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Editorials/Opinions Analysis For UPSC 10 February 2024

  1. Unveiling the Green Revolution at Indian Airports
  2. Monetary Policy Committee’s Recent Stance


Context:

The growth and mobility facilitated by the civil aviation sector play a vital role in propelling the economic progress of the nation. As of 2024, India holds the 5th position in the global GDP rankings. The civil aviation sector is emerging as a pivotal force behind growth and mobility, positioning itself as a key driver of economic advancement. Presently, India stands as the third-largest aviation market globally.

Relevance:

GS-3

  • Infrastructure
  • Industrial Policy

Mains Question:

The civil aviation sector plays a crucial role in driving growth and facilitating mobility, pushing the nation’s economic progress forward. Analyse. (15 Marks, 250 Words).

Relevant Statistics:

  • The anticipated air passenger traffic in India, encompassing both domestic and international travel, is projected to reach 395 million in the fiscal year 2023-24.
  • Looking ahead to the fiscal year 2030, it is forecasted that the number of domestic airport passengers in India will escalate to 700 million, while international airport passenger numbers will reach 160 million.

Reasons Behind the Growth of Civil Aviation Sector:

  • This surge can be attributed to a combination of factors, including the expansion of tourism and infrastructure development, the presence of low-cost carriers, and the growth of disposable income.
  • The construction of new airports, the enlargement of existing ones, and the introduction of top-notch facilities further reinforce India’s status as a global aviation powerhouse.

Shifting to Renewable Energy Sources:

  • Global experts worldwide are optimistic about India emerging as the most dynamic market for global aviation, primarily due to substantial investments by the Indian government in airport infrastructure.
  • However, the government’s priorities find themselves at the intersection of a complex Venn diagram — aiming to maximize economic opportunities while also progressing steadily toward achieving decarbonization objectives.
  • This commitment is evident in their emphasis on promoting initiatives that reduce carbon emissions.
  • A notable milestone in this direction occurred earlier this year when Cochin International Airport (CIAL) achieved the distinction of being the world’s first airport entirely powered by solar energy.
  • This groundbreaking project is anticipated to prevent the emission of 300,000 tons of CO2 over the next 25 years, equivalent to planting three million trees.

Relevant Statistics:

  • Remarkably, 66 Indian airports have already achieved complete reliance on green energy sources, utilizing solar, wind, and hydro power. An additional 121 airports are set to achieve carbon neutrality by the year 2025.
  • In India, the Ministry of Civil Aviation (MoCA) has been at the forefront of promoting sustainable development in the aviation sector by advocating for the use of sustainable aviation fuel (SAF) as a green alternative.
  • The environmental initiatives in Indian airports go beyond ecological considerations; they represent a strategic economic imperative.
  • Through the adoption of sustainable practices, India is positioning itself as a global leader in the aviation industry, attracting investments and fostering innovation.

Shaping the Future of an Industry

  • The utilization of Sustainable Aviation Fuel (SAF) in comparison to traditional jet fuels has the potential to achieve an up to 80% reduction in lifecycle carbon emissions.
  • The Indian government actively advocates for SAF use and has set a target to blend 10% of SAF with conventional jet fuel by the year 2030.
  • In the face of the significant challenge of climate change and its associated impacts worldwide, developing a sustainable approach to scaling infrastructure is paramount. It seems the government is cautiously progressing in the right direction by adopting a comprehensive approach.
  • To enhance airport infrastructure, the government aims to construct 100 airports by 2024 under the UDAN (Ude Desh Ka Aam Nagrik) Scheme.

Relevant Statistics:

  • Currently, 74 airports have been developed, with over 2.15 lakh UDAN flights operated and more than 1.1 crore passengers benefiting from UDAN flights thus far.
  • While the creation of new airports is geared towards improving connectivity and strengthening supply chain networks, there is a commitment to integrating environmental considerations.
  • The Ministry of Civil Aviation (MoCA) has provided guidance to developers of upcoming Greenfield Airports and relevant State Governments, emphasizing the importance of striving for carbon neutrality and net-zero emissions, which includes promoting the use of renewable energy sources.
  • The Indian aviation industry has experienced a compound annual growth rate (CAGR) of 18% over the past five years, as reported by KPMG.
  • Presently, the Indian Civil Aviation MRO market is valued at approximately $900 million and is projected to reach $4.33 billion by 2025, with a CAGR of around 14-15%.
  • The ongoing transition has attracted various stakeholders, opening up new avenues for innovation. A recent development is the Odisha Government’s appointment of RITES Ltd as the consultant for airports in Rourkela, Jeypore, and Amarda Road, where the company has showcased its expertise in green airport development.
  • Previously, this Railways PSU was engaged to prepare a Detailed Project Report (DPR) for Shivamogga Airport under the UDAN Scheme. This shift towards environmentally friendly practices not only enhances resource management but also results in cost savings, ultimately boosting the overall competitiveness of the aviation sector in the country.

Conclusion:

India has firmly established itself on the global aviation stage. As we eagerly embrace the future of aviation, there is tremendous potential for the industry to revolutionize travel and contribute significantly to our decarbonization goals. The possibilities for this dynamic and exciting industry seem boundless.



Context:

The RBI’s Monetary Policy Committee (MPC) has judiciously chosen to adhere to its goal of ‘ensuring that inflation progressively aligns to the target’ by maintaining benchmark interest rates unchanged and sticking to its ‘withdrawal of accommodation’ stance. With a 5-1 majority, the MPC has committed to maintaining a clearly disinflationary monetary policy to anchor inflation expectations, particularly in the face of ‘large and repetitive price shocks disrupting the pace of disinflation.’

Relevance:

GS3- Economy

Mains Question:

Policymakers must continue to keep the focus on slowing price gains in order to ensure prudence and efficacy of the monetary policy. (10 Marks, 150 Words).

About the Monetary Policy Committee (MPC):

  • Monetary policy pertains to the central bank’s strategy in utilizing monetary instruments within its control to achieve the objectives outlined in the Act.
  • The primary goal of the RBI’s monetary policy is to uphold price stability, taking into consideration the objective of fostering growth.
  • Price stability is deemed a crucial prerequisite for sustainable economic growth.
  • The amended RBI Act of 1934 empowers the Government of India, in consultation with the Reserve Bank, to set the inflation target (4% +-2%) once every five years.

Several instruments are employed in monetary policy:

Repo Rate:

Definition: The interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government and approved securities under the Liquidity Adjustment Facility (LAF).

Reverse Repo Rate:

Definition: The interest rate at which the Reserve Bank absorbs liquidity on an overnight basis from banks against the collateral of eligible government securities under the LAF.

Liquidity Adjustment Facility (LAF):

Composition: Consists of overnight and term repo auctions.

Purpose: The term repo aims to develop the interbank term money market, establishing market-based benchmarks for loan and deposit pricing to enhance the transmission of monetary policy. Variable interest rate reverse repo auctions are also conducted as needed.

Marginal Standing Facility (MSF):

Description: A facility allowing scheduled commercial banks to borrow an additional amount of overnight money from the Reserve Bank, utilizing their Statutory Liquidity Ratio (SLR) portfolio, subject to a penal rate of interest. It serves as a safety valve against unforeseen liquidity shocks.

Corridor:

Determination: The MSF rate and reverse repo rate set the corridor for the daily movement in the weighted average call money rate.

Bank Rate:

Definition: The rate at which the RBI is willing to buy or rediscount bills of exchange or other commercial papers. Aligned with the MSF rate, it automatically changes alongside policy repo rate adjustments.

Cash Reserve Ratio (CRR):

Requirement: Mandates banks to maintain an average daily balance with the Reserve Bank as a percentage of their Net demand and time liabilities (NDTL).

Statutory Liquidity Ratio (SLR):

Mandate: Specifies the percentage of NDTL that banks must keep in safe and liquid assets such as unencumbered government securities, cash, and gold. Changes in SLR impact resource availability in the banking system for private sector lending.

Open Market Operations (OMOs):

Function: Encompasses outright purchase and sale of government securities to inject and absorb durable liquidity, respectively.

Market Stabilisation Scheme (MSS):

Introduction: Implemented in 2004 to manage surplus liquidity resulting from prolonged capital inflows. Involves the sale of short-dated government securities and treasury bills, with the mobilized cash held in a separate government account with the RBI.

Rationale Behind the Recent Stance:

  • Governor Shaktikanta Das explained the decision to keep the repo rate steady at 6.5% for a sixth consecutive meeting, noting that while domestic economic momentum remained strong, uncertainties in food prices were impacting the headline inflation trajectory.
  • The key consideration was the tangible risk that food price pressures could become more widespread and affect broader headline inflation. The majority alignment of the MPC in prioritizing the battle against inflation should be viewed in light of recent trends in retail inflation.
  • Despite easing from July’s 15-month peak of 7.4% to 4.87% in October, headline retail inflation rebounded to a four-month high of 5.69% in December.
  • Food price gains, measured by the Consumer Food Price Index, surged ahead to 9.53%, a significant increase of 292 basis points compared to October’s 6.61%.

Uncertainty Surrounding Food Prices:

  • The recent RBI Bulletin article underscores the growing concern among policymakers regarding the uncertainty surrounding food price increases. The article, titled ‘Are Food Prices the ‘True’ Core of India’s Inflation?’, seeks to address this issue directly.
  • The conclusion drawn is that there is sufficient empirical evidence supporting the assertion that ‘there are times when food inflation mimics core inflation.’
  • Officials caution that, given the substantial share of food in the consumption basket, significant and repetitive shocks in food prices have the potential to extend outward and jeopardize the objective of price stability by destabilizing inflation expectations.
  • The MPC’s decision to downwardly revise its projection for average retail inflation in the January-March quarter to 5.0%, which is 20 basis points lower than its December forecast, reflects the cautious optimism policymakers derive from the improvement in rabi sowing and a seasonal correction in vegetable prices.

Conclusion:

The Department of Consumer Affairs’ daily price monitoring dashboard indicates that, as of February 8, the average retail price of over two-thirds of the key food items it tracks remained higher on a year-on-year basis. Policymakers must remain resolute in their commitment to sustainably reduce price increases toward the 4% target to avoid dampening consumption and, consequently, undermining the momentum of economic growth.


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