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Daily Current Affairs 17.04.2022 (Green project will add life to Rajasthan park, Centre extends tenure of green permits, What’s fuelling inflation in rural India?, How will Sri Lanka overcome its debt crisis?)

Daily Current Affairs 17.04.2022 (Green project will add life to Rajasthan park, Centre extends tenure of green permits, What’s fuelling inflation in rural India?, How will Sri Lanka overcome its debt crisis?)

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1. Green project will add life to Rajasthan park

Locals, experts to work in tandem

A green agriculture project, funded by the Food and Agriculture Organisation’s (FAO) Global Environment Facility, will act as a lifeline for the Desert National Park (DNP) in western Rajasthan with the conservation of critical biodiversity and forest landscapes.

‘Develop grasslands’

Action plans for each village in the region are being prepared with the involvement of the local rural communities.

The environmentalists in the State have called for developing grasslands on vast tracts in the DNP area for grazing of animals, saying their neglect and conversion into irrigated and cultivated land would further endanger the rare species. The DNP is situated near Jaisalmer and Barmer, covering an area of 3,162 sq. km, while sand dunes comprise about 20% of the park.

The village-wise action plans will support the rural population’s traditional methods of water management and agriculture. Chief Secretary Usha Sharma said at a meeting of the State Project Steering Committee here over the week-end that the activities under the project would be taken up in consultation with the villagers and skilled and qualified persons would be selected for the project management units.

To cost ₹31 crore

The project, which will be completed by March 2026 at a cost of ₹31 crore, is expected to evolve an intersectoral mechanism, involving agricultural and allied sectors and forestry and natural resources management for ensuring the economic development of the DNP and adjoining 52 village panchayats. The activities will bring resilience to the agriculture sector beyond the project’s conclusion.

Principal Agriculture Secretary Dinesh Kumar said the activities under the project would include conservation of the DNP’s native flora species, effective management of traditional forests, known as Oran, and grazing areas, and revival of water harvesting structures such as khadin and tanka.

The process for the appointment of project management units, which is underway, will be completed by next month.

2. Centre extends tenure of green permits

Some projects have ‘high gestation’ period due to variables beyond control: Environment Ministry

Easing norms for infrastructure projects, the Union Environment Ministry has extended the tenure of environmental clearances (EC) granted for existing or new projects.

The EC for river valley projects will now have a 13-year validity, and nuclear power projects or those involving the processing of nuclear fuel 15 years. Projects and activities other than the mining and river valley projects will have their EC valid for 10 years.

Multiple factors

Explaining its rationale, the Ministry said in its gazette notification that nuclear power projects and hydropower projects had “high gestation” period due to “geological surprises, delays in forest clearance, land acquisition, local issues, rehabilitation and resettlement and such other factors which are often beyond the control of project proponents and in this context, the Central government “deems it necessary” to extend the validity of Environmental Clearance (EC) for such projects.

Long-drawn process

An EC is a long-drawn process that is mandatory for projects beyond a certain size and often involves an environment impact assessment of a potential project and sometimes public hearings involving the local populace who might be affected by the project.

“And whereas, for other projects also, considering the time taken for addressing local concerns including environmental issues related to the implementation of such projects, the Central Government deems it necessary to extend the validity of such ECs,” the notification dated August 12thadded.

One of the conditions of an EC is that a project must begin construction in the period that it has been granted an EC and if unable, a fresh process must begin. This leads to projects being financially unviable.

Mining leases

Mining leases are now granted for a period of 50 years but the Environment Clearance is valid for 30 years. “The Central government deems it necessary to align the validity of mining ECs which is currently permissible up to a maximum duration of 30 years, subject to review and appropriate environmental safeguards,” the note says.

3. What’s fuelling inflation in rural India?

Why are food, clothing and fuel prices higher in the hinterland? Will a good monsoon help ease the crisis?

The story so far: The retail inflation rate surged to 6.95% this March — its highest level in nearly one and a half years, capping off six successive months of accelerating prices for consumers. With incremental fuel price hikes only kicking in during the latter half of March, the full impact of higher global oil prices being passed on to consumers will only begin reflecting in April. Economists expect inflation to go past 7% and hover around that level till as far as September. However, across large parts of the country, the experienced price rise has already crossed 7.5% and even 8%. Official data pegs rural inflation in March at 7.66%, with several States reporting even higher inflation, including West Bengal (8.85%), Uttar Pradesh and Assam (8.19%) as well as Madhya Pradesh (7.89%).

How have urban and rural inflation trends differed over the past year?

Urban inflation has usually tended to be higher than rural inflation by an average of about 0.8 percentage points through most of 2021 — the only exceptions being August when both stood at 5.3% and May when rural inflation was 6.6% and urban inflation was 5.9%. In December 2021, urban inflation was 5.9%, while rural inflation was 5.4%. In contrast, March 2022 marked the third consecutive month that the pace of price rise in the hinterland outstripped urban India, and the gap has been widening rapidly. From a minor 0.2 percentage points higher inflation rate over urban India in January, rural inflation hit a nine-month high of 6.38% in February even as urban inflation declined to 5.75%. In March, the gap between the two has surpassed 1.5% with urban inflation at 6.12% and rural areas clocking 7.66%.

What are the key drivers of higher inflation in the hinterland?

While food inflation was the key driver for the headline inflation rate jump in March, with the overall consumer food price index racing to 7.68% from 5.85% in February, the spike was far more pronounced in rural India where food inflation hit 8.04%. Food inflation in urban India was a full percentage point lower. Madan Sabnavis, chief economist at Bank of Baroda, reckoned that the higher inflation in food, which has a higher weight in the Consumer Price Index, along with inflation in fuel and light and clothing, were the key factors driving up rural prices. Consider the inflation rates for some items faced by rural consumers vis-à-vis their urban peers — oils and fats (20.75% v. 15.15%), clothing (9.9% v. 7.74%), footwear (12.2% v. 9.9%), fuel and light (8.3% v. 6.3%), personal care and effects (9.3% v. 7.7%) and last but not the least, a persistently higher inflation in education costs of about 1 to 1.5 percentage points.

“The pent-up demand appears to be higher in rural India, so clothing is seeing higher inflation as demand picks up. Moreover, fuel prices are higher in rural areas due to connectivity issues, while prices of traditional fuel like firewood have also risen in tandem,” Mr. Sabnavis further explained.

Rating agency ICRA’s chief economist Aditi Nayar said part of this trend could also be explained by the shift of labour between urban and rural areas in the last two years, which has also injected volatility into India’s demand dynamics.

“Interestingly, while vegetable prices declined in the urban areas between February and March 2022, they inched up sharply in rural India month-on-month, even though in absolute terms, their vegetables inflation rate remained lower at 10.57% than urban areas which recorded 13.37% inflation,” she added. Indeed, the vegetable price trends have been most intriguing — rural inflation was 1.4% in January, 3.7% in February and a whopping 10.6% in March.

Which sections are affected the most, and what next?

While high inflation affects the poor the most in general, the fact that price rise in food, the largest component of their consumption basket, is driving the current surge is particularly burdensome, noted Crisil chief economist Dharmakriti Joshi.

Using data from official surveys, Mr. Joshi’s team has estimated that the bottom 20% of the population in urban as well as rural India is facing the worst effects. The rural bottom 20% faced the highest inflation at 7.7% in March, while the upper 20% of the income segment in the hinterland experienced 7.6% inflation.

“With upward pressure rising, inflation is becoming broad-based. Last year, low food inflation had contained the headline number, while fuel and core inflation (excluding food and energy prices) had risen. Now, food inflation is expected to rise along with both fuel and core inflation,” he said.

While food price risks have risen due to the Russia-Ukraine conflict, higher prices for farm sector inputs could further feed into food inflation, SBI group chief economic adviser Soumyakanti Ghosh said in a report this Wednesday. “The cost of production is likely to increase by around 8-10%… the Minimum Support Price should at least be higher by around 12%-15%,” he pointed out. With a normal monsoon anticipated this year, the inflation trajectory in months to come would determine if rural consumer demand rebounds or is constricted to focus on essential goods and services.

4. How will Sri Lanka overcome its debt crisis?

Will assistance from the International Monetary Fund be enough to restructure loans and rescue the economy?

The story so far: On April 12, Sri Lanka announced its decision to default on its foreign debt of $51 billion, tarnishing its track record of promptly servicing past loans. Citing the International Monetary Fund’s assessment that the country’s debt stock was “unsustainable”, the Finance Ministry said its policy of repaying foreign debt on time was “no longer tenable”. It described the default move as its “last resort” to prevent “a further deterioration” of the country’s financial position, and to ensure fair and equitable treatment of all creditors. In the coming week, Sri Lanka will hold talks with the International Monetary Fund (IMF) in Washington DC, on a comprehensive debt restructuring programme.

What led to the crisis?

Sri Lanka is experiencing one of its worst economic crises. For months now, households and businesses have had to cope with severe food and fuel shortages, while the government scrambles for dollars to pay for essential imports. Emergency financial support coming in, including from India, is barely enough to sustain the country for a month. With authorities sharing no roadmap or plan, fears of hunger and starvation are growing, and thousands of people have been voicing their anger against the government. Amid mounting protests, the government took two major decisions recently — to default on the country’s debt, and to seek IMF support to restructure outstanding loans and rescue its teetering economy.

Does a debt default help?

No middle-income country other than Sri Lanka has resorted to a debt default in recent years. Usually, creditors and investors see a defaulting country as less favourable for business. This makes it harder for the country to borrow from external sources. If domestic production is low, as is in Sri Lanka’s case, it is even harder to cope.

All the same, Sri Lanka’s pre-emptive default takes away the pressure of having to repay some $7 billion in debt this year, giving the country some time to stabilise. Further, the default move came just ahead of Colombo’s scheduled talks with the IMF, on the sidelines of the Spring meetings of the Fund and World Bank, beginning in Washington DC on April 18. The IMF is expected to come up with a package that will allow Sri Lanka to restructure its external debt over time. Such a programme, including immediate relief of a couple of billion dollars, will also make Sri Lanka more credit worthy in the international money market.

How is Sri Lanka coping meanwhile?

Citizens are finding it very difficult to source essentials, including cooking gas and kerosene. Fuel is in short supply and is now being rationed to customers after long periods of waiting in queues. Costs of all basic commodities have risen sharply making them unaffordable for most. Colombo is sourcing fuel and food supplies for the month using external help, including credit lines from India.

What is the political fallout of this crisis for the Rajapaksas?

From the time Sri Lanka’s economic meltdown intensified this year, President Gotabaya Rajapaksa’s government has been facing considerable pressure from citizens, who have been unrelenting in their call for the resignation of President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa. Although the Cabinet resigned en masse, neither of the ruling brothers — who the public hold chiefly responsible for their suffering — appear inclined to step down. Meanwhile, shortages persist, and prices soar, putting people through enormous hardships. Even after the government announced its decision to suspend debt servicing and seek IMF aid with an accompanying structural reform package, it is yet to restore any confidence among the general public, going by the large demonstrations that continue.

How could an IMF programme bail out the country?

The way forward is neither easy nor straightforward for Sri Lanka, even with IMF assistance. Senior Sri Lankan economists have observed that the situation would likely get worse before getting better, and that there could be no gain without pain. Much would depend on the conditions imposed by the IMF and how Sri Lanka responds to them, given the government’s political compulsion to regain lost ground.

It is widely predicted that the Fund’s recommended reforms would include greater taxation, and a reduction in state spending. What this could mean to the average citizen reeling under the shock of this economic calamity remains to be seen.

It would be especially challenging for the Rajapaksa regime, which has lost significant political capital in the wake of this crisis, to make and implement tough policy decisions that would be inevitable at this time.

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