11th September 2024 Editorials

Topic: New safety regulations for machinery, equipment to affect MSMEs

Relevance: GS Paper: 3 – Economy

Source: Business Standard

Context

According to the Global Trade Research Initiative (GTRI) report, the MSME segment’s domestic production will be impacted by the new safety regulations for electrical and mechanical equipment.

Background

• The Ministry of Heavy Industry (MHI) recently introduced the Machinery and Electrical Equipment Safety (Omnibus Technical Regulation) Order, 2024, which is scheduled to go into effect on August 28, 2025.
• In an effort to bring Indian safety procedures into line with international standards, these regulations impose strict safety requirements on machinery and electrical equipment that is produced or imported into India.
• For the Micro, Small, and Medium-Sized Enterprises (MSMEs), who account for 90% of the estimated 1,50,000 manufacturers who will be impacted, the new regulations are anticipated to have far-reaching effects.

Main ideas of the new safety standards

• Three tiers of strict safety requirements are introduced by the norms for electrical and mechanical equipment that is imported or produced in India.
• These rules cover both the machinery itself and any of its component parts or subassemblies.
• Manufacturers will have to abide by the safety and conformance requirements established by the Bureau of Indian Standards (BIS).
• Over fifty thousand different types of machinery are covered by the regulations; these include important industrial equipment such as pumps, compressors, centrifuges, cranes, transformers, and switchgear, which are classified under 463 tariff lines or product categories.
• India’s imports under these tariff lines totalled $25 billion in FY 2024, of which 39.1% came from China.
• During the same time period, India exported machinery valued at $17.7 billion.

What are the concerns?

• Although the order requiring prior approvals from the Bureau of Indian Standards (BIS) has been waived for export-oriented items.
• Nonetheless, it provides minimal respite to the 1.5 lakh manufacturers of such equipment, as they cater to both local and foreign markets.
• The majority of MSMEs currently follow ISO 9001 standards, which do not specifically address safety issues.
• For MSMEs, financial and technical obstacles will be major roadblocks. Depending on the kind of machinery and the standards needed, compliance costs can range from ₹50,000 to ₹50 lakh.

Conclusion

• The government ought to put off implementation while assisting business in getting ready. Most MSMEs might find it difficult to comply without assistance, and they might even have to close.
• The implementation of these new safety standards will require a phased approach, extended compliance timelines, and industry body support in order to fully realize the benefits while avoiding undue burdening smaller businesses.

Also Read Topics & Concepts:

https://economictimes.indiatimes.com/news/economy/policy/new-safety-regulations-for-machinery-and-electrical-equipment-to-affect-msmes-gtri/articleshow/113195183.cms?from=mdr

Mains Model Questions

Q. In addition to serving as a factory for opportunities in self-employment and entrepreneurship, the MSME sector also helps to eradicate poverty. highlight the issues and solutions facing the MSME sector in this context?

Introduction:

Small and medium-sized businesses (SMEs) are essential to the expansion of the Indian economy because they account for 45% of industrial output, 40% of exports, employ 60 million people, generate 1.3 million new jobs annually, and produce over 8,000 high-quality goods for both domestic and foreign consumers.

Body:

As per the India@75 strategy document by NITI Aayog, the manufacturing sector’s current growth rate is expected to double by 2022. Nonetheless, the MSME sector faces a number of difficulties, some of which are listed below:

• Investment: From 2011 to 2012, there has been a cyclical downturn in new investment.
• Getting timely credit to MSMEs remains a significant obstacle.
• Technology adoption: SMEs face greater challenges in adopting new technologies than organized large-scale manufacturing, such as robotics and artificial intelligence (referred to as “Industry 4.0”).
• Exports and a lack of domestic demand: India’s industrial growth is not being propelled by exports. Also, sustained, high-value manufacturing might not be possible with just domestic demand.
• Difficulties in doing business: Although our global Ease of doing business ranking has recently improved, the ease of doing business is still limited by issues with obtaining building permits, enforcing contracts, paying taxes, establishing a business, and transnational trade.
• Absence of a program for skill development and training: The MSME workforce does not have sufficient access to these resources. Thus, skilled labor is in short supply.

Way Forward

• The UK Sinha Committee’s proposal to establish a 5000 crore distressed asset fund is desperately needed to help MSMEs that have been harmed by GST and demonetization.
• It is necessary to make institutional adjustments at SIDBI in order to enhance its status as a market maker for MSMEs financing.
• The credit guarantee of loans to MSMEs is crucial for lending to be effective. According to the UK Sinha panel, the RBI should oversee and regulate all credit guarantee programs.
• Logistics and infrastructure deficiencies should be addressed by industrial corridors.
• Global and Indian quality standards ought to be aligned. Indian exports have suffered from the lack of harmonization, which has also made it difficult to fully leverage trade agreements.

Conclusion:

The MSME sector serves as both a factory for opportunities in self-employment and entrepreneurship and a means of eradicating poverty. It has a major impact on how the economy develops. Thus, it is imperative that the government persists in its coordinated endeavors to foster the comprehensive growth of MSMEs in crucial domains such as human resource development, knowledge services, financial accessibility, technology, infrastructure, market accessibility, and business facilitation.

Topic: 5^th India-Philippines Joint Defense Cooperation Committee meeting

Relevance: GS Paper: 2 – International Relations

Source: PIB

Context

The Fifth India-Philippines Joint Defence Cooperation Committee meeting will be co-chaired by the Defence Secretary in Manila.

About

• As India and the Philippines commemorate 75 years of diplomatic ties and 10 years of India’s Act East Policy, the visit takes on greater significance.
• The 2006 Memorandum of Understanding on Defense Cooperation between the two nations set the framework for the Joint Defense Cooperation Council (JDCC).

Overview of India and Philippines Relations

• An outline of the establishment of relations between India and the Philippines Soon after gaining independence in 1946 (the Philippines) and 1947 (India), both countries formally established diplomatic relations in 1949.
• Look East, Act East Policy: In 1992, India initiated the Look East Policy and strengthened its relationship with ASEAN, which led to improved bilateral ties with neighbouring countries like the Philippines.

• With the signing in 2022 of a US$ 374.9 million contract to supply the BrahMos missile system, defense ties were greatly strengthened.
• In 2017, the two nations also inked a Memorandum of Understanding (MoU) on their cooperation in the defense industry and logistics. The MoU established the Joint Defence Industry and Logistics Committee (JDILC).
• In terms of value, bilateral trade between the Philippines and India grew from USD 1.89 billion in 2015–16 to USD 3.05 billion in 2022–23, surpassing the USD 3 billion threshold for the first time.
• Trade would be facilitated by the signing of the Agreement on Cooperation and Mutual Assistance in Custom Matters in 2022.
• In the Philippines, there are thought to be 1,50,000 or so Indians. Sindhis and Punjabis make up the majority of the community.

Philippines’ importance to India

• Strategic and Security Interests: Southeast Asia, which is important to India strategically, includes the Philippines as a major player.
• The preservation of South China Sea navigation freedom and fending off threats to regional security are mutually beneficial to the two nations.

The objective of India’s Look East and Act East policies is to improve regional stability and cooperation by fortifying diplomatic ties with Southeast Asian countries, particularly the Philippines.

• Economic Opportunities: Trade and investment have the potential in the Philippines, an emerging market.
• Regional Cooperation: Both nations participate in regional organizations like the East Asia Summit and the Association of Southeast Asian Nations (ASEAN).

Way Forward

• The Indo-Pacific region’s geopolitical dynamics, specifically with regard to maritime security and China’s increasing sway, have prompted both countries to investigate more extensive strategic and defense cooperation.
• In regional forums such as the Indian Ocean Rim Association, the East Asia Summit, and ASEAN, both countries have interests in common.
• Opportunities for cooperation in sectors like IT, the digital economy, and start-ups are presented by India’s prowess in innovation and technology as well as the Philippines’ expanding tech industry.
• Sustained work in these domains may result in a strong and diverse collaboration.

Also Read Topics & Concepts:

https://economictimes.indiatimes.com/news/defence/india-invites-philippines-to-partner-with-indian-industry-in-co-development-of-military-hardware/articleshow/113268451.cms?from=mdr

Mains Model Questions Q. Discuss about the development of bilateral relations between the Philippines and India, focusing especially on their maritime partnership. What potential effects might this collaboration have on the geopolitical landscape of the South China Sea region?

Introduction:

The Fifth India-Philippines Joint Defence Cooperation Committee meeting will be co-chaired by the Defence Secretary in Manila.
As India and the Philippines commemorate 75 years of diplomatic ties and 10 years of India’s Act East Policy, the visit takes on greater significance.

Body:

Growth of bilateral ties between India and the Philippines:

• Political ties: On November 26, 1949, India and the Philippines formally established diplomatic ties. Both countries then strengthened those ties in the wake of the Act East Policy.
• Economic relations: From 1.89 billion USD in 2015–16 to 2.84 billion USD in 2021–22, bilateral trade has grown. Both countries are extending their economic ties to include cooperation between the ISRO and the Philippine Space Agency.
• Maritime relations: Both countries are dedicated to maintaining the security and stability of an Indo-Pacific rules-based order. The ASEAN-India Maritime Exercise includes participation from both India and the Philippines.
• Defense relations: With the signing of a $374 million contract for the Philippines’ defense forces to purchase India’s BrahMos Shore-based Anti-Ship Missile System and their participation in the maritime RIMPAC exercise, both countries have a growing defense and security partnership.

What impact does this relationship have on the South China Sea region’s geopolitical dynamics?

• Bolster Defence relations: India has decided to establish a resident defense attaché office in Manila; the Coast Guards of the two nations will cooperate; Manila will purchase naval assets under a concessional line of credit from Delhi; and training and joint exercises on maritime matters will be expanded.
• Safeguarding Marine Routes: The South China Sea serves as a vital maritime entry point and intersection for vessels traveling between the Pacific and Indian Oceans. In terms of geopolitics, the economy, and international security, India and the Philippines have a critical stake in protecting the shipping lanes.
• Peaceful settlement of disputes: As evidenced, in particular, by the UNCLOS pertaining to disputed islands in the South China Sea that are claimed by both China and the Philippines, both countries are dedicated to peaceful conflict resolution based on the principles of international law.

Conclusion:

The only way to address the geopolitical dynamics in the South China region is to have discussions with all parties involved, particularly the ASEAN countries, and move closer to establishing a legally binding “code of conduct” and “political framework.” Enhanced cooperation among regional partners is imperative to fully leverage the Indo-Pacific as a growth engine. Improved connectivity, more innovation, and deeper economic integration are necessary to maintain the region’s status as a global economic powerhouse. As pioneers in advancing inclusive multilateralism and the rule of law, the Philippines and India have important roles to play in this regard

Topic: Indo-Pacific Oceans Initiative (IPOI)

Relevance: GS Paper: 2 – International Relations

Source: orfonline.org

Context

The Indo-Pacific Oceans Initiative (IPOI) recently marked the end of its fifth year of operation, having begun in 2019.

About the Indo-Pacific Oceans Initiative (IPOI)

It was introduced by India at the East Asia Summit (EAS) in Bangkok in November 2019 with the goal of promoting collaboration for an Indo-Pacific region that is open, free, and governed by rules.

Building on India’s Security and Growth for All in the Region (SAGAR) vision, IPOI prioritizes maritime security, stability, and development.

• It is a voluntary, non-treaty-based arrangement that depends on established frameworks such as the EAS mechanism.
  
  

Principal Elements and Guidance of IPOI

IPOI is composed of seven pillars, each of which is led by a different nation:

• Maritime Security: UK and India
• Maritime Ecology: Australia and Thailand
• Maritime Resources: France and Indonesia
• Capacity Building and Resource Sharing: Germany
• Disaster Risk Reduction and Management: India and Bangladesh
• Science, Technology, and Academic Cooperation: Italy and Singapore
• Trade, Connectivity, and Maritime Transport: Japan and the US

Significance of IPOI

• By fostering the free flow of people, products, and services across the Indo-Pacific region and preserving national sovereignty, IPOI seeks to establish a rules-based regional order in the region.
• By promoting international cooperation in combating common threats like piracy, illegal fishing, smuggling, and other maritime crimes, the IPOI enhances regional maritime security.
• By encouraging cooperation in disaster preparedness and response, IPOI aims to increase regional capacity for disaster risk reduction and management, thereby lessening the effects of natural disasters.
• Since IPOI is a voluntary, non-treaty-based initiative, it is still flexible and enables countries to join based on common interests without adding new institutional requirements.

Way Forward

• With prominent bilateral and multilateral partnerships like the Australia-India Indo-Pacific Oceans Initiative Partnership (AIIPOIP), which focuses on maritime ecology, the IPOI has made modest progress. The IPOI’s role in fostering maritime cooperation is strengthened by the alignment of its objectives with a number of international maritime frameworks, such as the Quad and ASEAN’s Outlook for the Indo-Pacific (AOIP).

Also Read Topics & Concepts:

https://www.usiofindia.org/strategic-perspective/indo-pacific-oceans-initiative-ipoi-indias-indo-pacific-concept-translated-into-action.html

Topic: Fiscal deficit as the norm for fiscal prudence

Relevance: GS Paper: 3 – Economy

Source: The Hindu

Context

• “From 2026-27 onwards, we aim to reduce the fiscal deficit each year to ensure Union government debt declines as a percentage of GDP,” the finance minister said in the 2024–25 Union Budget.
• Additionally, the budgeted 4.9% of GDP in 2024–2025 fiscal deficit for the Center would be lowered to 4.5% of GDP in 2025–2026 according to the speech.

What is the fiscal deficit?

• The difference between total budget receipts (capital and revenue) and total budget expenditures (capital and revenue), excluding borrowings, for a given fiscal year is known as the fiscal deficit.
• Fiscal Deficit= Total Expenditure – (Revenue Receipts + Non-Debt Creating Capital Receipts)

The national debt

• The national debt is not the same as the fiscal deficit.
• The total amount of money that a nation’s government has borrowed is known as its national debt.
• The total amount of money a nation’s government owes its lenders at any given time is known as its national debt.
• It typically refers to the total debt that a government has accrued over a long period of time as a result of running fiscal deficits and taking on debt to cover those deficits.

Fiscal deficit’s effects

• Inflationary Pressure: A nation’s government that consistently runs a large budget deficit may eventually have to issue new money from the central bank in order to cover the deficit, which could result in higher inflation.
• Increased debt eventually results in an increased ratio of interest payments to revenue receipts due to higher fiscal deficits. As a result, fewer shares will be available to finance non-interest expenses.
• Crowding Out Effect: When the government borrows a significant amount of money from financial markets to finance its deficit, it discourages private investment and makes credit more difficult for both individuals and businesses to obtain.
• Diminished Financial Capacity: The government’s capacity to respond to economic shocks or crises is hampered by a large budget deficit.
• Having trouble borrowing: A government is forced to offer lenders a higher interest rate when its finances deteriorate because there is less demand for its bonds.

Advantages of a smaller budget deficit

• International rating agencies will raise credit ratings if the fiscal deficit is consistently reduced. India can borrow money more cheaply on international markets thanks to higher credit ratings, which lowers the cost of its external debt.
• Decreased deficits will help India’s balance of payments by lowering its dependency on foreign borrowing. Both the exchange rate and the overall current account will be stabilized as a result.
• Reduced fiscal deficits are an indication of responsible government financial management and fiscal restraint. This has the potential to boost investor confidence and stimulate both domestic and foreign investment.

The necessary reforms

• The NK Singh committee’s 2017 recommendations, which included a draft Debt Management and Fiscal Responsibility Bill, 2017, must be complied with.
• Encouraging greater household savings through tax breaks on financial goods, better returns on long-term savings plans, and improved financial literacy are some ways to encourage financial savings.
• Reforms to Infrastructure Finance: Including the private sector through public-private partnerships to enhance the processes for funding infrastructure projects
• Infrastructure Finance Reforms:Public-private partnerships (PPP), infrastructure bonds, and the establishment of finance institutions are ways to involve the private sector in improving the mechanisms for financing infrastructure projects.

Conclusion 

• The debt-to-GDP ratio has been mentioned in recent pronouncements as a policy variable, but they do not state the target amount for India or how to get there from the current ratio’s levels.
• Given the current low levels of household savings, the central government would be better served by maintaining the fiscal deficit cap of 3% of GDP. Any loosening of this regulation will only encourage reckless spending.

Also Read Topics & Concepts:

https://economictimes.indiatimes.com/definition/fiscal-deficit

Mains Model Questions

Q. Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets.

Introduction:

Every fiscal year, the Government is required by Article 112 of the Constitution to submit the Annual Financial Statement (AFS) to the Parliament. The expenditure on the revenue account should be distinguished from other expenditures by the AFS.

Body:

Current receipts and expenses that can be covered by these receipts are included in the revenue budget. Conversely, assets and liabilities are included in the capital budget.

Conclusion:

The budget serves as a tool to support economic development in addition to being a statement of revenues and expenses. For example, the capital budget has received a lot of attention in the last two to three years in an effort to boost the Indian economy.