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DAILY EDITORIAL DISCUSSION AND ANALYSIS(14th March)

By March 14, 2022May 25th, 2022Economy, Editorials, GS 3

 Foreign Trade/ Indian Economy (GS 3)

How Can India Deal With Black Swans (BusinessLine, 14th 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 3rd 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, 14th 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

  • Why is Silicon semiconductor chip termed as a “strategic weapon”. How can India achieve leverage using it’s Diplomacy to enhance Semiconductor Chip Manufacturing? (250 words)

 

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