The HINDU Notes – 05th August 2022 - VISION

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Friday, August 05, 2022

The HINDU Notes – 05th August 2022


📰 The coal mining protests in the Hasdeo Aranya region

Why has a private member resolution against coal mining in the Hasdeo forests been passed by the Chhattisgarh Legislative Assembly?

•On July 26, the Chhattisgarh Legislative Assembly unanimously passed a private member resolution urging the Centre to cancel allocation of all coal mining blocks in the ecologically sensitive area of Hasdeo Aranya.  

•Underneath the Hasdeo Aranya is a coalfield that comprises of 22 coal blocks. In 2010, the Centre categorised Hasdeo Aranya to be a “no-go” zone for mining. However, only a year later, the MoEF granted clearance for the mining. At present, of the 22 blocks, seven blocks have been allotted to different companies.

•The resolution isn’t expected to change the status quo. While the Congress says the onus is on the Centre to stop mining, the BJP has been asking the State government to withdraw the clearances it has issued to mine developers and operators. 

•The story so far: The Hasdeo Aranya forests are called the lungs of Chhattisgarh. Over the past one year, protests against mining in this region have erupted several times and some still continue to sit-in demanding a complete stop to mining. Amidst this, on July 26, the Chhattisgarh Legislative Assembly unanimously passed a private member resolution urging the Centre to cancel allocation of all coal mining blocks in the ecologically sensitive area.

What is a private member resolution?

•According to Chakshu Roy, who heads the legislative and civic engagement initiatives at PRS Legislative Research, an MLA who is not a Minister — whether she happens to be from the ruling party or not — is a private member. A private member resolution can be brought in by a private member and if passed, it becomes an expression of what the House thinks. This is different from a private member bill which would become law in case of approval.

•Such private member resolutions were passed by the State Assemblies of Punjab and Kerala, during the farm law agitation, where both state legislatures had expressed their displeasure against the then proposed (now withdrawn) farm laws. In the given case, the Chhattisgarh Assembly has passed a resolution urging the Centre to cancel allocation of all coal mining blocks in the Hasdeo region.

Who moved the resolution and why?

•Dharmjeet Singh, an MLA who represents Lormi, a segment of the Bilaspur Lok Sabha constituency introduced the resolution. Mr. Singh is one of the three MLAs from the Janata Congress Chhattisgarh (J) or JCC(J). The JCC(J) is a party founded by former Chief Minister Ajit Jogi and is currently being led by his son, Amit Jogi, and has three MLAs in the current Assembly. Mr. Singh has been a vocal supporter of the protests going on in the Hasdeo region and had also tried to move the resolution in the last Assembly session. With Assembly elections scheduled next year, Mr. Singh’s party is also looking to ride on the popular and intensifying anti-mining sentiments, say those from other parties.

What is the importance of the Hasdeo-Aranya region?

•The Hasdeo Aranya (Aranya means forest) lies in the catchment area of the Hasdeo river and is spread across 1,878 sq km in North-Central Chhattisgarh. The Hasdeo river is a tributary of the Mahanadi river which originates in Chhattisgarh and flows through Odisha into the Bay of Bengal. The Hasdeo forests are also the catchment area for the Hasdeo Bango Dam built across the Hasdeo river which irrigates six lakh acres of land, crucial to a State with paddy as its main crop. Besides, the forests are ecologically sensitive due to the rich biodiversity they offer and due to the presence of a large migratory corridor for elephants.

When did the controversy surrounding coal mining start?

•Underneath the Hasdeo Aranya is a coalfield that comprises of 22 coal blocks. In 2010, the Centre categorised Hasdeo Aranya to be a “no-go” zone for mining. It ruled out mining in any of these blocks. However, only a year later, the Ministry of Environment, Forest and Climate Change (MoEF) granted clearance for the mining for one coal block. At present, of the 22 blocks, seven blocks have been allotted to different companies, says the resolution.

•Of these, two — the Parsa East Kete Basan (PEKB) and Chotia (I and II) — are operational. The PEKB Phase I has been completely mined while there has been local opposition to mining and deforestation in Parsa, PEKB Phase II and Kete Extension — all three allotted to the Rajasthan Rajya Vidyut Utpadan Nigam Ltd (RRVUNL).

•After the gram sabhas opposed mining in the Madanpur South and Gidmudi Paturia blocks that were allotted to the Andhra Pradesh Mineral Development Company (APMDC) and Chhattisgarh State Power Generation Company (CSPGC) respectively, clearances were withdrawn. Mr. Singh’s resolution notes that mining activities are halted in all five of these blocks.

•Four other blocks had been listed for auction by the Centre but were taken off the list after the State government wrote a letter requesting the Centre to not allow mining in these blocks located in the catchment areas of the two important rivers Hasdeo and Mand. In his resolution, Mr. Singh has urged the State government to use the same principle to stop mining in the already allocated Hasdeo coal blocks where no activity has started thus far. He suggested that these companies may be allotted coal blocks elsewhere in Chhattisgarh or in rest of the mining-rich areas in the country.

Will mining stop after the resolution is passed?

•Despite the members of both the ruling Congress and the principal Opposition BJP — that is in power at the Centre — adopting it, the resolution isn’t expected to change the status quo. While the Congress says the onus is on the Centre to stop mining, the BJP has been asking the State government to withdraw the clearances it has issued to mine developers and operators (MDOs) who handle all mining activities on behalf of the companies that hold the mining lease. Mr. Singh said in his speech that due to mining in PEKB and Parsa, three lakh trees will be felled which would be detrimental to Chhattisgarh. While urging the Centre to stop mining, he also mentioned the clearances provided by the State government such as the final clearance from the forest department and those under the Air Pollution Act and the Water Pollution Act.

•During the discussion on the private member resolution, Chief Minister Bhupesh Baghel said it was for the Centre to decide to whom a coal block should be allocated and that the State government had no role in it. Activists, however, say that the clearances mentioned in Mr. Singh’s speech are like a veto power held by the State government that can stop mining activities from starting. They also reiterate, as did Mr. Singh in his speech, about Congress President Rahul Gandhi’s promise during a visit to Madanpur village in 2015 where he assured that he would fight for the local tribals opposing coal mining.

📰 Sop or welfare debate

Steps to limit freebies or to discourage populism should come through Parliament

•A general concern over ‘freebies’ pushing the economy to ruin or unviable pre-election promises adversely affecting informed decision-making by voters seems reasonable. However, few will disagree that what constitutes ‘freebies’ and what are legitimate welfare measures to protect the vulnerable sections are essentially political questions for which a court of law may have no answer. In this backdrop, the Supreme Court’s decision to form a body of stakeholders to examine the issue raises the question whether the legislature can be bypassed on such a far-reaching exercise. The Chief Justice of India, N.V. Ramana, heading a Bench hearing a petition filed in public interest against the distribution or promise of ‘freebies’ ahead of elections, has made it clear that the Court is not going to issue guidelines, but only ensure that suggestions are taken from stakeholders such as the NITI Aayog, Finance Commission, Law Commission, RBI and political parties. All these institutions, he has said, can submit a report to the Election Commission of India (ECI) and Government. A suggestion that Parliament could discuss this issue was met with scepticism by the Bench, which felt that no party would want a debate on this, as all of them support such sops. The Bench also disfavoured the ECI preparing a ‘model manifesto’ as it would be an empty formality. The Court’s concern over populist measures seems to resonate with the Government too, as the Solicitor-General submitted that these distorted the voter’s informed decision-making; and that unregulated populism may lead to an economic disaster.

•The Supreme Court, in S. Subramaniam Balaji vs Government of Tamil Nadu (2013) addressed these questions and took the position that these concerned law and policy. Further, it upheld the distribution of television sets or consumer goods on the ground that schemes targeted at women, farmers and the poorer sections were in furtherance of Directive Principles; and as long as public funds were spent based on appropriations cleared by the legislature, they could neither be declared illegal, nor the promise of such items be termed a ‘corrupt practice’. It had, however, directed the ECI to frame guidelines to regulate the content of manifestos. The ECI subsequently included in its Model Code of Conduct a stipulation that parties should avoid promises “that vitiate the purity of the election process or exert undue influence on the voters”. It added that only promises which were possible to be fulfilled should be made and that manifestos should contain the rationale for a promised welfare measure and indicate the means of funding it. Any further step, such as distinguishing welfare measures from populist sops and pre-election inducements, or adding to the obligations of fiscal responsibility and fiscal prudence ought to come from the legislature. That politicians invariably back ‘freebies’ should be no reason to bypass Parliament.

📰 Dialling right

Government should ensure that exchequer and the public benefit from spectrum sale

•India’s latest auction of telecommunications spectrum, including of bands ideally suited for offering fifth generation (5G) technology services, drew bids exceeding a record ₹1.5 lakh crore in a clear sign that the industry is on the path to recovery. As expected, Reliance Jio emerged as the top bidder, cornering 48% of the airwaves that were acquired by offering more than ₹88,000 crore in total. Bharti Airtel bid just under half that amount for 39% of the spectrum sold, while the most debt-laden Vodafone Idea came in a distant third by committing close to ₹19,000 crore for about 12% spectrum. And in an interesting development that will need close watching, the deep-pocketed, and aggressively expanding Adani Group made its first foray into the telecom space by successfully bidding for a very small but targeted quantum of spectrum — ostensibly for captive use — in the highly sought after 26 GHz band that is considered ideal for 5G services. While the Government has netted just over a third of the ₹4.3 lakh crore reserve price it had set for the spectrum on offer, the fact that 71% of the airwaves on the block won bids is testament to the improvement in the industry’s health. The Centre’s move last year to ease regulatory norms around payment of dues, including a four-year moratorium on outstanding payments and the redefinition of adjusted gross revenues to prospectively exclude non-telecom earnings, allowed service providers a breather and helped them attract investor interest as also spread liabilities over a staggered period.

•Separately, industrywide increases in tariffs also helped lift average revenue per user at the telecom service providers, boosting margins. The Government’s policy decision to return bank guarantees to telcos must have helped improve their eligibility for debt – crucial for capital expenditure. And with spectrum usage charges also binned, the enhanced flexibility likely allowed enthusiastic participation from all three private players, a far cry from when the very survival of Vodafone Idea was in doubt. However, the auction also offers crucial lessons. The high reserve price likely dampened enthusiasm for certain spectrum bands. While the 3.3 GHz and 26 GHz were snapped up at the reserve price in several service areas, the 600 MHz was left untouched, and 60% of the 700 MHz spectrum remained unsold. The latter is ideal for rural connectivity as well as signal penetration inside buildings in urban areas. If spectrum is seen as a precious national resource, the Government would do well to not let it lie unused and instead price it in an optimal manner so as to ensure that both the exchequer and the public at large, including in remote rural corners, benefit.

📰 Is the declining rupee a crisis or an opportunity?

There is an expectation of further depreciation, which can lead to further capital outflows

•The rupee’s steep slide to the 79-to-a-dollar range is bound to impact importers, widen the current account deficit (CAD) and increase India’s external debt burden. But how much of a problem is this going to be for the Indian economy, given that the rest of the world is facing economic challenges as well? Zico Dasgupta and Indranil Pan discuss whether the declining rupee presents a crisis or an opportunity, in a conversation moderated by Bharat Kumar K. Edited excerpts:

The declining rupee has several consequences. In sum, is it a crisis or an opportunity?

•Zico Dasgupta: This is a matter of concern because the question of opportunity arises when one talks about the positive impact of the declining rupee on trade balance and net exports. That seems to be limited for two reasons. First, despite depreciation in the nominal exchange rate, the real exchange rate has not really depreciated in recent times and that is what matters for questions of trade balance and exports. Second, in the last two-three decades, the sensitivity of exports has been weak as far as changes in the real exchange rate is concerned. The depreciation is concerning — not exactly on the lines of the instability we have seen in Sri Lanka or other developing countries, but because it adds to the inflationary pressure and squeezes the purchasing power of those whose incomes are not linked to the crisis.
Some predict CAD could rise to 4% of the GDP in the first half of this fiscal. Is this unhealthy or can we live with it?

•Indranil Pan: A broad indication that we are working with at this time is 3% CAD as a proportion of GDP with the assumption that oil is at about $110 per barrel. If oil is at $120, the CAD goes up to 3.3%. From the RBI (Reserve Bank of India)’s perspective, the moment CAD crosses 2.5%, red flags come up. More importantly, rather than only looking at the CAD, we need to find out whether we have adequate flows on the capital side to bridge the CAD. And if we do, then even if the CAD is at 3%, it might not be very strenuous for the economy. Currently, because of the changing landscape in terms of the monetary policy cycle globally, emerging market inflows have dried up. There are more outflows from emerging markets. So, the RBI has to sell dollars in the spot market to contain the depreciation. Depreciation pressures are relatively more contained than in 2013. I don’t mean it’s time to sleep over it; definitely, you need to see in what ways the capital flow can be improved — RBI has come out with certain policies on that — or determine how the current account gap can be closed by reducing imports. There can be a natural adjustment: the higher inflation and tighter monetary policy domestically would dampen local demand. So, non-oil, non-gold imports are expected to be softer. Fears of a global recession could also lead to a downward bias in crude oil prices; that could be positive for the current account. But global slowdown may also pull down exports and that is worrying from the CAD perspective.

•ZD: Right now, it’s not a crisis as serious as Sri Lanka’s, but it’s a matter of concern. Whenever the rupee or any currency starts depreciating, there is always an expectation of further depreciation, which can lead to further capital outflows. In that context, the central bank needs to keep an eye on the situation.

The RBI is said to be prepared to spend another $100 billion, if needed, to defend the rupee. If that happens, are we still in a healthy position?

•IP: In terms of how much reserves you need, there is no thumb rule to indicate that this is enough. Earlier, flows were adequate, the CAD was low and the RBI actually managed to mop up a lot of forex and built up reserves to about $635 billion. On the downside, again, there is no maximum extent to which you can reduce your forex reserves. But the RBI must watch the import cover of forex reserves; that has now fallen sharply as the import bill remains high and forex resources have depleted. The consequent impact on the rupee liquidity is another factor the RBI needs to watch.

•The critical issue for the rupee is not the level, it’s the volatility. If the depreciation pressure is gradual, in line with the fact that global monetary policy is tightening and other emerging market currencies are also weakening, the RBI shouldn’t mind allowing the rupee to also depreciate. We probably need to tell the corporates that they need a better hedging strategy when the currency is more or less stable or slightly appreciating. Currency depreciation is per se not bad, because it helps maintain the competitive advantage. Also, it helps keep a check on imports, because the moment currency depreciates, the prices of imported goods go up and that dampens the demand for importables. Of course, the demand for oil is relatively inelastic.

•ZD: There is hardly any way to say that if you spend X amount of dollars, one is safe... think about the East Asian experience in the mid-1990s. Those countries were doing pretty well on the external sector or the economy. When the crisis hit and the capital started flowing out, it was not only a question of depletion of forex reserves; it was the expectation of depletion of the reserves combined with currency depreciation which led to the instability. So, as long as the capital doesn’t stop flowing out, it will always be a matter of concern for us, no matter to what extent the forex reserve is depleted.

With a declining rupee, the value of our external debt has risen. Is that a concern?

•IP: It’s a tricky question. The point should be whether the ECB (external commercial borrowing) flows are hedged or not for currency depreciation. If they have been hedged, there is no problem. But if they have not, the amount to be repaid in terms of the rupee will have surely gone up. Companies will have to adjust it into the balance sheets and hence, we can see some squeeze in the balance sheets of some companies. Some companies may still look at hedging their near-term payables. In the Indian context, the bigger worry is short-term debt with residual maturity of three-six months. Depreciation next year may be slower, because the global atmosphere could have changed by then. And who knows? If the recession hits larger parts of the world, there can be a faster reversal of the current tightening than what we anticipate now.

•I’m not worried about the longer-term ECBs. Because if you take the average, the last 10 years have given a currency depreciation of only about 3.5-3.8%. The RBI has been trying to push ECBs by relaxing end-use and also increasing the interest rate cap for the ECBs. This will enable relatively lower rated companies to attempt to raise funds abroad.

Given the recent moves by the government and the RBI, have we exhausted policy options?

•ZD: No. Of course, it is an exogenous shock, but it’s not that there hardly exists any policy instrument to deal with that, at least for damage control. First, why is the falling rupee a problem? It could result in instability, which is not the case at this juncture, but there is also a question of inflationary pressure. If we look at the nominal exchange rate and the real exchange rate, the latter has remained stable in India in the last two years or so, despite the nominal exchange rate depreciating. This means domestic prices are rising faster than international prices. As there are domestic factors related to the question of prices, policy actions might come in there. For example, how to ease inflationary pressure in the agricultural [sector], how to compensate those whose incomes are getting squeezed due to higher prices because their incomes are not linked to the prices... The RBI needs to ensure a mix of exchange rate adjustment and depletion of forex reserves to maintain some stability in exchange rates.

What could the government or the RBI do differently if they could do it all over again?

•ZD: Till now, the policy measure has been exclusively dependent on monetary policy. That has its own limitations. The interest rate is expected to stabilise the inflation rate primarily. But the trend in the Indian economy would suggest that the relationship between output and inflation rate, termed the Phillips Curve in literature, has been flat, in that the inflation rate changes for reasons other than demand factors. Those factors cannot be combated by interest rate charges. On the other hand, higher interest rates or higher repo rates have an adverse impact on output, which affects GDP growth. And that’s the reason why the RBI has predicted a fall in GDP growth in the coming days. What is needed is greater dependence on the fiscal instrument. There are only two ways to do that. The first is to increase corporate tax in some form, to finance additional government expenditures, particularly in compensating labour’s income. The second is to rethink fiscal policy rules – review to what extent rules we follow are relevant and useful in the current context.

•Historically, corporate tax rate changes have hardly had an impact on corporate investment rates over time. For example, in 2018-19 when there was a huge corporate tax concession, there was hardly any impact on the corporate investment rates. The other option would be to do away with different corporate tax concessions. At this point, such concessions amount to around ₹5 lakh crore. So, even if one squeezes that amount of concessions, there would be a lot of fiscal space available.

•IP: I would have been happier seeing [recent] policies coming through in the monetary policy commentary rather than a knee-jerk announcement in the middle of a month, for it affects the sentiment of the market and raises doubts on whether the RBI is running out of resources to defend the currency, which is not the case. These policies forming a part of the monetary policy statement might have led to a more balanced view by the market. The critical areas the government needs to look at are how to prevent inflationary pressures from getting more widespread. Today’s twin deficit problem in India, which was also there in 2013, is coming more from the fiscal side rather than the current account side. If you cumulate the fiscal deficit as a proportion of GDP and the CAD together, we are as wide today on the twin deficits as we were in 2013. Now, we are expecting CAD at around 3%; in 2013, it was around 4.5%. The critical action we need is more on how to manage government finances and have a course chalked out on how to bring the deficit and government debt down. The government’s outstanding debt is large and increases in interest rates will raise the interest bill. Correcting for fiscal imbalances will also improve the overall macro atmosphere and offer a positive signal to the external world, providing comfort to investors.

What did you mean by rethinking policy rules?

•ZD: Fiscal policy targets a specific level of debt to GDP ratio, i.e., it targets debt stability, and the job of the monetary policy is to target the output gap and thereby control inflation. Now, the intensity of the slowdown is such that the interest rate is unable to compensate for either the output growth rate or labour income, and now there is the added pressure of increasing interest rates. Fiscal policy needs to play a role in helping boost demand, but that is not exactly consistent with the present policy framework. By its very design, fiscal policy is meant to stabilise debt to GDP ratio, it is not meant to boost aggregate output growth rate or labour income. So, we need to think about the purpose of the fiscal policy rule given the crisis we’re facing.