondalite-stone-mining-site-in-odisha/article66559494.ece

Why in news? The government is celebrating the birth anniversary of Banjara community icon Santh Sevalal Maharaj Jayanti for the first time at a national level.

About

• Santh Sevalal Maharaj was born on 15 February 1739 at Surgondankoppa in Shivamogga district of Karnataka.
• He is considered a social reformer and spiritual teacher of the Banjara community.
• It is believed that there is a population of around 10 to 12 crore Banjara community across the country.
• He travelled across the country with his Ladeniya Troup to serve especially the forest dwellers and nomadic tribes.
• Having sound knowledge in Ayurveda and Naturopathy, he eradicated myths and superstitions prevalent among forest dwellers and nomadic tribe.
• His final resting place or Samadhi is situated at Pohradevi in Maharashtra’s Washim district, also known as Banjara Kashi.

https://indianexpress.com/article/india/centre-commemorate-banjara-community-leader-sant-sevalal-maharaj-8467674/

Why in news? India and Guyana signed a memorandum of understanding to boost cooperation in the oil and gas sector.

About

• Guyana is located on the north-eastern coast of South America.
• It is part of Guianas, a region in north-eastern South America on Guiana Shield.
• Guianas includes Guyana, Suriname, and French Guiana.
• The country is bordered by;
  • The Atlantic Ocean in the North.
  • Brazil in the South and Southwest.
  • Venezuela in the West.
  • Suriname in the East.
• It is the only South American nation in which English is the official language.
• The main economic activities are agriculture, bauxite and gold mining, timber, shrimp fishing and minerals.
• Geographical features Terrain: Mostly rolling highlands; low coastal plain; savanna in south.
• Highest point: Mount Roraima. Important River - Essequibo River

https://www.livemint.com/news/world/india-guyana-set-to-ink-pact-on-oil-gas-sector-11677261198749.html

Why in news? Deforestation, erosion on the Loess Plateau caused the Chinese to construct levees to tame the river, in turn, worsening the risk of flooding.

About

• The Yellow River is the sixth-longest river in the world and is also the most sediment-laden.
• It has been known as the ‘River of Disaster’ and ‘China’s sorrow’ because of the devastating floods it has caused since prehistory.
• It is also known as Huang He, it originates in the province of Qinghai, flows through the Loess Plateau, where it takes sediment that gives its waters their characteristic yellow colour.
• The sediment or loess (a type of silt) from the plateau usually settles on the riverbed and raises its height, making the river especially flood-prone in the lower reaches, on the North China Plain.

https://www.downtoearth.org.in/news/water/the-yellow-river-has-been-known-as-china-s-sorrow-now-we-know-who-was-responsible-87925