IASbaba’s Daily Current Affairs – 4th March, 2016

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IASbaba’s Daily Current Affairs – 4th March, 2016

ECONOMICS

TOPIC:  General Studies 3:

• Government Budgeting.
• Inclusive growth & related issues
• Conservation, environmental pollution and degradation, environmental impact assessment

Green Budget for sustainable development

BACKGROUND:

• The funds for the ministry of new and renewable energy have also been reduced even as an increase in the generation target for renewable energy has been announced, to 175,000 megawatts by 2022.
• Making a country’s budget green is not about how much money is allotted to tiger or forest protection. It is about integrating it into every aspect of the economy and ensuring there is no wasteful use of natural resources.

What does green budget or green accounting mean?

• Green accounting is a type of accounting that attempts to factor environmental costs into the financial results of operations.
• It has been argued that gross domestic product ignores the environment and therefore policymakers need a revised model that incorporates green accounting.
• The major purpose of green accounting is to help understand the advantages of achieving traditional economics goals in parallel with environmental goals.
• It also increases the important information available for analyzing policy issues, especially when those vital pieces of information are often overlooked.
• Green accounting helps promote a sustainable future for businesses as it brings green public procurement and green research and development into the big picture.
• Penalties for polluters and incentives (such as tax breaks, polluting permits, etc.) are also a crucial part of this type of accounting.

What are the steps taken to make our budget green?

• There has been some attempt to discourage “dirty coal” through an increase in the clean energy cess from Rs.100 to Rs.200 per tonne of coal to finance clean environment initiatives. However, there is no clarity on how this money will be used for clean environment initiatives and by which department of the government, given that previous funds too are lying unused.
• Budget has allocated around Rs.150 crore for the National Afforestation Programme
• A separate programme for sustainable groundwater management and the setting up of a Rs.400 crore fund to encourage organic farming.
• However, for all the grand commitments that India made at the Paris climate summit what is missing in this budget is a conscious transition to a low-carbon economy. There are some initial shoots of change that can be seen through the infrastructure cess on private cars, but these are far from radical.

What was missing in the budget to term it as green budget?

• There was any mention of allocation of funds for the protection of India’s large swathes of existing forests, lakes, wetlands and water resources or the biodiversity found in them as these are the drivers of the nation’s economic growth and health
• From minerals extracted from the forests to several thousand tonnes of sand removed from our river beds, natural resources fuel the economy in all forms by providing raw material for high-rise buildings, water for thermal power plants.

What are we doing to restore and protect these natural resources so they continue to power our economy?

Apart from a mention of a fund for protecting groundwater, the budget assumes that growth can happen without these natural resources.

What does Green Economy Report released by United Nations Environment Programme (UNEP) advocate?

• A strategy of reallocating investments towards the green economy may lead to slower potential economic growth for a few years, as renewable natural resources are replenished (an effect that can be strong in some sectors, such as fisheries), but will result in the long run in faster economic growth
• The report also underlines other benefits to the economy as it reduces the risks of adverse events associated with climate change, energy shocks and water scarcity while creating increased employment.

What are the advantages in investing on Natural resources?

• The advantages of investing in our natural resources are many. For instance, the Center for International Forestry Research estimates that families living in and around forests derive an average of one-fifth to one-fourth of their income from forest-based resources.
• In many countries, including India, non-timber forest products contribute prominently to local economies and livelihoods, though their role is understated.
• The Food and Agriculture Organization estimated in 2005 that the value of non-timber forest products extracted from forests worldwide amounted to $18.5 billion.

Way ahead:

Creation of a green protection fund: This fund could be used to protect existing forest belts, let our rivers flow free of garbage and sludge, provide front-line forest protection staff with better equipment, and better protect our rich biodiversity.

Connecting the dots:

• What does green budget mean? What are the advantages of having green budget? Can green budget help in addressing climate change?

INTERNATIONAL

TOPIC:  General Studies 2:

• Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests
• Effect of policies and politics of developed and developing countries on India’s interests, Indian Diaspora.
• Important International institutions, agencies and their structure, mandate.

India’s trade pacts in a changing world

• The Economic Survey2015-16’s analysis of the impact of India’s free trade agreements (FTAs) on the economy is a valuable attempt to address a gap in the policymaking ecosystem.
• Its conclusion—Controlling for potential non-FTA trade growth, India’s FTAs have on the whole had significant impact, boosting trade without introducing inefficiency due to trade diversion.

What are FTAs?

• A free-trade area is the region encompassing a trade bloc whose member countries have signed a free trade agreement (FTA).
• Such agreements involve cooperation between at least two countries to reduce trade barriers – import quotas and tariffs – and to increase trade of goods and services with each other.
• If people are also free to move between the countries, in addition to FTA, it would also be considered an open border. It can be considered the second stage of economic integration.

WTO: World Trade Organization

• The World Trade Organization (WTO) is an intergovernmental organization which regulates international trade.
• The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.
• The WTO deals with regulation of trade between participating countries by providing a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements, which are signed by representatives of member governments

What are the factors guiding India’s preference for multilateralism under the aegis of WTO?

India’s preference for multilateralism under the aegis of the World Trade Organization (WTO) is based on two factors.

• The first is the “spaghetti bowl” problem that bilateral and regional pacts present, creating a tangle of trade commitments that can both overlap and work at cross-purposes.
• The second is the potential for collective bargaining at the WTO, where developing economies can push for flexibility in the rate, quantum and scope of tariff reduction

What is current status of India?

• India’s attempts to exploit that potential, however, haven’t been particularly successful.
• Its ratification of the WTO’s trade proposal agreement was a signifier of its failure to hold the line on the organization’s agricultural subsidy issues, crucial for domestic food security. That followed increasing isolation on the issue and the concurrent diplomatic risk of being perceived as the villain of the piece. As a consequence, the Doha agenda with its focus on development issues is now a relic.
• The WTO’s Non-Agricultural Market Access (NAMA) negotiations—crucial, given that the vast majority of the world’s merchandise exports fall under this rubric—haven’t been making significant headway either.
• India’s push for greater flexibility in NAMA-mandated tariff reductions—the so-called Less than Full Reciprocity principle—is thus in limbo for the time being.
• WTO’s World Tariff Profiles 2015 report shows that the difference between India’s bound tariff rate (the maximum customs rate under a country’s WTO obligations) and its applied rate is substantial. This is typical of developing countries; developed economies tend to have a far smaller binding overhang. But this also means trade with a developing country is more unpredictable given the greater potential for tariff creep—another liability.

Isn’t it particularly surprising that an emphasis on bilateral and regional pacts is growing globally?

• The Trans-Pacific Partnership agreement is, of course, the poster child. Taken together with the Transatlantic Trade and Investment Partnership currently under negotiation, it will cover a substantial majority of global trade.
• India’s focus on multilateralism is both understandable and necessary. But a parallel push for bilateralism and regional’s is now a necessity to preserve export competitiveness. That means confronting a number of domestic and policy challenges.
• Bottom-up approaches with supply chains created across borders are more effective in fostering regional integration that top-down diplomatic approaches.

Bottle necks:

• The disappointing results of India’s trade under Bimstec—the Bay of Bengal free trade agreement—due in substantial part to poor connectivity and supply infrastructure, show the damage the lack of such linkages causes.
• Restrictive foreign direct investment (FDI) norms serve as barriers to the trade plus investment arrangements that typically result in greater success.
• Consider the India-European Union FTA with its many setbacks: Inability to make concessions on FDI in multi-brand retail, accountancy and legal services comes in the way of its securing market access for services.
• There are hosts of other domestic inefficiencies—from a heavily distorted agricultural sector to poor infrastructure undercutting exporters and the poor regulatory regime in the drug sector that has given the EU and the US a handy weapon against Indian generics—waiting in the wings.

Way ahead:- India must do a balancing act:

• Between trying to regain lost ground at the WTO and protecting its flanks via bilateral’s;
• Between securing trade pacts and checking the trade imbalance that has seen its existing FTAs result in a sharper rise in imports than exports;
• Between protecting domestic industries and making the concessions that will allow it to extract its own concessions for leveraging its strong services sector.

Connecting the dots:

• Should India place greater emphasis on FTAs or Multilateral Trade Agreements? Evaluate.

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