Current Affairs (27th April 2021)

GDP growth or Inflation

Context:

• 2020 nationwide lockdown stopped all economic activity which led to the decrease in GDP growth but what would happen to the prices in the economy and how will the RBI react?

About:

• Prices could go up or down, and they could go up or down at an increasing or decreasing rate.In general, in a growing economy, prices go up and this is measured by the inflation rate.
• Inflation is the rate at which the general price level increases between one time period to another. So if the price level — captured by an index such as the Consumer Price Index (basically a basket of goods) — goes up by 10% in April this year over what it was in April last year, the inflation rate is 10%.
• Sometimes, prices fall over the past year. In such a case, we call it deflation. It is like negative inflation.But this is a rare occurrence.
• Sometimes the inflation rate itself may slow down. Suppose prices increase by 10% in January (over last January), 5% in February (over last February) and 2% in March (over last March) — that is referred to as disinflation, which signals a decline in the inflation rate.

What will happen in India?

• Following options are available:
  • Price level fall
  • Price level rise
  • Rise at a slowing pace
  • Rise at a progressively increasing pace (galloping inflation)
• Prices could fall because in a lockdown, the overall demand for goods and services in the economy would collapse. Add to that the effect of people losing jobs, or facing salary cuts, and thus they will demand less of even the most essential items while cutting down all discretionary expenses (such as buying a fancy new phone or going for a vacation).
• But prices could have also risen sharply because the lockdown could have completely disrupted the supply chains. Everything from onion to breakfast cereal to cars to computers could either not be produced or not transported to you because of the lockdown.
• A sudden crunch in supply could spike prices, especially of food and other essential commodities, notwithstanding the fall in demand.
• Whether India had deflation (due to the collapse of demand) or a sharp spiralling of inflation (due to a supply crunch) was not just of academic interest. All of this mattered because India’s Reserve Bank of India, is mandated by law to target the inflation rate.

What is the policy significance of this?

• India’s growth was decelerating before the onset of the Covid pandemic and as such, right through 2019, the RBI was in the mode to cut interest rates and incentivise economic activity.
• For the most part, it did not have to worry much about retail inflation at the time. The RBI doubled down on this resolve when the economy got hit by the Covid pandemic in March-end last year.
• Right through the past financial year — April 2020 to March 2021 — the RBI kept signalling that it would support growth and in doing so allowed the inflation rate to stay out of its mandated range.
• In other words, the RBI accorded primacy to boosting GDP growth instead of meeting its legal requirement of maintaining inflation within the mandated range.
• As and when the economy revives, the RBI would revisit its stance and re-start (in a manner of speaking) targeting inflation instead of growth. Indian economy had posted a very sharp recovery in the second half of the past financial year —from October 2020 to March 2021
• In April, Covid had disrupted India’s already iffy growth trajectory and forced the RBI to choose between boosting growth and containing inflation. Not only did retail inflation continue to be high in March but even the wholesale inflation spiked to over 7%.
• RBI revised upwards its inflation forecast for the year, it declared — once again — that it will continue to support growth for as long as required.

Why is inflation increasing?

• High international commodity prices and increased logistics costs are being felt across manufacturing and services. Finally, inflation expectations of urban households one year ahead showed a marginal increase over the three months ahead horizon.
• There is one more factor that may contribute to rising inflation later on in the year: Monsoon.According to a Crisil report, “in the past 20 years, only once has the Indian economy seen three good monsoon years in a row”. A bad monsoon could spike food inflation, which contributes the most to retail inflation.
• Impact: An iffy growth coupled with persistently high inflation could further weaken the Indian currency and, in doing so, make imports such as crude oil and other commodities, even costlier, thus fuelling domestic inflation further.
• The simplest solution to all woes of the Indian economy lies in vaccinating as fast as possible while saving the lives of those who are critically ill.

Military Expenditure

Context:

• Latest military expenditure database has been published by the Stockholm International Peace Research Institute (SIPRI), which tracks military expenditure and arms trade globally.

Findings:

• India was the third largest military spender in the world in 2020, behind only the US and China. All three countries saw their military spending go up compared to 2019, even during a pandemic year.

• Military spending in Asia and Oceania “was 2.5 per cent higher in 2020 than in 2019 and 47 per cent higher than in 2011, continuing an uninterrupted upward trend since at least 1989” and attributed the rise “primarily to increases in spending by China and India, which together accounted for 62 per cent of total military expenditure in the region in 2020”.
• The other top spenders included Russia with $61.7 billion, the UK at $59.2 billion, Saudi Arabia at $57.5 billion, followed by Germany and France at just under $53 billion each.
• The total “global military expenditure rose to $1981 billion last year, an increase of 2.6 per cent in real terms from 2019” and the “five biggest spenders in 2020, which together accounted for 62 per cent of global military expenditure”.
• 6 per cent increase in world military spending came in a year when the global GDP shrank by 4.4 per cent (October 2020 projection by the International Monetary Fund), largely due to the economic impacts of the Covid-19 pandemic.
• As a result, “military spending as a share of GDP—the military burden—reached a global average of 2.4 per cent in 2020, up from 2.2 per cent in 2019,” which “was the biggest year-on-year rise in the military burden since the global financial and economic crisis in 2009”.

PM CARES

Context:

• The PM CARES Fund has approved the allocation of funds for setting up 551 Pressure Swing Adsorption medical oxygen generation plants at public health facilities across the country.

Pressure Swing Adsorption (PSA):

• It is a technology used to separate some gas species from a mixture of gases under pressure.
• It operates at near-ambient temperatures (temperature relating to the immediate surroundings) and differs significantly from cryogenic distillation techniques of gas separation.
• Cryogenic separation is a commercial process that takes place at very low temperature.

Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)

• It was created on 28 March 2020, following the COVID-19 pandemic.
• It will be used for relief efforts against the corona virus outbreak and similar pandemic like situations in the future.
• Chairman is the Prime Minister of India. He/she has the power to nominate members.
• The other members are the Defence Minister, Home Minister and Finance Minister.

Cybercrime Volunteer

Context:

• The Union Home Ministry has said it does not maintain a centralised list of volunteers enrolled under the cybercrime volunteer programme since the police is a “State subject” under the Seventh Schedule of the Constitution.

Cyber Volunteer Programme:

• The Ministry, through its cybercrime grievance portal, cybercrime.gov.in, aims to raise a group of “cybercrime volunteers” to flag “unlawful content” on the Internet.
• A digital rights group, the Internet Freedom Foundation (IFF), has said the programme enables a culture of surveillance and could create potential social distrust by encouraging civilians to report the online activities of other citizens.
• In response to a RTI application on the total number of volunteers who have applied under the Cybercrime Volunteers Programme of the National Cybercrime Reporting Portal, the Ministry said the information could be sought directly from the respective States and Union Territories.
• The programme is expected to include 500 volunteers, 200 cyber awareness promoters and 50 cyber experts.
• The Cybercrime Volunteer Framework has been rolled out as a part of cyber hygiene promotion to bring together citizens to contribute to the fight against cybercrime in the country and assist State/UT LEAs in their endeavour to curb cybercrimes.