DAILY EDITORIAL DISCUSSION AND ANALYSIS(14th March)

 Foreign Trade/ Indian Economy (GS 3)

How Can India Deal With Black Swans (BusinessLine, 14^th March 2022)

Author: – Rahul Mazumdar

What is a Black Swan Event?

• Black Swan event is a metaphor used for the events, transactions or specific activities that cannot be predicted or even expected to happen. 
• Such events are highly rare and have a huge impact on the economy, society, politics, etc., with widespread coverage. 
• Therefore, they need to be handled with great caution. 
• The term was coined by Nassim Nicholas Taleb, who has also written a well-known book on this topic.
• Example- In the United States the year 2008 is remembered by all citizens as the darkest chapter in the financial history when the stock market crashed.

Russia- Ukraine Standoff

• The world in the first two decades of the 21st century has witnessed several manmade disasters, beginning with the global financial crisis in 2008.
• Planning to deal with such concerns successfully is a major challenge for decision-makers.
• There are Certain aspects which India can increasingly focus on as a matter of its strategic interest in the process of becoming more indigenous

Utilizing Services Sector

• India’s global share in services sector in 2005 stood at 2% which increased to touch 3.1% in 2011 and 4.1% in 2020.
• The share of the services sector in India’s GDP increased from 45% in 2001-02, to 49% in 2011-12 and touched 54% in 2020-21.
• The contribution of services exports in India’s total exports has been surpassing that of merchandise goods.
• According to RBI, an upbeat services exports led by IT are likely to keep the current account deficit contained well below 2% of GDP during FY22.
• Since the pandemic the world has changed, offering opportunities for the services sector to create more income, employment, investment and trade.

Reducing Dependency On Crude

• India’s dependency on crude remains high and has increased by more than 165 times
• Crude oil imports increased from $14.4 billion in FY01 to $62.2 billion in FY21.
• Exploring and using unconventional energy will not only help the country save billions on imported fuel but also protect it from energy price jolts
• The growth of electric vehicles (EVs) would require across the board availability of electricity, ideally generated from hydropower.
• India could save billions on crude oil imports if EVs were to garner a significant share of new vehicle sales by 2030.

Diversifying Defence Sources

• India accounts for 3.7% of the world military expenditure, making it the 3^rd highest military spender.
• Nearly 70% of military hardware of India is of Russian origin. 
• This exhibits high concentration risk and India needs to diversify a lot more. 
• Government has launched Defence Industrial Corridors and hopes to attract investments of ₹20,000 crore by 2024. (UP & Tamil Nadu)
• India should use its strategic position in Asia to leverage and incentivize some of the largest Defence companies to produce in India.

Strong Domestic Consumption

• While the size of the Indian market coupled with geopolitical forces draws many to India, a long-term alliance is by no means guaranteed.
• India should, therefore, boost household consumption.
• This would drive the cycle of growth and to an extent keep India immune from global economic turmoil.
• Household consumption constitutes the largest part of aggregate demand.
• Greater domestic investment would facilitate the growth of the consumer market.

 

Impact of Economic Policies/ Indian Economy (GS3)

PLI push to Semiconductors is well worth it (BusinessLine, 14^th March 2022)

Author: – Milind Kumar Sharma

Context

• Cabinet’s recent approval of the Production Linked Incentive scheme for the semiconductor industry carries Geo political and Geo Economic Significance
• Semiconductors are critical technological components for emerging technologies viz. AI, IoT, 5G Etc.
• They have a wide coverage of applications from basic consumable electronic gadgets and automobiles
• Of late, disruptions in its supply chains have reportedly affected over 169 industries and businesses world over.
• Increasing the Manufacturing of silicon semiconductor chips is tantamount to a strategic weapon.
• This is a a huge capital intensive business concentrated in a handful of producing nations (East Asia)

Challenges

• ICs business accounts for more than 80% of the total economic value of the semiconductor market.
• It is high time India takes steps to create an ecosystem for attaining self-reliance.
• A typical semiconductor value chain includes strong research and development.
• Followed by design, production, assembly, testing and distribution and logistics network.
• Despite several claims of India being a strong candidate for fabless design market, there exists several supply-side constraints.

Supply Side Constraints

• Inadequate availability of clean water and clean sand used for growing wafer
• Uninterrupted quality electricity supplies
• Controlled pollution free environment.
• Inadequate logistics and absence of proper waste disposal have further exacerbated the poor state of its production.
• Semiconductor assembly and testing is a high volume and labour intensive business.
• It is less attractive in terms of Profitability.

Skilled Workforce

• Government of the day is sending signals to promote networking with 60-odd institutions in India by aligning its skilling policies with this industrial segment.
• This in the long term will not only impart necessary push to employment but also pave way for development of R&D and build indigenous intellectual property.
• Such plans will propel R&D initiatives that are crucial for the development of critical technologies and solutions locally.
• The recent Cabinet approval with an outlay of ₹76,000 crore spread over a period of six years.
• This move claims to attract ₹1.7 lakh crore private investment in India. 

Tie Up With Vietnam

• A global platform such as Quad can come forward to collaborate and put resources in research, technological know-how
• Cooperation with consortium like ASEAN, can further help address the supply constraints with regard to semiconductor chips.
• Vietnam is home to many technical research and academic institutes in the area of microchip design and development.
• Strategic partnership with Taiwan, a leading global hub for semiconductor design and manufacturing.
• Taiwan Semiconductor Manufacturing Co. caters to the needs of Apple, Intel, AMD, Nvidia and other conglomerates.
• Also tie up with Bangladesh, a champion of competitive manufacturing, can open doors of opportunities for low-cost manufacturing.

Question Framed From Editorial