1. Household-level asset ownership: just 3% in India, Delhi on top

Relevant for GS Prelims & Mains Paper III; Economics

Defining Indian households in terms of prosperity has always been a tricky exercise for economists.

Gauging who can afford the five assets of a car, an air-conditioner at home, a desktop or laptop computer, a refrigerator, and a television set, has been seen as an important indicator of economic well-being in a fast-growing, aspirational economy.

Apart from bigger assets such as a home or a piece of land, these five assets may be understood as ones that middle-class Indian households typically yearn to possess.

Ownership of assets

What proportion of Indian households own these five assets?

An analysis of asset ownership data at the household level collected by Lokniti-CSDS during its National Election Study in 2019 indicates that no more than 3% of Indian households — that is, 1 in every 33 — own all of these five assets at the same time.

The pace of growth of ownership of these assets has been unexceptional in recent years — five years previously, in 2014, the percentage of households that owned these assets was 2%, or 1 in every 50 households. (Table 1)

Source: NES 2019; Lokniti-CSDS

At a time when Covid-19 has caused an unprecedented dent in the economy and household incomes have shrunk across large sections of the population, it is likely that the growth in the ownership of these assets over the last two years has slowed down compared to the pre-pandemic period.

Asset-ownership data collected during our studies in the five states that have gone to polls after the onset of the pandemic (Bihar, West Bengal, Tamil Nadu, Assam, Kerala), show the numbers have remained constant.

It is important to add here that while the proportion of households with the purchasing power to own all of these five assets together might be very small, if one looks at each of these assets individually, the growth in ownership appears to have been quite robust for at least some of these items.

For instance, ownership of a refrigerator went up from 29% to 42% between 2014 and 2019; that of computers/laptops rose from 10% to 16% during this same period. (Table 1)

The growth of car-ownership, however, has been painfully slow.

If your family owned a car in 2019, you were among just 11% of the total households in the country. Those who live in congested cities, and are familiar with arguments over parking space, would perhaps find it surprising that only about a quarter of households in Indian cities own a car of their own.

Even so, people who live in cities are much better off than their rural counterparts in this respect, the data show.

A temporal comparison of the last two decades shows that while the proportion of households with a car more than doubled in the first five years of this period — from 2% in 1999 to 5% in 2004 — the growth slowed thereafter; it took the next 15 years to reach the 10% mark. (The figures for 2009 and 2014 were 6% and 8% respectively.)

It’s worth mentioning here that over half of Indian households own a two-wheeler (56%) — and that for the vast majority, a two-wheeler is more affordable than a car.

Also noteworthy is the fact that over two-fifths of families (42%) do not have either a car or a two-wheeler.

Finally, despite air-conditioners being extremely common in the metros, in the country as a whole, ACs remain outside the budget priority of 9 out of every 10 households.

Unequal distribution

The data show major differences in asset ownership among the various social groups. Thus, upper-caste Hindu households are seven times more likely to own all the five assets, compared to Dalit (SC) and Muslim households. (Table 2)

Also, every fifth upper-caste Hindu family travels in a car, as against every twentieth Dalit family.

Among religious groups, Sikh households were found to be the most prosperous. (Table 2)

Rural vs urban; among states

Indian households continue to witness persistent inequality in asset distribution. The pattern of asset-ownership varies significantly with how urban the area is.

As against about 13% of households in cities, only 5% of households in towns, and merely 1% in villages, could boast of having all of the five assets in 2019. (Table 2)

A comparison among states is more revealing. The highly urbanised or high per-capita-income states of Delhi, Punjab, Goa, and Kerala, in that order, emerged at the top of the table in this regard. All of these states had a double-digit proportion of households owning all the five assets together in 2019.

At the other end of the spectrum, there were eight states in which merely 1% of households had these assets, with Jharkhand and Assam being the worst off. (Table 3)

Source: The Indian Express

2. The China-Taiwan tussle

Relevant for GS Prelims & Mains Paper II; International Relations

Tensions between China and Taiwan have escalated since October 1, when China observes its National Day to mark the birth of the People’s Republic of China (PRC).

Coinciding with the 72nd anniversary celebrations, China flew over 100 fighter jets into Taiwan’s air defence identification zone, jangling nerves in Taiwan and setting off alarm around the world that it was prepping to take over the island by force.

Although largely unrecognised by other countries as such, self-ruled Taiwan sees itself as no less than an independent nation, and its leaders, including the fiercely pro-independence President Tsai Ing-wen, have vowed to defend its sovereignty against the Chinese goal of “reunification”.

But Taiwan is entirely dependent on the US for its defence against possible Chinese aggression — and that is why every spike in military tensions between China and Taiwan injects more hostility in the already strained relationship between Washington and Beijing.

1949: Founding of the PRC

Taiwan, earlier known as Formosa, a tiny island off the east coast of China, is where Chinese republicans of the Kuomintang government retreated after the 1949 victory of the communists — and it has since continued as the Republic of China (RoC). The island is located in the East China Sea, to the northeast of Hong Kong, north of the Philippines and south of South Korea, and southwest of Japan. What happens in and around Taiwan is of deep concern to all of East Asia.

Taiwan observes October 10 — “double 10” — as its national day; it was on this day in 1911 that sections of the Manchu army rose in rebellion, leading ultimately to the overthrow of the Qing dynasty and the end of 4,000 years of the monarchy. The RoC was declared on December 29, 1911, and it found its feet in the 1920s under the leadership of Dr Sun Yat-sen, founder of the Kuomintang (KMT) Party.

Sun was succeeded by General Chiang Kai-shek, whose actions against the Chinese communists, who were part of an alliance with the KMT, triggered the civil war that ended in victory for the communists and retreat of Chiang and the KMT to Taiwan.

Since its founding in 1949, the PRC has believed that Taiwan must be reunified with the mainland, while the RoC has held out as an “independent” country. The RoC became the non-communist frontier against China during the Cold War, and was the only ‘China’ recognised at the UN until 1971. That was when the US inaugurated ties with China through the secret diplomacy of Henry Kissinger, national security adviser to President Richard Nixon.

The US backs Taiwan’s independence, maintains ties with Taipei, and sells weapons to it — but officially subscribes to PRC’s “One China Policy”, which means there is only one legitimate Chinese government. Just 15, mostly very small, countries recognise Taiwan.

China-Taiwan tensions

In 1954-55, and in 1958, the PRC bombed the Jinmen, Mazu, and Dachen islands under Taiwan’s control, drawing in the US. Congress passed the Formosa Resolution authorising President Dwight D Eisenhower to defend RoC territory.

In 1955, Premier Zhou En-lai declared at the Bandung Conference that he wanted negotiations with the US. But as civil war broke out in Lebanon in 1958, China resumed the bombing, provoking the US to supply Taiwanese outposts on the islands. The PRC and ROC then arrived at an arrangement to bomb each other’s garrisons on alternate days — this continued until 1971. (‘Milestones in the History of US Foreign Relations’, history.state.gov)

The most serious encounter was in 1995-96, when China began testing missiles in the seas around Taiwan, triggering the biggest US mobilisation in the region since the Vietnam War. The tests led to the re-election in 1996 of President Lee Teng-hui, seen by the Chinese as a pro-independence leader.

Xi reiterated that Taiwan (map) must reunify with China.

Independence politics

In 1975, Chiang Kai-shek died, martial law was lifted, and Taiwan got its first democratic reforms. Starting from the 1990s, and despite the missile crisis, relations between the PRC and RoC improved, and trade ties were established. As the British prepared to exit Hong Kong in 1999, the “One China, Two Systems” solution was offered to Taiwan as well, but it was rejected by the Taiwanese.

In 2000, Taiwan got its first non-KMT government, when the Taiwanese nationalist Democratic Progressive Party (DPP) won the presidency. In 2004, China started drafting an anti-secession law aimed at Taiwan; trade and connectivity, however, continued to improve.

Today, the two big players in Taiwan’s politics are the DPP and KMT, broadly the parties of the island’s Hakka inhabitants and the minority mainland Chinese respectively. The 2016 election of President Tsai marked the onset of a sharp pro-independence phase in Taiwan, and the current tensions with China coincided with her re-election in 2020.

Taiwan now has massive economic interests, including investments in China, and pro-independence sections worry that this might come in the way of their goals. Inversely, the pro-reunification sections of the polity, as well as China, hope that economic dependence and increasing people-to-people contacts will wear out the pro-independence lobbies.

The current tensions

Last year, amid worsening US-China relations over Covid and trade, the State Department sent its highest ranking delegation yet to Taipei. During the visit, the Chinese conducted a military exercise in the Taiwan Strait, which separates Taiwan from mainland China.

In October 2020, President Xi Jinping asked the PLA to prepare for war, triggering alarm in Taiwan, which read it as an open threat.

Early in the Biden Administration, which has declared “rock solid” commitment to Taiwan, Taipei raised an alert about an incursion by Chinese warplanes. In April, Taiwan reported Chinese jets in its air defence zone. In July, Xi warned that he would “smash” any Taiwanese move towards independence.

At the beginning of this month, as the Chinese jets came back, Taiwanese Defence Minister Chiu Kuo-cheng told Parliament that China already has the capacity to invade Taiwan, and but would be able to “bring the cost and attrition to its lowest” by 2025.

In a speech on October 10, Xi appeared to allay fears of a forcible takeover, and spoke about “peaceful reunification”. But he underlined that “the historical task of the complete reunification of the motherland… will definitely be fulfilled.” That same day, the Taiwanese president said that while her government would not “act rashly”, the Taiwanese people would not “bow to pressure” either.

Challenge for the US

As tensions rise, the world is watching the US, whose status as the world’s pre-eminent power has been dented by the messy exit from Afghanistan. In East and Southeast Asia, several countries including Japan, South Korea, and the Philippines, which are sheltered under the protective umbrella of the US, are reading the tea leaves.

President Joe Biden has so far walked a thin line between pledging support for Taiwan, and keeping the lid on tensions with Beijing. After speaking with Xi earlier this month, he said they had agreed to abide by the “Taiwan Agreement”, under which US support for the “One China Policy” is premised on Beijing not invading Taiwan.

The AUKUS pact among the US, UK, and Australia, under which Australia will be supplied with nuclear submarines, has imparted a new dimension to the security dynamics of the Indo-Pacific. Taiwan has welcomed the pact, while China has denounced it as seriously undermining regional peace.

Implications for India

With India facing its own problems with China at the LAC, there have been suggestions that it should review its One China Policy — it has in any case long stopped reiterating this officially — and use not just the Tibet card, but also develop more robust relations with Taiwan to send a message to Beijing.

India and Taiwan currently maintain “trade and cultural exchange” offices in each other’s capitals. In May 2020, the swearing-in of Tsai was attended virtually by BJP MPs Meenakshi Lekhi (now MoS External Affairs) and Rahul Kaswan. In 2016, New Delhi had dropped plans to send two representatives for Tsai’s first inaugural at the last minute.

Bloomberg has reported that talks with Taipei are ongoing to bring a $7.5-billion semiconductor or chip manufacturing plant to India. Chips are used in a range of devices from computers to 5G smartphones, to electric cars and medical equipment. The deal was reported on the heels of a summit of the Quad, a grouping of the US, India, Japan and Australia seeking to contain China’s influence in the Indo-Pacific. One of the topics discussed at the meeting was the need to build a “safe supply chain for semiconductors”.

Source: The Indian Express

3. Will India benefit from the WHO-recommended malaria vaccine?

Relevant for GS Prelims & Mains Paper III; Science & Technology

On October 6, the World Health Organization made a historic announcement, endorsing the first-ever malaria vaccine, RTS,S, among children in sub-Saharan Africa, and in other regions with moderate-to-high Plasmodium falciparum malaria transmission. It made its recommendations based on the results from a pilot programme administering the vaccine to children in Ghana, Kenya and Malawi.

Why is this significant?

Malaria is a life-threatening disease caused by micro-organisms that belong to the genus Plasmodium, and is transmitted by infected female Anopheles mosquitoes. In 2019, according to the WHO, there were an estimated 229 million cases of malaria, and the estimated deaths were 4,09,000. About 67% of the deaths were among children aged under five, the group most vulnerable to malaria. Furthermore, 94% of the cases and deaths due to malaria occurred in the WHO African region, a disproportionately high share of the burden. But the WHO says its regions of Southeast Asia, eastern Mediterranean, western Pacific, and the Americas are also at risk. While research for a vaccine and therapeutics for malaria had been on for nearly half-a-century, success has been elusive until recently. While preventive and treatment interventions have continued (bed nets and indoor residual insecticide spraying) over the years, it was clear that the best tool against the constantly mutating pathogen would not emerge until an effective vaccine was at hand.

As Matthew B. Laurens argues in a paper in Human Vaccines and Immunotherapeutics: “An effective malaria vaccine would be an important tool to combat the enormous socioeconomic burden caused by this disease. Vaccines promote both individual and public health, and are thus considered among the most highly successful public health tools. After provision of clean water and sanitation, vaccination against infectious diseases has contributed the greatest to public health worldwide, compared with other human interventions.” And it was at a time when it was believed that anti-malarial research was flailing, that RTS,S did emerge. Pilot projects rolled out in sub-Saharan Africa showed that among children aged 5-17 months who received the recommended four doses of RTS,S, the vaccine prevented approximately 4 in 10 (39%) cases of malaria over four years of follow-up; about 3 in 10 (29%) cases of severe malaria, with a significant reduction in overall hospital admissions due to malaria or severe anaemia (a side effect). The need for blood transfusions to correct life-threatening anaemia also came down by 29%.

What path did the RTS,S vaccine take?

RTS,S/AS01 is a recombinant protein-based vaccine that acts against P. falciparum, believed to be the deadliest malaria parasite globally and the most prevalent in Africa. It reportedly offers no protection against P.vivax malaria, found in many countries outside Africa. The development of the vaccine was led by pharma major GSK over 30 years ago. In 2001, GSK began collaborating with PATH’s Malaria Vaccine Initiative (MVI). A five-year Phase 3 efficacy and safety trial that concluded in 2014 was implemented through a partnership between GSK and MVI, with support from the Bill & Melinda Gates Foundation and a network of African research centres. In July 2015, the European Medicines Agency authorised the use of the vaccine, concluding that the benefits of the vaccine outweighed the risks. Known side-effects include pain and swelling at the injection site and fever, similar to the other children’s vaccines. It is associated with an increased risk of febrile seizures within seven days of administration. In the Phase 3 trial, children who had febrile seizures after vaccination recovered completely, and there were no long-lasting consequences, the WHO reported.

Pilots were launched in Malawi, Ghana, and Kenya over 2019. Health workers reported that the vaccine was easy to introduce and integrate into their schedule. The data were submitted to the WHO’s Strategic Advisory Group of Experts on Immunisation and the Malaria Policy Advisory Committee that gave the go-ahead for the first ever anti-malarial vaccine.

Will India use it too?

Malaria is a major public health problem in India, endemic to many States, and involves multiple Plasmodium species, including P. falciparum, said the authors of a paper in Acta Tropica, an international journal on infectious diseases. India will therefore benefit from the vaccine, and Bharat Biotech has entered into a partnership with GSK for technology transfer and production. This vaccine is likely to be ready for use in India, in a couple of years, as per reports.

Source: The Hindu

4. Zeolite oxygen concentrators: chemistry in three dimensions

Relevant for GS Prelims & Mains Paper III; Science & Technology

Chemists, when they are designing or building new molecules, can be thought of as architects and builders. An organic chemist can plan a blueprint for a new molecule, and synthesize it with precision out of atoms of carbon, oxygen, hydrogen and so on. After centuries of fine-tuning this skill, chemists in the early 20th century moved up to synthesizing long, thread-like one-dimensional polymers. The polyethylene of plastic bags is made from repeating units of the ethylene molecule, (importantly, the units are linked by the same firm chemical bonds as are seen within an organic molecule. This provides the stability that ensures that a shirt made from polyester-mixed yarn is long lasting). In biological systems, proteins are 1-dimensional polymers of amino acids.

Adding new dimensions

In recent years, this has been taken to a new level by the creation of extended 2- or 3-dimensional structures from linking together molecular units just as was done for polymers, but in two or three dimensions. The basic units go on fitting together to form large networks, like a wire mesh fence. The network is constructed by repeated additions of a molecule with symmetry. A few such networked sheets, when stacked one over another, form a functional 2-D entity. Because words like polymer do not do justice to this complex arrangement of atoms, such molecular networks are called frameworks.

Uses for these Covalent Organic Frameworks (COFs) take advantage of their stability, large surface area, controlled pore sizes, and tunable chemical environments. Just as you choose the size of the ‘pore’/hole in a wire mesh, frameworks can be designed to act as sieves in separating out molecules of a specified size. The smallest whiff of a toxic gas could be sensed – in an industrial environment, or in airline baggage. They are also suitable for both storing energy (as capacitors) and for conducting it (along membranes in fuel cells).

Metal Organic frameworks (MOFs) are structured like COFs but have metals in complexes with organic entities. The choice of metals is wide, from Beryllium to Zinc, though relatively abundant metals are preferred for economic and environmental reasons. They offer great advantages: for gas storage, as in the case of hydrogen storage in fuel cells; in catalysis, where they replace very expensive metals; in sensors; and in drug-delivery – anti-cancer and other drugs with severe side effects can be trapped in the porous confines of MOFs, to be released in small and steady doses.

Use of zeolites

Zeolites are highly porous, 3-D meshes of silica and alumina. In nature, they occur where volcanic outflows have met water. Synthetic zeolites have proven to be a big and low-cost boon. One biomedical device that has entered our lexicon during the pandemic is the oxygen concentrator. This device has brought down the scale of oxygen purification from industrial-size plants to the volumes needed for a single person. At the heart of this technology are synthetic frameworks of silica and alumina with nanometer-size pores that are rigid and inflexible. Beads of one such material, zeolite 13X, about a millimeter in diameter, are packed into two cylindrical columns in an oxygen concentrator.

The chemistry here is tailored to the task of separating oxygen from nitrogen in air. Being highly porous, zeolite beads have a surface area of about 500 square meters per gram. At high pressures in the column, nitrogen is in a tight embrace, chemically speaking, with the zeolite. Interaction between the negatively charged zeolite and the asymmetric nucleus (quadrupole moment) of nitrogen causes it to be preferentially adsorbed on the surface of the zeolite.

Oxygen remains free, and is thus enriched. Air has 78% nitrogen, 20.9% oxygen and smaller quantities of argon, carbon dioxide, etc. Once nitrogen is under arrest, what flows out from the column is 90%-plus oxygen. After this, lowering the pressure in the column releases the nitrogen, which is flushed out, and the cycle is repeated with fresh air.

Global volunteer efforts have made available very detailed instructions on building your own oxygen concentrator, with locally available resources. In India, IISc has transferred the technology of making oxygen concentrators to over 20 companies.

Source: The Hindu

5. Connecting ministries for infrastructure projects

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

Prime Minister Narendra Modi on Wednesday launched the “PM GatiShakti — National Master Plan” for infrastructure development aimed at boosting multimodal connectivity and driving down logistics costs.

What is the project?

PM GatiShakti is a digital platform that connects 16 ministries — including Roads and Highways, Railways, Shipping, Petroleum and Gas, Power, Telecom, Shipping, and Aviation — with a view to ensuring holistic planning and execution of infrastructure projects.

The portal will offer 200 layers of geospatial data, including on existing infrastructure such as roads, highways, railways, and toll plazas, as well as geographic information about forests, rivers and district boundaries to aid in planning and obtaining clearances.

The portal will also allow various government departments to track, in real time and at one centralised place, the progress of various projects, especially those with multi-sectoral and multi-regional impact. The objective is to ensure that “each and every department now have visibility of each other’s activities providing critical data while planning and execution of projects in a comprehensive manner. Through this, different departments will be able to prioritise their projects through cross–sectoral interactions”.

The Prime Minister, while launching the project, said examples of poor infrastructure planning included newly-built roads being dug up by the water department to lay pipes.

The GatiShakti platform aims to prevent such situations by addressing the issue of government departments working in silos.

The government expects the platform to enable various government departments to synchronise their efforts into a multi-modal network. It will also offer satellite imagery for monitoring of projects. It is also expected to help state governments give commitments to investors regarding timeframes for the creation of infrastructure.

How will the platform help bring down logistics costs?

Studies estimate that logistics costs in India are about 13-14% of GDP as against about 7-8% of GDP in developed economies. High logistics costs impact cost structures within the economy, and also make it more expensive for exporters to ship merchandise to buyers.

By incorporating infrastructure schemes under various ministries and state governments, including the Bharatmala and inland waterways schemes, and economic zones such as textile and pharmaceutical clusters and electronics parks, the GatiShakti platform aims to boosting last-mile connectivity and bringing down logistics costs with integrated planning and reducing implementation overlaps.

Currently, a number of economic zones and industrial parks are not able to reach their full productive potential due to inefficient multi-modal connectivity.

How will progress under the National Master Plan be monitored?

The National Master Plan has set targets for all infrastructure ministries. India is targeting an increase in the total cargo handled at Indian ports to 1,759 million tonnes per annum (MTPA) by 2024-25, up from 1,282 MTPA in 2020 — as well as increasing cargo movement on national waterways to 95 million tonnes from about 74 million tonnes in the same period.

The PM said the government was aiming at adding over 200 airports, helipads, and water aerodromes over the next 4-5 years beside nearly doubling the existing natural gas pipeline network, which is about 19,000 km.

A project monitoring group under the Department for Promotion of Industry and Internal Trade (DPIIT) will monitor the progress of key projects in real time, and report any inter-ministerial issues to an empowered group of ministers, who will then aim to resolve these.

Are states on board for the GatiShakti portal?

Commerce Minister Piyush Goyal said the central government had received enquiries from almost all BJP- and NDA-ruled states about the GatiShakti portal. Goyal said the portal would help states avoid both cost and time overruns, and allow them to provide the benefit of valuable infrastructure to their residents sooner.

How will this impact coordination between ministries for projects?

Currently, any inter-ministerial issues that arise relating to a project are addressed in regular meetings of infrastructure-related ministries. These issues are raised in advance, and then taken up.

Goyal said that through the PM PRAGATI (Pro-Active Governance And Timely Implementation) portal, many issues were resolved even prior to such meetings. He said the GatiShakti portal would help reduce the human intervention required as ministries will be in constant touch, and projects will be reviewed by the project monitoring group in real time.

Citing the example of a tunnel, Goyal said that ordinarily, we may see one tunnel being made for roads and another for railways; however such a platform would allow the ministries to coordinate, and create one large tunnel which may serve both purposes, saving the taxpayer thousands of crores.

T P Singh, director of the Bhaskaracharya Institute for Space Applications and Geoinformatics (BISAG-N), which has built the portal, cited the example of a project to build a railway line, for which the path was changed slightly following a review of the data available on the portal — obviating the need for a forest clearance that may have been required otherwise.

The portal will also highlight all the clearances any new project would need, based on its location — and allow stakeholders to apply for these clearances from the relevant authority directly on the portal.

Goyal said if a railway line is being built, the Ministry of Road Transport may immediately give clearance for an overpass, and the Power Ministry can begin projects to ensure that trains can immediately have access to power on completion of the tracks.

Source: The Indian Express

6. What is the extent of India’s coal crisis?

Relevant for GS Prelims & Mains Paper III; Economics

India could be on the verge of a power crisis as the stock of coal held by the country’s thermal power plants has hit critically low levels. Many power plants are operating with zero reserve stock or with stocks that could last just a few days. Some States have witnessed partial load-shedding aimed at saving power. Finance Minister Nirmala Sitharaman, however, is reported to have termed worries about a possible shortage of coal and power supplies “absolutely baseless” and is said to have asserted during the course of a trip to the U.S. that India is now a power-surplus country.

How bad is the problem?

According to data released by the Central Electricity Authority, as of Wednesday, India’s 135 thermal power plants overall had on average coal stock that would last just four days. In all, 112 of the 135 power plants are operating with stocks that are at critical or super-critical levels. The government usually mandates the power plants to hold stocks that would last at least two weeks. It has, however, reduced this requirement to 10 days now to avoid hoarding and ensure more equitable distribution of coal among the plants. India relies on coal to meet over 70% of its power needs, and Coal India Limited (CIL) supplies over 80% of the total coal. The current coal crisis comes amid a broader energy crisis across the world with the prices of natural gas, coal and oil rising sharply in the international market.

What has caused it?

The current crisis in the availability of coal has been the result of lacklustre domestic production and a sharp drop in imports over the last few years. According to BP Global Energy Statistics, domestic coal production in India has stagnated since 2018. It peaked at 12.80 exajoules (EJ) worth of coal in 2018. At the same time, the amount of coal imported from other countries to meet domestic demand, too, has dropped significantly. Coal imports have dropped from the peak of 6.46 EJ in 2016 to 4.22 EJ in 2020. Stagnating supply did not cause trouble last year with the economy shut down to tackle the COVID-19 pandemic. But the rise in power demand this year has exposed the government’s inability to push domestic production or compensate for insufficient domestic production by increasing imports. In fact, the government last year said it would stop all coal imports by FY24.

Many factors have been blamed for the insufficient supply of coal this year. These include short-term issues like flooding in coal-mining areas, transport issues, labour disruptions in major coal-mining countries and the sudden rise in power demand as the economy revives from the pandemic. But it should be noted that deeper structural problems have plagued the power industry in general for long. Populist politics has ensured that the price that many consumers pay for power is not commensurate with the production costs. In FY19, for instance, the revenues of distribution companies covered only about 70% of their total costs. This has discouraged private investment in power generation and distribution even as the demand for power continues to rise each year. It has also increased the debt burden on public sector distribution companies as they have not been compensated for the losses they incur while selling power at subsidised rates. According to the credit rating agency ICRA, the consolidated debt of public sector distribution companies is expected to hit ₹ 6 trillion in FY22.

It should also be noted that the mining of raw materials such as coal is nearly monopolised by public sector companies like CIL that are not run primarily for profits. In fact, CIL has kept the price of its coal low even as international prices have risen significantly this year. It has also been forced to share some of the pain of power generation and distribution companies.

According to the government, indebted power generators and distributors owe over ₹21,000 crore to CIL. So, overall, there is very little financial incentive that major producers across the supply chain, including miners, possess to ramp up production.

What lies ahead?

In recent years, many countries have been trying to cut down on their fossil fuel consumption in order to meet emission targets. But with the current energy crunch, which is prevalent not just in India, fossil fuels are likely to make a strong comeback. India and China, the top two consumers of coal in the world, are expected to further increase production of fossil fuels. The Indian government has been pushing CIL to ramp up production to meet the rising demand and cut down on the country’s reliance on imported coal. However, it is expected to ease restrictions on imported coal in the near future to tide over the crisis. The government last week mandated the thermal power plants to blend imported coal with domestic coal up to a limit of 10%. Meanwhile, China, which consumes half of the world’s coal output and has committed itself to reducing its carbon emissions by 65% by 2030, is set to install more coal-powered power plants to meet its rising energy needs. Structural problems that have plagued the Indian power industry, however, are unlikely to be resolved anytime soon. Allowing the price that consumers pay for power to be determined by market forces is likely to remain politically unpopular, so fundamental pricing reform is unlikely. But with coal selling at high prices in the international market and CIL unable to meet production targets, many power generators may be unable to increase their output unless they are allowed to price their output freely.

Source: The Hindu

7. Will the Tatas be able to turn around Air India?

Relevant for GS Prelims & Mains Paper III; Economics

On October 8, the Department of Investment and Public Asset Management (DIPAM) secretary Tuhin Kanta Pandey announced at a press conference that the Tata Sons subsidiary, Talace Pvt. Ltd., had won the bid for the national carrier, Air India. He said that after the setting of a reserve price of ₹12,906 crore, the Tata Sons subsidiary had emerged the winner, quoting a figure of ₹18,000 crore. The other shortlisted bidder, Ajay Singh of SpiceJet, had quoted ₹15,100 crore. Within minutes, Ratan N. Tata, Chairman Emeritus, Tata Sons and Chairman, Tata Trusts, put out a tweet, “Welcome back, Air India!”

What will Tata Sons get?

The Air India group is made up of these components: Air India; Air India Express, Air India Engineering Services Limited (AIESL), Air India Air Transport Services Limited (AIATSL; ground handling services to the Air India group and other airlines), Airline Allied Services Limited, or AASL (Alliance Air); the Hotel Corporation of India (Centaur hotels and the Chefair flight kitchens) and Air India SATS Airport Services Private Limited (AISATS is a 50:50 joint venture between Air India Limited and Singapore Airport Terminal Services Limited (SATS).

The Air India sale this time is the third attempt by the Government of India (incidentally, all under the National Democratic Alliance), the earlier bids having been in the early 2000s and 2017-2018. This time round, the Government offered management control and sale of 100% equity share capital, each, of Air India and Air India Express and a 50% equity share capital of Air India SATS Airport Services Private Limited — which the Tatas have won.

It was the mountain of dues and deep losses that were the catalyst for the sale. How will the debt be cleared?

The airline’s total debt at the end of August this year was ₹61,562 crore. Of this, Tata Sons (its holding company Talace Pvt. Ltd.) would be taking over ₹15,300 crore, with a cash payment of ₹2,700 crore. The rest, an estimated ₹46,262 crore, will be moved to Air India Assets Holding Ltd (AIAHL), a special purpose vehicle formed by the Government to handle the debt and non-core assets of Air India such as land and buildings.

Much of the debt is related to the merger between Air India and the other state-owned carrier, Indian Airlines, which was cleared by the Cabinet on March 1, 2007 to form the National Aviation Company of India Limited (NACIL). Preceding this development — i.e. of the merger — the then United Progressive Alliance government, had in 2005, approved the purchase of 68 aircraft by Air India (from Boeing) — and also the largest commercial aircraft deal in India’s civil aviation history — and a year later, 43 planes for Indian Airlines (from the Airbus 320 family, for $2.2 billion). The Boeing deal was for 23 777s, 27 787s and 18 737s (for low cost carrier Air India Express). Boeing has also built and transferred a state-of-the-art maintenance, repair and overhaul (MRO) facility at Nagpur. Following mounting losses, there was an investigation into allegations about the nearly ₹70,000 crore deal that had caused a financial loss to the “already stressed national carrier”. It also inducted A320Ns on lease from the ALAFCO Aviation Lease and Finance Company in 2017.

As far as debt clearance is concerned, the Government is to also transfer to the AIAHL about ₹16,000 crore of unpaid fuel bills and other pending dues that Air India owes to airports and vendors. In short, it will hold about 75% of the airline’s debt that the Tata Group is not taking over. An aviation consultant said the Tatas could also take over an additional and estimated ₹9,000 crore worth of lease obligations for over 40 Air India jets. The non-core assets including land and buildings that are estimated to be valued at ₹14,718 crore are being transferred to the AIAHL. There are reports that the Government is planning to add the feeder/regional airline, Alliance Air (the second wholly owned Air India subsidiary) to this mix, with an eye to selling it. If this happens, the Government will completely exit the airline business.

According to Mr. Pandey, the airline loses ₹20 crore a day. And, from 2009-10 to date, the Government has infused over ₹1,10,276 crore into the airline; ₹54,584 crore as cash support and ₹55,692 crore as loan guarantees. The sale deal is expected to be wrapped upby December-end (though some experts say it could go on till March). The four Air India subsidiaries, AIATSL, AASL, AIESL, the Hotel Corporation of India Ltd., and non-core assets, that also include the fabled collection of art work, paintings and  artefacts, and other non-operational assets have been transferred to the IAHL.

Do the Tatas have a business model ready?

Air India, the Ministry of Civil Aviation and Tata Sons did not respond to queries from The Hindu on the subject. However, aviation experts have tried to piece things together. The contours cover human resources, fleet management, flight scheduling and technology services. The Tatas already have two airlines in the stable, which are still in poor financial health: Vistara (a joint venture with Singapore Airlines Limited as a 51:49% stake partnership) and Air Asia India, a low-cost service, where the Tatas now have a nearly 84% stake. An aviation analyst said that going by data from the Directorate General of Civil Aviation (DGCA), the Tatas could now have a 26% share of the domestic aviation market that would put them behind market leader IndiGo with its estimated 57% market share. Opinion is that there could be mergers and synergy between the four airlines.

What are the positive and negatives of working with Air India?

The Air India deal catapults the conglomerate into the big league, making it the largest player from India on international routes.

First, the positives. The brand, Air India, has an instant connect. According to a Tata datasheet, there will be a fleet strength of 141 aircraft (117 from Air India and 24 from Air India Express), and a widespread domestic and international footprint (over 7,000 slots and also code share agreements) with a significant share of the revenue from international operations. Its non-stop long haul flights from India to the United States are a high point. There is also a repository of bilateral rights, which experts say could be used to expand flights in a big way to Europe, Africa and South America, for example. The Air India frequent flyer programme has nearly three million members. The airline has experienced crew, ground staff and engineers. It is also a member of the 26-member global aviation grouping, Star Alliance.

In terms of the crucial aviation operating metrics, among Indian carriers, it has a high Available Seat Passenger Kilometre (ASKM) and Revenue Passenger Kilometre (RPKM). It has also cleared recognised safety audits and won international awards for its environmental performance. The airline also has a few firsts and records to its name.

According to an aviation expert, the negatives would be linked to the structure of its finance lease/bridge loans and operating leases for a part of its fleet, the poor state of the cabins, seats and inflight amenities on most of its aircraft fleet, staff strength in certain administrative functions, the cost contracts for some of its subsidiaries, and the training at and safety record of Air India Express. Part of the fleet has also been grounded for a long time for want of crucial spares and engine parts.

Not having Alliance Air as a part of the group could be a setback as it “operates flights to Tier-2 and Tier-3 cities or those which link these cities to the metro hubs”. Thus, what would have been inhouse and seamless regional passenger feed to the main flights (international and domestic) could now be hampered.

The total number of permanent and contractual employees of Air India and Air India Express is 13,500. According to Mr. Pandey, there cannot be retrenchment of staff for the first year. Gratuity and provident fund benefits will be according to the law and post-retirement medical benefits (for retired staff and staff to retire) will be provided by the Government.

Another aviation expert said a Tata team had visited all the Air India facilities and “sought every possible document”. These may have also been to examine details of agreements and contracts with third parties; liabilities and commitments; available licences and approvals and internal and third party audit reports.

According to Captain Mohan Ranganathan, a retired airline instructor pilot, aviation safety expert and an industry watcher, “The Tatas have got just the airline, aircraft, routes and landing slots. The hangars and engineering belong to the AIESL, and will all be sold off separately. If the Tatas want them, they have to bid and pay! The training centres in Mumbai and Hyderabad are also in that category. The Air India employees in the housing colonies have been given six months notice or sale of the land, whichever is earlier. The Tatas will have to spend a huge amount getting the aircraft refurbished and fitted to their standards.

“The biggest problem is the integration of Air Asia India and Air India Express. Their style of operations is completely different. The integration is not easy and will be time consuming. The Government has also sold out to the Gulf carriers with bilaterals in their favour. Whether the Government will rework them now, is the question,” he said.

How soon will it be profitable?

Former Executive Director, Air India, Jitender Bhargava, in a commentary, has said, “The question of how rapidly the Tatas can make the airline profitable needs to be viewed in the context of the impact of the pandemic, additional domestic factors such as price sensitivity of Indian passengers and high operational costs.

“Air India also has very limited non-aeronautical revenues. Monetising every customer-interfacing object, as most airlines do, will add to revenues. The real gains will emerge once the initial phases of cost reduction and enhancing revenues are over and the Tatas move to the next phase of fleet expansion, which should be a priority,” he said.

“The new owners will be able to operate additional flights without having the need to induct more operating crew or aircraft maintenance engineers because rationalisation of manpower and higher productivity through reengineered work practices will generate surplus manpower to meet future needs.

“Once Air India’s current inherent weaknesses largely stemming from Government ownership, inability to exploit full potential due to inertia, adverse impact on the morale of employees due to frequent changes of leadership are made a thing of the past on the Tatas taking control, positive all-round results will be there for all to see. Turning around Air India by making it profitable once again after several years will be a daunting but achievable task. It will also be a long-haul flight for the Tatas and one should make no mistake about it by being over ptimistic because the ground realities of the Indian market cannot be simply wished away,” Mr. Bhargava said.

Another aviation industry expert said it is most certain that Tata Sons will tap the capabilities of its group companies such as Tata Consultancy Services (TCS) to formulate the digital and technological transformation of Air India. This would be to run the airline’s technology services end-to-end, enabling automation to analytics-enabled decision-making. The end result is to have “intelligent airline operations”. TCS is no stranger to the aviation and airline business and has clients such as Singapore Airlines and Virgin Atlantic.

An aviation expert said that while the new owner may have several and efficient business strategies, it would benefit from the legacy of experience of today’s Air Indians.

Source: The Hindu