17 October 2024 : Indian Express Editorial Analysis

1. As the world warms and cools    

(Source: Indian Express; Section: The Ideas Page; Page: 13)

Topic: GS3 – Disaster Management

Context:

The article emphasizes the critical need for disaster risk awareness and insurance to protect human security and national economic stability in the face of increasing natural disasters.

The Challenge of Disaster Awareness

• Despite extensive efforts within the disaster management community, it remains difficult to convince people that disasters could directly impact their lives.
• Many citizens believe that disasters are something that happen to others, not to them. This mindset can prevent them from preparing for potential catastrophic events, such as earthquakes, which could leave even middle-class families homeless and in need of government relief.
• Elevating this issue to the national level, frequent natural disasters across India can significantly hinder the country’s economic goals, such as reaching a $5 or $10 trillion economy.
• Disasters are a major cause of economic downturns, and without mitigating their effects, national aspirations may never be fully realized.

National Security Beyond Borders

• Many people equate national security with securing borders, but true national security extends to securing the country’s economic aspirations and societal well-being.
• Disasters threaten this security by causing widespread disruption and downturns that directly affect the population’s quality of life and the economy’s stability.
• Disaster risk insurance plays a critical role in maintaining this broader sense of security by offering both physical protection and financial compensation in the event of a disaster.

The Role of Disaster Risk Insurance

• Prime Minister Narendra Modi’s Ten-Point Agenda on Disaster Risk Reduction (DRR) highlights the importance of including everyone—from small households to multinational corporations—under disaster risk coverage.
• This insurance has two key aspects: physical safety, such as early warning systems and mitigation efforts, and the hope of receiving adequate compensation for losses incurred.
• While it is difficult for the state to fully compensate individuals after disasters, insurance helps bridge the gap by providing financial recovery for those affected.

Growing Importance of Disaster Insurance in India

• Disaster-related insurance is finally gaining traction in India, presenting new business opportunities for insurance companies while offering much-needed protection for the government and private sector.
• The National Disaster Management Authority (NDMA) recently held a workshop with insurance industry leaders to explore how risk insurance can be structured to meet the needs of all parties involved.
• One promising model is parametric insurance, which provides automatic payouts when certain pre-agreed conditions are met, bypassing the need for bureaucratic scrutiny.

Human Security and the Broader Impact of Disasters

• Disasters not only destroy infrastructure but also destabilize human security, leading to societal unrest and creating fertile ground for radical ideologies to take root.
• The 1991 cyclone in Bangladesh and the 2011 earthquake in Haiti serve as stark examples of how vulnerable populations can be exploited when governments fail to provide adequate support.
• In the case of Pakistan, the 2022-23 floods displaced 2.6 million people, making them potential targets for extremist groups.
• This scenario mirrors the Afghan refugee crisis of the 1980s, which eventually contributed to the rise of the Taliban.

The Global Need for Disaster Risk Insurance

• As the world grapples with the effects of climate change, there is an urgent need for a pragmatic approach to human security that prioritizes disaster risk insurance.
• Protecting people from the consequences of natural disasters is not only a matter of compassion but also a strategic necessity to prevent long-term societal disruption and instability.
• The lessons from past disasters emphasize the importance of incorporating disaster insurance as a critical component of national and international security strategies.         

Potential Benefits of Parametric Insurance for Disaster-Prone Regions in India

Rapid Financial Relief: Parametric insurance can provide quick financial relief to disaster-prone regions by ensuring timely payouts without waiting for lengthy damage assessments. Simplified Claims Process: The straightforward trigger mechanism simplifies the claims process, reducing administrative burdens and the potential for disputes over loss verification. Enhanced Financial Planning and Risk Management: Governments, businesses, and individuals can better plan for and manage disaster risks by knowing the exact payout amount and conditions. Increased Access to Insurance for Vulnerable Populations: Parametric insurance can extend coverage to remote and rural areas where traditional insurance might not be feasible due to the complexities of loss assessment and claims processes. Support for Climate Resilience: By providing financial protection against extreme weather events and natural disasters, parametric insurance supports resilience-building efforts. Encourages Innovation and Investment: The availability of parametric insurance can encourage investment in vulnerable areas by reducing the financial risks associated with natural disasters. Regional Risk Pooling: India can leverage its Aadhaar-based payment dissemination system and collaborate with neighboring countries to pool risks regionally.

PYQ: Describe various measures taken in India for Disaster Risk Reduction (DRR) before and after signing ‘Sendai Framework for DRR (2015-2030)’. How is this framework different from ‘Hyogo Framework for Action, 2005? (250 words/15m) (UPSC CSE (M) GS-3 2018)

Practice Question:  Discuss the role of disaster risk insurance in ensuring human security and economic stability. How can it contribute to national security in disaster-prone regions? (150 words/10 m)

2. The $500 billion opportunity       

(Source: Indian Express; Section: The Ideas Page; Page: 13)

Topic: GS2 – Governance GS3 – Indian Economy

Context:

The article discusses the ambitious $500 billion electronics manufacturing target for India by 2030 and emphasizes the need for region-led reforms, large industrial clusters, and regulatory changes to achieve global competitiveness in the sector.

Ambitious Electronics Manufacturing Target

• Prime Minister Narendra Modi recently set an ambitious target of $500 billion for India’s electronics manufacturing sector by 2030.
• This goal is crucial for addressing India’s jobs challenge, with examples like Apple’s ecosystem, which exports $14 billion and employs 1.6 lakh people.
• However, the target is audacious, considering that India’s entire manufacturing output in 2023-24 was roughly $660 billion.
• Achieving such a massive leap will require unprecedented growth rates and equally bold reforms.

The Importance of Export-Led Growth

• The government acknowledges that much of this growth must be export-led. Achieving export competitiveness on a large scale is the correct strategy but is extremely challenging due to India’s legacy ecosystem, which has been resistant to reforms.
• To overcome this hurdle, India can learn from the global history of manufacturing, where regional clusters have driven success.
• From Silicon Valley to Shenzhen and Vietnam’s Northern Key Economic Region (NKER), competitive regional clusters have been the foundation for electronics manufacturing growth.

The Role of Regional Clusters

• In India, electronics manufacturing clusters in regions like Sriperumbudur (Tamil Nadu) and Noida (Uttar Pradesh) are already growing rapidly, accounting for nearly 50% of the country’s electronics exports.
• To accelerate growth, India needs deeper and more ambitious region-led reforms that can create globally competitive electronics manufacturing hubs.
• Successful regions around the world reveal three key success factors: large size with anchor investors, customized regulations for export activity, and devolution of administrative power down to the industrial park level.

Large Size and Anchor Investors

• Large industrial zones are essential for competitiveness, as seen in Shenzhen, China, which covers 2,000 sq km and exports $350 billion annually. In contrast, India’s largest electronics cluster is only 2.5 sq km.
• Larger zones help co-locate suppliers and buyers, which is vital for ecosystem competitiveness. They also allow for investments in shared infrastructure like effluent plants and testing facilities, reducing costs for all.
• Furthermore, large zones enable the development of social infrastructure like worker housing, schools, and hospitals, which are crucial for supporting the workforce.

Regulatory Environment and Customized Laws

• Large zones alone are not enough. These regions need a regulatory environment that is export-friendly and comparable to the world’s best manufacturing hubs.
• Pro-employment labor laws are essential, allowing longer shifts, globally competitive overtime rules, and fewer restrictions on employing women, who make up the majority of electronics workers.
• Additionally, the regulatory environment must address taxation and tariffs. In countries like Vietnam and China, foreign vendors can seamlessly manage component inventory across borders without tax or tariff implications, a practice that has been integral to their success.
• However, current Indian tax laws make inventory management by foreign entities difficult, adding complexity to the manufacturing process.

Devolution of Power and PPP Models

• For effective governance and streamlined operations, the central and state governments need to devolve administrative powers to Electronics Manufacturing Clusters (EMCs) so they can provide necessary approvals and permissions independently.
• Public-Private Partnership (PPP) models, which involve private players in managing industrial regions and building “plug-and-play” parks, have proven effective globally in ensuring high-quality, speedy execution.
• India’s GIFT City, a differentially regulated zone for financial services, provides a model for how similar approaches could be applied to electronics manufacturing.

The Path Forward for India’s Electronics Manufacturing

• India faces a long and arduous path toward reforming its overall regulatory environment, often termed “regulatory cholesterol.” However, by starting with region-specific reforms in areas like electronics manufacturing, the country can create competitive hubs that foster growth.
• Without thriving manufacturing regions, the ambitious target set by the Prime Minister will remain out of reach, another goal overshadowed by insufficient reforms and regulatory challenges.                       

What are the Challenges in Making India an Electronics Hub?

Duties as a Double-Edged Sword: High import duties and strict localisation norms are often imposed to promote local manufacturing. While they do succeed to an extent in ensuring local manufacturing, they also negatively impact a country’s global competitiveness. Countries like Vietnam and China have more favourable subsidy structures than India does in areas like machinery used for manufacturing, and research & development. Lack of Component Ecosystem: Another challenge is India lacking a robust ecosystem of companies locally manufacturing components required for electronic products. In the absence of a full-fledged component ecosystem in India, these components are required to be imported, resulting in increased costs and lead time for the manufacturers. Skill Development: There is a shortage of skilled labour in the electronics manufacturing sector.  To become a global hub, India needs to invest in developing a highly skilled workforce with expertise in areas such as electronics engineering, research and development, and advanced manufacturing technologies. Regulatory Environment: The regulatory framework and bureaucratic procedures in India can be complex and time-consuming. Streamlining regulations and reducing bureaucratic red tape would enhance the ease of doing business, attract investments, and foster a conducive environment for electronics manufacturing. Environmental Sustainability: Electronics manufacturing often generates electronic waste, which poses environmental challenges. Absence of effective implementation of sustainable practices like e-waste management and promotion of environmentally friendly manufacturing processes can do more harm to the environment than the intended good.

Practice Question:  Examine the challenges and reforms necessary for India to achieve its $500 billion electronics manufacturing target by 2030. How can region-led development and regulatory changes drive this growth?. (250 words/15 m)