Daily Current Affairs – 27th October 2022

Is Estimate of MSP Needs a Relook?

The CACP recommendations on Minimum Support Prices (MSP) for the mandated six Rabi crops wheat, barley, gram, lentil, rapeseed and mustard, and safflower are arrived by considering several factors.

What is MSP?

The MSP assures the farmers of a fixed price for their crops, well above their production costs.

MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidized grains through the PDS, isn’t an entitlement for farmers.

They cannot demand it as a matter of right. It is only a government policy that is part of administrative decision-making.

The Centre currently fixes MSPs for 23 farm commodities based on the Commission for Agricultural Costs and Prices (CACP) recommendations.

What are the factors included in MSP calculation?

Factors taken into consideration are as follows:

Cost of production,

Supply and demand situation of various crops in domestic and global markets,

Domestic and world prices along with trade opportunities,

Terms of trade between agriculture and non-agriculture sector,

Optimal utilization of land, water and other production resources,

A minimum of 50 per cent mark-up over the cost of production.

Why the relook at MSP calculation is necessary?

Though on the surface the list looks comprehensive, there are two missing concerns given the present-day challenges, necessitating a change in the MSP formula.

Acreage

Water usage

Rising MSP leads to water conflict: There is ample data-based evidence to show the causal relation between acreage and MSP movements. Rising MSPs of water-intensive crops has resulted in some of the water conflicts over river basins as shown by recent studies in the Cauvery and the Teesta River basins.

MSP for rice and wheat: This is also because MSP for rice and wheat, where government agencies like Food Corporation of India play a role in procurement, has created a reference for market prices. Ever since the MSP was introduced in the late 1970s, it became the “floor” price-setter for rice and wheat.

Higher MSP for water consuming cereals: Between 1980 and 2000, the MSPs of rice and wheat increased at a much faster rate than those of the “coarse” cereals (like jowar, bajra and ragi) which eventually led to movement of the terms-of-trade (defined as ratio of prices of competing crops, e.g., rice and millets) in Favour of the water-consuming cereals.

Shifting of High acreage to High MSP crop: This led to acreages moving largely in Favour of water consuming staples, whose crop-water requirements are many times of that of the drier millets. In the case of Cauvery and Teesta, the introduction of dry season paddy and its expansion created reliance on irrigation thereby Fuelling demand for water.

Non promotion of rabi millets: Though the MSP formula claims to take into account land and water use, it needs to be noted here that there is a need for Rabi millets (e.g., ragi) to be promoted through MSPs. This is because the millets are less water-consuming as compared to many other alternatives including wheat. However, there does not seem to be any MSP announced for Rabi millets.

Higher MSP for less water consuming crop is needed: In the process, it will be crucial to take into consideration the estimates of irrigation water need for specific crops, redefine the Rabi basket by including millets, and declare a higher MSP for less water-consuming crops vis-à-vis the high-water consuming crops.

Nutritional security in MSP calculation

Nutritional security is not included in MSP calculation: The other consideration that is missing from the MSP formula is the consideration of the nutritional security. Ideally, the MSP regime should remunerate those crops that have a higher nutritional value per unit of resource use.

Rabi crops are more water efficient: Ragi is the most efficient water user in producing calories. Bajra followed by wheat and ragi are the better performers in terms of water efficiency in producing iron. For the case of fiber, ragi is the most water efficient crop followed by barley and maize demonstrating the same water efficiency.

Rabi crops are nutrition rich: Maize is the most efficient water user in producing carbohydrates with ragi being second and wheat third. With reference to fat production, bajra takes the first position followed by ragi and wheat. Ragi is the best performer in the case of calcium production. Wheat and ragi do equally well with phosphorus production per unit of water at the margin.

Missing MSP estimate: However, so far, the MSP formula has not taken into consideration the health and the nutritional aspect. Irrespective of the season, the nutritional aspect needs to be figured into the MSP recommendations, and more nutritional crops should command higher support prices.

Why Private Investment is Lagging in India?

Last month, Finance Minister asked captains of industry what was holding them back from investing in manufacturing. She likened industry to Lord Hanuman from the Ramayana by stating that industry did not realize its own strength and that it should forge ahead with confidence. She said, “This is the time for India, we cannot miss the bus”.

What is present situation of private investment?

Tax cut rate of domestic companies: In the hope of revitalizing private investment, the government had in September 2019 cut the tax rate for domestic companies from 30% to 22% if they stopped availing of any other tax SOP (standard operating procedure).

Weak private investment: Expert says that Indian private sector investment has been weak for almost a decade now. If we look at drivers of economic growth right now, there are amber lights flashing. The export story will be under threat because of the global slowdown, the government’s ability to support domestic demand would also be limited as the fiscal deficit comes down.

Impact of k-shaped recovery: Because of the K-shaped recovery, private consumption is only concentrated in some parts of the income pyramid.

Analyzing the investment scenario

Investment to GDP ratio: As in the June edition of the Ministry of Finance’s Monthly Economic Review, the fixed investment to GDP ratio was 32% in 2021-22. However, there is need for caution in reading the most recent data, as they are subject to revision.

The National Accounts Statistics: It provides disaggregation of gross capital formation (GCF) by sectors, type of assets and modes of financing; over 90% of GCF consists of fixed investments.

No change in investment distribution: The investment distribution has hardly changed over the last decade, with the public sector’s share remaining 20%.

Fall in share of agriculture and industry: Between 2014-15 and 2019-20, the shares of agriculture and industry in fixed capital formation/GDP fell from 7.7% and 33.7% to 6.4% and 32.5%, respectively.

Rise in service sectors: Services’ share rose to 52.3% in 2019-20 compared to 49% in 2014-15.The rise in the services sector is almost entirely on transport and communications. The share of transport has doubled from 6.1% to 12.9% during the same period. Within transportation, it is mostly roads.

Decline in the share of investment: Its share in the investment ratio (column 2.1) fell from 19.2% in 2011-12 to 16.5% in 2019-20. This indicates that ‘Make in India’ failed to take off, import dependence went up, and India became deindustrialised. Import dependence on China is alarming for critical materials such as fertilizers, bulk drugs (active pharmaceutical ingredients or APIs) and capital goods. Instead of boosting investment and domestic technological capabilities, the ‘Make in India’ campaign frittered away time and resources to raise India’s rank in the World Bank’s Ease of Doing Business Index.

Decline in foreign capital in GFC: The contribution of foreign capital to financing GCF fell to 2.5% in 2019-20 from 3.8% in 2014-15 (or 11.1% in 2011-12). With declining investment share, industrial output growth rate fell from 13.1% in 2015-16 to a negative 2.4% in 2019-20, as per the National Accounts Statistics.

What is Consumer’s demand situation?

Average Consumer sentiment index: Private companies invest when they are able to estimate profits, and that comes from demand. The Centre for Monitoring Indian Economy’s (CMIE) consumer sentiment index is still below pre-pandemic levels but is far higher than what was seen 12-18 months ago.

Buoyant Aggregate demand: RBI’s Monetary policy report dated September 30 says, Data for Q2 (ended Sept) indicate that aggregate demand remained buoyant, supported by the ongoing recovery in private consumption and investment demand. It shows that seasonally adjusted capacity utilization rose to 74.3% in Q1 the highest in the last three years.

High household savings: Along with household savings intentions remaining high, might hold the key to the investment cycle kicking in.

FATF, Fighting the Terrorism or Just Another Diplomatic Arena

On October 21, the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, announced the removal of Pakistan from its Grey List. The announcement was expected.

What is FATF?

Inter-governmental organization: The FATF, a 39-member inter-governmental organization with its headquarters in Paris, was set up in 1989 by the Group of Seven (G7) countries with the aim of setting global standards for countering the menace of money laundering.

Terror financing included under FATF mandate: Following the terror attacks on September 11, 2001, the objective of countering the financing of terrorism was added to the FATF’s mandate. Later, its objectives were further expanded to counter the financing of proliferation of weapons of mass destruction.

How FATF functions?

Three level mandate: The FATF seeks to fulfil its three-pronged mandate by drawing up a list of guidelines. Known as the FATF Recommendations or FATF Standards, these are meant to ensure a coordinated global response to prevent.

organized crime,

corruption and

Terrorism

Domestic plus international regulatory measures: They encompass a range of domestic legislative, regulatory and enforcement actions, as well as international cooperation measures, that states are expected to adopt and implement.

Consensus based decision: The FATF and its associate, or regional, members such as the Asia Pacific Group on Money Laundering (APG) take their decisions on the basis of consensus. More than 200 countries and jurisdictions are committed to implementing the FATF’s recommendations.

What is grey listing and black listing?

Monitoring the adherence to recommendations: The FATF monitors adherence to its recommendations by periodic evaluations of the anti-money laundering (AML), combating financing of terrorism (CFT) and proliferation financing (PF) regimes of member countries and jurisdictions which voluntarily submit to its monitoring.

Strategic deficiencies by countries: Countries which exhibit strategic deficiencies in their AML/CFT/PF regimes are placed under a scheme of “increased monitoring” informally known as Grey Listing.

Action plan to address the deficiencies: States placed under the Grey List are expected to swiftly put in place the requisite measures to address their deficiencies on the basis of Action Plans drawn up and evaluated through a process of consultation with the FATF.

Serious strategic deficiency: States that exhibit serious strategic deficiencies in their AML/CFT/ PF regimes are placed under a Black List formally known as High-Risk Jurisdictions subject to a Call for Action.

Serious economic consequences may follow: While Grey Listing amounts to a warning, Black Listing entails serious economic consequences by making it incumbent on governments, international lenders and commercial entities to conduct enhanced due diligence checks while transacting business with the designated countries and, in extreme cases, apply “counter-measures” against offenders.

Present status of listing by FATF?

Grey listing: Following the removal of Pakistan, there are 23 countries on the FATF’s Grey List.

Black listing: There are only three countries on the Black List, North Korea, Iran and Myanmar. These listing processes of the FATF are driven predominantly by the pulls and pressures of international power politics and not merely by technical parameters.

How Pakistan has been grilled by FATF for Terror financing?

In 2008 Pakistan removed from listing: Pakistan has been placed in and removed from the Grey List in the past too. The first time was from February, 2008 to June, 2010, when it was removed from the list after it supposedly demonstrated progress in improving its AML/AFT regime.

Mumbai terror attack and grey list: The terrorist attacks in Mumbai on November 26, 2008 took place while Pakistan was on the Grey List for the first time. The second time was from February, 2012 to February, 2015, by the end of which period it had supposedly made significant progress in improving its AML/CFT regime.

Osama bin laden killing: The elimination of Osama bin Laden in the American raid on Abbottabad on May 2, 2011 took place after Pakistan’s exit from the Grey List for the first time and before its placement on the list for the second time.

From 2018-2022: Pakistan was placed in the Grey List for the third time in June, 2018 and remained there till October, 2022. During this period, it was compelled to put in place several legislative, administrative and regulatory measures to improve its compliance with international AML/CFT standards.

Action against individual and organisations: In recent years, there has been increasing realisation among FATF members that it is the effectiveness of action taken against individuals and entities of concern rather than pro-forma technical compliance” that should form the basis of judging the extent of adherence to FATF standards.

Conviction of hafiz Saeed: It is this more realistic approach coupled with the implicit threat of being moved from the Grey List to the Black List that finally compelled Pakistan to prosecute, convict, fine and jail, on terrorism financing charges, Lashkar-e-Tayyaba (LeT) Amir, Hafiz Muhammad Saeed, LeT’s chief operational commander, Zakiur Rehman Lakhvi and Sajid Majeed aka Sajid Mir, “operational manager” of the 26/11 Mumbai attacks, after having pronounced him missing and dead.

Jaish-e-Mohammed: A disingenuous attempt by Pakistan to persuade a visiting FATF verification team in August-September 2022 that Jaish-e-Mohammed (JeM) Amir, Maulana Masood Azhar, had escaped to Afghanistan was strongly countered by a spokesman of the Afghan Taliban.

How Pakistan manages pressure form FATF?

with the support of USA: It is well known that much of the diplomatic heavy lifting to place Pakistan in the Grey List in June 2018 and keep it on the list for an extended period of time was done by the US. There had been a feeling among those following developments at the FATF that American pressure on Pakistan would continue till such time as the US needed Pakistan to bring the Afghan Taliban to the negotiating table and once the US withdrawal from Afghanistan was completed, the pressure on Pakistan would ease. Subsequent developments have validated this assessment.

Help of China and turkey: Although the threat of being moved from the Grey List to the Blacklist remained hanging over Pakistan’s head, this was never a realistic possibility, considering the likely opposition to any such move by Pakistan’s staunch friends in the FATF, such as China, Malaysia, Turkey and Saudi Arabia

Why is ASEAN holding a special meeting on Myanmar?

Foreign ministers from member countries of the Association of Southeast Asian Nations (ASEAN) are meeting to discuss an intensifying crisis in Myanmar, 18 months after agreeing a peace plan with its military rulers.

What is ASEAN?

ASEAN is a political and economic union of 10 member states in Southeast Asia.

It brings together ten Southeast Asian states – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – into one organisation.

It was established on 8th August 1967 in Bangkok, Thailand with the signing of the Bangkok Declaration by the founding fathers of the countries of Indonesia, Malaysia, Thailand, Singapore, and the Philippines.

The preceding organisation was the Association of Southeast Asia (ASA) comprising of Thailand, the Philippines, and Malaysia.

Five other nations joined the ASEAN in subsequent years making the current membership to ten countries.

Why is the meeting happening?

ASEAN’s peace effort is the only official diplomatic process in play.

There has been a failure with the junta unwilling to implement a so-called “five-point consensus” that it agreed to with ASEAN in April 2021.

The United Nations has backed the ASEAN plan, but with suspicion the generals are paying lip service and buying time to consolidate power and crush opponents before a 2023 election.

For ASEAN to remain credible as a mediator, it may need to present a new strategy before the summit.

What is the consensus?

The agreement includes-

Immediate end of hostilities

All parties engaging in constructive dialogue

Allowing an ASEAN envoy to mediate and meet all stakeholders, and

ASEAN to provide humanitarian assistance.

So far, the only success cited by ASEAN chair Cambodia has been allowing some humanitarian access, but that has been limited and conditional.

How has the Junta (Military govt. in Myanmar) responded?

The military government has accused critical ASEAN members of meddling and warned them not to engage.

It has accused its opponents of trying to sabotage the ASEAN plan and has justified military offensives as necessary to secure the country and enable political talks.

Instead of advocating for the five-point ASEAN plan, the generals have instead been pushing a five-step roadmap of their own towards a new election, with few similarities