Daily Current Affairs – 2020
Topic: For Prelims and Mains
GDP Growth 2020
2nd Sep 2020
Why in News?
According to the recent National Statistical Office (NSO) data, India’s Gross Domestic Product (GDP) growth contracted by 23.9% in the first (April-June) quarter of 2020 compared to the same period (April-June) in 2019.
- It is the sharpest contraction since India started reporting quarterly data in 1996.
- Gross Value Added (GVA) growth rate also declined by 22.8% in the first quarter of this financial year.
GDP is a measure of economic activity in a country. It is the total value of a country’s annual output of goods and services. It gives the economic output from the consumers’ side.
GVA is the sum of a country’s GDP and net of subsidies and taxes in the economy.
Construction, manufacturing, trade, hotels and other services and mining were the worst-hit sectors, recording contractions of 50.3%, 39.3%, 47.0% and 23% respectively.
- This reflects the unprecedented suspension of economic activity in the first quarter of this fiscal due to the pandemic and the series of lockdowns.
Only the agriculture sector showed a positive growth at 3.4%.
Factors of GDP Contraction:
- In any economy, the GDP growth is generated from one of the four engines of growth. i.e. private consumption, demand generated by private sector businesses, demand generated by government and exports.
- Private consumption has fallen by 27%.
- It is the biggest engine that drives the Indian economy.
- Investment by private sector businesses have fallen by 47%. It is the second biggest engine.
- The net export demand has turned positive in this first quarter because India’s imports have crashed more than its exports.
- While on paper, this provides a boost to overall GDP, it also points to an economy where economic activity has plummeted.
- The government’s expenditure went up by 16% but this was nowhere near enough to compensate for the loss of demand in other sectors (engines) of the economy.
On Jobs: The sectors which have contracted (e.g. construction, manufacturing etc.) are the sectors that create the maximum new jobs in the country.
Therefore, in a scenario where each of these sectors are contracting, would lead to more and more people either losing jobs (decline in employment) or failing to get one (rise in unemployment).
On Informal Sector: The real extent of the economic crisis is expected to be deeper given that the small-scale sector and informal sector is more affected than the organised sector, but is not reflected in the quarterly GDP numbers.
- In the informal sector, factory output figures are used to extrapolate the trends in the growth.
On Banks: The looming defaults in the banking sector after the moratorium ends will add to the banking sector woes, impacting bank’s lending.
Also, there are worries regarding household debt, with incomes stagnating, salary cuts and job losses.
On Economy: With GDP contracting by more than what most observers expected, it is now believed that the full-year GDP could also worsen.
- A fairly conservative estimate would be a contraction of 7% for the full financial year.
- As the incomes of individuals fall sharply, they reduce consumption. When consumption falls sharply, businesses stop investing. Since both of these are voluntary decisions, there is no way to force people to spend more and/or coerce businesses to invest more.
- The same logic holds for exports and imports as well.
- Therefore under these circumstances, there is only one engine that can boost GDP, that is the government.
- Only when the government spends more — either by building roads and bridges and paying salaries or by directly handing out money — can the economy revive in the short to medium term.
- If the government does not spend adequately enough then the economy will take a long time to recover.
- The Indian Government can also adopt the measures suggested by McKinsey Global Institute in which an additional 3.5 % of the GDP can be raised by the government. This includes:
Global Shift: Global trends such as digitization and automation, shifting supply chains, urbanization, rising incomes and demographic shifts, and a greater focus on sustainability, health, and safety can become the hallmarks of the post pandemic economy.
Higher Productivity through Privatisation: Privatisation of 30 or so of the largest state-owned enterprises to potentially double their productivity.
Government also had a focus on privatisation under the Atmanirbhar Bharat Package.
Improvement in Infrastructure: India needs to unlock supply in land markets to reduce land costs by 20-25%, enable efficient power distribution to reduce commercial and industrial tariffs by 20-25%; and improve the ease and reduce the cost of doing business.
Efficient Financing: Streamlining fiscal resources can deliver USD 2.4 trillion in investment while boosting entrepreneurship by lowering the cost of capital for enterprises by about 3.5 percentage points.
Bad Bank: Creation of a ‘bad bank’ can take care of the inoperative assets.
Fiscal Cliff & Fiscal Drag:
About the Fiscal Drag:
Fiscal drag happens when the government’s net fiscal position fails to cover the net savings desires of the private economy, also called the private economy’s spending gap.
- The first point to remember about fiscal drag is that government will get more tax revenue (mainly income tax) at the time of fiscal drag.
- Fiscal drag is the tendency of revenue from taxation to rise as a share of GDP in a growing economy. Fiscal drag may happen due to inflation or fiscal policies of the government.
Fiscal drag is normally associated with progressive tax rates. Because of progressive taxes, the government will get more taxes when the economy is booming. This also helps slow the rate of increase in demand, reducing the pace of growth, making it less likely to result in higher inflation.
Thus fiscal drag is an automatic stabilizer, as it acts naturally to keep demand stable.
Also note that fiscal drag means greater tax burden for people. And the greater tax burden can lead to less consumer spending.
About the Fiscal Cliff:
The fiscal cliff refers to a combination of expiring tax cuts and across-the-board government spending cuts that was scheduled to become effective December 31, 2012.
The story of Fiscal Cliff starts with the subprime crisis. Hence we covered that first.
- US Congress (the legislative body, similar to Indian Parliament) had passed many laws during the recession period calling for tax cuts, in-order to boost economic activity.
- But there was a time period specified for these exemptions. Many of these exemptions expired at midnight on December 31, 2012.
So period from Jan 1, 2013, was supposed to be a period of high taxes. A sudden condition of high taxes and reduced public expenditure after a long period of tax cuts and liberal public expenditure is known as Fiscal Cliff.
In the case of US, it was more a technical or policy issue, but to avoid this policy issue, the two houses of the US congress had to reach a consensus, which they didn’t reach initially.
Global Intellectual Property Index: 2020
Topic: For Prelims and Mains
Why in News?
International Intellectual Property Index is released by Global Innovation Policy Center or GIPC of the US Chambers of Commerce.
India has been ranked 40th out of 53 countries on a global intellectual property index 2020.
- India was placed at 36th position among 50 countries in 2019.
- India’s score, however, increased from 36.04 per cent (16.22 out of 45) in 2019 to 38.46 per cent (19.23 out of 50) in 2020, a 2.42 per cent jump in absolute score.
- However, India’s relative score increased by 6.71 per cent.
- Since the release of the 2016 National IPR Policy, India has improved the speed of processing for patent and trademark applications, increased awareness of IP rights among Indian innovators and creators, and facilitated the registration and enforcement of those rights.
- The Index specifically highlights a number of reforms over the last year that strengthen India’s overall IP ecosystem.
- According to GIPC’s report India also continues to score well in the Systemic Efficiency indicator, scoring ahead of 28 other economies in these indicators.
- To continue this upward trajectory, much work remains to be done to introduce transformative changes to India’s overall IP framework and take serious steps to consistently implement strong IP standards.
GIPC has identified several challenges for India, prominent among them being-
- Patentability requirements,
- Patent enforcement,
- Compulsory licensing,
- Patent opposition,
- Regulatory data protection,
- transparency in reporting seizures by customs,
- Singapore Treaty of Law of TMs
- Patent Law Treaty.
Why in News?
It is a Handicrafts Exhibitions for promotion of Geographical Indication (GI) Crafts and heritage of India has recently organized by Ministry of Textiles.
- It is a thematic Exhibition in various parts of the country through the Office of Development Commissioner (Handicrafts).
- The exhibitions are planned in various major cities like Bengaluru, Mumbai, Kolkata and Chennai.
- The exhibitions sponsored by Export Promotion Council for Handicrafts (EPCH).
- The GI tag is used on handicrafts which correspond to a specific geographical location or origin (e.g., a town, region, or country).
As on August 2019, 178 GI handicraft products were registered from all over India.
Few of the exhibits are as follows
- Mysore rosewood inlay
- Channapatna lacquerware
- Dharwad kasuti embroidery
- Kolhapur chappal
- Molakalmur handblock printing
- Ananthapur leather puppet
- Thrissur screwpine
- Vishakapatna lacquerware
- Sandur lambani embroidery
- Jodhpur terracota
- Jaipur handprinted textile
- Medinipur mat weaving
- Birbhum artistic leather