1. Why edible oils are costlier 

Relevant for GS Prelims & Mains Paper III; Economics

Edible oil prices have risen sharply in recent months. A look at the reasons, and the options before the government for price control:

How much have edible oil prices risen?

The prices of six edible oils — groundnut oil, mustard oil, vanaspati, soya oil, sunflower oil and palm oil — have risen between 20% and 56% at all-India levels in the last one year, data on the Department of Consumer Affairs website show. The retail price of mustard oil (packed) has increased by 44% to Rs 171 per kg on May 28 this year, from Rs 118 per kg on the same date last year. The prices of soya oil and sunflower oil, too, have increased more than 50% since last year. (See graphic)

In fact, the monthly average retail prices of all six edible oils soared to an 11-year high in May 2021. The sharp increase in cooking oil prices has come at a time when household incomes have been hit due to Covid-19.

How much edible oil does India consume?

With rising incomes and changing food habits, consumption of edible oils has been rising over the years. While mustard oil is consumed mostly in rural areas, the share of refined oils —sunflower oil and soyabean oil — is higher in urban areas.

Between 1993-94 and 2004-05, monthly per capita consumption of edible oils increased from 0.37 kg to 0.48 kg in rural areas, and from 0.56 kg to 0.66 kg in urban areas. By 2011-12, it had risen further to 0.67 kg in rural areas and 0.85 kg in urban areas. Although comparable figures are not available beyond that, a steady rise in the per capita availability of vegetable oils, through domestic sources as well as imports, indicates that demand has continued to rise. According to the Ministry of Agriculture and Farmers’ Welfare, the per capita availability of vegetable oils in the country has been in the range of 19.10 kg to 19.80 kg per annum during the last five years.

Source: Department of Consumer Affairs

How much is produced domestically and how much is imported?

According to the Agriculture Ministry, the demand for vegetable oils has been in the range of 23.48–25.92 million tonnes between 2015-16 and 2019-20. However, domestic supply in this period has been much lower, in the range of 8.63–10.65 million tonnes.

In 2019-20, domestic availability of edible oils from both primary sources (oilseeds like mustard, groundnut etc.) and secondary sources (such as coconut, oil palm, rice bran oil, cotton seed) was only 10.65 million tonnes against the total domestic demand of 24 million tonnes — a gap of over 13 million tonnes.

Thus, India depends on imports to meet its demand. In 2019-20, the country imported about 13.35 million tonnes of edible oils worth Rs 61,559 crore, or about 56% of the demand. This mainly comprised palm (7 million tonnes), soyabean (3.5 millon tonnes) and sunflower (2.5 million tonnes). The major sources of these imports are Argentina and Brazil for soyabeen oil; Indonesia and Malaysia palm oil; and Ukraine and Argentina again for sunflower oil.

Why are prices rising?

The increase in domestic prices is basically a reflection of international prices, because India meets 56% of its domestic demand through imports. In the international market, prices of edible oils have jumped sharply in recent months due to various factors.

The price of crude palm oil (for the most actively-traded futures contract at the Bursa Malaysia derivatives exchange) was quoted at 3,890 ringgit per tonne on May 25, compared to 2,281 ringgit a year ago. At the Chicago Board of Trade (CBOT), the closing price of soyabean for July delivery was at $559.51 per tonne on May 24, as against $306.16 at this time last year. The prices of soyabean at CBOT and of Malaysian palm oil determine the prices Indian consumers pay for edible oil.

Even the Food and Agriculture Organization (FAO) price index (2014-2016=100) for vegetable oils, an indicator of movement of edible oil prices in the international market, has soared to 162 in April this year, compared to 81 in April last year.

But why are international prices rising?

B V Mehta, executive director of the Solvent Extractors’ Association of India (SEAI), said one of the reasons is the thrust on making biofuel from vegetable oil.

“There is a shifting of edible oils from food basket to fuel basket,” Mehta said, adding there has been a thrust on making renewable fuel from soyabean oil in the US, Brazil and other countries. He said that despite the Covid-19 pandemic, the global demand for edible oils has been high.

Other factors include buying by China, labour issues in Malaysia, the impact of La Niña on palm and soya producing areas, and export duties on crude palm oil in Indonesia and Malaysia.

According to the FAO, reports of “lower than-expected planting intentions and accounts of below-average temperatures and dry conditions in parts of USA’s main soya growing regions cast doubts over the supply prospects for the upcoming 2021/22 season”. Besides, Argentina’s production outlook is conditioned by reports of lower-than-anticipated yields owing to prolonged dryness, says the FAO’s Oilseeds, Oils & Meals: Monthly Price and Policy Update for the month of May.

What are the options before the government?

One of the short-term options for reducing edible oil prices is to lower import duties. According to SEAI, the effective rate of import duties, including agriculture infrastructure and development cess and social welfare cess, has been 35.75% with effect from February 2, 2021. The effective import duties on ‘refined, bleached and deodorised (RBD) palm oil’ is 59.40%. Similarly, the rate of effective import duties on crude and refined soyabean oil and sunflower oil is in the range of 38.50% to 49.50%.

The policy for import of crude palm oil is “free”, while for RBD palm oil it is “restricted.” If the government reduces import duty on refined palm oil, prices will come down immediately, said an official.

However, the edible oil industry is not in favour of reducing duties. SEAI’s Mehta said if import duties are reduced, international prices will go up, and neither will the government get revenue, nor will the consumer benefit. He felt the government should rather subsidise edible oils and make available these to the poor under the Public Distribution System.

Source: The Indian Express

2. What Bangla-Lanka currency swap means

Relevant for GS Prelims & Mains Paper III; Economics

Bangladesh’s central bank has approved a $200 billion currency swap facility to Sri Lanka. What does this mean and why is it significant?

What is the arrangement?

Bangladesh Bank, Bangladesh’s central bank, has in principle approved a $200 million currency swap agreement with Sri Lanka, which will help Colombo tide over its foreign exchange crisis, according to media reports from Bangladesh, quoting the bank’s spokesman.

Sri Lanka, staring at an external debt repayment schedule of $4.05 million this year, is in urgent need of foreign exchange. Its own foreign exchange reserves in March year stood at $4 million.

The two sides have to formalise an agreement to operationalise the facility approved by Bangladesh Bank. Dhaka decided to extend the facility after a request by Sri Lankan Prime Minister Mahinda Rajapaksa to Bangladesh’s Prime Minister Sheikh Hasina.

What is a currency swap?

In this context, a currency swap is effectively a loan that Bangladesh will give to Sri Lanka in dollars, with an agreement that the debt will be repaid with interest in Sri Lankan rupees. For Sri Lanka, this is cheaper than borrowing from the market, and a lifeline as is it struggles to maintain adequate forex reserves even as repayment of its external debts looms. The period of the currency swap will be specified in the agreement.

Isn’t it unusual for Bangladesh to do this?

Bangladesh has not been viewed so far as a provider of financial assistance to other countries. It has been among the most impoverished countries of the world, and still receives billions of dollars in financial aid. But over the last two decades, its economy has pulled itself up literally by the bootstraps, and in 2020, was the fastest growing in South Asia.

Bangladesh’s economy grew by 5.2 per cent in 2020, and is expected to grow by 6.8 per cent in 2021. The country has managed to pull millions out of poverty. Its per capita income just overtook India’s.

This may be the first time that Bangladesh is extending a helping hand to another country, so this is a landmark of sorts.

Bangladesh’s forex reserves in May were a healthy $45 billion. In 2020, despite fears that the pandemic would hit remittances, Bangladeshis living abroad sent over $21 billion. It is also the first time that Sri Lanka is borrowing from a SAARC country other than India.

Why didn’t Sri Lanka approach India, the biggest economy in the region?

It did, but did not get a reply from Delhi. Last year year, President Gotabaya Rajapaksa knocked on Prime Minister Narendra Modi’s door for a $1 billion credit swap, and separately, a moratorium on debts that the country has to repay to India. But India-Sri Lanka relations have been tense over Colombo’s decision to cancel a valued container terminal project at Colombo Port.

India put off the decision, but Colombo no longer has the luxury of time. With the tourism industry destroyed since the 2019 Easter attacks, Sri Lanka had lost one of its top foreign exchange pullers even before the pandemic. The tea and garment industries have also been hit by the pandemic affecting exports. Remittances increased in 2020, but are not sufficient to pull Sri Lanka out of its crisis.

The country is already deep in debt to China. In April, Beijing gave Sri Lanka a $1.5 billion currency swap facility. Separately, China, which had extended a $1 billion loan to Sri Lanka last year, extended the second $500 million tranche of that loan. According to media reports, Sri Lanka’s owes China up to $5 billion.

What about last year’s credit swap facility that India gave Sri Lanka?

Last July, the Reserve Bank of India did extend a $400 million credit swap facility to Sri Lanka, which Central Bank of Sri Lanka settled in February. The arrangement was not extended.

RBI has a framework under which it can offer credit swap facilities to SAARC countries within an overall corpus of $2 billion. According to RBI, the SAARC currency swap facility came into operation in November 2012 with the aim of providing to smaller countries in the region “a backstop line of funding for short-term foreign exchange liquidity requirements or balance of payment crisis till longer term arrangements are made”.

The presumption was that only India, as the regional group’s largest economy, could do this. The Bangladesh-Sri Lanka arrangement shows that is no longer valid.

Source: The Indian Express

3. Why Lakshadweep Administration proposals have upset locals

Relevant for GS Prelims & Mains Paper II; Polity & Governance

Over the last few weeks, public anger has been simmering in the Lakshadweep islands over a number of controversial proposals floated by the Union Territory Administrator, Praful K Patel. Also the Administrator of the UT of Dadra and Nagar Haveli and Daman and Diu, Patel was given additional charge of Lakshadweep following the death of Dineshwar Sharma last December.

While the UT Administration has said Patel’s proposals are aimed at ensuring safety and well-being of residents along with promoting the islands as a tourist destination on par with the Maldives, residents view them as ripping the social and cultural fabric of the islands.

Some of the proposals include:

Cow slaughter & beef

PROPOSAL: An order from the Administration seeks to ban the slaughter of cow, calf, bull and buffalo without a certificate from a competent authority. It prohibits the sale, transport and storage of beef and beef products. Penalties include a jail term up to one year and a fine of Rs 10,000. The Administration has not provided an explanation on why the rule was brought in.

PROTEST: Residents view the rule as a direct infringement on their culture and eating habits. They allege the rule was decided without consultation with local bodies.

Two-child policy

PROPOSAL: Under the Draft Panchayat Regulation 2021, the Administration aims to bar people with more than two children from becoming a member of the gram panchayat. For those who already have more than two children, the regulation does not disqualify them provided they do not have further children after the date on which the rule comes into effect.

PROTEST: Locals have questioned the motive. The NCP and the Congress too have opposed the move.

Serving liquor to tourists

PROPOSAL: The Administration has decided to allow liquor to be served at resorts on inhabited islands. Currently, prohibition is in place on all inhabited islands, with liquor served only at resorts on the uninhabited Bangaram island. Collector S Asker Ali clarified that liquor permits would be given only to resorts for tourists, not for locals.

PROTEST: Residents have alleged that the move will lead to a proliferation of liquor sales on the island, which had been observing near-prohibition until now.

Land acquisition powers

PROPOSAL: The Administration brought in a draft Lakshadweep Development Authority Regulation (LDAR) to oversee development of towns on the islands, with sweeping changes in the way land can be acquired and utilised. It talks of declaration of ‘planning areas’ and constitution of ‘planning and development authorities’ for preparing a land use map and register, ostensibly for large projects.

PROTEST: Residents have protested against the way it was prepared and pushed through without consultation. They fear large infrastructure and tourism projects can destabilise the ecology, and that the notification gives powers to the Administration to remove small landholdings of ST residents.

Anti-Goonda regulation

PROPOSAL: The draft Lakshadweep Prevention of Anti-Social Activities Regulation provides for powers to detain a person for up to one year to prevent him from “acting in any manner prejudicial to the maintenance of public order”. It allows for detention for anti-social activities from six months to a year without legal representation. The Collector said while the island remains peaceful, there have been reports of drugs being found along with weapons and live ammunition. He said the regulation is required to keep the “youth from getting misguided by illegal businesses”.

PROTEST: Residents are sceptical of the need for such a stringent law in a UT with one of the lowest crime rates in the country. They allege it has been brought in to arrest those opposed to the Administration.

Covid-19 SOPs

PROPOSAL: For a year, Lakshadweep did not record any case of Covid-19, thanks to stringent quarantine protocols and testing of inbound travellers. Last December, Covid-19 SOPs were diluted by doing away with mandatory quarantine for travellers at Kochi and Kavaratti. Instead, anyone with a negative RT-PCR certificate issued in the previous 48 hours could travel to Lakshadweep. The Administration said the SOPs were changed in accordance with Home Ministry rules and to allow for reopening of the economy.

PROTEST: The change led to the island losing its ‘green zone’ tag and a spurt in infections in subsequent months. As of May 28, the Union Territory has reported over 7,300 cases and 28 deaths. Islanders blame the Administration for mismanagement in handling of the pandemic.

Lakshadweep Islands, the people and the politics

GEOGRAPHY: 36 islands across 12 atolls, closest to Kerala, on which it depends for essential supplies. Only 10 of the islands are inhabited. Once a part of Malabar district of the Madras Presidency, Lakshadweep was given Union Territory status following Kerala state’s formation in 1956.

DEMOGRAPHY: With a population of 65,000 (2011 Census), Lakshadweep is India’s smallest Union Territory. It has the highest population share of Muslims (96%) and Scheduled Tribes (94.8%) among the UTs. Residents speak Malayalam and Dhivehi.

POLITICS: The UT is served by a Lok Sabha MP, currently Mohd Faizal P P (NCP) since 2014. The NCP and the Congress are the dominant parties; the BJP and Communist parties too have units. P M Sayeed won 10 consecutive terms during 1967-2004, eight of these on a Congress ticket. His son Muhammed Hamdulla Sayeed was MP between 2009 and 2014.

Apart from the UT Administration, there are dweep panchayat councils. In 2017, the Congress won a majority of wards in the district panchayat and dweep panchayats.

Source: The Indian Express

4. Centre vs states: how IAS officers are put on central deputation

Relevant for GS Prelims & Mains Paper II, Polity & Governance

On Monday, West Bengal Chief Minister announced that outgoing Chief Secretary Bandyopadhyay would be appointed Chief Advisor to the Chief Minister. Bandyopadhyay, an IAS officer of the 1987 batch, has been the subject of a tussle between the Centre and the state government over the last few days. He was due to begin an extension of three months after retiring as Chief Secretary on Monday, but the Centre instead asked him to report on Monday and join the Government of India. He did not do so.

The tussle

On May 25, the West Bengal government issued an order, citing the Centre’s approval dated May 24, “in the interest of public service, to extend” Bandyopadhyay’s services for three months. But, on May 28, the Department of Personnel and Training (DoPT) wrote to the Chief Secretary that “the Appointment Committee of the Cabinet has approved the placement of the services” of Bandyopadhyay with the Government of India with “immediate effect” and requested the state to relieve the officer with immediate effect and direct him to report by 10 am on May 31.

This came after Mamata Banerjee and Bandyopadhyay last week skipped a meeting with Prime Minister Narendra Modi during his visit to the state. As it turned out, the Chief Minister did not relieve Bandyopadhyay, who did not report to New Delhi either.

How officers get an extension

Rule 16(1) of DCRB (Death-cum-Retirement Benefit) Rules says that “a member of the Service dealing with budget work or working as a full-time member of a Committee which is to be wound up within a short period may be given extension of service for a period not exceeding three months in public interest, with the prior approval of the Central Government”. For an officer posted as Chief Secretary of a state, this extension can be for six months.

Central deputation

In normal practice, the Centre asks every year for an “offer list” of officers of the All India Services (IAS, IPS and Indian Forest Service) willing to go on central deputation, after which it selects officers from that list. Rule 6(1) of the IAS Cadre Rules says an officer may, “with the concurrence of the State Governments concerned and the Central Government, be deputed for service under the Central Government or another State Government…” It says “in case of any disagreement, the matter shall be decided by the Central Government and the State Government or State Governments concerned shall give effect to the decision of the Central Government.”

In a PIL in the Supreme Court in January this year, lawyer Abu Sohel pleaded that Rule 6(1) be struck down. He contended that because of the Rule, states have to bear the brunt of arbitrary actions taken by the Centre, while the Rule makes it difficult for the Centre to enforce its will on a state that refuses to back down. Ruling on March 1, a Bench of Justice L Nageswara Rao and Justice S Ravindra Bhat did not find any merit in the petition.

Earlier showdowns

WEST BENGAL, 2019: In February 2019, the Home Ministry had written to then West Bengal Chief Secretary Malay Kumar De calling for action against five IPS officers, including DGP Virendra, for allegedly taking part in a dharna organised by the Trinamool Congress against CBI raids. The Home Ministry had asked the state to withdraw medals conferred on the officers. The state government said no officer had taken part in the dharna. To find out what action, if any, was taken against the five officers, The Indian Express filed an RTI with the Home Ministry, which replied on January 8, 2021: “The queries are vague/hypothetical in nature which is not covered” under the RTI Act. On another RTI, the MHA replied on December 30, 2020: “No awards/medals have been withdrawn” against any IPS officers since January 1, 2019.

WEST BENGAL, 2020: Last December, the Centre asked that three IPS officers who were in charge of security when BJP president J P Nadda’s motorcade was attacked outside Kolkata on December 10, allegedly by supporters of the Trinamool Congress, be sent on deputation with the Centre. The state government refused, citing a shortage of IPS officers. The officers concerned were not relieved from the state and the Centre did not insist either. The officers — Rajeev Mishra (then Additional Director General, South Bengal), Praveen Tripathi (then Deputy Inspector General, Presidency Range) and Bholanath Pandey (then SP, Diamond Harbour) — continue to serve in the state government, in new positions.

TAMIL NADU, 2001: A month after J Jayalalithaa took oath as Chief Minister in 2001, Tamil Nadu police’s CB-CID raided former Chief Minister M Karunanidhi’s home on the night of June 29 and arrested him along with his DMK colleagues Murasoli Maran and T R Baalu, then ministers in the NDA government of A B Vajpayee. The following month, the Centre asked the state government to send three IPS officers on central deputation. But Jayalalithaa refused, and wrote to other Chief Ministers for their support to protect the rights of the states. The incident resulted in the removal of Governor M Fathima Beevi, as the Centre was not happy with her report.

TAMIL NADU, 2014: IPS officer Archana Ramasundaram was deputed to the CBI in 2014, but the Tamil Nadu government refused to release her, and suspended her when she defied the state’s order. However, the suspension did not apply because she had by that time already joined CBI.

What next

The Centre cannot take action against civil service officials who are posted under the state government, unless the latter agrees. Rule 7 of the All India Services (Discipline and Appeal) Rules, 1969, states that the “authority to institute proceedings and to impose penalty” will be the state government if the officer is “serving in connection with the affairs of a state…” For any action to be taken against an officer of the All India Services, the state and the Centre both need to agree.

Source: The Indian Express