COASTAL REGULATION ZONE
1.Context
A notice, dated November 11, 2024, had reportedly directed all stakeholders to demolish and clear illegal construction by hotels, resorts and homestays in Mandarmani by November 20, citing a May 2022 order of the National Green Tribunal (NGT). The NGT in 2022 had directed around 140 hotels and resorts in Mandarmani to be razed for violations of the Coastal Regulation Zone (CRZ) regulations.
2.Coastal regulation Zone (CRZ)
The Coastal Regulation Zone (CRZ) refers to the coastal stretches of India and their associated ecosystems, including the shorelines, estuaries, creeks, bays, and rivers influenced by tidal action. To regulate human activities in these sensitive areas and protect coastal ecology, the Ministry of Environment, Forest, and Climate Change (MoEFCC) introduced the CRZ Rules under the Environment Protection Act, 1986.
The states are also supposed to frame their own coastal zone management plans by the central Rules.
3.The CRZ Rules
- CRZ Rules govern human and industrial activity close to the coastline, to protect the fragile ecosystems near the sea.
- The Rules, mandated under the Environment Protection Act, 1986, were first framed in 1991.
| They sought to restrict certain kinds of activities, like large constructions, setting up of new industries, storage or disposal of hazardous material, mining or reclamation and bunding, within a certain distance from the coastline. |
- The basic idea is: because areas immediately next to the sea are extremely delicate, home to many marines and aquatic life forms, both animals and plants and are also threatened by climate change, they need to be protected against unregulated development.
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In all CRZ Rules, the regulation zone has been defined as the area up to 500 m from the high-tide line.
Several kinds of restrictions apply, depending on criteria such as the population of the area, the ecological sensitivity, the distance from the shore and whether the area had been designated as a natural park or wildlife zone.
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4.1991 Rules
- Despite several amendments, states found the 1991 Rules to be extremely restrictive.
- They complained that if applied strictly, the Rules would not allow simple things like building decent homes for people living close to the coast and carrying out basic developmental works.
- The 1991 Rules also created hurdles for showpiece industrial and infrastructure projects such as the POSCO steel plant in Odisha and the proposed Navi Mumbai airport in the first decade of the new century.
5.Evolution of Rules
- The Centre notified fresh CRZ Rules in 2011, which addressed some concerns.
- An exemption was made for the construction of the Navi Mumbai airport. (The POSCO Project had failed to take off due to other reasons).
- Projects of the Department of Atomic Energy plans to set up nuclear power plants near the coast were exempted.
6.Shailesh Nayak Committee
- After even these Rules were found inadequate, however, the Environment Ministry 2014 set up a six-member committee under then Earth Sciences Secretary Shailesh Nayak to give suggestions for a new set of CRZ Rules. The committee submitted its report in 2015.
- Simultaneously, the Chennai-based National Centre for Sustainable Coastal Management defined a new high-tide line along India's entire coastline to remove ambiguities.
- Separately, the Survey of India defines a hazard line along the coasts to be used mainly for disaster management planning.
7.2018 CRZ Rules
Based on these and other inputs, the Environment Ministry issued fresh CRZ Rules in December 2018, which removed certain restrictions on buildings, streamlined the clearance process and aimed to encourage tourism in coastal areas.
The Current situation
In January, the government notified new CRZ Rules with the stated objectives of promoting sustainable development and conserving coastal environments.
CRZ-III (Rural)
For the so-called CRZ-III (Rural) areas, two separate categories have been stipulated.
CRZ-IIIA
In the densely populated rural areas (CRZ-IIIA) with a population density of 2,161 per sq km as per the 2011 Census, the no-development zone is now 50 m from the high-tide level, as against the 200 m stipulated earlier.
CRZ-IIIB
- The CRZ-IIIB category (rural areas with population density below 2, 161 per sq km) continues to have a no-development zone extending up to 200 m from the high-tide line.
- The new Rules have a no-development zone of 20 m for all islands close to the mainland coast and all backwater islands on the mainland.
8.Cases in Kerala
- There have been cases of courts in Kerala ordering the demolition of resorts or apartments for violating CRZ norms earlier.
- But stakeholders have either obtained stays or have got relief in the Supreme Court.
- In 2014, a Single Bench of Kerala High Court ordered the demolition of a waterfront residential complex of DLF in Kochi
A Division Bench cancelled the demolition order but fined the builder Rs 1 crore. - After KCZMA appealed, the Supreme Court in January 2018 upheld the verdict of the Division Bench.
- In 2013, the High Court ordered a Rs 350 crore resort in Alappuzha pulled down.
- The order was stayed by the Supreme Court.
- Kochi's Lakeshore Hospital was in the Dock for violating CRZ norms.
- But in 2003, the project got a breather from the High Court, which dismissed a public interest plea that had come after the construction had been completed.
- Some 26 resorts and hotels on Thiruvanathapuram's Kovalam beach have been served notices for violations of CRZ Rules.
- In the Kochi Municipal Corporation area, 35 violations have been reported.
For Prelims & Mains
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For Prelims: Coastal Regulation Zone Rules, Shailesh Nayak Committee, CRZ violations in Kerala.
For Mains: Define CRZ rules and Critically analyse them (250 words)
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Source: The Indian Express
INDIA-US PARTNERSHIP
1. Context
The Free Trade Agreement negotiations with India — expected to significantly boost the estimated GBP 42-billion a year bilateral trade partnership — will be relaunched early in the new year, Prime Minister Keir Starmer has informed the U.K. Parliament here
2.India-US Relationship
- India and the United States has been multifaceted and has evolved over the years. It covers various areas such as strategic, economic, technological, and cultural cooperation.
- India and the United States have developed a strategic partnership, marked by regular high-level diplomatic engagements and cooperation on regional and global issues. Both countries share common values such as democracy and a commitment to a rules-based international order
- Defense and security ties between India and the U.S. have strengthened. Both countries participate in joint military exercises, and there is ongoing collaboration in defense technology and procurement. The Logistics Exchange Memorandum of Agreement (LEMOA) and the Communications Compatibility and Security Agreement (COMCASA) are examples of agreements aimed at enhancing defense cooperation.
- Economic ties have expanded, with both countries being significant trade partners. Bilateral trade has increased, and efforts have been made to address trade imbalances. The U.S. has been a major source of foreign direct investment (FDI) in India, and both sides have expressed interest in further deepening economic collaboration.
3. Key Elements of Partnerships of India-US
3.1.Technology partnership
- Micron Technology, in collaboration with the backing of the India Semiconductor Mission, plans to allocate over $800 million for the establishment of a new semiconductor assembly and test facility in India, contributing to a total investment of $2.75 billion. Additionally, Applied Materials is set to construct a Semiconductor Centre for Commercialization and Innovation in India, aimed at enhancing the diversification of the semiconductor supply chain between the two countries. Simultaneously, Lam Research intends to facilitate the training of 60,000 Indian engineers through its "Semiverse Solution," aligning with India's objectives for accelerated semiconductor education and workforce development
- India has recently joined the Minerals Security Partnership (MSP) led by the United States, aimed at expediting the establishment of robust and sustainable global supply chains for critical energy minerals. Commencing in June 2022, MSP already includes 12 other partner nations and the European Union. As part of this collaboration, Epsilon Carbon Limited from India is set to inject $650 million into the creation of a greenfield facility for electric vehicle battery components, marking the most substantial Indian investment to date in the U.S. electric vehicle battery sector.
- India and the United States have initiated collaborative efforts through public-private Joint Task Forces dedicated to the advancement and implementation of Open RAN systems, as well as the progress of advanced research and development in telecommunications. The joint leadership of India's Bharat 6G and the U.S. Next G Alliance in this public-private research endeavour is aimed at diminishing expenses, enhancing security, and fortifying the resilience of telecommunication networks.
- India has officially endorsed the Artemis Accords, aligning itself with 26 other nations dedicated to fostering peaceful, sustainable, and transparent collaboration for the exploration of celestial bodies such as the Moon, Mars, and beyond. In a significant development, NASA is set to offer advanced training to astronauts from the Indian Space Research Organization (ISRO), with the objective of initiating a joint mission to the International Space Station in 2024. Furthermore, NASA and ISRO are actively working on establishing a strategic framework for cooperation in human spaceflight, with plans to finalize the agreement by the conclusion of 2023.
- A collaborative effort has been instituted by both nations through the creation of a Joint Indo-US Quantum Coordination Mechanism. This mechanism is designed to streamline cooperative research endeavors involving the public and private sectors in both countries. Additionally, they have formalized an implementing arrangement to bolster joint research initiatives focusing on quantum technologies, Artificial Intelligence (AI), and advanced wireless technologies.
- The National Science Foundation of the United States has disclosed 35 collaborative research projects in conjunction with India's Department of Science and Technology. Additionally, a fresh cooperative agreement has been formalized between the U.S. National Science Foundation and India's Ministry of Electronics and Information Technology, specifically targeting emerging technologies
- Sterlite Technologies Limited of India has committed a $100 million investment towards establishing a manufacturing facility for optical fiber cables in close proximity to Columbia, South Carolina. This initiative is expected to support annual optical fiber exports from India amounting to $150 million
3.2.Defence Partnership
- The Joint Statement expressed approval for the innovative proposal put forth by General Electric to collaboratively manufacture the F414 jet engine in India. General Electric and Hindustan Aeronautics Limited (HAL) have formalized a Memorandum of Understanding (MoU), and a manufacturing license agreement has been presented for Congressional Notification. This unprecedented initiative, marking the first time F414 engines will be produced in India, is poised to facilitate a more extensive transfer of U.S. jet engine technology than previously experienced
- India has plans to acquire armed MQ-9B SeaGuardian Unmanned Aerial Vehicles (UAVs), aiming to enhance the country's intelligence, surveillance, and reconnaissance capabilities
- The U.S. Navy has finalized a Master Ship Repair Agreement (MSRA) with Larsen and Toubro Shipyard in Kattupalli (Chennai) and is in the process of completing agreements with Mazagon Dock Limited (Mumbai) and Goa Shipyard (Goa). These arrangements will permit U.S. Navy vessels to undergo maintenance and repair at Indian shipyards during their voyages.
- The inauguration of the India-US Defence Acceleration Ecosystem (INDUS-X) took place on June 21, 2023. This network involves participants from universities, incubators, corporations, think tanks, and private investors. The program is designed to foster collaborative innovation in defense technologies and expedite the integration of India's private sector defense industry with its U.S. counterpart
3.3. Cooperation in the Indo-Pacific
Titled 'Taking the Lead on the Global Platform,' the Joint Statement highlights several strategic actions undertaken by the two nations.
- Indo-Pacific and Indian Ocean: The United States will become a participant in the Indo-Pacific Oceans Initiative, a regional effort initiated by Prime Minister Modi in 2015 to ensure a secure, stable maritime environment and advocate for its conservation and sustainable utilization. India will maintain its role as an observer in the Partners in the Blue Pacific. The U.S. and India plan to conduct an Indian Ocean Dialogue involving experts and stakeholders from the broader Indian Ocean region to enhance regional coordination.
3.4.Sustainable development
- India and the United States will persist in their collaborative efforts to meet their individual climate and energy objectives. The United States appreciates India's commitment to jointly spearhead the Hydrogen Breakthrough Agenda, a multinational initiative aimed at making affordable renewable and low-carbon hydrogen accessible worldwide by 2030
- The Joint Statement underlines the mutual dedication of both nations to establishing inventive investment frameworks. These frameworks aim to reduce the capital costs and draw substantial international private financing for projects related to renewable energy, battery storage, and emerging green technologies in India. Additionally, the statement acknowledges efforts to decarbonize the transportation sector and highlights India's establishment of the Global Biofuels Alliance, in which the U.S. is a founding member
3.5.Initiatives on health
- The U.S. National Cancer Institute is set to encourage cooperation between American and Indian scientists through two recently awarded grants. These grants aim to create an Artificial Intelligence (AI)-enhanced digital pathology platform for purposes such as cancer diagnosis, prognosis, and forecasting therapeutic outcomes. Additionally, the grants will support the development of AI-driven automated radiotherapy treatment specifically for cervix, head, and neck cancers.
- The U.S. National Institute of Diabetes and Digestive and Kidney Diseases is poised to enter into an agreement with the Indian Council of Medical Research. This collaboration aims to advance research in the realms of basic, clinical, and translational studies on diabetes. Additionally, the United States and India are set to convene a US-India Cancer Dialogue, facilitated by President Biden's Cancer Moonshot initiative. This dialogue will serve as a platform for experts from both countries to identify specific areas of collaboration, accelerating the pace of progress in the fight against cancer.
3.6.Fighting terror and drugs
- The Joint Statement reaffirmed the commitment of the United States and India to jointly combat global terrorism, condemning terrorism and violent extremism in all its forms. President Biden and Prime Minister Modi reiterated the need for concerted action against UN-listed terrorist groups, including al-Qa’ida, ISIS/Daesh, Lashkar e-Tayyeba (LeT), Jaish-e-Mohammad (JeM), and Hizb-ul-Mujhahideen.
- They strongly denounced cross-border terrorism and the use of terrorist proxies. The leaders called on Pakistan to take immediate action to prevent any territory under its control from being used for launching terrorist attacks. Additionally, they urged for the perpetrators of the 26/11 Mumbai and Pathankot attacks to be brought to justice.
4. Way forward
India and the U.S. often collaborate on various global and regional challenges, including United Nations initiatives, counterterrorism efforts, and regional stability.
Source: Indianexpress
FREE TRADE AGREEMENT
1. Context
India and the U.K. are still negotiating a trade agreement that was initially supposed to be ready by Diwali of 2022. External Affairs Minister (EAM) S. Jaishankar has expressed hope that the two countries will be able to find a mutually beneficial "landing point" for the deal.
2. About the Free Trade Agreement
- A Free Trade Agreement (FTA) is an agreement between two or more countries to reduce or eliminate barriers to trade, such as tariffs, quotas, and subsidies.
- FTAs can also include provisions on other issues, such as investment, intellectual property, and labour standards.
- The goal of an FTA is to promote trade and economic growth between the signatory countries.
- By reducing or eliminating trade barriers, FTAs can make it easier for businesses to export their goods and services to other countries, which can lead to increased production, employment, and innovation.
3. Types of Free Trade Agreement
- Bilateral Free Trade Agreement (BFTA) involves two countries, aiming to promote trade and eliminate tariffs on goods and services between them. It establishes a direct trade relationship, allowing for a more focused and tailored agreement between the two nations.
- Multilateral Free Trade Agreement (MFTA) Involving three or more countries, an MFTA seeks to create a comprehensive trade bloc, promoting economic integration on a larger scale. It requires coordination among multiple parties, addressing diverse economic interests and fostering a broader regional economic landscape.
- Regional Free Trade Agreement (RFTA) involves countries within a specific geographic region, aiming to enhance economic cooperation and integration within that particular area. It focuses on addressing regional economic challenges and fostering collaboration among neighbouring nations.
- Preferential Trade Agreement (PTA) involves a reciprocal reduction of tariffs and trade barriers between participating countries, granting preferential treatment to each other's goods and services. It allows countries to enjoy trading advantages with specific partners while maintaining autonomy in their trade policies with non-participating nations.
- Comprehensive Economic Partnership Agreement (CEPA) is a broad and advanced form of FTA that goes beyond traditional trade barriers, encompassing various economic aspects such as investment, intellectual property, and services. It aims for a more comprehensive economic partnership, encouraging deeper integration and collaboration between participating countries.
- Customs Union While not strictly an FTA, a Customs Union involves the elimination of tariffs among member countries and the establishment of a common external tariff against non-member nations. It goes beyond standard FTAs by harmonizing external trade policies, creating a unified approach to trade with the rest of the world.
- Free Trade Area (FTA) with Trade in Goods (TIG) and Trade in Services (TIS): Some FTAs specifically emphasize either trade in goods or trade in services, tailoring the agreement to the specific economic strengths and priorities of the participating countries. This approach allows nations to focus on areas where they have a comparative advantage, fostering specialization and efficiency.
4. India's Free Trade Agreements
India is a member of several free trade agreements (FTAs) and is currently negotiating others. India's FTAs have helped to reduce trade barriers and promote trade and economic growth. They have also helped to attract foreign investment and create jobs.
- The South Asian Free Trade Agreement (SAFTA) was signed in 1995 by the seven countries of the South Asian Association for Regional Cooperation (SAARC). SAFTA aims to reduce or eliminate tariffs on trade between the member countries.
- The India-Bangladesh FTA was signed in 2010 and came into force in 2011. It is a comprehensive FTA that covers goods, services, and investments.
- The India-Sri Lanka FTA was signed in 1999 and came into force in 2000. It is a comprehensive FTA that covers goods, services, and investments.
- The India-ASEAN Free Trade Agreement was signed in 2002 and came into force in 2010. It is a comprehensive FTA that covers goods, services, and investments.
- The India-Korea Comprehensive Economic Partnership Agreement (CEPA) was signed in 2010 and came into force in 2011. It is a comprehensive FTA that covers goods, services, and investments.
- The India-Japan Comprehensive Economic Partnership Agreement(CEPA) was signed in 2022 and came into effect in 2023. It is a comprehensive FTA that covers goods, services, and investments.
- The India-UAE Comprehensive Partnership Agreement (CEPA) was signed in 2022 and came into effect in 2022. It is a comprehensive FTA that covers goods, services, and investments.
- The India-Australia Economic Cooperation and Trade Agreement (ECTA) was signed in 2022 and came into effect in 2022. It is a comprehensive FTA that covers goods, services, and investments.
- The India-Malaysia Comprehensive Economic Cooperation Agreement (CECA) was signed in 2010 and aims to enhance economic ties by addressing trade in goods and services, as well as investment and other areas of economic cooperation.
- The India-Thailand Free Trade Agreement was signed in 2003 and focuses on reducing tariffs and promoting trade in goods and services between India and Thailand.
- The India-Singapore Comprehensive Economic Cooperation Agreement (CECA) has been operational since 2005, this agreement covers trade in goods and services, as well as investment and intellectual property.
- The India-Nepal Trade Treaty While not a comprehensive FTA, India and Nepal have a trade treaty that facilitates the exchange of goods between the two countries.
- The India-Chile Preferential Trade Agreement was signed in 2006 and aims to enhance economic cooperation and reduce tariffs on certain products traded between India and Chile.
5. India - UK Free Trade Agreement
5.1. Background
- Both countries have agreed to avoid sensitive issues in the negotiations.
- The interim (early harvest agreement) aims to achieve up to 65 per cent coverage for goods and up to 40 per cent coverage for services.
- By the time the final agreement is inked, the coverage for goods is expected to go up to "90 plus a percentage" of goods.
- India is also negotiating a similar early harvest agreement with Australia, which is supposed to set the stage for a long-pending Comprehensive Economic Cooperation Agreement that both countries have been pursuing for nearly a decade.
- While the commencement of negotiations does mark a step forward in the otherwise rigid stance adopted and when it comes to trade liberalisation, experts point to impediments and the potential for legal challenges going ahead.
5.2. GATT (General Agreement on Trade and Tariffs)
- The exception to the rule is full-scale FTAs, subject to some conditions.
- One rider, incorporated in Article XXIV.8 (b) of GATT, stipulates that a deal should aim to eliminate customs duties and other trade barriers on "Substantially all the trade" between the WTO member countries that are signatories to an FTA.
- For this Agreement, a free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce are eliminated on substantially all the trade between the constituent territories in products originating in such territories.
- It is often beneficial to negotiate the entire deal together, as an early harvest deal may reduce the incentive for one side to work towards a full FTA.
- These agreements are not just about goods and services but also issues like investment.
- If you are trying to weigh the costs and benefits, it is always better to have the larger picture in front of you.
- In the case of the early harvest agreement inked with Thailand, automobile industry associations had complained that relaxations extended to Bangkok in the early harvest had reduced the incentive for Thailand to work towards a full FTA.
- Early harvest agreements may serve the function of keeping trading partners interested as they promise some benefits without long delays, as India becomes known for long-drawn negotiations for FTAs.
- Government emphasis on interim agreements may be tactical so that a deal may be achieved with minimum commitments and would allow for contentious issues to be resolved later.
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For Prelims: Free Trade Agreement, India-U.K, Bilateral Free Trade Agreement, G-20 Summit, Agenda 2030, Covid-19 Pandemic, SAARC, General Agreement on Trade and Tariffs, Comprehensive Economic Partnership Agreement, Multilateral Free Trade Agreement, Regional Free Trade Agreement, Preferential Trade Agreement, Customs Union,
For Mains:
1. Evaluate the potential impact of the India-UK FTA on the Indian economy, considering both positive and negative aspects (250 Words)
2. Critically evaluate the significance of Free Trade Agreements (FTAs) in promoting trade and economic growth, considering their potential benefits and drawbacks. (250 Words)
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Previous Year Questions
1. Consider the following countries:
1. Australia
2. Canada
3. China
4. India
5. Japan
6. USA
Which of the above are among the free-trade partners' of ASEAN? (UPSC 2018)
A. 1, 2, 4 and 5 B. 3, 4, 5 and 6 C. 1, 3, 4 and 5 D. 2, 3, 4 and 6
Answer: C
2. Increase in absolute and per capita real GNP do not connote a higher level of economic development, if (UPSC 2018) (a) Industrial output fails to keep pace with agricultural output. Answer: C 3. The SEZ Act, 2005 which came into effect in February 2006 has certain objectives. In this context, consider the following: (2010)
Which of the above are the objectives of this Act? (a) 1 and 2 only (b) 3 only (c) 2 and 3 only (d) 1, 2 and 3 Answer: A 4. A “closed economy” is an economy in which (UPSC 2011) (a) the money supply is fully controlled Answer: D 5. With reference to the “G20 Common Framework”, consider the following statements: (UPSC 2022)
1. It is an initiative endorsed by the G20 together with the Paris Club. 2. It is an initiative to support Low Income Countries with unsustainable debt. Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 Answer: C
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Source: The Hindu
GRADED RESPONSE ACTION PLAN(GRAP)
1.Context
The Supreme Court on Friday agreed to consider easing Graded Response Action Plan-4 (GRAP-4) restrictions in the national capital on November 25 after the Centre for Air Quality Management (CAQM) claimed the air quality in Delhi has entered a relatively easy-to-breathe GRAP-2 stage in the past two days.
2.What is a Graded Response Action Plan (GRAP)
In 2014, when a study by the WHO found that Delhi was the most polluted city in the world, panic spread in the center and the state government. Approved by the supreme court in 2016, the plan was formulated after several meetings that the Environmental Pollution (Prevention and Control) Authority (EPCA) held with state government representatives and experts. The result was a plan that institutionalized measures to be taken when air quality deteriorates.
The plan was notified by the Ministry of Environment, Forests & Climate change in 2017.
GRAP works only as an emergency measure.
It institutionalized measures to be taken when air quality deteriorates.
1. The plan is incremental- therefore, when the air quality moves from 'poor' to 'very poor, the measures listed under both sections have to be followed.
2. It prevents PM10 and PM2.5 levels from going beyond the 'moderate' national AQI category.
Authorities from both Haryana and UP had informed EPCA at the time that they would put in the required measures by winter 2020 for the supply of electricity from the grid.
3.Has GRAP Helped?
- The biggest success of GRAP has been in fixing accountability and deadlines.
- For each action to be taken under a particular air quality category, executing agencies are marked.
- In a territory like Delhi, where a multiplicity of authorities has been a long-standing impediment to effective governance, this step made a crucial difference.
4.Measures that are taken in other states
- one criticism of the EPCA, as well as GRAP, has been the focus on Delhi. While other states have managed to delay several measures, citing a lack of resources, Delhi has always been the first to have stringent measures enforced.
- When the air quality shifts from poor to very poor, the measures listed under both sections have to be followed since the plan is incremental in naturality reaches the severe+ stage, GRAP talks about shutting down schools and implementing the odd-even road-space rationing scheme.
5.Actions under GRAP
Severe+ or Emergency |
(PM 2.5 OVER 300 300 µg/cubic metre or PM10 over 500µg/cu. m. for 48+ hours)
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Severe |
(PM 2.5 OVER 250µg/cu. m. or PM10 over 430 µg/cu. m. )
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Very Poor |
(PM2.5 121-250 µg/cu. m. or PM10 351-430 µg/cu.m. )
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Moderate to Poor |
(PM2.5 61-120 µg/cu. m. or PM10 101-350 µg/cu. m.)
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For Prelims and Mains
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For Prelims: Graded Response Action Plan, National Capital Region (NCR),Environmental pollution(prevention control)Authority (EPCA).
For Mains:
1. What is GRAP? What is the Delhi-NCR action plan as air pollution increases? (250 words).
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SOURCE: The Indian Express
PURCHASING MANAGERS INDEX (PMI)
1. Context
Activity levels across India’s private sector are seeing a modest uptick this month, even as cost pressures have surged to a 16-month high for both services and manufacturing players, compelling them to raise prices charged to customers at a pace not seen since February 2013, as per the HSBC Flash India Purchasing Managers’ Index (PMI).
2. What is the Purchasing Managers Index (PMI)?
The Purchasing Managers' Index (PMI) is an economic indicator that provides insights into the health of a country's manufacturing or services sector.
PMI is widely used by businesses, economists, and policymakers to gauge the economic performance and future trends in these sectors.
It is usually expressed as a numerical value that reflects the prevailing business conditions.
2.1. Key Aspects of PMI
- PMI is typically calculated through surveys of purchasing managers in various industries. These managers are asked about their perception of different aspects of business activity, including new orders, production levels, employment, supplier deliveries, and inventories.
- PMI is usually reported as a number between 0 and 100.
- A PMI value above 50 generally indicates expansion in the sector, while a value below 50 suggests contraction. The farther the PMI is from 50, the stronger the perceived expansion or contraction.
- PMI is considered a leading indicator because it provides insights into economic conditions before official economic data, such as GDP growth or employment figures, are released. It can be used to anticipate changes in economic activity.
- PMIs are calculated separately for manufacturing and services sectors. A Manufacturing PMI focuses on the manufacturing sector, while a Services PMI provides insights into the services sector. These sector-specific PMIs can give a more detailed view of the economy.
Components: PMI is composed of several components, including:
- New Orders: This component measures the number of new orders received by businesses. An increase in new orders often signals growing demand and economic expansion.
- Production: This component reflects changes in production levels. An increase suggests increased economic activity.
- Employment: The employment component indicates changes in the level of employment within the sector. An increase typically means job growth.
- Supplier Deliveries: This measures the speed at which suppliers can deliver materials. Slower deliveries may indicate supply chain issues or increased demand.
- Inventories: Inventory levels can be an indicator of expected demand. A decrease in inventories might suggest an expectation of rising demand.
3. Significance of PMI
- The Purchasing Managers' Index (PMI) is a significant economic indicator with several important implications and uses
- PMI serves as a barometer of the economic health of a country or region. A PMI above 50 generally indicates economic expansion, while a PMI below 50 suggests contraction.
- This provides a quick and easily understandable snapshot of the direction of economic activity, making it a valuable tool for assessing the overall economic climate.
- PMI is a leading indicator, meaning it often provides insights into economic conditions ahead of other official economic data, such as GDP growth or employment figures. As such, it is used by businesses, investors, and policymakers to anticipate changes in economic activity and make informed decisions
4. Way forward
Purchasing Managers' Index (PMI) is a valuable economic indicator that helps gauge the economic health and trends in the manufacturing and services sectors. It provides timely insights into business activity and is widely used by businesses and policymakers for decision-making and economic forecasting
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Previous Year Questions
1.What does S & P 500 relate to? (UPSC CSE 2008) (a) Supercomputer Answer: (d) |
Source: The Hindu
FOREIGN EXCHANGE RESERVES
1. Context
India’s foreign exchange reserves logged their sharpest weekly fall on record to a more-than-four-month low last week, as the dollar strengthened following the U.S. election verdict, and the central bank sold from its reserves to limit the rupee’s decline.
2.Background
- Foreign exchange reserves are assets denominated in a foreign currency that are held by a nation's central bank.
- These may include foreign currencies, bonds, treasury bills, and other government securities.
- Most foreign exchange reserves are held in U.S. dollars, with China being the largest foreign currency reserve holder in the world.
- Economists suggest that it’s best to hold foreign exchange reserves in a currency that is not directly connected to the country’s own currency.
3.The reasons for holding reserves
- Typically, official foreign exchange reserves are held in support of a range of objectives including to:
- support and maintain confidence in the policies for monetary and exchange rate management including the capacity to intervene in support of the national or union currency;
- limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed and in doing so;
- provide a level of confidence to markets that a country can meet its external obligations;
- demonstrate the backing of domestic currency by external assets;
- assist the government in meeting its foreign exchange needs and external debt obligations; and
- maintain a reserve for national disasters or emergencies.
4.Objective of Reserve Management
Reserve management should seek to ensure that:
- adequate foreign exchange reserves are available for meeting a defined range of objectives; liquidity, market, and credit risks are controlled in a prudent manner; and
- subject to liquidity and other risk constraints, reasonable earnings are generated over the medium to long term on the funds invested.
5.India forex reserve include
- India's foreign exchange reserves include:
- Foreign Currency Assets
- Gold Reserves
- Special Drawing Rights (SDR)
- Reserve position with International Monetary Fund (IMF)
6.What determines Rupee Value
- The value of any currency is determined by demand for the currency as well as its supply.
- When the supply of a currency increases, its value drops.
- On the other hand, when the demand for a currency increases, its value rises.
- In the wider economy, central banks determine the supply of currencies, while the demand for currencies depends on the amount of goods and services produced in the economy.
- Determining Rupee value in Forex Reserves
- In the forex market, the supply of rupees is determined by the demand for imports and various foreign assets.
- So, if there is high demand to import oil, it can lead to an increase in the supply of rupees in the forex market and cause the rupee’s value to drop.
- The demand for rupees in the forex market, on the other hand, depends on foreign demand for Indian exports and other domestic assets.
- So, for instance, when there is great enthusiasm among foreign investors to invest in India, it can lead to an increase in the supply of dollars in the forex market which in turn causes the rupee’s value to rise against the dollar.
7.What’s causing the rupee to lose value against the dollar?
- Since March 2022, the U.S. The Federal Reserve has been raising its benchmark interest rate causing investors seeking higher returns to pull capital away from emerging markets such as India and back into the U.S.
- This, in turn, has put pressure on emerging market currencies which have depreciated significantly against the U.S. dollar so far this year.
- Even developed market currencies such as the euro and the yen have depreciated against the dollar and the dollar index is up more than 8% so far this year.
- In fact, some analysts believe that the RBI’s surprise decision to raise rates earlier this month may have simply been to defend the rupee by preventing any rapid outflow of capital from India.
- In 2013, the rupee fell 15% against the dollar in about three months after investors were spooked by the U.S. Federal Reserve’s decision to trim down its bond purchase programme that had helped keep long-term interest rates low.
- Moreover, India’s current account deficit, which measures among other things the gap between the value of imports and exports of goods and services, is expected to hit a 10-year high of 3.3% of gross domestic product in the current financial year as predicted by Morgan Stanly.
- This means that India’s import demand amid rising global oil prices is likely to negatively affect the rupee unless foreign investors pour sufficient capital into the country to fund the deficit.
- The rupee, it should also be noted, has consistently lost value against the U.S. dollar for several decades now.
- A major reason for this has been the consistently higher domestic price inflation in India.
- Higher inflation in India suggests that the RBI has been creating rupees at a faster rate than the U.S. Federal Reserve has been creating dollars.
- So, while capital and trade flows gain a lot of attention in discussions on the rupee’s value, the difference in the rates at which the U.S. Federal Reserve and the RBI regulate the supply of their currencies may play a much larger role in determining the value of the rupee over the long run.
8. Forex reserves of countries across the globe
Source - The Hindu
Reference- IMF, RBI.gov.in
