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- Pre-Independence Experience
- The Indian rupee was once a multilateral currency.
- The usage of the Indian rupee was prevalent across the Indian Ocean in places as varied as Java, Borneo, Macau, Muscat, Basra and Zanzibar.
- Further. even the historic dhow trade ensured that the Gulf had a familiarity with the rupee for over five centuries, with Oman utilising the ‘Gulf rupee’ till 1970.
- Even during the days of colonial rule there are certain important points to take note of.
For example: The accession of George V to the throne in 1911, which enshrined his rule of the British Raj, led to the issuance of a new rupee coin.
- The colonial rupee leveraged the Mughal rupee’s popularity, and was further facilitated by trading communities, migration and the Raj’s hegemony.
- Historical events such as the annexation of Sindh, Ceylon and Burma further encouraged the primacy of the rupee in these areas.
- Meanwhile, a number of Indian merchant communities had established themselves in such regions, aiding in its convertibility.
- Post-Independence Experience
- Dubai and other Gulf states were using RBI-minted Gulf rupees until 1966.
- Further, between the 1950s and 1970s, gold smuggling was rampant on the Konkan coast, with a number of Gulf businesses buying gold cheaper in the Gulf in rupees and smuggling it to India.
- It was the devaluation of the Indian rupee in 1966, after the 1965 war with Pakistan, that such nations switched to their own currencies. Currently, only Nepal and Bhutan regularly conduct bilateral trade with India in rupees.
Problems Concerning Rupee Valuation:
- The rupee’s valuation is often of concern.
- The value of the rupee itself has varied over the years too.
- The rupee was never equal to the U.S. dollar.
- In 1947, the rupee-dollar rate was at Rs. 3.30. The aforementioned devaluation in 1966 raised it to Rs. 7.50, reaching Rs. 32.4 by 1995.
- This decline which we see of the Indian Rupee has occured due to a variety of factors: 1. Wars with Pakistan and China
2. The adoption of Five Year Plans requiring foreign loans
3. Political instability and the
4. Oil Price Shock of 1973
5. It is important to note that of late, the rupee has been declining given higher oil prices and FII outflows from stocks and bonds.
6. The ongoing U.S.-China trade war, Iran sanctions and further upward movement in oil prices will continue to test the rupee’s valuation.
Role of the Reserve Bank of India and the Ministry of Finance
- The Reserve Bank of India and the Ministry of Finance do have a number of options for stabilisation.
These include the following:
- overtly intervening in the forex market,
- selling non-resident Indian bonds (as last done in 2013) and
- conducting a sovereign bond issuance
The Way Forward:
- The rupee’s dependency on the U.S. dollar must be reduced.
- In order to achieve this. India should consider formalising the rupee payment mechanism with friendly countries.
- These friendly countries include those such as Russia, with a focus on reducing its overall current account deficit.
- Apart from this, India must continue to guard against fiscal profligacy.
- It is important to note that Industrial growth should be a priority. This is further illustrated by the fact that without having goods to sell, rupee swaps (for example with Iran) would be difficult to institutionalise.
- Further, a lower rupee is a recipe for a higher import burden, spiralling eventually into a currency crisis.
- Apart from this, the formalisation of the Indian economy, by deterring black money transactions in the rupee, is also much needed.
India’s black money strategy should consider four pillars. These pillars are:
- It should encourage tax rate rationalisation,
- Reform the vulnerable sectors,
- Support a cashless economy and
- Create effective and credible deterrence.
- Further, tax rate rationalisation, with lower tax rates as an end goal, would increase the tax base and increase compliance with tax returns.
- Even administrative agreements with countries like the U.K. and Switzerland which can offer mutual tax sharing should be encouraged.
- Further, from a structural perspective, it is important to create a remittance database, detailing company transfers out and NGO transfers into India, which all reports to the Financial Intelligence Unit (FIU).
- Also, the Direct Tax Administration’s Directorate of Criminal Investigation should be provided the right IT training, infrastructure and funding to become an effective deterrent, while the audit cycles for income tax, service tax and excise tax departments should be aligned.
- These would help the Large Taxpayer Unit (LTU) become more effective, thereby increasing the scope of simultaneous scrutiny and examination.
- Lastly, the internationalisation of the rupee is a worthwhile goal to aim for.
- India has examples from the neighbourhood where, in China for example, the yuan is increasingly being positioned for an alternative reserve currency.
- This is being done through a variety of multilateral trades, institutions.
- These include the Belt and Road Initiative, the Asian Infrastructure Investment Bank, etc. as well as swaps.
- Currently, the Indian rupee remains woefully behind in internalisation.
Lesson India can learn from the Chinese:
- China campaigned hard for the inclusion of its currency in IMF’s benchmark currency basket in 2015.
- The RBI, meanwhile, has adopted a gradualist approach.
- This gradualist approach has allowed companies to raise rupee debt offshore, thereby enabling the creation of “masala bonds” and allowing foreigners to invest in rupee debt onshore.
- The rupee has transformed from a largely non-convertible pegged currency before 1991 to a managed float currency today. Unfortunately, the rupee is currently not even in the top 10 traded currencies.
- It is important to note that there is no magic wand to making the rupee appreciate.
- However, institutional resistance against rupee convertibility should be overturned.
A Brief Note on the 2018 Nobel Prize in Chemistry:
- Three scientists shared this year’s Nobel Prize in Chemistry.
- The 2018 Nobel Laureates in Chemistry have taken control of evolution and used it for purposes that bring the greatest benefit to humankind.
- This year’s Nobel Laureates in Chemistry have been inspired by the power of evolution and used the same principles, i.e. genetic change and selection to develop proteins that solve mankind’s chemical problems.
- Enzymes produced through directed evolution are used to manufacture everything from biofuels to pharmaceuticals.
- Antibodies evolved using a method called phage display can combat autoimmune diseases and in some cases cure metastatic cancer.
Contribution from each Scientist:
- Frances H. Arnold, an American who was given one-half of the prize, used ‘directed evolution’ to synthesise variants of naturally occurring enzymes, which could be used to manufacture biofuels and pharmaceuticals.
- The other half of the prize went to George P. Smith, also of the U.S., and Sir Gregory P. Winter, from the U.K., who evolved antibodies to combat autoimmune diseases and even metastatic cancer through a process called phage display.
These prizes reaffirm the importance of the concept of evolution in our understanding of life as among the most profound of forces we are exposed to.
Note on the Physiology and Medicine Prize:
- The Physiology and Medicine prize has gone to the American James P. Allison and Tasuku Honjo, from Japan.
- These scientists have shown how different strategies can inhibit the metaphorical ‘brakes’ acting on the immune system and thereby unleash the system’s power on cancer cells to curb their proliferation.
- These immunologists have enhanced the power of the body’s immune system to go beyond its natural capacity.
Note on the Physics Prize:
- Arthur Ashkin, from the U.S., has been awarded one-half of the Physics prize.
- His work now enables us to individually hold, study and manipulate tiny bacteria and viruses using ‘optical tweezers’.
- It is important to note that in many laboratories, optical tweezers are used to study and manipulate subcellular structures such as DNA and little molecular motors.
What is Optical holography?
- Optical holography is a method for storage and displaying a three-dimensional image of an object.
- In Optical holography, thousands of optical tweezers can operate together on, say, blood, to separate damaged blood cells from healthy ones. This could be a treatment process for malaria.
Work on Ultra-Short pulses of laser light:
- Gérard Mourou, from France, and Donna Strickland, from Canada, who share the other half of the Physics prize, have been honoured for their methods to generate ultra-short pulses of laser light.
- The work, published in 1985, went into Ms. Strickland’s PhD thesis and soon revolutionised the field. Among its uses are in Lasik surgery in ophthalmology, and in making surgical stents.
- More recently, attosecond lasers have even made it possible to observe individual electrons.
What is an attosecond?
An attosecond is a millionth of a picosecond, or 10−18 of a second. Light travels 0.3 nanometers in an attosecond, which is roughly the spacing between atoms in a solid.
- In conclusion, the prize-winners have drawn upon the fundamental forces in science and reached out beyond human physical limitations.
- From a gender parity perspective, it is important to note that two of the six laureates – Donna Strickland and Frances Arnold – are women.
- They are only the third and fifth women Nobel laureates in Physics and Chemistry, respectively, since the inception of the Nobel prizes.
- This statistic gives reason for the community of scientists to introspect over what makes an enabling environment for women to practise science in.
- India and Russia concluded the contract for five S-400 ‘Triumf’ missile systems, one of the biggest defence deals in recent times.
- The announcement of the deal could attract sanctions from the United States, was made in a joint statement issued by both sides.
No pact on frigates
- The two sides failed to conclude two other major deals, for stealth frigates and assault rifles that were reportedly ready citing further negotiations.
- Significantly, the agreement for the estimated $5.43 billion (Rs. 40,300 crore) S-400 system was not referred to by either leader in their press statements.
- It was also the only agreement not included with eight others exchanged.
S-400 Coming Soon
- Deliveries of S-400 will begin in 24 months, at the end of 2020.
- India would pay about 15% in advance, likely through the rupee-rouble mechanism both countries use for trade in their own currencies.
Defying fears of US Sanction
- The U.S. has warned the deal would invoke sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA) law.
- It penalizes defence purchases from Russia, Iran and North Korea, as soon as the first payment is made, unless US grants a “waiver.”
- Any waiver for the S-400 deal would only be considered on a “transaction-by-transaction basis
- The negotiations for S-400 preceded CAATSA by a long period of several years.
- It fulfils a certain defence requirement for India and the government has taken the decision in the national interest.
The S-400 is known as Russia’s most advanced long-range surface-to-air missile defence system, capable of destroying hostile strategic bombers, jets, missiles and drones at a range of 380-km.
Why does India need S-400?
- India needs to be well-equipped against neighboring threats.
- Pakistan has over 20 fighter squadrons, with upgraded F-16s, and inducting J-17 from China in large numbers. China has 1,700 fighters, including 800 4-Gen fighters.
- A shortfall of fighter squadrons has severely affected IAF’s efforts to pose a challenge to the enemies.
- Northeast and Assam Petro-chemicals, a state-owned company is launching Asia’s first cannisters based and India’s first “Methanol Cooking Fuel Program”.
- 500 households inside the Assam Petro Complex will be the first pilot project, scaling it to 40,000 households in Uttar Pradesh, Maharashtra, Gujarat, Telangana, Goa and Karnataka.
- Assam Petrochemicals Limited has been manufacturing methanol for the last 30 years and is in the process of upgrading their 100 TPD methanol plant to 600 TPD by Dec 2019.
- The safe handling cannister based cooking stoves are from Swedish Technology and through a Technology transfer a large-scale cooking stove manufacturing plant will come up in India.
- In the next 18 months it will be producing 10 lakh Cook stoves and 1 Crore Cannisters per year.
Benefits of the Fuel
- This technology is very unique as it handles methanol extremely safely, does not need regulator or any piping system.
- The cooking medium can directly substitute LPG, Kerosene, Wood, Charcoal and any other fuel for cooking.
- The gaseous form, Methanol – DME, can be blended in 20% ratio with LPG.
- 2 litres cannisters can last for full five hours on twin burners and 8 such Cannisters as rack can last for one month for a family of three.
Fueling the North East
- The cost of energy equivalent of one cylinder of LPG for Methanol is Rs. 650, compared to Rs. 850 per cylinder resulting in a minimum of 20% Savings.
- For instance, in Manipur the cost of transportation of LPG is Rs. 200, whereas same cost for Methanol will be Rs. 12.
- This provides for an excellent alternative as household fuel and commercial, institutional and fuel for restaurants.
- Union Minister of Commerce & Industry has released a study by the Department of Commerce on India-China Trade.
- The report tries to analyze the magnitude, extent and plausible reasons of India’s rising trade deficit with China.
Addressing the Deficit
- India’s trade relationship with China is unique and no other bilateral trading relationship evokes as much interest in India as the India-China trade relationship.
- From being a small trading partner of India in 2001, within a span of fifteen years, China has rapidly become India’s biggest trading partner.
- Trade between the two countries has been expanding but India’s trade deficit with China has been growing.
Trade War Looming FTAs
- Most industry associations want the Government to pursue a defensive approach to Free Trade Agreements (FTAs) and raise tariffs on the doctrine of domestic markets for domestic producers.
- The global use of protectionist measures in 2018 was unprecedented with the trade wars looming between two of the largest economies of the world.
- This analysis helps in studying whether an FTA or tariff concessions by China to India can be beneficial in increasing India’s exports to China.
Why such a study?
- The idea behind this exercise has been to identify whether tariff concessions by China to other countries impede raising the share of India’s exports in the Chinese market.
- These lines can be taken up by India for negotiations with China under agreements like Asia Pacific Free Trade Agreement (APTA) in which both India and China are involved during the review exercise.
- Competing countries that have FTAs with China, limits the scope for Indian exports.
- This is due to higher tariffs faced by exporters as compared to competing nations who have secured tariff concessions under their FTAs.
- The study also underlines the opportunity available for India in increasing its services exports to China.
- The imports of China from these countries as well as China’s Most Favored Nation (MFN) rates have been studied.
- Indices like Revealed Comparative Advantage (RCA) and Trade Complementarity Index (TCI) have been used to analyse the extent of India and China’s competiveness in this arena and the potential for the future.
- There is a separate section on the opportunities arising for India out of US – China trade standoff with a detailed analysis of specific tariff lines.
- The new tariffs that have been levied by China on the US amidst the ongoing trade war brings in the potential for India to fill the gaps left by America in the Chinese market.
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