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17th December Current Affairs

The road ahead for India after CoP 26

(GS-III: Environment Acts and Policies)

In News:

The commitment of recent Glasgow Climate Pact to strengthen our commitment to combat climate change by restricting global temperature rise to 1.5 degrees Celsius over pre-industrial levels

Details:

India and CoP-26: At CoP26, India pledged to become a ‘net zero’ carbon emitter by 2070, and announced enhanced targets for renewable energy deployment and reduction in carbon emissions.

Some major steps taken by India in recent times to meet climate change targets:

The share of renewable energy in India’s energy mix has more than doubled from 11.8 per cent in March 2015 to 25.2 per cent in July 2021

India has outlined several programs under its ambitious, ‘National Action Plan on Climate Change (NAPCC)’

Setting up ‘International Solar Alliance’ to coordinate effort and institute measures to make use of the abundant renewable energy in the environment

FAME Scheme for E-mobility: Union Government in April 2015 launched Faster Adoption and Manufacturing of Hybrid and Electric vehicles (FAME) – India Scheme with an aim to boost sales of eco-friendly vehicles in the country. It is a part of the National Mission for Electric Mobility.

Atal Mission for Rejuvenation & Urban Transformation (AMRUT) for Smart Cities.

Pradhan Mantri Ujjwala Yojana: The scheme provides LPG connections to five crore below-poverty-line beneficiaries. The connections are given in the name of women beneficiaries to reduce their dependence on fossil fuels and conventional fuel like cow dung for cooking food, thus reducing air pollution.

UJALA scheme: The scheme was launched by the Prime Minister Narendra Modi in January 2015 with a target of replacing 77 crore incandescent lamps with LED bulbs. The usage of LED bulbs will not only result in reducing electricity bills but also help in environment protection.

Swachh Bharat Mission: Swachh Bharat Abhiyan (Clean India Movement) is a campaign that was launched by Prime Minister Narendra Modi on October 2, 2014. The campaign seeks to clean the streets, roads and infrastructure of the country’s 4041 statutory cities and towns.

Challenges ahead: If India needs to sustain this momentum, the following measures required:

  • Meeting the infrastructure gap of $4.5 trillion dollars (As per NITI AYOG estimation)
  • Technology and financial constrains to increase the share of renewable energy to 50 per cent by 2030.
  • Inadequate shift of policies from the grey to green economy. Ex: Over dependence of fossil fuels, inefficient power grid infrastructure etc.
  • Lack of synergy amongst various institutions in the country.

Measures required to address this challenge:

  • Platforms must adopt a ‘renewable first’ approach as they scale up
  • Creating synergies amongst the various institutions and other countries. Ex: One Sun, One World, One Grid (OSOWOG), launched by India at CoP26, this would provide a lot of learning to connect energy grids across borders for renewable energy adoption under OSOWOG.
  • Decarbonize emission-intensive sectors. Ex: Heavy industries like Iron and Steel
  • An ‘ecosystem-based’ approach in implementing policies. Ex: FAME India scheme
  • We need more ‘carbon sinks’ – areas that store carbon, like forests, oceans and wetlands.
  • Inclusion of local people in safeguarding environment
  • Ramping up sufficient resources towards climate adaptation. Ex: The Climate Finance Leadership Initiative launched by India and the United Kingdom in September to generate more resources for climate and green energy projects is a positive step in this direction.

Reimbursement scheme for RuPay Debit Card, BHIM UPI transactions

(GS-III: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment)

In News:

The Union Cabinet announced that it has approved a scheme to provide incentives of small amounts for transactions done through the RuPay Debit Card and BHIM UPI. This will incur an expense of around ₹1,300 crores.

Details:

The Government will reimburse transaction charges levied on digital payments made by persons to the merchant as part of the merchant discount rate (MDR).

What is MDR?

MDR (Merchant Discount Rate) is basically a fee that a merchant is charged by their issuing bank for accepting payments from their customers via credit and debit cards.

In Budget 2020-21, the government prescribed zero Merchant Discount Rate (MDR), the rate merchants pay to scheme providers, for RuPay and UPI, both NPCI products, to popularise digital payments benefiting both customers and merchants.

Digital Payment:

Digital payments have found strong ground, especially in India, increasingly relegating all other modes of payments to the background.

It is through a faster system of simultaneous debits and credits that the money value is transferred from one account to the other across banks.

It embraces all kinds of operators (including direct benefit transfer by the government) across the country and even internationally, subject to regulatory forbearance.

According to a report, Indian digital payment industry is expected to reach $1 trillion by 2023.

Evolution of digital payments in India: steered by the RBI:

There is a long and interesting history behind the evolution of digital payments in India, piloted by the Reserve Bank of India (RBI) and succinctly captured in the Payment Systems in India, published in 1998.

A major thrust toward large value payments was affected through the Real Time Gross Settlement System, or RTGS, launched by the RBI in March 2004.

Introduction of National Electronic Funds Transfer (NEFT) and bulk debits and credits to support retail payments around the same time.

Now, NEFT is available round the clock and RTGS will follow from December 2020 only a few countries have achieved this.

Time Bound Settlements: Today, the Securities and Exchange Board of India (SEBI), the market regulator, is contemplating a T+1 settlement (T is for transaction date) because the underlying consideration of the sale proceeds of the shares get exchanged very fast under the payments system.

Land, water resources are at breaking point

(GS-III: Environment and Agriculture)

In News:

As per the recently released, ‘The State of the world’s land and water resources for food and agriculture (released by FAO)’, water and land resources are being pushed to limits due to human actions.

Highlights of the report:

Sources of fodder (grassland and shrub-covered areas) have declined by 191 million hectares in the past two decades due to the conversion of this to the cropland

Due to population increase, agricultural land available per capita for crops and animal husbandry declined by 20 per cent between 2000 and 2017 to 0.19 ha /capita in 2017.

It was reported that almost a third of rain-fed cropland and nearly a half of irrigated land are subject to human-induced land degradation which primarily affected the fertility of the soil

Over 60 per cent of irrigated areas are degraded in northern Africa, south Asia and the middle east-western Asia.

The rapid growth of cities had a significant impact on land and water resources; in 2018, 55 per cent of the world’s population were urban dwellers. This meant encroachment on good agricultural land.

Most pressures on the world’s land, soil and water resources are from agriculture due to use of chemical fertilizers, farm mechanization etc.

Challenge going forward:

The degradation of the resources might continue unabated to meet the food security needs of the ever-growing population since by 2050 agriculture will need to produce almost 50 per cent more food, livestock fodder and biofuel than in 2012 to satisfy global demand and keep on track to achieve “zero hunger” by 2030.

Steps to be taken to meet food security without degrading the resources:

Local consumption and weather patterns need to be kept in mind while formulating the policies. Ex: Avoid growing sugarcane in those areas where water is deficient; encouraging organic farming

A meaningful engagement with the key stakeholders – farmers, pastoralists, foresters and smallholders – directly involved in managing soils and conserving water in agricultural landscapes is crucial.

Use of technology to reverse the degradation in the resources

Reforms in water and land-governance policies.

Some of the steps taken in India to prevent degradation in regard include- soil health card, scientific irrigation methods (Pradhan Mantri Krishi Sinchai Yojana, Desert development program, Pradhan Mantri Krishi Sampada Yojana etc.)

Cryptocurrencies a challenge for emerging markets, regulation needed

(GS-III: Effects of liberalization on the economy)

In News:

International Monetary Fund (IMF) Chief Economist has made a strong case for regulating cryptocurrencies, saying it will always be a challenge to ban them as they operate from offshore exchanges; and feels it to be more attractive to adopt cryptocurrencies and assets in emerging economies than in advanced economies

What is a Cryptocurrency?

A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerized database.

It uses strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership. It typically does not exist in physical form (like paper money) and is typically not issued by a central authority.

Cryptocurrencies typically use decentralized control as opposed to centralized digital currency and central banking systems

Significance of Cryptocurrencies:

Corruption Check: As blocks run on a peer-to-peer network, it helps keep corruption in check by tracking the flow of funds and transactions.

Time Effective: Cryptocurrencies can help save money and substantial time for the remitter and the receiver, as it is conducted entirely on the Internet, runs on a mechanism that involves very less transaction fees and is almost instantaneous.

Cost Effective: Intermediaries such as banks, credit card and payment gateways draw almost 3% from the total global economic output of over $100 trillion, as fees for their services.

Integrating blockchain into these sectors could result in hundreds of billions of dollars in savings.

Concerns of Cryptocurrencies:

Sovereign guarantee: Cryptocurrencies pose risks to consumers.  They do not have any sovereign guarantee and hence are not legal tender.

Market volatility: Their speculative nature also makes them highly volatile.  For instance, the value of Bitcoin fell from USD 20,000 in December 2017 to USD 3,800 in November 2018.

Risk in security: A user loses access to their cryptocurrency if they lose their private key (unlike traditional digital banking accounts, this password cannot be reset).

Malware threats: In some cases, these private keys are stored by technical service providers (cryptocurrency exchanges or wallets), which are prone to malware or hacking.

Money laundering: Cryptocurrencies are more vulnerable to criminal activity and money laundering.  They provide greater anonymity than other payment methods since the public keys engaging in a transaction cannot be directly linked to an individual.

Regulatory bypass: A central bank cannot regulate the supply of cryptocurrencies in the economy.  This could pose a risk to the financial stability of the country if their use becomes widespread.

Power consumption: Since validating transactions is energy-intensive, it may have adverse consequences for the country’s energy security (the total electricity use of bitcoin mining, in 2018, was equivalent to that of mid-sized economies such as Switzerland).

The Pros and Cons of Cryptocurrency need to be weighed in before going ahead for regulation aspects:

Advantages:

Potential for high returns – with compounded annualised growth rate of 14.5%

Some have cited cryptocurrencies as an alternative hedging instrument to gold in a portfolio context

Protection from debased currencies and the threat of rising inflation

Growing acceptance and usage

Disadvantages:

High volatility and potential for large losses:

Whilst it is true that the number of bitcoins produced will eventually be capped at 21 million and many other cryptocurrencies also have limited supply built into their protocols, there is currently nothing to stop an ever-growing number of new cryptocurrencies from being launched

Whilst bitcoin and some other cryptocurrencies are now accepted across a growing number of payment platforms, the number of places where one can exchange cryptocurrencies for real goods or services remains very limited

Cryptocurrencies are wide open to being exploited by criminals as a means to scam unwary investors

Money Laundering, Drug Trafficking, Terrorist Financing, Weapon Proliferation, Cyber Crime and Sanction evasion are some of the activities for which Virtual currencies are susceptible to misuse.

India considering ‘Middle path’ on cryptocurrencies:

India is not going for an outright ban of cryptos is not being found feasible, in view of large investments in such instruments by Indians, and these unregulated virtual currencies are also unlikely to be allowed as a legal tender

While India is already saying no to cryptocurrency, possibilities of how fintech can help maximise its potential need to be explored yet

Things to consider before regulating Cryptocurrencies:

Should digital currencies be taxed as an assets, commodities or capital gains?

Countries across the globe have come up with rules and regulations to include the firms dealing in these cryptocurrencies under their RADAR.Balance need to obtained in relevance to this aspect

What constitutes a security is that a financial asset which can be traded. But it is still not clear if cryptocurrencies fall into the category of assets without casting any doubt. Government may utilize the existing definition of security or may have to amend the existing laws to include cryptocurrencies into the definition of security

Way forward:

Due to lack of regulations, there is enormous growth of crypto currencies.

There are risks of over regulating. There is a misconception in the minds of authorities that the transactions of cryptocurrencies cannot be traced.

This is a complete misconception as every transaction forms part of the currency packet.

Hence there is a need for educating authorities at every level to understand and prevent misuse of cryptocurrencies.

People in India are currently hesitant to invest in cryptocurrencies as there is no regulation in place.

However the recent announcement of its government to introduce Central Bank Digital Currency has given a ray of hope to those looking to invest into cryptocurrencies. The sooner its usage is regulated the better for the country