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IASbaba’s Daily Current Affairs – 10th April 2017

NATIONAL/ECONOMY

TOPIC:

General Studies 2

Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Development processes and the development industry the role of NGOs, SHGs, various groups and associations, donors, charities, institutional and other stakeholders.

General Studies 3

Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Infrastructure: Digital.

Cashless Economy – Challenges

Introduction

Digital revolution started in India in the 90s with the rise of IT and ITES sectors. After the radical measure of demonetization by government in November 2016 the idea of cashless economy got a serious push. But India does face serious challeneges.

Issue:

Cash-less digital transactions (CDT), are increasing under compulsion of various avenues.

Data has evidenced signaling decreasing transactions since February 2017.
- The public seem to have gone back to cash transactions following the rapid re-monetisation since December 2016.
Some slowdown of digitisation of Indian economy was inevitable as CDT has not yet become a mass movement.

Key Challenges Faced:

For an economy with a vast rural base India faces critical challenges w.r.t. cashless digital transactions. Some of them are-

Customer protection
Customers’ interest needs to be protected, failing which the very purpose of digitisation shall be defeated.
Presenting the Budget, finance minister Arun Jaitley had proposed to create a Payment Regulatory Board in the RBI.
The proposed Board should have customer protection in the back of its mind while formulating policy for payment and settlement systems.
Further, the dispute resolution system relating to the payment systems need to be strengthened through legal reforms.

Cost to users
Cash transactions involve both direct and indirect costs.
The benefits of CDT are immense and therefore the cost of providing CDT service should be subsidised.
The government should subsidise such cost to begin with as it can save a lot of expenses arising out of cash transactions in case of B2G, G2B, G2C and C2G transactions.
Banks can also bear this cost as they also benefit due to decline in transaction costs.
Besides, service providers such as Paytm gain, as they have access to float funds depending upon the magnitude of digital activities.
Cyber security
Digital services are currently provided by multiple institutions/agencies such as banks, NPCI, Paytm, Mobikwik, mPesa, Idea Money and such other agencies authorised by the RBI.
E-wallets and mobile-based payments are gaining ground. Cyber security is important for a customer covering confidentiality, interoperability, privacy, availability (24×7), non-repudiation, incident response and customer protection.
Service providers are expected to prevent data theft, hacking, loss of money, denial of service and software malfunctioning.
Unless cyber security covering these aspects is reasonably robust, it will be difficult to gain customers’ confidence in CDT.

Conclusion:

Government has to take all challenges into serious consideration if the idea of cashless transactions has to spread boundless. To bridge the digital divide in the way as the immense potential the idea of cashless transactions has for the economy is immense.

Connecting the dots:

Critically analyse the potential and challenges of cashless digital transactions can have to a diverse economy like India.

INTERNATIONAL

TOPIC: General studies 2

India and its International relations, Foreign Policy

Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

India-Russia: 70^th anniversary of diplomatic relations

Background:

Until 1990-91, India and Russia — the main constituent of (the erstwhile) Soviet Union — had enjoyed robust trade ties.
In 1990, the Soviet Union was India’s top goods exports destination with shipments to the tune of $2.9 billion, according to data from the World Integrated Trade Solution (WITS) software. In the list of nations from where India imported goods, Soviet Union figured seventh in value terms with $922 million.
Then in 1991, two watershed moments happened — economic liberalisation was introduced in India, and the Soviet Union was dissolved.
In the following two-and-a-half decades, Russia remained India’s strong politico-diplomatic and defence partner like the erstwhile Soviet Union used to be. However, since 1990-91, India’s trade underwent further diversification and Russia is now not anywhere near the top in the list of India’s trade partners.

Current position:

Russia continues to be among India’s major politico-diplomatic and defence partner nations.
Russia emerges as the most important strategic partner of India (followed by the U.S., France, the U.K., Germany and Japan in that order), according to New Delhi-based think tank ‘Foundation for National Security Research’.
While India has inked separate strategic partnership pacts with more than two dozen countries, the Indian and Russian governments in December 2010 elevated their bilateral ‘Strategic Partnership’ to what they termed a “Special and Privileged Strategic Partnership.”
This year, the world’s largest democracy, India, and the biggest country by area, Russia, are celebrating the 70^th anniversary of establishment of diplomatic relations between them.
Both the countries are renewing efforts to bolster their seven-decade-old relationship regardless of the perception of India’s increasing closeness to the U.S., Russia’s growing friendship with China and even with Pakistan especially in the context of defence and strategic partnership, as well as criticism that India and Russia are neglecting the glory of their past ties due to their preoccupation with other parts of the world.

Current concerns:

Russia had provided strong political and diplomatic support to India and helped enormously in building India’s defence capability. However, the “economic content of the India-Russia partnership is extremely weak”.
India’s 2015 goods exports to Russia were worth just $1.6 billion, compared with $40.3 billion to the U.S. (India had shipped more items in value terms to 37 other countries compared to Russia)
In 2015, India’s imports from Russia were valued at $4.5 billion, but had imported goods worth more than that from 23 other nations.
If one takes into account India’s GDP of about $2 trillion and Russia’s GDP of $1.3 trillion, it becomes clear that their bilateral trade and investment ties are far below potential.
While Russia comprised just 1% of India’s total trade, India accounts for a minuscule 1.2% of Russia’s overall trade.

Recent ties/developments:

In June this year, Indian Prime Minister Narendra Modi is slated to take part as the Chief Guest in the St. Petersburg International Economic Forum — also known as the ‘Russian Davos’ after the World Economic Forum, which is an international organisation whose flagship annual meeting is held in Davos, Switzerland.
Both the countries have set a target to raise bilateral trade to $30 billion by 2025 and increase bilateral investment from $10 billion to $15 billion.

India should be cautious of following developments:

However, Russia and China have proposed to bring the EEU closer to China’s One-Belt-One-Road (OBOR) initiative (a massive project to develop infrastructure in more than 60 countries, primarily in Asia and Europe). Therefore, India should study the impact of this development in the context of the proposed India-EEU FTA.
India should also look into the impact of EEU being supportive of the China-Pakistan Economic Corridor (or CPEC — the so-called ‘flagship’ project of OBOR), as India has strategic concerns regarding the OBOR as the CPEC is expected to cover areas including Pakistan-occupied-Kashmir.
India should also carry out an assessment of U.S.-Iran ties and its impact on INSTC as part of a study on the strategic relevance of INSTC.

Need of the hour:

Urgent and vigorous steps need to be taken to improve economic relations if India-Russia partnership is to be sustained and made durable.
Swift conclusion of negotiations of the proposed India-Eurasian Economic Union (EEU) Free Trade Agreement would provide opportunities to India and Russia for regional cooperation and development as well as concessional trade and investment in the region.
Expeditious implementation of the International North South Transport Corridor (INSTC) project — a multi-modal transportation route connecting the Indian Ocean and Persian Gulf to the Caspian sea through Iran and onward to Northern Europe through St. Petersburg in Russia — will enhance trade and investment linkages between these regions.
Expeditious launch of the ‘Green Corridor’ project for Customs facilitation (by easing Customs norms) – would be major step towards better connectivity and trade facilitation.

Instead of focusing only on the geo-political dimension of OBOR and CPEC, India should consider if it could gain from such mega infrastructure projects from a developmental perspective.

India-Russia trade ties have been below-potential and lopsided (in favour of Russia) as it is primarily a buyer-seller relationship and not one based on collaborations through investments. Besides, if the emphasis continues to be on sectors such as defence, hydrocarbons and nuclear power, it would result in Russia gaining more. Therefore, to ensure a balance, sectors such as IT/ITeS, pharmaceuticals and healthcare — where India has considerable strength — should also be encouraged, apart from seeking Russian investments in India in areas including defence manufacturing to push the ‘Make In India’ programme and in infrastructure and space technology to take forward the Smart City and Digital India initiatives respectively.

Trading in local currencies, setting up pipelines for direct gas delivery from Russia to India as well as operationalisation of the proposed $1-billion fund through India’s National Investment & Infrastructure Fund and the Russian Direct Investment Fund for investment in infrastructure and technology projects – will further boost bilateral ties.

Connecting the dots:

Even though Russia continues to be among India’s major politico-diplomatic and defence partner nations, economic content of the India-Russia partnership is extremely weak. Do you agree? Elucidate.
What are the salient features of the political and economic relationship between India and Russia?
Urgent and vigorous steps need to be taken to improve economic relations if India-Russia partnership is to be sustained and made durable. Discuss the recent developments between both the countries in this regard.