CURRENT AFFAIRS - 04/08/2023

New regulations require import licences with immediate effect; move will hit short-term availability of Dell, HP, Apple laptops, but will be a boost for domestic sector; some devices given exemption

THE HINDU BUREAU

NEW DELHI/BENGALURU

Centre restricts laptop, PC and tablet imports

Facts about the News

Govt curbs import of laptops, tablets

(General Studies- Paper III)

The government has imposed import restrictions on laptops, tablets, all-in-one personal computers, and ultra-small form factor computers and servers to address security concerns and boost domestic manufacturing.

Imports will only be allowed against valid import licenses, enabling strict monitoring, especially for imports from China.
The restrictions aim to ensure that imports comply with India’s security concerns and do not pose risks to consumers’ sensitive and personal data.
The move may affect imports from China, as the country accounts for a substantial portion of the annual imports of these items.
The decision is expected to benefit domestic manufacturers and investors under the production-linked incentive scheme.
Laptops can still be purchased online from overseas, but individual buyers may face import duty and shipping fees, making it expensive.
The restrictions will be implemented with immediate effect, but import consignments with bill of lading and letter of credit issued before August 3 can be imported without a license until August 31.
- After that, importers will need licenses.

Devices imported for research and development, and those repaired abroad, are exempt from the restrictions.
In 2022-23, India imported $10 billion worth of these products, 13.27% lower than the previous year.

About Schemes for Electronics Manufacturing

Three schemes were notified in April 2020:
- Production Linked Incentive Scheme (PLI),
- Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), and
- Modified Electronics Manufacturing Clusters Scheme (EMC 2.0).

A fourth scheme, PLI for IT Hardware, was notified in March 2021.
Electronics manufacturing in India has grown rapidly with a CAGR of around 23% in the last 5 years, reaching $76 billion in domestic production of electronics hardware in 2019-20.
The electronics manufacturing industry employs over 2 million people in India.

The schemes aim to position India as a global hub for Electronics System Design and Manufacturing (ESDM), develop a supply chain ecosystem, and build new manufacturing clusters in the country.
Each scheme provides incentives to promote the electronics manufacturing industry in India.

Note: The vision of National Policy on Electronics 2019 (NPE 2019) is to position India as a global hub for Electronics System Design and Manufacturing (ESDM).

JACOB KOSHY

NEW DELHI

Over nine lakh trees likely to be cut down

Facts about the News

Great Nicobar Project

(General Studies- Paper – I & II)

The Great Nicobar Project, a ₹72,000-crore initiative, may involve felling 9.64 lakh trees, as per Minister of State (Environment) Ashwini Kumar Choubey’s response in Rajya Sabha.

Key Highlights

The project aims to construct a trans-shipment port, an international airport, township development, and a 450 MVA gas and solar-based power plant on the Great Nicobar Island.
The project has received environmental clearance from an expert committee, but the National Green Tribunal (NGT) has challenged it and formed another expert committee to investigate.
The Environment Ministry had estimated around 8.5 lakh trees would be cut, but the current estimate suggests 9.64 lakh trees may be felled.
The island is a pristine forest area with high biological diversity and is home to various endemic flora and fauna species.
The Ministry of Home Affairs classified the project as one of “strategic importance,” leading to the non-disclosure of project details on the public portal.
Compensatory afforestation will be carried out in Haryana as tree planting on the island has limited scope, and the Haryana government has agreed to provide an area of 261.5 square km for this purpose.

The Finer Details

The project includes a military-civil, dual-use airport, an international container trans-shipment terminal, a gas, diesel, and solar-based power plant, and a township.
The airport will be under the operational control of the Indian Navy, and its details are classified as being of “strategic importance.“
The project will affect 1,761 people, including indigenous communities like Shompen and Nicobarese.
The island is ecologically significant, housing rare flora and fauna such as leatherback sea turtles, Nicobar megapode, Nicobar Macaque, and saltwater crocodiles.
The project site is near two national parks, and premier institutes provided scientific inputs on the impact on the island’s flora and fauna.
The project will involve the translocation of coral cover and has a mangrove conservation plan in place.
Independent committees will oversee pollution, biodiversity, and welfare issues related to indigenous tribes.
The project will be carried out in phases, with measures to safeguard wildlife and trees with nesting holes of endemic owls.
Safe wildlife corridors and measures to prevent human-induced diseases for the indigenous population will be established.
The disposal of hazardous waste material will be prohibited on the island, and waste generated during construction and operation will be recycled and transported to the mainland for safe disposal.

In Image: Map of the ₹72,000-crore mega project piloted by NITI Aayog for the “holistic development” of the Great Nicobar Island (GNI). Source: Pre-feasibility report (2021)

About the Great Nicobar Islands

Great Nicobar is the very last island of the Andaman and Nicobar archipelago.
It covers 103, 870 hectares of unique and threatened tropical evergreen forest ecosystems.
The Great Nicobar Biosphere Reserve comprises various ecosystems, including tropical wet evergreen forests, mountain ranges, and coastal plains.
It is home to a very rich ecosystems, including 650 species of angiosperms, ferns, gymnosperms, bryophytes, among others.
In terms of fauna, there are over 1800 species, some of which are endemic to this area.
It is home to rare and endemic species such as Cyatheaalbosetacea (tree fern) and Phalaenopsis speciosa (orchid).
- The biosphere reserve supports diverse wildlife, including 14 species of mammals, 71 species of birds, 26 species of reptiles, 10 species of amphibians, and 113 species of fish.
- Many fauna species in the region are endemic and endangered.

The Tribes

The Mongoloid Shompen Tribe, approximately 200 people, reside in the forests of the Great Nicobar Biosphere Reserve, specifically along rivers and streams.
- The Shompen Tribe follows a lifestyle of hunting and gathering, relying on forest and marine resources for their livelihood.
Another Mongoloid Tribe, the Nicobarese, around 300 individuals, used to live in settlements along the west coast.
- After the 2004 tsunami, they were relocated to Afra Bay in the North Coast and Campbell Bay.
- The Nicobarese tribe sustains itself by fishing in the sea for their food.
Apart from the tribes, over 8,000 settlers and mainlanders reside along the southeast coast of the island, engaging in activities like agriculture, horticulture, and fishing.
The Shompen people move between the Core and Buffer Zones of the biosphere reserve, while the settlers and Nicobarese live in settlements scattered along the coast in the Transition zone.

About The Andaman & Nicobar Islands

The Andaman & Nicobar Islands is a union territory of India, known as A & N Islands or ANI, located in the Indian Ocean near Indonesia and Thailand.
It comprises two island groups – the Andaman Islands to the north and the Nicobar Islands to the south, separated by the 10° N parallel.
The capital of the territory is Port Blair, situated in the Andaman Islands.
There are 836 islands, islets, and rocky outcrops in the territory, with only around 31 of them being permanently inhabited.
The Andaman Islands cover a total area of approximately 6,408 km², while the Nicobar Islands cover about 1,841 km².
The population of the territory, as per the 2011 Census of India, was 379,944, with a literacy rate of 86.27%.
The official languages of the islands are Hindi and English, but Bengali is the dominant and most spoken language.
Other major languages spoken include Hindi, Tamil, Telugu, Malayalam, and Nicobarese, along with several minor languages like Kurukh/Oraon, Munda, Kharia, and Andaman Creole Hindi.

is a former diplomat who served as India’s first Ambassador to the Conference on Disarmament in Geneva and also as the Prime Minister’s Special Envoy for Nuclear Disarmament and Non-proliferation in 2013-14

The conflict in Ukraine and the recourse to nuclear rhetoric have revived concerns about nuclear escalation management between the major nuclear powers. Since the end of the Cold War, the United States-Russia nuclear rivalry had taken a back seat. Instead, North Korea, Iran and India-Pakistan got attention, with many analysts getting nostalgic about ‘nuclear stability’ during the Cold War. But, as it is becoming clear now, in today’s changed political environment the escalation management lessons of the Cold War no longer seem to work for the U.S. and Russia.

Deterrence failure

In June 2021, U.S. and Russian Presidents, Joe Biden and Vladimir Putin, met in Geneva. Nuclear arms control was a high priority item on the agenda but no progress proved possible. As concerns grew about the Russian troop presence in Belarus on the Ukrainian border, Central Intelligence Agency Director Bill Burns flew to Moscow in November to spell out the consequences of aggression. In January 2022, U.S. Secretary of State Antony J. Blinken met Russian Foreign Minister Sergei Lavrov in Geneva to reiterate the message. On February 24, Russia began its “special military operation” in Ukraine. U.S. attempts to deter Russian aggression had failed.

Even as North Atlantic Treaty Organization (NATO) leaders met to decide their response, Mr. Biden made it clear that the U.S. was determined to avoid a Third World War or allowing the conflict to escalate into a NATO-Russia conflict. After the freezing of Russian reserves and a slew of financial, energy-related and political sanctions, other elements of military assistance, lethal and non-lethal, began to take shape. Intelligence sharing and restoring Internet connectivity was the first step. The second was the supply of ammunition and some weapon systems which the Ukrainian forces were familiar with. NATO deepened its military involvement by providing gradually more and more sophisticated weapon systems, beginning with the Javelin and Stinger missiles, and moving on to Patriot missile defence batteries, long-range Himars, Storm Shadow and Scalp long-range missiles, and now F-16s. Russian attempts to deter NATO involvement had failed.

On February 7, 2022, Mr. Putin warned that “if Ukraine attempts to take back Crimea, European countries will be in conflict with Russia, which is a leading nuclear power superior to many NATO countries in terms of nuclear force”. Annual nuclear exercises, normally scheduled for autumn, were announced for February 17, with Mr. Putin personally witnessing them. Announcing the launch of “special military operations”, his words of caution were, “whoever tries to hinder Russia will face consequences never seen in history”. To drive home the threat, on February 27, Russian nuclear forces were placed on a “special combat readiness” with leave for all personnel cancelled.

Even as the U.S. issued blunt warnings to Russia against using tactical nuclear weapons, in the first week of March, NATO decided against a no-fly-zone and Poland, Slovakia and Bulgaria announced that they would not be sending MiG aircraft to Ukraine on account of Russian threats against their airfields from where these aircraft were to take off. Russian officials tried to downplay the nuclear threat by pointing out that Russia would resort to nuclear use only if faced with an existential threat, while U.S. officials tried to convey reassurance to their European allies that while Mr. Putin’s threats were to be taken seriously, there were no indications of unusual activity at nuclear sites.

Mr. Biden declared on April 24, “We are neither encouraging nor enabling Ukraine to strike beyond its borders,” adding that the “U.S. was not seeking regime change in Russia.” In short, the U.S. objectives were to support Ukraine, bolster NATO unity and avoid any direct conflict with Russia. Ukraine is not a NATO member and so does not have the security of the nuclear umbrella provided by U.S. policy of ‘extended deterrence’. Russia’s resort to nuclear rhetoric failed to deter NATO involvement though it influenced its pace and timing. Therefore, both Russia and the U.S. are operating in a grey zone, taking turns at escalatory rhetoric even as they probe each other’s red lines. During the Cold War, the U.S. and the former Soviet Union engaged in multiple proxy wars, Vietnam in the 1960s and Afghanistan in the 1980s, but these were in distant theatres.

Cold War lessons

Deterrence is fundamentally based on the assumption that both adversaries are rational enough to judge when costs outweigh the benefits of the act. Nuclear deterrence adds a conundrum. With their huge arsenals that provided for assured second strike capability, neither the U.S. nor the Soviet Union had an incentive to try a surprise first strike. This realisation was crucial in shaping nuclear deterrence theory.

Thomas Schelling, whose writings during the 1960s and 1970s shaped nuclear deterrence thinking (he won the Economics Nobel in 2005), concluded that nuclear weapons were not usable but had political utility in terms of preventing a war with another nuclear power. Clearly, Schelling was looking at the situation between the U.S. and the Soviet Union which had no territorial dispute. Schelling also concluded that even though any use was “irrational”, the nuclear threat had to be “credible” in order to deter. This introduced a degree of uncertainty into the equation. Using his economics training, he interpreted the uncertainty as risk that could be analysed in terms of probabilities. Risk was intended to induce rationality in the adversaries. Realising the conundrum, he concluded that the key to making nuclear deterrence credible is through escalation and raising the risk, that in the final analysis, “leaves something to chance”.

This, along with the lessons of the 1962 Cuban missile crisis kept the U.S. and Soviet rhetoric in check during the Cold War even as they engaged in proxy wars outside Europe, and away from NATO and Warsaw pact territories. Today, there is no Warsaw Pact, and NATO has expanded to include a number of former Warsaw Pact members. The Ukraine conflict has persuaded Sweden and Finland to give up their long-standing neutrality and seek security under NATO’s nuclear umbrella.

Probing for red lines

Russia’s nuclear doctrine issued on June 2, 2020 specifies two conditions under which Russia would use nuclear weapons: “…in response to the use of nuclear weapons and other types of weapons of mass destruction against it/or its allies” and “in the case of aggression against the Russian Federation with the use of conventional weapons, when the very existence of the state is put under threat”. Mr. Putin has declared more than once that Ukrainians and Russians are one people with a shared history. Russia, therefore, does not see Ukraine as entirely ‘sovereign’.

Second, there is the oft-cited escalate-to-deescalate approach, that implies using tactical nuclear weapons to overcome a stalemate on the battlefield, thus forcing a termination of hostilities on favourable terms. In its 2022 National Security Strategy, the U.S. rejected this by declaring that first use would not lead to de-escalation on Russian terms, “but alter the nature of conflict creating potential for uncontrolled escalation”.

U.S. caution is reflected in calibrating the supply of more sophisticated weapons by continuously probing Russian red lines even though Ukrainian demands continue to grow. Meanwhile, it suits Russia to increase ambiguity. It is also likely that since Russia failed to achieve its military objectives, its thresholds are evolving.

The path-breaking studies of Daniel Kahneman and Amos Tversky in economics showed that humans often tend to double down on bad bets because of ‘loss aversion’. The Cold War escalation management lessons applied to a different world; today, the U.S. and Russia no longer enjoy parity and Russia’s red lines are fuzzy.

Nuclear signalling today is taking place in uncharted political territory. New guard rails are necessary if the nuclear taboo has to be preserved.

In today’s changed political environment, the escalation management lessons of the Cold War no longer seem to work for the United States and Russia.

Facts about the News

A New Cold War

(General Studies- Paper II)

The conflict in Ukraine and nuclear rhetoric have raised concerns about nuclear escalation management between major nuclear powers.

Key Highlights

The U.S.-Russia nuclear rivalry, which had taken a back seat since the end of the Cold War, has resurfaced amid the Ukraine crisis.
Efforts to deter Russian aggression in Ukraine by the U.S. have not been successful.
NATO’s involvement and military assistance to Ukraine have further escalated tensions between the U.S. and Russia.
Russia’s resort to nuclear rhetoric as a deterrent has not prevented NATO involvement in the conflict.
Deterrence during the Cold War was based on the assumption that both adversaries were rational enough to judge the costs and benefits of their actions.
Nuclear deterrence theory emphasized credible threats and raising the risk to induce rationality in adversaries.
The current situation between the U.S. and Russia differs from the Cold War, with no clear red lines and evolving thresholds.
The use of tactical nuclear weapons and escalation management strategies are being tested in this new political environment.

About NATO

NATO is an intergovernmental military alliance with 31 member states (29 European and 2 North American).
It was established after World War II through the North Atlantic Treaty in 1949.
NATO’s main headquarters are in Brussels, Belgium, and its military headquarters are near Mons, Belgium.
The alliance’s purpose is to defend member states against third-party attacks through collective security.
During the Cold War, NATO countered the Soviet Union’s threat.
It remained active after the dissolution of the Soviet Union and has been involved in military operations worldwide.
NATO’s combined military force includes around 3.5 million personnel and accounts for around 55% of global nominal military spending.
Members have committed to spending at least 2% of their GDP on defense by 2024.
Finland recently joined NATO in April 2023, and Sweden is anticipated to become the 32nd member.
Bosnia and Herzegovina, Georgia, and Ukraine are recognized as aspiring members.
NATO’s enlargement has led to tensions with non-member Russia, but many other countries are involved in partnership and dialogue programs with NATO.

In Image: NATO member coutries.

New records: The vulture nestling at the Assam State zoo in Guwahati. Sachin Ranade

SHIV SAHAY SINGH

KOLKATA

Researchers have recorded the first instance of captive breeding of the Himalayan vulture (Gyps himalayensis) in India at the Assam State Zoo, Guwahati.

Categorised as ‘near threatened’ on the International Union for Conservation of Nature (IUCN) Red List of threatened species, the Himalayan vulture is a common winter migrant to the Indian plains, and a resident of the high Himalayas.

Details of the successful breeding were recently published in a paper titled “Breeding of Himalayan Vulture Gyps himalayensis Hume, 1869 (Aves: Accipitriformes: Accipitridae) in the Assam State Zoo, Guwahati, Assam, India” in the Journal of Threatened Taxa.

The paper states that the successful hatching was noted on March 14, 2022 and the nestling was shifted to the artificial brooding facility on March 15.

“During first month, the nestling was kept in the brooder made up of a plastic box (1 x 1 x ½ f) with a mat for the grip. The temperature was maintained around 30-35 C with a lamp, a water bowl and it was monitored with a thermo-hygrometer. The nestling was provided with sufficient space to move towards and away from the heat source,” the publication said.

Along with the housing for nestling, the paper says, the food, frequency of feed, and the growth and colouration of the nestling were observed.

Sachin Ranade, lead author of the publication, said: “Breeding the species in Guwahati was a daunting task as, in nature, this species breeds in snow-clad mountains. But as these birds were kept in zoo for a long time, they acclimatised to the tropical environment, and we helped them rear the young ones, which led the whole process to this unique success,” Mr. Ranade said.

The two co-authors of the paper are Jay Gore, and Ashwini Kumar, Director of the Guwahati Zoo.

Mr. Ranade, who is also in charge of the Vulture Conservation Breeding Centre (VCBC) at Rani in Assam, said that the conservation breeding of the Himalayan vulture at the Guwahati Zoo is the second such instance in the world, after France, where the species has been bred in captivity.

Four VCBCs established by Bombay Natural History Society (BNHS) at Pinjore in Haryana, Bhopal in Madhya Pradesh, Rani in Assam, and Rajabhatkhawa in West Bengal are involved in conservation breeding of the white-rumped vulture (Gyps bengalensis), slender-billed vulture(Gyps tenuirostris), and the Indian vulture (Gyps indicus). The unprecedented scale and speed of declines in vulture populations has left all the three resident Gyps vulture species categorised ‘Critically Endangered’.

Facts about the News

The Endangered Himalayan vulture

(General Studies- Paper III)

The Himalayan vulture (Gyps himalayensis) has been successfully bred in captivity at the Assam State Zoo, Guwahati, India.

Key Highlights

The successful hatching was noted on March 14, 2022, and the nestling was moved to an artificial brooding facility.
The breeding of the Himalayan vulture in Guwahati was a unique success, as these birds are native to snow-clad mountains, but they acclimatized to the tropical environment of the zoo.
The vultures involved in the breeding were rescued in 2011-2012 from different poisonings and accidents.
This is the second instance in the world of breeding the Himalayan vulture in captivity, with the first being in France.
Conservation breeding of other vulture species is also taking place in India at different Vulture Conservation Breeding Centres.
The three resident Gyps vulture species (White-rumped vulture, Slender-billed vulture, and Indian vulture) are classified as ‘Critically Endangered’.
The vulture population has been augmented through conservation efforts, and several vultures have been released into the wild and are being monitored.

About the Himalayan Griffon Vulture (Gyps himalayensis):

An Old World vulture in the family Accipitridae, closely related to the European Griffon Vulture (G. fulvus).
Typical vulture with a bald white head, broad wings, and short tail feathers.
White neck ruff and yellow bill, with whitish body and wing coverts contrasting with dark flight feathers.
Protection status: Near Threatened (NT) on the IUCN Red List.
Distribution range: Himalayas on the Tibetan plateau (India, Nepal, Bhutan, central China, and Mongolia) and Central Asian mountains (Kazakhstan, Afghanistan, western China, and Mongolia).
Occasional migration to northern India, but migration usually occurs altitudinal.
Characteristics of Vultures:
- Vultures are large carrion-eating birds found mainly in the tropics and subtropics.
- They serve as nature’s garbage collectors, helping to keep the environment clean of waste.
- Vultures play a crucial role in controlling wildlife diseases.

The development comes days after Pakistan and the U.S. agreed to further enhance their relations in the defence field. REUTERS

PRESS TRUST OF INDIA

ISLAMABAD

Pakistan’s Cabinet has quietly approved the signing of a new security pact with the U.S., a move that indicates a fresh start in defence cooperation after years of distrust between the two nations and may open avenues for Islamabad to get military hardware from Washington, a media report said on Thursday. Through a circulation summary, the Cabinet gave its seal of approval to sign the Communication Interoperability and Security Memorandum of Agreement, known as the CIS-MOA, between Pakistan and the US, The Express Tribune newspaper reported.

However, there was no official announcement from either side about the signing of the agreement. According to the report, Federal Minister for Information Marriyum Aurangzeb was approached but did not respond.

Bilateral relations

The development comes days after Pakistan and the U.S. agreed to further enhance their bilateral relations, including in the defence field, at a meeting between U.S. Central Command chief Gen. Michael Erik Kurilla and Pakistan’s Chief of Army Staff Gen. Asim Munir. CIS-MOA is a foundational agreement that the U.S. signs with its allies and countries with which it wants to maintain close military and defence ties. It also provides legal cover to the U.S. Department of Defence for ensuring the sale of military equipment and hardware to other countries. The signing of the CIS-MOA means the two countries are keen to maintain the institutional mechanism.

The agreement, first signed between the Joint Staff Headquarters of Pakistan and the U.S. Department of Defence in October 2005 for 15 years, expired in 2020. The two sides have now renewed that arrangement which covers joint exercises, operations, training, basing and equipment.

The signing of the CIS-MOA indicates that the U.S. might sell some military hardware to Pakistan in coming years, a source in Washington was quoted as saying in the report. However, a retired senior Army played down the development and said it was not easy for Pakistan to buy military hardware from the U.S. despite this agreement.

Facts about the News

Pakistan Cabinet approves signing of security pact with U.S

(General Studies- Paper III)

Pakistan’s Cabinet has quietly approved signing a new security pact with the U.S.

It indicates a fresh start in defence cooperation after years of distrust between the two nations.

Key Highlights

The agreement is called the Communication Interoperability and Security Memorandum of Agreement (CIS-MOA).
The agreement allows legal cover for the U.S. Department of Defence to sell military equipment and hardware to Pakistan.
The previous agreement, first signed in 2005, expired in 2020, and the new one will cover joint exercises, operations, training, basing, and equipment
The signing of the CIS-MOA suggests the possibility of the U.S. selling military hardware to Pakistan in the future.
The U.S. has been seeking closer cooperation with India to counter China, leading to strained ties with Pakistan.
Former President Donald Trump had accused Pakistan of not doing enough to combat militants and criticized the country in return for American aid.
Relations between Pakistan and the U.S. have been influenced by issues in Afghanistan.
Since President Joe Biden took office, he has not formally spoken to the Pakistani leadership, but ties have improved since the current government came to power in Pakistan.

About U.S- Pakistan Relations

The United States established diplomatic relations with Pakistan in 1947.
The relationship between the U.S. and Pakistan has been characterized as a “roller coaster” with periods of close coordination and deep bilateral estrangement.
During the Cold War, Pakistan allied with the U.S. against the Soviet Union and established a strong military alliance with the United States.
The U.S. aided Pakistan during the Bangladesh Liberation War and the Indo-Pakistani War of 1971.
After the Soviet invasion of Afghanistan in 1979, Pakistan and the U.S. cooperated in funding the anti-communist Afghan mujahideen during the First Afghan Civil War.
Relations between the two nations have been marked by sanctions, aid suspensions, and criticism of each other’s strategies in the War on Terror.
The U.S. continues to blame Pakistan’s military for supporting non-state actors, including the Taliban.
Despite the troubled events, the Pakistani military has been an important player in American geopolitical strategy and has been a major non-NATO ally since 2002.
After Pakistan’s participation in the Afghan peace process and the Taliban’s return to power in Afghanistan in 2021, U.S. policymakers are re-evaluating relations with Pakistan.
The U.S. is a significant source of foreign direct investment in Pakistan and remains its largest export market.
The U.S. had committed more than 77 million COVID-19 vaccine doses to Pakistan and supports educational opportunities through programs like Fulbright.
Pakistan is the 44th largest economy in 2022 according to IMF estimates, and the U.S. is its largest export market.
U.S. direct investment in Pakistan has increased, especially in consumer goods, chemicals, energy, agriculture, and business process outsourcing.
There are significant populations of Pakistani Americans living in the U.S.

Services sector output rebounded from June’s three-month low to fastest since June 2010, buoyed by strong demand and new business gains: S&P Global India Services Purchasing Managers’ Index

THE HINDU BUREAU

NEW DELHI

Facts about the News

Services PMI hit 13-year high in July

(General Studies- Paper III)

India’s services sector output, measured by the S&P Global India Services Purchasing Managers’ Index (PMI), rebounded to a 13-year high of 62.3 in July 2022.

A reading above 50 on the index indicates an expansion in activity levels.

Key Highlights

Output levels improved at the sharpest pace since June 2010, attributed to strong demand and new business gains.
Job creation remained “slight,” despite the higher workload, with firms hiring a combination of part-time, full-time, permanent, and temporary staff.
New orders were boosted by an increase in export orders, with firms reporting the second-fastest growth since the index was introduced in September 2014.
Bangladesh, Nepal, Sri Lanka, and the UAE emerged as key sources of export growth.
The increase in sales both in domestic and international markets is seen as positive news amid the challenging global economic scenario.

About Purchasing Managers’ Index (PMI)

The Purchasing Managers’ Index (PMI) is a survey-based economic indicator that provides a timely insight into business conditions.
It is widely used to anticipate changing economic trends in official data series such as GDP, industrial production, employment, and inflation.
The PMI is produced globally by S&P Global, but some trade associations also produce local PMIs in certain markets.
The PMI measures various aspects of business conditions, including business output, new orders, employment, costs, selling prices, exports, purchasing activity, supplier performance, backlogs of orders, and inventories of inputs and finished goods.
Respondents report the change in each variable compared to the prior month, indicating whether they have risen, fallen, or remained unchanged.
The PMI has been extended beyond manufacturing to cover other sectors, including services, construction, and retail.

About the Services PMI

The Services PMI was introduced in 1996 to complement the existing Manufacturing PMI, as the service sector accounts for a larger proportion of GDP in most developed economies.
The Services PMI has fewer questions compared to the Manufacturing PMI due to some questions not being relevant to many service providers.
Services PMI coverage includes financial services, consumer services, and all other business services.

How it is calculated?

The headline PMI is a number from 0 to 100.
A PMI above 50 represents an expansion when compared with the previous month.
A PMI reading under 50 represents a contraction while a reading at 50 indicates no change.
The further away from 50, the greater the level of change.

Fitch’s US rating: The downgrade

Fitch, the credit rating agency, downgraded the US sovereign rating from AAA to AA+.

Key Highlights

The agency cited three reasons for the downgrade:
- worsening fiscal metrics over the next three years,
- a high and rising government debt burden, and
- a deterioration in governance, evidenced by recurring standoffs on the debt-limit between political parties.
The US economy is performing better than expected, and there is confidence in the country’s ability to meet its obligations.
The rating agency expects the general government deficit to increase from 3.7% of GDP in 2022 to 6.3% in 2023, primarily due to weaker revenues, higher interest obligations, and increased spending.
Both state and local governments are expected to run deficits this year after running a surplus last year.
Fitch does not anticipate significant fiscal consolidation in the near term, given the upcoming presidential elections in November 2024.
The debt to GDP ratio is expected to rise in the coming years, posing additional challenges.
The rise in borrowing costs will also present challenges, with interest costs estimated to double to 3.6% of GDP by 2033.
The US administration has dismissed the ratings downgrade as arbitrary and based on outdated data.
Political bickering over crucial policy matters, such as the debt-limit, has eroded confidence in fiscal management and contributed to the ratings downgrade.
In 2011, Standard & Poor’s also downgraded the US for similar reasons, citing difficulties in bridging the gap between political parties over fiscal policy.
The episodes of political polarization in the US serve as a reminder to countries worldwide about the economic consequences of such divisions.