- [Block 1] Economic Bodies-IMF, BRICS Bank, AIIB
- [Block-2] WTO, treaties affecting Indian interests
- [Block-3] WTO AoA, Peace Clause, Food subsidies, TFA, Bali
- [Block-4] US Policy affecting Indian interests
- [Block-5] ASEAN, SAARC, Pak
- Revision of selected IR/diplomacy topics affecting India’s Economic interests” in GS2.
- Next revision article: GS3- Planning, budgeting, resource mobilization.
- G20 BEPS agreement=> in the upcoming separate revision note for GS3: money laundering.
[Block 1] Economic Bodies-IMF, BRICS Bank, AIIB
Why IMF quota-governance reforms
Mains-2013 already asked question about world bank vs IMF so chances of another IMF question dim. But IMF-quota reform also serves as fodder for the “why AIIB/BRICS banks setup?” question. Hence useful. Let’s check:
- Post WW2: Bretton Woods conference (’44)=> World bank + IMF + GATT(=>WTO).
- IMF Executive board decides member’s quota on GDP & other parameters.
- Quota decides voting power.
- USA: 18%; China 4% (Even though Chinese GDP running parallel to US); India-Russia 2.5%.
- 2008: Post-Subprime crisis= Western powers’ GDPs weakened.
2010: IMF reforms proposed (bracket shows votes needed to pass it)
- Increase developing countries’ quota. (70%)
- All directors be elected. No permanent chairs to US, Jap etc. (85%)
- But neither passed because US+its allies control ~40% votes.
- 2014: Brisbane G20 communique expressed disappointment & urged Obama to get it done.
|After reform||2.75%||8th Largest|
Why need BRICS, AIIB?
- Bretton woods lack of reforms. as stated above.
- BRICS : 1/5th of GDP; 2/5th population.
- Yet none of its citizen can hope to become IMF chairman given voting quotas.
- But in BRICS bank chairman, President will be Russian and Indian respectively
- Asia needs 800 billion$ every year till 2020. beyond World bank’s aukaat.
- Subprime crisis, Fed Tapering => Dollar volatility affecting import/export of BRICS. So they want to Reduce dollar domination, loans with less conditions.
- Same reason for previous Development banks: Latin Bank of America, Chiang Mai initiative, Bank of South, ADB.
Indian interests: BRICS Bank + AIIB
- 12th FYP: need $1 trillion infra investment. FDI alone can’t fill.
- Competition =cheaper loans.
- World bank can focus on Africa=> export, piracy, extremism angles.
As such 50 dozen UN related bodies, but UNICITRAL important due to Vodafone-Nokia tax disputes.
[Block-2] WTO, treaties affecting Indian interests
- Post ww2: Bretton Woods conference (’44): Trinity of World bank (cheap loans 4 Development); IMF (BoP and exchange rates); GATT later became WTO (reduce intl. trade barriers).
- WTO Structure: ministerial conference (160); General council (Day2day, dispute res.) ; DG 4 years, Geneva
- Agreements: goods related; services related; IPR related; dispute
Settlement. A few Plurilateral agreements not signed by all.
- WTO Want to reduce tariff and non-tariff barriers.
- Absurd quality controls= one type of non-tariff barrier. WTO fixes it via SPS agreement for food/bio items and TBT for non-food items.
SPS agreement important because Indian mango & American murgi (poultry)- from two angles:
- GS2: agreements affecting Indian interest
- GS3: food processing downstream issues.
WTO: SPS agreement
- Sanitary and phytosanitary (SPS) measures
- Allows members to ban import of xyz item, to protect its own local plant, animal and human lives.
- But QC (Quality control) must be scientific. FAO-Codex standards can be used. Higher QC need scientific explanation.
- Developing countries be given additional time to comply with SPS.
|Indian challenges ban:
||USA challenges ban:
|Verdict:EU officials will come to inspect then may clear India’s ban.||Verdict:
Same points can be used for Food processing industry- downstream issues/agreements in GS3.
[Block-3] WTO AoA, Peace Clause, Food subsidies, TFA, Bali
WTO: AoA & De-Minimus
- WTO agreement on Agreement on Agriculture (AoA).
- Wants members to reduce (1) import duty (2)export subsidy (3) domestic subsidy (amber box)
- Amber subsides: disrupt trade, promote excessive production e.g. fertilizer, seed, electricity
- WTO amber subsidy quota: developed 5% of 86-87’s production; developing: 10% L.D.C: exempt.
- This is known as de-minimum limits.
India opposed because:
- USA’s 5% in 86 higher than our 10% in 86, because our agro production wasn’t that high.
- Food prices doubled since ’86. No provision for Inflation adjustment.
- We need MSP and PDS for supporting farmers and poors respectively. (total subsidy bill 1.15 lakh crore for budget 2014. Out of that 88k for NFSA)
WTO: Bali Summit and Peace clause
9th conference Dec.2013. Bali package= 3 outcomes
- L.D.C: other nations to give duty free quota free access to their products.
- Trade facilitation agreement. But India refuses to sign hence third outcome-
- Peace clause: WTO won’t hear de-minimum quota disputes against developing nations for 4-yrs. till Dec.2017 (11th Conf.). condition: said subsidy only for food security / public stockholding.
WTO: TFA-Trade facilitation agreement
Following Picture worth 200 words:
- Deadline to sign: 31st/Jul/2014. WEF from 2015
- Modi doesn’t sign. Wants permanent solution to food subsidy quota.
- Nov 2014: Obama Modi settlement. Peace clause extended for infinite time till solution reached. India’s food programs won’t be challenged in WTO disputes. In return Modi to sign TFA.
[Block-4] US Policy affecting Indian interests
- QE: US Fed Reserve begins purchase of bonds and subprime toxic assets=>new dollars created=>help US-economy to bounce back.
- Later unemployment rate down, inflation rise=> meaning US economy bounced back. No need to create more dollars.
- Fed Tapering: gradual cutting down in bond purchase program by US Fed.Reserve from Jan 2014. It Reduces creation of new $$ money in system.
Fed tapering: impact
- FIIs exist from India, to re-invest in USA. Rupee weakens. (Rs.65 in Sep2013 just on rumor)
- Rupee weakens=> Crude expensive, inflation, gold investment, CAD, rupee weakens. Vicious cycle.
- When Capital account surplus is less than Current account deficit=BoP crisis.
- To combat BoP crisis, RBI has to sell its Forex reserve $$. In 91’s BoP crisis, India did not have enough forex, had to borrow $$ from IMF by pledging gold.
- So to immunize India agaist Fed tapering’s negative impact, WE must augment forex reserve and $$ inflow.
Steps taken to protect India
- Currency swap with Japan; Dollar swap with OMC.
- BRICS bank contingency fund ($100 bn.)
- RBI raised interest rates on FCNR deposit (NRIs get more interest)
- Fast track environment clearances to attract FDI (Moily-POSCO)
+ve Angle: Fed Taper=US economy improving=Indian Exports to improve. So, perhaps FT-fears are exaggerated.
Some Hindu columnists even suggest we should begin Capital account liberalization to save India against FT. Hence next topic becomes imp. for exam:
Capital account liberalization/Convertibility
|Current Account C.||Capital Account C.|
|When Rupee is fully convertible into another currency, for CURRENT account transactions. And vice-versa.||When Rupee is fully convertible into another currency, for CAPITAL account transactions. And vice-versa. = capital account convertibility.|
What is Capital account liberalization?
- Indian rupee is only partially convertible on capital account transactions with foreign currency.
- The process of reforming system to make partial=>full convertibility=>that’s called Capital account liberalization.
- Steps: reforming FEMA, ECB, FDI and FII norms.
|more $$ inflow to India via FDI, FII, ECB=>Biz.expansion, GDP, jobs||
Capital acct.liberlization: anti arguments
- If companies allowed to borrow infinite $$ (and convert them to indian rupees) => bubble=> will burst during volatility, war. Because company’s cash flow in Rupee, but they’ve to pay EMI in $$ => bubble burst like subprime crisis.
- Malaysia, Thailand tried this in late 90s, epicfail even their large forex reserve couldn’t save economy.
- China got largest forex reserve in world, yet they’re not trying so we shouldn’t try either.
- Tarapore committee recommended full capital account convertibility by 2000. but He gave preconditions like reduce Fiscal deficit to 3.5%, NPA to 5%, CRR to 3% etc.
- These conditions not yet met, hence TIME NOT RIPE for India to adopt full capital account convertibility OR begin capital account liberalization.
Special 301 report
US trade act Section 301=> US trade rep. (USTR) have to prepare list of nations with IPR policy negatively affecting US companies.
|Priority foreign countries||only 1 Ukraine. (Stick approach: Trade sanction, WTO approach)|
|Priority watch list||India, China, Russia etc. (carrot approach: Grant, donation, training, joint-raids.)|
India in watch list from 1989. This is our 25th anniversary.
Why does US feels her IPR won’t be protected in India:
- Movie piracy: No anti-camcording law
- Net piracy: No take down procedure
- 1.5lakh + cases pending for Trademark-patent infringement. Taarikh pe Taarikh.
- Novartis’s Glivec case. India did not permit ever greening its patent.
- German Nexvar tablets: too expensive tables. India gave permission to an Indian co. to produce cheaper generic version.
Latest Development: Out of cycle review in Oct.2014 after Modi meet. We may be dropped from the watchlist.
US FATCA Act (done)
- 2010: Foreign Account Tax compliance Act (FATCA). To catch American tax-evaders doing offshore investment.
- 2014: India and USA sign FATCA-Intergovt. agreement. (IGA)
- Indian Financial intermediaries (Banks, mutual funds, insurance cos etc.) will have to keep record of American investors=>(CBDT)=>American IRS.
- If record not kept=>Penalty 30% tax
USA Totalization pact (not done)
- US social security system: 5 lakh NRIs give $1 billion in taxes.
- But NRI without full visa, return in 3-7 years, can’t reclaim those contribution.
- India wants totalization pact to help them. USA did not agree because Indian EPFO format not compatible with theirs.
OCI-PIO reforms (during Modi visit)
- OCI: you/your parents Indian. Lifelong visa free travel; no registration @any office
- PIO: parent/gp/spouse india; 15 years valid; registration at office after 180 days
- Modi to combine them both. PIO no need to visit police.
- Online visa, outsourcing to reduce delay.
- Other: Visa on arrival for American tourists, PBD-2015 to be held in A’bad.
[Block-5] ASEAN, SAARC, Pak
India-ASEAN FTA in services and investment
- 2009-10: FTA in goods signed and implemented.
- 2014, Sep: FTA in services & investment signed. (talks since 2012).
It has 8+1+1 pattern
- 1: with Philippines to safeguard their IT/BPO.
- 1: with Indonesia to safeguard their service sector
- 8: agreements with remaining
- Easy movement of money (investment) and manpower.
- By 2015: trade to reach $100 billion
- Joint review, dispute settlement
- Stepping stone for future RCEP (regional comprehensive) with Assies, Chinese, Koreans, Japs and NZ.
- Philippines yet to ratify. It fears from Indian IT sector competition.
- Mutual recognition of degrees not yet done. Easy movement of manpower difficult. Modi plans a treaty to fix it.
FTAs hurting Indian Economy: yes or no?
|Yes because||No because|
|Imports increased but exports did not.||Commerce ministry expert Committee says following:|
Conclusion: To get max. benefit from FTAs, India needs to become part of ASIAN value chain i.e. import raw/intermediate goods=>process=>export elsewhere.
SAARC POWER Pact
- SAARC nations import 30% energy requirements.
- Increase per capital energy consumption=> HDI improves. (more education, mfg)
- India imports hydel-energy from Bhutan; exports to Nepal-Bangladesh.
- Grid connectivity= attach light-wires with each other for better electricity buying and selling among nations. Further energy-integration with BCIM corridor of China.
- SAARC Market for electricity agreement (SAME) signed @Delhi in 2014. Yet to be ratified thou.
- will setup SAARC energy grid including underwater line to Sri Lanka.
- + Power trade agreements + Renewable energy.
MFN status in Pak
- WTO’s GATT and GATS =MFN concept. If trade barrier lowered for most favored country than it has to treat all its trading partners in same manner.
- 97: India gave MFN status to Pak.
- But pak still keeps ~1000 items India can’t export- textile, agro, automobile parts.
- 2012: new talks but stalled. 40% Paki workforce in textile, hence vote bank-lobbying against India.
Next revision article: GS3- Planning, budgeting, resource mobilization.
UNICITRAL: Indian I.t act confirms to this only, but has no specific provisions for e commerce, & hence a fidder point
TFA: Why not to implement?: It’s a non tariff barrier
sir please upload ifos mains GS 2014 paper….
ATTEMPT OF A PART SHALL BE COUNTED IN A CHRONOLOGICAL ORDER…
sir/mam if i attempt q5 first and then q2 ,and then q 1 part1 then other q part 2..followed by similar pattern…will they count it as attempted ?…what it exactly mean ? pls throw some light….
IT IS TOO CLICHE FOR YOU TO READ THANK YOU!! YOUR WORK IS BEYOND THE APPRECIATORY REMARKS. SIMPLY THANKS A LOT.
First of all a very big thank you on the behalf of student community to your extremely useful articles.
Sir me and many of my friends who follow mrunal.org feel the website is difficult to browse even though search option is provided.The articles are excellent with regard to content but they are not being posted in a orderly manner.Kindly make the website more flexible for our convinience.please create a proper site map which leads topics=> subtopics=> Articles pattern.
I wu’d be very thankful if you consider my request.
Bhai you are turning out to be important asset for civil services aspirants… Carry on bhai…
can anyone explain the meaning of-1)The rupee has been overvalue due to competitive dollar given the inflation deflant”(1 of the reason mentioned for yesterday’s fall of rupee)
2)Equity shares of Yes Bank can now be purchased through primary market and stock exchanges
But my doubt is that in primary market 1 deals with NFOs then how come equity shares of yes Bank can be purchased through primary market??
Great mate keep up the good work this year you’re a boon to aspirant like me
Regarding BRICS Bank Tabular Column:
Capital Requirement of BRICS Bank: 10 billion x5.
urgent…….plz reply can i make these boxes in answer this time…as some say write in bullet nd sm in para..
sir a Doubt…
So, even If you have Rs.60 crore=> you can get them converted to $1 crore dollar to park in American bank/share market.
isme can aayega ya can’t….
A PERMANENT SOLUTION TO SUBSIDY PROBLEM IS SAID TO BE ACHIEVED THROUGH A PERMANENT PEACE CLAUSE(signed with America)
DOUBT IS- HOW A PEACE CLAUSE SIGNED WITH ONLY ONE NATION CAN WORK FOR ALL THE WTO MEMBER NATIONS
If ratified by all WTO members, the India-U.S. deal would revive a global trade agreement done in Bali, Indonesia, last December, which would be a “major boost to the WTO”, Azevedo said in a statement.
You can read it on businessinsider
superb..the illustrations are hilarious but are easy to understand….even students in 11,12 th std can grasp it by 3-4 readings..
good stuff mate.
Sir Plz upload the topic about Soli Sorobjee report
Please arrange the economics material in topicwise and how to find your old articles in economics it explains in very simple way