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Finance Minister Nirmala Sitharaman exuded confidence that the States will sign up as early as April to avail themselves of the ₹1.3 lakh crore of interest-free loans offered to them in the Union Budget, 2023-24 for capital expenditure, much faster than they did in the current financial year.
This 50-year interest-free loan window constitutes a critical part of the Centre’s ambitious ₹10 lakh crore capex push for the coming year, and the Finance Minister asserted that the scheme’s outlay was raised from ₹1 lakh crore allocated this year only because the States had shown interest.
Data of the scheme released in the Economic Survey tabled in Parliament this week appeared to suggest those funds had not been fully tapped by the States.
States
Aero India 2023: LCA Tejas will be the star attraction at the India Pavilion (Page no. 7)
(GS Paper 3, Defence)
A full-scale LCA Tejas aircraft in Final Operational Clearance (FOC) configuration will be at the centrestage of India Pavilion at Aero India 2023, which is being held at the Air Force Station Yelahanka in Bengaluru between February 13 and 17.
The Ministry of Defence said the 14th Edition of Aero India will have a separate India Pavilion which is based on Fixed Wing Platform theme to showcase India’s growth in the fixed wing area, including the future prospects for the same.
The India Pavilion will further showcase the growth of India in developing an eco-system for Fixed Wing platform, which includes the demonstration of various structural modules, simulators, systems (LRUs) etc, of LCA-Tejas aircraft being produced by Private Partners.
There will also be a section for Defence space, New Technologies and a UAV section that will give an insight about the growth of India in each sector.
LCA Tejas is a single-engine, lightweight, highly agile, multi-role supersonic fighter. It has quadruplex digital fly-by-wire Flight Control System (FCS) with associated advanced flight control laws.
The aircraft with delta wing is designed for air combat and offensive air support with reconnaissance and anti-ship as its secondary roles.
Editorial
Trading more within Asia makes economic sense (Page no. 8)
(GS Paper 3, Economy)
South Asia should now have a re-look at regional trade across Asia after the warning by the International Monetary Fund (IMF) on January 31, 2023, that global trade would slow down from 5.4% in 2022 to 2.4% in 2023.
This forecast is optimistic with polycrisis risks such as an escalating Russia-Ukraine war, a decoupling from global supply chains and tackling variants of the COVID-19 virus.
A recently published paper in an IMF book, “South Asia’s Path to Resilient Growth”, argues that a strong base exists for South Asia trading more with dynamic East Asia: since the 1990s, South Asia-East Asia trade has gathered pace, which is linked to India’s trade re-aligning towards East Asia through its ‘Look East’ and ‘Act East’ policies, South Asia adopting reforms, and also China offshoring global supply chains to Asia.
The total merchandise trade between South Asia and East Asia (in dollar terms) grew at about 10% annually between 1990 and 2018 to $332 billion in 2018, and could reach about $500 billion looking ahead.
The handful of free trade agreements (FTAs) linking economies in South Asia with East Asia may rise to 30 by 2030.
In addition, regional trade in Asia is recovering after the COVID-19 pandemic and has opened opportunities for South Asia to participate in global value chains and services trade.
First, regional trade integration across Asia can be encouraged by gradually reducing barriers to goods and services trade. Import tariffs and murky non-tariff measures have risen in several South Asian economies since the 2008 global financial crisis — and never reversed.
To get beyond this, South Asia’s trade opening should be calibrated with tax reforms as trade taxes account for much of government revenue in some economies.
Adjustment financing to losing sectors to reallocate factors of production and re-training of workers is also essential to promote gains from trade and mitigate income inequality.
Second, improve the performance of special economic zones (SEZs) and invest in services SEZs to facilitate industrial clustering and exports.
South Asia has over 600 SEZs in operation, in Kochi (India), Gwadar (Pakistan), Mirsarai (Bangladesh) and Hambantota (Sri Lanka).
Text & context
Putting Budget 2023 into perspective (Page no. 10)
(GS Paper 3, Economy)
As per the latest economic survey, the Indian economy is set to attain a real GDP growth of 7% in 2022-23, with both the retail and wholesale inflation rates falling below 6% in the months ahead.
The Union Budget presented in this backdrop assumes a nominal GDP growth of 10.5% in 2023-24, which implies a projected inflation rate of just 4%, given the economic survey’s baseline real GDP growth projection of 6.5%.
This reflects official optimism regarding the Indian economy remaining in a macroeconomic sweet-spot of declining inflation and high growth, even as the rest of the world experiences a growth slowdown alongside sticky inflation.
The economic survey has predicted a fresh cycle of investment-led growth led by the private corporate sector, supported by increasing credit from the banks.
Rather than relying upon such rosy predictions, however, the Finance Minister has announced a sharp increase in capital expenditure in the Union Budget, seeking to “crowd-in” private investment especially in infrastructure sectors like railways, roads and power plants.
On the other hand, subsidies on food, fertiliser, petroleum and interest subsidies, along with outlays on welfare schemes like the MGNREGA have been reduced quite significantly, indicating higher prices of cereals, LPG cylinders and fertilisers like urea in the days to come. The overall impact of such expenditure switching may turn out to be inflationary.
A longer-term assessment of the Union Budgets is presented in Table 1, which enables us to compare the present government’s fiscal strategy in the post-pandemic period with the fiscal record of the UPA-II and NDA-I governments.
As can be seen from Table 1, while the total central government expenditure (annual average) fell from 15% of the GDP during the UPA-II era to below 13% during the NDA-I government’s tenure, the recession precipitated by the COVID-19 pandemic forced a substantial increase in total expenditure to 17.7% and 16% of the GDP, in 2020-21 and 2021-22, respectively. Total expenditure has reduced moderately since then, to around 15% of GDP.
While capital expenditure has been enhanced significantly since 2020-21, subsidies on food, fertiliser and petroleum have been reduced from 2021-22.
Defence expenditure, which was 2% of the GDP on average under the UPA-II government Budgets and 1.6% of GDP under the NDA-I, has fallen to 1.5% of GDP in 2022-23.
News
CITES database reveals red sanders smuggling (Page no. 14)
(GS Paper 3, Environment)
The CITES trade database has recorded 28 incidents of red sanders confiscation, seizure and specimens from the wild being exported from India, a fact sheet prepared by TRAFFIC, a global wildlife trade monitoring organisation has revealed.
CITES (Convention on International Trade in Endangered Species of Wild Fauna and Flora) is an international agreement between governments, whose aim is to ensure that international trade in wild animals and plants does not threaten the survival of the species.
“These consignments were exported to China (53.5%), Hong Kong (25.0%), Singapore (17.8%) and the United States of America (3.5%) from 2016 to 2020,” the fact sheet said. Red Sanders (Pterocarpus santalinus), or red sandalwood, is an endemic tree species with distribution restricted to the Eastern Ghats of India. The species found in Andhra Pradesh and growing up to a height of 10 to 15 metres is reported to be one of India’s most exploited tree species, and is under severe pressure from illegal logging and harvesting. Under the foreign trade policy of India, the import of Red Sanders is prohibited, while export is restricted.
“India reported an export of more than 19,049 tonnes of logs. In comparison, the importing countries reported about 4,610 tonnes of logs, 127 tonnes of sawn wood, 20 tonnes of transformed wood and 980 kg of wood products, clearly indicating a discrepancy in reporting of red sanders trade,” the fact sheet said.
China remains the largest importer with more than 13,618 tonnes of the products, followed by Hong Kong (5,215 tonnes) and Singapore (216 tonnes).
Red sanders is under severe pressure from illegal logging and harvesting. Its heartwood is in demand in both domestic and international markets and is used to make furniture and handicrafts, while the red dye obtained from the wood is used as a colouring agent in textiles and medicines. Rampant illegal logging has been reported across its range State,” Merwyn Fernandes, coordinator of TRAFFIC’s India office.
Listed under Schedule IV of the Wildlife Protection Act and categorised as endangered as per the IUCN Red List, red sanders is a very slow-growing tree species that attains maturity in natural forests after 25-40 years.
“Enforcement agencies such as the Forest Department, Customs, Railways, Police, DRI (Directorate of Revenue Intelligence), and Coast Guard must coordinate efforts to curb Red Sanders trafficking by sharing information on hotspots and transit routes and real-time intelligence,” TRAFFIC has said. It has also called for forests within the species’ geographical range to be declared as “high conservation areas”.