03 May 2023: UPSC Exam Comprehensive News Analysis

CNA 03 May 2023:- Download PDF Here

TABLE OF CONTENTS

A. GS 1 Related
B. GS 2 Related
C. GS 3 Related
ECONOMY
1. Gig & Platform workers and the Code on Social Security, 2020
2. De-dollarisation: the race to attain the status of global reserve currency
D. GS 4 Related
E. Editorials
INTERNATIONAL RELATIONS
1. The LAC crisis and the danger of losing without fighting
2. Outlawing India’s tech tariffs
F. Prelims Facts
1. A good divorce (Article 142)
G. Tidbits
1. NGT forms panel to look into Ludhiana gas leak deaths
2. India hands over 2 naval vessels to Maldives
3. Karnataka ranked the most ‘innovative’ State in manufacturing
H. UPSC Prelims Practice Questions
I. UPSC Mains Practice Questions

2. De-dollarisation: the race to attain the status of global reserve currency

Syllabus: Issues relating to planning and mobilization of resources.

Prelims: About De-dollarisation 

Mains: The advantages of being a global reserve currency and the need for de-dollarisation

Context

In recent times, especially, post the start of the Russia-Ukraine war, the attempts to de-dollarise have gained momentum.

De-dollarisation 

• De-dollarisation refers to the replacement of the U.S. dollar with other currencies as the global reserve currency.
• A reserve currency is a currency that is used extensively in international transactions between countries and is commonly held as reserves by the central banks of various countries.
• Countries across the world have been looking to replace the U.S. dollar as the global reserve currency for several years for various reasons. 
• However, the imposition of sanctions on Russia that limit the use of the dollar to buy oil and other goods from Russia has forced countries to ramp up their efforts to de-dollarize the global economy.
• Since the international transactions that are carried out in the form of the U.S. dollar must be cleared by American banks, counties opine that this accords the U.S. significant powers to oversee and control such transactions.

The U.S. dollar as a global reserve currency

• Economists opine that the U.S. dollar was not forced upon any country to be used for cross-border transactions but instead, it was used because people actually preferred the U.S. dollar and is more widely accepted than the other currencies.
• Other currencies are not as popular as the U.S. dollar in order to be used for international transactions.
  • For instance, the efforts undertaken by India and Russia to carry out bilateral trade in the form of Indian rupees did not yield intended results as the value of India’s imports from Russia is significantly more than its exports to Russia. 
  • This trade balance meant that Russia had excess rupees which it was unwilling to spend on Indian goods. Hence Russia demanded the settlement of bilateral trade in U.S. dollars.
• The global acceptability of the U.S. dollar is mainly due to the popularity of U.S. assets among investors. 
  • The U.S. has been experiencing a persistent trade deficit since 1975. This means that the value of the U.S. imports has been more than the value of its exports to other countries.
  • Therefore, the rest of the countries across the world have accumulated excess dollars due to the U.S.’s trade deficit and these excess dollars are being invested in U.S. assets like the debt securities issued by the U.S. government. 
• Furthermore, the “rule of law” in the U.S., is said to be another key reason for the high level of trust the global investors have in the U.S. financial markets.
• The currencies of economic superpowers usually end up being used as the global reserve currency and currencies like the British pound and the French franc have enjoyed the status of the global reserve currency in the past. 
  • However, with the economic decline of these countries, the currencies lost their popularity and status of being the global reserve currency.
  • The British pound which hitherto enjoyed the status was replaced by the U.S. dollar as Britain lost its status as a global economic superpower.

Advantages enjoyed by global reserve currency

• A currency that enjoys the status of being a global reserve currency will enjoy an advantage over other countries.
• If the currency of a country enjoys the status of being a global reserve currency, the country will have the power to purchase goods and other assets from other countries by simply printing fresh currency. 
• Countries, companies and individuals using U.S. dollars for their transactions ensure more liquidity of the currency. 
  • Increased liquidity means that financial assets can be priced more easily and loans are more easily provided. 
• If a country’s currency is being used as a global reserve currency, then that country will have the leverage to impose financial sanctions and play a key role in shaping global geopolitics.

Path ahead

• Expansionary monetary policies adopted by the U.S. Federal Reserve in recent times threaten the status of the U.S. dollar as a global reserve currency. 
• The U.S. Federal Reserve usually increases the supply of dollars in order to address economic downturns and fund the U.S. government’s expenditures. 
  • However, such expansion of the supply of dollars can lead to the debasement of the currency that threatens its status as a reserve currency.
• The recent instances of the imposition of unilateral sanctions on various countries by the U.S., have forced other countries, including the allies of the U.S. to develop an alternate and dollar-free system.
• Chinese yuan is currently being viewed as a possible alternative to the U.S. dollar on account of the rise and growth of China’s economic might. However, the concerns over the “rule of law” in China have adversely impacted its prospects.

Nut graf: Critics believe that the dollar’s status of being the primary reserve currency for the global economy has given the U.S. unfair privileges over other countries and have thus called for increased efforts to dethrone the dollar as the global reserve currency.

2. Outlawing India’s tech tariffs

Syllabus: GS-2, Global and Multilateral Organizations and Agreements.

Mains: WTO and India’s tariff on ICT goods.

Prelims: World Trade Organization.

Details:

• The European Union (EU), Japan, and Taiwan have complained about India’s tariffs on certain information and communication technology (ICT) products such as mobile phones.
• The three panels of the World Trade Organization (WTO) concluded that India has violated Article II of the General Agreement on Tariffs and Trade (GATT) as India’s tariffs breach its Goods Schedule.
• It should be noted that WTO members are under a legal obligation not to impose tariff rates higher than their ‘bound’ or maximum tariff committed in their Goods Schedule.
  • The Good Schedule is based on the World Customs Organization’s classification system.
  • It is called Harmonized System of Nomenclature (HSN). It categorizes traded products with specific names and numbers.
  • The HSN is regularly updated to accommodate new products. This is known as transposition.

Read more on the WTO ruling against India’s tariffs on electronic imports in the link.

Details about the case:

• India justified its stand by arguing that its binding tariff commitments on ICT products are based on the WTO Ministerial Declaration on Trade in Information Technology Products (ITA Agreement). India signed this declaration in 1996.
  • The ITA agreement is an arrangement through which some countries (WTO members) agree to eliminate duties on IT products.
  • But it should be noted that the commitments under the ITA become binding on a country under Articles II.1(a) and (b) of GATT only if they are incorporated in the Goods Schedule.
• As a result, the panel concluded that India’s Goods Schedule (and not the ITA), is the source of India’s legal obligations on tariffs (even covering the products mentioned under the ITA).
• It further rejected India’s claim that its commitments under the ITA are ‘static’. Moreover, it held that the ITA cannot override the tariff mentioned under India’s Goods Schedule.
• It also denied India’s arguments on the basis of Article 48 of the Vienna Convention on the Law of Treaties.
  • Article 48 declares that an error in a treaty would invalidate a state’s consent.
  • India stated that an error was committed during the transposition of its Goods Schedule from the HSN 2002 edition to the HSN 2007 edition. The panel accepted this argument.
  • However, the panel held that India failed to justify that this assumption formed a necessary basis for India’s consent for the Goods Schedule.
• The three panels have recommended India should reduce its tariff rates and make them compatible with its Goods Schedule.
  • If India abides by the decision it will hamper its domestic manufacturing of ICT goods.
• India is likely to exercise its option of appealing against the panel on the basis of Article 17 of the WTO’s Dispute Settlement Understanding (DSU).
  • It should also be noted that Appellate Body has ceased to exist since 2019 as the U.S. is blocking the appointment of its members.
  • Thus, India’s appeal will go into the void and it will not be required to comply with the panels’ rulings.
  • Though a Multi-Party Interim Appeal Arbitration Arrangement (MPIA) has been created by some WTO members like the EU (under Article 25 of Dispute Settlement Understanding), India is not a party to it. 

Consequences of the Act:

• EU will not be able to impose trade sanctions on India without the authorization of the Dispute Settlement Body.
• However, the EU has developed a legal mechanism to unilaterally impose trade sanctions against countries and push them to sign MPIA. But these measures are also inconsistent with WTO law.
• It is speculated that the EU might use this case as a bargaining chip in the ongoing free trade agreement negotiations with India. Thus, India should remain very cautious at this moment.

Also read: India and World Trade Organisation (WTO) – Peace Clause, ICT Tariff Case, Ban of Apps

Nut Graf: Many countries have complained that India’s tariff rates on various Information and Communication Technology products are inconsistent with India’s WTO obligations. Though sanctions cannot be imposed on India due to legal mechanisms, New Delhi should tread cautiously while dealing with European Union.

2. India hands over 2 naval vessels to Maldives

• The Indian Defence Minister handed over a Fast Patrol Vessel (FPV) and a Landing Craft Assault ship to the Maldives National Defence Forces (MNDF) as a part of India’s capacity-building assistance in the Indian Ocean Region (IOR).
• Meanwhile, the Indian Air Force (IAF) chief also donated AN-32 transport aircraft propellers to the Commander of the Sri Lanka Air Force at Katunayake Air Base.
• In recent times, India has ramped up its assistance programmes or initiatives aimed at capacity building and capability enhancement for Indian Ocean littoral states and countries in the IOR.
• The Union Defence Minister called for collaborative efforts to deal with common challenges such as climate change and increased exploitation of maritime resources faced by IOR.

3. Karnataka ranked the most ‘innovative’ State in manufacturing

• The National Manufacturing Innovation Survey (NMIS) 2021-22 conducted by the Department of Science and Technology (DST) and the United Nations Industrial Development Organization (UNIDO) has ranked Karnataka as the most “innovative” State.
  • Karnataka was followed by Dadra and Nagar Haveli, Daman and Diu, Telangana, and Tamil Nadu.
• The survey evaluated the innovation performance of manufacturing firms and the degree of innovation among manufacturing firms in India.
• As per the survey, Telangana (46.18%), Karnataka (39.1%), and Tamil Nadu (31.9%) had the highest share of innovative firms, whereas Odisha (12.78%), Bihar (13.47%) and Jharkhand (13.71%) reported the lowest share of such firm.
• The survey also notes that the most frequent “barriers to innovation” were the lack of internal funds, high innovation costs, and lack of financing from external sources. 
  • Gujarat and Dadra and Nagar Haveli, Daman and Diu reported the highest frequencies of barriers to innovation.

Q1. How many of the following statements is/are true regarding “Mission Karmayogi”? 
(Level – Easy)

Q2. Identify the correct statements: (Level – Difficult)

Q3. Which of the following statements is/are correct? (Level – Easy)

Q4. Which of the following statements is/are true? (Level – Difficult)

Q5. The substitution of steel for wooden ploughs in agricultural production is an 
example of: (Level – Moderate) [PYQ 2015]

CNA 03 May 2023:- Download PDF Here