Economy This Week (9th to 15th July 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 9th July to 15th July 2022 is given below. Business news is essential for IAS exam preparation.

TABLE OF CONTENTS

1. RBI sets up system to settle international trade in rupees
2. India seeks changes in pact on taxation with Australia
3. Why oilseed production in India has remained stagnant
4. Govt extends RoSCTL plan
5. Centre relaxes norms for adjusting states’ off-budget borrowing
6. Centre cracks down on diversion of urea
7. Banks stare at a mere 8% recovery from first NARCL sale
8. India has achieved renewable energy target
9. India’s demography at crossroads

1. RBI sets up system to settle international trade in rupees

• The new measure is expected to promote the growth of global trade with emphasis on exports from India and to support increasing interest of global trading community in the INR
• As per the broad framework for cross border trade transactions in INR under the Foreign Exchange Management Act (FEMA) 1999
• All exports and imports under this are denominated and invoiced in rupee
• For settlement of transactions, the authorised bank can open special rupee VOSTRO account of the corresponding bank of the trading partner country
• Indian importers can pay in INR which will be credited to vostro account
• The Rupee Payment Mechanism could be used by Indian exporters/importers for their trade with Russia, Iran and Sri Lanka
• This is expected to reduce the demand for foreign currencies/exchange by promoting the rupee settlement

2. India seeks changes in pact on taxation with Australia

• Indian govt has asked that Australia make changes regarding the Double Taxation Avoidance Agreement (DTAA) as per the decision arrived at in April
• Indian IT companies which operate and provide services in Australia are being forced to pay more taxes
• The double taxation on these companies has cost them about $1.3 bn since 2013
• Using the provisions under the 1991 DTAA between India and Australia, Canberra has been taxing income generated from offshore IT services rendered from India as royalty, even when the same income is being taxed in India as well

3. Why oilseed production in India has remained stagnant

• The demand for edible oil has been increasing on account of rising population, urbanisation and per capita consumption
  • With urbanisation dietary habits are expected to change
  • The expenditure elasticity for the oils is positive hence rising incomes will lead to higher demand for the edible oils
• The domestic production of oilseeds has remained below the global average
  • CAGR oilseed production has remained 1.94% between 2011-12 to 2020-21 as against global average of 2.9%
  • Global oilseed production has increased from 447 mt in 2011-12 to 607 mt in 2020-21 at CAGR of 2.9%
• Reasons for stagnant output
  • The area under cultivation has re­mained stagnant – area under cultivation was 26.3 lha in 2011-12 and has increased to 28.2 lha in 2020-21
  • marginal im­provement in crop yield – yield per hectare has marginally increased from 1193 kgs/ha to 1254 kg/ha. Total production has increased from 29.8 mt in 2011-12 to 36.1 mt in 2020-21 at CAGR of 1.94%
  • low seed replacement rate – only around 15% of India’s total crops area is sown with freshly obtained quality seeds every year and the rest is sown using farm saved seeds
  • low level of mechanization of farm activities
  • Competition from other commercial crops
  • Price volatility
• Some crops such as palm have a long gestation period which will restrict income flows for a period of 4 to 5 year

4. Govt extends RoSCTL plan

• Govt has extended the Rebate of State and Central Taxes and Levies (RoSCTL) till 31st March 2024
• Govt has extended the scheme in order to boost the exports and also creation of jobs
• Rebate of State Levies (RoSL) has been replaced with RoSCTL in 2019

5. Centre relaxes norms for adjusting states’ off-budget borrowings

• Centre earlier had informed the states that off-budget borrowings are to be equated with states’ own debt and any such funds which have been raised by the states in FY21 and FY22 would have to be adjusted out of the borrowings ceilings this year. This norm has been relaxed by the centre freeing up resources for the states
• Under off budget liabilities the state govt owned entities, SPVs borrow from the market, the interest and principal of which is paid by the government

6. Centre cracks down on diversion of urea

• Centre has initiated a crackdown in order to save over 10 lakh tonnes (lt) of agriculture grade urea from getting diverted into being used for industrial purposes
• Govt has identified leakages worth ₹ 100 Cr through various covert operations
• Centre provides urea at highly subsidised prices of ₹ 266 per bag (45 kgs) and incurs a subsidy of ₹ 2700 per bag
• For the current Kharif season the subsidy for nitrogen was increased from ₹ 18.78 per kg to ₹ 91.96 per kg
• Urea usage in industries such as making resin/glue plywood, crockery, moulding powder, cattle feed, dairy and industrial explosives
• Industrial usage of urea is about 13 to 14 lt of which only 1.5 lt are produced in the country and 2 lt is imported (against the demand of over 10 lt). This means the govt subsidy worth ₹ 6000 Cr is getting diverted)
• The govt is clarified that the neem coating of the urea is being removed using chemical process

7. Banks stare at a mere 8% recovery from first NARCL sale

• India’s bad bank (NARCL) has offered to buy the first toxic asset at just 8% of its outstanding value
• The operationalisation of the NARCL has been delayed repeatedly
• Bids made by the NARCL are different from that of the ARCs as the SRs are backed by sovereign guarantee and most delays between banks and ARCs are cash based. NARCL will have an upper hand as it has to give 15% of the deal amount upfront as a cash
• As per RBI, the average rate of recovery for seven bad banks in Asia and Europe ranged between 22% and 87%
• For Indian lenders the recovery through IBC has been low
  • Recovery of financial creditors from as crashed to 10.2%

8. India has achieved renewable energy target

• India has achieved clean energy targets by installing 162 GW of renewable energy capacity out of 402 GW of installed capacity
• This makes up 41% of the total installed capacity
  • In 2015 govt has committed to meeting 40% of energy capacity through renewable energy by 2030 as part of Nationally Determined Contributions (NDC)
• Now the target is to achieve capacity of 500 GW

9. India’s demography at crossroads

• Ministry of Statistics and Programme Implementation has published the report – Youth in India 2022
• Population share of the youth is expected to reduce and that of elders is expected to rise between 2021-36
• States such as Kerala, Tamilnadu and Himachal Pradesh are projected to see higher elderly population than youth by 2036
• Youth in the age group of 15 to 29 years comprise 27.2% of the population for 2021 which is expected to decrease to 22.7% by 2036 and the elderly population is expected to increase
• Greater proportion of youth today will also mean that there will be greater proportion of elderly in future and this will be creating demand for better healthcare facilities and development of welfare schemes

Economy This Week (9th July to 15th July 2022):- Download PPT Here

ETW 9th – 15th July 2022:- Download PDF Here