Factors behind moderating CAD, how it will impact markets
Why in News?
Data released by the government shows that India’s exports and imports declined by 6.59%and 3.63% respectively in January. There are indications that the current account deficit (CAD) difference between exports and imports will moderate despite the global slowdown triggered by the rising inflation and interest rates.
Current Account Deficit
The current account measures the flow of goods, services and investments into and out of the country. The country runs into a deficit if the value of goods and services we import exceeds the value of those we export. The current account includes net income, including interest and dividends, and transfers, like foreign aid.
A nation’s current account maintains a record of the country’s transactions with other nations, it comprises of following components:
- Trade of goods,
- Services, and
- Net earnings on overseas investments and net transfer of payments over a period of time, such as remittances
What is the significance of CAD?
- CAD and the fiscal deficit together make up the twin deficits of the enemies of the stock market and investors.
- If the current account of the country’s trade and transactions with other countries shows surplus,that indicates money is flowing into the country, boosting the foreign exchange reserves and the value of rupee against the dollar.
- As per the RBI, the CAD, which was at $36.4billion for the quarter ending September 2022,is expected to moderate in the second half of 2022-23 and remain manageable and within the parameters of viability.
- CAD for the first half of 2022-23 stood at 3.3% of GDP.
- The situation has improved in Q3:2022- 23 as imports moderated in the wake of lower commodity prices, resulting in narrowing of the merchandise trade deficit.
How did the trade deficit narrow in Jan?
- January trade deficit narrowed to $17.7 billion, led by a sharp fall in imports, while exports fell by a smaller amount.
- The sharp drop in imports was due to non-oil imports falling,mainly due to a price impact (softening in coal prices from mid-December),likely softening in domestic demand post the festive season (such as lower imports of transport equipment),and seasonal impact of the Chinese New Year holidays.
- On the other hand, after the Rs26,000 crore sell-off by foreign portfolio investors in January, FPI outflows have come down to Rs4,400 crore in February so far.
- Workers’ remittances went up to $30 billion September 2022 from $25.48 billion in the same period a year ago. Gold imports fell to $20 billion from $23.9 billion a year ago.
Will capital flows improve?
- There is a perception in the markets that capital flows could come under some pressure with China’s reopening and any deviations in monetary policy expectations, inflows are expected to increase to the economy on the whole, as foreign investors are unlikely to keep away from India, which is expected to witness one of the highest growth rates among large economies.
- At a time when the economies of many developed markets are expected to take a hit, the RBI has projected the GDP growth for the next fiscal (FY2024) at 6.4% and the Union Budget has indicated a capital expenditure of Rs 10 lakh crore (over $ 120 billion).
- With the rise in interest rates in India after the RBI hiked the repo rate by 250 basis points to 6.50%, non-resident Indian deposits, remittances, and FPI investment in debt are expected to rise.
- NRI deposits had increased by $3.62 billion to $134.49 billion in the April-November period of 2022, according to RBI data.
India’s Scenario of Capital Flow
- Capital flow into India came under pressure in 2022 following the sharp rise in interest rates in the US.
- FPIs pulled out Rs121,439 crore in 2022, even in the first six weeks of 2023, the FPI flow has been negative and the equity markets have witnessed a net outflow of Rs32,887 crore till February 16.
- The flow of capital will depend upon the interest rate movements and currency movements vis-a-vis the US dollar, there is optimism among global investors about India.
- Investors said that The fundamentals around growth are significant young population, 100s of millions of people speaking English and India has more engineers than anywhere else in the world.
- India has a government now that is oriented towards growth and we believe that as more infrastructure comes into the country, it will continue to grow at a much faster rate than the rest of the world.
How will moderating CAD impact the market?
- Rising CAD raises concerns among investors as it hurts the currency and thereby the inflow of funds into the markets, a notable decline in CAD in January has improved market sentiments.
- The benchmark Sensex at BSE rose 407 points intraday before closing at 61,319 with a gain of 44 points or 0.07%.
- Experts say that CAD is very important for the currency.
- The value of an economy hinges a lot on the value of its currency and thereby, it also supports the equity markets by keeping the fund flow intact.
- The reduction in CAD, due to services exports, is a positive sign.
GS PAPER III NEWS
Rising sea-level
Why in News?
Recently, the report “Global Sea-level Rise and Implications” was released by the World Meteorological Organisation (WMO).
Key Highlights
- Threats of Sea level rise: India, China, Bangladesh and the Netherlands face the highest threat of sea-level rise globally.
- The report stated that several big cities in all continents are threatened by the rise in sea level.
- These include Shanghai, Dhaka, Bangkok, Jakarta, Mumbai, Maputo, Lagos, Cairo, London, Copenhagen, New York, Los Angeles, Buenos Aires and Santiago.
- Stimulating factors: If trends in urbanisation in exposed areas continue, this will exacerbate the impacts, with more challenges where energy, water and other services are constrained,” it reported.
- The impacts of average sea-level rise are boosted by storm surges and tidal variations, as was the situation during the landfall of hurricane Sandy in New York and Cyclone Idai in Mozambique.
- Melting of ice mass in Antarctica: According to future estimates based on climate models and ocean-atmosphere physics, the WMO reported that the speed of melting of the largest global ice mass in Antarctica is uncertain.
Impact of Sea level rise:
- Submergence: According to the report, while sea-level rise is not globally uniform and varies regionally, continued and accelerating sea-level rise will encroach on coastal settlements and infrastructure and commit low-lying coastal ecosystems to submergence and loss.
- All round impact: Sea level rise is a major economic, social and humanitarian challenge.
- It threatens coastal farmlands and water reserves and resilience of infrastructures as well as human lives and livelihoods, the report noted.
- Food insecurity: Climate change will increasingly put pressure on food production and access, especially in vulnerable regions, undermining food security and nutrition and increases in frequency, intensity and severity of droughts, floods and heatwaves, and continued sea level rise will increase risks to food security in vulnerable regions.
Reasons for the Sea Level Rise
The change in sea levels is linked to three primary factors, all induced by ongoing global climate change:
- Melting glaciers:Large ice formations such as mountain glaciers naturally melt a bit each summer.
- In the winter, snows, primarily from evaporated sea water, are generally sufficient to balance out the melting.
- Recently, though, persistently higher temperatures caused by global warming have led to greater than average summer melting as well as diminished snowfall due to later winters and earlier springs.
- Thermal expansion:When water heats up, it expands.
- About half of the sea-level rise over the past 25 years is attributable to warmer oceans simply occupying more space.
- Loss of Greenland and Antarctic ice sheets:As with mountain glaciers, increased heat is causing the massive ice sheets that cover Greenland and Antarctica to melt more quickly.
- Scientists also believe that meltwater from above and seawater from below is seeping beneath Greenland’s ice sheets, effectively lubricating ice streams and causing them to move more quickly into the sea.
- While melting in West Antarctica has drawn considerable focus from scientists, especially with the 2017 break in the Larsen C ice shelf, glaciers in East Antarctica are also showing signs of destabilizing.
GS PAPER III NEWS
Windfall profits
Why in News?
The Union government hiked the windfall profit tax levied on domestically produced crude oil as well as on the export of diesel and aviation turbine fuel (ATF).
About Windfall Taxes
- Windfall taxes are designed to tax the profits a company derives from an external, sometimes unprecedented event for instance, the energy price-rise as a result of the Russia-Ukraine conflict.
- These are profits that cannot be attributed to something the firm actively did, like an investment strategy or an expansion of business.
- A windfall is defined as an “unearned, unanticipated gain in income through no additional effort or expense”.
- Governments typically levy a one-off tax retrospectively over and above the normal rates of tax on such profits, called windfall tax.
- One area where such taxes have routinely been discussed is oil markets, where price fluctuation leads to volatile or erratic profits for the industry.
Why tax windfall profits?
- ‘Windfall profits’ refer to an unanticipated spike in earnings of an entity resulting from an exogenous event (which could be one off and/or prolonged) and not resulting from a business decision.
- The B.K. Chaturvedi committee’s report on the Financial Position of Oil Companies (2008) had stated that taxing of these windfall gains has been seen as a prerogative of governments, in part to meet fiscal needs and in part to pursue redistributive justice.
- The main idea here is to capitalize on the lofty profits made by the entities and use it for specific domestic pursuits, for example, spur collections (of taxes) to guard against the consequences of a larger geopolitical event or redistribute them for it to be used for domestic social service schemes, among other reasons.
- As per the government, the collection of Special Additional Excise Duty (SAED) for the ongoing financial year is estimated to be ₹25,000 crore from production of crude oil, export of petrol, diesel and ATF.
- Windfall taxes are reviewed on a fortnightly basis and are subject to factors such as international oil prices, exchange rate and quantity of exports. India had first imposed SAED in July 2022.
What led to windfall gains?
- Russia’s actions in Ukraine were central to the volatility observed in the oil market in the previous calendar year.
- Russia was among the major players in the global oil market and among the largest producers alongside Saudi Arabia and U.S.
- As a response several Western countries moved to stop or curtail their energy imports from Russia. This led to sharp increases in fossil fuel prices as sovereigns went to look for other suppliers for its energy needs, culminating in major profits for oil companies.
- This was a total reversal of fortunes compared to the onset of the pandemic when oil had struggled to even attain fiscal breakeven. According to Reuters, all ‘Big Oil’ companies (including BP, Chevron, Equinor, ExxonMobil, Shell and Total Energies) combined, more than doubled their profits to $219 billion in 2022.
- Chevron commenced a share buyback programme amounting to $75 billion alongside a 6% increase in its quarterly dividend both indicative of its financial strength.
- In India, ONGC’s profit after tax (PAT) until September end in the ongoing financial year stood at ₹28,032 crore, compared to the ₹40,306 crore in the complete fiscal ending March 31, 2022.
- The turn of events has led to oil companies prioritizing investments in conventional sources to provide for energy security rather than transitioning towards cleaner energy to meet energy requirements.
- Industry participants have particularly argued about the need for investments to facilitate decarbonisation.
- Windfall taxes would not be helpful (for oil companies) to acquire additional investment.
What potentially lies ahead?
- Nearly a year since the geopolitical conflict erupted, the International Energy Agency (IEA) notes that global oil markets are trading in “relative calm”.
- Oil prices are back to pre war levels, exception being diesel, though it has also drifted much lower than last summer’s historical highs.
- “World oil supply looks set to exceed demand through the first half of 2023, but the balance could shift quickly to deficit as demand recovers and some Russian output is shut in,” read IEA’s Oil Market Report for February 2023.
- It added that Russian oil production and exports have held up relatively well notwithstanding the sanctions.
- It has managed to reroute shipments of crude to Asia and the G7 price cap on crude “appears to be helping to keep the barrels flowing.”
- IEA estimates that global oil demand is set to rise by 2 mb/d in 2023 to 101.9 mb/d.
- The Asia Pacific region, fuelled by China which resumed economic activities following a prolonged period of lockdowns, dominates the outlook.
- The supply side has been largely steady in January at around 100.8 mb/d.
GS PAPER III NEWS
India accounts for 52% of world’s new leprosy patients
Why in News?
Despite India being declared “Leprosy Eliminated” in 2005, the country still accounts for over half (52%) of world’s new leprosy patients.
What is leprosy?
- Hansen’s disease (also known as leprosy) is an infection caused by slow-growing bacteria called Mycobacterium leprae.
- It can affect the nerves, skin, eyes, and lining of the nose (nasal mucosa).
- Leprosy is a chronic bacterial infection which affects skin, nerves, lungs and eyes.
- Leprosy is one of the oldest diseases in recorded history.
- It is common in many countries, particularly those with tropical or subtropical climates including India.
Prevalence of Disease:
- According to the World Health Organization, leprosy is prevalent in various Indian states and union territories, with an annual case detection rate of 4.56 per 10,000 people.
- In 2021-22, a total of 75,394 new cases were detected in India.
Government initiatives to eradicate leprosy
- National Leprosy Eradication Programme (NLEP):
- It is a Centrally Sponsored programme under the umbrella of National Health Mission (NHM).
- India has achieved the elimination of leprosy as a public health problem i.e., defined as less than 1 case per 10,000 populations, at the National level.
- It aims at eliminating leprosy in each of the districts by 2030.
- SPARSH Leprosy Awareness Campaign was launched in 2017, to promote awareness and address the issues of stigma and discrimination.
Way forward
Strategies should be adopted include:
- Acceleration of new case detection by targeted approach,
- stronger surveillance systems,
- Introduction of advanced tools and techniques for early diagnosis and providing the most effective chemoprophylaxis to all contacts of cases.
- Introducing a potential safe and effective vaccine,
- Introduction of surveillance of anti-microbial resistance and adverse drug reactions,
- Post treatment surveillance of treated cases and provide them care after cure,
- Sustaining leprosy expertise and move towards multi-disease service integration,
- Improve treatment outcomes by introduction of new treatment regimes.
GS PAPER III NEWS
Draft Geo-heritage Sites and Geo-relics Bill
Why in News?
The Ministry of Mines has notified the Draft Geo-heritage Sites and Geo-relics (Preservation and Maintenance) bill, 2022.
Key Points
- The Bill’s objective is to provide for the designation, preservation, protection, and maintenance of geo-heritage sites and geo-relics of national significance for geological studies, education, research, and awareness.
- The GSI has designated 32 geo-heritage sites, including the Siwalik Fossil Park in Himachal Pradesh, the Stromatolite Fossil Park in Udaipur district, and the Akal Fossil Wood Park near Jaisalmer, however some are in disrepair.
What are the important features of the bill?
- Geo-heritage sites are “sites containing geo-relics and phenomena, stratigraphic type sections, geological structures and geomorphic landforms including caves, natural rock-sculptures of national and international interest; and includes such portion of land adjoining the site” that may be required for conservation or access to such sites.
- Geo-relics: A Geo-relic is described as “any relic or substance of a geological value or interest such sediments, rocks, minerals, meteorite or fossils”.
- The GSI (geological Survey of India) would have the authority to acquire geo-relics “for its preservation and maintenance”.
Central Government Authority:
- It would provide the Central Government the authority to declare a geo-heritage site to be of national importance.
- This would be in accordance with the terms of the 2013 Act on the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement (RFCTLARR Act).
Compensation to the Occupier of Land:
- Compensation is provided for the owner or occupier of land who incurs loss or damage from the land as a result of the exercise of any power under this Act.
- The market value of any property shall be determined in line with the RFCTLARR Act’s principles.
Construction Prohibition:
- The Bill prohibits the construction, reconstruction, repair, or renovation of any building within the geo-heritage site area or its use in any other way, except for construction for the preservation and maintenance of the geo-heritage site or any public work essential to the public.
Penalty
- Sanctions are indicated for the destruction, removal, defacement, or violation of any instruction issued by the Director General, GSI in the geo-heritage site.
- There is a punishment of imprisonment for up to six months or a fine of up to Rs.5 lakh, or both. In the instance of a continuing violation, an additional fine of up to Rs.50,000 may be levied for each day of continued violation.
What are the issues?
- Concerns have been raised about the Bill’s electricity distribution.
- It emphasizes how the GSI has the authority to acquire any geologically significant material, including sediments, rocks, minerals, meteorites, and fossils, as well as geologically significant areas.
- Land acquisition for the aim of protecting these monuments may potentially cause problems with local communities.
Way Forward
- Apart from conserving geologically significant places, the necessity for a law that particularly safeguards geo-heritage sites stems from India’s membership in the UNESCO Convention for the Preservation of the World Cultural and Natural Heritage since 1972.