THE PARLIAMENTARY PROCEEDINGS: BUDGET SESSION 2022

1. THE DELHI MUNICIPAL CORPORATION (AMENDMENT) BILL, 2022

THE CONTEXT: The Parliament passed Delhi Municipal Corporation (Amendment) Bill 2022 which seeks to merge three municipal corporations of Delhi into a single entity. 

THE EXPLANATION:

• The Bill seeks to amend the Delhi Municipal Corporation Act, 1957 passed by Parliament.  The Act was amended in 2011 by Delhi Legislative Assembly to trifurcate the erstwhile Municipal Corporation of Delhi into: (i) North Delhi Municipal Corporation, (ii) South Delhi Municipal Corporation, and (iii) East Delhi Municipal Corporation.  The Bill seeks to unify the three corporations.

• Unification of Municipal Corporations in Delhi:  The Bill replaces the three municipal corporations under the Act with one Corporation named the Municipal Corporation of Delhi.

• Powers of the Delhi government: The Act as amended in 2011 empowers the Delhi government to decide various matters under the Act. These include: (i) total number of seats of councillors and number of seats reserved for members of the Scheduled Castes, (ii) division of the area of corporations into zones and wards, (iii) delimitation of wards, (iv) matters such as salary and allowances, and leave of absence of the Commissioner, (v) sanctioning of consolidation of loans by a corporation, and (vi) sanctioning suits for compensation against the Commissioner for loss or waste or misapplication of Municipal Fund or property.  Similarly, the Act mandates that the Commissioner will exercise his powers regarding building regulations under the general superintendence and directions of the Delhi government.  The Bill instead empowers the central government to decide these matters.

• Number of Councillors: The Act provides that the number of seats in the three corporations taken together should not be more than 272.  The 14^th Schedule to the Act specifies 272 wards across the three Corporations.  The Bill states that the total number of seats in the new Corporation should not be more than 250.

• Removal of Director of Local Bodies: The Act provides for a Director of Local Bodies to assist the Delhi government and discharge certain functions which include: (i) coordinating between Corporations, (ii) framing recruitment Rules for various posts, and (iii) coordinating the collecting and sharing of toll tax collected by the respective Corporations.  The Bill omits the provision for a Director of Local Bodies.

• Special officer to be appointed by the central government: The Bill provides that the central government may appoint a Special Officer to exercise powers of the Corporation until the first meeting of the Corporation is held after the commencement of the Bill.

• E-governance system for citizens: The Bill adds that obligatory functions of the new Corporation will include establishing an e-governance system for citizen services on anytime-anywhere basis for better, accountable, and transparent administration.

• Conditions of service for sweepers: The Act provides that a sweeper employed for doing house scavenging of a building would be required to give a reasonable cause or a 14 day notice before discontinuing his service.   The Bill seeks to omit this provision.

2. THE CHARTERED ACCOUNTANTS, THE COST AND WORKS ACCOUNTANTS AND THE COMPANY SECRETARIES (AMENDMENT) BILL, 2021

THE CONTEXT: The Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2021 was passed by both the houses of the Parliament.

THE EXPLANATION:

• The Bill seeks to amend
  • The Chartered Accountants Act, 1949,
  • The Cost and Works Accountants Act, 1959, and
  • The Company Secretaries Act, 1980.
• The three Acts provide for the regulation of the professions of chartered accountants, cost accountants and company secretaries, respectively.  The Bill seeks to strengthen the disciplinary mechanism under these Acts, and provide for time bound disposal of cases against members of the Institute of Chartered Accountants of India, the Institute of Cost Accountants of India and the Institute of Company Secretaries of India.

Key features of the Bill include:

• Registration of firms: The Bill adds that firms must register with the Institutes by making an application to the respective Councils of the Institutes.  The Councils must maintain a register of firms containing details such as pendency of any actionable complaint or imposition of penalty against the firms.
• Disciplinary Directorate: Under the Acts, the respective Councils of the three Institutes must each constitute a Disciplinary Directorate, headed by Director (Discipline) who is an officer of the Institute.  The Bill adds that each Directorate must also include at least two Joint Directors.
• Under the Acts, on receiving a complaint, the Director arrives at a prima facie opinion on the alleged misconduct.  Depending on the misconduct, the Director places the matter before the Board of Discipline or the Disciplinary Committee.  The Bill amends this to empower the Directorate to independently initiate investigations against members or firms.  The Director must decide whether a complaint is actionable within 30 days of receiving such complaint.  If the complaint is actionable, the Director must submit a preliminary examination report to the Board or the Committee (as the case may be), within 30 days.  Under the Acts, a complaint may be withdrawn if permitted by the Board or Committee.  The Bill provides that a complaint filed with the Directorate will not be withdrawn under any circumstances.
• Board of Discipline: Under the three Acts, each Council constitutes a Board of Discipline.  Members of the Board include: (i) presiding officer (having experience in law and knowledge of disciplinary matters), (ii) two members and (iii) Director (Discipline) as secretary.  Under the Chartered Accountants Act, 1949, one of the two members is nominated by the central government while the other is a member of the Council.  As per the other two Acts, both the members are from the Councils or the Institutes.
• The Bill empowers the three Councils to constitute multiple Boards.  The presiding officer and one of the two members must not be a member of the institutes and will be nominated by the central government from a panel of persons provided by the Councils.  An officer of the Institute, of the rank of Deputy Secretary, will function as the Secretary of the Board.  After receiving the preliminary examination report, the Board must conclude its inquiry within 90 days.
• Disciplinary Committee: Under the three Acts, the Councils constitute Disciplinary Committees consisting of: (i) Presiding Officer (President or Vice-President of the Council), (ii) two members elected from the Council, and (ii) two members nominated by the central government.  The Bill amends the Acts to provide that the Presiding Officer must not be a member of the institutes and shall be nominated by the central government.  The Committee must conclude its inquiry in 180 days from the receipt of preliminary examination report.
• Penalties:  Under the Acts, in cases of professional or other misconduct the Committees may: (i) reprimand or remove the member from the register of the Institute, or (ii) impose a fine of up to five lakh rupees.  The Bill increases the maximum amount of fine to ten lakh rupees.  The Bill also adds that if a partner or owner of a firm is repeatedly found guilty of misconduct during last five years, the Committee may take certain actions against the firm.  The actions include: (i) prohibiting the firm from undertaking activities related to the profession of chartered account, cost accountant, or company secretary, as the case may be, for up to two years, or (ii) impose a fine of up to Rs 50 lakh.

Key Issues and Analysis

• The Bill proposes to change the composition of the two disciplinary entities to allow for more external representation.  However, these external members will be selected from a panel of persons prepared by the three Councils.  This may be against the objective of resolving conflict of interest between the disciplinary and administrative functions of the three professional Councils.
• The mandate of the proposed Coordination Committee may overlap with certain functions of the three Institutes.  Further, being chaired by the Secretary of the Ministry of Corporate Affairs, it may impinge on the independence of the three Institutes.
• The Bill provides for disclosure of pending complaints or actionable information against members and firms.  Disclosing details of pending complaints before finding guilt may tarnish their professional reputation.

• Though the President will have a non-executive role, he will be held responsible for implementation of decisions of the Councils.

 THE POLITY AND GOVERNANCE

3. MULLAPERIYAR SUPERVISORY PANEL CONTINUES FOR A YEAR WHILE AUTHORITY: CENTRE TO SUPREME COURT

THE CONTEXT: The Central Government suggested to the Supreme Court to let the Mullaperiyar dam supervisory committee continue for a year, by which time the National Dam Safety Authority under the new Dam Safety Act will become fully functional.

THE EXPLANATION:

• “According to the Government statement, during the period of one year, when the National Dam Safety Authority becomes fully functional, the Supervisory Committee on Mullaperiyar Dam may continue its functioning as per the existing mandate in regulating the operations of the Mullaperiyar dam”.
• The Centre suggested that the Chief Secretaries of Tamil Nadu and Kerala be made accountable in order to ensure that the decisions of the supervisory committee on the maintenance and safety of the dam are duly complied with by the two States.
• “To address the technical concerns of both the States, the Chief Secretaries of the States may be requested to nominate technical experts as members to participate in the meetings conducted by the supervisory committee. This would ensure accountability of the decisions/ action taken,” the Centre further recommended.

VALUE ADDITION:

ABOUT MULLAIPERIYAR DAM

• It is a masonry gravity dam on the Periyar River in the Indian state of Kerala.
• It was constructed between 1887 and 1895 and also reached an agreement to divert water eastwards to the Madras Presidency area.
• The dam created the Periyar Thekkady reservoir, from which water was diverted eastwards via a tunnel to augment the small flow of the Vaigai River.
• It originates from the Sivagiri hills of Western Ghats and flows through the Periyar National Park.
• The main tributaries of Periyar are Muthirapuzha, Mullayar, Cheruthoni, and Perinjankutti.
• According to a 999-year lease agreement made during British rule, the operational rights were handed over to Tamil Nadu.

Mullaiperiyar dam: The current dispute

The Supreme Court order came after a court-appointed supervisory committee had suggested 139.50 ft as the permissible level. The court has directed both states to go by the committee’s recommendation. Tamil Nadu had wanted the level increased to 142 ft as fixed by the Supreme Court in 2014, while Kerala wanted it within 139 ft as per a rule curve fixed until the end of the month.

Kerala’s stance: 

• The state governments of Kerala have pointed out the unfairness of the 1886 lease agreement and its validity itself. Its core issue is the safety of the Mullaperiyar Dam. Kerala wants to decommission the 100+-year-old dam and construct a new one in its place, as not doing so will endanger many lives in the process.
• The Kerala Government stated that it did not object to giving water to Tamil Nadu but pointed out that raising its level would add more pressure than the dam could take. The dams, as pointed out by Kerala, were leaking and had many structural faults.
• In addition, the Kerala government has accused Tamil Nadu of adopting an “obsolete” gate operation schedule dating back to 1939.

Tamil Nadu’s Stance:

• For Tamil Nadu, the Mullaperiyar dam and the diverted Periyar waters act as a lifeline for Theni, Madurai, Sivaganga, Dindigul and Ramnad districts, providing water for irrigation and drinking, and also for the generation of power in Lower Periyar Power Station.
• Tamil Nadu argues that building a new dam is for gaining unfair tax revenues from developing states.
• Tamil Nadu is not able to access data that is in Kerala’s terrain. There is no road built, the power supply has not been restored, although Tamil Nadu has paid for it.

THE GOVERNMENT SCHEMES IN THE NEWS

4. BUDGET FOR PRADHAN MANTRI ANNADATA AAY SANRAKSHAN ABHIYAN(PM-AASHA)

THE CONTEXT: Under PSS, Government has provided Government Guarantee amounting to Rs. 40,500/- cr. for extending cash credit facilities to Central Nodal Agencies i.e. NAFED & FCI for procurement of pulses, oilseeds & copra at Minimum Support Price (MSP). Central Nodal Agencies withdraw the required funds against the Government Guarantee for making payment of MSP value to farmers and other incidental costs involved in the PSS operations.

THE EXPLANATION:

Components of PM-AASHA

The new Umbrella Scheme includes the mechanism of ensuring remunerative prices to the farmers and is comprised of,

Price Support Scheme (PSS):

• In Price Support Scheme (PSS), physical procurement of pulses, oilseeds and Copra will be done by Central Nodal Agencies with proactive role of State governments. It is also decided that in addition to NAFED, Food Cooperation of India (FCI) will take up PSS operations in states /districts.
• The procurement expenditure and losses due to procurement will be borne by Central Government as per norms.

Price Deficiency Payment Scheme (PDPS):

• Under Price Deficiency Payment Scheme this scheme (PDPS), it is proposed to cover all oilseeds for which MSP is notified. In this direct payment of the difference between the MSP and the selling/modal price will be made to pre-registered farmers selling his produce in the notified market yard through a transparent auction process. All payments will be done directly into the registered bank account of the farmer.
• This scheme does not involve any physical procurement of crops as farmers are paid the difference between the MSP price and Sale/modal price on disposal in the notified market. The support of central government for PDPS will be given as per norms.

The pilot of the Private Procurement & Stockist Scheme (PPPS):

• Under this scheme, participation of the private sector in procurement operations will be piloted.
• States have the option to roll out the scheme on a pilot basis in selected districts/APMCs involving private stockists.

Need for PM-AASHA:

• A major issue with the MSP is its poor coverage. Further, there are certain problems with the implementation of MSP such as the procurement centres being far away resulting into heavy transportation cost, non-opening of Procurement centres timely, lack of covered storage/godowns facility for the temporary storage of produces, delays in payments, etc. Thus to address the gaps in the MSP system and give better returns to farmers, PM-AASHA is an important step.
• Increasing MSP is not adequate and it is more important that farmers should get full benefit of the announced MSP. Further, it is essential that if price of the agriculture produce market is less than MSP, then in that case State Government and Central Government should purchase either at MSP or work in a manner to provide MSP for the farmers through some other mechanism.
• A holistic approach of solving any issue is important rather than in fragments. Thus, to address issue of farmer’s income and enhancing livelihood, a compressive policy has been the need of the hour

Significance of PM-AASHA:

1. Income Security to farmers: The policy is an important step to achieve government’s commitment to double farmers’ income by 2022. If properly implemented, the scheme is expected to help revive the rural economy by assuring better income to farmers and thus address farmers’ distress
2. Stabilizing commodity markets: It will help in stabilising commodity markets and will also benefit the farmers by providing options to the state governments to compensate farmers when the market prices fall below MSP.
3. Better coverage of MSP: MSP procurement system has been very poor both in terms of geography and the crops covered. The new scheme would ensure better coverage of MSP and provision of crop-wise procurement is expected to benefit both farmers and states.
4. Reduce the need for physical procurement: The PDPS scheme under PM-AASHA will reduce the need for the government to physically procure food crops as the difference between the support and market prices can instead simply be paid in cash to the farmer.
5. Reduce storage and wastage: As the need for physical procurement will reduce, it will also reduce the consequent needs for transport and store them and then dispose of them under PDS. This would also reduce wastage of grains/crops.
6. Reduce food subsidy bill: In recent years, the government has been seeing the accumulation of large food grain stocks in its godowns over and above the buffer requirement. This entails storage and wastage costs that add on to the food subsidy bill. Thus the new policy would help in bringing down India’s food subsidy bill.

THE DATASHEET

5. THE CORPORATE DONATIONS TO POLITICAL PARTIES

VALUE ADDITION:

WHAT IS AN ELECTORAL BOND?

An electoral bond is like a promissory note that can be bought by any Indian citizen or company incorporated in India from select branches of State Bank of India. The citizen or corporate can then donate the same to any eligible political party of his/her choice. The bonds are similar to bank notes that are payable to the bearer on demand and are free of interest. An individual or party will be allowed to purchase these bonds digitally or through cheque.

How to use electoral bonds?

Using electoral bonds is quite simple. The bonds will be issued in multiples of Rs 1,000, Rs 10,000, Rs 100,000 and Rs 1 crore (the range of a bond is between Rs 1,000 to Rs 1 crore). These will be available at some branches of SBI. A donor with a KYC-compliant account can purchase the bonds and can then donate them to the party or individual of their choice. Now, the receiver can encash the bonds through the party’s verified account. The electoral bond will be valid only for fifteen days.

The 29 specified SBI branches are in cities such as New Delhi, Gandhinagar, Chandigarh, Bengaluru, Bhopal, Mumbai, Jaipur, Lucknow, Chennai, Kolkata and Guwahati.

When are the bonds available for purchase?

The electoral bonds are available for purchase for 10 days in the beginning of every quarter. The first 10 days of January, April, July and October has been specified by the government for purchase of electoral bonds. An additional period of 30 days shall be specified by the government in the year of Lok Sabha elections.

THE PRELIMS PRACTICE QUESTIONS

QUESTION OF THE DAY

Q1. Consider the following statements about Antarctic Treaty:

1. It was signed in 1959 and came into force in 1961.
2. India is the foundation member of this treaty.
3. The Treaty covers the area south of 60°S latitude.
4. Its one of the objective is to create a nuclear tests free zone.

Which of the statements given above is/are correct?

     a) 1 and 2 only

b) 2, 3 and 4 only

c) 1, 3 and 4 only

d) All of them

ANSWER FOR 5TH APRIL 2022

Answer: b)

Explanation:

• Statement 1 is incorrect: It is built by the kings of the Ganga dynasty.
• Statement 2 is correct: It is an example of Kalinga Architecture.

1. Opinion: India’s weakening democracy needs urgent electoral reforms READ MORE  
2. The Need for a Supreme Court Bench in South India READ MORE
3. Centre’s New Exam System is not Reform but Elite Capture READ MORE
4. Why the inordinate delay in SC’s hearing of FCRA and electoral bonds cases is of concern READ MORE

1. Strengthen secularism, save the republic: India, as a nation, can survive only as a secular state — where the state has no religion and does not promote any religion READ MORE  
2. Urban planning key to realising rights for persons with disabilities. Learn from Karnataka READ MORE
3. Grassroots Wisdom~I READ MORE

1. Explained: The Punjab-Haryana dispute over rivers waters and SYL Canal READ MORE
2. Climate crisis: No universal solutions READ MORE

1. Your response to situations can immortalise you READ MORE
2. The Magic Of Three READ MORE
3. Stop stereotyping differently abled READ MORE

(Newspapers, PIB and other important sources)

Prelim and Main

1. The Indian Antarctic Bill and its various provisions READ MORE
2. ISRO to send team to investigate objects that fell from sky in Maharashtra READ MORE
3. Bill introduced to ban financing of weapons of mass destruction READ MORE
4. Quixplained: How does India acquire forex? READ MORE
5. Explained: The Punjab-Haryana dispute over rivers waters and SYL Canal READ MORE
6. Temple-360 to offer online darshan at pilgrimage centres READ MORE
7. What is Russia’s Wagner Group of mercenaries in Ukraine? READ MORE
8. India’s Trade Deficit Rose 88% In 2021-22 READ MORE

Main Exam    

GS Paper- 1

1. Strengthen secularism, save the republic: India, as a nation, can survive only as a secular state — where the state has no religion and does not promote any religion READ MORE  
2. Urban planning key to realising rights for persons with disabilities. Learn from Karnataka READ MORE
3. Grassroots Wisdom~I READ MORE

GS Paper- 2

POLITY AND GOVERNANCE

1. Opinion: India’s weakening democracy needs urgent electoral reforms READ MORE  
2. The Need for a Supreme Court Bench in South India READ MORE
3. Centre’s New Exam System is not Reform but Elite Capture READ MORE
4. Why the inordinate delay in SC’s hearing of FCRA and electoral bonds cases is of concern READ MORE

SOCIAL ISSUES AND SOCIAL JUSTICE

1. We Need Climate Action – But It Shouldn’t Be at the Expense of Social Justice READ MORE

INTERNATIONAL ISSUES

1. India must focus on Nepal’s geo-economics READ MORE
2. In the middle: On the Ukraine war India must fulfil its responsibilities as a non-aligned democracy READ MORE
3. Oz is just the start: Australia FTA shows India is now confident on trade. Aim bigger, including the ambitious deal with US READ MORE
4. The BIMSTEC Charter: Much Ado About Nothing READ MORE

GS Paper- 3

ECONOMIC DEVELOPMENT

1. MSMEs need innovative solutions as inflation kicks in READ MORE  
2. Close the policy gap: RBI has fallen behind the curve READ MORE
3. Why India needs to bring back nature-positive farming READ MORE

ENVIRONMENT AND ECOLOGY  

1. Climate crisis: No universal solutions READ MORE

TECHNOLOGY

1. The rise and rise of Facial Recognition Technology READ MORE

SECURITY

1. Afspa removal: It will restore peace, dignity READ MORE

GS Paper- 4

ETHICS EXAMPLES AND CASE STUDY

1. Your response to situations can immortalise you READ MORE
2. The Magic Of Three READ MORE
3. Stop stereotyping differently abled READ MORE

Questions for the MAIN exam

1. ‘Without any legal safeguards in place, the widespread deployment of facial recognition technology by the Indian State makes it a tool to gain collective control over society’. Critically analyse the statement.
2. ‘BIMSTEC is not just an alternative of SAARC for India, but it is an important platform to counter China’. In the light of the statement, discuss how can India use this platform to counter China?

QUOTATIONS AND CAPTIONS

• Be careful that victories do not carry the seed of future defeats.
• Without any legal safeguards in place, the widespread deployment of facial recognition technology by the Indian State makes it a tool to gain collective control over society.
• The pandemic showed that human interventions in natural processes can have disastrous consequences; we should now scale up natural-positive food systems that would simultaneously promote crop, soil and human health.
• Good leadership and long-term change happen when people are open to understanding each other, willing to learn from each other and mutually invested in fostering change that positively impacts the community as a whole.
• While disability rights are guaranteed by the Constitution, their realisation lies with state and municipal laws.
• The announcement of the reduction of the area under the law should be welcomed as a significant step to restore not just peace, but also dignity.
• The IPCC report says the world is not on track for achieving the mitigation goals. The response to that should be to redouble efforts and limit harm to the extent possible.
• The World Trade Organisation rules on FTAs in goods require that whenever an FTA includes one or more developed countries as members, all member countries must eliminate duties and other trade restrictions on substantially all products traded among them.
• The Constitution of India adopted that moral framework for the governance of India. Equality, justice and fraternity are as much a part of the great Buddhist tradition as of the modern European Renaissance.
• Secularism was chosen as the foundational principle of the republic to keep the nation united. Enlightened citizens should realise that if secularism is jettisoned, the hard-won national unity will be in peril.

50-WORD TALK

• India’s focus has to be on geo-economics — towards a prosperous Nepal, to help it create wealth and jobs so that one-third of its population is not on errands abroad. India has stopped looking at which government is in power in Nepal as long as there is mutual respect, mutual trust and mutual concern for each other’s national interests.

Things to Remember:

• For prelims-related news try to understand the context of the news and relate with its concepts so that it will be easier for you to answer (or eliminate) from given options.
• Whenever any international place will be in news, you should do map work (marking those areas in maps and exploring other geographical locations nearby including mountains, rivers, etc. same applies to the national places.)
• For economy-related news (banking, agriculture, etc.) you should focus on terms and how these are related to various economic aspects, for example, if inflation has been mentioned, try to relate with prevailing price rises, shortage of essential supplies, banking rates, etc.
• For main exam-related topics, you should focus on the various dimensions of the given topic, the most important topics which occur frequently and are important from the mains point of view will be covered in ED.
• Try to use the given content in your answer. Regular use of this content will bring more enrichment to your writing.

[WpProQuiz 194]

THE CONTEXT: The Russian invasion of Ukraine, which started in February 2021, is the largest conventional military attack seen since World War II and can cause a global economic catastrophe. It has deep implications for the world economy as well as the Indian economy. This article analyses those consequences and suggests the way forward for them.

ECONOMIC IMPACTS ON THE WORLD

ENERGY AND COMMODITIES MARKETS:

• Russia is the world’s 3rd largest oil producer, the 2nd largest natural gas producer, and among the top 5 producers of steel, nickel, and aluminum. It is also the largest wheat exporter globally (almost 20% of global trade).
• On its side, Ukraine is a key producer of corn (6th largest), wheat (7th), and sunflowers (1st), and is amongst the top ten producers of sugar beet, barley, soya, and rapeseed.
• On the day the invasion began, financial markets worldwide fell sharply, and the prices of oil, natural gas, metals, and food commodities surged.
• Brent oil prices breached USD 130 per barrel following the latest developments, while Europe’s TTF gas prices surged at a record EUR 192 on 4th March.
• While high commodity prices were one of the risks already identified as potentially disruptive to the recovery, the escalation of the conflict increases the likelihood that commodity prices will remain higher for much longer. In turn, it intensifies the threat of long-lasting high inflation, thereby increasing the risks of stagflation & social unrest in both advanced & emerging countries.

AUTOMOTIVE, TRANSPORT, CHEMICALS ARE THE MOST VULNERABLE SECTORS:

• The crisis is obviously strongly impacting an already strained automotive sector due to various shortages and high commodity & raw material prices: metals, semiconductors, cobalt, lithium, and magnesium.
• Ukrainian automotive factories supply major carmakers in Western Europe: some announced the stoppage of factories in Europe while other plants around the world are already planning outages due to chip shortages.
• Airlines and maritime freight companies will also suffer from higher fuel prices, airlines being the most at risk.
• First, fuel is estimated to account for about a third of their total costs.
• Second, European countries, the US and Canada, have forbidden access to their territories to Russian airlines and in turn, Russia has banned European and Canadian aircraft from its airspace.
• This means higher costs since airlines will have to take longer routes. Eventually, airlines have little room for rising costs as they continue to face lower revenues due to the impact of the pandemic.
• Rail freight will also be impacted: European companies are forbidden to do business with Russian Railways, which will likely disrupt freight activity between Asia and Europe, transiting through Russia.
• It is expected that feedstock for petrochemicals will be more expensive, and the soaring prices of natural gas will impact the fertilizer markets, hence the whole agri-food industry.

DEEP RECESSION AHEAD FOR THE RUSSIAN ECONOMY:

• The Russian economy will be in great difficulty in 2022, falling into a deep recession. Coface’s updated GDP forecast for 2022 stands at -7.5% after the recovery experienced last year. This has led to a downgrade of the country’s risk assessment from B (fairly high) to D (very high).
• Sanctions notably target major Russian banks, the Russian central bank, the Russian sovereign debt, selected Russian public officials & oligarchs, and the export control of high-tech components to Russia. These measures put considerable downward pressure on the Russian ruble, which has already plummeted and will drive a surge in consumer price inflation.
• Russia has built up relatively strong financials: a low level of public external debt, a recurrent current account surplus, as well as substantial foreign reserves (app. USD 640 bn). However, the freeze imposed by western depositary countries on the latter prevents the Russian central bank from deploying them and reduces the effectiveness of the Russian response.
• The Russian economy could benefit from higher prices for commodities, especially for its energy exports.
• However, EU countries announced their intention to limit their imports from Russia. In the industrial sector, restricted access to Western-produced semiconductors, computers, telecommunications, automation, and information security equipment will be harmful, given the importance of these inputs in the Russian mining and manufacturing sectors.

EUROPEAN ECONOMIES ARE AT A HIGH RISK:

• Because of its dependence on Russian oil & natural gas, Europe appears to be the region most exposed to the consequences of this conflict. Replacing all Russian natural gas supply to Europe is impossible in the short to medium run and current price levels will have a significant effect on inflation.
• While Germany, Italy, and some countries in the Central and Eastern European region are more dependent on Russian natural gas, the trade interdependence of Eurozone countries suggests a general slowdown.
• On top of that, we estimate that a complete cut of Russian natural gas flows to Europe would raise the cost to 4 percentage points in 2022, which would bring annual GDP growth close to zero, more probably in negative territory – depending on demand destruction management.

NO REGION WILL BE SPARED BY IMPORTED INFLATION AND GLOBAL TRADE DISRUPTIONS:

• In the rest of the world, the economic consequences will be felt mainly through the rise in commodity prices, which will fuel already existing inflationary pressures. As always, when commodity prices soar, net importers of energy & food products will be particularly affected, with the specter of major supply disruptions in the event of an even greater escalation of the conflict. The drop in demand from Europe will also hamper global trade.
• In Asia-Pacific, the impact will be felt almost immediately through higher import prices, particularly in energy prices. Many economies in the region are net energy importers, led by China, Japan, India, South Korea, Taiwan, and Thailand.
• As North American trade and financial links with Russia and Ukraine are fairly limited, the impact of the conflict will mainly be felt through the price channel and through the slowdown of European growth.
• Despite the prospect of slower economic growth and higher inflation, the recent geopolitical events are not expected to derail monetary policy in North America at this stage.

IMPACT ON INDIA

Despite India’s limited direct exposure, the combination of supply disruptions and the ongoing terms of trade shock will likely weigh on growth, resulting in a sharper rise in inflation, and (leading to) a wider current account deficit.

India’s trade with Russia and Ukraine

• India runs a trade deficit with Russia, with exports declining while imports are increasing. Oil forms a major part of our import basket from Russia.
• According to the MoF report, 8 percent of our total imports have been imported from Russia in FY22.

Here are the ways India could suffer due to a Russia-Ukraine war even without being part of it.

BAN ON RUSSIA’S CRUDE EXPORTS:

• In reaction to the US’s ban on all oil and gas imports from Russia, Brent crude prices surged to nearly $130 per barrel in the first week of March 2022.
• This is a major setback for global economic growth as Russia is one of the largest exporters of crude oil globally. India’s trade, however, comprises only 1% of oil imports from Russia, but there could be a spillover impact in the form of high inflation and sluggish growth.
• On March 13, Morgan Stanley lowered India’s GDP forecast for the fiscal year 2023 by 50 basis points to 7.9%. After that, the UN report downgraded India’s 2022 GDP to 4.6% due to the war.
• More risks could arise if global growth conditions weaken further, which would hamper India’s export and capital expenditure cycle.

INFLATIONARY CONCERNS:

• India depends on imports to meet up to 85% of its crude oil needs. The surge in international oil prices to a 14-year high will now result in broader price pressures.
• The impact on India’s economy will be felt mostly through higher cost-push inflation weighing in on all economic agents—households, businesses, and government.
• Every 10% rise in crude oil prices leads to a 0.4 percentage point rise in consumer inflation.
• It is estimated that retail inflation at 6% for the fiscal year 2023 is much higher than the RBI’s 4.5%.
• An increase of U.S.$25/bbl. would lead to an estimated reduction in the growth of 0.7% points and an increase in inflation of nearly 1% point. If the prices of other imported commodities also increase, the inflation impact will be higher.
• This has increased the risks of a higher import bill and, in turn, a widening of India’s current account deficit (CAD).
• A study by the RBI in 2019 had estimated an increase in the current account
• deficit (CAD) following a U.S.$10/bbl. increase in global crude price, to be nearly 0.4% points of GDP. Thus, for an increase of U.S.$25/bbl. in global crude prices, the CAD may increase by 1% point of GDP.
• The RBI Professional Forecasters Survey’s median estimate of CAD at 1.9% of GDP for 2022-23 may have to be revised upwards to 2.9%.

INDIA’S DEFENCE SUPPLIES:

• Between 2016 and 2020, India accounted for nearly 25% of Russia’s total arms exports. This explains that the share of defense expenditure in India’s budget every year is not little.
• This time, a key defense contract in question is the delivery of the Russia-developed S-400 air missile system worth $5 billion, which was signed in October 2018.
• Moreover, the Indian Army’s main battle tank force is composed predominantly of Russian T-72 M1 and T-90S, accounting for 66% and 30% of all units, respectively.
• India will continue to rely on Russian weapons systems in the middle term, despite the US’s threat of sanctions over the S-400 purchase looms large over India.

OTHER AREAS:

• POST-COVID DISRUPTION: The geopolitical uncertainty coupled with the likely slowdown in the global economy and high inflation could lead to a major spike in gold prices, as central banks are left with limited legroom to raise interest rates.
• DIGITAL CURRENCIES: Day one of the conflicts also witnessed 8 percent of cryptocurrencies’ market capitalization of $1.59 trillion being wiped out.
• SEMICONDUCTORS: Russia and Ukraine are both suppliers of raw materials used in semiconductor manufacturing. Russia is the leading producer of palladium, essential for memory and sensor chips. And Ukraine is a leading exporter of highly purified neon gas that is used in etching circuit designs into silicon wafers to create chips.
• PHARMA: India exported over $181 million worth of pharmaceutical goods to Ukraine in FY21, growing nearly 44 percent over FY20, while exports to Russia were nearly $591 million in FY21, with YoY growth of 6.95 percent.
• TEA: Russia is one of the biggest importers of Indian tea, with a share of 18 percent in Indian tea exports.
• SUNFLOWER OIL: Indians, as the country depends almost totally on Ukraine and Russia for sunflower oil imports. In 2020-21, India imported 1.9 million tonnes of crude sunflower oil, of which Ukraine accounted for 1.4 million tonnes. The rest came from Russia.
• IMPACT ON PAYMENT SETTLEMENT: Due to the discontinuation of transactions through SWIFT, there would be some disruption in trade to and from Russia and Ukraine.

WHAT ARE THE CHALLENGES FOR RBI AND GOI IN RECENT TIMES?

• Policymakers may have to exercise a critical choice regarding who bears the burden of higher prices of petroleum products in India among consumers and industrial users, oil marketing companies, and the Government.
• If the oil marketing companies are not allowed to raise the prices of petroleum products, the bill for oil sector-linked subsidies would go up.
• If the central and State governments reduce excise duty and value-added tax (VAT) on petroleum products, their tax revenues would be adversely affected.
• If, on the other hand, the burden of higher prices is largely passed on to the consumers and industrial users, the already weak investment and private consumption would suffer further.
• If growth is to be revived, maximum attention should be paid to supporting consumption growth and reducing the cost of industrial inputs to improve capacity utilization.
• If RBI reduces the interest rate, it will further increase the money supply, which will lead to further higher inflation. If the RBI increases the interest rate, it will reduce the money supply in the economy but will impact the economic recovery negatively.

THE WAY FORWARD:

• As a short-term measure, the Rupee-Rouble trade agreement should be finalized as soon as possible.
• Notional policy on semiconductors should be promoted effectively so that India could become self-reliant in semiconductor and chip making.
• RBI should take more liberal steps i.e. accommodative monetary policy. As developed countries are being forced to raise their interest rates and inflationary pressures continue to mount in India and abroad, the RBI may find it advisable to raise the policy rate to stem inflationary pressures and the outward flow of the U.S. dollar even as the growth objective would be served by fiscal policy initiatives.
• For recovery, maximum attention should be paid to supporting consumption growth and reducing the cost of industrial inputs to improve capacity utilization.
• India should increase the capacity of its strategic petroleum reserve so that at the time of a war-like situation, India can manage the impact of hiked crude oil prices, in a long term manner, needs to focus on renewable energy sources.
• To address the shortage of sunflowers oil, the government should take steps to promote domestic cultivation of the oil like the government is doing for palm oil under National Mission on Edible Oils – Oil Palm (NMEO-OP).

THE CONCLUSION: World leaders should come together not for discussing the scale of sanctions but to work out ways to resolve the issue and put an end to the mayhem. Diplomatic channels should be used to have dialogue, negotiate, convince and arrive at amicable solutions to end the conflicts. The increased spate of sanctions on one country is a pain to other dependent countries and it disrupts the world order. Prolonged armed conflicts will worsen the plight of innocent countries and their people.

Economic Impacts of Russia-Ukraine War, Economic Impacts on The World, Recession Ahead for the Russian Economy, European Economies, Inflation & Global Trade Disruptions, India’s Trade with Russia and Ukraine, India’s Defence Supplies, Impact on Payment Settlement