Daily PT Capsule Feb 16

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Daily PT Capsule UPSC Civil Services
Daily PT Capsule UPSC Civil Services

Undervalued Exchange Rate for growth

At the India MSME Summit-2016 organised by the Confederation of Indian Industry(CII)  RBI Governor Raghuraman Rajan said that Reserve Bank of India (RBI) and the government don’t favour undervaluation of the exchange rate as a means to spur economic growth.  China, Japan and Korea have been examples who have promoted export driven growth through a sustained undervalued exchange rate.

Dr. Rajan said. “I personally believe that sustained undervaluation over a long period of time is not a feasible or desirable strategy. Which is why I firmly believe that the RBI’s philosophy of not focusing on the level of exchange rate and trying to manipulate it up or manipulate it down but trying instead to minimise situations of extreme volatility and intervening in situations when the exchange rate becomes extremely volatile in either direction is the right one,” he said.

The advantage to Micro Small and Medium Enterprises (MSMEs) should come from their capabilities, cost-effectiveness and innovative ideas rather than from undervaluation, he pointed out. MSMEs can act as a means of social empowerment where disadvantageous sections of society can be empowered with money and wealth.

Analysis

What is Exchange Rate Undervaluation – The situation of a currency whose value on the exchange market is lower than is believed to be sustainable. This may be due to a pegged or managed rate that is below the market-clearing rate, or, under a floating rate, it may be due to speculative capital outflows.

Nominal vs Real Exchange Rate – The nominal exchange rate is the rate at which currency can be exchanged. If the nominal exchange rate between the dollar and the rupee is 69, then one dollar will purchase 69 rupees. Exchange rates are always represented in terms of the amount of foreign currency that can be purchased for one unit of domestic currency.

While the nominal exchange rate tells how much foreign currency can be exchanged for a unit of domestic currency, the real exchange rate tells how much the goods and services in the domestic country can be exchanged for the goods and services in a foreign country. The real exchange rate is represented by the following equation: real exchange rate = (nominal exchange rate X domestic price) / (foreign price).

Source: TheHindu, SparkNotes

 

National Capital Goods Policy

The Government has unveiled the National Capital Goods Policy. Anant Geete, Minister, Heavy Industry and Public Enterprise unveiled the policy during the Make in India Week programme and said it was part of the government’s commitment to turn the country into a world class hub for capital goods.

Objectives of the policy – The objective of the policy is increasing production of capital goods from ~Rs. 230,000 Cr in 2014-15 to Rs. 750,000 Cr in 2025 and raising direct and indirect employment from the current 8.4 million to ~30 million. The policy envisages increasing exports from the current 27% to 40% of production while increasing share of domestic production in India’s demand from 60% to 80%, thus making India a net exporter of capital goods. The policy also aims to facilitate improvement in technology depth across sub-sectors, increase skill availability, ensure mandatory standards and promote growth and capacity building of MSMEs.

Aims of the policy – The aim of the policy is to create game changing strategies for the capital goods sector. Some of the key issues addressed include Availability of Finance, Raw Material, Innovation and Technology, Productivity, Quality and Environment Friendly Manufacturing Practices, Promoting Exports and Creating Domestic Demand.

Policy Recommendations – Key policy recommendations include strengthening the existing scheme of the DHI on enhancement of competitiveness of Capital Goods Sector by increasing budgetary allocation for increasing scope to further boost global competitiveness in various sub sectors of CG. The aim is to enhance the export of Indian made capital goods through  a ‘Heavy Industry Export & Market Development Assistance Scheme (HIEMDA)’. Launching a Technology Development Fund , upgrading the existing and setting up new testing & certification facilities, making standards mandatory in order to reduce sub-standard machine imports are other measures envisaged. It also aims to provide opportunity to local manufacturing units by utilising their installed capacity and launching scheme of skill development for CG sector.

Analysis

What are capital Goods?  –  A capital good is a durable good (one that does not quickly wear out) that is used in the production of goods or services. Capital goods are one of the three types of producer inputs, the other two being land and labor, which are also known collectively as primary factors of production.

In terms of economics one can consider capital goods to be tangible. They are used to produce other goods or services during a certain period of time. Machinery, tools, buildings, computers, or other kind of equipment that is involved in production of other things for sale represent the term of a Capital good.

Capital goods, often called complex products and systems (CoPS) play an important role in today’s economy. Aside from allowing a business to create goods or provide services for consumers, capital goods are important in other ways. In an industry where production equipment and materials are quite expensive, they can be a high barrier to entry for new companies. If a new business cannot afford to purchase the machines it needs to create a product, for example, it may not be able to compete as effectively in the market.

Therefore a robust capital goods industry is must for any form of manufacturing driven growth.

Source: PIB, Wikipedia

 

Djibouti Myanmar and Sri Lanka anchor Silk Road

Base in Djibouti

Djibouti’s President Ismail Omar Guelleh has been reported by Reuters saying that China will soon commence work on the naval base in Djibouti.

Djibouti would become an ideal location for securing sea lanes, in the vicinity, which radiate from this area towards Africa’s Indian Ocean coastline and the Arabian Sea.

China says it is establishing naval “support facilities” in Djibouti, which has the ambition of emerging as another Singapore, leveraging its position at the intersection of busy shipping lanes.

The Chinese facility will be established at Doraleh Multi-Purpose Port —a $590 million project that is being steered by China Merchants Holdings International in the south of the country. The Chinese Navy would use one of the berths.

Last month, Mr. Guelleh signed a deal with China to build a new free trade zone, whose first phase would open later this year. China is also providing the bulk of the $12.4 billion that Djibouti intends to invest by 2020.

Base in Myanmar

China has also quietly signed a deal to develop an Industrial Park and a deep water port in Kyaukphyu in Myanmar. The facility in the Bay of Bengal amplifies Beijing’s pitch to deepen its stakes in Myanmar in order to lower its dependence on the Straits of Malacca-a strategic commercial channel, dominated by the U.S. sixth fleet.

Xinhua has reported that a consortium led by the China International Trust and Investment Corporation (CITIC), a construction company, has won the bid towards the end of last year to develop the two projects.

Base in Sri Lanka

Sri Lanka has added another dimension to China’s Maritime Silk Road (MSR). The revival of the stalled Colombo port city project under new conditions, and the establishment of an SEZ in Humbantota—both projects feeding into the gradual unfolding of the ambitious MSR.

Analysis

Horn of Africa – The Horn of Africa denotes the region containing the countries of Djibouti, Eritrea, Ethiopia, and Somalia. Djibouti is strategically located on the junction of the Indian Ocean and the Red Sea—a gateway to the Suez Canal via the Strait of Bab Al-Mandab.

Horn of Africa

What is the Maritime Silk Road? – The 21st century Silk road which goes by the name ‘One Road One Belt’ is a Chinese initiative to reconnect with the European and African countries by reviving the ancient silk road and opening new ones through infrastructure investment. The main objective is to increase trade and economic cooperation to boost domestic growth.

The Maritime Silk Road (MSR) idea is part of this wider attempt by China to construct multiple lines of communication to its economic heartland in eastern China since the early 2000s. The underlying aim of such a geostrategy is to also develop inner Chinese provinces and shape China’s regional periphery by exercising economic, political and cultural Influence.

Source: TheHindu, IDSA

 

Universe’s primordial Soup

Scientists have recreated the universe’s ‘primordial soup’ in miniature format by colliding lead atoms with extremely high energy in the world’s most powerful particle accelerator, the Large Hadron Collider (LHC) at CERN.

The primordial soup is a so-called quark-gluon plasma and researchers from the Niels Bohr Institute in Denmark, among others, have measured its liquid properties with great accuracy at the LHC’s top energy.

Analysis

What is Big Bang? – The Big Bang Theory is the leading explanation about how the universe began. At its simplest, it talks about the universe as we know it starting with a small singularity, then inflating over the next 13.8 billion years to the cosmos that we know today.

Because current instruments don’t allow astronomers to peer back at the universe’s birth, much of what we understand about the Big Bang Theory comes from mathematical theory and models. Astronomers can, however, see the “echo” of the expansion through a phenomenon known as the cosmic microwave background.

What is the Large Hadron Collider? – The Large Hadron Collider (LHC) is the most powerful particle accelerator ever built. Based at the European particle physics laboratory CERN, near Geneva in Switzerland, it is the world’s largest laboratory and is dedicated to the pursuit of fundamental science.
Source: TheHindu, Space

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