Rupee Matters

CONTEXT

Over the past few years, there has been a concern over the sharp rise in offshore rupee trading volumes.

Facts

Data from the Bank of International Settlements pegs daily offshore rupee trading at around $16 billion in 2016, almost equal to onshore trading.

Recent data from the Bank of England pegs offshore rupee trades at $23 billion in 2018.

Challenges

• Which forces determine the rupee’s value?
• What is the ability of the central bank to ensure “currency stability”?
• Offshore markets allow participants to trade in non-convertible currency. These markets have evolved for currencies where restrictions are imposed in domestic markets on foreign exchange convertibility.
• The constraints on foreign participation in domestic currency markets stem from cumbersome documentation and KYC requirements, restrictions on products, and inconvenient trading hours. These restrictions push investors into the trade offshore markets to hedge their currency risks.
• These markets have begun to play a critical role in “price discovery”, more so during “periods of uncertainty” like the taper tantrum in the 2013 and 2018 emerging market crises — when the offshore market was driving the onshore exchange rate. This has reduced the efficacy of foreign currency intervention by the central bank.

Recommendations

Incentivize market participants to shift to onshore markets, by extending onshore market hours, and examining issues of taxation.

Allowing market participants to take exposure up to $100 million, without any need to establish the existence of an underlying risk

Incentivize greater participation in rupee-denominated bonds

As the economy grows, expand onshore currency markets in a calibrated manner

The ability to hedge currency risks will increase the rupee’s attractiveness for trade invoicing and portfolio diversification

This can lead to the gradual internationalization of the currency.

GS-III: Rooting AI in ethics

Context

Most commercially available AI systems are optimized using the teleological perspective and not the deontological perspective.

Ethical issues – a case study

An AI system introduced in 2015 in the U.S. failed to recognize the faces of African Americans with the same accuracy as those of Caucasian Americans.

From a teleological perspective, this flawed AI system gets a go-ahead because Caucasian Americans constitute 72.4% of the country’s population

From a deontological perspective, it can be rejected as its intention was not to identify people from all races.

Digital platform companies, whose markets span many countries should aim to identify faces of all races with equal accuracy.

AI facial recognition systems are used for law enforcement. Someone can be labeled a threat to public safety just because of limited data based on one’s skin colour was used to train the AI system.

The bias in the data used to train the algorithm stems from flawed historical and cultural perspectives and they contaminate the data.

NITI Aayog has a 7,500 crore plan to build national capability and infrastructure. The transformative capability of AI must be rooted in an egalitarian ethical basis.

GS-III: State-Run Oil Marketing Companies to Buy Biodiesel Made From Used Cooking Oil

Context:

The government has launched a ‘Repurpose Used Cooking Oil (RUCO)’ sticker and a phone app to enable the collection of used cooking oil. Restaurants and hotels interested in supplying used cooking oil can affix the sticker to show availability.

What is RUCO initiative?

The Food Safety and Standards Authority of India (FSSAI) had launched RUCO (Repurpose Used Cooking Oil), an initiative that will enable collection and conversion of used cooking oil to bio-diesel.

Under this initiative, 64 companies at 101 locations have been identified to enable collection of used cooking oil.

FSSAI wants businesses using more than 100 litres of oil for frying, to maintain a stock register and ensure that UCO is handed over to only registered collecting agencies.

Significance of the initiative:

FSSAI believes India has the potential to recover 220 crore litres of used cooking oil for the production of biodiesel by 2022 through a co-ordinated action. While biodiesel produced from used cooking oil is currently very small, but a robust ecosystem for conversion and collection is rapidly growing in India and will soon reach a sizable scale.

Background:

The initiative was launched after the food safety regulator notified standards for used cooking oil. According to FSSAI regulations, the maximum permissible limits for Total Polar Compounds (TPC) have been set at 25%, beyond which the cooking oil is unsafe for consumption.

What are Total Polar Compounds (TPC)?

• In many countries, TPC is used to measure the quality of oil. The level of TPC increases every time oil is re-heated. Some of the studies show that TPC accumulation in oil without food is slower than that in oil frying with food.
• Higher level of TPC in cooking oil leads to health issues like hypertension, atherosclerosis, Alzheimer’s disease and liver disease. One of the studies also noticed high levels of glucose, creatinine and cholesterol with declined levels of protein and albumin in cooking oil.

Significance of the initiative:

Currently, used cooking oil is either not discarded or disposed of in such a manner that it chokes drains and sewerage systems. Apart from setting quality standards, the new regulation addresses the way this oil is discarded. As used cooking oil is considered the most reasonable feedstock for biodiesel production, the FSSAI is planning to redirect the used cooking oil from the food business operators. It has already started collecting used oil in small quantities either through a barter arrangement or at cost.

National Policy on biofuels- salient features:

Categorization:The Policy categorises biofuels as “Basic Biofuels” viz. First Generation (1G) bioethanol & biodiesel and “Advanced Biofuels” – Second Generation (2G) ethanol, Municipal Solid Waste (MSW) to drop-in fuels, Third Generation (3G) biofuels, bio-CNG etc. to enable extension of appropriate financial and fiscal incentives under each category.

Scope of raw materials: The Policy expands the scope of raw material for ethanol production by allowing use of Sugarcane Juice, Sugar containing materials like Sugar Beet, Sweet Sorghum, Starch containing materials like Corn, Cassava, Damaged food grains like wheat, broken rice, Rotten Potatoes, unfit for human consumption for ethanol production.

Protection to farmers: Farmers are at a risk of not getting appropriate price for their produce during the surplus production phase. Taking this into account, the Policy allows use of surplus food grains for production of ethanol for blending with petrol with the approval of National Biofuel Coordination Committee.

Viability gap funding: With a thrust on Advanced Biofuels, the Policy indicates a viability gap funding scheme for 2G ethanol Bio refineries of Rs.5000 crore in 6 years in addition to additional tax incentives, higher purchase price as compared to 1G biofuels.

Boost to biodiesel production: The Policy encourages setting up of supply chain mechanisms for biodiesel production from non-edible oilseeds, Used Cooking Oil, short gestation crops.