Logistics

Logistics

This article deals with ‘Logistics – UPSC.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


What is Logistics?

Logistics means managing the flow of goods between the point of origin and the point of consumption.

It includes

  1. Transportation 
  2. Inventory management
  3. Warehousing
  4. Packaging 
  5. Last-mile delivery 

Importance of the Logistics Sector

Logistics
  • Sunrise Sector: The Indian logistics sector is valued at $215 billion and is expected to grow at a CAGR of 10.5% between 2019 and 2025.
  • Employment: Logistics industry employs 4.5 crores and is growing at the rate of 15%.
  • The growth of the manufacturing sector depends upon it. E.g., getting raw material, taking final goods to markets etc.
  • Boosting Indian Exports: China is an export giant because of its highly efficient logistics.
  • Service Sector: Amazon, Flipkart etc., have become giants due to their efficient logistics.
  • Increasing Farmer’s Income: An efficient logistic supply chain network has the potential to increase farmers’ income manifold, which can lead to a domino effect on the overall economy. 

Challenges

  • High Cost: India’s logistics costs are 4-5 times that of developed countries. It makes our products uncompetitive.
  • Inefficient: Logistics in India is inefficient compared to China. It takes more time to reach a product in the western market—days to send the product to the US – 14 days from China compared to 41 from Delhi.
  • Regulatory Issues: There are obstacles in land acquisition and consolidation, poor coordination among multiple regulatory agencies and a lack of transparency in compliances. 
  • Warehouse Issues: The inadequate size of the warehouse, difficulty in getting land at the desired location, and the majority of warehouses are not leakproof. 
  • Saturated Transport: Railways and roads have been saturated. The railway is operating at 120% of its capacity leading to delays.
  • Ports: Large vessels cant enter Indian ports. Hence, Indian cargo is first taken to Colombo or another port & transhipped from there.
  • Rural market: Logistics industry is least developed to cater to rural areas, which form a large chunk of the Indian market. 
  • Lack of inter-ministerial coordination / Fragmented Policy: It hampers smooth multimodal transport in India. 
  • Shortage of skilled workforce: Non-availability of skilled manpower is attributed to inadequate training and proper leadership and support. There are limited institutes for soft skills and operational and technical training. Also, due to poor working conditions and low pay scale (unorganized nature), it is not a preferred choice among skilled personnel. 

Due to these challenges, India’s rank on World Bank’s Logistics Performance Index is low. 

World Bank's Logistics Performance Index

Steps taken by the Government to improve logistics

  • Infrastructure Lending Status: Logistics sector has been given Infrastructure Lending Status. Due to this, loans for logistics have become eligible for the following benefits.
    • Logistics projects can get long tenure loans.
    • Loans will be cheaper (at least 50 basis points) 
    • Such projects will now be eligible to borrow from specialized lenders like IDFC, IIFCL etc., which fund only infrastructure projects.
    • Attracting investments from debt, pension funds and international lenders (ECBs) into recognized projects. 
  • GST Tax Reforms: The taxation system has become simple and has created a single market. 
  • Dedicated Freight corridors will smoothen the transportation and logistics. 
  • Sagarmala and Bharatmala projects have been started to upgrade port and road infrastructure.  
  • India has signed the Trade Facilitation Agreement of WTO and taken steps to make customs procedures smooth and paperless. 
  • Creation of Logistics Division: The Logistics division in the Department of Commerce has been created. Further, the Logistics division has planned to create an IT backbone and develop a National Logistics Information Portal. This online Logistics marketplace will bring together the various stakeholders on a single platform. 
  • Logistics Ease Across Different States (LEADS) Index: LEADS Index is an attempt to establish the baseline of performance in the logistics sector based on the perception of users and stakeholders at the state level. 
  • Logistic Enhance Efficiency Program: It was launched to manage and develop logistic parks and reduce the cost of logistics.  

What more can be done?

  • Formulation of National Integrated Logistics Policy to bring greater transparency and enhance efficiency
  • Faster clearances for setting up of logistics infrastructure like Multimodal logistic parks (MMLPs), Container Freight Station (CFS), Air Freight Station (AFS) & Inland Container Depot (ICD)
  • Promote the introduction of high-end technologies like high-tech scanning equipment, RFID, GPS, EDI, and online Track & Trace systems in the entire logistics network. 

Multimodal Projects

Integrated Multimodal Transportation System (IMTS) serves to interconnect different modes of transport – road, rail, air, and water – seamlessly and therefore improve the efficiency and speed of goods and passengers movement.

Multimodal Projects

Benefits

  • In difficult terrain, Multimodal Transport is better suited. E.g. Kaladan Multimodal Project uses Road, Inland Transportation and Sea. 
  • Ease in the movement of goods => Embedded cost of transportation in goods can be cut down.
  • The multiplier effect on the economy: They lead to the development of ancillary industries like Steel, Shipbuilding, Railway building etc.
  • International Relations: Our trade in South East Asia can grow with the development of Multimodal Projects in those areas. 
  • Provides faster transit of goods
  • Reduces the burden of documentation and formalities
  • Establishes only one agency to deal with.

Challenges

  • Coordination Issues: Different Ministries and agencies, both of Union and state, need to come on a single platform  
  • Land acquisition issues
  • Maintenance of all the modes of transportation simultaneously is an issue.
  • Finance Issues: It requires huge investment. 

Government Initiatives

1. PM Gati Shakti

PM Gati Shakti is a digital platform which connects 16 ministries such as Road, Shipping, Aviation, Railways, Petroleum, Telecom etc., to ensure holistic planning and execution of projects.

How will it work?

  • The platform has 200 layers of geospatial data, such as roads, railways, forests, rivers, state and district boundaries, etc., to aid in planning projects and obtaining rapid clearances.
  • The Gati Shakti portal will also help the government agencies to track the real-time development of various infrastructural projects from a centralized place.
PM Gati Shakti

Benefits

  • Address the silos-based approach of infrastructure development by various ministries.
  • Reduce the logistics cost in India.

2. Multi-Modal Logistics Park  (MMLP)

  • Multi-Modal Logistics Park (MMLP) is a modal freight handling establishment comprising warehouses, dedicated cold chain facilities, freight or container terminals and bulk cargo terminals, which eases and optimizes merchandise movement via road, rail, waterway and air, and consequently, rationalizes the cost of logistics and improves the competitiveness of logistics.
  • India is developing 35 MMLPs across India over the coming years. The first MMLP will be constructed in Assam at a cost of $407 million.

e-Commerce

e-Commerce

This article deals with ‘e-Commerce – UPSC.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


Introduction

Selling and buying goods using ICT is known as e-Commerce.

E-Commerce Sector is growing at an incredible pace

e-Commerce

The e-Commerce sector has generated a multiplier effect

  1. Huge creation of jobs 
  2. Reduction of market prices for consumers 
  3. Huge investment in logistics and infrastructure 
  4. Help Artisans exploit new markets. E.g. Karigar ke Dwar (Flipkart)  
  5. Help in promoting tribal art. E.g., Amazon and Trifed signed a contract to sell Indian Tribal Products globally under the brand ‘TRIBES INDIA

Two Models of e-Commerce

There are two models of e-Commerce

1. Market-Based Model

  • Market-based Model is followed by Amazon & Flipkart, in which the company provides the IT platform to facilitate the transaction between buyer and seller and takes their fees for providing the platform.
  • FDI Norms: FDI is allowed
Market-Based Model

2. Inventory-Based Model

  • In this Model, the seller manufactures and sells its product online—for example, the online store of Samsung, where Samsung sells its phones and other accessories.  
  • FDI Norms: FDI is not allowed
Inventory-Based Model

Other way to define

B2B Business to Business
B2C Business to Customer

e-Commerce Policy

Need for e-Commerce Policy

  1. Taking Market Based License but then acting as an Inventory based company. E.g., WS Retail, the biggest seller on Flipkart, is owned by Flipkart, and Cloudtail and Appario, which are the biggest sellers on Amazon, are owned by Amazon. Apart from that, Amazon sells its in-house products like Kindle in its marketplace.
  2. A large amount of customer data is under the control of e-commerce companies which can be misused.
  3. Importance of sector due to its revenue and job-creating potential. Hence, it should be properly regulated as any mishap can result in a catastrophe.
  4. Monopolistic market: e-Commerce giants such as Amazon are trying to set up a Monopolistic market by making the brick and mortar stores go out of the market through their policies such as making exclusive deals with mobile companies to sell their phones on their platform only and by giving large discounts.
  5. Silo-based regulation: e-Commerce in India is regulated by the IT Act, Consumer Protection Act etc. The government needs to consolidate it via a comprehensive act.

Draft e-Commerce Policy

  • FDI: Clearly demarcate a marketplace model & an inventory-based model and encourage FDI in the ‘marketplace’ model alone. (Earlier issue: Companies like Amazon show that they follow Marketplace Model but sell their inhouse products (like Amazon Kindle etc.) 
  • Data: Policy acknowledges data as a ‘national asset’/’societal common’ and seeks to establish a legal & technological framework to restrict the cross-border flow of data generated in India (Earlier issue – Companies take Indian data outside and mine it to target advertisements or sell data about their preferences).
  • Taxation Issues: The concept of ‘significant economic presence‘ should be adopted for the purpose of taxation. (Earlier issue – Companies like Amazon don’t pay tax, arguing that they are based in Luxemburg).
  • Infrastructure Development: ‘Infrastructure status’ will be given to digital infrastructure like data centres, server farms for data storage etc.
  • Small enterprises and start-ups attempting to enter the digital sector can be given ‘infant-industry’ status

Q-Commerce

  • Supply chain disruptions triggered by the pandemic led to a new sub-vertical of the online grocery segment is — Quick Commerce, or q-commerce — where the promise of deliveries within 10-30 minutes of ordering is the unique selling proposition. The focus of most of these ventures is on setting up micro-warehouses located closer to the point of delivery and restricting the stocks at these ‘dark stores’ to a focussed set of under 2,000 high-demand items, as against the traditional formula of well-stocked large-format warehouses located on the outskirts of towns and cities.
  • Examples: Instamart, Zepto, Grofers etc.

Inland Waterways

Inland Waterways

This article deals with ‘Inland Waterways– UPSC.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


Introduction

  • India has one of the longest navigable inland water networks. But out of the total 15,000 kilometres of a navigable river, India is currently using just 2000 km
  • West Bengal has the longest navigable length of rivers, followed by Assam and Bihar.
  • Inland waterways Transport constitutes just 0.5% of the total cargo transport. In China, 47% of goods and passenger traffic is transported through inland waterways. Whereas in India, domestic transport through water is 3.5%, out of which 0.5 % is inland & 3% is coastal.
Inland Waterways
  • According to a government study, one litre of fuel moves 24 tons/km on the road, 95 tons/km on rail and 215 tons/km on inland waterways.
Efficiency of Inland Waterways

Benefits of Inland Waterways

  1. It is cheaper than Road and Railways and costs 1/5th compared to road transport. 
  2. The Carbon footprint is also lower than road and rail systems.
  3. Land acquisition requirements are almost negligible compared with roads and railways. 
  4. The infrastructure that needs to be developed is minimal.
  5. There is also little scope for transit losses.
  6. It will open up considerable investment in the areas like water-based tourism, dredging of rivers, and operation of terminals generating millions of new jobs.


Main challenges

  1. Dredging: Inland navigation requires a water depth of 3 m & in most of the stretches of Ganga designated as NW1, it is not more than 2 m. Hence, regular dredging and repair are needed.
  2. Variability of water during the lean season impacts the operations.
  3. Oil spills & noise pollution can harm river ecology. E.g., the NW-1 project harming Gangetic dolphins. 
  4. Several rivers meander, increasing the distance to be travelled compared to road and rail.  
  5. On many rivers, bridges with low vertical clearance impede the passage of bigger vessels.
  6. To be viable, the water transport projects will need to have assured two-way commodity traffic. Bulk goods, like coal, minerals, foodgrain and fertilizer, are usually unidirectional, requiring the vessels to return empty or under-loaded. 


National Inland Waterways 

National Inland waterway Length (km)
Allahabad-Haldia stretch of the Ganga- Bhagirathi- Hooghly river system 1620 (longest)
Sadiya-Dhubri stretch of Brahmaputra river 891 
Kollam-Kottappuram stretch on Champakara canal and Udyogmandal canal 205
Kakinada-Puducherry stretch of Canals (on Godavari and  Krishna and Canals) 1078 
Talcher-Dhamra stretch (Brahmani river) 588
Lakhipur Bhanga on Barak River, Assam  121
National Inland Waterways

National Waterway Act, 2016

  • Inland Waterways, Shipping and Navigation, are covered in Entry 24 of the Union list. Hence, Parliament is empowered to legislate on this.
  • This act repealed all earlier Acts for individual waterways, and 111 National Waterways have been notified under the provisions of this act. 
  • Working National Waterways
    1. National Waterway 1: Ganga-Bhagirathi-Hooghly River System
    2. National Waterway 2: Brahmaputra River
    3. National Waterway 3: Kollam-Kottappuram stretch on Champakara canal and Udyogmandal canal
    4. National Waterway 68: Mandovi
    5. National Waterway 97: Sundarbans Waterways
    6. National Waterway 111: Zuari

Jal Marg Vikas Project

  • This project aims to develop infrastructure to enable National Waterway 1 for commercial navigation on the Varanasi-Haldia stretch of river Ganga.
  • In 2018, the Varanasi freight terminal became operational when the cargo ship ‘MV Rabindranath Tagore’ arrived in Varanasi from Kolkata.

Ways to Finance

  • The government is using the corpus of the National Clean Energy Fund (NCEF) and Central Roads Fund  (CRF) for upgrading the Inland Waterways.
  • Apart from that, the market borrowing route is also used. 

Inland Vessels Bill, 2021

The bill will replace the Inland Vessel Act 1917.

Provisions of the bill include

  • To operate in inland waters, vessels must have a certificate of survey and registration.
  • The bill will bring all inland vessels & waterways in India under union government regulation.    
  • Mechanical vessels must have certain equipment and signals to ensure safe navigation.
  • In case of an SOS signal is sent by the vessel, the nearest vessel must respond to the call and failure to respond can result in a fine of up to Rs. 10,000.
  • In case of an accident, the nearest police station will hold the jurisdiction for the inquiry.
  • The Centre will prescribe the rules for the minimum qualification of the crew.

Bodies related to Inland Waterways

Inland Waterways Authority of India (IWAI) 

  • IWAI was created in 1986.
  • Function: Regulatory body for Inland waterways
  • Headquartered in Noida.

Central inland Water Transport Corporation Ltd (CIWTC)

  • CIWTC was incorporated in 1967 by taking over all the assets of the erstwhile River Steam Navigation Co. Ltd.
  • It regulated the Inland Water Transport between India and Bangladesh.
  • Headquartered in Kolkata.

Shipping

Shipping

This article deals with ‘Shipping– UPSC.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


Introduction

  • Shipping is the world’s most efficient means of transportation.  
  • In India, the sector works under the Ministry of Shipping.  
  • In Schedule 6 of the Indian Constitution, Port development in India is a concurrent subject. Hence
    • Major ports are regulated by the central government  
    • Non-major ports are regulated by state governments 


Statistics

Coastline 7500km (including Andaman & Nicobar, Lakshadweep)
Major Ports There are 12 Major Ports in India (6 West + 6 East)
These ports handle around 60% of traffic
Minor Ports There are more than 180 minor ports in India.
These handle 40% of traffic.
But presently, with the entry of private players (like Adani Group), these are witnessing tremendous growth.
Ship-Breaking Industry India is ranked number one in shipbreaking. (Alang in Gujarat is the biggest in the world)
Shipyards Cochin Shipyard Limited is the largest shipyard in India. 
Ships As of September 2019, India has a fleet of 1,419 ships (one of the largest among developing countries)

Note: Indian International Trade by volume and value carried by ships

Shipping

Ports of India

According to India Yearbook & Sagarmala Concept Paper, India has 12 Major Ports.

Major Ports of India

Major ports on the West Coast

1. Mumbai (Maharashtra)

  • It is situated in Maharashtra and is one of India’s most important major ports.

2. Jawahar Nehru Port, Nhava Shewa (Maharashtra)

  • It was commissioned in 1989 to ease pressure on Mumbai port.

3. Kandla (Gujarat)

  • Kandla is a tidal port which was developed in the 1950s because Karachi port was lost due to partition.
  • It was the first Exclusive Economic Zone (EEZ) in India and Asia.

4. Mormugao (Goa)

  • Mormugao is a tidal port situated at Zuvari estuary
  • It is important for iron-ore export.

5. New Mangalore (Karnataka)

  • It is a deep water all-weather port. 
  • It was operationalized in 1975.

6. Cochin/Kochi (Kerala)

  • It is situated on Willingdon Island.

Major ports on the East Coast

7. Haldia | Kolkata (West Bengal)

  • It is the only major RIVERINE port in India.
  • Haldia port is the oldest major port of India.  
  • It has twin dock systems viz., Kolkata Dock System (KDS) on the eastern bank and Haldia Dock Complex (HDC) on the western bank of river Hooghly. 
  • Port needs constant dredging to keep depth.

8. Vishakhapatnam (Andhra Pradesh)

  • Vishakhapatnam port is situated in Andhra Pradesh.

9. Paradeep (Odisha)

  • It is situated on a manmade lagoon. 
  • JL Nehru laid its foundation in 1962 at a point where Mahanadi meet the Bay of Bengal 

10. Tuticorin (Tamil Nadu)

  • It is a major port situated in Tamil Nadu.

11. Chennai (Tamil Nadu)

  • Port of Chennai is an all-weather port situated in Chennai.

12. Ennore (Tamil Nadu)

  • It is a private major port made under the companies Act

(Newly proposed) Enayam Port (Tamil Nadu)

  • The proposal to establish Enayam port was accepted in 2016.
  • Currently, around 78% of the marine traffic from ports of India is trans-shipped to Colombo, Singapore and Klang (Malaysia), as most of the Indian ports don’t have a draught (depth of water needed for a ship to float) to match global cargo handling. Enayam will solve this problem. The Enayam port has a natural deep draught of about 20 meters which makes it feasible for the largest vessels in the world. 
  • But this port is very close to Vizhinjam (Transhipment) Port of Adani’s in Kerala. 

Private Ports by Adani Group & others

  • In recent years, there has been an attempt to increase the country’s port capacity, but the real successes have been in the private sector, mainly by the Adani Group.
    • Sikka & Mundra port of Adani Group in Gujarat has overtaken Kandla to become the country’s largest. 
    • Dhamra (in Odisha) of Adani Group has become as big as Haldia. 
    • Adani will become the champ of the country’s port business once he builds the deep-water port at Vizhinjam in Kerala, designed to take some of the transhipment traffic away from Colombo.
  • Meanwhile, Krishnapatnam port on the southern Andhra coast is being developed by local entrepreneurs, and claims to handle as much traffic as the long-established Chennai.

Side Topic: Dry Ports

  • They are inland terminals, directly connected to a seaport by rail or road, which provide similar services as that of a seaport, such as handling, temporary storage, inspection and customs clearance for international freight etc. 
  • They are beneficial as they reduce the seaports’ capacity constraints and, simultaneously, develop the hinterland.
Shipping

Problems of Indian shipping

Colombo can handle more container traffic than all of India’s ports put together — with  75% of that being transhipment of containers from India because India’s ports are too shallow to accommodate big container vessels.

Problems related to Ports

  • India doesn’t have world-class portsThird-generation ships can’t enter Indian harbours & as a result, goods are offloaded in Sri Lanka & sent to India via smaller ships. 
  • Port charges are high as compared to other developing nations.
  • Port congestion
  • Poor mechanization and manual handling of critical processes. E.g. in Paradip port.

Governance Issues

  • dual institutional structure has led to the development of Major and Minor ports as individual projects.
  • Ports in India are operating on the “Trust Model”, where the government is the owner and operator of the port. 
  • Procedural bottlenecks as there is a lot of paperwork to load -unload cargo.
  • Poor performance of Government ports: It takes up to four times as long to fill or unload a cargo ship at Jawaharlal Nehru Port than at a private rival due to lower mechanization and unskilled labour.

Lack of Evacuation from Ports

  • There is inadequate road & rail connectivity to ports.

Fleet = Ageing + Low number

  • Ageing fleet: There is an urgent need to replace our ageing ships with new ones.
  • Indian ships account for a tiny part of the country’s trade, i.e. about 15%, compared to the international norm of 40%.  

No Shipyards

  • India has no civilian shipyards to compare with the world’s best. The two or three private ones that look to build commercial vessels are deep in debt and short of orders; most Indian ship-owners prefer to look to foreign yards because of better quality and assurance on delivery schedules. 

Low Penetration of Inland and Coastal Shipping

  • Coastal and inland shipping hasn’t developed in India due to limited facilities, higher costs and policy constraints.

In short, India’s maritime business needs a booster shot.


What govt is doing to boost Maritime Sector

The government is taking various steps to boost the Indian Maritime Sector, which includes

  • Sagarmala Project
  • Maritime India Summit
  • National Waterways Bill
  • Enayam Deep Sea Transhipment Port
  • Trade Facilitation Agreement (TFA)
  • Major Port Authorities Bill

Projects regarding Shipping Ministry

1. Sagarmala Project

Sagarmala is an initiative for port-led development whereby India’s coastline will become the gateway to India’s prosperity.

Key Components

Sagarmala Project
  • Port Modernisation: It aims to transform existing ports into world-class ports by modernization of port infrastructure and existing systems & developing 6 to 8 new world-class ports 
  • Efficient Evacuation Systems / Port Connectivity: Develop efficient rail, road and inland waterway networks connecting ports to the hinterland.  
  • Coastal Economic Development: Encourage coastal economic activity in coastal regions by:
    • Development of Coastal Economic Zones (CEZ), port-based SEZs etc. 14 CEZs are to be made under Sagarmala.
    • Promotion of coastal tourism.
  • Coastal Community Development: This will be achieved via
    • Skill Development 
    • Uplifting fishermen and other local communities
    • Island development

Sagarmala could boost India’s merchandise exports to $110 billion by 2025 and create an estimated 1 crore new jobs. 


2. Sethu Samudaram 

  • The project aims to create a shipping canal connecting Palk Bay and the Gulf of Mannar. 
  • It will reduce time and fuel consumption. 
  • But it has been struck because of opposition on account of religious sentiments about Ram Setu and the threat it poses to marine biodiversity.
Sethu Samudaram

Major Port Authorities (MPA) Act, 2020

  • It has replaced the Major Port Trust Act of 1963.  
  • The composition of the Board of Authority has been simplified, and it will now comprise 11-13 members instead of the earlier 17-19 members. 
  • Each port will have a separate Board of Major Port Authority members from the State Government, Railways Ministry, Defence Ministry, Customs Department etc.
  • Model of Ports
    • Under the earlier Act: Ports used to operate on the “Trust Model”, where the government is the owner and operator of the port.
    • Under MPA Act: Ports operate on the ‘Landlord-Tenant Model’ where Major Port Authority will be the owner and regulator. 
  • Earlier, Ports’ user fees were decided by National Tariff Authority for Major Ports. In the MPA, the Board of Major Port Authority will set up Committees to determine their user fees. 
  • The Board of Port Authority has been given full powers to enter into contracts, plan and develop except in national interest, security and emergency arising from inaction.

Asian Development Bank

Asian Development Bank

This article deals with the ‘Asian Development Bank .’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


Introduction

Established 1966
Motto “Fighting poverty in Asia & Pacific”
Headquarter Manila , Philippines
Type Regional organisation, multilateral development & finance institution 
Members 67 (48 from Asia and pacific  + 19 from outside)
India’s membership India was the founding member of ADB
President Masatsugu Asakawa , Japan (2020- present)
Vice – President Ashok Lavasa (2020 – present ) (He was Election Commissioner and would have become Chief Election Commissioner)

Biggest Shareholders of Asian Development Bank

Asian Development Bank

Principles of ADB

  • To make loans & equity investments for its developing members’ economic & social development.
  • Provide technical assistance for the preparation & execution of development projects & programs & provide advisory services.


Indian Position in ADB

Indian Position in ADB
  • India’s subscription to Bank’s capital stock is 7.2% & a voting share of 6%.
  • India started borrowing from ADB’s ordinary capital resources in 1986. The Banks lending has been mainly in Energy, Transport & Communications, Finance, Industry & Social Infrastructure sectors.
  • India holds the position of executive director on the Board of Directors of the Banks => its constituency comprises India, Bangladesh, Bhutan, Lao & Tajikistan.
  • India is represented by 
Finance Minister Governor
Secretary Alternate Governor

Aviation

Aviation

This article deals with ‘Aviation – UPSC.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


Introduction

  • India’s domestic passengers have almost doubled in the last 5 years owing to the UDAN scheme
  • In 2020, the number of airports in India reached the 100 mark.


Potential of civil aviation sector

  • The geographical, economic and demographic conditions are such that India can be on the third-largest number of airline passengers. These favourable conditions are listed below.
    • India’s geographical situation in the middle of the Eastern and Western Hemisphere
    • India has a robust middle class of about 35 cr Indians. 
    • Rising income due to India being one of the fastest-growing economies globally
  • But strict and outdated regulations have not allowed the sector to achieve its potential, and India is ranked 10th globally wrt the number of airline passengers. 


Aviation Challenges

Aviation

1. Infrastructure constraints

  • The civil aviation infrastructure, especially in the metros such as Delhi, Mumbai etc., has been operating at saturated levels. Therefore, the government will have to attract large investments in building new and upgrading the existing infrastructure.

2. Aviation Turbine Fuel (ATF)

  • The taxation on Aviation Turbine Fuel (ATF) in India is high. Hence, ATF is priced 60% higher in India compared to the global average. Given the fact that ATF accounts for 40% of the operating costs of airlines, it puts Indian airlines under considerable pressure.

3. Lack of skilled workers

  • Given the growth of the aviation sector, India will need 0.25 skilled workers in the aviation sector over the next decade.

4. Limited Capacity of Airlines

  • 90% of traffic is concentrated in the metro cities. Although the potential consumer base is large, airlines have not been able to tap it.

5. Predatory pricing

  • Indian airlines indulge in Predatory pricing, i.e. sell their tickets at very low prices to bleed the competitors out of business. But in the process, they bleed themselves and make substantial losses.

6. Aviation Safety

  • In India, there were 440 aviation safety violations in 2016 and 340 in 2017, which are quite high compared to global standards.

7. Other challenges

  • High Airport Charges
  • High aircraft to man ratio

Airlines in India

Public Sector Air India and its subsidiaries
Private Sector Air India = owned by Tata GroupB
Jet Airways = Naresh Goyal
Spicejet = Sun group (of Kalanidhi Maran)
Interglobe Aviation (IndiGo)
Go Airlines
Cargo Airlines Deccan cargo (Deccan 360) 
Blue Aviation Express Logistics

New players in the Indian market

  • Air Asia (Tata 30%+ Malaysian Airline AirAsia 49% + Telstra 21%)
  • Air Costa
  • Quickjet Cargo Airlines

Air India

  • Air India was formed after Air India & Indian Airlines merger in 2007. 
  • It has the largest fleet in India, including new planes. It controls 17% of the Indian Market.
  • But it suffered from a debt of over ₹50,000 Crore. Hence, the government wanted to privatize it. After large discussions, the Tata group has bought the airlines. 

Pawan Hans Helicopter ltd

  • It is a government-owned company started in 1985 
  • Provides helicopter service to
    • ONGC’s offshore drilling platforms
    • Hilly and inaccessible areas
    • Amarnath Yatra
    • Emergency evacuation

Disinvestment of Air India

Timeline of Air India

1932 Tata Airlines begins offering air services in India
1946 Tata Airlines renamed as Air India (AI)
1953 Air Corporation Act passed, and Air India was nationalized along with 7 other private carriers.
1981 Vayudoot, a new carrier, established to act as a regional feeder airline
1986 To boost tourism, private air taxis were allowed to fly with riders.
1993 After suffering an annual loss of ₹200 crores, Vayudoot was merged with Indian Airlines, adding to its debt load.
1994 The Air Corporation Act was repealed, and private carriers were allowed to enter the market again.
2003 Naresh Chandra Committee report calls for the privatization of Indian Airlines and Air India but faces stiff opposition.
2005 Air India signs a purchase agreement for 50 Boeing aircraft at the cost of ₹ 33,000 crores.
2007 Indian Airlines & Air India were merged to form the National Aviation Company of India Ltd.
2010 The company was renamed Air India
2011 CAG hauls up Air India and Civil Aviation Ministry for reckless purchase of aircrafts
2017 Air India losses mounted to ₹ 50,000 crores forcing the government to move towards privatization.
2021 Tata group bought Indian Airlines from the Government of India.

Debt Causes

Air India has a debt of ₹ 50,000 crores, accumulated for various reasons spanning decades. CAG Report of 2011 too has given detailed reasons for this 

  1. Unprofessionalism in management when compared to world-class airlines. 
  2. Massive fleet expansion 
  3. Free travels by VVIPs like Ministers and Officials
  4. In early 2005, Indian Airlines inducted planes despite no demand for them. These were funded by raising high-interest loans.  
  5. Liberalized policy on international routes like nonstop flights to the US was loss-making.

Pros of disinvestment of Air India

  • Indian Airlines is loss-making. Hence, keeping it afloat under government control would be wasting taxpayers’ money 
  • The private sector has taken up, and private airlines already cater to over 85% of the air travel demand in the country.
  • It would bring professionalism in management.  
  • Government money that keeps Air India afloat would be better used to fund important social and infrastructure programs. 
  • It will help the government to spend its energy on core governance issues. 
  • The sale of Pawan Hans in 2016 revived the company owing to the infusion of professionalism and better management.

Cons of disinvestment of Air India

  • Many sectors and routes that private airlines may not find economical to operate are handled by Air India. E.g., Private Airlines give limited services to North East. 
  • Air India, which is a sovereign airline, is used by Government in emergency evacuations of Indian nationals from warzones.  

National Civil Aviation Policy, 2016

Key highlights of  Aviation Policy-2016 are as follows

1. 5/20 rule Scrapped

  • 5/20 rule, i.e. 5 years of operation and a fleet of 20 aircraft before handling international flights, has been scrapped. 
  • But airlines will have to operate at least 20 aeroplanes or 20% of their planes (whichever is higher) on domestic routes. 

2. Improve Air connectivity to smaller cities 

  • The policy wants to improve air connectivity with smaller cities. 

3. Subsidized Tickets

  • Under the regional connectivity scheme, the maximum price that can be charged is Rs 2500 per hour.
  • A 2% levy is to be charged on all domestic and overseas tickets to subsidize airlines’ losses.

4. Infrastructure

  • Airports in Tier 2 and 3 cities will be operationalized on the ‘No Frills Model’. 

5. Open Skies Policy

  • Under the ‘Open Skies Policy’, foreign airlines can operate unrestricted and unlimited flights in and out of India. It will help India become a regional hub like Dubai and Hong Kong. 

6. Other important

  • Maintenance, Repair & Overhaul (MRO) don’t have to pay a royalty to airports where they operate, which will help make India an MRO hub. Royalty is up to 20% presently.  

Side Topic: No Frills Airport

  • No Frill Airports are the airports with lesser facilities like no escalators, no AC Lounges etc.
  • These Airports are made in small cities because airports providing high-end facilities are not feasible in Tier II & III Cities.
No Frills Airport

UDAN Scheme

Timeline

2017 Aviation Ministry announced a scheme named UDAN (Ude Desh ka Aam Naagrik) to increase air traffic to Tier II & Tier III cities. 
2018 Second phase of UDAN scheme announced.
2019 UDAN (International) scheme launched, under which Guwahati Airport will be connected to Bangkok and Dhaka shortly. 

Under Scheme

  • Capping the fare
    1. Airfare for an hour’s journey of about 500km is capped at ₹2,500. 
    2. In the case of helicopter operations, fares are capped at ₹2,500 for a 30-minute flight.
    3. Seaplanes have also been included in the scheme in the subsequent phases. 
  • Capping of airfare is applicable on half of the flight’s seats.
  • Centre provides subsidy support to airlines via a Viability Gap Fund (VGF), which obtains money by levying cess on non-regional routes. 
  • Airlines get three-year exclusive rights to operate regional flights. 
  • No airport charges for airlines as airline operators complain that airport expenses constitute 25% to 30% of operating costs.
  • The scheme will be operational for a period of 10 years. 

Importance

  • The scheme has brought Tier 2 and Tier 3 cities into the country’s aviation network. 
  • Positive Spillover Effect on Economy: The scheme will make businesses and trade more efficient, enable medical services and promote tourism.
  • Employment Generation: As per the International Civil Aviation Organisation, each job created in the aviation sector creates 6.1 jobs in the economy. 
  • This scheme can help in improving the health of the ailing Aviation Sector. Even if 1 middle-class family buy 1 air trip per year, the Aviation sector can sell 35 crore tickets. 

Issues

  • Misdirection of Subsidy 
    • Even without the subsidy, there was an increase in air flyers.  
    • The subsidy is given to Middle Class when it could better serve some Social Schemes aimed at Lower Class.
  • Against Laisse – Faire: Airlines are given exclusive rights for 3 years, and other airlines cant operate there even if they want to. 
  • Another levy for creating the Viability Gap Fund will impact the already overtaxed Aviation Sector. Taxes on ATF is already among the highest in the world.

NABH (Nextgen Airports for Bharat) Nirman initiative

Aim: Capacity augmentation of the airport because 25 busiest airports of India are operating beyond their capacity.  

What it will do?

  • Expansion of the airport capacity to handle a billion trips a year.  
  • Establish about 100 new airports in the next 15 years at an estimated Rs 4 lakh crore investment. 
  • Increase the economic and tourism activities in the smaller cities by connecting them with airline services.

FDI in Aviation

FDI in Aviation

Bodies related to Aviation Sector

Ministry of Civil Aviation

  • Ministry of Civil Aviation mainly looks after the Aviation sector in India 

Airport Authority of India

  • AAI is a PSU of Miniratna category. 
  • Sovereign Air traffic controller of India.
  • It manages international airports, domestic airports, and custom airports.

Directorate General of Civil Aviation (DGCA)

  • DGCA is the regulatory body of Civil Aviation. 
  • Its functions include 
    • Registrar of civil aircrafts
    • Laying down airworthiness requirement 
    • Gives license to pilots
    • Investigates of minor accidents 
    • Implements Chicago Convention

Bureau of Civil Aviation Security (BCAS)

  • Initially, it was a cell in DGCA setup in 1976 on the recommendation of the Pandey Committee after an aircraft hijack in 1976. It has been restructured now an independent department under the Ministry of civil aviation, after Kanishka Tragedy in 1985
  • BCAS is the regulator of the security of civil aviation. 

International Civil Aviation Organization (ICAO)

  • ICAO is a specialized agency of the UN and was set up under the provisions of the Chicago Convention of 1944.
  • It is headquartered in Montreal, Canada and India is a member of ICAO since its inception.
  • ICAO ensures the operation of airlines between different countries.

Railways

Railways

This article deals with ‘Railways – UPSC.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


General Information

Timeline

1853 First Train started in India (from  Mumbai to Thane (34kms))
1924-25 Rail budget was separated from general budget (based on the Acworth Committee Report of 1921)
2015 Bibek Debroy Committee on railway restructuring gave recommendations.
2016 India’s first Railway University opened in Vadodara, Gujarat
2017 Railway Budget was merged with General Budget.

Share of Railways in the transportation of goods

In the US, 44% of goods are transported through railways, but in India share has been decreasing each passing year  (65% in 1970, 30% in 2007 & 25% in 2020)

Railways

Benefit of Railways wrt other modes of transport

  • Cheaper: The transportation cost of goods using railways is low (₹2/ton/km).
  • Low Carbon Footprint: Railways are a greener mode of transportation as they consume 20% less energy.
  • Integrate India with world markets: Railways can help to expand & integrate markets as they did in Europe and the USA. 
  • Spur economic activity: According to Economic Survey, 1 rupee invested in the railways increases GDP output by 5 rupees.

Railway gauge size

Gauge Size
Broad 1,676 mm
British used it to send raw material from Indian hinterland to port cities
Meter 1,000 mm 
Narrow 762 mm
Lift  610mm
  • Ranking track length in India: broad > meter > narrow
  • Under the Project uni-gauge, Railways has converted selected routes into broad gauge.

Railway Undertakings 

Indian Railway has 14 undertakings. Important ones are 

  • IRCTC (provides catering services)
  • CONCOR (Container Corporation of India)
  • Railtel

Statistics about Indian Railways

Statistics about Indian Railways
Operational Ratio of Indian Railways

UNESCO World Heritage: Indian railways

  1. Darjeeling Himalayan Railways
  2. Nilgiri Mountain Railways
  3. Kalka Simla Railway
  4. Chhatrapati Shivaji Terminus (Victoria Terminus) (It was designed by British architect FW Stevens in  Gothic Style)

National Rail Plan for India, 2030

Under this plan, the government of India wants to achieve the following

  1. Increase Indian railway’s share in freight transportation to 45% and average speed of freight transportation to 50% by 2030.
  2. Achieve 100% electrification of all train routes.
  3. Increase the speed of Delhi-Howrah and Delhi-Mumbai routes to 160 km/hr.
  4. Identify and develop new Dedicated Freight Corridors and High-Speed Rail Corridors.
  5. Improve the safety of railway tracks in India.

PM Gati Shakti

  • The scheme aims to bring Railways and Roadways together for integrated planning and coordinated implementation of infrastructure connectivity projects.

Railway Budget merged with General Budget

Railway Budget vs General Budget

  • 1924-25: British separated rail budget based on the recommendations of Acworth Committee (1921).
  • Indian constitution didn’t provide for a separate railway budget or budget in parts. But Parliamentary rules of procedure permitted it.
  • 2017: Railway Budget was merged with General Budget.

Arguments for merging Railway Budget with General Budget

  1. Economic Reasons:
    • Saving funds of financially starved Railways: Indian Railways need not pay the annual dividend of ₹10,000 crores to the Government. 
    • Railways will be better equipped to raise funds on the strength of the sovereign instead of being restricted to the Indian Railway Finance Corporation.
  2. The situation is different from 1924:  In 1924, the railway’s expenditure was more than the expenditure of all other administrative expenses. It has presently reduced to just 6% of total government spending.
  3. Any other country does not follow this system. 
  4. Politicization of Railways: This provision was used by politicians for populist reasons.   
  5. Bibek Debroy Committee too has suggested separating the railway budget from the general budget.

Why should there be a separate budget for the Railways?

  1. Indian Railways is different from other central ministries due to its size and scope. Whereas other ministries just spend, Railways is an operational ministry as it earns and spends. 
  2. Bibek Debroy Committee has recommended separating the railway budget from the general budget. But it wasn’t a standalone measure.

Metros / Mass Rapid Transit System (MRTS)

  • Rapid transit, also known as the metro or subway, is high-capacity public transport. Unlike buses & trams, they are electric & operate on an exclusive right-of-way. 
  • First Metros was started in Kolkata in 1984 from Dum Dum to Tollygunge. 

Benefits

  1. Reduced traffic density on the roads
  2. Reduced vehicular emission leading to decreased air pollution
  3. Reduced fatalities due to road accidents
  4. Reliable & safer journey
  5. Decreased fuel consumption
  6. Decreased vehicular operating cost

Metro Rail Policy, 2017

Metro Rail Policy, 2017

Indian Government has announced its Metro Rail Policy with PPP as the centre of the scheme

  • PPP is the centre of the scheme. The PPP component has been made mandatory for availing assistance from the central government.
  • The new policy mandates Transit Oriented Development (TOD).
  • Power to set up Fare Fixation Authorities has been vested with states. 
  • States can raise low-cost debt capital through the issuance of corporate bonds. 
  • Empowers state to charge a “betterment levy” in areas that will benefit from the metro rail projects. 

Problem with the Policy

  • The main problem is with the PPP model. PPP model has failed in Delhi Metro’s airport line — and is faltering in the Mumbai and Hyderabad metro rail projects. Due to various positive externalities of Metro, these projects must be subsidized by the government. In  Delhi Metro, the Centre and state government have footed much of the bills. Even E Sreedharan has opined that the PPP model is not suitable for Metros as private players expect more than 12% return from metro projects while no metro project can yield more than 3 per cent.

MetroLite or MetroNeo

  • MetroLite or MetroNeo is the model for Metros in smaller cities such as Nashville in the USA and Indian cities of Jammu, Coimbatore, Srinagar etc.
  • It was announced in the budget of 2021. 
  • These are a lighter version of conventional metro rail and can be set up at a lesser cost (2/3rd to 1/3rd cost of the normal metro).

Issues that Indian Railways is facing

1. Cross subsidisation

  • Railways keep passenger tickets low –> Indian Railways suffer the loss of 23 paisa/passenger/km.
  • To compensate for the loss, Indian Railways keep freight prices higher.

2. Operating ratio of Indian Railways

  • The Operating Ratio of Indian Railways is just 98.4%, i.e. Indian Railways spend 98.4 rupees out of 100 rupees earned. Hence, only 1.6 rupees are left in surplus. 
  • It is a problem because Indian Railways left with no capital for expansion. 

3. Rail Safety / Large accidents

  • A large number of rail accidents such as derailments and collisions take place in India.

4. Congestion of Tracks

  • Indian railways has an overstretched  infrastructure  with 60 per cent plus routes being more than 100 per cent utilized,  leading to a reduction in the average speed of passenger and freight trains

5. Organisational Structure

  • Due to complex and outdated organizational structure, project approval and completion take extraordinarily long.

Steps already taken to improve railways

  • Tariff rationalization of fares has already been completed.
  • Indian Railways is focussing on Non-Tariff Earnings such as advertisement revenue.
  • Rail Budget has been merged with General Budget. 
  • The government has constituted the Rail Development Authority (RDA).
  • New delivery models like Roll-on Roll-off (Ro-Ro)services have been started.
  • Indian Railways have changed the accounting system  to Accrual Based Accounting from Cash Based Accounting 
  • Indian Railway Finance Corporation has issued Masala Bonds to gather funds.
  • Kayakalap Council under the Chairmanship of Ratan Tata has been constituted

Side Topic: Accrual Based Accounting

Accrual Based Revenues are reported on Income Statement when they are earned
Cash Based Revenues are reported on Income Statement when they are received

Non-Tariff Earning

  • Indian Railways has decided to increase its focus on non-tariff earning
  • All the budgets since 2016 have emphasized on non-tariff earnings, and Indian Railways unveiled its first non-fare revenue policy in 2017.
  • Indian railways earn a minuscule amount from non-tariff revenue compared to their counterparts in other countries. E.g., Indian railways earn 5% of all its earnings from non-tariff revenue compared with 25-30% in Japan. 

How

  • Selling spaces on railway stations and railway containers for advertising hoardings and billboards.  
  • Leasing out spaces at platforms to ATMs. 
  • Selling branding rights of trains and stations. 
  • Leasing the land around tracks for horticulture purposes

Bibek Debroy Committee  on Railway Restructuring

Bibek Debroy is a noted economist & member of NITI AYOG. The committee was formed under Bibek Debroy to suggest measures to restructure railways. 

Suggestions of Committee

Bibek Debroy Committee  on Railway Restructuring

The committee does not recommend the privatization of Indian Railways. However, it does endorse private entry with the provision of an independent regulator.

1. Reform in Human Resource Management

  • There are 8 services in Railways with different cadres, thus reducing the administrative efficacy. 
  • Recommendations: Unify the Cadre System for optimal utilization of human resources.  

2. Outsourcing

  • Outsource non-core areas, i.e. Police force, schools, hospitals, water bottling, museums etc. 

3. Regulator

  • The Committee has recommended that the Independent RAILWAY Regulator. 
  • Railway Board should continue only as an entity for the management of Indian Railways (PSU).
  • 2018 Update: Rail Development Authority has been constituted with the following functions
    1. Recommend tariff “commensurate with costs.” 
    2. Benchmark service standards
    3. Frame guidelines for track access charges on dedicated freight corridors.

4. Towards entry of private players

  • It recommended separating railway track construction, train operations, and rolling-stock production units under different entities to enable open access to private operators. 

5. Other Recommendations

  • Merge rail budget with General Budget.

Sanjeev Sanyal Committee Report (2021)

The main recommendations of the Committee include

  1. Wind up organizations such as Central Organisation for Railway Electrification (CORE), Centre for Railway Information System (CRIS) etc.
  2. Merge Rail Vikas Nigam into IRCON, Railtel into IRCTC and takeover of Braithwaite and Co. Limited by RITES as their functions overlap.
  3. Outsource the non-core functions. 

Private Train Operators

On selected routes, Private train operators will Design, Build, Finance and Operate (DBFO Model) their own private trains on government tracks  & charge market-linked fares. . Government (Indian Railways) will provide track and signalling infrastructure to them in return for which Private train operator will share a percentage of its revenue with Government.


Timeline of Rail Privatization

2011 
Sam 
Pitroda 
Committee 
Attract private 
investment in building 
railway infrastructure. 
2015 
Bibek 
Debroy 
Committee 
Allow entry of private 
railway operators in goods 
and freight services 
2021 
Bharat 
Gaurav 
Policy 
Allowed Private Operators 
to run trains on theme 
based circuits

Benefits of Rail Privatization

  • It will lead to improved efficiency as private players will bring superior management, technology and amenities.
  • It will lead to a lack of political interference in the railway operations, and decisions will be taken on sound economic principles.
  • Increased competition: The entry of private players will ensure improved quality of service with competitive fares. 
  • Prevent Government’s loss: The revenue generated by the Indian Railways is low and keeps the system always at losses. 
  • Reducing the supply-demand deficit: Since waitlisted passengers comprise ~15% of the reserved passengers. 
  • Private investment: According to estimates, railway infrastructure needs an investment of ₹50 trillion between 2018 and 2030. Given the FRBM restrictions, involvement of private capital is required.  
  • Economic Growth: Private investment in the railways will also lead to economic growth due to its positive spillover effects.

Challenges

  • Private monopoly: Privatization in railways might create a private monopoly that might seek to set higher prices and exploit consumers.  
  • Coverage Limited to Lucrative Sectors: With privatization, less popular routes could be eliminated, thus hurting connectivity and rendering some parts of the country virtually inaccessible.  
  • Apprehension among railway employees about job-loss, if Government reduces the number of Government trains.
  • Fragmentation in the railways: Rail privatization broke unified railway operations into infrastructure management and train operating companies in the UK. It led to the absence of clear demarcation of responsibility.

Bharat Gaurav trains and Bharat Gaurav Policy

  • Bharat Gaurav Trains are private trains that will operate on theme-based circuits (e.g., Ramayana Express connecting places associated with Lord Ram).
  • The operator can lease the train and coaches from the Indian railways and change the interiors provided they comply with the safety norms.
  • The tenure of arrangement can vary from a minimum of two years to the life of the coach. 
  • The operator can also decide the halts, sell advertisement rights etc.

Railway Safety

Main categories of Railway Accidents

  • Derailment of Trains is the primary cause of railway accidents, constituting 50% of railway accidents.
  • Accident on unmanned level crossing gates (36%)
  • Train collisions
  • Rail Fire 
  • Persons standing on railway tracks (e.g., In 2018, 61 people were crushed to death in Amritsar).
  • Natural Causes such as floods, landslides etc. 

Between 2012-2018, a total of 600 rail accidents happened.


Reasons for Railway Accidents

  1. Lack of anti-collision technologies that automatically halts the train if it overshoots a red signal.  
  2. Inappropriate maintenance of tracks: Khanna Committee on Railways Safety commented that nearly 25% of the total railway track in India is overaged.  
  3. Poor Rolling stock: Most trains’ locomotives are not equipped with the Linke Hoffman Busch (LHB) coaches. LHB coaches are more secure than ICF due to the lower centre of mass, preventing it from toppling, turtling, and telescoping.
  4. Rail Fractures: Railway Tracks are made up of strong and durable steel, which can withstand extreme weight and fluctuations in temperature. But Railway fractures do occur due to many reasons like defects during manufacturing, defects during installation and lack of maintenance. These Rail fractures are also among the frequent reasons for derailments.
  5. Government Negligence: Government has formed committees such as Sam Pitroda Committee, Khanna Committee and Bibek Debroy Committee. But all these reports kept on lying dormant and recommendations un-implemented.  

Steps taken by Government

  • Rashtriya Rail Sanraksha Kosh was created with a corpus of 1 lakh crores to promote railway safety.   
  • TCAS (Train Collision Avoidance System): TCAS is based on a combination of railway signalling data, global position, radio frequency identification devices (RFID), software and logic. 
  • Tri-Netra System: Tri-Netra or Three Eyes system is made up of (1) Optical video camera, (2) Infrared video camera and (3) Radar-based terrain mapping system. It will help in avoiding collisions even during the fog.
Tri-Netra System
  • Changing to LHB: Indian Railways is replacing the ICF (Integral Coach Factory) coaches with German-made Linke Hofmann Busch (LHB) coaches. 
  • Setu Bharatam Project: Under the Setu-Bharatam project, unmanned railway crossings are eliminated. 

Way Forward: An independent body like Railway Safety Authority should be constituted to set the standards for Rail Safety and find the reasons and persons responsible for it in case of an accident.


Dedicated Freight Corridors 

Freight operations on the Indian Railways are set to witness a paradigm shift with the completion of its two dedicated freight corridors.

Eastern & Western DFC

Eastern & Western Dedicated  Freight corridor
  Eastern corridor Western corridor
Start Ludhiana in Punjab Dadri in Uttar Pradesh
Funded by World Bank JICA
End Dankuni in West Bengal Jawaharlal Nehru Port Trust near Mumbai
Length 1760 Km 1468 Km

Why DFCs?

  1. It will segregate freight infrastructure passenger transport. It will remedy the issue faced by freight trains, i.e. unpredictable and low speeds of around 25 km per hour. These trains can run at the average speed of 50-60 kph on the Dedicated Freight Corridors, thus leading to faster transport of raw material & finished material from factories to ports and vice versa. 
  2. DFCs will reduce the congestion on existing routes as existing routes are already saturated. 
  3. Allow Passenger Trains to run at faster speed:  Indian railways run fast passenger trains, slow trains, goods trains all on the same track. Hence trains like Rajdhani, which can achieve speeds up to 130kmph, run at an average of 70kmph.  
  4.  Reduce Logistic cost: At present, the logistic cost is about 14% GDP which is 30-40% higher than global benchmarked logistics cost.
  5. DFCs will help India in containing the railway’s falling share of goods traffic, which is 44% in the US and 47% in China compared to just 25% in India.
  6. DFCs will facilitate fresh industrial activity along the corridors.
  7. Carbon emission reduction may help India to claim carbon credits.

Issues / Constraints

  • Issue of Land Acquisition: Due to route alignment, the railways have to acquire large swathes of private land that are already developed, making the construction of the corridor difficult.
  • Double stack vs single stack: The project has adopted different technical standards for WDFC and EDFC. WDFC would have moving dimensions made for double-stacked containers, and moving dimensions for EDFC are being made for single stack container operations. This makes the seamless movement of double-stack trains from WDFC to EDFC impossible.  
  • Not enough bidders: Given the conditions set by the Japanese government (which is giving soft loans) and which stipulates the involvement of a Japanese partner, the total number of bidders has been low for the Western corridor.

High-Speed Rails (HSR)

High-Speed Rail Corridor Plan (Diamond Quadrilateral)

  • Under the High-Speed Railway Corridors (HSR) plan, the Railways intend to run trains at the average speed of 200- 300 Kmph.
  • Ministry of Railways has selected the following six corridors
    1. Delhi-Chandigarh-Amritsar
    2. Pune-Mumbai-Ahmedabad
    3. Hyderabad-Dornakal-Vijaywada-Chennai
    4. Chennai-Bangalore-Coimbatore-Ernakulam
    5. Howrah-Haldia
    6. Delhi-Agra-Lucknow – Patna

Ahmedabad-Mumbai HSR

  • Work on the Ahmedabad-Mumbai line has already been started.
  • It’s details are as follows
Length 509 km
Time to travel 2 km (compared to 7 hours taken by fastest train now)
Top Speed 350 km / hr
Cost of project ₹ 1lakh 8 thousand CRORE
Technology Used Japanese Shinkansen (Bullet Train) Technology
Ahmedabad-Mumbai HSR

Why should India go towards HSR ?

  • Globally, India’s railway network is the fourth largest. Hence, India should build High-Speed Railways to move forward on the learning curve.
  • It has a multiplier effect. 
    1. Improved specialization in construction technologies (as done by China)
    2. The emergence of large MNCs like Alston of France and Hitachi of Japan
  • The development of HSR will have benefits on real estate & facilitate balanced urbanization. For example, the Beijing-Tianjin HSR line helped the growth of Tianjin’s real estate & commercial industry.  
  • Although High-speed railways directly compete with economy class tickets of an airline but have the following benefits vis-a-vis road and airlines
    1. These rail systems have 30% less land requirement in comparison to expressways. 
    2. Energy consumption is 1/3 less than private cars & 5 times less than aeroplanes.
  • HSR system is highly safe. No accident has been reported in the entire history of the Japanese High-Speed Rail.

New Trains

1. Vande Bharat

  • It was formerly known as Train -18.
  • It was made and designed by Integral Coach Factory (ICF) based in Chennai under the Make in India Initiative 
  • These are semi high-speed trains that run at a speed of 160 Kmph (fastest in India).
  • It is an Engineless train running on Electrical Multiple Unit (EMU) Technology.
  • The train has state of the art facilities like onboard WiFi, CCTVs, Rotating Chairs, disabled friendly, intelligent braking system etc. 
  • Budget 2022: 75 new Vande Bharat trains will be added in Indian Railways till 15th August 2023 and 400 new trains in 3 years.

2. Gatiman Express

  • Gatiman Express is a semi-high speed train.
  • It runs on electricity.

3. Antyodaya Express

  • Antyodaya Express is a fully unreserved superfast train that runs on dense routes. 

4. Tejas Express

  • Tejas runs at 130 Kmph and provides advanced amenities such as WiFi services.

5. Uday Express

  • Uday is a double-decker train running on busy routes. 

BRICS Bank

BRICS Bank

This article deals with the ‘International Monetary Fund .’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


What is BRICS?

BRICS
  • 2001: The term ‘BRIC’ was coined by Jim O’Neil of Goldman Sachs to describe the growing prominence of Brazil, Russia, India and China 
  • 2009: BRIC country leaders started meeting as a bloc (immediately after Sub Prime Crisis). South Africa joined them later.  
  • BRICS account for 
BRICS Bank
  • Developed countries such as the US, Japan, Germany, U.K. and France hold 40 % voting power.

Information at Glance

Formed at 6th BRICS summit held in  Fortaleza, Brazil (through Fortaleza Declaration)
Year of Formation 2014
Headquarters Shanghai, China  
Members 5 (BRICS, i.e. Brazil, Russia, India, China and South Africa)
Subscribed Capital $50 billion—equally shared by the five nations
Contingent Reserve $100 billion (to provide liquidity protection to members during the balance of payments problems)
Voting  power One-nation one-vote principle (unlike World Bank and IMF)
Purpose Loans for infrastructure and sustainable development projects (75% of funds will fund sustainable development funds)
Helping the countries facing the balance of payment (BoP) crisis.

Why was BRICS Bank born?

BRICS countries decided to form a development bank, whose purpose will be to “mobilise resources to set up infrastructure and ensure sustainable development” in BRICS countries and in other emerging economies.

  • BRICS block emerging as a new economic powerhouse with 20% global GDP & 40% population. Hence, to solidify and demonstrate their strength BRICS Bank has been formed by these nations. 
  • Disenchantment with Bretton-Woods institutions viz World Bank & IMF: Since its inception in 1944, the IMF and World Bank have not reformed their governance structure. The USA dominates both are out of sync with new world dynamics.  
  • Exchange Rate Volatility: It will help defend these five economies from volatility in the dollar exchange rate.
  • Making an alternative to the US Dollar: BRICS Bank will make the Chinese Yuan an alternative to US Dollar in the long run. 
  • In the BRICS bank, the First chairman of the board of governors will be a Russian. The first President of the bank will be an Indian (KV Kamath). It is difficult in the World Bank and IMF, given the lobbying and uneven voting power.

It has to be noted that BRICS Bank is not an isolated initiative. Similar initiatives have been started in the past to blunt the might of Bretton-Woods institutions. These include the Development Bank of Latin America ( by Andean nations) in the 1960s, the Chiang Mai Initiative in the early 2000s (of 10 ASEAN nations plus China, South Korea and Japan) and Bank of South by Latin American countries in 2009.


Counterview about BRICS Bank

  • It will allow Beijing to invest overseas in developing nations through a neutral mechanism and avoid criticism of Chinese neocolonialism. 
  • It will become difficult for India to balance a scenario in which China will provide funds for its OBOR through BRICS, especially because India is not part of the project. 

International Monetary Fund

International Monetary Fund

This article deals with the ‘International Monetary Fund .’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


Introduction

  • IMF was established in 1945 as a direct result of the Bretton Woods Conference.
  • The primary function of IMF was to assist the member countries to tide over the short term Balance of Payments crisis. 
  • It has 189 members, with Nauru as the latest member (joined in 2016).


Objectives of IMF

  • To solve the problem of international liquidity.
  • To stabilize exchange rate  
  • To facilitate international trade.
  • To enable international payment system  


Functions of IMF

  • Correcting short-term Balance of Payment disequilibrium either by selling or lending foreign currencies to the member nation 
  • Bringing stability in the exchange rate
  • Balancing demand and supply of currencies by increasing the supply of scarce currency and purchasing excess currency
  • Reducing trade restrictions, i.e. tariffs and other trade barriers imposed by the member countries
  • Providing credit facilities like basic credit facility, extended fund facility for three years, compensatory financing facility and structural adjustment facility


Structure of International Monetary Fund

IMF consists of  

International Monetary Fund

1. Board of Directors

  • All nations (189) are represented here. 
  • It meets annually.
  • The following officials represent India 
Finance Minister Ex Officio Governor
RBI Alternate Governor

2. Executive Board

  • Executive Board performs the routine functions of IMF.
  • It has 24 members.
  • Presently, all the members are elected. (earlier: 5 seats were reserved for USA, UK, Japan, Germany & France who were largest quota holders).

3. Managing Director

  • Present Managing Director of IMF is  Kristalina Georgieva (of Bulgaria) 
  • The office is based in Washington (headquarters of IMF).

Famous Reports of IMF

  • World Economic Outlook
  • Global Financial Stability Report


Special Drawing Rights

  • When a country faces a Balance of Payment (BoP crisis), it approaches the IMF for help through Extended Fund Facility.
  • At the time of formation, the IMF fixed quota in which countries contributed according to their (economic) size. With the backing of all the money the IMF accumulated, a new currency called SDR (Special Drawing Rights) was created. At the time of its formation , 1SDR = 1$ =.88 grams gold. It was also called paper gold because of this reason.
  • IMF works in the same way as banks. They take money from ‘Depositor nations’ & give interest to them. The same money is then given to ‘Borrower nations’ who pay interest to IMF.

How value of SDR is calculated?

  • Till 1970s, the conversion of 1SDR = $ 1 = 0.88 grams of gold was maintained.
  • Present system:  It is a weighted average of 5 currencies with the following weights.  
Currency Weightage
Dollar 41.73
Euro 30.93
Yuan (added in 2015) 10.92
Yen 8.33
Pound 8.09
  • Presently, the conversion ratio is 1 SDR = 1.418 $. 

Triffin’s Dilemma

  • Since the EU/US financial crisis, voices have been raised worldwide against the US dollar as an international currency. Zhou Xiaochuan, Governor of Peoples Bank of China, has proposed the adaptation of IMF’s SDR as an international currency. He argued that a national currency was unsuitable as a global reserve currency because of Triffin’s Dilemma, i.e. difficulty faced by reserve currency issuers in simultaneously achieving their domestic monetary goals & meeting other country’s demand for a reserve currency. 
  • Keynes and Schumacher also conceptualised such a currency for International Settlement in 1940-42, called Bancor. It was to be introduced by the United Kingdom after the Second World War. However, the US keeping its own interest in mind, made the US dollar the world key currency at Bretton Woods Conference. 

Quota and Governance Reforms in IMF

Two sets of Reforms were being demanded for decades & finally, they have been accepted.


Reform in Quota

  • SDR Quotas determine 
    • Voting power to influence lending decisions to other countries 
    • Tap into the funds themselves. 
  • The IMF executive board decides each member’s quota based on various parameters, including GDP & tariff barriers. But the formula is designed in such a way that the US has an 18% quota while India & Russia has barely 2.5% each. 
  • These Quotas are revised from time to time under a process called General Review of Quotas (GRQ). 
  • Since the subprime crisis, BRICS & developing economies have been against the present Quota System. In 2010, under the 14th GRQ, Board decided to increase the quota of developing countries. But it faced obstacles as the vote of countries holding 70% of the quota was required to implement this reform. Hence quota reform was difficult.
  • In 2016, quota reform was accepted, under which the quota of developing countries such as India, China, Russia and Brazil was increased. Indian quota was increased from 2.445% to 2.78% making it 8th largest quota holder.
Reform in Quota

Reform in Governance

  • Till 2016, in the Executive Board, 5 out of 24 directors were permanently decided by the five largest quota holders (known as Executive Directors).
  • But under the 14th GRQ, reforms were passed under which all directors will be elected, ending the category of Executive Directors.  

15th GRQ

  • 15th General Review of Quotas (GRQ) is the new round of attempts to revise the size and composition of the system. 
  • It was to be completed by October 2017, but it was extended to 2019. But, the 15th GRQ hasn’t passed yet, even in 2022.

India & IMF

India has been major beneficiaries of IMF’s Fund assistance. India has borrowed twice .

Between 1981-84 SDR- 3.9 billion
During 1991 SDR- 3.56 billion

World Bank

World Bank

This article deals with the ‘World Bank .’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


World Bank Group & World Bank

  • World Bank Group is a family of 5 international organizations that give loans to developing countries. 
  • It is a ‘Specialized Agency of UN’.
  • Bank came into existence in 1945 following the Bretton woods conference.
  • It is headquartered in Washington DC.
  • Each institution of the World Bank is owned by its member governments & its membership gives certain voting rights to all countries. But additional votes depend on the financial contribution to World Bank. 
  • The President of the World Bank is usually an American & the present President is  David R. Malpass (US economist).


Institutions

IBRD & IDA constitute World Bank while All 5 constitute World Bank Group.

World Bank

1 . International Bank for Reconstruction & Development (IBRD)

  • IBRD is the oldest of all World Bank institutions that started working in 1945.
  • It commenced lending to India in 1949.

Main functions

  • Initially, the primary function of IBRD was the reconstruction of war-ravaged regions (after World War II).
  • Later, it evolved to the development of middle income & creditworthy developing economies of the world.
  • Arranging the loans or providing guarantees on loans by various other channels to execute essential projects.
  • IBRD facilitates different kinds of technical services to the member countries through Staff College and experts.
  • Human development was the main focus of development lending with a very low-interest rate (1.55% per annum) – the area of focus being agriculture, healthcare, family welfare etc.

Note: The name “International Bank for Reconstruction and Development” was first suggested by India to the drafting committee.


2. International Development Association (IDA)

  • It was set up in 1960.
  • IDA is known as the soft window of the World Bank.
  • It gives long term credit with the basic aim of developing infrastructure & extended to economies having per capita income lesser than $895. Credit is for 35-40 years, interest-free except for a small charge to cover the administrative fee. Every developing nation make enough diplomatic attempts to get money from here because of additional benefits.
  • India has been one of the biggest beneficiaries. But, since 2014, India stopped receiving soft loans from IDA as it breached the $895 per capita income mark.


3. International Finance Corporation (IFC)

  • IFC was set up in 1956.
  • It is called the ‘Private arm of the World Bank‘ because it lends the money to private companies of member nations. Interests charged on the loans backed by IFC are low.
  • It plays a catalytic role, stimulating & mobilising private investment in the developing world by demonstrating that investment there can be profitable too.


4. Multilateral Investment Guarantee Agency (MIGA)

  • It was set up in 1988.
  • It offers insurance to foreign investments in the member countries due to non-commercial ( i.e. political) activities such as currency transfer, expropriation, war & civil disturbance, thus encouraging foreign investment in developing countries.


5. International Centre for Settlement of Investment Disputes (ICSID)

  • ICSID was set up in 1966.
  • It is an investment settlement body whose decisions are binding on parties. It settles disputes arising between investing foreign companies & host countries.  
  • India is not a member of ICSID.
  • Membership of ICSID encourages foreign investment in the country but also infringes upon sovereignty.


Bilateral Investment Promotion & Protection Agreement  (BIPA)

  • BIPA is an Indian version of ICSID since India is not a member.
  • It promotes & protects the investment of investors on a reciprocal basis. 
  • Till now, India has signed BIPA with 72 nations. 
  • Objective: To promote & protect the interest of either country in the territory of other. 


India and World Bank

  • India has been a member of 4 institutions of the World Bank Group except for ICSID.
  • World Bank has given sizeable financial assistance to India for economic development. Until China became a member of the World Bank in 1980, India was the largest beneficiary of the World Bank assistance.
  • World Bank assistance to India started in 1948 when funding for Agricultural Machinery Project was approved. The World Bank has also assisted in developing infrastructures such as electric power, transport, communication, irrigation projects and steel industry.
  • The first investment of IFC in India took place in 1959 with US$ 1.5 million. Presently, IFC has been helping India to raise foreign capital via ₹ denominated Masala and Maharaja Bond.


Notable Reports  of World Bank

  • Ease of Doing Business Report
  • Remittances and Migration Report
  • World Development Report
  • Global Economic Prospects Report