Economy This Week (30th July to 5th August 2022)

Economy is an important part of the UPSC prelims and mains exams; this series titled ‘Economy This Week’ has been initiated to address the need to read and analyse economic articles in various business-related newspapers. The round-up of the Economy/Business section news for 30th July to 5th August 2022 is given below. Business news is essential for IAS exam preparation.

TABLE OF CONTENTS

1. Over ₹ 1 tn freebies announced by states (BS 30/7/22)
2. Govt may abolish PAHAL to cut wasteful expenditure (BS 3/8/22)
3. First bullion exchange (TH 30/7/22)
4. Govt eases coal import targets as stocks improve (TH 3/8/22)
5. Rationalize power tariffs - house panel (LM 4/8/22)
6. Gold reserves up 36% in last five years (BL 2/8/22)
7. Financial inclusion index (IE 3/8/22)
8. Service exports may beat recession woes (FE 3/8/22)
9. Export plans ready for 557 districts under one district one product initiative (BL 4/8/22)
10. Motorcycle ban in Nigeria could keep Bajaj auto edgy (BL 1/8/22)

1. Over ₹ 1 tn freebies announced by states (BS 30/7/22)

• The state governments put together have announced over ₹ 1 lakh Cr in welfare schemes this year 
  • The group has been led by states of Andhra Pradesh, Madhya Pradesh and West Bengal 
  • These account for over ₹ 67000 Cr 
• RBI has definition of freebies included those potentially undermining credit culture, distort prices through cross subsidization, eroding private investments, disincentivizing work at current wages leading to a drop in labour force participation    
• States have provided subsidies in case of electricity/power, interest for crop loans, medical assistance, for women etc 
• The fiscal deficit of the states have varied from 2.8% for Jharkhand to 4.5% for Madhya Pradesh

2. Govt may abolish PAHAL to cut wasteful expenditure (BS 3/8/22)

• Govt in order to cut inefficiency and wasteful expenditure is considering to abolish many schemes including PAHAL 
• PAHAL scheme was launched in 2013 to reduce diversion and eliminate duplicates or bogus LPG connections. The cylinders are sold at market rates and the beneficiaries can avail the subsidy which is directly credited into their bank account 
• The idea was for the customers to voluntarily give up the subsidies but that has not happened 
• As per the FY23 budget estimates the allocation under this scheme has been kept at ₹ 800 Cr (much lower than the revised estimates for FY22 – ₹ 1618 Cr). However the overall LPG subsidy has been kept at ₹ 5812 Cr including the free LPG cylinders distributed under the PM Ujjwala Yojana 
• The govt has kept a target of 6.4% for fiscal deficit which is under pressure with higher fertiliser and food subsidy bill and cut in excise duty on fuels. However the higher GST revenue collection is expected to reduce the pressure 
• The FCI and officials in public distribution departments have been asked to look into the inefficiencies that can be identified in storage, logistics, transportation and remove these 
• Similarly in case of schemes such as MGNREGA, the officials have been asked to identify ghost beneficiaries, fake accounts etc. the beneficiaries under MGNREGA have increased from 70 mn to 50 mn during pandemic but have not returned to pre-pandemic levels 
• Finance ministry is also considering cross checking IT data with list of beneficiaries under various welfare schemes such as PM KISAN to weed out bogus beneficiaries  

3. First bullion exchange (TH 30/7/22)

• Govt has launched the first bullion exchange – India International Bullion Exchange (IIBX) at  GIFT City
• India is the second largest consumer of gold and this is expected to lead to standard gold pricing and make it easier for small bullion dealers and traders to trade the metal 
• India imported 1069 tonnes of gold in 2021, which was just 430 tonnes a year ago
• Right now only nominated banks and agencies which are approved by RBI can import gold and sell to dealers and jewellers across the country 

4. Govt eases coal import targets as stocks improve (TH 3/8/22)

• Govt has eased the coal import targets for state utilities 
• Ministry of power has asked the states govt owned utilities and private power producers to assess amount of coal needed to be imported for blending 
• Many states have the stocks 50% above the normal levels and others are having it in near critical levels 
• The power ministry in May had said that if the state owned utilities do not import 10% of their requirement then ministry would reduce the amount of domestic supply 

5. Rationalize power tariffs – house panel (LM 4/8/22)

• Parliamentary standing committee on energy has recommended that centre rationalise the complex power tariff structure in discussion with the state governments 
• Panel has observed that 
  • Many states provide lower tariffs to poor consumers by cross subsidising. As a result a large number of tariff categories have been created – as high as 93 in some cases  
• The committee has recommended 
  • Categorising consumers under 5 heads – domestic, agriculture, commercial, industrial and institutional 
  • Centre should provide assistance to the states in this movement towards uniform tariff structure 
  • Separating agricultural feeders, which will help in cutting down the AT&C losses   
• However the concern is that the cost of purchasing the power varies from one state to another, each state has its own policy, structure etc hence it would be difficult to achieve a uniform tariff structure 
• CERC guidelines state that cross subsidisation should not be more than 20% and it should be gradually be reduced to zero

6. Gold reserves up 36% in last five years (BL 2/8/22)

• The gold reserves have increased by over 36% between June 2018 to end of Q2 2022 (from 561 tonnes to 768 tonnes)
• RBI has been trying to diversify its forex reserves and has purchased 63 tonnes of gold between July 2021 to June 2022 
• Along with RBI there have been many other central banks which have been buying gold. In Q2 of FY22 a total of 180 tonne of gold was purchased by central banks 
• Turkey is the largest buyer followed by Egypt and Iraq 
• Gold is invested in often as a safe haven because the price of it in long term increases and is used as a hedge against higher inflation rates 
• India has 9th largest reserves of gold but as a proportion of reserves it’s just 8%, which means there is further room to purchase more gold With majority of the forex reserves in the dollar denominated securities, the rising yield will reduce the reserves value 

7. Financial inclusion index (IE 3/8/22)

• The Financial Inclusion Index (FI-Index) for the year ending on 31st march 2022 has increased to 56.4 from 53.9 a year earlier 
• RBI has developed the index by including details of banking, investments, insurance, postal, pension sector 
• The index comprises three parameters including access, usage and quality and consists of 97 indicators 
• The index has been constructed without any base year and has been reflective of the cumulative efforts taken by all the stakeholders towards financial inclusion  

8. Service exports may beat recession woes (FE 3/8/22)

• The service exports from India are expected to grow at impressive pace in FY23 and the merchandise exports are expected to see a slowdown 
• Service exports are expected to jump 18% YoY and hit a fresh peak of $300 bn in current fiscal 
• Even if there is a sharp slowdown or recession in advanced economies, the service exports are expected to increase as these countries outsource the services to cheaper destinations such as India to cut down the costs 
  • US and other European economies are witnessing a runaway inflation, the wages in these markets would be rising  making local sourcing costly 
  • In addition to this the weaker rupee will help in earnings

9. Export plans ready for 557 districts under one district one product initiative (BL 4/8/22)

• Export plans for 557 districts are ready and over 218 district export promotion committees (DEPC) have adopted the plans 
• This is under the one district one product (ODOP) initiative (to promote regional development) of the central govt 
• In all the 36 states/UTs the State Export Promotion Committees (SEPCs) and DEPCs have been set up to provide the support of report promotion and to address bottlenecks for export growth 

10. Motorcycle ban in Nigeria could keep Bajaj auto edgy (BL 1/8/22)

• Nigeria govt is considering banning the motorcycles with this the motorcycle taxis or Okada will be also be banned 
  • Such a ban has already been put in place in Lagos since June  
• The top economy awareness group Nigeria Economic Security Agenda (NESA) has warned the govt on the repercussions that such a decision will have 
  • Such ban will affect 5.2 mn citizens who operate these taxis and another 15 mn who indirectly are dependent on them 
• If the ban is put in place then Indian automakers such as Bajaj , Hero MotoCorp, Honda (largest player in Nigeria) etc will be affected 
  • Bajaj exports its two and three wheelers to more than 70 countries 
  • Bajaj has sold 57% of its total sales in Nigeria in the June quarter 
  • It exported to even Sri Lanka earlier and because of turmoil there exports have been affected 

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