The Reserve Bank of India (RBI) has signed an agreement with the ASEAN nations to  join Project Nexus.  

Founding Members and Future Expansion

• Founding Members: The FPSs of Malaysia, the Philippines, Singapore, Thailand, and India are the founding members and first movers of Project Nexus.
• Future Member: Indonesia is expected to join the platform in the future.

What is Project Nexus?

• It is a multilateral international initiative
• Project Nexus is initiated by the Innovation Hub of the Bank for International Settlements (BIS).
• First in Payments Area: It is the first Bank for International Settlements (BIS) Innovation Hub project in the payments area to move towards live implementation.
• Objective: To enable instant cross-border retail payments.
• Interlinking Systems: Domestic Fast Payments Systems (FPSs) will be interconnected.

Countries:

• India’s Unified Payments Interface (UPI)
• Fast Payments System (FPS) of Malaysia, the Philippines, Singapore, and Thailand

India’s Role in Project Nexus

• Bilateral Collaborations: The RBI has been linking India’s UPI with FPSs of various countries for cross-border Person to Person (P2P) and Person to Merchant (P2M) payments.
• Multilateral Approach: While bilateral connections are beneficial, a multilateral approach like Project Nexus will further expand the international reach of Indian payment systems.

Benefits of Project Nexus

• Standardization: Nexus standardizes the way instant payment systems connect with each other, eliminating the need for custom connections for every new country.
• Single Connection: Operators can make one connection to the Nexus platform, which then allows them to reach all other countries in the network.
• Speed and Cost Efficiency: The platform aims to enable cross-border payments within 60 seconds at near-zero cost to the sender or recipient, leveraging the existing instant payment systems.

Challenges of Project Nexus

1. Technical Challenges

Interoperability: Ensuring smooth communication between different real-time payment networks.

Security and Fraud Prevention: Protecting cross-border transactions from fraud and security threats.

2. Regulatory Hurdles

Compliance: Adhering to different regulatory frameworks across countries.

Legal Clarity: Defining legal responsibilities and liabilities clearly.

3. Funding

Allocation of resources: Efficiently allocating resources for the development and implementation of the project.

Modinomics

• Modinomics are the set of economic policies announced and led by the Prime Minister Narendra Modi since 2014 till now.
• The main principle: Modinomics aims to encourage investment to “Make in India”. To transform India into a global hub of manufacturing, innovation and creating a market based economy for development.

The Status of Private Investment in India

• As per the latest data from investment tracking firm Projects Today,
• Fresh Private sector investment plans: It fell by 15.3% in 2023-24
• Manufacturing sector: The proposed outlays dropped an alarming 40% from ₹19.85 lakh crore in 2022-23 to under ₹11.9 lakh crore in 2023-24
• Foreign investment: The proposed outlays fell 31.7% or ₹1.5 lakh crore to a little more than ₹3.23 lakh crore in 2023-24.
• Economic Survey 2022-2023: Private sector investment in India has been falling as a proportion of Gross Domestic Product (GDP) since 2012
• FY 2020-21: Private sector investment as a percentage of GDP had fallen to 19.6 per cent

The Private sector Investment

• It is the Investment made in the economy by all for-profit businesses not owned or operated by the government.
• Determinants: There are 5 determinants of  of private sector investment ie.

1. Consumer Demand: Private Final Consumption Expenditure (PFCE), which is the amount households spend on consumption, as a percentage of GDP fell 61 per cent by 2019 from 89 per cent in 1950-51.
2. Access to credit: Since 2016, while bank credit to the private sector has increased, albeit at a marginal rate, private sector investment has dipped.
3. Corporate profitability: Listed corporate profits (measured by profit after taxes, PAT) have been stable at 4.0-4.5 per cent of GDP during the past nine quarters and almost doubled from the pre-Covid period (FY18-FY20) average of 2.1 per cent of GDP.

• But it is only an anemic view of the economy as the profitability of about 45 per cent of the economy ie.  informal sector businesses  is not being measured.

4. Capacity utilisation: It is basically a measure of the extent to which the installed capacity in a company or economy is being utilised to produce the output. The higher the capacity utilisation, the more likely are fresh investments being made

• It is an indication of not just current demand, but also a company’s confidence in future demand.

5. Overall business confidence: Reforms, certainty and stability in the tax and labour laws of the country driving investor confidence.

Government Measures to encourage private investment

• Ensuring Macroeconomics stability: To restore macroeconomic stability by introducing an inflation targeting regime and fiscal deficit targeting regime.
• The IBC framework: The government tried to reduce risks for banks by providing them with legal recourse via the IBC in case the loans went wrong. Also providing investors with easy exit option.
• Increased investment in Capital Expenditure:  and boosting infrastructure linkages in the form of investment in transportation; electricity; irrigation; food processing etc
• Reduction of the corporate tax rate: In September 2019, the government announced a cut in base corporate tax for then existing companies to 22 per cent from 30 per cent; and for new manufacturing firms, to 15 per cent from 25 per cent.
• Production subsidies and Incentives schemes: Generous production subsidies have been made available through schemes like Production linked Incentive scheme or the RoDTEP scheme etc.
• Atmanirbhar Bharat: Tariffs have been imposed to provide protection to domestic producers, with schemes such as Make in India; stand up India; encouraging domestic production.
• Ease of Doing Business:  India ranks 63rd in the World Bank’s Doing Business Report (DBR), 2020

Reason for stagnant private investment

• Overlooking The Risk component of Investment: Most of the measures are catering to a common goal ie.  Increasing the returns to investment by reducing costs, increase revenues, and others to enhance after-tax profits while ignoring the risk mitigation component.
• Reversibility and Scalability of Investments: Investments in Manufacturing sectors are large, indivisible, and difficult to reverse ie. involving a greater risk factor with it which calls for a careful consideration of the risks of any investment before approving any significant project.
• Uncertain and unstable laws: Frequent changes in laws and rules related to tax (example: GST) and labour laws leads to uncertainty bringing down investment risk appetite.

Investment Risk

• Risks emanate from three types of state action that favor competitors, are directly coercive, or jeopardize the supply chain from an investor’s perspective,
• National champions risk: The abrupt changes in the policy framework to favor certain national champions in a case of stigmatized capitalism has deterred other domestic firms from investing out of fear that their irreversible investment has to account for the risk of discretionary policy changes.
• Example: It has materialized in online and physical retail, airports, cement, ports, telecoms, and media.
• Direct and coercive state action: Risk perception of investors deteriorates sharply when there is a climate of Tax Terrorism with selective raids by ED or tax authorities, arbitrary verdicts by regulatory agencies, or pure extortionary actions (electoral bonds saga) resulting in destroying lakhs of crores of investment.
• Example: Invoking bilateral investment treaties to challenge the government’s retrospective imposition of taxes by Cairn/Vedanta and Vodafone.
• Supply chain risk: Discretionary and abrupt changes in the tariff structure of raw materials and components or worse product bans imposed by the government decreases the risk perception among investors about access to low-cost supplies.
• For Make in India to succeed, manufacturing firms need to be assured about the access to raw materials and inputs from anywhere in the world.
• Example:  Vietnam has sought to mitigate supply chain risks by signing FTAs with all the major trading powers, thereby assuring investors that they can count on having access to supplies, both now and in the future.

The Ministry of Mines is designing a Production Linked Incentive (PLI) scheme to promote the recycling of critical minerals in India.

• The PLI scheme is yet to be finalized.

Critical minerals

• Critical minerals are the minerals essential for economic growth and national security.
• If these minerals aren’t available or are concentrated in a few places, it can create vulnerabilities in supply chains.

Significance of critical minerals for India

Economic Growth and Industrial Development

• Resource Base: Critical minerals are vital raw materials for industries like electronics, automotive, aerospace, and renewable energy.
• Manufacturing: They are essential in making semiconductors, batteries, and magnets.

National Security and Strategic Importance

• Defense Sector: Critical minerals are indispensable for defense technologies such as missile guidance systems and radar.
• Reducing Dependence: Developing local sources of these minerals can reduce India’s dependence on imports from politically sensitive regions.

Transition to Clean Energy

• Renewable Energy: Minerals like lithium, cobalt, and rare earth elements (REEs) are crucial for EV batteries and renewable energy storage.
• Access to these minerals helps India reduce carbon emissions and adopt cleaner energy sources.

Technological Advancements

• Innovation: Critical minerals drive innovations in technologies like 5G networks and advanced medical devices.
• A strong supply chain promotes research and development in cutting-edge technologies.

Job Creation and Skill Development

• Mining and Processing: Developing critical mineral resources creates jobs and enhances skills.
• This includes both mining operations and processing facilities.

PLI Scheme for Recycling Critical Minerals

• The PLI scheme will focus on recycling e-waste, also known as “urban mining,” to recover important minerals.
• The proposed PLI scheme aligns with recommendations from NITI Aayog.
• The rules complement the Battery Waste Management Rules (BWMR), 2022.
• BWMR, 2022 requires phased recycling of used EV lithium-ion batteries.
• Recycling of these batteries will start gradually from 2026.
• Objective: To foster a circular economy and strengthen domestic supply chains.
• Key minerals to be targeted include lithium, copper, cobalt, graphite, chromium, and silicon.
• These minerals are essential for:

6. Clean energy technologies like solar PV modules and wind turbines
7. Energy storage systems and electric vehicles (EVs)
8. Consumer electronics
9. Benefits of Recycling minerals

• Reducing Mining Needs: Research shows that effectively recycling critical minerals can greatly reduce the need for new mining activities.
• Environmental Conservation: Recycling helps conserve the environment and avoid the social and economic impacts of opening new mines.

Challenges of PLI Scheme for Recycling Critical Minerals

Disagreements on Beneficiaries

• High-Purity Extraction: Some recyclers believe only those who extract high-purity critical minerals, similar to virgin ores, should be rewarded by the scheme.
• Black Mass Production: Others argue the scheme should also support the production of “black mass,” a less pure mixture of minerals from shredded e-waste.
• Most Indian recyclers currently can’t extract battery-grade minerals from black mass.

India’s Growing E-Waste Problem

• Increase in E-Waste: The amount of e-waste in India is increasing rapidly due to the growth of solar panels, wind turbines, and electric vehicles (EVs).
• Projections: By 2030, India is expected to have:

1. 340,000 tonnes of solar panel waste (up from 100,000 tonnes in 2023)
2. 500,000 tonnes of used EV batteries needing recycling

Recently, a team of researchers from the Zoological Survey of India recorded the forest-dwelling frog from the Talle Wildlife Sanctuary and named it as Xenophrys apatani.

Xenophrys apatani:

• It has been named after the dominant Apatani community in recognition of their ingenuity in the conservation of wild flora and fauna.
• Distribution: It is distributed along the Eastern Himalayan and the Indo-Burma biodiversity hot spots of the country.

Apatani community:

• The Apatani are a tribal group of people living in the Ziro valley in Arunachal Pradesh.
• Language: They speak a local language called Tani and worship the sun and the moon.
• Festivals: They have major festivals like Dree, Myoko, Yapung and Murung.
• Dree is celebrated with prayers for a bumper harvest and prosperity of all humankind and Myoka celebrates friendship similar to modern friendship day.
• They have been practising integrated rice-fish farming in their mountain terraces of Arunachal Pradesh since the 1960s.
• They principally use three rice varieties: Emeo, Pyape and Mypia.

Tale Valley Wildlife Sanctuary:

• It is located near the beautiful Apatani cultural landscape in the Lower Subansiri District of Arunachal Pradesh.
• Rivers like Pange, Sipu, Karing, and Subansiri flow through this sanctuary.
• Flora: It has a stunning spectrum of subtropical and alpine forests like silver fir trees, ferns, orchids, bamboo, and rhododendron.
• Fauna: Clouded leopard, Himalayan squirrel, Himalayan Black Bear etc.