Monthly Magazine

3. ECONOMY
3.1. HIGH INCOME AND WEALTH INEQUALITY IN INDIA
Why in the news? Key findings of the Oxfam Report
Several reports have underscored high income and wealth inequality in India, • Top 1 % income shares have
triggering a debate on economic inequality, concentration and distribution of consistently increased.
wealth. • Share of the income of the bottom
50% has consistently declined.
About Economic Inequality in India • The top 5% of Indians own more
than 60 % of the country’s wealth
• Wealth Inequality: India is one of the most unequal countries. Rich are
getting richer at a much faster pace while the poor are still struggling to earn a minimum wage (Oxfam report).
• Income Inequality: 22.6% of the national income went to the top 1% (World Inequality database, 2022-23). It is
among the very highest in the world, higher than even the US.
o Rural-Urban Divide: Average Monthly Per Capita Consumption Expenditure is Rs. 3,773 in rural and Rs. 6,459 in
urban India (Household Consumption Expenditure Survey 2022-23).
o Gender Pay Gap: In India, men earn 82 % of the labour income, whereas women earn 18 % of it (World Inequality
Report 2022).
Reasons for Rising Economic Inequality
• Uneven Economic Growth: Benefits of economic growth have been unevenly distributed, with the certain states, and
certain sectors benefiting disproportionately.
o E.g., Service sector which contributes about 60% of the GDP is mainly concentrated in Maharashtra, Karnataka
etc.
• COVID-19 Pandemic: COVID-19 has led to the diminishing of wealth for the bottom 50% of the Indian population.
o Total number of billionaires in India increased from 102 in 2020 to 166 billionaires in 2022, while the number of
hungry Indians has increased from 19 crores to 35 crores.
• Tax System: Government reduced corporate tax slabs from 30% to 22%, while excise duties and GST on goods and services
were substantially increased.
o Approximately 64% of the total GST in the country came from the bottom 50% of the population, while only 4% came
from the top 10%.
• Lack of Quality Education and Healthcare: It perpetuates intergenerational poverty and limits economic mobility,
especially in rural areas and among marginalized communities.
o Lack of education, have trapped some people in low-paid jobs and depressed the growth of the bottom 50 %
and middle 40 % of Indians (world Inequality lab).
• Liberalization, Privatization and Globalization (LPG): Telecom and civil aviation benefitted the most from LPG
reforms while agriculture and small-scale industries remained neglected.
o Large proportion of India's workforce employed agriculture and small-scale industries, often receives low wages,
lack of social security etc.
Measures Undertaken to Reduce
Economic Inequality
• Inclusive Growth: Deendayal
Antyodaya Yojana-National Rural
Livelihood Mission aims to reduce
poverty by enabling poor
households to access gainful self-
employment and skilled wage
employment opportunities.
o Other initiatives: Mahatma
Gandhi National Rural Employment Guarantee Yojana, Pradhan Mantri Awas Yojana, Skill India Mission etc.
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• Financial Inclusion: PRADHAN MANTRI JAN-DHAN YOJANA to ensure access to financial services, namely, Banking/
Savings, insurance, remittance etc.
o Other Initiatives: Pradhan Mantri Mudra Yojana, Stand-Up India Scheme etc.
• Social security Measures: Atal Pension Yojana is an old age income security scheme for unorganized sector in the age
group of 18-40 years.
o Other Initiatives: Pradhan Mantri Suraksha Bima Yojana (Accident Insurance), Pradhan Mantri Jeevan Jyoti
Yojana etc.
• Promoting Gender Equality: Beti Bachao Beti Padhao Scheme launched to prevent gender biased sex selective
elimination, ensure education and participation of the girl child etc.
o Other Initiatives: One Stop Centre Scheme, SWADHAR Greh, Pradhan Mantri Matru Vandana Yojana etc.
• Sustainable Development: National Mission for Sustainable Agriculture launched to make agriculture more
productive, sustainable, and remunerative and climate resilient.
o Other initiatives: National Mission on Enhanced Energy Efficiency, National Action Plan on Climate Change etc.
Challenges in Countering the Wealth and Income Inequality
• Size and Diversity of the Population: India's massive and diverse population of over 1.3 billion makes it challenging
to implement uniform policies and initiatives effectively.
• Persistent Social Inequalities: Based on caste, gender, and other factors continue to perpetuate economic disparities,
hindering the impact of policies aimed at reducing inequality.
• Limited Resources: India's limited financial resources often constrain the government's ability to allocate sufficient
funds for comprehensive programs targeting economic inequality.
• Governance and Implementation Challenges: Inefficient governance, corruption, and poor implementation of
policies and programs.
• Resistance to Structural Reforms: Vested interests and resistance to structural reforms, such as land reforms, labor
reforms, and progressive taxation.
Way Forward
• Inclusive Economic Growth: Promote policies that create job opportunities and support entrepreneurship, especially
in rural areas and for marginalized communities.
o Investing in rural infrastructure and development to bridge the urban-rural divide.
• Access to Education and Healthcare: Enhancing budgetary allocation of the health sector, ensuring quality education
etc. is crucial for breaking the cycle of poverty and inequality.
• Strengthening Social Security Measures: Cash transfers, subsidies, and pension schemes, to provide a safety net for
the economically disadvantaged.
• Taxing India’s Wealthiest: Taxing even 1% is enough to fund major government schemes. Additionally, easing the tax
burden on the poor could reduce economic inequality.
• Addressing Social and Cultural Barriers that perpetuate inequality, such as caste-based discrimination and gender
disparities.

3.1.1. INHERITANCE TAX AS A TOOL OF WEALTH REDISTRIBUTION

Why in the news?
The use of inheritance tax, a system similar to an existing tax system in the U.S. to address economic inequality is widely
debated in India.
What is Inheritance Tax?
• Inheritance tax is levied on property/asset inherited upon an individual's death. It differs from estate tax, which is
levied on the total value of a deceased person's estate.
• It is levied by many countries. E.g. Japan (tax rate is 55%), South Korea (tax rate is 50%) etc.

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 History of Inheritance Tax in India
• In India, currently there is no inheritance tax.
• Earlier, estate duty was imposed in 1953. The tax rate reached up to 85%, making it highly unpopular. Thus, it was abolished
in 1985.
• Similar to Estate duty, gift tax and wealth tax were imposed in India.
o These were abolished in 1998 and 2015 respectively. However, gift tax was re-introduced in 2004.
✓ Under Gift Tax, any gifts received exceeding Rs 50,000 in a financial year is added to the person's “income from other
sources” and taxed according to the income tax slab.
✓ Exceptions include donations, inheritance, and gifts from close relative, gifts during weddings etc.
Benefits of Inheritance Tax
• Revenue Generation: It may lead to an increase in revenue generation for the government which can be used for
social sector programs to uplift poor people.
• Reducing Wealth Inequality: It can mitigate the concentration of wealth and reduce economic inequality by
redistributing a portion of inherited wealth to fund public programs and services.
• Promoting Meritocracy: Taxing inherited wealth can help create a more level playing field and promote a
meritocratic society. This is because, taxing inherited wealth ensures that success is based more on individual effort
and talent rather than family wealth and privilege.
• Encouraging Productive Investment: It can encourage wealthy individuals to invest their wealth more productively
during their lifetimes, rather than simply passing it on to their heirs.
• Intergenerational Equity: Inheritance tax can help ensure that resources are more evenly distributed across
generations, rather than perpetuating dynastic wealth accumulation.
Implications of Inheritance Tax
• Potential Tax Evasion: Due to the high taxation rate, loopholes such as tax evasion and avoidance can be used. Also,
it may lead to distressed sales for depositing taxes.
• Discourage savings and investment: As individuals may be reluctant to accumulate wealth if a significant portion is
to be taxed on inheritance.
• It will discourage individuals from working hard: It may amount to double taxation as assets inherited might have
been already taxed.
• Affect Business: Many businesses may move their businesses abroad to avoid taxes. It may also force the sale or
break-up of family-owned businesses to pay the tax liabilities.
• Double Taxation Concerns: Critics argue that inheritance taxes represent double taxation, as the wealth being
transferred has already been subject to income and other taxes.
Conclusion
Inheritance tax can effectively reduce wealth inequality, but implementation requires careful balancing to avoid
unintended consequences. A well-designed progressive inheritance tax system with measures against avoidance can
promote wealth equity while raising revenue for social programs.

3.2. UNEMPLOYMENT IN INDIA

Why in the news?
Recent data from Global IIT Alumni Support Group regarding campus placements at prominent IITs is prompting concerns
about unemployment in India.
Status of Unemployment in India
• Centre for Monitoring Indian Economy: Unemployment rate saw an increase from 7.4 per cent in March 2024 to 8.1
per cent in April 2024.
• NSSO Data: According to Periodic Labor Force Survey (PLFS) for Calendar Year 2023 released by National Sample
Survey Office (NSSO), unemployment rate was 3.1% for calendar year 2023 (in contrast to global unemployment rate
of 5.1% in 2023).

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 o Urban unemployment rate (5.2%) for calendar year 2023 was higher than rural unemployment rate (2.4%).
o According to PLFS for Calendar Year 2023 women’s
labor force participation rate was 41%.
• World Bank Report: In the “South Asia Development
Update Jobs for Resilience” report, highlighted below
average employment ratios for women in India.
• International Labor Organization (ILO) report: The “India
Employment Report 2024” revealed that one out of every
three unemployed individuals was young.
Reasons behind Unemployment in India
• Higher population Growth: World Bank has warned that
South Asia region including India was not making use of its
demographic dividend.
o The World Bank report states that during the period
between 2000-23, employment grew 1.7 per cent a year
while working-age population expanded 1.9 per cent a
year.
• Illiteracy: According to the ILO
report, despite the considerable
progress, the level of educational
attainments at higher levels
remains low and quality is a
concern. This acts as a challenge
to employment.
• Skill gap & Challenges in Skill
Development: Only about 4.7% of
Indian labor force has undergone
any formal skill training.
o National Skill Development
Corporation conducted a skill
gap study between 2010 and
2014. Study found that 29.82 crore workers need to be skilled, reskilled, and up skilled.
o Expansion of skills training faces many challenges in India. These include low training capacity in poorer regions,
low levels of socio-economic inclusion in training programs etc.
o Implementation of institutional measures suggested by the Sharada Prasad Committee on Skill India reforms.
• Impact of automation and technology on job market: Manufacturing is becoming more capital-intensive and
automated, which provides growth but doesn't provide mass employment.
o By some estimates, it has been predicted that 69% of jobs in India are threatened by Automation.
• Seasonal nature of employment in certain industries: About 45.76% of the total workforce is engaged in agriculture
(Seasonal employment) and allied sector during 2022-23.
• Casual and informal labor: Due to a scarcity of jobs, individuals often resort to informal sector employment,
characterized by low and inconsistent wages.
o India’s labor market is predominantly characterized by informal employment (approximately 90 per cent of adult
and youth workers).
Steps Taken towards employment generation
• Aatmanirbhar Bharat Rojgar Yojana (ABRY): It has been launched as part of Atmanirbhar Bharat package 3.0 to
incentivize employers for creation of new employment along with social security benefits.
• Pradhan Mantri Mudra Yojana (PMMY): Provides collateral free loans upto Rs. 10 lakh to micro/small business
enterprises and individuals to enable them to setup or expand their business activities.
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• Prime Minister Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi Scheme): To facilitate collateral free working
capital loan to street vendors to restart their businesses, which were adversely impacted during the Covid-19
pandemic.
• PM Vishwakarma Scheme: To provide end-to-end support to artisans and crafts people of rural and urban areas
across the country. The Scheme aims to strengthen and nurture Guru-Shishya parampara.
• National Education Policy 2.0: It integrates vocational education into mainstream education and proposes that all
students receive vocational education from Class 9 onwards. It aims to increase the employability of future
generations by emphasizing skill development.
• Deen Dayal Antyodaya Yojana-National Rural Livelihoods Mission (DAY-NRLM): A scheme under the Ministry of
Rural Development that organizes rural poor women into Self Help Groups.
• Pradhan Mantri Kaushal Vikas Yojana: Launched by Ministry of Skill Development and Entrepreneurship (MSDE) and
implemented by National Skill Development Corporation (NSDC), this Skill Certification scheme enables the youth to
take up industry relevant skill training.
• Others: Make in India, Start-up India, Stand-up India, Digital India, Smart City Mission, Rozgar Melas, etc.
Way Forward
• Make production and growth more employment intensive
o Boost productive non-farm employment, especially in manufacturing and emerging services sectors.
o Focus more on micro, small and medium-sized enterprises (MSMEs)
✓ Infrastructure investment (E.g. Store, Transport etc.) is required for increasing competitiveness of MSMEs
Export.
o Increase agriculture productivity and promotion of entrepreneurship
✓ Labor and tax regulations can be streamlined to remove impediments to start-ups
o Adopting policies and measures to take advantage from new technologies.
• Improving quality of jobs
o Investing in and regulate emerging care (E.g. Childcare and care for elderly) and digital economies.
o Inclusive urban policy is required to address the needs of migrants, women and workers from poor households.
• Addressing issues related to Skill Training
o Imparting quality skill training and mainstream it into the education system to improve employability.
✓ Wide disparities in skills training across socio-economic groups & regions needs to be addressed.
• Addressing of labor market inequalities
o Improving ICT access and bridge the digital divide.
o Increasing the flexibility of labor laws and regulations could boost employment, especially in formal sector.
✓ Restrictive minimum wages and employment protection laws have been associated with weaker
employment in emerging markets economies.
• Increased Female labor force participation
o Monetary incentives such as wage subsidies or tax benefits.
o Closing gaps between the quality of boys’ and girls’ schooling.
o Broadening women’s access to finance and other inputs.

3.3. GROSS FIXED CAPITAL FORMATION (GFCF)

Why in the news?
The sluggish growth of private Gross Fixed Capital Formation (GFCF) as a percentage of Gross Domestic Product (GDP) at
current prices has been a significant challenge for the Indian economy.
More about the news
• Evolution of GFCF (also called Investment):
o From independence to economic liberalisation, investment largely remained either slightly below or above 10%
of the GDP.
o It rose from around 10% of GDP in the 1980s to around 27% in 2007-08.
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 o From 2011-12 onwards, however, private investment began to drop and hit a low of 19.6% of the GDP in 2020-
21.
o In absolute terms, GFCF in the Indian
economy increased from Rs. 32.78 lakh
crore (constant 2011-12 prices) in 2014-
15 to Rs. 54.35 lakh crore in 2022-23
(Provisional Estimates).
• Reasons for fall in Private GFCF:
o Historically, in India, higher consumption
has led to lower private investment.
o Unfavourable government policy and
policy uncertainty act as major issues
affecting private investment. E.g.,
disputes associated with tax laws.
✓ The drop in private investment is due
to the slowdown in the pace of
reforms in the last two decades.
What are Capital Formation (CF) and Gross Fixed Capital Formation (GFCF)?
• Capital formation: It refers to the process by which resources are
invested in assets like plants, equipment, machinery, etc. as well as in
human capital through education, health, skill development, etc.
• Gross Capital Formation (GCF): It refers to the growth in the size of fixed
capital in an economy. It includes
o Gross Fixed Capital Formation (GFCF): Like land improvements;
plant, machinery, and equipment purchases; and the construction
of roads, etc.
o Change in stock (CIS) of raw materials, semi-finished and finished
goods: Stocks of goods held by firms to meet temporary fluctuations in production or sales.
o Net acquisition of valuables: like gold, gems, ornaments and precious stones etc.
• Net capital formation (NCF) is distinguished from GCF in that NCF includes depreciation, obsolescence and accidental
damage to fixed capital.
GFCF includes GFCF does not include
• Structure equipment such as airport, roads etc. • Transaction intended as intermediate
• Addition to livestock used repeatedly (such as dairy cattle, sheep etc.) consumption.
• Addition to cultivated crops harvested repeatedly. • Machinery and equipment intended for
• Major repair and maintenance that prolong economic life of assets. household final consumption expenditure.
• Intangible assets like software or artistic originals • Losses due to natural disaster (flooding,
forest fire, etc.)
Why GFCF is an important economic variable?
• Growth Multiplier: GFCF and GDP are positively correlated and indicate that an increase in GFCF invariably leads to
an increase in GDP.
• Boosts productivity and living standards: GFCF helps workers produce a greater amount of goods and services each
year, helps boost output and improves living standards.
• Promotes Self-sufficiency: Growth in GFCF enables the creation of capital assets, thus improving self-sufficiency in
production as well as research in the longer term.
• Indicator of Market Confidence: GFCF is considered a meaningful indicator of future business activity, business
confidence and future economic growth patterns.
o For example, Private GFCF can serve as a rough indicator of how much the private sector in an economy is willing
to invest.

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• Reflects overall output: GFCF as an indicator helps to determine the overall output of an economy and hence what
consumers can actually purchase in the market.
What is hindering the growth of GFCF?
• Slow pace of reforms especially land acquisition has deterred investors from investing in the economy.
• Financial problems of Indian banks and many large corporations. This indirectly locks the capital available in the
market which cannot be reinvested in new projects.
• High cost of borrowing slows down the cycle of lending and borrowing, thus deterring effective channelling of
investment.
o High cost of borrowing stems from higher lending rates, which in turn is affected by high inflation.
Conclusion
For India to realise its dream of a $ 5 trillion economy, investment will have to play a major role. To ensure a seamless
development of capital formation, economic reforms accompanied by stability in other macroeconomic variables (such
as inflation) should be the way forward.

3.4. START-UPS IN RURAL INDIA

Why in the news?
Start-ups are emerging as a beacon of hope in
Rural India, especially in the realm of
agriculture.
Role of Start-ups in Rural Economy
• Rural Development: Scaling startups
focused on tackling issues in traditional
livelihood practices can push for overall
rural economic improvement and
achieve the vision of 'Atmanirbhar gaon'.
• Employment Generation:
Rural startups not only
provide innovative solutions
to problems but also create
employment and livelihood
opportunities in rural India.
E.g., Meesho, Udaan etc.
• Education and Skill
Development: Rural-urban
divide in accessing
education has been
abridged by the emergence
of rural Ed-tech startups.
E.g., Paathshaala, Learning
Delight etc.
• Financial Inclusion: Fintech start-ups are working towards providing access to affordable financial services like
microcredit, insurance, and digital payments in rural areas. E.g., Bank Saathi
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• Women Empowerment: The SHG led startups have led to the socio-political and economic empowerment of rural
women. E.g., Lijjat Papad, SARAL JEEVAN SAHELIS, FARM DIDI ETC.
• Environmental Sustainability: Rural startups have been contributing to the vision of clean and green India by focusing
on harnessing renewable energy. E.g., AgriVijay, Earthshastra Ecotech pvt. Ltd.
• Water Governance: Several Start-ups are striving to make water accessible and affordable, save agriculture water etc.
E.g., Water lab India, Kheyti, boon etc.
• Agricultural innovation: such as Irrigation as a Service (IaaS).
o IaaS is an irrigation technology that provides hassle free, pay per use and cost effective on demand irrigation to small
and marginal farmers.
o It functions on a subscription or pay-per-use basis meaning farmers pay a fixed monthly fee or a fee based on water
usage.
o Benefits: Improved water efficiency and crop yields, beneficial for water intensive crops like sugarcane, soil health
monitoring etc.
Initiatives Undertaken
• Startup India: Launched in 2016 to build a strong eco-system for nurturing innovation and startups in the country
which will drive economic growth and generate large scale employment opportunities.
• Startup India Seed Fund Scheme: It aims to provide financial assistance to startups for proof of concept, prototype
development, product trials, market entry and commercialization.
• NewGen Innovation and Entrepreneurship Development Centre: It has a mission to promote knowledge based and
technology-driven startups by harnessing young minds and their innovation potential in an academic environment.
• Innovation & Agri-Entrepreneurship Programme: Aims to nurture and promote agri-entrepreneurs by providing
financial assistance and nurturing the innovation ecosystem in the agriculture sector.
• Agriculture Accelerator Fund (AAF): Under the AAF, financial support is provided to entrepreneurs in the field of
agriculture and allied sectors to set up their startups.
Challenges Faced by the Rural Startups
• Connectivity gap with Suppliers in Urban Areas: It results in delays, increased costs, and logistical complexities for
rural startups and impacts their overall operational efficiency.
• Financial Accessibility: Rural startups face financial accessibility issues such as reluctance of lending by financial
institutions, limited availability of banking services in rural areas.
• Lack of Support System: The absence/lack of mentorship, networking opportunities, and incubation centers has
impeded the growth of rural startups.
• Difficulty in Finding Early Adopters in Rural Areas: Rural startups have faced issues of limited communication
channels, lower income, and lower digital penetration to find early adopters in rural areas.
• Limited Funding Mechanism in Rural Areas: Rural startups often face ignorance on the part of the venture capitalists
and angel investors.
o Urban startups in Bangalore, Delhi and Mumbai have collectively accounted for 92% of startup funding over the
past 9 years.
Way Forward
• Policy Support: To address the challenges faced by rural startups such as infrastructure gaps, access to finance, and
skill development.
• Institutional Support: A comprehensive network of relevant institutions is vital for the transformation of agri-startup
intentions into profitable enterprises.
• Community Engagement: The startups led by SHGs must be promoted through adequate policy support, as these
lead to the development of local community.
• Government and NGO Collaboration: To align efforts and resources for rural startup development.
• Sustainability instead of Scalability: The rural startups must aim to evolve into sustainable employment generating
enterprises, aligning with the broader vision of Vikasit Bharat.

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3.4.1. GLOBAL UNICORN INDEX 2024
Why in the news?
The ‘Global Unicorn Index 2024’ released by research group Hurun.
Key-findings of the report
• In 2023, India had 67 unicorn startups (68 in 2022) and placed third globally. E.g., Delhivery, Nykaa etc.
o USA led with 703 unicorns, followed by China with 340.
o The US has 50% of the world’s known unicorns followed by China (25%) and Rest of the World (25%).
• Founders from India produced more offshore unicorns than any other country, co-founding 109 unicorns outside of
India compared with 67 in India.
• A unicorn startup is a privately held company, without any listing on public exchanges, valued at $1 billion or more
and supported with venture capital.
o Gazelles: Start-ups most likely to ‘go unicorn’ within 3 years.
o Cheetahs: Start-ups most likely to ‘go unicorn’ within 5 years.
Factors behind decline of Unicorn in India
• Sustainability of the models: High cash burn rates and heavy discounts to attract customers have eroded profitability
and raised concerns about the long-term viability of these companies.
• Overvalued startups: Several Indian startups were too richly valued and could not justify their valuations.
o Paytm's stock has gone down by 80 per cent since its 2021 listing.
• Slowdown in funding: Funding to Indian startups declined significantly in 2023 compared to last year.
Measures to be taken
• Sustainable business models: Unicorns will need to prioritize profitability over rapid expansion, invest in technology
and innovation, and diversify their revenue streams.
• Fair Valuation: There is a need for better regulation of valuation.
• Regulatory environment: Simplification and rationalization of legal and compliance requirements can provide
stability and confidence to the Unicorns in future.

3.5. INTERNATIONALIZATION OF RUPEE

Why in the news?
Recently, Prime Minister asked the Reserve Bank of India (RBI) to prepare a 10-year strategy to make the Indian rupee a
globally accessible and acceptable currency, enabling its internationalization.
About internationalization of currency
• An international currency is one that is used and held beyond the
borders of the issuing country, not merely for transactions with that
country’s residents, but also, for transactions between non-residents.
• Currency internationalization has thus been described as the
international extension of a national currency’s three basic functions
of serving as a unit of account, medium of exchange and store of value.
• Currently, the US dollar, the Euro, the Japanese yen and the pound
sterling are the leading reserve currencies in the world.
• India moved toward partial convertibility in the late 1990s and made
subsequent progress with multiple reforms.
o India has enabled capital-account transactions, such as
permitting corporate entities to raise resources through external commercial borrowings and Masala bonds
(rupee-denominated bonds issued by Indian entities outside India).

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Benefits of Internationalization of Currency
• Limit exchange rate risk: It allows the country’s exporters and importers to limit exchange rate risk as domestic firms
can settle their exports/imports in their currency.
• Access to international financial markets: It permits domestic firms
and financial institutions to access international financial markets
without assuming exchange rate risk.
• Boost capital formation: A larger, efficient financial sector reduces
capital cost and widens set of financial institutions.
• Financing budget deficit: It may allow a country’s government to
finance part of its budget deficit (or current account deficit) by issuing domestic currency debt in international
markets rather than issuing foreign currency instruments.
• Regulating Capital Flows: It results in lowering the impact of sudden stops and reversals of capital flows and
enhances the ability to repay external sovereign debt.
• Reducing requirement of forex reserves: It reduces the requirement to maintain and depend on large foreign
exchange reserves in convertible currencies to manage external vulnerabilities.
o Presently, India’s foreign exchange reserves are at a record high of $642.63 billion as of March 2022.

Approach for internationalization of Rupee

• Capital Account Convertibility: INR (Indian National Rupee) is fully convertible in the current account but partially in
the capital account.
o There is need to review extant Foreign Exchange Management Act (FEMA) provisions and extending incentives
for international trade settlements in INR.
o Banking Services (loans, guarantees, credit lines, etc.) in INR through offshore branches of Indian banks.

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• Promoting international use of INR: To facilitate international
financial transactions in INR, an efficient settlement mechanism,
availability of liquidity and development of robust cross-border
payments system would be required.
o Currency Swaps and Local Currency Settlement (LCS): These
provide currency diversification that stabilises the local
currency, protect businesses against currency risk exposure
and reduces transaction costs.
o Internalisation of Indian Payment Systems: Extension of
global reach of India’s payment systems including Real Time Gross Settlement (RTGS), National Electronic Funds
Transfer (NEFT) and Unified Payments Interface (UPI).
o Inclusion of INR in Continuous Linked Settlement (CLS): CLS is a global system for the settlement of foreign
currency transactions on a Payment vs Payment (PvP)
basis.
✓ CLS system currently settles trades in 18 currencies.
However, INR is not among those currencies.
o Creation of an Indian Clearing System: Clearing system
would provide its member banks with a market to
purchase currencies against their domestic currency.
o INR as a vehicle currency/contender to Special Drawing
Rights (SDR) basket: It can be taken forward by
encouraging trade invoicing in INR by expanding trade
relations with other economies.
• Strengthening Financial Markets:
o Harmonisation of KYC (Know Your Customer) norms of
RBI and SEBI to ease access of foreign investors to INR
assets.
o Global 24x5 INR market: While customer transactions
are facilitated round-the-clock in the offshore market,
the inter- bank market operates only for a limited set of hours onshore.
o Inclusion of Indian Government Bonds in Global Bond Indices: It will enable widening of investor base, stable
passive flows, appreciation of INR, and reduction of overall borrowing costs.
Steps taken towards internationalization of Rupee
• Use of Indian Payment Infrastructure: India initiated interlinkage of UPI with Singapore’s PayNow and is reaching out to
jurisdictions to increase global outreach of UPI system.
• Special Vostro Rupee Accounts (SVRAs): RBI has put in place the mechanism for INR trade settlement with 22 countries by
allowing banks from these countries to open SVRAs for settling payments.
• INR as a Designated Foreign Currency in Sri Lanka: Paved the way for INR-based bilateral trade.
• Asian Clearing Union (ACU): RBI had proposed inclusion of INR as one of the settlement currencies under the ACU.
• Developments in Gujarat International Finance Tec-City (GIFT City): It hosts Financial Market Infrastructures (FMIs), such as
two international exchanges and a depository.
• Bilateral Swap Arrangements (BSA): India currently has a BSA with Japan for an amount up to USD 75 billion as a backstop line
of support in case of any balance of payments issue.
o Also, India has recently signed a 35 billion rupees currency swap agreement with UAE.

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3.6. BASEL III ENDGAME
Why in the news?
Consumer Bankers Association (CBA) recently released a White Paper,
“The Impact of the Basel III Endgame Proposal on Consumers on the
Margins of the U.S. Financial System,”.
About Basel III Endgame
• The final set of rules of Basel III norms has been called “Basel III
Endgame.”
o Basel III is a set of measures developed by the Basel Committee
on Banking Supervision to strengthen the regulation,
supervision, and risk management of banks.
o Potential impact of the Endgame includes Globally
Systemically Important Banks (G-SIBs) experiencing an increase
of 21% in capital requirements.
o Proposed changes are aimed at improving the “strength and
resiliency” of the banking system while also improving
transparency and consistency in banks’ capital frameworks.

Basel Norms (Refer box at the end of this article for key terminologies associated with Basel Norms):
• Description: These rules focus on the amount of capital that banks must have against the credit, operational, and
market risk of their business.
o Banks face significant risk primarily due to being one of the most heavily leveraged sectors.
o Heavily leveraged sectors rely extensively on debt for financing their operations and investments.
• Basel I Norms (1987):
o In 1987, the Committee introduced capital measurement system which focused on the credit risk and risk-
weighting of assets.
o These norms set minimum level of capital requirements that banks should have.

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• Basel II norms (2004):
o These updated norms sought to improve the risk calculation in capital measurement by introducing three
important pillars: Minimum capital requirements, Supervisory Review and Market Discipline.
• Basel III Norms (2010):
o Released in response to the financial crisis of 2007-08.
o It aims to build robust capital base for banks and ensure sound liquidity and leverage ratios.
Key Features of Basel I, II and III Compared
Pillars Key Components of Pillars Basel I Basel II Basel III
Pillar I (Capital Minimum Ratio of Capital to At least 8% (CAR) 8% 8% + 2.5% of Capital
Requirements) RWAs Conservation Buffers
Tier 1 capital to RWAs At least 4% 4% 6%
Pillar II (Supervisory Review Process) No provisions for Risk Based Supervision Enhanced Supervisory
Supervisory Review introduced Process
Pillar III (Disclosure & Market Discipline) No Provisions related Quantitative and Enhanced Disclosure
to Market Discipline Qualitative disclosures Norms
prescribed at Quarterly,
Half-Yearly and Yearly
intervals
• New Banking Capital Requirement Parameters Introduced by Basel III
o Capital Conservation Buffers to RWAs: Banks have to maintain a capital conservation buffer of 2.5 %.
o Leverage Ratio: Banks have to maintain a leverage ratio of 3 %.
o Counter Cyclical Buffer: A buffer ranging from 0 % to 2.5%.
o Minimum Liquidity Coverage Ratio: It should be ≥100%.
o Minimum Net Stable Funding Ratio: NSFR should be ≥100%.
Significance of Basel Norms:
• Development of better risk assessments system: Through capital requirement parameters, it provides an edge over
other banks, by focusing on only those target segments, markets and customers who have high risk ratio.
• Robust risk management process: It results in serving the customers better including small and medium sized
businesses. It leads to better liquidity for small businesses and help in their growth and expansion needs.
• Improved Corporate Governance: Norms also offer banks with business benefits like improving corporate
governance and allocation of capital.
• Stable financial System: New liquidity and leverage framework under Basel norms will not only enhance the risk
absorbency of individual banks but also aid in Strengthening soundness of financial system during extreme stress.
• Minimizing Economic Spillovers: These Norms ensure that the banking system as a whole does not crumble and its
spill-over impact on the real economy is minimized.
Basel norms implementation in India:
• Basel 1 norms were adopted in India with the announcement by RBI in its Mid-term Review of Monetary and Credit
Policy for 1998-99 to raise Capital to Risk Weighted Assets Ratio (CRAR) from 8 per cent to 9 per cent.
o In 2007, RBI announced the final guidelines for implementation of Basel II.
• Draft guidelines for implementation of Basel III capital regulations were issued in Dec 2011.
o The Basel III capital regulations (Pillar I of Basel III Norms) were implemented in India with effect from April 2013
and have been fully implemented as on October 2021.
o As compared to the Basel norms, the RBI’s prescribed norms are stricter and more prudential.
Conclusion
The Capital Accord of 1988, which set global standards for regulation and supervision, has emerged as one of the most
significant developments. The biggest contribution of the Basel Accord has been to arrive at a common definition of
capital, while capital adequacy norms have been adopted in different countries with certain country-specific adaptations.

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 Important Terminologies related to Basel Norms
• Tier I capital (Core Capital): It include paid up share capital, stocks and disclosed reserve.
o These are more permanent in nature and as a result, have high capacity to absorb losses.
• Tier II capital (Supplementary Capital): It includes all other capital e.g. Undisclosed reserve, revaluation reserves,
general provisions and loss reserves.
o It is considered less reliable than Tier 1 capital because it is more difficult to accurately calculate and more
difficult to liquidate.
• Risk weighed Assets (RWA): RWA is linked to minimum amount of capital that banks must have relative to bank’s
risk from its lending activities. The more the risk, the more the capital needed to protect depositors.
• Capital Adequacy Ratio (CAR) or Capital to Risk (Weighted) Assets Ratio: CAR is a percentage that measures a
bank's financial health by comparing its capital to its risk-weighted assets.
• Liquidity Coverage Ratio (LCR): LCR is a requirement that requires
banks to maintain a minimum amount of liquid assets to withstand cash Important Ratios Related with Basel
outflows over a 30-day period. Norms:
• Leverage ratio: The leverage ratio i.e. ratio of Tier I capital to the 𝐋𝐞𝐯𝐞𝐫𝐚𝐠𝐞 𝐑𝐚𝐭𝐢𝐨 = Tier 1 capital
bank's average total consolidated assets (sum of the exposures of all Exposure Measure
assets and non-balance sheet items). 𝐻𝑖𝑔ℎ 𝑞𝑢𝑎𝑙𝑖𝑡𝑦 liquid assets
o Leverage ratio shows how much of a company's capital comes 𝐋𝐂𝐑 = 𝑇𝑜𝑡𝑎𝑙 𝑛𝑒𝑡 𝑐𝑎𝑠ℎ 𝑜𝑢𝑡𝑓𝑙𝑜𝑤 𝑜𝑣𝑒𝑟 𝑛𝑒𝑥𝑡 30 𝑑𝑎𝑦𝑠
from debt, or how well it can meet its financial obligations.
• Net Stable Funding Ratio (NSFR): It is a liquidity standard that 𝐍𝐒𝐅𝐑 = 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑆𝑡𝑎𝑏𝑙𝑒 𝐹𝑢𝑛𝑑𝑖𝑛𝑔
measures the amount of stable funding a bank has relative to amount 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑆𝑡𝑎𝑏𝑙𝑒 𝐹𝑢𝑛𝑑𝑖𝑛𝑔
it needs. 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 (𝐓𝐢𝐞𝐫 𝐈 𝐚𝐧𝐝 𝐓𝐢𝐞𝐫 𝐈𝐈)
o It promotes resilience by creating incentives for banks to fund their CAR =
𝐑𝐢𝐬𝐤 𝐖𝐞𝐢𝐠𝐡𝐞𝐝 𝐀𝐬𝐬𝐞𝐭𝐬
activities with more stable sources of funding.
• Capital Conservation Buffer: Banks are required to hold capital conservation buffer to ensure cushion of capital
that can be used to absorb losses during financial stress.
• Countercyclical Buffer: It is a mechanism that allows banks to build up capital during periods of excessive credit
growth to help the banking system absorb losses during downturns.

3.7. ASSET MONETIZATION

Why in the news?
Recently, the National Highway Authority of India (NHAI) raised its highest-ever monetization value of Rs. 15,624.9 Crore
through the Infrastructure Investment Trust (InvIT) mode.
About Asset Monetization (AM)
• Genesis: The idea of AM was first suggested by a committee led by economist Vijay Kelkar in 2012.
o AM was announced in the Union Budget 2021-22 through the National Monetisation Pipeline.
• Definition: AM is the process of creating new sources of revenue for the government and its entities by unlocking the
economic value of unutilised or underutilised public assets.
o A public asset can be any property owned by a public body, roads, airports, pipelines, etc.
• Authority: An authorised Core Group of Secretaries on Asset
Monetisation (CGAM) has been constituted under the chairmanship
of the Cabinet Secretary to implement and monitor the project.
• Process of Asset Monetisation (AM)
o AM involves the license/lease of a government-owned asset to a
private sector entity for a specific period.
o The transfer of rights in exchange for payments is governed by a
concession agreement that facilitates balanced risk-sharing
between the public authority and the private party.

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Need for Asset Monetisation in India
• Fund the National Infrastructure Pipeline (NIP): NIP is
aimed to provide world-class infrastructure to citizens
and attract investments into this sector.
o NIP envisages an investment of 111 lakh crore over
2020 to 2025.
• Reduction of the fiscal strain: The capital invested by
private parties during AM can reduce the fiscal burden on
the public sector and free up resources for developing
new infrastructure projects.
• Provision of finance to the State for the creation of new
infrastructure: AM plays an important role in providing
finance to the State for the creation of new
infrastructure.
• Benefit from private sector efficiencies: AM will invite
private sector efficiencies and transparency in the management of public assets.
• Facilitate economic development of the country: A robust AM plan could upgrade economic productivity, encourage
demand, create jobs, boost growth prospects, and accelerate the country's economic development.
Initiatives taken for Asset Monetization
• National Monetisation Pipeline (NMP):
o Sectors: The government has identified 13 sectors to monetise its brownfield infrastructure assets.
✓ These top 5 sectors capture ~83% of the aggregate pipeline: Roads (27%), Railways (25%), Power (15%), Oil
& Gas pipelines (8%), and Telecom (6%).
o Potential: Monetisation potential of Rs 6.0 lakh crores through core assets of the Central Government, over four
years, from FY 2022 to FY 2025.
• Various assets/ asset classes targeted for monetisation:
o Railways will monetise Dedicated Freight Corridor assets for operations and maintenance, after commissioning.
o Airports will be monetised for operations and management concession.
• National Land Monetization Corporation: It is a Special Purpose Vehicle (SPV) for undertaking surplus land
monetization of Central Public Sector Enterprises (CPSEs) and other Government agencies.
• Asset Monetisation dashboard: For tracking progress and for providing visibility to investors.
Challenges faced in Asset Monetization
• Valuation Challenge: Accurately valuing public assets, especially brownfield projects, can be complex and may lead
to disputes. E.g., According to CAG report, gross undervaluation of assets was observed in case of disinvestment in
Metals and Minerals Trading Corporation of India.
• Implementational challenge: The ambitious target of monetizing assets within four years seems difficult given the
experience in meeting the disinvestment targets.
o For instance, the Ministry of Railways and the Department of Telecom have been unable to monetise assets in
comparison to the given targets.
• Transparency challenge: There is a larger question of where within the budget will such proceeds from monetisation
be accounted for, and how these proceeds will be spent.
• Lack of a clear sector-specific roadmap for monetisation is also a major roadblock in the process.
• Other challenges: Limited interest and participation of bidders, technical competence of bidders to operate and
develop assets, closing of transactions on time etc.
Way forward
• A clear road map: The monetisation of brown-field assets will need to address the conceptual and operational issues,
besides a clear roadmap of implementation with scenario planning in place.

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• Regulatory clarity: Clear policies with respect to legal disputes between concessioning authorities and
concessionaires, could help the private sector to monetise their assets and invest in new projects.
• Capacity building support on asset monetisation processes: Providing training on asset valuation, revenue
projections, and effectively utilizing expert support, etc.
• Structuring of the Assets: The market in India comprises myriad investors with varying risk appetites. Product
packaging and structuring have to be customised for diverse investors.
• Supporting States: States have significant potential for asset monetisation but need to provide reassurance to
investors about the risk characteristics of their assets.
o Support from the central government in this regard could be helpful.

3.8. ASSET RECONSTRUCTION COMPANIES

Why in the news?
The Reserve Bank of India (RBI) has issued master Direction – Reserve Bank of India (Asset Reconstruction Companies)
Directions, 2024.
More on the news
• Issued Under: The powers conferred by Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest (SARFAESI) Act, 2002.
o Applicable for every ARC registered with the Reserve Bank under Section 3 of the SARFAESI Act, 2002.
• Aim: To streamline and regulate the functioning of ARCs in India, ensuring transparency, accountability, and integrity
in the financial system.
About ARCs
• Definition: ARC is a
financial institution
that buys the Non-
Performing Assets
(NPAs) or bad assets
from banks and financial
institutions so that the
latter can clean up their
balance sheets.
o ARCs are required to
resolve the assets within a maximum of 8 years of acquisition of financial assets and redeem the SRs
representing the assets.
• Genesis: SARFAESI Act in 2002 envisaged that ARCs would be registered and regulated by RBI. There are 29 ARCs in
operation in India (2022).
o Narsimham Committee – II (1998) proposed asset reconstruction companies, on the similar lines of asset
management companies’ prevalent globally.
• Types: Based on ownership, ARCs could be public, private or public-private partnership.
• Examples: National Asset Reconstruction Company Limited (NARCL), India Debt Resolution Company Ltd etc.
How ARCs Work?
• Asset Acquisition: ARCs acquire financial assets from banks/ FIs either on their own books or in the books of a trust
set up for the purpose of securitisation and/ or reconstruction.
• Security Receipts: Lenders sell stressed loans to ARCs at a discount. Unless the transaction is entirely in cash, ARC
issues security receipts that are redeemable as and when it recovers the specific loan.
• Management Fee: ARCs also charge bad-loan sellers a management fee of 1.5% to 2% of the value of the asset every
year.

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Need of Reforms in ARCs
• Sub-optimal performance of the ARCs: Banks and FIs could recover only about 14.29% of the amount owed by
borrowers in stressed assets sold to ARCs from FY04 to FY13.
• Sales of stressed assets to ARCs Decreased: It has gradually decreased over the years. In 2021-22, only 3.2% of the
previous year’s gross NPAs were sold to ARCs.
• Other: Vintage NPAs being passed on to ARCs, lack of debt aggregation, Lack of skill for holistic resolution of distressed
borrowers, emergence of IBC as alternative resolution mechanism etc.
Key Provisions of Master RBI (ARCs) Directions, 2024
• Net Own Fund (NOF): To commence the business of securitisation or asset reconstruction, an ARC is required to have
a minimum NOF of Rs300 crore and thereafter, on an ongoing basis.
• Registration: Before commencing the business of securitisation or asset reconstruction, an ARC shall apply for
registration and obtain a certificate of registration (CoR) from the RBI.
• Leadership Positions: It set age limit of 70 for MD/CEO or Whole-time Director and tenure of 5 years at a time, with
a maximum tenure of 15 years continuously.
• ARCs shall report to IBA: Details of CAs, advocates and valuers (who committed serious irregularities in professional
services) for including in Indian Banks’ Association (IBA) database.
• Internal audit: ARCs shall put in place an effective internal control system
providing for periodical checks and review of the asset acquisition
procedures and asset reconstruction measures.
• Other Provisions:
o ARCs are prohibited from raising money by way of deposit.
o They are also mandated to maintain a capital adequacy ratio of a
minimum of 15% of its total risk-weighted assets.
Other recent changes by RBI in ARCs Regulations
• Strengthened corporate governance of ARCs: RBI mandated that the chair
of the board and at least half the directors in a board meeting must be
independent directors.
• Increased Transparency: ARCs must disclose their track record on returns generated for the security receipt
investors, and engagement with ratings agencies of schemes floated in the last eight years.
• Fair Practices Code (FPC): In order to achieve the highest standards of transparency and fairness in dealing with
stakeholders, ARCs are advised to put in place a Board-approved FPC.
• Member of CIC: Every ARC shall become a member of at least one credit information company (CIC) which has
obtained certificate of registration from the RBI.
Way Forward
• Broaden scope of ARCs: Consider permitting ARCs to acquire financial assets from all regulated entities, including
FPIs, and all NBFCs irrespective of asset size and from retail investors.
• Regulatory Disincentives: For delay by lenders in internally resolving the NPA assets to ensure disposal of NPAs in
time.
• List of NPAs (intend to sell/auction): This should be prepared by all regulated lenders and disclosed to ARCs after
entering into a confidentiality agreement for increasing predictability of stressed assets.
• Fraud Accounts: Sale of fraud accounts to ARCs may be permitted with appropriate safeguards, without diluting the
fixing of accountability at banks/FIs level or affecting criminal proceedings against the responsible persons by
competent authorities.
• Asset Acquisition from Foreign: For debt aggregation, ARCs may be allowed to acquire stressed loans to domestic
borrowers from regulated overseas banks and FIs.
To know more about the NPAs, kindly refer to Article 3.3 in January 2024 edition of VisionIAS Current Affairs Magazine.

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3.9. ADVANCE PRICING AGREEMENTS (APAS)
Why in the News?
The Central Board of Direct Taxes (CBDT) has signed highest ever record 125 APAs (including Unilateral and Bilateral APAs)
in FY 2023-24 with Indian taxpayers.
About Advance Pricing Agreements (APAs)
• It is an agreement between a taxpayer and tax authority.
• APAs endeavors to provide certainty to taxpayers in domain of transfer
pricing by specifying methods of pricing.
o APA helps determine arm’s length price (ALP) of international
transactions in advance for a maximum of five future years.
o Further, taxpayer has option to roll back APA for four preceding years,
as a result of which, tax certainty is provided for nine years.
• Types of APAs
o Unilateral APA: It involves only the tax payer and the tax authority of
the country where the tax payer is located.
o Bilateral APA: It includes the taxpayer and tax authority of the country
where the taxpayer is located, as well as an associated enterprise (AE)
of the taxpayer in another country, along with the corresponding
foreign tax authority.
o Multilateral APA: It involves tax payer, two or more AEs of tax payer in different foreign countries, tax authority
of the country where the tax payer is Mutual Agreement Procedure:
located, and the tax authorities of AEs. • MAP is an alternative available to taxpayers for resolving double
Significance of APAs taxation disputes whether juridical or economic in nature.
• MAP is a mechanism laid down in tax treaties (E.g. DTAA) to
• Double Taxation Avoidance: Clarity with ensure that taxation is in accordance with the tax treaty.
respect to tax outcome of the tax payer’s o A tax treaty is a bilateral (two-party) agreement made by two
international transactions reduces the risk of countries to resolve issues involving double taxation of
potential double taxation. passive and active income of each of their respective citizens.
• Promoting ease of doing business: Especially • Difference between MAP and APAs:
for Multinational entities which have a large o MAP resolves transfer pricing disputes while APAs prevents
transfer pricing disputes.
number of cross-border transactions within
o Tax payers file MAP for pending disputes while they opt for
their group entities. APA for same transactions for future years as an effective
• Reduction of compliance costs to companies: dispute resolution/ avoidance strategy.
It eliminates risk of future tax audit and time
consuming tax related litigation.
• Reduced cost of administration: Due to reduced future tax litigation, reduced time and effort are needed on audit
tasks by tax authorities and consequently it also frees scarce resources of government.
• Less burden of record keeping: As the taxpayer knows in advance the required documentation to be maintained to
substantiate the agreed terms and conditions of the agreement.

Indian Advance Pricing Agreement Regime:

• APA Scheme in India:
o Ministry of Finance had notified APA Scheme in 2012 through the insertion of sections 92CC and 92CD in the
Income-tax Act, 1961.
✓ APA rules were notified by CBDT subsequently.
o Under it, an agreement is signed between CBDT and any person determining in advance arm’s length price in
relation to an international transaction.

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 o Nature of Scheme: APA process is voluntary and supplements appeal and other Double Taxation Avoidance
Agreement (DTAA) mechanism for resolving transfer pricing dispute.
o Term of APA: Maximum five years.
o Rollback provisions: Allows Arm’s Length Price as agreed in
APA, to be rolled back to a period prior to the
commencement of the APA.
Issues with Advance pricing Agreement in India:
• Complex International transactions: Many international
transactions involve intricate business structures and
operations, making it challenging to accurately determine
arm's length prices.
• Lack of Internal Co-ordination: It has been experienced that
different entities take different technical positions on similar
international transactions. Creating uncertainty for taxpayers
and stalling of APA negotiations.
• Delay in Processing APAs: Scarce human resources allocated to
the process leads to delay in processing as process is usually
fact intensive and need a lot of data analysis.
Conclusion
Apart from reducing company’s compliance requirements as well as forging strategies for dispute prevention, APA
program has also assured revenue flow to the Indian treasury. To address APA issues, Outsourcing subject matter
experts from private sector can not only solve human resource crunch issue but will also bring clarity to emerging
complexities with their expertise.
Related News
Double Taxation Avoidance Agreement (DTAA)
• India & Mauritius signed (not yet ratified) a protocol amending the Double Taxation Avoidance Agreement (DTAA).
• Amendment included Principal Purpose Test (PPT) to avail tax benefits under the DTAA to plug the abuse of treaty for tax
evasion and avoidance.
o PPT lays out the condition that the tax benefits under the treaty will not be applicable if obtaining that duty benefit was
the principal purpose of any transaction or arrangement.
o Protocol to amend DTAA is aimed at making it compliant Base Erosion and Profit Shifting (BEPS)
with Base Erosion and Profit Shifting (BEPS) Minimum
• Refers to tax planning strategies that exploit gaps
Standards.
and mismatches in tax rules for tax avoidance by
• DTAA is an agreement between two countries/territories
with an objective to avoid double taxation on same declared
shifting profits from higher tax to lower tax
asset in two different countries/territories. jurisdictions.
o DTAA between India and Mauritius was first signed in • Multilateral Convention to Implement Tax Treaty
1982 and amended in 2016. Related Measures to Prevent BEPS aims to update
• Significance of DTAA international tax rules and lessen opportunity for
o Promotion of cross-border investment by reducing tax tax avoidance by multinational enterprises.
burden on foreign investors. o India signed the convention in 2017.
o Equitable allocation of right to tax between the ‘source’
and ‘residence’ countries.
o Provides legal certainty on taxing international income.
• Issues associated with DTAA
o Treaty Shopping: Takes place when residents of a country, which is not a party to the DTAA, take advantage of the
provisions through indirect routes.
o Double non-taxation: Abuse of DTAA to avoid paying taxes in both countries.
o Differential interpretations of tax treaties leading to protracted litigations.

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3.10. FINANCING FOR SUSTAINABLE DEVELOPMENT REPORT 2024
Why in the News?
2024 Financing for Sustainable Development Report was recently released by the Inter-agency Task Force on Financing
for Development.
About Inter-Agency Task Force on Financing for Development
• It comprises over 60 United Nations agencies, programmes and offices, regional economic commissions and other
relevant international institutions.
• UN Department of Economic and Social Affairs (UNDESA) serves as its coordinator of the initiative.
• It was convened by the United Nations (UN) Secretary General to follow up on the seven action areas of the Addis
Ababa Action Agenda.
Key highlights of the report
• Progress towards SDGs: Countries are off track on 2030 Agenda for Sustainable Development, with around half of
140 SDG targets, deviating from the required path.
• Financing gaps in sustainable development: Report estimates SDG financing and investment gaps at between USD
2.5 trillion and USD 4 trillion annually.
• Finance divides: Developing countries are faced with significantly worse terms of access to both long-term and
contingency financing, implying a finance gap, which is largest in Middle-Income Countries (MICs).
• Weak enabling environment for SDGs: Currently, public subsidies and private investment in fossil fuels and brown
activities are still very high.
About Financing for Sustainable Development
• It is centered around supporting the follow-up to
the agreements and commitments on Financing
for Development:
o in Monterrey, Mexico in 2002;
o in Doha, Qatar in 2008; and
o in Addis Ababa, Ethiopia in 2015.
• Addis Ababa Action Agenda provides a new
global framework for financing sustainable
development.
o It aligns all financing flows and policies with
economic, social and environmental
priorities and ensures that financing is stable
and sustainable.
o It identified seven action areas for financing
sustainable development (see infographic).
o It mandates the Task Force to
✓ report annually on progress in
implementing the Addis Agenda and
other Financing for Development
outcomes and the means of
implementation of the 2030 Sustainable
Development Agenda.
✓ advise the intergovernmental follow-up
process on progress, implementation gaps and recommendations for corrective action.
o Addis Ababa Action Agenda was adopted at the Third International Conference on Financing for Development
held in Addis Ababa, Ethiopia, in 2015.
• Financing challenges are at the heart of the current sustainable development crisis.
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Challenges in financing sustainable development
• Rise in Systemic Risks: E.g., Covid 19 pandemic, Rise in frequency of disasters etc.
o Climate crisis and more frequent and intense disasters raising stresses on public and private balance sheets.
✓ Annual economic disaster damage estimated at $173 billion between 2020 and 2023, up from $108 billion
during the first decade of the century.
• Challenging Global Economic Environment: A sluggish world economy has led to subdued growth prospects with
GDP growth rates in developing countries falling to just over 4% annually on average between 2021 and 2025.
• Sovereign Debt burden: Many countries are faced with high risks of debt distress, with median debt service burden
for LDCs rising from 3.1% of revenue in 2010 to 12% in 2023 –highest level since 2000.
o 40% of global population live in countries where governments spend more on interest payments than on
education or health.
• Rising geopolitical tensions: Geopolitical tensions, violence, conflict and war have contributed to challenging global
macro-environment, risking severe fragmentation of global trading system (which could cost up to 7% of global
GDP).
Actions required for bridging financing gap for sustainable development
• Enabling Environment: Countries’ efforts to create enabling environments for private investment must be aligned
with the SDGs, setting the right incentives through fiscal and tax policies.
• Strengthening Public Development Banks (PDBs): PDBs usually provide longer-term funding, and their development
focus makes the financial durations of their lending better aligned with social and environmental sustainability.
• Integrated Financing Approaches: More than 80 countries are now using Integrated National Financing Frameworks
(INFFs) to develop national financing strategies and integrate planning and financing policy functions.
o The concept of INFFs was first introduced in the Addis Agenda.
• Reforms in multilateral system: There is a need for reforms to enhance coherence between trade, investment and
sustainable development.
o This includes World Trade Organization (WTO) reform, with a focus on dispute settlement, updating rules to
reflect global economic changes, and continued efforts to update investment treaties.

3.11. SETTLEMENT CYCLE

Why in the news?
Securities and Exchange Board of India (SEBI) introduced beta version of T+0 rolling settlement cycle on optional basis in
addition to the existing T+1 settlement cycle in Stock Markets.
More on News
• Settlement Cycle refers to the period within which securities and funds are delivered and settled after a trade is
executed between a buyer and a seller.
o Traditionally, Indian exchanges followed a T+2 settlement cycle, meaning trades were settled in two business
days after the trade execution date (T).
✓ T+2 was shifted to T+1 (1 day settlement) in January 2023.
o T+0 Settlement Cycle refers to a system where Settlement of trades shall happen on the same day after the
closure of market.
Reasons for shift to shorter settlement cycle
• Evolution: The significant evolution of technology, architecture and capacity of Market Infrastructure Institutions or
MIIs (stock exchanges, clearing corporations and depositories), presents opportunities for further advancing clearing
and settlement timelines.
• Becoming a Global leader: To ensure that India's market infrastructure emulates the global best practices.
• Efficiency: It will bring cost and time efficiency.

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Impact of shorten settlement cycle
• Enhanced Liquidity Management: This allows investor to reinvest proceeds or deploy capital into new opportunities
without waiting for settlement cycles.
• Increased Trading Opportunities: Investors can react quickly to market developments, execute trades promptly, and
optimise their investment strategies in real-time.
• Reduced Settlement Risk: T+0 settlement eliminates the need to wait for an additional day for trading confirmation
and settlement.
• Global Competitiveness: Adopting a T+0 settlement cycle can attract foreign portfolio investors (FPIs).

3.12. CONSUMER CONFIDENCE SURVEY

Why in the news?
Recently, Reserve Bank of India (RBI) released the results of January 2023 round of its bi-monthly Consumer Confidence
Survey (CCS).
About Consumer Confidence and Consumer Confidence Survey (CCS)
• It is an economic indicator that measures the degree of optimism or pessimism that consumers feel about overall
state of the economy and personal financial situation.
o It serves as an indicator of the health of the economy from the perspective of the consumer.
o High consumer confidence in the economy is usually related to higher spending by Consumers.
• It is measured through a bi-monthly Consumer Confidence Survey (CCS) conducted by the Reserve Bank of India
(RBI).
• Survey obtains current perceptions (vis-à-vis a year ago) and one year ahead expectations on general economic
situation and own income and spending across 19 major cities.
o Survey obtains information on urban consumer sentiments and captures qualitative responses to questions
pertaining to general economic conditions.
• CCS responses are measured through two indexes:
o Current Situation Index (CSI) - Consumer sentiment about current economic, employment, and price conditions
as compared to a year ago.
o Future Expectation Index (FEI) - Expectations about economic, employment, and price conditions a year ahead.
✓ Businesses often use it to make better-informed decisions or adjustments in strategy such as investments
in new projects or launch of new products.
Findings of the latest Consumer Confidence survey
• Consumer confidence improved both for the current period as well as for the year ahead.
• Current situation index (CSI) continued on its recovery path since the historic low recorded in mid-2021.
o It increased on the back of improved sentiments on general economic situation and household income.
• Future expectations index (FEI): Rose to its two-year high on the back of improved optimism on general economic
situation, employment and income over the next one year.
Conclusion
Consumer confidence does give a meaningful clue as to the economy’s strength, both in the present and the future. There
is a need for further consideration for joining it with other forecasting information for better future economic predictions.

3.13. INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA

(IRDAI)
Why in the news?
The Insurance Regulatory and Development Authority of India (IRDAI) celebrated its 25th Anniversary.

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Significance of IRDAI in transforming the Insurance sector
• Insurance Growth: Recent Regulatory Governance Reforms by IRDAI
o Insurance penetration (percentage of IRDAI has replaced 34 regulations with 6 regulations and introduction of
insurance premium to GDP) at 4.2% in 2 new regulations enhancing clarity and coherence in the regulatory
2021-22 compared to 2.71% in 2001-02. landscape.
o Insurance Density (ratio of premium to • IRDAI (Insurance Products) Regulations, 2024: merged 6 regulations
into a unified framework aimed at enabling insurers to swiftly
population) at $91 in 2021-22 compared
respond to evolving market demands, enhancing the ease of
to $11.5 in 2001-02. conducting business, and boosting insurance penetration.
• ‘Insurance for All’ by 2047: IRDAI has • IRDAI (Corporate Governance for Insurers) Regulations, 2024 aim
committed to enable ‘Insurance for All’ by to establish a robust governance framework for insurers, defining
2047, where every citizen has an appropriate the roles and responsibilities of the board and management.
life, health and property insurance cover etc. • IRDAI (Registration, Capital Structure, Transfer of Shares &
• Expanded regulatory role: New Amalgamation Insurers) Regulations, 2024: Streamlined 7
intermediaries have started operating in the regulations into a single comprehensive framework. It aims to foster
market, like corporate agents, Bancassurance the growth of the insurance sector by simplifying various processes.
(selling insurance products through banks), on-line sales, etc.
o The digital transformation accelerated by the authority’s guidance on e-KYC, paperless policies, digital payments,
etc.
Major Initiatives by IRDAI
• Bima Sugam: An online insurance marketplace for buying, selling, and servicing insurance policies as well as settling
claims.
o It is a part of IRDAI’s Bima Trinity - Bima Vistaar, Bima Vahak, and Bima Sugam.
• Saral Jeevan Bima: Provides basic protection to self-employed individuals or people in low-income groups.
• Integrated Grievance Management System: To create a central repository of grievances across the country and
provides for various analyses of data indicative of areas of concern to the insurance policyholder.
• Pan India survey: Through the National Council of Applied Economic Research (NCAER) in a bid to improve on its
strategy of creating insurance awareness.
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• Mandating Board Approved Policy for Insurers: Insurers are mandated to have Board approved Insurance Awareness
Policy with action plan for organizing various activities promoting consumer awareness on various aspects of
insurance.
Conclusion
As the insurance sector continues to evolve, IRDAI remains committed to adapting and enhancing its regulations to meet
the changing needs. IRDAI's initiatives in areas such as promoting financial inclusion, encouraging innovation, etc. will be
instrumental in driving the sustainable growth of the insurance sector.
To know more about Insurance Sector in India, refer Article 3.3 of the February Monthly Current Affairs 2024.
Related News
Domestic Systemically Important Insurers (D-SIIs)
• Insurance Regulatory and Development Authority of India (IRDAI) releases 2023-24 – List of D-SIIs.
o Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC Re) and New India Assurance
Company continue to be identified as D-SIIs.
• D-SIIs refer to insurers of such size, market importance, and domestic and global inter connectedness, whose distress or
failure would cause a significant dislocation in the domestic financial system.
o D-SIIs are perceived as ‘too big or too important to fail’ (TBTF).
o D-SIIs are subject to additional regulatory measures.

3.14. PRADHAN MANTRI FASAL BIMA YOJANA (PMFBY)

Why in the news?
The enrolment of farmers under the PMFBY has crossed a record 40 million in 2023-24, an increase of 27% from the 31.5
million enrolled in FY23.
More on the news
• Claims: Around Rs. 500 paid as claims to farmers under PMFBY for every 100 rupees of premium paid (2016 - 2023).
• Claim recipients: Over 23.22 crore farmer applicants received claims under PMFBY in the past 8 Years of its
implementation.

Salient features of PMFBY (launched in 2016)

• Purpose: Comprehensive crop insurance from pre-sowing to post-harvest period
• Type: Central Sector Scheme.
• Nature: Demand-driven scheme and is voluntary for the States as well as farmers
• Implementing Agency: Department of Agriculture, Cooperation & Farmers Welfare (DAC&FW), Ministry of
Agriculture & Farmers Welfare (MoA&FW) and the concerned State.
• Coverage of Farmers: All farmers including sharecroppers and tenant farmers can avail it.
o However, in 2020, the scheme was made optional for all farmers including farmers who have taken agri-loans.

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• Coverage of Crops: Food crops (Cereals, Millets and Pulses); Oilseeds; Annual Commercial / Annual Horticultural
crops, etc.
• Premium to be paid: Premium is paid as % of the sum assured or Actuarial Premium Rate (APR), whichever is less.
APR is the premium rate set by insurance companies.
o Premium by farmers:
✓ 2% for Kharif crops
✓ 1.5% for Rabi crops
✓ 5% for commercial horticulture crops
• Other notable features: Compulsory use of at least 0.5% of the gross premium collected by insurance companies for
IEC activities; intensive use of technology; freedom to States to choose risk cover as per requirements, etc.
Key Initiatives under PMFBY
• DigiClaim: Under it all the claims are worked out through National Crop Insurance Portal (NCIP).
• CROPIC (Collection of Real Time Observations and Photo of Crops)
• Weather Information Network Data Systems (WINDS) portal
• Yield Estimation System, based on Technology (YES-TECH) Manual
• Door enrollment app AIDE/Sahayak.
• Forecasting Agricultural output using Space, Agro- meteorology and Land based observations (FASAL) project.
• National Agricultural Drought Assessment and Monitoring System (NADAMS)
• ISRO’s Geo-platform, Bhuvan, provides data on plantation, pest surveillance and weather
Challenges in FMBY
• Higher cost of premium subsidy: In several states, the claims have exceeded the gross premium and the states found
that a substantial part of their agriculture budget was going to pay premium subsidies.
• Premium deducted from non-participating farmers: Lack of awareness among farmers about the procedure to opt
out of the crop insurance scheme often leads to unintended deduction of premium amounts from their bank accounts.
• Crop yield estimation problem: Disputes on the quality of yield data have been a challenge in the effective
implementation of the Scheme.
• Delays in settlement: The delayed release of premium subsidies by states, yield-related disputes between insurance
companies and states, and non-receipt of farmers' account details contribute to delayed settlement.
• Defaulting Insurance Companies: Delays in taking action against defaulting insurance companies due to procedural
complications.
• Difficulties to assess crop damage: By the insurance companies due to the localised nature of crop damage, possible
negligence or even false claims by unscrupulous persons and the non-availability of data at the local level.
Way forward
• Ensure timely release of premium subsidy: To maintain strict financial discipline, subsidy payment should be
streamlined through an escrow account jointly administered by the State government and the Centre.
o Also, all financial transactions (subsidy or claims) shall be routed through the National Crop Insurance Portal
(NCIP).
• Presence of insurance companies in every tehsil of the district: It will be crucial for farmers in order to mitigate the
problems faced in availing the scheme benefits.
• Penalties for companies: Effectively penalising defaulters in a time-bound manner.
• Adoption of smart sampling techniques: By all states using technological interventions such as satellite data or the
use of drones.
• Corporate Social Responsibility (CSR): Insurance companies can plan to spend a share of their profits towards CSR in
the districts from where profits are earned.

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3.15. NEWS IN SHORTS
3.15.1. 30 YEARS OF MARRAKESH • Key Achievements:
o Implementation of Financing for Development, as
AGREEMENT
mandated by the global community in the Addis
• World Trade Organization (WTO) is celebrating 30 Ababa Agenda (2015), together with four other
years of the Marrakesh Agreement. major institutional stakeholders.
• Marrakesh Agreement was signed in Marrakesh, ✓ The institution includes the World Bank, the
Morocco, by 123 countries in 1994 after the conclusion International Monetary Fund, the World
of the Uruguay Round. Trade Organization, and the United Nations
o It led to the establishment of the WTO in 1995, Development Programme.
replacing General Agreement on Tariffs and Trade o Assisted countries under the Debt Management
(GATT) as an international organization. and Financial Analysis System (DMFAS)
• About Marrakesh Agreement: Programme.
o It serves as basic framework for trade relations
among all WTO members.
o It expanded the scope beyond trade in goods to
trade in services, intellectual property, and other
topics.
o It established modern multilateral trading system,
facilitating negotiations, dispute settlement, and
economic cooperation among members.
o It created WTO’s governance, establishing the
Ministerial Conference (highest decision making
body), General Council, and specialized councils.
• Achievements of WTO
o Lowering trade barriers: Since 1995, real volume
of world trade has expanded by 2.7 times and
average tariffs have almost halved, from 10.5% to
6.4%.
o Rise of Global Value Chains: Trade within these
value chains today accounts for almost 70% of total
merchandise trade.
o Growth in developing countries: Fastest poverty
reduction since 1995 and increased purchasing
power in all countries.
o International Trade Agreements and Rules: TRIPS
Agreement, Nairobi Package, Trade Facilitation
Agreement, Doha Development Agenda etc.
To know more about WTO, kindly refer to Article 3.1.
World Trade Organization in March 2024 edition of
VisionIAS Current Affairs Magazine.

3.15.2. UNCTAD REBRANDED AS UN 3.15.3. LIVING WAGE AND MINIMUM

TRADE AND DEVELOPMENT WAGE
• United Nations Conference on Trade and Development • The government sought technical assistance from ILO
(UNCTAD) rebranded as UN Trade and Development. to create a framework for living wage
• The rebranding marks the start of the 60th anniversary • Presently, India follows the minimum wage, which has
of the organization. remained stagnant since 2017.
o This strategic move underscores the organization's • The Code on Wages passed (2019), proposed a
commitment to increasing its global voice on the universal wage floor which shall apply to all states once
behalf of developing countries. implemented.

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• Issues with the present system • About CDR:
○ The Minimum Wages Act, 1948 provides guidelines o It is the ratio of how much a bank lends out of the
but does not specify the minimum wage. deposits it has mobilised.
○ Fixing minimum wages in some jobs falls under o A higher CDR suggests that a significant portion of
both the Minimum Wages Act, 1948, and the the bank's resources are allocated to loans.
Contract Labour (Regulation and Abolition) Act, ✓ It could potentially stimulate economic
1970, leading to potential confusion. growth but also implies higher risk.
○ Wage payment discrepancies due to the lack of o Regulators often monitor CDR to ensure banks
enforceability of the national wage floor across maintain a prudent balance between lending and
states. risk management.
○ Gender disparity as scheduled employment with
more women workers has lower minimum wages
than those with more men.
• Advantages of Living Wage:
○ Accelerate Poverty alleviation efforts, aligning with
Sustainable Development Goals (SDGs).
○ Addresses wage insufficiency, especially
considering inflation, and fosters a more equitable
and sustainable economy.
• Challenges of Living Wage:
○ Implementing a national living wage framework
across states due to the diversity of living costs in
different regions of India.
○ Financial strain especially for small businesses and
MSMEs, due to increased labour costs.

3.15.5. SEBI COMPLAINT REDRESS

SYSTEM (SCORES 2.0)
• Securities and Exchange Board of India (SEBI) launched
SCORES 2.0 version which strengthens investor
complaint redress mechanism in securities market by
making process more efficient.
• SCORES is an online system where investors in
securities market can lodge their complaints through
web URL and an App.
• Salient features of SCORES 2.0
o Reduced timelines for redressal of investor
complaints across Securities Market i.e. 21
Calendar days from date of receipt of complaint.
o Introduction of auto-routing of complaints to
concerned regulated entity to eliminate time
lapses.
o Integration with KYC Registration Agency
database for easy registration.

3.15.6. CLUSTER DEVELOPMENT

3.15.4. CREDIT DEPOSIT RATIO (CDR) PROGRAMME (CDP) – SURAKSHA

• Indian banks are battling the worst deposit crunch in • Several states are using SURAKSHA platform for
20 years and at 80%, the credit-deposit ratio is at its disbursing subsidies to horticulture farmers under the
highest since 2005. CDP.

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 o CDP is a component of the central sector scheme o Long-term strategies for education and skill
of National Horticulture Board (NHB). acquisition through developing specialized degree
• About CDP-SURAKSHA or diploma programs, etc.
o SURAKSHA stands for ‘System for Unified
IFSC Authority
Resource Allocation, Knowledge, and Secure
Horticulture Assistance’. • IFSC Authority is a statutory body established under
o It allows an instant disbursal of subsidies to IFSC Act,2019.
farmers in their bank account by utilising the e- • A unified regulator for development and regulation of
RUPI voucher from the NPCI. financial products, financial services and financial
o Its key features are database integration with PM- institutions in IFSCs in India.
KISAN, UIDAI validation, geotagging, geo-fencing
etc. 3.15.8. PAYMENT AGGREGATOR (PA)
o CDP-SURAKSHA allows access to farmers, vendors,
• PayU has received an in-principle approval from the
Implementing Agencies, Cluster Development
Reserve Bank of India (RBI) to operate as a PA.
Agencies etc.
• About PAs
3.15.7. EXPERT COMMITTEE REPORT ON ○ It is a financial technology company that simplifies
GIFT CITY the process of accepting electronic payments for
businesses. E.g., GooglePay, PhonePe, Cashfree
• Expert Committee on developing GIFT IFSC as ‘Global etc.
Finance and Accounting Hub’ submitted report to ○ It acts as an intermediary between the business
IFSCA. and the financial institutions.
• Committee was formed following a Ministry of Finance ○ It is incorporated as a company under the
notification. Companies Act, 1956 / 2013.
o The notification classified book-keeping, ○ Non-bank PAs require authorisation from RBI
accounting, taxation, and financial crime under the Payment and Settlement Systems Act,
compliance as ‘financial services’ under 2007.
International Financial Services Centre (IFSC) Act,
2019. 3.15.9. INDIA GAMING REPORT 2024
• Gujarat International Finance Tech- City (GIFT City)- RELEASED
IFSC was established as Special Economic Zone (SEZ) in • Interactive Entertainment and Innovation Council
2015, in Gujarat. (IEIC) and WinZO released India Gaming Report 2024 .
o An IFSC caters to customers outside the jurisdiction
• Key findings:
of the domestic economy. Such centres deal with
o With 568 million users, India is officially the largest
flows of finance, financial products and services
gaming market and accounts for every one in five
across borders.
online gamers globally.
• Opportunities for GIFT IFSC to become Global Finance o Indian gaming market is expected to reach $6
and Accounting Hub Billion by 2028.
o Strong technology-driven outsourcing o Number of Indian gaming companies surged from
capabilities. 25 in 2015 to over 1400 in 2023.
o Large talent pool of skilled manpower in the fields
• Factors responsible for boost in gaming industry:
of accounting, etc.
o Rise of affordable high-speed internet ($0.17/GB)
o “Accounting and finance services” recognised as
and increase in smartphone penetration (820
one of the 12 Champion sectors in services for
million users).
exports.
o Burgeoning share of young population (~600
• Recommendations million) and rising disposable income.
o Proposes a new regulation, providing for
o Supply side factors include global investments in
comprehensive and inclusive definition for game development, rewarding gaming career,
Bookkeeping, Accounting, Taxation, and Financial vernacular language content and gamification of
Crime Compliance Services. Indian culture etc.
✓ Only firms that are registered as a company or
• Gaming’s contribution to society: Reduction in social
a Limited liability partnership should be
isolation, community building, especially for women
allowed to offer these services.
gamers, and its role in enhancing research, education
and skilling.
57 www.visionias.in ©Vision IAS
 o It also improves penetration of emerging
technologies like Virtual Reality, Artificial
Intelligence among others.
• Challenges to gaming sector:
o Sustainability issues from 'internet pollution'
(3.7% of Greenhouse Gas emissions).
o Financial literacy gaps, regulatory complexities,
and data security challenges.
o Gaming can have a detrimental impact on physical
and mental health in certain cases. E.g., issues like
‘Blue Whale Challenge’.
• Recommendations:
o Utilise green innovations and virtual
environments for sustainable gaming.
o Establish a global gaming cluster with policy
support, supporting startups and talent
development.
o Prioritise R&D for online safety and digital
literacy.

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 Economy
India- China GDP COMPARISON
Context: As India aims for its vision for a “developed ❖ Relevance for Prelims: Nominal and Real
India” by 2047, this article presents a comparison of GDP
economic growth story of India and China. ❖ Relevance for Mains: Relative economic
Overview of India’s Growth Rate growth of India and China
❖ Real GDP of India: India’s real GDP grew at a much
slower rate by 5.8% in the 1990s and 6.3% in the 2000s.
❖ Nominal GDP of India: At the end of 2010, India’s nominal GDP, at $1.7 trillion, was 5.2 times its 1990
level. Yet, its world ranking, in terms of economic size, had improved only marginally from No. 12 to No. 9.
Comparison: India and China Growth:
❖ Widening of Gap: In 1990, China’s economy was just over 1.2 times India’s and it became 3.6 times and
5.3 times India’s in 2010 and 2022 respectively.
❖ Size of Chinese Economy: The 1990s and 2000s were China’s decades. The size of its economy in 2010,
measured by nominal GDP, was already larger than that of the US in 1990.

❖ Growth Rate of India during 1990-2022: India has witnessed such a transformation with an average annual
real GDP growth of 6% during 1990-2022.
❖ Growth Rate of China During Same period: China’s average of 8.9% over the same 33-year-period.
❖ Increase in Per Capita GDP of China: The Chinese story has been accompanied by an increase in per capita
GDP from $348 (less than India’s $369) to $12,720 (far more than India’s $2,411) during this period.

54
Conclusion:
At current per capita GDP levels, India currently falls within the category of "lower-middle income" countries
($1,136 to $4,465) and China is classified as an "upper-middle income" country ($4,466 to $13,845). To reach
the status of a developed country ($13,846 or higher), is a goal worth striving for.

Solar Surge: Moving away from Imported Solar Panels

Context:
❖ Recently, the government is implementing the policy
❖ Relevance for Prelims: PM KUSUM scheme,
of an Approved List of Models and Manufacturers
Solar Rooftop Yojana, Solar Photovoltaic cells
(ALMM), which will restrict solar power project
developers from depending on imported panels. ❖ Relevance for Mains: Solar Energy and
Associated Challenges
Government Initiative to Promote domestic Solar
Manufacturing:
❖ Restrictions on Imports: The Approved Models and Manufacturers list was created to restrict imports from
China, which controls a large percentage of the global solar supply market.
❖ Renewable Energy Targets: India expects to generate approximately 500 GW of electricity from non-fossil
fuel sources by 2030, with solar power accounting for at least 280 GW.
➢ This means building at least 40 GW of solar energy each year until 2030. So, there is a need to focus on
indigenous solar projects.
❖ Incentive for authorized companies: Authorized companies will be entitled to bid for government tenders
for its main solar energy programmes, including the recently announced PM solar rooftop initiative.
Need for Policy Implementation:
❖ Reducing Import Dependency: India wants to reduce its reliance on imported solar panels, notably from
China, which accounts for over 80% of the global supply.
❖ Promoting Domestic Industry: The programme seeks to develop the domestic solar panel manufacturing
industry by certifying enterprises with recognised production facilities, allowing them to compete for
government contracts.
Challenges and Considerations:
❖ Limited Domestic Capacity: India's domestic solar sector is currently unable to match demand for solar
panels, necessitating imports to complete installations.
❖ Competitive Pricing: Despite paying for government certification, domestic producers struggle to compete
with cheaper Chinese imports.
❖ Quality Assurance: While boosting domestic manufacture, thorough quality checks are critical to keeping
solar electricity affordable and reliable for customers.
❖ Unrealistic Targets: Despite lofty goals, India's solar capacity increases have been rather low in recent years,
thanks in part to the COVID-19 virus. The country plans to increase installations to between 25 and 40 GW
each year.
Conclusion:
India's ALMM programme intends to increase domestic solar manufacturing, in line with aggressive renewable
energy targets. Address issues such as reaching targets and lowering reliance on imports through strategic
planning and assistance.

55
Food Wastage in India
Context: Recently, the Food Waste Index 2024 was published by the United Nations Environment
Programme.
Introduction: ❖ Relevance For Prelims: Sustainable
❖ Divine Substance: Upanishads written in 700 BC are the Development Goals
essence of our Vedic knowledge. Food is considered a divine ❖ Relevance For Mains: Nutritional
substance. Crisis in India
❖ Value of Food: Our ancestors knew the importance of food
thousands of years ago, and we have all forgotten it today. Food is not just a source of nourishment but also a
gift from nature that should be cherished and respected.
❖ Treatment towards food: The way we treat food reflects our attitude towards life and the environment
Current State of Food Wastage
❖ Food Wastage: Every day, 1 billion meals are wasted worldwide. In 2022, 19% of all food available was
wasted.
➢ Meanwhile, 80 crore people in the world go to sleep daily without food.
❖ Effect of Food Wastage: Food wastage contributes to environmental degradation, climate change, and
economic losses.
Food Wastage in India
❖ Data on Food Wastage: 78 million food is wasted every year in Indian households,
❖ Rank of India in Food Wastage: India ranks 111 out of 125 countries in Global Hunger Index
❖ Enough to Feed a State: The amount of food wasted in India annually can feed the state of Bihar for a year
❖ Reasons for Food Wastage: Food wastage in India is a complex issue that involves social, cultural, and
economic factors
Food Wastage in Developing Countries
❖ Food Wastage in Developing Countries: Food wastage becomes more complicated in developing countries
❖ Reasons of Food wastage: According to an FAO report, in developing countries like India, food wastage
begins at the harvesting stage, poor storage, or logistics phase
➢ This leads to up to 40% food wastage
❖ Lack of Infrastructure: Lack of proper infrastructure, cold storage facilities, and transportation networks
contribute to food losses
❖ Limited Resources: Smallholder farmers in developing countries are particularly vulnerable to food wastage
due to limited resources and market access.
Reasons for Food Wastage at the Household LevelCareless attitude towards food: Thinking there is
excess food in the world
❖ Cultural factors: such as considering a heavy plate as a symbol of prosperity.
❖ Ordering of Extra Food: Increased food ordering through apps like Zomato and Swiggy.
❖ Poor Meal Planning: Poor meal planning and impulse buying leading to overbuying and spoilage.
Food Wastage at Social Gatherings
❖ Food Wastage in Social Gatherings: Food wastage at social gatherings like wedding functions has emerged
as a big challenge.

56
❖ Status Symbol: People prepare different varieties of food to show off, while consumption is very low, and
the rest is simply thrown away.
❖ Social Pressure: Social pressure to serve abundant food and the fear of running short contribute to over-
preparation.
❖ Inadequate Planning: Lack of proper planning and Impacts Of Food Wastage
coordination among event organizers, caterers, and guests ❖ Threatens food Security
leads to food wastage. The trend of lavish and extravagant ❖ Causes 8-10% of Global greenhouse gas
weddings has exacerbated the problem of food emissions
wastage.Urban-Rural Divide and Climate Change ❖ Water wastage equivalent to 100 million
❖ Urban vs Rural Area: More food is wasted in urban areas, swimming pools.
while less in rural areas because leftovers are fed to ❖ The world economy loses more than 1
animals. trillion dollars every year.
❖ Impact of Climate change: Food wastage is more evident
in hotter countries due to frequent droughts or famine situations caused by climate change.
➢ Climate change exacerbates food wastage by affecting crop yields, causing supply chain disruptions, and
altering food quality.
❖ Urban Lifestyle issue: Urban lifestyles, characterized by busy schedules and eating out, contribute to higher
food wastage.
❖ Traditional Practice by Rural Communities: Rural communities often have traditional food preservation
practices and utilization of leftovers.
Way Forward:
❖ Setting of Reduction Targets: Prioritize the problem of food wastage and set clear reduction targets at
national and global levels.
❖ Promoting Sustainable practices: Promote sustainable food production and consumption through education
and awareness campaigns.
Conclusion:
To save food wastage, encourage donation and redistribution programs to ensure excess food reaches those in
need. Implement effective food waste management systems, including composting and waste-to-energy
solutions.

Huge Tax and License Raj in Liquor

Context: Recently, Delhi Chief Minister and some other ❖ Relevance For Prelims: Goods and Services
leaders are behind bars because of corruption charges Tax and VAT on Liquor
against them in liquor policy for Delhi. ❖ Relevance For Mains: Issues with Liquor
Issues with India’s current liquor policies Policy
❖ Excessive Taxation: India's liquor taxes are
extraordinarily expensive, frequently exceeding 200% domestically and 150% for customs charges,
burdening customers financially.
❖ Impact on Health: High taxes encourage customers to buy lower-quality, cheaper alcohol, raising health
hazards, particularly among low-income individuals.

57
❖ State Revenue Dependence: States rely heavily on alcohol taxes for revenue, but Bihar's prohibition
demonstrates that alternatives exist for state financing.
❖ Complicated Tax Structure: Liquor is not subject to the Goods and Services Tax (GST), which complicates
the tax system. Including it could simplify taxation and bring it in line with other items like cigarettes.
❖ Government Monopoly in Sales: Current rules frequently result in government monopolies on spirits sales,
which can encourage corruption and create impediments for private firms.
❖ Licence Requirements: The license requirements on serving liquor at eateries and social gatherings can be
literally taxing, restrictive, and harassing.
Conclusion:
To cut red tape and encourage a more positive economic and social climate, licence requirements for the sale
and consumption of alcoholic beverages in public areas should be made simpler.

Japan’s Womenomics Reforms

Context: Japan's "womenomics" reforms, boosted Women’s labor force participation rate from 64.9% in 2013
to 75.2% in 2023, addressing labor shortages.
What is Womenomics?
❖ Genesis: Womenomics was started by the Japanese Prime ❖ Relevance For Prelims: Labour Force
Minister Shinzo Abe. However, originally the term was Participation Rate,
introduced in a report published by the chief Japan strategist
❖ Relevance For Mains: Unpaid Care
Kathy Matsui and her Team in 1999.
Economy
❖ About: It is a policy based on the idea that a country can
boost its economy by getting more women into the workforce and their empowerment. They are rewarded
with jobs and salaries that match their skills, talents, and ambitions.
Womenomics Reforms/Rethinking Care Work and Responsibility:
❖ Expansion of Daycare Capacity:The Japanese government’s investment to expand daycare capacity from
2.2 million in 2012 to 2.8 million in 2018 has reduced daycare waiting lists that would often run into years.
➢ In 2023, the government of Japan announced a further boost in investment of $26 billion for childcare
measures between 2023 and 2026.
❖ Entitlement of Gender-neutral Parental leave: Japanese parents had been entitled to year-long partially
paid parental leaves with women receiving 58 weeks, and men 52 weeks.
❖ Act on Promotion of Women’s Participation and Advancement in the Workplace, 2016: This made
disclosures of diversity action plans and diversity data mandatory.
➢ It led to the introduction of the “Eruboshi” certification, a five-star system recognising companies
committed to workforce diversity.
❖ Gender Gaps in Unpaid Care: Among the G20 countries, India and Japan have the widest gender gaps in
unpaid care.
➢ Women perform about 8.4 times the amount of unpaid work in India valued at 15% to 17% of GDP
in contrast to 5.5 times in Japan valued at about a fifth of GDP.
Learnings for India:
❖ Bridging the gender gaps in domestic and care work: Japan saw its highest gains in WLFPR when it
committed to long-term public investments in care infrastructure and services, especially childcare.

58
❖ Changing perception Around Social Norms: Legal entitlement to gender-neutral parental leave is not
sufficient. Enhancing uptake among men requires an employer-led approach that dispels gender
stereotypes around care work.
❖ Investment in care infrastructure and services solutions: Solutions covering childcare, elder care,
domestic work, and long-term care for highly dependent adults to reduce dependency and access the silver
economy.
➢ As the share of elderly persons in India’s population is expected to rise from 10 per cent currently to
20 per cent by 2050, India will need to prioritise elder care infrastructure and service investments.
Why is Womenomics important?
❖ Traditionally Divided Roles: Usually, the traditional role for men is to earn while the woman takes care of
the home and the family.
➢ In societies that follow this system- men bear the complete burden of earning money for the whole
family.
❖ No Recognition of Women’s Role: Women are capable of contributing in society but due to the restriction
and usual social norms their education, skill, and economic contribution never get the reward and
compensation.
Challenges in India:
❖ Cultural Hurdles: The country has cultural hurdles where roles assigned to women are keeping them away
from contributing to society.
❖ Relationship of LFPR with Women and Education: The LFPR pattern shows U shaped relationship with
women. As women get more education, the LFPR initially falls i.e., they are restricted at home.
❖ Lack of Social Benefits: Many women work in low-productive jobs often without social benefits. Women
don’t join jobs because of a lack of suitable jobs and lack of marketable skills.
Five-pillar Strategy to Unlock Business Opportunities in India’s Care Economy:
❖ Gender neutral and paternity leave policies
❖ Subsidies for availing/providing care services
❖ Enhancing investments from both the public and private sector in care infrastructure and services
❖ Skill training for care workers
❖ Quality assurance for care services and infrastructure.
Conclusion:
❖ India’s WFLPR has begun showing a rising trend, increasing from 23 per cent in 2017-18 to 37 per cent
in 2022-23. To keep this momentum going, a continued long-term focus on the care economy is needed for
unleashing #NariShakti to achieve a Viksit Bharat @2040.

India’s Missing Jobs and Where to Find Them

Context:
❖ India faces a significant challenge in ❖ Relevance For Prelims: Open Network Digital Commerce,
creating enough jobs to sustain its Skill India Mission, Artificial Intelligence and SaaS.
burgeoning population. ❖ Relevance For Mains: Challenges in Employment in India,
Introduction: Issues with ONDC, Unemployment
❖ India's Economic Growth: India's
economy is poised to ascend to the position of the world's third-largest, marked by robust expansion, a

59
 youthful demographic, widespread smartphone adoption, and the emergence of a wealthy elite amidst
ongoing poverty.
❖ Employment Disparity Hindering Economic Dynamism :However, despite these promising signs, merely
46.6% of the working-age populace is engaged in active employment, thereby diminishing the economy's
overall dynamism contrasting with other developing markets boasting employment rates nearing 70%.
Challenges in Employment:
❖ Skills Deficit in the Workforce: Despite India’s large workforce of approximately 950 million, there is a
notable skills deficit hindering employment opportunities.
➢ The 2023 India Skills Report revealed that only half of young Indians are considered employable,
indicating a gap between the skills possessed by the workforce and those demanded by employers.
❖ Lack of Job Creation: Skill deficit not only affects high-end services sectors but also impacts the
availability of skilled labor across various industries, constraining economic growth and job creation
efforts.
➢ Reliance on Low-Skilled Services: With limited opportunities for skilled employment, many
individuals are forced to seek work in low-skilled service sectors.
➢ Construction, street vending, domestic labor, and similar occupations serve as the primary sources of
employment for a significant portion of the population.
❖ However, these roles often offer minimal wages and lack opportunities for upward mobility, perpetuating
cycles of poverty and income inequality.
❖ Crisis in Service Sector: India’s economic development strategy has largely focused on services rather than
traditional manufacturing-led growth. However it has contributed to jobless growth.
➢ The IT sector, once a pillar of India’s services economy, is experiencing its first contraction in 25 years,
attributed to automation and artificial intelligence displacing traditional roles and slowing demand
for new hires.
Recommendations for Job Creation:
❖ Growth Potential of Global Capability Centres (GCCs): GCCs provide a range of services to
multinational corporations (MNCs) and present significant growth opportunities, with the potential to
employ millions by 2030 and stimulate demand for lower-skilled services.
➢ Global Capability Centres provide services to the parent that range from finance, legal and HR to high-
tech innovation clusters in cyber, analytics and AI.
➢ There are already over 1,500 GCCs employing 1.6 million people, expected to grow to 4.5 million by
2030.
❖ High-End Services Exports: Services out of such centers could become one of India’s biggest exports,
generating incomes and demand for even more services from lower-skilled tiers.
❖ Tech Startups: Despite recent setbacks, India’s tech startups offer potential for job creation, particularly in
industries like AI, Software as a Service (SaaS), defense, and green technology.
❖ Green Transition: India’s commitment to renewable energy presents an opportunity to create millions of
new jobs in the Green economy, including roles in renewable energy production, hydrogen production,
and emissions reduction.
➢ The World Economic Forum projects 50 million net new “green economy” jobs in India.
❖ Reviving Manufacturing: Small and medium-sized manufacturers should be supported to become reliable
job creators

60
 ➢ Small and medium manufacturers are likely to be less automation-intensive and more reliable labour
absorbers.
❖ Leveraging India's Digital Public Infrastructure: India’s digital public infrastructure , Open Network for
Digital Commerce that connects market players on a single protocol can be leveraged for access to credit,
resources, logistics, warehousing and customers.
➢ This can help small-and-medium manufacturers replicate the benefits of larger players.
Conclusion:
India's economic future is dependent on its capacity to handle the urgent need for job creation through a
diversified approach that includes promoting high-end service exports, nurturing tech entrepreneurs,
embracing the green transition, and revitalizing the manufacturing sector.

Pulses Need a Production Boost

Context: India has been facing a problem of persistent shortage in pulses production.
Introduction:
❖ Decline in Crop Output: According to ❖ Relevance For Prelims: Cropping Pattern,
Department of Agriculture and Farmers' Inflation, National Agricultural Cooperative
Welfare, production has witnessed a significant Marketing Federation of India
fall in output during the 2023-24 crop year to about ❖ Relevance For Mains: Challenges Associated
234 lakh tonnes from around 260 lakh tonnes in with Cultivation of Pulses, Status of Pulses
2022-23 and 273 lakh tonnes in 2021-22. production in India.
❖ Rise in Inflation: As a result, inflation in the pulses
and products' group has gained momentum, accelerating to over 20 per cent in December 2023 from about
13 per cent in August 2023.
Analysis of Pulse Production and Inflation Trends:
❖ Moderation of Inflation Rates: The Prices of Pulses moderated slightly to about 17 per cent in March 2024
with augmented supplies through imports, fresh market arrivals and imposition of stock limits.
❖ Decline in Cultivation of Major Pulses: All the major pulses witnessed a drop in cultivation .
➢ Moong (green gram) registered a steep fall of over 40 per cent in acreage and about 60 per cent in
output.
➢ Urad (black gram) with around 20 per cent fall in acreage and output in 2023-24 compared to that in
the previous year primarily due to deficit rainfall in major producing States.
➢ Acreage under chana and tur witnessed a fall of 2.6 per cent and 0.6 per cent, respectively, their output
remained nearly the same as that in the previous year.
❖ Disparity in Price Trends: The rise in prices of tur has been much steeper, at 30-40 per cent, than of moong
and urad, at 10-14 per cent, during the past six months.
❖ Impact on Accessibility of Protein Sources: Any significant rise in the prices of pulses affects the poor the
most, depriving them of a balanced diet.
❖ Persistent Lag in Meeting Demand: Unlike major cereals, the domestic production of pulses - despite a
significant increase during the past decade to about 234 lakh tonnes in 2023-24 from about 171 lakh tonnes
in 2014-15 - continues to lag demand.

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❖ Increasing Reliance on Imports: India has remained dependent on pulses imports averaging 25 lakh tonnes
per annum during the last five years to meet domestic consumption demand.
➢ However, with the drastic reduction in domestic output, the imports of pulses are expected to have
risen steeply in 2023-24.
➢ Commerce Ministry data show aggregate imports of pulses increased by about 60 per cent to 32.5 lakh
tonnes during April-January 2023-24 from about 20.3 lakh tonnes in the corresponding period of
last year.
Challenges Associated with Imports of Pulses:
❖ Challenges in Short-Term Pulse Imports: Unlike oilseeds, the scope for augmenting supplies of pulses
through imports in the short-term is limited as India is the largest producer as well as consumer of pulses in
the world.
❖ Traditional Import Sources: Myanmar has been the traditional source of imports for tur, moong and urad,
while for peas it is Canada and Australia.
❖ Emerging Import Origins: However, some of the African countries, including Tanzania, Mozambique,
Malawi and Kenya, have become sources of imports in recent years.
❖ Price Dynamics in Exporting Countries: Further, the prices in these exporting countries can be influenced
by the shortages in India and may become much costlier than the domestically produced pulses.
❖ Decline in Per Capita Availability of Pulses: The per capita availability of pulses has declined steadily from
about 25 kg in 1961 to 16 kg in 2021 due to sluggish growth in production since the 1960s.
❖ Shift in Cropping Patterns: There has been a significant shift in cropping pattern from cereal-pulse to
cereal-cereal, particularly in irrigated areas across the country.
❖ Disparity in Irrigated Area: The extent of area irrigated for sugarcane, wheat and rice stood at 96 per cent,
95 per cent and 65 per cent, respectively, while that of pulses is only about 23 per cent, according to the
Department of Economics and Statistics, Ministry of Agriculture.
➢ As a result, the yields and output of pulses have remained low.
Way Forward:
❖ Significance of Pulses in Indian Diet: Pulses are an indispensable part of the Indian food basket both among
the rich and the poor alike.
❖ Impact of Production Deficit on Affordability: But the persistent deficit in domestic production and the
consequent rise in prices are making them unaffordable for the poor.
❖ Measures to Address Supply Deficit: While a number of steps have been taken by the government to
augment open market supplies in the short-term with imports and limitations on stock-holding, it is
imperative to raise production in the long-run.
❖ Promotion of Pulses Cultivation: Immediate steps must be taken to promote pulses cultivation in fertile
and irrigated areas, providing input incentives and assured remunerative prices.
❖ Benefits of Pulses Cultivation for Sustainable Agriculture: Further, cultivation of pulses can promote
sustainable agriculture by enriching soil fertility and conserving water, with minimal irrigation and short
crop duration.
❖ Awareness Creation in Agricultural Extension Systems: Towards this, the agricultural extension system
needs to create awareness among the farmers regarding the positive externalities of pulses cultivation.

62
Conclusion:
The Government of India should Implement comprehensive support programs for pulse farmers, including
access to credit, insurance coverage, and extension services. Strengthening farmer producer organizations
(FPOs) to empower farmers collectively and enhance their bargaining power in the market.

The Spin on Inheritance Tax

Context:
❖ A prominent political leader of India’s opposition ❖ Relevance For Prelims: Direct tax and
party has expressed interest in the proposed
Indirect tax, Estate Duty, Organization for
legislation on inheritance tax in the United States.
Economic Cooperation and Development
About Inheritance/ Estate Tax: (OECD), Wealth tax, Gift tax
❖ Definition: It is a tax levied on the total value of ❖ Relevance For Mains: Issues with Direct and
money and property of a deceased person before it Indirect taxation, Reason for abolishing Estate
is distributed to their legal heirs. Duty/ wealth Tax and Gift Tax
❖ Calculation: The tax is typically calculated based
on the value of the assets left behind after any exemptions or deductions.
❖ Objective: The tax was introduced with an attempt to reduce unequal wealth distribution and increase tax
collections.

Arguments in Favour of Inheritance Tax Arguments Against of Inheritance Tax

❖ Reduce inequality by redistributing wealth ❖ Its potential negative impact on entrepreneurship,

❖ Generate revenue for government welfare and Tnvestment, and economic growth
development programs ❖ The risk of capital flight to more favorable tax
❖ Ensure the wealthy contribute more to society jurisdictions
❖ Encourage charitable giving and productive use ❖ The limited revenue it may generate due to
of wealth loopholes and exemptions
❖ The additional burden it places on families during
a difficult time
❖ The administrative complexity and cost of
implementing such a tax
❖ Its potential unsuitability for developing countries
like India that need pro-growth policies

History of Inheritance Tax:

❖ Estate Duty: India had inheritance tax in the form of “estate duty” from 1953.
❖ Taxation Strain: This was the same regime when the combined levy of income tax and wealth tax exceeded
the income earned by an individual.
❖ India's High Estate Duty Policy: The mindset was to levy a very high rate of tax and if anything was left
after payment of these taxes, which you want to inherit for future generations, the state would confiscate a
bulk of it by levying estate duty.

63
❖ Estate Duty Abolition: The duty was levied at a maximum marginal rate of 85% when it was abolished in
March 1985.
Challenges in Introducing Inheritance Tax:
❖ Tax Moderation and Modernization in India: Income tax rates have been moderated, and alternative
regimes for personal and corporate tax have been introduced with lower tax rates, lower exemptions and
deductions, focus on better compliance, data analytics, etc
❖ India's Rising Taxpayers and Buoyant Revenue: The number of taxpayers continues to rise by the day and
there is a significant buoyancy in the direct tax and goods and services tax collections exceeding Budget
estimates.
➢ India remains a bright spot in the global economic environment and our GDP is growing at the highest
level among the large economies.
❖ Startup Powerhouse: India is the third-largest ecosystem for start-ups with many unicorns and more in the
making.
❖ India's Decade of Growth: The last decade has seen significant focus on infrastructure development and
massive strides towards rapid expansion of our GDP aimed at making India a developed nation.
Global Examples of Inheritance Tax:
❖ Inequality and Resource Scarcity: Internationally, the Organization for Economic Cooperation and
Development (OECD) and G20 ministers have expressed concerns about a distribution mismatch and
scarcity of resources in the hands of the poor.
❖ OECD Wealth Transfer Tax Trends: Twenty-four out of 36 OECD countries levy tax on the transfer of
wealth of the deceased.
➢ Whereas 10 OECD countries such as Austria, Sweden, New Zealand and Australia have abolished the
levy since 2000.
➢ Similarly, developing countries such as Brazil, South Africa, and the Republic of Korea also consider
inheritance tax as a measure to remove the distribution mismatch.
❖ Estate Tax Rates: The rate of tax applicable in Japan is as high as 55%, compared with the United States
of America, the Netherlands, and United Kingdom at around 40%, whereas Algeria taxes at a rate that can
go as low as 5%.
Challenges Associated with Inheritance Tax:
❖ Revenue Challenge: Internationally, inheritance taxes have failed to achieve the stated objectives and their
collections are also below par.
➢ Inheritance taxes contribute below 1.5% of the total revenue in OECD countries.
❖ Loopholes and Administrative Costs: The loopholes and the administrative cost involved in implementing
inheritance tax outweigh the benefits of economic equality.
❖ Different Stages of Development : Developed countries such as the US are at a different stage of their
economic journey, backed up by a robust social security framework and with different imperatives compared
to India.
Way Forward:
❖ Balancing Investment and Compliance: India needs a framework which boosts investments,
entrepreneurship, wealth creation, and a moderate rate of tax promoting compliance.

64
❖ Prioritizing India's Economic Imperatives: It may be prudent not to get carried away by the imperatives of
developed economies and instead focus on our own priorities.
❖ Addressing Economic Inequality: Income inequality needs to be addressed with varied mechanisms such as
wider access to education and skill development, easy access of finance for a wider entrepreneurial class,
infrastructure development, removing supply chain bottlenecks, agricultural and land reforms, rural
job creation, etc.
Conclusion:
The discourse surrounding inheritance tax highlights the wider conversation on the distribution of wealth and
achieving economic fairness. Despite facing opposition, advocates contend that it represents a crucial stride
toward fostering a more equitable society.

The Poultry Industry needs Urgent Reforms

Context:
❖ The current outbreak of H5N1 was a disaster ❖ Relevance For Prelims: H5N1 Virus, Central
waiting to happen, as experts have been sounding Pollution Control Board (CPCB), Prevention
alarm bells on the unsafe conditions at industrial of Cruelty to Animals (PCA) Act, 1960.
livestock production. ❖ Relevance For Mains: Issues with Poultry
Scale of spreading H5N1 virus: sector, Contract farming act
❖ Origin of H5N1: The first H5N1 infection spilt over
to humans directly from chickens in Hong Kong in 1997.
❖ Spread of H5N1 in India: The first H5N1 patient was reported in Maharashtra in 2006. An outbreak in
December 2020 and early 2021 spread across 15 States.
❖ Spread in Other Species: This pathogen has crossed many species barriers, causing mortality among the
polar bears in the Arctic and seals and seagulls in Antarctica.
❖ Human Fatality Rate: As per WHO, the fatality rate for H5N1 among humans is estimated at 52%, with
463 deaths recorded since 2003 out of 888 diagnosed cases.
❖ Transmission: Almost all human infections with H5N1 are linked to close contact with infected birds or
contaminated environments, emphasizing the importance of biosecurity measures.
➢ These contaminated environments are created by cramming chickens in wired cages, or ‘battery cages’,
in high densities.
Challenges in poultry farming:
❖ Regulating Large Poultry Units: The Central Pollution Control Board (CPCB) has classified poultry units
with more than 5,000 birds as a polluting industry that requires compliance and regulatory consent to
establish and operate.
➢ Some poultry industrial units have been issued closure notices by the CPCB for being in violation of
the law.
❖ Environmental Challenge: The resultant air quality and waste problem has a significant footprint in India
due to the odor, particulate matter, and other greenhouse gas emissions.
❖ Exiting Industry Challenges: Due to contract farming, large debts and a very specialized skill set, poultry
farmers often find it difficult to exit the industry, despite the losses.

65
❖ Market Volatility & Industry Practices: The farmers suffer due to market volatility and the prevalent
practices pushed by industry giants.
➢ For instance, antibiotics are regularly given to birds as a prophylactic and as growth promoters so
that more animals can be grown for greater profit.
➢ Experts predict the rising demand for protein will cause a surge in antibiotic use in livestock.
❖ Antibiotic Misuse in Poultry Farming: Several antibiotics classified as critically important and highly
important by the WHO are widely sold to farmers for preventative use.
➢ Prescribed to day-old chicks to reduce the likelihood of disease and mortality, this practice is still being
commonly recommended.
❖ Animal Cruelty in Industrial Farming: Keeping animals in intensive confinement constitutes a crime under
the provisions of the Prevention of Cruelty to Animals (PCA) Act, 1960.
➢ Moreover, the operational activities at these industrial facilities cause unnecessary pain and suffering
to the animals because of mutilation, starvation, thirst, overcrowding, and other ill-treatment, which
is also a violation of the PCA Act.
Major Impacts of Poultry Industry:
❖ Health and Welfare Concerns: Animals are heavily stocked in unsanitary conditions. Not only does this
have a detrimental effect on the welfare of animals and the health of those who consume the food derived,
but also on the people working at these facilities and residing in the vicinity.
❖ Manure Disposal:The faecal matter generated at these facilities is collected periodically by local farmers
for use as fertilizer. The amount of piled-up manure exceeds the carrying capacity of the land and becomes
a pollutant.
❖ Crop Damage: Farmers complain of their crops getting damaged and piles of waste becoming a breeding
ground for disease vectors such as flies.
❖ Health Risks: Residents are compelled to adopt measures such as spraying insecticides inside homes,
leading to breathlessness and a nauseating smell.
Way Forward:
❖ Antibiotic Resistance: The 269th Law Commission of India Report in 2017 highlighted evidence from the
Tata Memorial Centre regarding the use of non-therapeutic antibiotics in poultry farming, leading to
antibiotic resistance due to unhygienic living conditions.
➢ It further said that with more open, cleaner, and ventilated living spaces, animals are less likely to need
constant antibiotics, making their eggs and meat safer for consumption.
❖ Draft Rules for Welfare: The Law Commission 269th recommended a set of draft rules for the welfare of
chickens in the meat and egg industries, aligning with existing laws and international best practices for
animal care, waste management, and antibiotic use.
➢ The Draft Rules for the egg industry released by the Ministry of Agriculture and Farmers’ Welfare
in 2019 were criticized for being weak and tokenistic, failing to meet the recommendations of the Law
Commission.
❖ Need for Oversight and Enforcement: Given the reclassification of the poultry industry as a highly polluting
‘orange category’ industry by the Central Pollution Control Board (CPCB), strict oversight for compliance
and enforcement of environmental regulations is essential.
Conclusion:
In light of the bird flu public health crisis and the climate emergency, it is crucial for the situation to be addressed.

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3. ECONOMY
3.1. REVISED PRIORITY SECTOR LENDING NORMS
Why in the News?
RBI revises priority sector lending (PSL) guidelines to promote small loan in economically disadvantaged districts with
low average loan sizes.
Revised Priority Sector Lending Norms
• Incentive framework: It establishes an incentive framework for districts with lower credit flow starting from FY25.
o More weight (125%) will be given to fresh priority sector loans in districts where loan availability is low (less
than Rs 9,000 per person).
• Disincentive framework: In districts with high loan availability (more than Rs 42,000 per person), the loans will
have a weight of 90%.
• Other districts: With exception of outlier districts with low credit availability and those with high loan sizes, all
other districts will continue to have the current importance level of 100%.
• MSME loans: All bank loans to MSMEs shall qualify for classification under PSL.

About Priority Sector Lending (PSL)

• Priority Sector means those sectors which Government and RBI consider as important for development of the
country and are to be given priority over other sectors.
• Objective
o To ensure that vulnerable sections of society and underdeveloped areas get access to credit.
o To direct a portion of bank credit to specified sectors and sub-sectors that impact large segments of the
population and are crucial for the economy.
• PSL was formalized in 1972 to facilitate flow of credit to such sectors, which though creditworthy, are unable to
access credit from formal financial institutions.
• Various Committees associated with PSL includes:
o Gadgil Committee, 1969 recommended adoption of Area Approach based on which ‘Lead Bank Scheme’ was
adopted.
o Ghosh Committee (1982) in which Priority sector categories very revised.

Categories under Priority Sector

37 www.visionias.in ©Vision IAS

 The sections have further sub-targets for the *Category of Weaker Sections. * For example, Small and Marginal
Farmers in Agriculture Category.
Weaker Sections under PSL
Small and Marginal Farmers Beneficiaries of Differential Rate of Interest (DRI) scheme (1972), NRLM,
NULM, Self-Employment Scheme for Rehabilitation of Manual Scavengers
(SRMS)
Distressed farmers indebted to non- Persons with disabilities
institutional lenders
Artisans, village and cottage industries Individual Women
SCs and STs Minority communities as notified by Government of India
SHGs Distressed persons other than farmers

Targets /Sub-targets for Priority sector Lending for Different Types of Banks
Categories Domestic commercial banks Foreign banks with Regional Rural Small Finance Banks
& foreign banks with 20 less than 20 Banks
branches and above branches
Total 40% of ANBC or Credit Same as Domestic 75% of ANBC or 75% of ANBC or
Priority Equivalent of Off-Balance commercial bank CEOBE whichever is CEOBE whichever is
Sector Sheet Exposures (CEOBE), higher higher.
whichever is higher
Agriculture 18% of ANBC or CEOBE, Not applicable Same as Domestic Same as Domestic
whichever is higher; out of commercial bank commercial bank
which a target of 10% is
prescribed for Small and
Marginal Farmers
Micro 7.5% of ANBC or CEOBE, Not applicable Same as Domestic Same as Domestic
Enterprises whichever is higher commercial bank commercial bank
Advances 12% of ANBC or CEOBE, Not applicable 15% of ANBC or Same as Domestic
to Weaker whichever is higher CEOBE, whichever is commercial bank
Sections higher
Note: Priority Sector Lending guidelines is also applicable on Primary Urban Co-operative Banks.
Positive Impact of priority sector lending on Indian economy:
• Financial Inclusion: PSL norms ensure that credit reaches under
banked segments of population e.g. SMFs, women, and weaker
sections.
• Support to Agriculture: Agricultural credit increased from 2000 to 2020
at a compound annual growth rate (CAGR) of 19.81% due to mandatory
18% lending by commercial banks & other policies.
• Promotion of MSMEs: By facilitating credit flow to MSMEs, PSL helps in
creating jobs and boosting local economies.
• Income Augmentation: A case study of Andhra Pradesh showed
that Beneficiaries reported enhanced income.
Issues with PSL
• Non-Performing Assets (NPAs): Outstanding loan in priority sector
has significant negative impact on banks.
o According to some studies, PSL was found responsible for more
NPA generation and writing-off of NPA as well.
• Increased costs: PSL increased administrative and transactional
cost of banks.
• Other issues with PSL: Low banks Profitability, increased
Government Interference etc.
38 www.visionias.in ©Vision IAS
Way-forward
• Strengthen Microfinance Institutions and Encourage Opening of “Small” Finance Banks: MFIs could significantly
increase the credit supplied to unbanked rural and semi-urban areas through their vast distribution network and
business model of “last mile connectivity.”
• Use of Technology: E.g. Mobile banking app for loan approval to farmers to Reduce Cost of Credit Delivery and
increase the reach and efficiency of PSL, especially in rural and remote areas.
• Create a robust credit infrastructure and Risk Assessment Tools: To better evaluate the creditworthiness of
borrowers and reduce the incidence of Non-Performing Assets (NPAs).

3.2. FINFLUENCERS
Why in the News?
The Securities and Exchange Board of India (SEBI) has set the ground rules for unregistered financial influencers, or
‘finfluencers,’ prohibiting regulated entities from dealing with them.
More about News
• SEBI decided to introduce a fixed price process for delisting of frequently traded shares and also introduced a
delisting framework for Investment and Holding Companies (IHC)
• The move comes amid growing concern over the potential risks associated with unregulated finfluencers who
might offer biased or misleading advice.
About Financial influencer or ‘FinFluencer’
• It is a person who gives information and advice to investors on financial topics – usually on stock market trading,
personal investments like mutual funds and insurance, primarily on various social media platforms.
• Sources of income:
o Advertisements- passive income based on number of views.
o Collaborations to promote a financial product
o Affiliate partnerships: include links in the video description for viewers to buy a product or sign up for a service.
Reasons for rise of finfluencers
• Lack of financial literacy: India has a low financial literacy rate of 27%. (National Centre for Financial Education’s
2019 survey) and Finfluencers aid in new investor education and awareness creation.
• Increased retail investment: The share of retail investors in the cash market turnover jumped from 33% in FY16 to
45 per cent in FY20 and FY21. (National Stock Exchange)
o Thus, demand for information relating to financial instruments and stock markets has soared.
• Exponential increase in number of new investors: Pandemic provided a boost, with increasing demand and supply
for financial advice.
o New client registrations hit a record 1.5 million in June 2021, more than double the 0.6 million in June 2020.
• Technological advancements: Trading was democratised as new-age broking firms built easy-to-use apps. E.g.
Zerodha, Groww.
o Affordable smartphones, cheap data plans and digital payments helped finfluencers in reaching the masses
through social media platforms.
Issues arising due to rise of Finfluencers
• Lack of regulation: Difficult to gauge the expertise and qualification of the finfluencer, fix any liability on the
finfluencer or protect an individual from the potential risks.
• Market manipulation: Finfluencers are also being paid by the companies to manipulate the stocks for personal
gains.
o E.g. Salasar Technologies stock prices manipulated by influencers, resulting in huge losses.
• High-risk investments: Finfluencers may promote high-risk investment opportunities that promise high returns
without providing appropriate risk disclosures.
• Views over reliability: The financial advice shared by finfluencers is typically geared towards generating views and
likes, rather than providing reliable, well-researched financial information.
39 www.visionias.in ©Vision IAS
 o This content-first approach compromises the quality and reliability of the advice provided.
• Social influence: Finfluencers leverage their social capital and persuasive communication skills to cultivate trust
and credibility among their followers, thereby exerting influence over their investment decisions.
• Potential for unethical practices: Finfluencers may promote certain stocks in lieu of personal gains through
market manipulation, insider trading etc.

Regulatory action taken for Finfluencers

• The SEBI (Investment Advisors) Regulations 2013 is a framework for people who give financial advice for a fee.
• SEBI Consultation Paper to restrict the association of SEBI registered intermediaries/regulated entities with
unregistered ‘finfluencers’.
• Advertising Standards Council of India (ASCI) revised its guidelines, mandating SEBI registration for
influencers.
• ASCI and YouTube in-house Rules mandate declaration of the content being paid or promotional to make
viewers better informed.
Way Forward
• Clear definitions: Of terms like Finfluencers, investment advice etc. so that they stand test of judicial – regulatory
scrutiny.
o Including coverage of all mediums that have consumer access for financial – investment communication. E.g.
TV, Print and digital media.
• Improve registration of financial advisors, make mandatory certain disclosure requirements to avoid conflict of
interest.
• Transparency and data-led communication: Like Real-time digital supervisory mechanism, having a Code of
Conduct ensuring the financial information provided is “truthful, balanced, and data-led”.
• Improved Grievance Redressal Mechanism: This will enable investors report and seek relief for wrong investment
advice themselves.
• Investor education: Equip investors with knowledge and skills needed to critically appraise digital financial
guidance.
o Broking firms, mutual funds as well as SEBI have been conducting investor awareness programmes in Tier-II and
Tier-III locations.
• Self-Regulatory Organizations (SROs): Industry bodies need to initiate self-regulation protocols to uphold their
credibility.
• Performance Validation Agency (PVA): Establishment of a PVA as a third-party entity to enhance trust and reliability
within the financial ecosystem by verifying performance reports.
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 Global examples of regulation
• Australia: Upto 5 years jail for finfluencers providing financial advice without a license.
• European Securities and Markets Authority: Defined what constitutes investment recommendations, how to
post those advice on social media, and has spelt out penalties for any breach.
• New Zealand: Defined code of behavior for finfluencers, tiered mechanism of licensing according to the
complexity of advice provided, imposes liability to have content disclaimers require to prominently display risk
warnings
• Singaporean and Chinese regulators also have Guidelines for Finfluencers.

3.3. BRIDGING GLOBAL WORKFORCE GAPS

Why in the news?
The India Employment Outlook 2030 by ORF has highlighted that about 24.3% of the incremental global workforce over
the next decade will come from India.
Global labour market scenario
• Shrinking working age population: Many high-income countries are
experiencing rapid demographic shifts characterized by declining birth
rates.
o By 2050, the working-age populations in these countries will have
shrunk by more than 92 million.
• Ageing population: Elderly populations (65 and older) will grow by over 100 million in many high-income countries.
o Working-age individuals are essential for contributing to pension and healthcare systems that support the
older generation, thus maintaining financial and social stability.
• Globalized Job Market: Increasing accessibility to digital systems, alongside increasing acceptance of teamwork
with colleagues who are not co-located, has enabled more globalized talent value chains.
• Shifting international trade: Significant churning and shifts in international trade due to geopolitical situations,
trade restrictions and friendshoring has affected changes in job markets and associated wages.
India’s demographic advantage
• Working population: India’s population exceeds 1.4 billion, nearly 65% of whom are of working age (15–64 years),
and more than 27% between the ages of 15 and 24.
o This surplus labour force presents an opportunity to bridge the gap between labour demand and supply in
advanced nations.
• Bridging Skill Gap: The ‘Global Skill Gap Study’ by National Skill Development Corporation (NSDC) showed a
growing demand for Indian talent across diverse sectors worldwide.
o Projections indicate significant demand in regions such as UAE, Saudi Arabia, Qatar, Germany, Netherlands, UK,
Sweden, Switzerland, Australia, New Zealand, Canada, USA etc.
• Dual advantage: With a relatively young population (median age of 28.4 years), India not only gets a competitive
advantage in terms of workforce but also an opportunity to unleash the consumption power of a young population.
• Previous Successes: India’s success in exporting IT and BPO services is a good example of how India has leveraged
its demographic advantage.
Impacts of labour mobility
• Global Productivity enhancement: Labour mobility can connect potential migrants with employers in need,
enhancing global equity and productivity.
• Poverty alleviation: Workers moving to richer countries can expect to increase their incomes by 6 to 15 times,
significantly alleviating poverty.
• Social welfare: The positive impacts of labour mobility extend beyond individual migrants. Remittances sent back
home by migrant workers can play a crucial role in improved healthcare, education and welfare.
o In 2022, India received over US$ 111 billion in remittances, making it the first country to surpass the US$ 100
billion mark.
• Long-term impact on India’s labour market: Mass migration of workers may have a long-term impact on India’s
skill development, and potential brain drain, adversely affecting the sectors like healthcare and construction.
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 Initiatives taken for utilization of India’s demographic advantage
• Skill Development: Ministry of Skill Development and Entrepreneurship has undertaken several programs for skill
training such as Skill India Mission, Pradhan Mantri Kaushal Vikas Yojana etc. in order to cater to the global skill
gap.
o National Education Policy 2020 provides for inclusion of vocational education in the school curriculum and
imparting skill training at an early age.
• Migration Agreements: India has signed migration and skill training agreements with various countries such as
Italy, France, Germany etc.
Challenges in labour mobility
• Covid-19 impact: The pandemic severely impacted migrant workers, particularly those in low-skilled jobs, leading
to significant job losses and debt.
• Anti-immigration policies and sentiments: Anti-immigrant sentiments and restrictive immigration policies in many
high-income countries create barriers for potential migrants.
• Complex processes: Many countries have complex immigration processes that can deter potential migrants.
o Additionally, there is often a lack of comprehensive integration programs to help migrants adapt to their new
environments and become productive members of society.
• Increasing automation: Automation and groundbreaking advancements in technology such as Artificial Intelligence
are fundamentally changing the nature of work.
Way Forward
• Understanding global labour demand: India can strategically align its labour supply with the demands of advanced
economies, ensuring mutual economic growth and integration.
• Skill Development: India must invest in skilling initiatives to equip its workforce with the necessary skills to meet
international market needs, especially in sectors where there is labour shortage in high income countries.
o Investing in Indian educational and vocational institutions can build a robust skilling ecosystem that meets
global standards.
• International agreements: Enhance bilateral and multilateral agreements to facilitate labour mobility.
o Simplifying immigration processes, providing clear information about migration opportunities, and offering
support services for migrants can make the process more accessible and efficient.
• Public awareness: Addressing negative public perceptions through public awareness campaigns and highlighting
the positive contributions of migrants can help create a more favourable environment for labour mobility.
• Reducing costs: Reducing labour mobility transaction costs and ensuring the smooth reintegration of returning
workers into the Indian labour market.
• Women empowerment: Getting more women to enter the workforce will be pivotal, as only 24% were participating
in 2022, according to ILO estimates.

3.4. INDIA’S TRADE DEFICIT

Why in the news?
According to official data from Union Ministry of Commerce and Industry, in the FY 2023-24, India recorded trade
deficit with 9 out of its top 10 trading partners.
Current Status of India’s External trade (FY 2023-24)
• Trade deficit (also known as negative trade balance) occurs when country’s value of imports are more than that
of exports.
• China, USA, UAE, Russia, and Saudi Arabia are India’s largest trading partners. (in descending order)
• India’s trade deficit with China, Russia, South Korea, and Hong Kong increased as compared to 2022-23, while it
narrowed with UAE, Saudi Arabia, Indonesia, and Iraq.
• USA, Netherlands, UK, Belgium, and Italy are top 5 trading partners with which India has trade surplus.

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Impact of higher trade deficit on Economy
• Negative
o Depletion of Forex reserves due to the need to pay for excess imports, raising concerns of depreciation of
domestic currency.
o Widening current account deficit which may adversely affect credit rating of the country and raise borrowing
costs.
o Strategic implications due to sustained trade deficit, particularly for essential products or critical sectors.
• Positive
o Access to wider range of goods, increased domestic investment if deficit is driven by imports of capital goods,
etc.
Reasons behind India’s higher trade deficit
• Reliance on imported inputs, including crude oil and pharmaceutical ingredients.
• Changing consumption patterns, including increased demand for consumer durables, luxury goods etc.
• Structural factors such as sub-optimal growth of manufacturing sector, higher logistics cost, infrastructure
bottlenecks etc.
• Domestic policies such as inverted duty structure, frequent bans on exports of commodities etc.
• Others – Sub-optimal utilization of FTAs, imposition of non-tariff barriers by developed countries etc.

3.5. AGRICULTURE EXTENSION SYSTEM

Why in the news?
Prime Minister awarded Krishi Sakhi certificates to more than 30,000 women Self-Help Groups (SHGs) in Varanasi.
Krishi Sakhis
• Krishi Sakhis are practicing farmers and trained para extension professional in agriculture at grassroot level.
o Agriculture Extension system support farmers and rural producers in applying scientific research and new
knowledge to agricultural practices through education, training and information.
• Role: To be farmers’ friend at their doorstep with all necessary information, skills and abilities to guide farmers on
various aspects of natural farming, providing capacity building and skilling in emerging areas of natural farming and
soil health management.
Krishi Sakhi Convergence Program (KSCP)
• Ministry: Ministry of Agriculture and Farmers’ Welfare (MoA&FW) and Ministry of Rural Development jointly launched
the Krishi Sakhi Convergence Programme (KSCP).
• Aim: To transform rural India through the empowerment of rural Women as Krishi Sakhi, by imparting training and
certification of Krishi Sakhis as Para-extension Workers.
o It aims to create 70,000 Krishi Sakhis on natural farming and soil health management in a phased manner.
• Part of Lakhpati Didi program: Under Lakhpati Didi program, the aim is to create 3 crore Lakhpati Didis, one
dimension of which is Krishi Sakhi.
• Implementation: It has been rolled out in 12 States in Phase – 1: Gujarat, Tanil Nadu, Uttar Pradesh, Madhya
Pradesh, Chhattisgarh, Karnataka, Maharashtra, Rajasthan, Odisha, Jharkhand, Andhra Pradesh, and Meghalaya.
o Presently, over 34,000 Krishi Sakhis out of 70,000 have been certified as Para-extension Workers.
Agricultural Extension System in India
• Currently, agriculture R&E system in India is dominated by the public sector and is led by the Indian Council of
Agriculture Research (ICAR).
o ICT led interactive technology information dissemination- VISTAAR (Videos on farm technologies to be
developed, technical vetting to videos, monitoring of state nodal agencies & stakeholders).
o Application and promotion of drone technology in agriculture across the country.
o Involvement in big data management (ICAR-CSISA Collaborative project) for obtaining feedback regarding
technology adoption and development of strategies for upscaling and out-scaling
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• National Mission on Agriculture Extension and Technology (NMAET): Introduced to enable delivery of technology
and improve current agronomic practices of farmers under four sub missions, namely:
o Sub Mission on Agricultural Extension (I),
o Sub Mission on Seed and Planting Material (SMSP),
o Sub Mission on Agricultural Mechanization (SMAM) and
o Sub Mission on Plant Protection and Plant Quarantine (SMPP).
• Krishi Vigyan Kendras (KVKs): KVKs are field research units of the ICAR and are meant to test new seed varieties,
agronomic practices, machinery etc. in field conditions across different agro-climatic zones before these are cleared
for adoption by farmers.
o Additionally, they conduct farmer outreach programmes through on-farm demonstration plots, training etc.
• Other players in public sector: State Agricultural Universities (SAU) and ICT-led extension interventions by
MoA&FW.
o ICT-led schemes include m-Kisan, Kisan Call Centre etc.
• Extension services by Private sector: Mostly by input dealers, such as those marketing seeds, fertilizers and farm
machinery.
o E.g., Companies such as IFFCO and KRIBHCO etc. undertake extension activities by conducting farmer
meetings, organizing crop seminars, arranging for soil testing facilities etc.

Challenges with India’s Agricultural Extension System

• Lack of Investment: India spends about 0.7% of its agri-GDP on agri-Research and Education (R&E) and Extension
and Training together, of which only 0.16% is allocated to Extension and Training.
• Regional Variations: There are considerable variations in presence of extension system and investments across
various states.
o Eastern states which are also a few of the poorest states with high dependency on agriculture and low
agriculture productivity are also the states with lowest spending on Agriculture R&E.
• Skewed Allocation: India’s allocation of agriculture extension and training is highly skewed towards crop husbandry
(92%) while livestock sector contributes significantly to agri. Output.
• Lacks outcome orientation: The public extension delivery system has functioned more as targeted activity based
rather than targeted outcomes-based mechanism.
Way Forward
• Market-led system: There is an urgent need to re-prioritise the existing extension system to transcend from the
traditional food security perspective to a more market led-extension system.
• Linking research and extension: Strengthen links between research and extension by increasing cross sharing
of experiences between the public, private and civil society sectors.
• Diversification: Diversify agriculture R&E portfolio away from crops and more towards animal husbandry and dairy
(high value agriculture).
• Innovation networks: Designing and implementing innovation networks through digital platforms to permit free
two-way flow of ideas and technologies. E.g., Ranking of KVKs through KVK Portal- DARPAN
o Collaboration with private partners under Public-Private-Peasant-Policy Partnership (P-P-P-P-P) mode.
• Agri-Rural Markets: Periodical rural markets can be developed into retail cum logistics hub named Primary Agri-
Rural Markets (PRAMs) which include facilities for aggregating produce, grading, price discovery and increasing the
bargaining power of farmers.
To know more about the SHGs and Lakhpati Didis, refer to Article 3.5. Self Help Groups (SHGs) of the August 2023 Monthly
Current Affairs Magazine.
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3.6. TECHNICAL TEXTILES
Why in the News?
The National Technical Textiles Mission’s Empowered Programme Committee has approved seven startup proposals
under the GREAT scheme initiative.
More about News
• Grant for Research and Entrepreneurship across Aspiring About GREAT Initiative
Innovators in Technical Textiles (GREAT) initiative emerged from • Nodal Ministry: Ministry of Textiles
the Research, Development, and Innovation component of the • Objectives: Encourages young
National Technical Textiles Mission (NTTM). innovators, scientists / technologists,
About Technical Textiles and startup ventures in the field of
• Technical textiles are defined as textile materials and products used Technical Textiles to translate their
primarily for their technical performance and functional ideas into commercial technologies
properties rather than their aesthetic or decorative /products and make India self-reliant.
characteristics. • Grant in Aid: Normally upto Rs.50
o Technical Textiles are used for various applications ranging from Lakhs for a period of 18 months.
agriculture, roads, railway tracks, sportswear, health on one end to bullet proof jacket, fireproof jackets, high
altitude combat gear and space applications on another end of spectrum.
Significance of Technical Textiles for India
• Enhances the Productivity: According to the Technical Textiles Ecosystem in India report, Use of 45ecognize in
horticulture leads to increase in farm productivity by 2-5 times.
• Convergence with government Initiatives: Like target of phasing out single use plastic items provide opportunity
for Pack-tech to supplement the efforts by enhancing production.
o India is dominating the Packtech segment with a global market share of 40-45%.
• High Growth rate: Indian technical textiles market growing at a rate of 8-10 per cent per annum.
o Indian technical textiles market is fifth largest in the world and stood at USD21.95 billion in 2021-22.
• Export Potential: India’s exports of technical textile products grew from USD2.21 billion in 2020-21 to USD2.85
billion in 2021-22, , registering a growth rate of 28.4 per cent
• Others: Ability to scale up in a short period; Highwage workforce generating capacity, etc.

Challenges of Technical Textiles growth in India

• Import dependence for machinery: Currently, majority of machinery used to manufacture technical textiles
products is not available in India.
• Lack of Adoption: Majority of intended end users of technical textile products are still unaware of the benefits of
usage of such products.
• Lack of standardization and related regulations: Several technical textile products do not have Standard
Benchmarks, resulting in availability of sub-standard cheaper products.
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 o Institutional buyers such as defence have traditionally opted for import route for procurement of several
technical textile products owing to the required standards.
• Entrepreneurial Gap: Limited entrepreneurial culture and skill training in technical textiles hinder investment
attraction and expansion of production capacities in the country.
• Inadequate R&D facilities for technical textiles: Hurdle for the industry because it stifles innovation in a field that
is characterised by fast changes in products and processes.
Government Initiatives
• National Technical Textiles Mission (NTTM): To position
the country as a global leader in Technical Textiles.
o Implementation period: FY 2020-21 to 2023-24.
o Nodal Ministry: Ministry of Textiles.
• Schemes:
o Production Linked Incentive (PLI) scheme for textiles
o PM Mega Integrated Textile Regions and Apparel Parks
(MITRA) Scheme
o Scheme for Integrated Textile Parks (SITP)
• Quality Control Regulations: Ministry of textiles has issued
Quality Control Order (QCOs) for 19 items of Geo-tech
Textiles, 12 items of Protective Textiles items, 20 items of
Agro Textiles and 06 items of Meditech Textile.
• New HSN Codes: Development of new HSN Codes dedicated to technical textiles’ products.
• Standards in technical textiles: Development of more than 500 Bureau of Indian Standards (BIS) standards for
technical textiles.
• Mandatory usage of technical textiles: Technical textiles products have been identified for mandatory usage across
several Central ministries/departments to derive the benefits of technical textiles in various fields of applications.
Way forward
• Awareness creation: Government and the industry need to build a solid infrastructure to educate people about
technical textiles.
• Skilling and education ecosystem: The government needs to work with various entrepreneurship development
institutes for initiating courses on entrepreneurship in technical textiles.
• Developing India Brands: Positioning Indian Brands as Global Champions & Preparing Industry to create customer
specific products
• Facilitation of PPP modelled ‘Centre of Excellence’: Focus on designing, market linkages, capacity building,
testing centres, research on sustainable materials and technology upgradation support in technical textiles.
• Joint ventures in technical textiles: Joint ventures would help in technology transfer and minimizing development
cost of high quality products. This arrangement can be a win-win for Indian and foreign players as it provides access
to new markets and opportunities.
• Promote Start-ups: Creation of incubation centres and encouragement of start-ups for entrepreneur development
in technical textiles.

3.7. INDIAN RAILWAYS SAFETY

Why in the News?
Recently, several incidents of train derailment/collision in last six months raised concern over railways safety.

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Causes of Railway Accidents
• Derailment: Factors could be inadequate maintenance of locomotives, rolling stock, track, signals etc.; and other
operational irregularities.
• Human Error: The error caused due to human failure, comprising both Railway Staff as well as other than Railway
Staff such as road users, passengers, miscreants etc.
o As per Indian Railways, Around 75% of derailments occur due to `railway staff failure’, and another 10 %
derailments are caused by `equipment failures’.
• Signal Failure: Defective or damaged track circuits and axle counters are leading causes of signal failures.
o For example- Faulty signal circuit modifications resulted in incorrect signaling, leading to the Balasore train
collision in 2023.
• Fire accidents in coaches: Factors like inflammable material carried by passengers, Short circuit, Negligence by
pantry car staff, lease contractor, etc.
• Human Resources: Vacancy of around 20,000 in safety-critical categories workforce of Indian railways.
o Safety-critical categories include loco crew, train manager, station master etc.
Steps taken for Railway Safety
• KAVACH System: KAVACH an Indigenous Automatic Train Protection (ATP) system which has Cab Signalling
features-useful for high speeds as well as foggy weather.
o In technical terms it is known as Train Collision Avoidance System (TCAS) or Automatic Train Protection
System (ATP) system.
o As of February 2024, Kavach has so far been deployed on 1465 Route km and 139 locomotives (including Electric
Multiple Unit rakes) on South Central Railway.
Working Mechanism of KAVACH system
• KAVACH uses a network of devices mounted on two trains
moving towards each other to avoid a collision.
• The devices work with the help of Radio Frequency
Identification (RFID) tags and Global positioning systems
(GPS).
• This system avoids the risk of collision by
precisely assessing the course of two trains at “collision risk”
and automatically initiating the braking system.

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• Rashtriya Rail Sanraksha Kosh (RRSK): Launched in 2017-18, RRSK is a Rs. 1 lakh crore five-year fund dedicated to
upgrading critical railway safety infrastructure.
• Infrastructure Up gradation: Steps such as Electrical/Electronic Interlocking Systems with centralized operation
of points and signals have been provided at stations; interlocking of Level Crossing (LC) Gates, etc.
• Use of New Technology: Such as GPS-based Fog Safety Devices alert locomotive pilots to upcoming signals and
crossings in fog-prone areas, improving safety during low visibility.
• Eliminated Unmanned level crossing: All unmanned level crossings (UMLCs) on Broad Gauge (BG) route have been
eliminated by January 2019.
• Safety Information Management System (SIMS): In order to put in place a faster and efficient system for accident
reporting, analysis and sharing of information between Zonal Railways (ZRs) and Railway Board (RB), a web based
application SIMS was developed (2016) by the Safety Directorate of RB.
• Use of fire retardant materials: The Indian Railways have adopted fire retardant interior furnishing including, wall
panelling, flooring, roof panelling etc. to minimize the risk of fire accidents.
Way Forward
• Railway Safety Authority: As recommended by Kakodkar Committee, need to create a statutory Railway Safety
Authority with enough powers to have a safety oversight on the operational mode of Railways.
o Currently, three vital functions (rule-making, operations and the regulation) are all vested in the Railway Board.
• Detailed Outcome Framework: CAG’s 2021 report on ‘Derailment in Indian Railways’ recommends creating a
‘Detailed Outcome Framework’ for safety works funded by RRSK.
o This framework would assess each safety initiative’s results, ensuring RRSK funds meet their intended objectives
and improve railway safety effectively.
• Developing AI-enabled applications: AI can analyze extensive digital data from stations and trains, flagging critical
irregularities and promptly alerting top railway management for enhanced safety monitoring.
• Track Safety Tolerances: As recommended by the Khanna Committee, efforts will be made by Research Design &
Standards Organisation ( RDSO) to draw out safety tolerances for different speeds and categories of track, on the
basis of practices followed in various countries and after studying the whole gamut of rail-wheel interaction.
• Implementing best practices: Mumbai suburban’s long-standing Automatic Train Protection Systems serve as
successful models, which can be replicated nationwide for train safety.
Global Best Practices
• Europe: European Train Control System (ETCS) is a signalling and train control system that is being
implemented across Europe to improve the safety and efficiency of railway transport.
• United Kingdom: Train Protection and Warning System aims to enhance safety by preventing trains from
passing danger signals and controlling speed in critical areas.
• Japan: The Automatic Train Control (ATC) system is used to automatically control train speeds in accordance
with those speed signals.

3.8. OFFSHORE MINERALS IN INDIA

Why in the news?
In exercise of powers under Offshore Areas Mineral (Development and Regulation) Act 2002, the Central Government
framed Offshore Areas (Existence of Mineral Resources) Rules, 2024.
About Offshore Minerals in India
• Offshore Mining: It is the process of retrieving mineral deposits from the deep seabed, at a depth of more than
200 metres.
• Extent: India’s Exclusive Economic Zone (EEZ) of over two million square kilometers holds significant recoverable
offshore mineral resources.
• Mineral Deposits: India’s offshore mineral reserves include gold, diamond, copper, nickel, cobalt, copper,
manganese, and rare earth elements essential for development.
• Reserves: Geological Survey of India has delineated the resources of the following minerals in the offshore areas:
o Lime mud within the EEZ off Gujarat and Maharashtra coasts.

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 o Construction grade sand off Kerala coast.
o Heavy mineral placers in the inner-shelf and mid-shelf off Odisha, Andhra Pradesh, Kerala, Tamil Nadu and
Maharashtra.
o Phosphorite in the Eastern and Western continental margins.
o Polymetallic Ferromanganese (Fe-Mn) nodules and crusts in Andaman Sea and Lakshadweep Sea.
Offshore Areas (Existence of Mineral Resources) Rules, 2024
• Applicability: These rules apply to all minerals except mineral oils, hydrocarbons and minerals specified in Part
B of First Schedule to the Mines and Minerals (Development and Regulation) Act 1957.
• Definitions: Rules use the modified version of United Nations Framework Classification (UNFC) and Committee
for Mineral Reserves International Reporting Standards (CRIRSCO) Template for following:
o Exploration Stages: Exploration for any mineral deposit involves four stages:
✓ Reconnaissance survey (G4)
✓ Preliminary exploration (G3)
✓ General exploration (G2)
✓ Detailed exploration (G1)
o Feasibility Studies: Stages of feasibility study include: Geological study (F3), Pre-feasibility study (F2) and
Feasibility study (F1).
• Exploration Standards: Rules mandate rigorous exploration standards to ensure accurate assessment and
sustainable development of offshore mineral resources.
o A minimum of General Exploration (G2) to establish indicated mineral resource is required to grant mining
leases.
o Completion of at least Reconnaissance Survey (G4) to estimate Reconnaissance Mineral Resource or mineral
potentiality of mineral block is necessary for obtaining composite licenses.
• Geological Study: On completion of exploration operations, geological study report shall be prepared by the
licensee to establish probable mineral reserve.
• Specific Exploration Norms: Rules set specific exploration norms for a variety of deposits and minerals, including
construction-grade silica sand, calcareous mud, phosphatic sediments, deep sea minerals, rare earth element (REE)
minerals, hydrothermal minerals, and nodules.
To know more about Offshore Minerals, kindly refer to Article 3.14. Offshore Areas Mineral (Development and
Regulation) Amendment Act, 2023 in August 2023 edition of VisionIAS Current Affairs Magazine.

3.9. NEWS IN SHORTS

3.9.1. FOREIGN DIRECT INVESTMENT o Top 5 sectors receiving highest FDI equity
inflow during 2000-2024 are Services Sector,
(FDI)
Computer Software & Hardware, Trading,
As per data released by Department for Promotion of Telecommunications, Automobile Industry.
Industry and Internal Trade (DPIIT), FDI inflows in 2023-
About FDI
24 contracted by 3.49% to $44.42 billion as compared
with 2022-23. • It is an investment made by a company or an
individual in one country into business interests
Other Key Highlights
located in another country.
• Maharashtra received highest FDI followed by • DPIIT is nodal Department for formulation of FDI
Gujarat and Karnataka in FY 2023-24. policy in India.
• Singapore was the top source of foreign inflows • FDI is permitted through Automatic route
followed by Mauritius and USA in FY 2023-24. (Government approval not required) or Government
o Top 5 countries for FDI equity inflows into route (approval required).
India during 2000-24 are Mauritius followed by • Foreign Currency Convertible Bonds, Foreign
Singapore, USA, Netherland, Japan. Institutional Investment with certain conditions and
• Computer software & Hardware, followed by Service Global Depository Receipts are included in FDI.
sector and Construction Activities received highest
FDI in FY 2023-24.

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• FDI is prohibited in Lottery Business, Gambling and speculative grade, with the latter projected to have
Betting, Chit funds, Nidhi company, Trading in a higher likelihood of default on borrowings.
Transferable Development Rights etc. o The ratings vary from AAA (highest rating) to D
(lowest rating) and the threshold of Investment
Significance of FDI
grade is considered to be BBB- for S&P and
• Stimulates economic growth, enables Fitch and Baa3 for Moody’s.
development in backward areas, ensures • Significance: When favorable, these ratings can
exchange rate stability, etc. facilitate countries to access global capital markets
Concerns regarding FDI in India and foreign investment.
• Most FDI inflow is concentrated in few states
To know more about Credit Rating Agencies, kindly
like Maharashtra & Karnataka, widening existing
refer to Article 3.1. Credit Rating Agencies in August
inequalities.
2023 edition of VisionIAS Current Affairs Magazine.
• FDI may lead to unfair competition and
ultimately affect domestic companies. 3.9.3. GLOBAL ECONOMIC PROSPECTS
REPORT
World Bank released ‘Global Economic Prospects
Report’
• Report called for a significant acceleration in
public investments by Emerging Markets and
Developing Economies (EMDEs) to meet their
development goals.
Key highlights
• Investment Level:
○ Public investment averages about 25% of total
investment in the median EMDE.
○ Public investment in these economies has
experienced a historic slowdown in the past
decade
• Benefits
3.9.2. INDIA’S OUTLOOK TO POSITIVE ○ Economic growth: Increasing public
investment by 1% of GDP can boost GDP by
FROM STABLE
over 1.5% and raise private investment by
S&P Global Ratings revised its outlook on India to 2.2% in the medium term.
positive from stable and affirmed its ‘BBB-‘ long-term ✓ However, public investment may also
and ‘A-3’ short-term unsolicited foreign and local crowd out private investment, especially
currency sovereign credit ratings. when fiscal space is limited and additional
fiscal stimulus raises sovereign risk and
Sovereign Credit Ratings
borrowing costs for the private sector
• Definition: A sovereign credit rating is a ○ Sustainability of growth: Public investment
measurement of a government’s ability to repay can be critical in delivering public goods or
its debt. services that may not be privately profitable,
o Credit ratings map the probability of default such as public health care and education.
and therefore reflect the willingness and ability
Recommendations (“three Es” package of policy
of borrower to meet its obligations.
priorities) to harness the benefits of public investment
• Parameters: Typically, rating agencies use various
parameters to rate a sovereign including growth • Expansion of fiscal space: Improve tax collection
rate, inflation, government debt, short-term external efficiency, enhance fiscal frameworks, and curtail
debt as a percentage of GDP, and political stability. unproductive spending.
• Ratings: Sovereign credit ratings broadly rate • Efficiency of public investment: Tackling
countries as either investment grade or corruption, and poor governance, facilitating public-
private partnerships, etc.

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• Enhanced global support: Coordinated financial Roadmap to finance sustainable development:
support and effective technical assistance are
• Inclusive International Financial Architecture
imperative for structural reforms.
with increased participation of developing countries
in its governance.
About public investment
• Provide greater liquidity in times of crisis
• Public investment usually refers to gross fixed
expanding contingency finance through IMF
capital formation (total value of acquisitions, less
instruments.
disposals, of fixed assets) by the State, whether
• Scaling up affordable long-term financing through
through central or local governments or publicly
transformation and expansion of Multilateral
owned industries or corporations.
Development Banks.
• It encompasses physical or tangible investment
in infrastructure (such as transport,
telecommunications, and buildings), but in a
broader sense, it can include human or intangible
investment in education, skills, and knowledge.

3.9.4. UNCTAD’S REPORT ON GROWING

PUBLIC DEBT
‘A World of Debt Report 2024: A growing burden to
global prosperity’ released by UN Trade and
Development (UNCTAD)
Report highlights alarming surge in global public debt
and proposes a plan to revamp global financial system
to tackle current debt crisis.
• Public debt refers to general government
domestic and external debt.
Key highlights of Report
• Debt surge: In 2023, global public debt reached
historic peak of $97 trillion.
• Drivers: Cascading crises and sluggish and uneven
performance of global economy.
• Regional Disparity: Public debt in developing
countries (accounting for 30% of global total) is 3.9.5. WORLD EMPLOYMENT AND SOCIAL
rising at twice the rate of developed countries. OUTLOOK: MAY 2024 UPDATE
o In 2023, India’s public debt reached US$ 2.9
trillion, accounting for 82.7% as a share of The report is published by the International Labour
GDP. Organisation.

Implications of high public debt: Key highlights

• High fiscal burden: More than half of developing • World unemployment to fall slightly in 2024.
countries allocate at least 8% of government • 183 million people are unemployed (being available
revenues to interest payments. at short notice and actively looking for work).
• Decreased developmental spending: 3.3 billion • 45.6 % of women (aged 15 and above) are
individuals reside in nations where interest employed, compared to 69.2 % of men, a gap of
payments exceed spending on education and health 23.6%
combined. ○ Reason for such gap: family responsibilities
• Climate inaction: Interest outweighs climate (marriage and parenthood).
investments in emerging and developing countries. ○ Also, women receive lower labour income than
men – especially in the developing world.
• Informal workers have grown from 1.7 billion in
2005 to 2.0 billion in 2024.
51 www.visionias.in ©Vision IAS
3.9.6. PRESTON CURVE connects, the operator only needs to make
one connection to Nexus.
It was first proposed by American sociologist Samuel • It aims to achieve G20 targets of enabling cheaper,
H. Preston in 1975. faster, more transparent and accessible cross-
• It highlights that an increase in per capita income border payments.
of a country does not cause much of a rise in the Benefits of Project Nexus:
life expectancy of its population beyond a point.
o When a poor country begins to grow, its per
• Simplifies cross-border payments, reducing
capita income rises and causes increase in life complexity, cost, and transaction time.
expectancy initially due to nutrition, sanitation • It offers complementary low-cost and scalable rail
and access better healthcare. for all payment service providers.
o However, it begins to flatten out after a certain • It bridges gaps in interoperability by fostering
point. standardisation and harmonisation across diverse
systems.

3.9.7. RESERVE BANK OF INDIA (RBI)

JOINS PROJECT NEXUS
Nexus is a multilateral international initiative to enable
instant cross-border retail payments by interlinking
domestic Instant Payments Systems (IPS).
• An IPS is an electronic payments system which
facilitates inter-bank fund transfer and sends
confirmation of payment to the receiver and
originator within a minute or less. E.g. Unified
Payments Interface (UPI). 3.9.8. RBI LAUNCHES VARIOUS
About Project Nexus
INITIATIVES

• Conceptualized by the Innovation Hub of the Bank Reserve Bank of India (RBI) has launched three initiatives
for International Settlements (BIS). to enhance public access to the central bank and
o BIS was established in 1930 with its head office facilitate regulatory approvals.
in Basel, Switzerland and is owned by 63
central banks, including RBI.
• It will connect IPS of four ASEAN countries
(Malaysia, Philippines, Singapore, and Thailand) and
India and is expected to go live by 2026.
• Nexus is designed to standardize the way domestic
IPS connects to one another.
o Rather than an IPS operator building custom
connections for every new country to which it

52 www.visionias.in ©Vision IAS

 3.9.10. SECURED OVERNIGHT FINANCING
RATE
SBI raised 100 million dollar through its London branch
by selling 3-year senior unsecured floating-rate bonds
above the Secured Overnight Financing Rate (SOFR).
About SOFR
• It is the overnight interest rate for US dollar-
denominated loans and derivatives.
• It sets the rate at which banks can borrow cash from
individuals or other banks overnight.
o It is collateralised by the US treasury
securities market.
• It is the US replacement for London Interbank
Offered Rate (LIBOR).
• LIBOR provided loan issuers with a benchmark for
setting interest rates on different financial
products

3.9.11. PUMP AND DUMP SCHEME

Recently Sebi imposed a fine on some individuals for
allegedly operating a ‘pump and dump’ scheme.
• It was operated by recommendations shared
through Telegram channels, resulting in public
shareholders purchasing stock at inflated prices.
About Pump and Dump Scheme:
• A manipulation activity involving artificially
inflating a stock’s price through false and
misleading information/ recommendations.
3.9.9. VARIABLE REPO RATE (VRR) o It is done only to sell stock at an inflated price.
The recent VRR auction by Reserve Bank of India (RBI) • Prevalent in micro-cap and small-cap sectors due
witnessed a good response from banks. to limited public information and lower trading
volumes.
About VRR • Impact: Undermine confidence in financial
• When RBI desires to infuse liquidity in the markets, and substantial losses to investors.
economy but Banks are not eager to borrow from • Regulation: Under SEBI’s guidelines, it is
RBI at Repo Rates as interest rates in economy may completely banned.
already be lower, in that case RBI allows Banks to
borrow at VRR decided by market generally lower 3.9.12. SEBI AMENDS INFRASTRUCTURE
than Repo Rate (though not less than Reverse Repo INVESTMENT TRUSTS (INVITS)
Rate) for duration more than One Day. REGULATIONS 2024
○ Repo Rate is the rate at which Banks borrow The new norms allow for the issuance of subordinate
money from RBI which is fixed by RBI. units by privately placed InvITs only to the sponsors on
• The borrowing duration is more than One Day and acquisition of an infrastructure project.
usually up to 14 days.
• The move aims to bridge the difference in
• It is a tool to inject short-term liquidity into the
valuation done by the sponsor (as a seller) for an
banking system.
asset and that by the InvIT (as a buyer).
• Similarly Variable Rate Reverse Repo (VRRR) is
conducted to absorb the excess liquidity from the About InvITs
system.
• A type of investment vehicle similar to a mutual
fund that allows investors to invest in
53 www.visionias.in ©Vision IAS
 infrastructure projects like toll roads, power lines futures, options, and swaps.
and pipelines etc. • Derivatives Market
• The sponsors (infra companies) set up the InvITs o In India, the derivative market is regulated by
through SEBI and are recognized as borrowers the Securities and Exchange Board of India.
under the SARFAESI act 2002. o India has two types of derivative markets:
o Parties to an InvIT include its trustee, sponsor, ✓ Exchanges-traded: Standardised contracts
investment manager and project manager. are traded on an exchange.
• InviTS earn income through tolls, rents, interest or ✓ Over-the-Counter (OTC): It is
dividends from their investments, which in turn is decentralised. Contracts are negotiated
distributed to the investors as their taxable directly between two parties.
earnings.
Significance of InvITs 3.9.15. FRONT RUNNING
• Low ticket size: The investor can invest small Recently, a Mutual Fund was alleged to have indulged in
amounts Front- Running.
• Liquidity: Listed on stock exchanges and can be exit About Front Running
at any point
• Transparency: investors are informed about where • Front Running refers to usage of non-public
their money is invested information to directly or indirectly buy or sell
• Low Risk: as the trusts are regulated by SEBI securities, or enters into options or futures
contracts, in advance of a substantial order.
Challenges of investing in InvITs include operational (Securities and Exchange Board of India (SEBI))
risk, refinancing risk, return risk etc. • It is illegal in India.
• It undermines confidence in the financial markets
3.9.13. CLEARING CORPORATIONS
and creates an uneven playing field for other
SEBI has formed a committee under Usha Thorat to investors.
review ownership and economic structure of clearing • In 2022, Securities and Exchange Board of India
corporations. (Mutual Funds) Regulations, 1996 was amended to
Clearing Corporation (CC) incorporate provisions to counter front running.
• It is an entity which handles the activity of clearing 3.9.16. STATE OF WORLD FISHERIES AND
and settlement of trades in securities or other
AQUACULTURE 2024
instruments that are traded on stock exchanges.
• CCs along with stock exchanges and depositories It is prepared and released by the Food and Agriculture
constitute Market Infrastructure Institutions. Organization (FAO).
• CCs are significant as central risk management
• The report’s special focus is on “Blue
institutions and as a first line regulator.
Transformation in Action”.
• Securities Contracts (Regulation) (Stock
Exchanges and Clearing Corporations (SECC)) Key findings of the report
Regulations, 2018 lays down norms for ownership
• World fisheries and aquaculture production hit a
and governance framework of CCs.
new high in 2022 at 223.2 million tonnes.
3.9.14. DERIVATIVES TRADING o With 8 percent of total production, India ranked
second in aquatic animals production.
National Stock Exchange (NSE) chief cautioned retail • For the First time, aquaculture surpassed capture
investors against derivatives trading. fisheries as the main producer of aquatic animals.
About Derivatives • With 1.9 million tonnes, India ranked first in Inland
fisheries production.
• Definition: Derivatives are financial contracts that
draw their value from an underlying asset. Role of Aquatic Foods in Climate Action
o The underlying asset can be a commodity, • The 2023 United Nations Framework Convention
security, currency, or index. on Climate Change (UNFCCC) Ocean Dialogue
• Purpose: Can be used for hedging purposes or recognized the potential of aquatic foods for
speculation. providing critical climate solutions.
• Types: Common types of derivatives include

54 www.visionias.in ©Vision IAS

• FAO integrates traditional knowledge for adapting ○ Horticulture: Increased from 96.6 MMT in 1991-
to climate change in specific areas, like local 92 to 355.25 MMT in 2022-23.
species suited for evolving conditions. • India’s Storage capacity: Expanded from 108.8
MMT in 2010 to 219.4 MMT in 2021
Blue Transformation in Action
• PHL: Globally, around 30% of food produced never
• FAO introduced its “Blue Transformation” vision in reaches consumers (FAO, 2021).
2021, It aims to leverage aquatic food systems, to ○ India faces higher PHL in cereals, pulses, and
enhance food security, improve nutrition, etc oilseeds than global levels.
• Objectives: ○ Annual loss of US $18.5 billion from 2020 to
o Sustainable aquaculture expansion to meet 2022, despite some reduction in PHL from 2012
global demand, with equitable benefit to 2022.
distribution.
Key factors behind PHL in India
o Effective fisheries management for healthy
stocks and fair livelihoods. • On-Farm Operations: Low farmer education and
o Upgraded aquatic value chains ensuring skill levels, weather conditions, and the use of
social, economic, and environmental defective machinery.
sustainability. • Marketing Channels: En-route leakages from open
lorry transport, poor quality packaging, use of iron
Fisheries and aquaculture in the context of Global hooks, improper storage practices, etc.
Biodiversity Agreements • Policy Issues: Jute Packing Material Act (1987)
• Convention on Biological Diversity (CBD) mandates using jute bags, which are susceptible to
adopted the Kunming-Montreal Global pests, insects, and contamination.
Biodiversity Framework (GBF) in 2022 to help
Way forward
countries develop national plans for protecting
biodiversity and living in harmony with nature. • Mechanization in agriculture,
o Aquatic food systems are directly related to • reforming the Public Distribution System (PDS)
many GBF targets such as management of and boosting direct cash transfer, etc.
aquatic spaces; reduction of species
extinction risk; etc.
• In 2023, UN members agreed to a legally binding
treaty for conserving and sustainably using
marine biological diversity of areas beyond
national jurisdiction.

To know more about the Inland Fisheries sector, refer to

Article 3.8. Inland Fisheries of the December 2023
Monthly Current Affairs Magazine.

3.9.17. ICRIER RELEASES POLICY BRIEF

ON POST-HARVEST LOSSES (PHL) IN
INDIA
The policy brief highlights the triple win of reducing
PHL:
• benefiting farmers (enhanced income),
• enhancing food security, and
• ensuring sustainability (less resource exploitation)
in agri-food systems.
Key highlights
• Production in India
○ Food Grain: Increased from 74.23 million metric
tonnes (MMT) in 1966-67 to 330.5 MMT in 2022-
23.
55 www.visionias.in ©Vision IAS
3.9.18. CONTAINER PORT PERFORMANCE • The Index is a comparable assessment of
INDEX (CPPI) performance based on vessel time in port.
• It helps to identify opportunities to improve a
Nine of Indian ports have found their position among terminal or a port that will ultimately benefit all
top 100 global ports in CPPI in 2023. public and private stakeholders.
About CPPI (2023) • Top-ranked container port in the CPPI 2023 is
• It is developed by the World Bank and S&P Global Yangshan Port (China).
Market Intelligence.

56 www.visionias.in ©Vision IAS

 3. ECONOMY
3.1 India’s Required Actions To Become ‘Developed’ By 2047
Context:
❖ Relevancy for Prelims: World Poverty
This article prospects the challenges faced by India to become
Clock and Gini Coefficient.
a developed country by 2047 and suggests few actions to
achieve the desired goal. ❖ Relevancy for Mains: India to become
‘Developed’ by 2047- Arising Concerns,
Arising Concerns:
and Actions that need to be taken.
❖ To Attain the Level: International financial organisations
currently classify countries with per capita income of $13,845 and above as developed countries.
➢ India’s per capita income as of now is $2,500 (IMF, April 2024).
➢ Based on assumptions of the future exchange rate of rupee and domestic inflation, India needs to have
an average annual real rate of growth of 6 to 7% to achieve this level of per capita income.
❖ Rise in Government Capex: The recent increase in the real gross fixed capital formation (GFCF) rate has
been largely due to an increase in government capital expenditures, especially of the central government.
➢ This growth in government capex cannot be sustained because it has been accompanied by a high
fiscal deficit of the Centre, which was in the range of 6.7%, 6.4% and 5.9% in the three post-covid years.
Actions That Need To Be Taken:
❖ Investment Attractiveness: There is a need for a pickup in private investment by 1 to 2% points of GDP. To
achieve this, India needs to create an environment for private investment, both corporate and non-corporate,
to increase.
❖ Redesigning of Industrial Policy: Experts are suggesting redesigning of industrial policy in light of ongoing
global developments.
➢ After World War II, many East Asian countries adopted an export-led growth strategy and made
rapid progress.
➢ Subsequently, China adopted a similar policy and its share increased in world exports from 0.6% in
1970 to 11.9% 2022.
✓ In contrast, although India’s share in world exports was also 0.6% in 1970, it only increased to
2.5% by 2022.
❖ Focus on Exports: Exports are a test of efficiency and India has shown its excellence in the export of services
and now there is a need to prove it in terms of merchandise too because external demand is one of the drivers
of growth.
❖ Time for Multi-dimensional Strategy: India needs to emphasize exports, services, manufacturing,
agriculture etc. It would be useful to identify “sunrise” industries.
➢ Example: The food processing industry may be given high priority as it is labour-intensive, helps
agriculture and has export demand.
❖ Need to Follow Efficient Import Substitution: Rather than “import substitution” in all cases, India needs to
focus on efficient import substitution. Atmanirbhar should not degenerate into inefficient “import
substitution”.

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 ➢ The Russia-Ukraine war threw up an important issue. Due to supply disruptions caused by the war,
many countries started thinking about self-sufficiency for “critical imports”. India also thought about
manufacturing chips.
❖ Creation of Adequate Jobs: The emergence of Artificial Intelligence (AI), Gen AI and machine learning is
causing both alarm and excitement. India needs to absorb this new technology, which will require further
skill development.
➢ At the same time, it is required to develop a mix of sectors that will ensure jobs increase along with
growth.
❖ Focus on Equity: The benefits of growth must be distributed equitably. Equity also requires an emphasis
on health and education as part of public expenditure in terms both of quantum and quality.
➢ It is desirable to achieve growth and reduce poverty and inequality. Without growth, equity will be a
distant dream and without equity, growth cannot be sustained.
✓ Achievement by India: There is evidence that the poverty ratio has been coming down. According
to the World Poverty Clock, extreme poverty in India measured by a poverty line of $2.15 (2017
PPP) has fallen below the threshold of 3%.
▪ In fact, in the latest update, it has fallen to 2% of the population, implying that extreme
poverty in India has been eliminated.
✓ A recent consumption expenditure survey for 2022-23 confirms that the computed Gini
coefficient, which measures inequality, has also marginally reduced.
Conclusion: To become a developed country by 2047, India’s development strategy should be
multidimensional. Growth may be stimulated by raising investment rates, emphasising manufacturing,
services and exports, absorbing new technologies and promoting a mix of sectors that are employment-
friendly.

3.2 The Dominance of the US Dollar

Context: The US dollar is central to global trade and ❖ Relevancy for Prelims: Bretton woods
finance. Many countries hold dollar reserves, and much System, Exchange Rate system.
trade is invoiced in dollars, even when the US is not ❖ Relevancy for Mains: Reasons For De-
involved. Dollarization, Impact of De-Dollarization,
What is Dollarization? Petrodollar System, Benefits and Challenges
❖ Dollarization occurs when more international trade associated with De-Dollarization.
is conducted in US dollars, even when the United
States is not directly involved in the transactions.
❖ Example of Dollarization: If India and Japan agree to trade in US dollars, it is considered dollarization,
even though the United States is not a party to the trade.
What is De- dollarization?
❖ De-dollarization is the process of reducing the use of the US dollar in international trade and finance, and
increasing the use of other currencies or commodities instead.
Reasons for De- dollarization:
❖ Dependency on US Dollar: Countries may pursue de- dollarization to reduce their dependency on the US
dollar and the economic influence of the United States.

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❖ Example of De- dollarization: If India and Russia decide to trade in Indian rupees and Russian rubles
instead of US dollars, it would be considered de-dollarization.
Consequences of Dollarization in International Trade:
❖ Increased Demand for Dollars: Dollarization increases the demand for US dollars, leading to an increase
in its value relative to other currencies.
❖ Need for Dollar Reserves: Countries need to hold significant dollar reserves + facilitate international
transactions conducted in dollars.
Consequences of De-dollarization in International Trade:
❖ Reduced Demand for Dollars: De-dollarization reduces the demand for US dollars, potentially putting
downward pressure on its value relative to other currencies.
❖ Diversification of Reserves: Countries may hold other currencies or commodities, such as gold, in their
reserves instead of US dollars.
Benefits of Dollar Dominance for the United States:
❖ Lower Borrowing Costs: The high demand for US dollars allows the United States to borrow at lower
interest rates, reducing the cost of financing its debt.
❖ Seigniorage: The United States profits from printing dollars, as the cost of producing them is lower than
their face value, a benefit known as seigniorage.
❖ Financial Leverage: The dominance of the dollar gives the United States financial leverage, as it can pressure
other countries by restricting dollar transactions.
❖ Trade Advantage: American companies benefit from international trade conducted in dollars, as they do
not incur currency exchange costs.
The US Elections and De-dollarization:
❖ Impact on Other Countries: The upcoming US elections in November are already impacting other countries,
including India, which is part of the BRICS group of nations.
❖ Trump's Stance on De-dollarization: Donald Trump, a potential presidential candidate, has announced
plans to take action against countries that pursue de-dollarization policies.
❖ BRICS Push for De-dollarization: The biggest threat of de-dollarization is from the BRICS countries.
History of Dollar Dominance:
❖ Paper Currency in China: Paper currency invented in 7th century CE Tang Dynasty.
❖ Spread to Europe: Concept spread via Marco Polo in 13th century.
❖ Rise of British Pound: Pound Sterling dominant in 17-18th centuries.
❖ Pound Sterling Dominance: Default currency for global trade in the 9th century.
❖ US Superpower: After WWI, the US emerged as a new economic and military superpower.
❖ Gold Reserves: The US gained substantial gold reserves by supplying allied nations in both world wars
❖ Bretton Woods: In 1944, 44 countries pegged their currencies to the US dollar, backed by gold.
❖ Petrodollar: In 1945, the US made a deal with Saudi Arabia to sell oil only in US dollars.
End of Gold Standard & Petrodollar:
❖ Nixon Shock: In 1971, Nixon ended the dollar's gold link, terminating the gold standard.
❖ Petrodollar System: In 1973, the US made a deal with Saudi Arabia to sell oil only in dollars, creating the
petrodollar.

90
❖ Increased Dollar Demand: The petrodollar system increased global demand for US dollars to purchase oil.
❖ Financing US Deficit: Saudi Arabia invests excess dollars in US Treasuries.
Dollar Dominance Today:
❖ Central Bank Reserves: Over 60% of central bank reserves worldwide are held in US dollars.
❖ Global Circulation: $2 trillion in US dollars circulates in the global market, with more than half used outside
the United States.
❖ International Trade: Over 80% of world trade is completed in US dollars.
❖ US Superpower Status: The United States has become a superpower due to the weaponization of the US
dollar.
Consequences of Dollar Weaponization:
❖ Military Interventions: The United States has intervened in the Middle East to protect dollar supremacy
(e.g., Iraq, Libya).
❖ Economic Sanctions: Countries like Iran and North Korea are isolated due to US sanctions that prevent
companies from dealing with them.
❖ Realization of Dollar Monopoly Risks: When the US sanctioned Russia and removed it from the SWIFT
payment system, other countries realized the risks of Dollar’s monopoly.
The Push for De-dollarization:
❖ Concerns about Dollar Credibility: Countries are moving towards de-dollarization due to concerns about
the credibility of the US dollar and the sustainability of the US economy
❖ Unsustainable US Debt: The US debt has reached $31 trillion, and the budget deficit is over 16%, which is
considered unsustainable by many experts.
❖ Risk of Global Collapse: If the US economy collapses, it could lead to global economic collapse due to the
dollar's dominance in international trade and finance.
De-dollarization Efforts by China and Russia:
❖ Bilateral Trade Outside the Dollar: Over 90% of trade between China and Russia is now conducted
outside the US dollar.
❖ Russia's Ruble Mandate: Russia has imposed the use of rubles for selling oil and gas to Europe, reducing
the demand for dollars.
❖ China's Belt and Road Initiative: China is converting $385 billion of debt into yuan through its Belt and
Road Initiative (BRI) project, promoting the use of the currency.
❖ Saudi Arabia's Yuan Oil Sales: Saudi Arabia's decision to sell oil to China in yuan is a significant blow to
the petrodollar system.

3.3 Recycle Nutrients to Mitigate Fertiliser Crisis

Context: Many elements crucial for life on Earth are ❖ Relevancy for Prelims: Nutrient Recycling,
depleting rapidly due to disrupted biogeochemical Macro and Micro Nutrients, etc.
cycles caused by human activities ❖ Relevancy for Mains: Nutrient Recycle to Cure
Recycle Nutrients to Mitigate Fertiliser Crisis: Fertiliser Crisis in India, Significance of Nutrient
❖ Impact of Human Activity: If you think carbon Recycle
is bad enough, other essential elements that
sustain life on Earth are also crossing the planetary boundaries of sustainability, as their natural
'biogeochemical' cycles are broken by human activities.

91
❖ Traditional Farming Practices: For about ten thousand years before the 'green' revolution, farmers grew
crops without fertilizers by combining legume-based crop rotations and livestock farming.
➢ Legume crops and some soil microbes fixed atmospheric nitrogen, while livestock manure and urine
enriched the soil with nutrients such as compounds of nitrogen (N), phosphorus (P), potassium (K),
sulfur (S), carbon (C) and even micronutrients.
❖ Modern Farming: But modern cropping in India shifted away from legume-based crop rotations and relies
heavily on NPK fertilisers rather than manures, costing the Indian govt over Rs. 2 lakh crores per year in
subsidy.
❖ Impact of Livestock Farming: As livestock farming moved away from crops and intensified as peri-urban
dairies, manure and urine mostly found their way to our ground and surface water bodies.
➢ The release of untreated dairy or domestic and other wastes has reduced the Sahibi River in New Delhi
to a wastewater drain (Nazafgarh drain), which along with the Shahdara drain heavily pollutes the
river Yamuna, apart from releasing noxious gases into the air.
❖ Tackling Nutrient Pollution: The nutrient cycles have thus become cascades causing nutrient pollution, but
the good news is that some pollutants are nutrients in the wrong place and can be brought back.
❖ Utilization of Fertilizers: Unfortunately, less than 30 percent of the fertiliser nutrients supplied as
fertilizers are harvested as crop yield and the remaining add to the growing pollution.
❖ Environmental Impacts of Nutrients:
➢ In water bodies, the accumulation of these nutrients supports unwanted algal growth causing
eutrophication and death of fish and other useful aquatic and marine species.
➢ This destroys the ecosystem and the livelihoods of people who depend on fishing, tourism and other
ecosystem services.
➢ In our coastal areas, algal eutrophication progressively causes green tides, brown and eventually red
tides and even the accumulation of poisonous species.
➢ The reversal of these trends can rebuild water economies and support the livelihoods of millions.
❖ Air Pollution: Nitrogenous compounds from fertilisers, manures, urine and sewage also cause air
pollution as ammonia or nitrous oxide.
➢ Ammonia contributes heavily to particulate matter pollution (PM2.5 and PM5) by combining with
NOx gases (nitrogen dioxide and nitric oxide) emitted from fuel or residue burning for power,
transport industry, or waste disposal.
➢ Over a million deaths per year are attributed to PM2.5 alone in India, while some attribute up to 7 per
cent of all deaths to PM2.5, as India has the largest number of the world's most polluted cities in terms
of PM2.5.
Way Forward:
❖ Restoring Nutrient Cycle: These figures call for drastic measures to control air pollution in general and
PM2.5 in particular, but it needs not only curbing pollution from fuel burning but also restoring the nutrient
cycles in agriculture and waste management.
❖ Potential of Manure Recycling: While a fraction of livestock manure is recycled for cropping in India,
urine recycling is nearly nonexistent.
➢ If we recycled all the 15 kg per animal per day of manure produced by 200 million cattle, its 5 per cent
NPK nutrients amount to 1,50,000 metric tons.

92
 ➢ This is much more than our average daily fertilizer consumption, which is about 1,37,000 metric tons.
Add to this about 3 percent of nutrients lost from 15-20 litres of cattle urine per animal per day totalling
1,20,000 metric tons.
❖ Global Best Practices: Technologies and best practices are available from Europe and elsewhere to maximise
nutrient retention and recycling from manure and urine.
❖ Benefits of Farmyard Manure: We already know that at least half of the currently recommended fertiliser
doses can be replaced with farmyard manure without any loss of crop yield.
➢ It not only saves a lakh crores but also reduces the environmental footprint of fertilisers, manures and
agriculture itself.
❖ Low Wastewater Treatment Capacity: Similarly, over 55,000 metric tonnes of nutrients equivalent to 40
percent of our fertilizer consumption are lost daily from over 150 billion litres of wastewater produced per
day in India. This is because of our abysmally low wastewater treatment capacity of about 27 per cent.
❖ Enhancing Sewage Treatment Plants: Most sewage treatment plants (STPs) exist only in the cities and
only a few of them work.
➢ Fortunately, some metropolitan cities like Delhi and Hyderabad are rapidly expanding their STP
capacity to become 100 per cent wastewater treatment capable in a year or two and some other big
cities in India are following suit.

3.4 Challenge for Farm Sector: How to Share Growth Gains

Context: As India traverses the road to Amrit Kaal, the agriculture sector's journey will be difficult, and filled
with challenges.
Major Challenges for Farm Sector: ❖ Relevancy for Prelims: Agriculture in 7th Schedule
❖ Climate Change: The climate is changing of Indian Constitution, Agricultural Subsidies, World
irreversibly for the worse. We are already Trade Organisation’s Dispute-Settlement Mechanism,
witnessing the beginning of erratic climatic Sovereign Bankruptcy Procedure, etc.
events impacting crop production and ❖ Relevancy for Mains: Major Challenges Faced by
livelihoods. the Farm Sector in India, Solutions for Major
❖ WTO’s Iniquitousness: The World Trade Challenges for Farm Sector, etc.
Organisation (WTO) will not change and we
will have to live with its wickedness.
➢ For many years, the US has deliberately crippled the dispute-settlement mechanism.
➢ When it does become operational, Indian politicians are not likely to know how to wriggle out of its
rulings domestically.
❖ Fragmented Landholdings: The large number of small land holdings (85 per cent of total arable land)
fundamentally limits the scope for primary producers to eke out a life of dignity from their profession.
❖ Unsustainable Farming Practices: The global priority to ensure low food prices for consumers is easiest
achieved by artificially driving down farm-gate prices. This makes farming environmentally unsustainable
and economically unremunerative.
❖ Depleting Aquifers: Due to the insatiable demand for water for agriculture is reaching a threshold point
where it won't be economically viable to extract water for irrigation in food basket regions.
➢ Drinking water is already becoming a sought-after monetised commodity in large swathes of the country.

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Way Forward:
While these greatly limit our ability to pursue our chosen path, other things can change, provided there is will.
It is not going to be easy, but it is also not impossible - that we are not defined by our circumstances, but only
shaped by them. Several areas require action.
❖ Agricultural Research: Investments in agricultural research and extension services have stayed below the
level of inflation. In other words, funding has actually dropped, even when every rupee invested in
agricultural research yields economic returns upwards of 10 times over other investments.
❖ Agriculture Markets: They are inherently unfair. We haven't yet figured out how to address its inevitable
unintended consequences. But, agriculture is a state subject, where the states do not work in tandem with
national objectives, but use meagre resources for populist dole-outs rather than investing in the future.
❖ Lack of Viability: Free or unrealistically low prices at which cereals are distributed through the public
distribution system continue to drive down farm-gate prices such that primary production remains an
unenviable and unviable profession.
➢ Input subsidies like the skewed fertiliser subsidy leads to indiscriminate use of fertilisers, impacting
the health of the people and the planet.
❖ High Public Debt: Public debt, both at central and state government levels, leaves less financial flexibility
to plan for the long term and does not allow for endless further subsidies.
➢ Many states are in line to be technically categorised as bankrupt. A sovereign bankruptcy procedure
for states is missing.
Conclusion:
Addressing climate change, WTO challenges, land fragmentation, unsustainable practices, and water
depletion is crucial for sustainable agriculture, requiring research, market reforms, and fiscal prudence.

3.5 Focus on the Export of Services to Drive India's Economic Growth

Context: To drive growth, India could focus on
❖ Relevancy for Prelims: Remote Services, Agnikul
the export of services provided by its well-
3D Printed Rocket, etc.
educated and skilled population.
❖ Relevancy for Mains: Significance of Service Sector
Focus on the Export of Services: in India, Job Creation by Leveraging Service Sector in
❖ Well-Educated and Skilled Population: India etc.
Though this cohort represents a small fraction
of the total population, it still numbers in the tens of millions.
❖ Build on India's Strengths: The country is already well known for its role in the global software industry,
and now it exports many other services, too, accounting for over 5% of the world's services exports while
its goods exports account for less than 2%.
❖ Employing Indian Talent: Multinational firms from Goldman Sachs to Rolls-Royce-are hiring talented
Indian graduates for India-based global capability centres (GCCs), where engineers, architects, consultants
and lawyers create designs, contracts and content (and software) that are embedded in manufactured goods
and services sold globally.
➢ These centres already account for over 50% of all GCCs globally, employing 1.66 million Indians and
generating $46 billion in annual revenues as of March 2023.

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❖ Rise in Remote Services: Following the pandemic-induced changes in work habits, and given improvements
in communications technology, Indians also have started providing a much wider range of remote services,
including consulting, telemedicine and even yoga instruction.
➢ Once a service goes virtual, it matters little whether the provider is ten miles or 10,000 miles away.
➢ An Indian consultant in Hyderabad can now make a presentation to a client in Seattle on behalf of a team
whose members span almost every continent. She not only is well trained and fluent in English; she
also costs one-fourth of her US counterpart.
❖ Growth in Indian manufacturing: Manufacturing has also benefited from these changes, but this has
happened in precisely those areas where engineering, innovation and design matter more than just the
manufacturing process itself.
➢ Hence, Agnikul, a Chennai-based firm working to launch small satellites into space, has dispensed
entirely with manufacturing supply chains by 3D printing its customized rockets in its own facility.
➢ And Tilfi, which sells hand-woven Banarasi silk sarees globally through its website, employs trained
designers to create fresh fashions for traditional craftsmen, who in turn are encouraged to embrace
innovation.
It would seem to be a no-brainer that India should build on its strength: millions of high- skilled, creative,
educated workers, many of whom speak English. Unfortunately, it's running out of such workers.
India Faces a Crisis of Joblessness Today:
❖ Lack of Access to High-Quality Education: While India graduates 1.5 million engineers per year, only a
minority attend institutions that impart the high-quality education that is in demand at a GCC or a company
like Agnikul.
❖ Lack of Work-Skill Balance: Wheebox, a work-skill assessment company, estimates that half of all
graduates are unemployable.
➢ Some of these graduates need only a little remedial education to be brought up to speed. But for many
Indians, the educational deficiencies run much deeper. While nearly all Indian children start school, fewer
than one-quarter can read at a second-grade level by the time they reach third grade.
❖ Dropping Out of Schools: The further behind the stragglers fall, the less sense it makes to stay in school.
Many ultimately drop out, incapable of anything but unskilled work.
➢ No wonder the share of workers in agriculture is growing in India today, contrary to the usual path for
fast-growing countries.
Way Forward:
❖ Job Creation: Apart from expanding the creative high- skilled sector, India must create jobs that are broadly
targeted at the skills people have.
❖ Improve Education and Skills: It also needs to improve education and skills, both in the short term and
over the long term, so that Indian workers can do the jobs of the future.
❖ Job Creation for Educated Human Resources: Sensible reforms would recognize that the solutions to both
challenges are related. For example, a study shows that if a government-run daycare employs a part- time
worker, perhaps a high-school educated mother, children's learning improves significantly.
➢ With more than one million such daycares in India today, that is potentially one million more workers
set on the road to longer-term employability.
❖ Vocational Training: Similarly, public funding for vocational and apprenticeship programmes that allow
students to cross the threshold of employability could convert millions into productive workers.

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 ➢ There is no shortage of demand for health- care providers, plumbers, carpenters, and electricians.
❖ Initiating Reforms: When coupled with reforms to support businesses-especially small- and medium-size
firms in labour-intensive sectors like garments, hospitality and tourism-India could put many more people
to work.
➢ But this will require carefully designed programmes, funded in part by reallocating the tens of billions
of dollars now being promised as subsidies to large manufacturers.
❖ Long Term Approach: In the longer run, there is no alternative to increasing the number and quality of
childcare, education and health-care institutions to capitalize on India's greatest asset: its people.
➢ The currently low level of public spending in these areas should be seen as an opportunity, because it
means that there is plenty of room to grow.
❖ Leveraging Diaspora: India also can draw on its vast diaspora to seed some of the new higher education and
research institutions it must create to expand the numbers of the highly skilled.
➢ When people have the right skills, and engage with idea-producing institutions, entrepreneurship will
create jobs in the most unlikely of places. It wasn't the government, after all, that created India's software
industry.
❖ Overcoming Protectionism: Could growing protectionism impede this path? Not necessarily, because
high-end services exports are hard to stop at the border if delivered virtually.
➢ Moreover, industrialized countries also sell such services globally (think of US management consultants
and venture capitalists), which may mean that protectionism in these sectors will be less attractive.
➢ And, given their ageing populations, industrialized countries have much to gain from India-provided
services like telemedicine, since these will reduce the need to attract and assimilate foreign doctors and
nurses.
Conclusion: India must address its education and job crisis by focusing on skills training, reforms, and
leveraging its diaspora for sustainable growth.

3.6 Just What the Doctor Ordered for the Livestock Farmer
Context: The twentieth livestock census indicated that India’s
❖ Relevancy for Mains: Challenges
livestock population is approximately 537 million; of this, 95.8% is of livestock census etc.
concentrated in rural areas. ❖ Relevancy for Prelims: Rashtriya
Concerning Fact: Gokul Mission, National Livestock
❖ Most of the country's livestock is in rural and remote areas but Mission (NLM) etc.
their access to veterinary services is a major challenge.
❖ Livestock farmers are often compelled to travel far from their villages whenever their animals need
treatment, a scenario that adversely impacts the longevity and the productivity of their livestock.
Challenges Faced by Them:
❖ Inadequate Testing Facilities:
➢ Inadequate testing and treatment facilities for veterinary diseases pose a major challenge, especially now
where there is a drastic rise in cases of zoonotic diseases.
➢ Most villages in the country lack testing facilities, and even when samples are collected, they need to be
sent to blocks/districts nearby for test results.

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❖ Untrained Health Workers:
➢ They have been popular in rural India as they charge less for consultations and are easily accessible,
which has led to the inappropriate administration of antibiotics because of flawed prescriptions.
➢ Antimicrobial Resistance: It occurs when the animal no longer responds to a drug to which it was
originally responsive.
✓ Antimicrobial resistance can be caused because of factors such as high or low dosages, incorrect
duration of medication, and overprescription.
❖ Geographical Terrain:
➢ Mobile Veterinary Units (MVUs) while successfully running in several States (Andhra Pradesh,
Gujarat, Madhya Pradesh, Odisha, Telangana, West Bengal, etc.) with positive results but lacking its
outreach, especially in geographically difficult terrains.
❖ Sustenance & Starvation:
➢ Majority of livestock farmers have two to four animals per household.
➢ As approximately 7O% of India's milk supply is sourced from farmers who own less than five animals,
losses due to mastitis alone amount to a mills loss of approximately 10 liters per day per farm.
➢ So for most farmers, death of or disease in livestock could mean the difference between sustenance and
starvation.
❖ Drug Distributors:
➢ The animal health issue is compounded by the growing presence of salesmen of drug distributors in rural
communities.
Steps Taken by the Government:
❖ Livestock Health and Disease Control (LH&DC) Programme: Major focus has been on the 'Establishment
and Strengthening of Veterinary Services i.e., MVUs.
➢ The MVUs will be built on the doorstep delivery model, as stationary hospitals cannot be easily accessed
by most livestock farmers.
➢ The MVUs also has space for essentials such as equipment for diagnosis, treatment and minor surgery,
other basic requirements for the treatment of animals, audio-visual aids for awareness creation and GPS
tracking of vehicles.
❖ Artificial insemination (Al): For the purpose of achieving a pregnancy through in vivo fertilization by means
other than sexual intercourse or in vitro fertilization.
❖ Rashtriya Gokul Mission: To develop and conserve indigenous breeds of bovine population. It also works
on enhancing milk production and to make it more remunerative to the farmers.
❖ National Livestock Mission (NLM): Launched in the 2014-15 to ensure quantitative and qualitative
improvement in livestock production systems and capacity building of all stakeholders.
➢ The scheme is being implemented as a sub scheme of White Revolution - Rashtriya Pashudhan Vikas
Yojana from April 2019.
➢ The mission is organized into the following four Sub - Missions:
✓ Sub -Mission on Livestock Development
✓ Sub - Mission on Feed and Fodder Development
✓ Sub -Mission on Skill Development, Technology Transfer and Extension
✓ Sub - Mission on Pig Development in North-Eastern Region

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Way Forward:
❖ Provide Training to Health Workers: There is a need to make them aware and provide appropriate training.
❖ Counter Antimicrobial Resistance: There is an urgent need to look into this AMR problem and the
government needs to take strict steps to counter it.
❖ Need to Adopt more MUVs: The main thrust for the near future will be on focused upgradation of veterinary
health-care services, disease surveillance and training (CVE), and disease reporting in real time.
➢ The increasing adoption of MVUs across the country will lead to a surge in employment opportunities
for veterinarians and assistants.
❖ Innovation & Technically Advanced: In the lockdown/s during the novel coronavirus pandemic, we
witnessed innovations by start-ups that provided video consultation sessions between livestock farmers and
veterinarians, along with apps that provide detailed information to farmers on livestock health and nutrition.
❖ Inclusion of Private Sector: There is a great deal of scope for innovations and intervention by the private
sector in the context of animal health and MVUs.
➢ Further, with the growing prevalence of the Public-Private Partnership (PPP) model, the MVU model is
poised to generate higher returns on investment.

Additional Information:
Related Committee Report:
❖ The M.K. Jain Committee Report has highlighted that livestock farmers face greater challenges in
comparison to traditional agricultural farmers especially while accessing credit and livestock insurance.
Constitutional Provisions:
❖ Article 48 of the Indian Constitution states that the state shall endeavor to organize agriculture and animal
husbandry on modern and scientific lines, take steps to improve breeds and prohibit the slaughter of cows,
calves, and other milch and draught cattle.
❖ Article 51A (g) places a duty on the Indian Citizens to protect and improve the natural environment and
have compassion for all living creatures.

3.7 From Amazon’s Haryana Warehouse To The Delivery Boy At Your Doorstep —
Tales Of Oaths And Indignity
Context: What allows companies to keep workers ❖ Relevancy for Prelims: Gig workers, Heatwave,
casual, celebrating ‘partners’ for PR purposes Partnership Model, etc.
while ignoring protests demanding basic rights? ❖ Relevancy for Mains: Plight of delivery workers in
Worker Conditions: India's gig economy, Measures needed to protect
❖ Heatwave Impact: Workers endure extreme rights and ensure fair treatment of gig workers, etc.
heat; customers are asked to offer water to
delivery personnel.
❖ Lack of Support: Companies like Blinkit, Zomato, Zepto, and Swiggy provide no hazard pay or assistance.
❖ Low Wages: Amazon warehouse workers earn less than Rs 11,000 per month.
❖ Inhuman Treatment: Workers are forced to take an oath not to drink water or use the toilet until targets
are met, violating labour laws.

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Comparison with Global Practices:
❖ Jeff Bezos: Amazon founder's wealth is nearly $200 billion.
❖ Labour Exploitation: Similar inhuman treatment of Amazon workers in the US and India.
❖ Partnership Model: Companies like Uber use a "partnership" model to avoid providing job security and
benefits.
Innovation and Inequality:
❖ Guaranteed Deliveries: Companies rely on a vast labour force for sorting, sourcing, and delivery.
❖ Gig Workers: Lack job security, benefits, and recourse when mistreated.
❖ Economic Disparity: Gig workers' low wages prevent them from affording the products they deliver.
Capitalism Critique “Historical Comparison”:
❖ Henry Ford: Innovated assembly lines and ensured workers could afford the products they made.
❖ Modern Plutocrats: Innovators like Bezos lack similar concern for workers' wages.
Labour Market Dynamics in India:
❖ Abundance of Cheap Labour: Desperation for employment leads to acceptance of any available work.
❖ Gig Work vs. Jobs: Gig work provides employment but lacks the stability and benefits of traditional jobs.
❖ Economic Theories: Some economists argue that any work is better than no work and that economic growth
will address dignity and decency issues over time.
Role of the State and Society:
❖ Historical Norms: The fight for the eight-hour workday in the late 19th century led to labour laws to prevent
exploitation.
❖ Constitutional Rights: Dignity and equality are fundamental rights in the Indian Constitution.
❖ Economic Desperation: Should not justify degrading treatment of workers.
Conclusion: Real change for gig workers requires systemic reforms, not superficial PR gestures. Ensuring
dignity and fair treatment is essential for sustainable economic and social well-being.

3.8 An Ageing India: The Magnitude and the Multitude

Context: The ageing phenomenon is the most
❖ Relevancy for Prelims: Longitudinal Ageing
notable experience of this century with remarkable
Survey of India (LASI), Life expectancy of men
improvement in human longevity complemented by
and women, etc.
the lowest levels of reproduction.
❖ Relevancy for Mains: Measures to address India's
Magnitude and the Multitude of Ageing India: ageing population, State of India's ageing
❖ In Indian conditions, in particular, the four population etc.
vulnerabilities of later ages in life course are in
terms of restrictions in activities of daily living, multi-morbidity, poverty and absence of any income.
❖ On these counts, the Longitudinal Ageing Survey of India (LASI, 2017-18) reports that about 20% of the
elderly population experience each of these vulnerabilities with widespread variation across the States.
❖ The remedial approach to address these vulnerabilities requires a multi-pronged approach involving the
principles of inclusion and adoption of social security measures.

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❖ Viewing these vulnerabilities as a life course phenomenon, promotion of life preparatory measures has to
be put in place; this need not be limited to financial or economic independence per se but also means to
ensure healthy active and productive years given the elongated life span owing to increased longevity.
❖ Health promotional measures among late-age adults need particular emphasis to ensure healthy ageing in
future that would facilitate mainstreaming the elderly population in multiple productive spheres of
activities.
❖ The projected magnitude of the elderly population is estimated at 319 million by mid- century, growing by
around 3% a year.
❖ This group will be feminine with a sex ratio of 1,065 females per thousand males; further, 54% of elderly
women will be widows.
❖ While 6% of the elderly men live alone against 9% of their female counterparts, 70% of them are to be
found in rural areas.
❖ These statistics can be of great use in terms of targeting welfare measures for this population.
Conclusion: Addressing India's ageing population requires a multi-pronged approach to ensure financial
security, health, and productivity, targeting diverse vulnerabilities and fostering inclusive, healthy ageing.

3.9 Review of Misplaced Priorities of Past Two Decades in Indian Railways

Context: The Indian Railways is back in the news after
❖ Relevancy for Prelims: Railway Board,
a freight train rammed into a passenger train on June
Mission Raftar, Dedicated freight corridors
16, near Siliguri in West Bengal, which left at least nine
(DFCs), Vande Bharat trains, etc.
people dead and more than 40 injured.
❖ Relevancy for Mains: Effectiveness of the
Misplaced Priorities of Past Two Decades in Indian Railways' policies, Indian Railways'
Indian Railways: safety concerns, etc.
❖ Since 1995, the country has witnessed seven deadly
train accidents, five of which took more than 200 lives — the highest number of deaths, 358, was recorded
in the Firozabad collision of 1995.
❖ The multiple train collision at Balasore in Odisha, about a year ago, claimed 287 lives.
❖ Together, these seven accidents took more than 1,600 lives.
❖ The Indian Railways has consistently lost market share in both passenger and freight streams.
❖ In fact, since 2010-12, the total volume of both freight and passenger traffic has stagnated or declined,
while air and road modes have seen growth of 6-12 per cent each year.
❖ Between 2014-15 and 2019-20, passenger traffic declined from 995 billion pass-km to 914 billion pass-km,
and freight stagnated between 682 and 739 billion net tonne-km.
❖ For the period after 2019-20 to the present, the Railways has not made these traffic figures public.
❖ Rail safety must be viewed in this larger context.
❖ Over the past two decades, the Railway Board, the highest administrative body under the Union Minister of
Railways, has been a rudderless ship, marked by abrupt changes in policies and plans for the future growth
and expansion of the IR network.
❖ It has failed to raise the speed of its excruciatingly slow trains, the punctuality of trains has shown no
improvement, and safety has continued to be worrying.

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❖ The Comptroller and Auditor General (CAG) of India has recently issued two important reports on safety,
speed, and punctuality on IR.
❖ The report on speed and punctuality for the years 2019-20 says that between 2014 and 2019, there has been
no increase in the average speed of mail and express trains —this has remained at 50 to 51 kmph, contrary
to claims of achieving an average speed of 75 kmph under Mission Raftar, which has appeared in some
form every five to seven years since 2005.
❖ As for freight trains, the average speed actually declined marginally, contrary to the Board’s claims of
doubling the speed.
❖ It is pertinent to mention that 20 years ago, IR acquired technology and manufacturing capabilities to build
coaches and locomotives to raise the maximum operational speed from 110- 130 kmph to 160-200 kmph.
❖ The second CAG report, which is on accidents, is equally sobering.
❖ Though there has been some reduction in the number of accidents, it is largely a result of the manning of
unmanned railroad crossings.
❖ The data shows little improvement with respect to derailments and collisions.
❖ The report has expressed serious concerns about the continuing high rate of asset failures, particularly signal
failures and rail fractures.
❖ Some of the worst accidents on IR have been due to these. Last year’s multiple train collision at Balasore
was caused by a signal failure.
❖ The essence of these two CAG reports is that this high asset failure rate, coupled with numerous speed and
capacity bottlenecks in the existing IR network, has led to inadequate safety and punctuality and stagnant
speed.
❖ While the IR’s existing network was caught in a downward spiral, with increasing intensity every passing
year, the country was inundated by big plans for extremely costly projects with seriously questionable
financial viability.
❖ This included, for example, plans for several standalone bullet-train lines which would be cut off from the
main broad gauge network because these lines would be built on standard gauge, and dedicated freight
corridors (DFCs), exclusive to heavier and longer trains. Construction of the first bullet-train line started in
2017.
❖ Earlier, in 2012, construction of two DFCs had begun.
❖ In the past three years, the nation has seen the introduction of about 50 pairs of “semi-highspeed” Vande
Bharat trains, which are more about luxury and cosmetics than speed.
Conclusion: The Indian Railways' focus on costly projects over safety and efficiency has led to stagnant
growth, high accident rates, and minimal improvements in speed and punctuality.

3.10 Developing Nations Need Jobs, Not Factories

Context: The future of developing countries is in services. ❖ Relevancy for Prelims: Sectors of
This may sound odd in view of the fact that industrialization economy, labour-intensive techniques, etc.
has been the traditional road to growth and eventual
❖ Relevancy for Mains: Role of innovation in
prosperity, one travelled by all of today’s rich economies and
manufacturing, Employment opportunities
by more recent successes such as South Korea, Taiwan and
in developing countries etc.
China.
Developing Nations Need Jobs:
❖ Manufacturing seems even more essential given that industrial policies to revive it are back in fashion in
the US and Europe.

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❖ But today’s manufacturing is different.
❖ Innovation in manufacturing has taken a predominantly skill-biased form, reducing demand for workers
with relatively low levels of education.
❖ New technologies such as automation, robots and 3D printing directly substitute physical capital for labour.
❖ While firms in developing countries have an incentive to use more labour-intensive techniques, competing
in the global marketplace requires employing production techniques that cannot differ significantly from
those used in the frontier economies, because the productivity penalty otherwise would be too high.
❖ The need to produce according to the exacting quality standards set by global value chains restricts how
much unskilled labour can substitute for physical capital and skilled labour.
❖ Thus, the rising skill- and capital-intensity of manufacturing in turn means that globally competitive,
formal segments of manufacturing in developing countries have lost the ability to absorb significant amounts
of labour.
❖ They have effectively become ‘enclave sectors,’ not too different from mining, with limited growth
potential and few positive effects on the supply side of the rest of the economy.
❖ This means that enhancing productivity in labourabsorbing services has become an essential priority, for
reasons of both growth and equity.
❖ Since the bulk of jobs will be in services, these jobs need to be productive enough to support income growth.
❖ The conundrum is that we do not know much about how to raise productivity in labour absorbing services.
❖ The challenge is to increase productivity in labour-absorbing services such as retail, care and personal and
public services, where we have had limited success, in part because such services have never been an explicit
target of productive development policies.
❖ In a new paper, we describe four strategies for expanding productive employment in services that create the
most jobs in developing countries.
❖ The first focuses on established, large and relatively productive incumbent firms, and it entails
incentivizing them to expand their employment, either directly or through their local supply chains.
❖ These firms could be large retailers, platforms such as ride-sharing services, or even manufacturing
exporters (with potential to generate upstream linkages with service providers).
❖ The second strategy focuses on small enterprises (which constitute the bulk of firms in most developing
countries) and aims to enhance their productive capabilities through the provision of specific public inputs.
❖ These inputs could be management training, loans or grants, customized worker skills, specific
infrastructure or technology assistance.
❖ Given the heterogeneity of such firms, ranging from micro-enterprises and self-owned proprietorships to
mid-size companies, policies in this domain require a differentiated approach that respond to their distinct
needs.
❖ Moreover, given the numbers involved, policies often also require a suitable mechanism for selecting among
the most promising firms, since most are unlikely to become dynamic and successful.
❖ The third strategy focuses on the provision, to workers directly or to firms, of digital tools or other forms
of new technologies that explicitly complement low-skill labour.
❖ The objective here is to enable less educated workers to do (some of) the jobs traditionally reserved for more
skilled professionals and to increase the range of tasks they can perform.
❖ The fourth strategy also focuses on less educated workers and combines vocational training with ‘wrap-
around’ services, a range of additional assistance programmes for job seekers to enhance their employability,
retention and eventual promotion.
Conclusion:
❖ To enhance growth and equity, developing countries must boost productivity in labour-absorbing services
through targeted strategies for large firms, small enterprises, digital tools, and vocational training.

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3. ECONOMY
3.1. INDIA AND GLOBAL VALUE CHAINS (GVCS)
Why in the News?
NITI Aayog CEO highlighted the need for India to get into global value chains (GVCs) to boost exports and secure supply
chains.
What are Global Value Chains (GVCs)?
• It refers to a production sequence for a final consumer
good, with each stage adding value (e.g., production,
processing, marketing, transportation, distribution) and
with at least two stages taking place in different
countries.
o For example, a smartphone assembled in China
might include graphic design elements from the
United States, computer code from France, and
silicone chips from Singapore.
• As per OECD, an estimated 70 % of trade occurs through
GVC.
• Countries can participate in GVCs by engaging in either
backward or forward linkages based on their economic
specialisation.
o Backward linkages: when one country uses inputs
from another country for domestic production.
✓ For example, India imports cotton fabric from Italy to make and export shirts.
o Forward linkages: when one country supplies inputs/intermediate goods that are used for production in another
country.
✓ For Example, India supplies auto components to a German automaker for use in car production.
Importance of Global Value Chains (GVCs)
• Increase in Productivity: By accessing a variety of cheaper or higher quality imported inputs, increased knowledge
sharing, leveraging economies of scale in firms and higher value added (most productive) tasks etc.
• Reduced Poverty: According to the World Bank, a 1% increase in GVC participation is estimated to boost per capita
income levels by more than 1% (about twice as much as conventional trade).
• Employment Creation: GVCs can lead to the creation of more jobs when they catalyze structural transformation or
generate new linkages in and around the chain.
o For example, In Bangladesh, the emergence of the GVC-oriented export apparel sector has significantly
contributed to employment.
• Labour intensive and female-driven: In sectors most intensively traded in GVCs (such as apparel, footwear, and
electronics) lower-skilled, young, female workers account for the largest share of employment.
• Greater scope for Specialisation: Due to the international fragmentation of production and unbundling of operations,
countries no longer need to create complete products or value chains.
o Instead, they can create targeted industries for a particular stage of production along the value chain that suits
their existing level of capability. E.g., Integration of Vietnam into global textile value chains.
India’s participation in GVC
• Low Participation: India’s GVC-related trade (as per cent of gross trade was at 40.3% in 2022) is significantly low, not
only when compared to large economies like the United States, China, and Japan but also, smaller countries like South
Korea and Malaysia.

22 www.visionias.in ©Vision IAS

 o Although, the post-COVID-19 redistribution of supply chains has given an opportunity to India to increase its
participation.
• Low export of Network products: such as electronics, computers, telecommunication equipment and vehicles for
which GVCs are the dominant mode of production, account for only 10% of India’s total merchandise exports.
• Key products driving India’s GVC participation: include coal and petroleum, business services, chemicals, transport
equipment etc.
• Predominance on forward linkages: India still depends heavily on exports of raw materials and intermediate products.
Reasons behind India’s weak GVC integration
• Poor trade infrastructure: GVCs often require tight production schedules. For example, smartphones and laptops
need rapid production to keep up with technology trends.
o The poor quality of road and rail infrastructure, subpotimal regional integration etc. adversely impact GVC
integration.
• Uncertainty in trade and tariff policy: Average tariffs in India have jumped to 18.1 % (2022) from 13% (2014), which
in turn has made India uncompetitive with respect to countries such as Vietnam, Thailand, Mexico etc.
• Suboptimal quality standards: For example, due to high export standards and strict delivery pressures, Indian garment
firms find it easier to supply to the domestic market.
• Biased towards capital-Incentive Sector: Despite having comparative advantages in unskilled labour-intensive
manufacturing activities, India’s commodity composition of exports is biased towards capital- and skill-intensive
products.
• Lack of information: Information regarding markets, partners, EXIM (Export-Import) rules, and even trade finance
plays an important role for companies in creating partnerships.
• Domestic policy challenges: Complex tax policies and procedures, complex labour laws, and uncertainty in trade policy
create obstacles in efforts to scale up production in India.
Measures Taken to Integrate India in GVC
• Foreign Trade Policy 2023: It aims at process re-engineering and automation to facilitate ease of doing business for exporters.
• Production linked incentive (PLI) scheme for large scale Electronics manufacturing: Launched in 2020, it has encouraged GVC
participation. E.g., 3 of Apple Inc’s contract manufacturers have set up manufacturing bases in India.
• One District One Product- Districts as Export Hubs (ODOP-DEH) initiative: To focus on districts of the country as unit for
converting into a manufacturing and export hub by identifying products with export potential in the district.
• Make-in-India Initiative: It was launched in 2014 for making India a hub for manufacturing, design and innovation
o In is one of the key reasons for FDI equity inflow in the manufacturing sector between 2014 and 2022 increasing by 57%.
Way forward
• Improving the Business Environment:
o Ensuring clarity on dispute settlement in the post-Bilateral Investment Treaty system.
o Promoting financial access by improving creditworthiness assessments (especially for SMEs).
o Ensuring early Implementation of New labour Codes.
• Facilitating Trade:
o Establishing stable tariff rules.
o Simplifying and streamlining border procedures.
✓ Establishing a National Trade Network (an online platform for all export-import compliance processes)
o Implementing the Indian National Strategy on Standardisation to increase firms’ capacity to meet international
standards.
• Stabilizing regulatory environment: Tax regulations and procedures must be uniformly implemented. Further, these
should align with trade policies to assist firms in scaling up production.
• Target High-Value GVC Segments: Focus on high-value segments of GVCs, such as product conceptualization, design,
prototype development, and after-sales services etc.
• Promote labour-intensive Sector: Domestic firms in the labour-intensive sector need to be incentivised to undertake
activities which enable participation in GVCs.

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3.2. RBI SURPLUS TRANSFER
Why in the news?
Reserve Bank of India (RBI) approved highest-ever surplus transfer of Rs 2.11 lakh
crore to government for FY24 which is more than double the previous
year’s ₹86,416 crore.
More about the news
• The sharp jump in the surplus amount could be attributed to higher income
from the forex holding of the central bank, among other factors.
• The surplus transfer is for the fiscal year 2023-2024, but will reflect in the
government’s account in the fiscal year 2024 - 25.
About RBI Surplus
• Surplus implies excess of income over expenditure. RBI’s total expenditure is
only about 1/7th of its total net interest income, thereby generating surplus.

RBI’s Income RBI’s Expenditure

• Interest on holding of Rupee Securities (RS): Interest • The RBI incurs a major chunk of its expenditure in making Risk
earned on holding RS adjusted with Profit/Loss on sale Provisions. There are two risk provisions of the Reserve Bank,
and redemption, Depreciation and Amortization of RS. viz., Contingency Fund (CF) and Asset Development Fund
• Interest earned on LAF and MSF operations: Net (ADF).
interest earned on Liquidity Adjustment Facility (LAF) o CF: kept for unforeseen contingencies like depreciation of
and Marginal Standing Facility (MSF). securities values, risks from monetary rate policy, etc.
• Interest earned on Loans & Advances: Interest income o ADF: It represents provisions made towards investments
on loans and advances extended to Central and State in subsidiaries and associated institutions and to meet
Governments, banks and financial institutions and internal capital expenditure.
employees. • Printing of notes
• Interest earned from Foreign Sources: Consists of • Agency charges which includes commission to banks, primary
Interest Income from Foreign Currency Assets (FCA). dealers etc.
• Employee cost
Provisions regarding RBI transfer surplus to the government
• RBI Act, 1934: Under section 48 of the RBI Act, 1934, the RBI is not liable to pay income tax or super tax on any of its
income, profits or gains. However, it transfers its surplus to Government after making provisions for contingency
funds and ADF.
o Section 47 of the RBI Act, 1934 mandates that any profits made by the RBI from its operations be sent to the
Centre.
• Committees’ recommendations: Earlier, RBI used to keep a major chunk of this surplus for its Contingency Fund (CF)
and Asset Development Fund (ADF). However, after the Malegam Committee (2013) recommendations its transfer
of surplus to government increased.
o Various committees i.e., V Subrahmanyam (1997), Usha Thorat (2004), Y H Malegam (2013) and Bimal Jalan (2018)
were formed to decide the ideal amount of surplus transfer.

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• Economic Capital Framework (ECF): It provides a methodology for determining the appropriate level of risk
provisions and profit distribution to be made under Section 47 of the RBI Act, 1934.
o As per this Revised ECF recommended by Bimal Jalan Committee, the amount of surplus that the RBI must transfer
to the Centre is determined based on two factors -
✓ Realized equity (essentially existing amount in CF): The CF is maintained within a range of 6.5% to 5.5% of
the RBI’s balance sheet and the excess amount is to be transferred to the government.
▪ The RBI’s Central Board decided to maintain the realized equity level at 5.5%.
✓ Economic capital (essentially CGRA): It should be kept in the range of 20.8-25.4% of the balance sheet and
rest should be transferred to government.
▪ CGRA includes its capital, reserves, risk provisions and revaluation balances which are unrealized gains,
net losses resulting from movement of exchange rate, gold price or interest rate.
Benefits of Surplus Transfer for Government
• Reduce Fiscal Deficit: It will help the government to meet the 5.1 % fiscal deficit target it has set for the fiscal year
2024-25.
• Meeting Revenue Targets: It’s an important source of non-tax receipts for the government and helps the government
to spend more to ensure economic growth in the economy.
• Reduce Government Borrowing: It may help government to reduce its gross borrowing for the current financial year
(2024-25/FY25) by up to Rs 1 trillion or to step up capital expenditure.
o If the government borrows less, government security (G-Sec) yields could soften, thereby lowering its borrowing
cost.
• Keeping Interest Rates Low: A fall in government bond yields mainly due to surplus transfer lowers borrowing costs
across the economy as sovereign debt yields are the benchmarks for determining the price of corporate borrowing.
Conclusion

In the past, surplus transfers by RBI have been subject to debate on issues like Adequate Contingency Fund with the RBI
and the Autonomy and credibility of RBI. However, the current surplus transfer by the RBI constitutes an important
element which is considered by the Central Govt. in arriving at overall budget provisions for the fiscal year. These
additional funds can be utilized for public spending or specific projects, which could lead to a revival in demand in certain
sectors and boost economic activity.

3.3. LOGISTICS SECTOR OF INDIA

Why in the news? Logistic Performance Index Report
India’s logistics cost has been worked out to be in the range of 7.8-8.9 % of Gross (2023)
Domestic Product (GDP) in 2021-22 (in contrast to the widely circulated number of • Released by World Bank.
more than 10%). • India ranks 38 out of 139
countries (2023).
More on the news o It Improved by 6 places
• The cost has been computed by the National Council of Applied Economic from 44 in 2018.
Research (NCAER).
o The task was assigned to the think tank by the Department for Promotion
of Industry and Internal Trade (DPIIT).
o The World Bank has reviewed the methodology and has acknowledged
that it has an appropriate baseline and framework to fine-tune it in
future.
• Earlier available estimates included: NCAER’s 8.9% of GDP for 2017-18; CII’s
10.9% of GDP in 2015; and Armstrong and Associates’ (A&A) 13.0% of GDP in
2016.
o The A&A estimate was the most widely circulated number and became
the basis of the National Logistics Policy’s agenda to reduce the logistics
cost to global benchmarks by 2030.
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Logistics Landscape in India
• The major components of logistics are:
o Procurement of materials from outside suppliers, including
negotiation, order placement, inbound transportation etc.
o Material handling in such a way that the warehouse can process
orders efficiently.
o Warehousing, packaging and inventory control of finished goods
until they are sold.
o Transportation i.e., physical delivery of goods from the organisation
to the distributor or dealer and from the dealer to the end customer.
• Importance of efficient logistics infrastructure:
o Supply chain efficiency: vital for businesses to meet consumer demand promptly and optimise production
processes.
o Connectivity and accessibility: contributes to economic integration by enabling businesses to reach a wider
customer base.
o Cost reduction and competitiveness: due to reduction in transportation, storage and distribution costs.
o Job creation: in transportation, warehousing, distribution, and related services.
Steps Taken for Improvement of Logistic Sector in India
National Logistics Policy (NLP) 2022
• It addresses the soft infrastructure and logistics sector development aspect.
o It includes process reforms, improvement in logistics services, digitization, human resource development and
skilling.
• It was launched in 2022 to complement PM Gati Shakti National Master Plan (NMP).
o PM Gati Shakti NMP addresses integrated development of the fixed infrastructure and network planning.
• The targets of the NLP are to:
o Reduce cost of logistics in India - Comparable to global benchmarks of 8-9% of GDP.
o Improve the Logistics Performance Index ranking – endeavour is to be among top 25 countries by 2030.
o Create data-driven decision support mechanism for an efficient logistics ecosystem.
• Comprehensive Logistics Action Plan (CLAP) as part of the NLP was launched covering eight action areas including
Integrated Digital Logistics Systems, Services Improvement Framework etc.
Other Steps Taken
• Unified Logistics Interface Platform (ULIP)
o It is an indigenous data-based platform which integrates 34 logistics-related digital systems /portals across
Ministries / Departments.
o GST data is also being integrated with ULIP.
o By signing Non-Disclosure Agreements (NDAs) and after due diligence, data on ULIP can be accessed by private
players for use cases.
• EXIM (Export-Import) Logistics: To Address infrastructure and procedural gaps in India's EXIM connectivity and create
an efficient and reliable logistics network.
o Also, the Logistics Data Bank (LDB) provides visibility for 100% of India’s EXIM containers.
• Logistics given infrastructure status: It enabled the logistics sector to access infra-lending at easier terms.
• Logistics Ease Across Different States (LEADS): An indigenous logistics performance index on lines of the World Bank’s
LPI for logistics performance monitoring across states.
o The survey is conducted annually and States are ranked according to their performance.
• Multimodal Logistics Parks (MMLPs): They will act as freight aggregation and distribution hubs, and enable long-haul
freight movement to reduce transport costs.
o Government has planned 35 MMLPs with an investment outlay of $6.2 Billion.

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• Bharatmala Pariyojana: About 65,000 km of National Highways are to be constructed in two phases under the
program.
• Dedicated Freight Corridors (DFC): To assist in achieving the target mandated under the National Rail Plan 2030 of
increasing the share of rail freight traffic from 27% (2019) to 45% (2030).
• Sagarmala and Inland waterways: It is a flagship programme of the government to promote port-led development in
the country through harnessing India’s 7,500 km long coastline and 14,500 km of potentially navigable waterways.

Challenges before the Indian logistics sector

• Fragmented supply chain: With numerous small players operating independently across supply chain segments. This
fragmentation results in suboptimal utilisation of resources, lack of standardisation, and difficulties in coordination
and collaboration among stakeholders.
• Regulatory complexity: It includes multiple layers of taxation, compliance requirements and bureaucratic
procedures, creating barriers to entry and hindering business operations.
• Last-mile connectivity: encounters challenges such as inadequate road infrastructure, traffic congestion and poor
address mapping.
• Skill shortage: Lack of qualified personnel proficient in supply chain management, transportation, and logistics
operations.
• Security concerns: It involves protecting goods, assets, and information from theft, fraud, cyberattacks, terrorism and
natural disasters.
Way forward
• International Collaboration: It enables shared infrastructure, data exchange and coordinated decision-making,
resulting in improved efficiency, flexibility, and resilience in logistics operations.

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 o E.g., The India-Middle East-Europe Corridor (IMEC) envisions a seamless linkage between India and Europe via
the Arabian Peninsula.
• Focusing on sustainable logistics: This includes complying with key regulations and initiatives such as the Energy
Efficiency Existing Ship Index, carbon intensity rating and emissions trading system.
• Technological Innovation:
o Artificial intelligence (AI)-powered Predictive analytics enables businesses to anticipate demand fluctuations,
optimise inventory levels and enhance supply chain resilience.
o Internet of Things (IoT) sensors and connectivity facilitate real-time tracking and remote monitoring.
o Automation technologies such as robotic process automation and autonomous vehicles, reshape warehouse
operations and last-mile delivery.
• Attract investment and investor interest: Adopting new policies to attract private and foreign investment as levers
to fast-track infrastructure development.
o E.g., Singapore continues to invest in transport infrastructure to maintain the country's position as a world-class
city in logistics.
• Increase the share of rail transport: The National Rail Plan envisages that the share of freight traffic by rail should go
up from the current share of 27% to 45% by 2030.
To know more about the PM GATI Shakti Initiative, refer to Article 3.5 of the November 2023 Monthly Current Affairs Magazine.

3.4. INDIA’S AGRICULTURE EXPORT POLICY

Why in the News?
Agricultural exports in India registered 8% decline this year (2023 – 24) and fell short of the ambitious target of $60 billion
by 2022 (set by India’s Agricultural Export Policy, 2018).
More on news
• Agricultural Exports touched $48.9 billion in 2023-24, registering a decline from $53.2 billion in 2022-23.
• India’s agricultural imports in Year 2023-24 also registered a notable decline of 8%, dropping from $35.7 billion in
2022-23 to $32.8 billion in 2023-24.
• As per available WTO’s Trade Statistical Review (2023), the share of India’s agricultural exports and imports in world
agriculture trade in 2022 were 2.4% and 1.9%, respectively.
o India was ranked 9th in ranking of the global Agri exporters.

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Agriculture Export Policy (AEP) 2018
• About: It is framed with a focus on agriculture export oriented production, export promotion, better farmer
realization and synchronization within policies and programs of Government of India.
• Objective: To Increase Farmer income through value addition and minimize losses across value chain.
• Elements of Agriculture Export Policy Framework:
o Strategic Recommendations: Consist of Stable trade Policy Measures, Infrastructure and Logistics Support,
Holistic Approach to
boost exports &
Greater
involvement of
State Governments
in Agriculture
Exports.
o Operational
Recommendations:
It provides focus on
building Clusters,
Promoting Value
added exports,
Marketing and
promotion of
“Brand India”,
Attract private
investments into
production and
processing, Establishment of Strong Quality Regimen, & Increased Research & Development.
Need for New Export Policy
• Prevalence of Export Restrictions: E.g. Export prohibition, export duties, minimum export price etc.
o It can create uncertainty and unpredictability for India’s agricultural producers and exporters. Proliferated use
of trade policy instruments makes AEP dichotomous, ambiguous, and paradoxical.
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 o It may also lead to ambiguity on India emerging as a reliable supplier of agricultural products to world markets.
• Global Price Sensitivity: India’s export competitiveness is heavily influenced by dynamics between domestic and
global commodity price.
o When global prices are on upswing, India’s agri-exports also surge. But when global prices fall, our price-
competitiveness also gets blunted, and agri-exports suffer.
• WTO issue: Use of export restrictions on sensitive agriculture products has been a contentious issue in World
Trade Organization (WTO) as they are seen as a violation of WTO rules.
o As India announced its rice export restrictions, the international price of rice surged by approximately 25%.v
• Limited Basket of Export: Rice and sugar account for 37.4% of India’s exports. They face frequent export bans in India,
for example export of non-basmati rice is currently banned from India.
• Virtual water export: Producing rice uses a lot of water (3,000-5,000 liters per kg) and exporting 16.3 million tons of
rice equals exporting 32.6 billion cubic meters of water. Subsidies on power and fertilizers make rice artificially cheap,
hiding the real environmental cost.
Way-forward
• True export competitiveness: Focusing on improving domestic production through productivity growth, product
differentiation, value addition, market access, and branding to promote sustainable growth in agricultural exports.
• Bringing more technology: Promote advanced agricultural technologies, precision farming, and efficient irrigation,
while supporting agri-startups and innovative solutions to boost productivity and export efficiency.
o Netherlands has used advances in vertical farming, seed technology and robotics to become a global model.
Despite being a small country, it is second largest exporter of agriculture.
• Focus on Organic & Processed food products: There is also a need to ensure the development of organic or pesticide-
free clusters through farmer producer organizations to boost export of organic products to high-income countries.
o Centre’s policy should be in direction of nurturing food processing companies, ensuring low cost of production
and global food quality standards.
• Environmental sustainability: Emphasis on crops like pulses and oilseeds that require less water and fertilizers.
Farmers’ interests need to be balanced with environmental sustainability.
• Considering Climatic variations while determining Import Policies: To ensure food security and stabilize market
prices.
Steps taken for promoting Agricultural - export:
• Trade Infrastructure for Export Scheme (TIES): By Ministry of Commerce to assist Central and State Government agencies in
creating appropriate infrastructure for the growth of exports.
• Market Access Initiatives (MAI) Scheme: By Ministry of Commerce, it is an Export Promotion Scheme envisaged to act as a
catalyst to promote India's export on a sustained basis.
• Agricultural & Processed Food Products Export Development Authority (APEDA): It is a statutory organization under
administrative control of Department of Commerce, with mandate to promote export of agricultural products, including
millets, from India.
• State specific Action Plans: prepared by some states and State Level Monitoring Committees (SLMCs), Nodal Agencies for
agricultural exports and Cluster Level Committees have been formed in a number of States.
• Farmer Connect Portals by APEDA: It has been set up for providing a platform for farmers, Farmer-Producer Organizations
(FPOs) and cooperatives to interact with exporters.
• Transport and Marketing Assistance Scheme: A central sector scheme which aims to provide assistance for the international
component of freight and marketing of agricultural produce to mitigate disadvantage of higher cost of transportation.

3.5. LAND SQUEEZE

Why in the News?
A report, titled ‘Land Squeeze’ has been released by the International Panel of Experts on Sustainable Food Systems
(IPES-Food) showcases pressures on land leading to land inequality in India and across the globe.
More on the News
• IPES-Food is a global think-tank which provides expert guidance for sustainable food systems around the world.
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• The report highlights how land across the world is facing a series of unprecedented pressures leading to squeezing
of land and driving land inequality.
Key Highlights of the report
• Global:
o Land inequality: 1% of world’s largest farms now control
70% of world’s farmland.
o Price volatility: Between 2008 and 2022, land prices have
nearly doubled globally and tripled in Central-Eastern
Europe.
• India:
o Land inequality: Top 10% of landowners own 45% of farmland in India.
o Land degradation: >70% of India’s arable land is undergoing one or more forms of land degradation.
Drivers of Land Squeeze
• Land Grabbing: Appropriation of land through the privatization of common land with instruments such as lease,
concessions, quotas. This includes-
o Deregulation: Governments deregulating their land markets and adopt pro-investor policies. E.g., for creation of
‘special economic zones’ and ‘growth corridors’.
o Financialization: Land ownership transferred from farmers to financial actors
o ‘Water grabs’ and ‘resource grabs’: Land deals focused on rapid resource extraction (e.g. through water-intensive
cash cropping).
• Green Grab: Appropriation of land through top-down conservation schemes. E.g. for Carbon and biodiversity offset,
‘biodiversity net gain’ initiatives, biofuels and green energy production etc
o It accounts for ~20% of large-scale land deals.
• Expansion and Encroachment of farmlands: For mining, urbanization and development of mega-cities
o E.g., Mining projects accounted for 14% of recorded large-scale land deals over the past ten years.
• Food System Reconfiguration: Entails industrialization and consolidation of agri-food sector with concepts of
contract farming, value chain integration.
• Other reasons:
o Colonial Reasons: E.g. Extractive landlord-based revenue collections such as Zamindari System
o Social Inequalities and Discrimination: E.g. Historical practices such as caste system, untouchability, patriarchy
etc.
These drivers are exacerbated by other enabling factors like failure to build ‘just transition’ pathways, insecurity of
tenure, economic limitations, limited political representation of Small-scale farmers/ marginalized groups, development
strategies guided by Structural transformation, ongoing trade liberalization biases etc.
Impacts of Land Squeeze
• On Local and Farming Communities
o Land Loss, concentration and fragmentation due to increased input costs, land price volatility, and undermined
security of tenure., especially for smallholder agriculture
✓ As per the report, 34% of land grabbed since 2000 was from smallholder farmers.
o Exacerbation of persistent rural poverty and livelihood pressures on small-scale food producers.
o Wealth inequality as methods such as contract farming are reducing farmers’ autonomy and leading to fewer
potential users of credit or insurance products.
• Impact on Indigenous People: Land conversion and dispossession of land are leading to various forms of oppression
and discrimination, mass displacement, land conflicts, etc.
• On Environment
o Loss and damage to biodiversity
✓ As per the report, 87% of land grabs occur in regions of high biodiversity.

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 o Land degradation due to promotion of techno-centric, capital-intensive, and chemical input-intensive modes of
agriculture.
o Water stress due to Land Diversion to water-intensive projects such as ‘green hydrogen’.
✓ More than half of land grabs are intended for water-intensive crop production
• On food security: Conversion of farmland to solar parks, land degradation, concentration, and fragmentation means
shrinking land available for (sustainable) food production.
Steps taken to address land inequality in India
• Post-Independence Era
o Abolition of the Zamindari system removed the layer of intermediaries who stood between the cultivators and the state.
o Tenancy abolition attempted either to outlaw tenancy altogether or regulated rents to give some security to the tenants
and was most successful in West Bengal and Kerala.
o Land Ceiling Acts imposed an upper limit on the amount of land that can be owned by a particular family.
o Bhoodan Movement initiated by Acharya Vinova Bhave aimed at provisioning of land by gift for the common benefit of
the landless.
• Post 2000
o Scheduled Tribes and Other Traditional Forest Dwellers (Recognition Of Forest Rights) Act, 2006 (Forest Rights Act, 2006)
to ensure land tenure, livelihood and food security of the forest dwelling Scheduled Tribes and other traditional forest
dweller.
o Ministry of Panchayati Raj’s Svamitva Scheme provides legal ownership cards to the property owners by mapping land
parcels using drone technology.
o Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (RFCTLARR) Act,
2013 to ensure a humane, participative, informed and transparent process for land acquisition for industrialisation
o Model Tenancy Act aims to balance the rights of all types of tenant and landlords and create an accountable and
transparent ecosystem for renting of premises in disciplined and efficient manner.
Way Forward: Recommendations of the report
• Strengthen self-determined land governance systems by democratic spatial planning processes, community led
mapping and digitization etc.
• Establish integrated land, environmental, and food systems governance to halt green grabs and ensure just and
human rights based transition.
o The right to land should be at the heart of climate governance as enshrined in the UN Declaration on Rights of
Indigenous Peoples (UNDRIP) and the UN Declaration on the Rights of Peasants and Other People Working in
Rural Areas (UNDROP)
• Move from Commodity to community-led and decentralized conservation focussed on agro-ecology, land-sharing
and integrated agriculture energy projects.
o E.g. Joint Forest Management (JFM) program aims to transform previously state-managed forest land into
commons managed by communities
• Halt green grabs and remove speculative investment from land markets by capping of farmland investment, granting
pre-emptive rights to communities etc.
• Forge a new social contract, and a new generation of land and agrarian reforms by strengthening small-scale food
producer’s livelihoods through fair prices, financial support, pension and insurance systems etc.

3.6. NEWS IN SHORTS

3.6.1. COMMODITY DEPENDENCE concentrated on primary commodities (like
crude oil, coal, iron ore, etc.).
• The President of the United Nations General o The source of commodity dependence can be
Assembly recently highlighted the issue of linked to a country’s persistent or structural
commodity dependence. conditions, such as its resource endowment and
• About Commodity dependence factor composition, institutional framework,
o A country is dependent on the export of geographic situation, history among other
commodities (or “commodity-dependent”) when factors.
its merchandise exports are heavily
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• Issues with Commodity dependence or equal to 3% and 1%, respectively, over the
o Exposes countries to shocks: Dependence can last two FYs.
leave an economy highly exposed to shocks, such ○ Stock Listing: Shares must be listed on a
as the COVID-19 pandemic, and price swings in recognized stock exchange.
international markets. ○ Promoter Requirements: No addition of new
o Linked to lower human well-being: In 2021, 29 promoters or changes to existing promoters are
out of the 32 countries with low HDI scores were permitted during the transition.
commodity dependent. ✓ No changes are allowed to the promoter
shareholding dilution plan previously
o More vulnerable to climate change: More than
approved by the RBI.
60% of the world’s small island developing states
○ Preference: SFBs with a diversified loan portfolio
– on the front lines of the climate crisis – are
will be preferred.
commodity-dependent.
o Profound social consequences: E.g., mining
industry-dependent countries engage in trade
but most of the benefits go to capital owners
rather than the workers.
• Way ahead: Developing a Diversification Strategy,
promoting education and Skill Development,
garnering support for commodity-dependent
countries and encouraging strong national political
will.

3.6.2. ELIGIBILITY FOR UNIVERSAL

BANKING BY SFBS
• RBI set eligibility criteria for Small Finance Banks (SFB)
to transit into universal banking under on-tap
licensing.
• ‘Universal banks (UBs) are banks that offer a wide
range of financial services, beyond commercial
banking and investment banking, such as insurance.
○ Until now, SFBs were allowed to primarily
undertake basic banking activities of acceptance
of deposits and lending to unserved and 3.6.3. ‘FIVE-YEAR REVIEW OF INDIA’S
underserved sections MERCHANDISE TRADE’ REPORT
• On-tap licensing: It was introduced in 2016 to allow
banks to apply for banking licenses with the RBI • Report, released by Global Trade Research Initiative
throughout the year. (GTRI), assesses impact of international disruptions and
o Prior to this, banking licenses were granted upon domestic hurdles and reviews market shifts in trade
invitation of applications by RBI to prospective performances.
players. • Report also highlights varied impact of Free Trade
• Eligibility for SFBs to transitioning into UBs Agreements (FTAs) on India’s global trade dynamics.
○ Net Worth: SFBs must have a minimum net worth • About FTAs
of Rs 1,000 crore. o FTAs are treaties between two or more countries
○ Status: SFBs must be scheduled banks with a to reduce or eliminate certain barriers to trade and
satisfactory track record of performance for a investment, and to facilitate stronger trade and
minimum of 5 years. commercial ties between participating countries.
○ Financial Health: o It can cover areas such as trade in goods, services,
✓ Profitability: Should have net profits in the intellectual property rights (IPRs), etc.
last two Financial Years. • Key findings of the report on India’s FTAs
✓ Asset Quality: Gross non-performing assets (G- o India's merchandise imports from FTA partners
NPA) and net NPA (N-NPA) must be less than grew by ~38% whereas exports grew by just
~14.5%.
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 o FTA with Asean (signed in 2010), saw growth in • About AEO program
imports at a faster pace than exports. ○ It is under the aegis of the World Customs
o Overall, India ranked 17th globally in merchandise Organization (WCO) SAFE Framework.
exports whereas it is ranked 8th in merchandise ○ Aims to enhance international supply chain
imports. security and facilitate movement of legitimate
• Issues with India’s FTAs goods.
o Lower FTA utilisation: India’s FTA utilization ○ It is in sync with the commitments made under the
remains low at around 25%, as against 70-80% for World Trade Organisation trade facilitation
developed countries. agreement.
o Higher compliance cost: Due to complex ○ It enables Indian Customs to enhance and
certification processes and rules of origin. streamline cargo security through close
o Non-tariff barriers (NTBs): Persistence of stringent cooperation with the principle stakeholders of the
standards, sanitary and phytosanitary measures international supply chain.
and technical barriers by partner countries like
Japan. 3.6.5. INDIA INTERNATIONAL BULLION
o Limited awareness: Inadequate promotion and EXCHANGE (IIBX)
outreach activities about of FTA benefits among
• State Bank of India has become the first trading-cum-
exporters.
clearing member at IIBX.
o Bullion refers to physical gold and silver of high
purity that is often kept in form of bars, ingots, or
coins.
• About IIBX
o Established at GIFT International Financial
Services Centre (IFSC), Gandhinagar, Gujarat in
2022.
o Regulated by IFSC Authority (IFSCA).
o Promoted by India’s leading market infrastructure
institutions like National Stock Exchange, Multi
Commodity Exchange of India etc.
o Benefits
✓ Gateway to import bullion into India.
✓ Provide world class bullion exchange
ecosystem to promote bullion trading,
investment in bullion financial products and
vaulting facilities in IFSCs.

3.6.6. INDIA VOLATILITY INDEX (VIX)

• Recently, India VIX surged above the critical threshold
of 21, indicating heightened volatility in India’s stock
market.
• About India VIX
o It is a measure of the amount by which an
underlying Index is expected to fluctuate, in the
near term (30 calendar days).
✓ Higher the India VIX values, higher the
expected volatility and vice-versa.
o It is based on index option prices of NIFTY.
o Uses computation methodology of Chicago Board
3.6.4. AUTHORISED ECONOMIC of Options Exchange (CBOE).
OPERATOR (AEO) STATUS ✓ CBOE was first to introduce a volatility index
for US markets in 1993.
• The Centre has extended AEO status to the gem and
jewellery sector.
34 www.visionias.in ©Vision IAS
3.6.7. COST INFLATION INDEX (CII) • Challenges/Issues related to Critical Energy Transition
Minerals
• CBDT Notifies CII For Financial Year 2024- 25 for o Geographical concentration: Few countries have
calculating long-term capital gains (LTCG). major reserves; it may exacerbate geopolitical
o LTCG is the profit arising from the sale of a capital tensions and supply chain disruption.
asset (i.e., Stocks, Bonds, jewellery, buildings, ✓ E.g. Lithium triangle- consists of Argentina,
etc.) held for a duration of 12 to 36 months (based Chile and Bolivia
on the asset type) o Unsustainable Mining and processing: It can lead
• About CII to water pollution, destruction of ecosystems, etc.,
o CII is notified under the Income-tax Act (1961) and human rights issues (such as child labour).
every year. o Growing Demand: Mismatch in demand and
o It is used by taxpayers to compute gains arising out supply.
of sale of capital assets after adjusting for ✓ According to the International Energy Agency,
inflation. demand of critical mineral is set to grow by
three and a half times by 2030.
3.6.8. PARADOX OF THRIFT (POT)
THEORY
• This Economic theory was popularised by British
economist John Maynard Keynes.
• About PoT
○ A rise in individuals’ savings, by reducing the
amount of money spent on goods and services, can
cause a fall in overall savings and investments.
○ It believes that higher savings is bad for the wider
economy and an economy can grow only by
boosting consumer spending.
• Criticisms of PoT
○ It ignores the potential for saved income to be lent
out by banks.
○ It also ignores the potential of inflation and
deflation in an economy.

3.6.9. UN PANEL FOR CRITICAL ENERGY

TRANSITION MINERALS
• The United Nations (UN) appointed panel on Critical
Energy Transition Minerals.
• The Panel aims to bring all stakeholders across the
entire critical energy transition minerals value chain to
develop a set of global common and voluntary
principles for energy transition.
o It will address issues relating to equity,
transparency, investment, sustainability and
human rights.
• The panel comprises Government and
intergovernmental actors including the European
Union, African Union, Australia, Indonesia, Colombia, 3.6.10. DRIP PRICING
India, etc. • The Department of Consumer Affairs has issued a
• Critical Energy Transition Minerals are essential warning against drip pricing.
components in many of today’s rapidly growing clean • About Drip Pricing
energy technologies, from wind turbines and solar o It is a pricing technique in which firms advertise
panels to electric vehicles. only part of a product’s price and reveal other
o E.g. copper, lithium, nickel, cobalt etc. charges later as the customer goes through the
buying process.
35 www.visionias.in ©Vision IAS
 o It is used as a tactic to attract customers into o TTCI is flagship index of WEF that has been in
initiating the purchasing process production since 2007.
o It has been identified as a dark pattern under • India's rank improved to 39 in 2024 from 54 in 2021.
Guidelines for Prevention and Regulation of Dark
Patterns, 2023. 3.7.12. ISHAN INITIATIVE
✓ A Dark pattern refers to practices adopted by • The Airports Authority of India (AAI) has started work
online platforms that mislead people into on ISHAN (Indian Single Sky Harmonized Air Traffic
paying for items or services they did not intend Management) Initiative.
to do originally. • About ISHAN
3.6.11. TRAVEL & TOURISM o It involves Combining India's four Flight
Information Regions (FIRs) into a single system
DEVELOPMENT INDEX, 2024
overseen from Nagpur.
Travel & Tourism Development Index (TTDI), 2024 was ✓ Currently, Indian airspace is divided into 4 FIRs
released by the World Economic Forum (WEF). i.e. Mumbai, Kolkata, Delhi, Chennai, and a
sub-FIR in Guwahati, each managed
About TTDI, 2024
separately.
• TTDI measures the set of factors and policies that o Unifying these FIRs under a single authority in
enable the sustainable and resilient development of Nagpur is projected to improve efficiency, safety,
Travel and Tourism. and seamlessness in air traffic operations.
• It is the second edition of an index that evolved from
the Travel & Tourism Competitiveness Index (TTCI)
series.

36 www.visionias.in ©Vision IAS

 3. Economy
3.1 The Wrong Way to Fight Inequality
Context:
❖ Recently, French economist Thomas Piketty, along
❖ Relevance For Prelims: Gini coefficient,
with a few other economists, came out with some
Lorenz Curve, Wealth tax
startling findings on economic inequality trends in
India over the last century. ❖ Relevance For Mains: Income Inequality in
India and its causes
Overview of Income and Wealth Inequality in India:
❖ Wealth and Income Inequality Statistics 2022: In 2022, the top 1% owned 40.1% of total wealth and
earned 22.6% of total income, while the bottom 50% owned only 6.4% of wealth and earned 15% of
income.
❖ Wealth and Income Disparity Analysis: The fate of the bottom 50% looks even worse when compared
with the top 10% who owned 65% of total wealth and earned 57.7% of total national income.
❖ Addressing Inequality: Such disparity prompts calls for a wealth tax on the rich to address regressive tax
policies.
Economic Growth and Inequality Trends:
❖ Inequality Surge: Inequality surged since the 1980s with the adoption of market policies, contrasting with
stagnant growth during socialist decades.
➢ For example, the share of the bottom 50% in total national income dropped from 23.6% in 1982 to
15% in 2022, while the income share of the top 10% rose from 30.1% to 57.7% during the period.
❖ Stagnant Economic Growth in India: Economic growth in India was stagnant in the socialist decades, and
began to rise only after 1990.
❖ India's Growth Shift: Piketty and others note that India’s economy grew at a miserable 1.6% per year
between 1960 and 1990, but at a much stronger 3.6% per year between 1990 and 2022.
❖ Increase in Real incomes: Despite the bottom 50% losing share of national income (from 23.6% to 15%
since 1982), their real income increased over four-fold between 1991 and 2022.
➢ The size of India’s total economic pie has grown so much in the last 30 years that the bottom 50%
now enjoys higher real income despite receiving a much lower share of national income.
❖ Income Share Trends: The trend in income shares of different groups since the 1980s shows that the bottom
50% does not enjoy as much economic freedom as the top 1% or even the top 10%.
❖ Income Disparity in India:Piketty estimates that the top 1% income earners in India earn ₹53 lakh on
average annually while the bottom 50% earners earn just ₹71,000.
Barriers to Economic Mobility:
❖ Disparity in a Free Market: In a free market economy, such stark differences in income levels would
present lucrative arbitrage opportunities and help close the gap between the richest and the poorest.
➢ For example, seeing that neurosurgeons in India earn several millions of rupees each year, more
people from lower income groups would try to become neurosurgeons.
❖ Facilitating Upward Mobility: Liberalizing sectors like finance and education could facilitate upward
mobility by enabling investment in high-paying skills.

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❖ Labor Mobility and Supply Constraints: A hefty tax on neurosurgeons to redistribute income, on the
other hand, will only impede the movement of labor towards high-paying jobs and even shrink the current
supply of neurosurgeons.
❖ Property Rights and Income Mobility: Bottom 50% enjoy very little protection of their property rights,
which makes it hard for them to even make a living, let alone to climb up the income ladder.
Inevitability of Wealth Inequality:
❖ Wealth Disparity in India: India’s top 1%, on average, possesses a net wealth worth ₹5.4 crore while
people in the bottom 50% are worth just ₹1.7 lakh.
❖ Market Economy Dynamics: Wealth inequality is inevitable in a market economy as the market rewards
people who are better at investing or allocating capital.
❖ Government Bias: India’s extreme wealth gap is exacerbated by government favoritism toward the top
1%, hindering competition and exacerbating disparities.
Impact of Wealth Tax:
❖ Capital Investment Reduction: Investors can actually shield themselves from higher taxes (including
wealth tax) by lowering the amount of capital they invest in any venture based on their expected post-tax
income.
❖ Impact on Worker Income and Output:People who would really be affected by higher taxes on the wealthy
would then be workers and landowners who will be paid lesser in order to maintain investor returns.
➢ The tax would thus indirectly affect the income of ordinary workers, most of whom belong to the
bottom 50% or the middle 40% of the population, and hence also affect their output.
❖ Wealth Tax Limitation: Additionally, most of the top 1% 's wealth is in capital assets, not consumer goods,
so taxing them wouldn’t directly address low living standards.
Way Forward:
❖ Eliminating Special Privileges: So, the way forward then is to get rid of such special privileges and allow
more competition in the economy.
❖ Encouraging Competition: This would naturally reduce the wealth share of the top 1% and also benefit
the wider economy since competition ensures that the best investors rise to the top of the wealth hierarchy
and enlarge the size of the economic pie in the process.
❖ Empowering the Poor: Instead, offering greater economic freedom to the poor would enable them to
compete better in the market and claim a larger share of the economic pie.
Conclusion:
Addressing barriers to economic mobility and fostering competition could offer more sustainable solutions to
reduce inequality and improve living standards for all.

3.2 Crisis in Indian Spices Sector

Context:
❖ Relevance For Prelims: Ethylene Oxide,
❖ Recently, there has been a notable rise in the International Organization for Standardization
rejection of Indian spice shipments in various (ISO), Food and Agriculture Organization
countries. (FAO).
Faced Allegations: ❖ Relevance For Mains: Spices market of india,
❖ US Shipment Rejection: In the past six months, Challenges faced by Indian Spices sector
about one-third of Mahashian Di Hatti (MDH) Pvt
Ltd’s spice shipments to the US were turned away due to salmonella contamination.

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❖ Hong Kong’s Action: Hong Kong’s Centre for Food Safety suspended the sale of three MDH spice blends
(Madras curry powder, Sambhar masala and curry powder masala) and Everest fish curry masala.
❖ Singapore and Hong Kong Suspensions: Both have suspended the sale of several products from both MDH
and Everest Food Products Pvt Ltd due to alleged detection of a cancer-causing pesticide (ethylene oxide)
in their products.
❖ Investigation on Contamination: Various countries (including Singapore, Hong Kong and the U.S.) have
announced an investigation into possible contamination of spice mixes sold by top Indian brands.
➢ The complaints cite the presence of ethylene oxide, a toxic chemical used as a food stabilizer, beyond
permissible limits.
India’s Response to Spice Contamination:
❖ Spice Board of India Initiatives: It has initiated mandatory testing of products shipped abroad and is
reportedly working with exporters to identify the root cause of contamination.
❖ Inspection: Thorough inspections at exporter facilities are also underway to ensure adherence with
regulatory standards.
❖ Preventing Measures: Preventing ethylene oxide (EtO) contamination by voluntary testing of EtO during
raw and final stages; EtO treated products to be stored separately; to identify EtO as a hazard and incorporate
critical control points in hazard analysis.
❖ FSSAI Action: The FSSAI has directed state regulators to collect samples of major spice brands, including
MDH and Everest, to test for the presence of EtO.
About Spices:
❖ Spices are defined as plant derived substances that add flavor to any dish.
❖ Spices are primarily used as food flavoring (cloves, black pepper) or to create variety. They are also used in
perfume cosmetics (Saffron, sandalwood) and incense (cinnamon, styrax). At various periods, many spices
were used in herbal medicine.
History & Evolution of Indian Spices:
❖ Ancient Origins: The use of spices in India can be traced back to ancient times (as far back as the Indus
Valley Civilization) and used for culinary and medicinal purposes.
➢ Trade Routes: India has a strategic location on ancient trade routes, including the Silk Route,
facilitated the exchange of spices and relations with other civilizations.
➢ Ayurvedic Influence: Many spices were believed to possess medicinal properties and were used to
treat various ailments.
❖ Arab and Persian Influence: During the medieval period, they played a significant role in further
disseminating Indian spices to the West, which then flourished and became luxury commodities in Europe.
❖ European Influence: In the 15th century, European powers, particularly the Portuguese, Dutch, and later
the British, sought direct access to India's spice-producing regions, which led to the exploration and
establishment of maritime trade routes, contributing to the Age of Exploration.
❖ Colonial Powers: European colonial powers aimed to control the spice trade, leading to the establishment
of trading posts and colonies in India.
Post-Independence:
❖ India continued to be a major player in the global spice market.
➢ India is known for producing a wide variety of spices due to its diverse climate and geography.
Example: Spices like black pepper, cardamom, cinnamon, cloves, turmeric, cumin, etc.

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 ➢ Global Influence: The use of Indian spices is widespread in international markets and cooking.
Spices Market of India:
❖ Status: India is the world's biggest exporter, producer and consumer of spices, and its domestic market
for the products was valued at $10.44 billion in 2022.
➢ India produces 75 varieties out of 109 varieties, listed by the International Organization for
Standardization (ISO).
❖ Export: The top three importers of India’s curry powders and mixtures, in the fiscal year 2022-23, include the
U.S. (₹196.2 crore), U.A.E (₹170.6 crore) and U.K. (₹124.9 crore).
❖ Major Exported Spices:
➢ Pepper, cardamom, chilli, ginger, turmeric, coriander, cumin, celery, fennel, fenugreek, garlic,
nutmeg & mace, curry powder, spice oils and oleoresins.
❖ Largest Spices Producing Indian States:
➢ Madhya Pradesh, Rajasthan, Gujarat, Andhra Pradesh, Telangana, Karnataka, Maharashtra, Assam,
Orissa, Uttar Pradesh, West Bengal, Tamil Nadu and Kerala.
Significance of Spices for India:
❖ Economic Growth:
➢ Export: India is one of the world's largest spice exporters, and its spices are in high demand globally.
India exports its spices to more than 150 countries, with the US, China, Vietnam, UAE, and Malaysia
being some of the largest markets.
➢ Employment: The spices sector provides livelihoods to millions of farmers, traders, and laborers
involved in its cultivation, processing and marketing.
➢ Value Addition: India has moved up the value chain from exporting raw spices to offering value-added
products like spice oils, oleoresins, culinary pastes, and ready-to-use spice mixes, among others.
❖ Cultural Significance:
➢ Cultural Heritage: Spices have a rich cultural heritage in India. They have been an integral part of
Indian culture for centuries, used not only in cuisine but also in traditional medicine, rituals, etc.
➢ Health Benefits: Turmeric is valued for its anti-inflammatory properties, and ginger is used to aid
digestion.
➢ Spice Blends: Spice blends like garam masala and curry powder are at the heart of Indian cooking and
are carefully crafted combinations of spices that lend distinctive flavors to dishes.
➢ Regional Variations: Spices play a central role in defining regional cuisines and adding depth to local
flavors.
Challenges faced by the Indian Spices Sector:
❖ Economic Concerns:
➢ Immediate Risk: Delhi-based think tank Global Trade Research Initiative (GTRI) said that nearly $700
million worth of exports are at stack due to regulatory actions in critical markets.
➢ China’s Impact: If China follow Hong Kong, Indian exports could see a “dramatic downturn”. This
could affect exports valued at $2.17 billion – about 51.1% of the country’s global spice exports.
➢ EU’s Influence: It could further worsen if the European Union, which it states, “regularly rejects Indian
spice consignments over quality issues”, follows suit.

83
 ➢ Total Potential Losses: The impact could be an additional $2.5 billion, bringing the total potential losses
to 58.8% of global exports.
❖ Quality & Standard Maintenance: One of the major challenges in the spices sector is maintaining high-
quality standards and meeting the stringent pesticide residue norms of importing countries.
❖ Food Safety Concerns: Food safety is a paramount concern for consumers worldwide, particularly in
developed nations where stringent regulations ensure product safety. Indian spice exporters encounter
challenges in assuring consumers of the safety and hygiene of their products.
➢ More than seven in 10 Indians are worried about the quality and safety of the spices they consume,
according to a recent Local Circles survey that documented responses from 12,300 people across 293
districts.
❖ Traceability and Transparency: The fragmented nature of India's spice supply chain presents challenges
in achieving full traceability and transparency. Lack of standardized documentation, inadequate record-
keeping practices, and informal trade channels hinder Indian exporters' ability to provide verifiable
traceability data.
❖ Tariffs & Trade Barriers: Tariffs and trade barriers imposed by developed countries pose significant
obstacles for Indian spice exporters. Despite being a major producer and exporter of spices, India faces
stiff competition from other exporting nations.
❖ Price Volatility & Competition: The global spice market is highly competitive and Indian exporters often
face challenges related to price volatility, influenced by factors such as crop yield, weather conditions, and
currency fluctuations.
❖ Operational and Logistic Barriers: Many companies struggle to trace ingredients, especially raw
agricultural commodities, due to the lack of standardized recordkeeping and intentional food fraud.
❖ Societal Impact: In the event of potential losses, farmers of such crops too could find themselves at the
receiving end. Such instances will burden the farmer.
Way Forward:
❖ Good Agricultural Practices (GAP) & Organic Cultivation: To address quality and standard issues, there
is a need to focus on GAP and organic cultivation for spices.
❖ Strict Regulations & Safety Checks: To address the arising mistrust around FSSAI, there is a need for
stricter regulatory measures and transparency in food production and safety industry standards.
❖ Adopt Alternatives to Ethylene Oxide in Food Processing: Exploring safer chemical alternatives that have
similar antimicrobial properties without carcinogenic risks is crucial.
➢ Substances such as ozone, hydrogen peroxide, or heat treatments could serve as potential replacements
for ethylene oxide in certain applications.
❖ Adequate Investment: By prioritizing investments in quality infrastructure, implementing stringent food
safety measures, enhancing traceability and transparency, and aligning with market trends, Indian spice
exporters can overcome these hurdles and unlock the vast potential of developed markets for India's rich
array of spices.
❖ Sustainability: As global awareness about environmental issues and sustainability grows, there is an
opportunity for India to expand its share in the organic spices market.
➢ There is a need to implement sustainable farming practices that can also help preserve biodiversity and
reduce environmental impact.
❖ Market Diversification: Exploring new markets and creating demand for lesser-known spices is required
and could help in reducing dependence on traditional markets.

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Conclusion:
The recent controversies “collectively underscore the persistent nature of food safety challenges across various
sectors of the food industry”. There is a need to ensure standard food safety and address the issue of
contamination at the earliest.

3.3 Online Gaming Sector in India

Context:
❖ The Prime Minister’s vision to establish India as a ❖ Relevance For Prelims: IT (Intermediary
prominent global gaming hub has received renewed Guidelines and Digital Media Ethics Code)
attention as he engaged with seven of the top gamers Rules, 2021,‘India Techade, Digital India,
in the country. Goods and Services Tax
Key Takeaways from the Discussion: ❖ Relevance For Mains: Game of skill and
❖ Promoting Indian Games & Women's Inclusion: Game of chance, Online gambling in India
Some of the key takeaways from the discussion
included the opportunity offered by the increasing number of games based on Indian mythology and the
scope to encourage the participation of women, besides fostering innovation.
❖ Gaming Career Perception: The players also highlighted the issue around the perception of gaming as a
career in India.
Rapid Growth of Online Gaming in India:
❖ Growth in Indian Online Gaming Industry: The online gaming industry in India has seen a rapid expansion
of 28% CAGR between FY20 and FY23. Projections indicate further growth to ₹33,243 crore by FY28,
with a sustained 15% CAGR.
❖ Catalyst for Investment and Employment: This sector not only attracts significant foreign and domestic
investments but also generates substantial direct and indirect employment. Leveraging India’s IT prowess,
the industry holds natural potential for India.
❖ Enormous Growth Potential: Significantly, although the global gaming industry surpassed $300 billion in
2021, surpassing the combined markets of the movie and music industries, the online gaming sector in India
only accounts for 1.1% of the global online gaming revenue. Therefore, there is immense potential for
expansion.
❖ India's Tech and Economic Goals: Online gaming presents a significant multi-billion-dollar opportunity
for Indian start-ups and can also serve as a crucial component of 'India Techade' and the aspiration for a $1
trillion digital economy.
❖ Advancements in Gaming Sector: The sector has experienced various favorable advancements, such as the
formation of the Animation, Visual Effects, Gaming, Comic, and Extended Reality.
Challenges Associated with Online Gaming Industry:
❖ Implementing IT Rules of 2021: Despite the provision of self-regulatory bodies within the IT Rules of
2021 intended to regulate the industry, the effective implementation of these rules is pending, thus nullifying
their intended impact.
❖ Taxation Uncertainty: The gaming industry, especially startups, faces uncertainty due to recent tax
changes.

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 ➢ In a meeting held by the Goods and Services Tax Council in July 2023, it was decided to impose a
28% tax rate on the total face value of bets, irrespective of whether the activity is deemed a game of
skill or chance.
➢ Before this, online gaming firms in India were subjected to an 18% GST rate since the introduction of
the indirect tax system in July 2017.
❖ Tax Impact on Industry Sustainability: Though initially boosting tax revenue, this measure raises
apprehensions about the gaming industry's long-term viability and its potential impact on job creation
within the sector.
Way Forward:
❖ Leveraging India's Cultural Heritage: Significant advantage lies in tapping India’s rich cultural heritage
(stories, legends, and folklore).
➢ With an increasing number of games inspired by Indian mythology, there is a unique opportunity to cater
to domestic and international audiences.
❖ Promoting Women in Gaming for Diversity:There is a deliberate push to promote women's involvement
in the gaming sector, promoting diversity and inclusivity as perceptions regarding gaming as a viable
career choice evolve.
❖ Importance of Self-Regulation: In an industry driven by innovation and fast-evolving technology, the role
of self-regulation is crucial.
➢ NITI Aayog’s discussion paper with draft guiding principles for the online fantasy gaming sector also
proposed a self-regulatory model of governance with a self-regulatory organisation at its helm.
❖ Tapping Talented Individuals: India stands to benefit from a growing pool of talented individuals driving
innovation and pushing boundaries in the gaming landscape.
Conclusion:
India stands at the threshold of a transformative era in the gaming industry. By fostering an enabling
environment for skill gaming, promoting diversity and inclusion, and capitalising on its rich cultural narratives,
India can not only realise its vision of a $1-trillion digital economy.

3.4 The Debate Over Fiscal Transfers in India

Context: Sam Pitroda's discussion on inheritance tax in India sparks debate on fair wealth distribution and public
welfare resources.
Fiscal Transfers in India: ❖ Relevance For Prelims: Tax Devolution in
❖ Growing Resentment: There is rising resentment India
among southern states about fiscal transfers to poorer ❖ Relevance For Mains: Taxation in India,
northern states. Comparison of Taxation Implications in
❖ South Tax Movement: Argues southern states are India to the European Union.
penalized for better economic performance.
➢ For example, Karnataka gets only 15 paisa per rupee of tax paid, Tamil Nadu gets 29 paisa, while UP
gets Rs 2.73 and Bihar Rs 7.06.
❖ Major Concern: This is not just a North-South issue, but a rich vs poor state issue, with states like Gujarat
and Maharashtra also being net contributors.

86
Comparison to the European Union (EU):
❖ EU Tensions: Similar tensions exist in the EU between richer northern states and poorer southern/eastern
members.
➢ Richer countries like Germany, Netherlands, Sweden feel they they overcontribute compared to Greece,
Portugal, Spain, Eastern Europe.
➢ High fiscal contributions contributions by the UK possibly contributed to Brexit decision.
❖ Beyond Fiscal Transfers: However, fiscal transfers alone do not capture full costs and benefits of economic
union.
❖ Non-Fiscal Benefits for Richer EU States: Richer countries subsidize poorer ones through through transfers,
but also gain from expanded market and currency undervaluation.
➢ Expanded Markets: More industrialized countries get a large captive market to sell their products.
➢ Currency Advantage: Countries using the euro get competitive advantage as their labor becomes
relatively cheaper.
➢ Examples: Germany's growth 0.5% higher per year due to euro. Similar benefits for Austria,
Netherlands, Denmark.
Parallel Benefits for Richer Indian States:
❖ Higher Productivity: Richer states (Gujarat,Maharashtra, Punjab, Haryana, Haryana, Delhi, Southern states)
have 3-4 times higher labor labor productivity than poorer ones (Bihar, UP, Jharkhand, Rajasthan, MP).
➢ This attracts more investment and faster growth, making convergence difficult.
❖ Captive Market: Businesses in richer states get a large captive internal market, enhanced by GST
introduction.
➢ Example: Companies from Coimbatore, Bangalore, Chennai can sell across India due to higher
productivity.
❖ Benefits of Internal Migration:
➢ EU Benefits: Free internal migration estimated to increase EU income by €100-230 billion over 10
years.
➢ Indian Benefits: In India, labor migration from poorer to richer states benefits both. Migrants fill jobs
locals won't do anymore, allowing locals to move to higher-skilled, better-paid work.
❖ Restrictions Reduce Welfare: Restricting jobs to locals, as proposed by some states, reduces overall welfare.
Non-Economic Factors and Representation:
❖ Beyond Economics: Economics alone does not drive tensions within a union (e.g. non-economic factors in
Brexit).
❖ Representation Gap: India has not adjusted state-wise allocation of parliamentary seats since 1991 census.
After 2026, disparity between actual and population-based seats will be huge due to faster northern
population growth.
❖ Seat Shifts: Bihar, UP, MP, Jharkhand, Rajasthan would gain gain 30+ seats, while southern states,
Odisha, West Bengal lose.
❖ Possible Solutions: Increase total seats, divide larger states, give smaller states more Rajya Sabha seats.
Way Forward:
❖ Recognize Benefits Benefits: Richer states must recognize non-fiscal benefits of Indian union, even as they
subsidize poorer states.

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❖ Widening Gap: Real issue is the widening gap between richer and poorer states despite fiscal transfers.
❖ Improve Key Areas: Improving education, health, infrastructure is is key to attracting investment to poorer
states.
❖ Targeted Transfers: 16th Finance Commission must ensure transfers are directed at addressing these gaps.
Conclusion:
Addressing fiscal disparities in India requires recognizing non-economic factors, improving representation, and
targeted investments to bridge the gap between richer and poorer states effectively.

3.5 The Contrasting Realities of Indian Railways

Context: The Indian government recognized the need for railways modernization and embarked on an ambitious
mission to transform from existing trains into world-class
transportation. ❖ Relevance For Mains: History of
History of Indian Railways: Indian Railways, Issues with Indian
❖ Colonial Beginnings: Established in 1853 by the British railways
for colonial interests. Once had a more developed network
than China.
❖ Decline and Stagnation: Now struggling to compete with China's infrastructure.
Main Issues Facing Indian Railways:
❖ Capacity: Overcrowding, especially in non-AC coaches.
❖ Speed: Poor track network limiting train speeds.
❖ Safety and Delays: Accidents, vacant safety-related related posts, and frequent delays.
➢ Track Capacity: 40% of tracks operating beyond capacity.
➢ Accidents: Majority of accidents caused by derailment due to poor track system.
➢ Safety Personnel: Vacant safety-related posts and limited anti-collision systems.
➢ Delays: Delays causing significant loss of time for passengers.
❖ Railway Finance: Operating at a loss, cross- subsidization, and project delays.
➢ Operating Ratio: 107 (spending Rs 107 to earn Rs 100).
➢ Cross-subsidization: Between freight and passenger services.
➢ Capital Investment: Dependence on budget and loans for infrastructure.
➢ Project Delays: Increasing costs.
➢ Revenue Loss: Due to ticketless travel.
Way Forward:
❖ Infrastructure Investment: Investment in infrastructure
❖ Manufacturing Model: Adoption of China's manufacturing model
❖ Mission Raftaar: Mission Raftaar to increase train speeds
❖ High-Speed Tracks: Development of high-speed compatible tracks
Conclusion:
With concerted efforts and strategic planning, Indian Railways can usher in a new era of efficiency, safety, and
modernization, fulfilling its critical role in India's economic development and societal connectivity.

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3.6 Investment Lessons from the India-EFTA Trade Deal
Context:
❖ Relevance For Prelims: Free Trade Agreement,
❖ Recently, India made a historic trade deal with
Tariff and Non-Tariff barriers, European Free
the European Free Trade Association (EFTA),
trade agreement.
comprising Iceland, Liechtenstein, Norway and
Switzerland. ❖ Relevance For Mains: Challenges associated
with Free trade Agreements, Foreign Direct
Free Trade Agreement between India and EFTA: Investment
❖ Environment and Labor Integration: India has
agreed to include issues such as environment and labor, which it has traditionally opposed incorporating in
trade agreements.
❖ Emphasis on Investment Facilitation: India-EFTA FTA includes a detailed investment chapter, which is
missing in the other recent Indian FTAs.
➢ It focuses on investment facilitation issues, not investment protection.
❖ FDI Commitment from EFTA Nations: India has managed to extract a promise from the EFTA countries
that they shall “aim to” increase foreign direct investment (FDI) to India to $50 billion within 10 years of
the FTA coming into force.
➢ Followed by another $50 billion in the succeeding five years.
❖ Commitment to Job Creation in India: Article 7.1(3)(b) of the investment chapter provides that the EFTA
states shall “aim to” facilitate the generation of one million jobs in India.
➢ These articles codify obligation of conduct — an obligation to make an honest endeavor towards
achieving a goal, notwithstanding the outcome or the result.
➢ EFTA countries are legally obligated to make an honest effort to invest $100 billion and generate one
million jobs in India.
India’s Free Trade Agreement:
❖ Binding Trade and Investment Rules:FTAs routinely contain binding rules on both trade and investment.
➢ India’s FTAs signed in the first decade of this century with countries such as Japan, Korea, Malaysia
and Singapore are based on this economic logic.
❖ Investment Protection: In addition to binding trade rules, they all contain an investment chapter with
provisions for protecting investment.
❖ FTA 2.0: India decoupled international trade law from international investment law.
➢ FTAs with Australia, Mauritius, and the UAE which contain binding trade but not investment rules.
❖ Separate Deals for Trade and Investment: India’s approach seems to be to have separate agreements on
trade and investment with the same country.
➢ This is most markedly seen in the case of the UAE. After signing the FTA with the UAE in 2022, New
Delhi and Abu Dhabi entered into a bilateral investment treaty earlier this year.
❖ India-UK Decoupling: Decoupling approach to the U.K. where trade and investment agreements are
seemingly negotiated as two disparate treaties.
Way Forward:
❖ Need for a clear FTA Policy: India needs a clear FTA policy, especially in dealing with international trade
and foreign investment laws.

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❖ Integrating Trade and Investment: India expects not just trade but also higher investment flows from a
particular country, few critical elements must be incorporated into its FTA policy:
➢ India should negotiate trade and investment as part of one comprehensive economic treaty.
➢ Decoupling trade from investment is not a good idea
➢ Combining the two would give India a clear negotiating leverage to strike a beneficial deal.
➢ For example, India can argue that it needs more concessions in trade in return for offering something
on investment or vice-versa.
❖ Strengthening Investment Protection: India should consider expanding the scope of investment issues
from mere facilitation to effective protection, with an efficacious dispute settlement mechanism under
international law.
❖ Boosting Investor Confidence: Providing enforceable legal protection to foreign investors under
international law will boost confidence.
❖ Importance of Clear FTA Policy: Given the decline in foreign direct investment levels in India, a well-
defined and inclusive FTA policy is crucial to propel the country towards a path of heightened economic
growth.
Conclusion:
By prioritizing investment facilitation alongside trade promotion, India can unlock new opportunities for
economic development and strengthen its position in the global economy.

3.7 Minimum Wage in India

Context:
The Government of India’s decision to replace the minimum wage in the country with a scientifically calculated
living wage by 2025, with expertise from the International Labour Organisation (ILO), is welcome.
Reforming India's Minimum Wage Policy:
❖ Relevance For Prelims: Minimum Wages
❖ Minimum Wage: The minimum wage is the lowest
Act, Dearness Allowance, Inflation,
hourly, daily, or monthly pay rate that companies are
Employees’ Provident Fund Organization,
legally required to provide to their employees.
Female workforce participation rate
❖ India's Minimum Wage Disparity: India’s National
❖ Relevance For Mains: Issues with
Floor Level Minimum Wage (NFLMW) of ₹176 ($2.1)
Minimum wages in India, Global Examples
per day, last updated in 2017, is one of the lowest in the
of Minimum wages
Asia-Pacific region, surpassed by China’s $11.9,
Vietnam $6.5 and even Bangladesh’s $3.7.
➢ Brazil’s minimum wage of $47 per day is closer to the figure in developed economies like Australia
($14.8 per hour), the UK ($14.1) and the US ($7.2).
❖ Adjusting Dearness Allowance: Despite India's stagnant minimum wage, the government regularly adjusts
the dearness allowance (DA) for central government employees to counter inflation. In March 2024, it was
last raised by 4%, along with associated allowances.
❖ Need to Align India's Minimum Wage: It’s time India aligns the floor minimum wage of ₹176 per day
with the cost of living and inflation, or replace it with a living wage considering expenses on food, transport,
housing, education, healthcare, etc, as defined by ILO for a decent standard of living.

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Need For Increasing Minimum Wage:
❖ Impact of Wage Norms on Indian Workforce: With low female workforce participation and most formal
jobs offering mostly minimum wages to skilled/semi-skilled employees, while a few highly skilled workers
earn above it.
➢ Current wage norms impact the majority of India’s workforce and particularly households that rely on
a single earner.
❖ Social Benefits of Wage Reform: Socially, it could alleviate poverty, reduce inequality and improve living
standards.
❖ Increased Spending and Demand Boost: Economically, increased incomes are likely to boost spending
and stimulate the Indian economy. While initial savings may limit the immediate spending impact,
sustained wage growth could eventually drive up demand, particularly for affordable housing, and lead to
increased mortgage loans and home ownership over time.
Impact of Wage Hikes:
❖ Wage Hike Effects:A study conducted in Indonesia discovered that increases in wages led to reductions
in work hours and formal employment, while a South African study on domestic workers revealed that wage
hikes had minimal effects on employment levels.
❖ Impact of Minimum Wage Hikes on India's Formal Sector: With a lack of India-specific studies, it’s
uncertain if minimum-wage hikes would hinder recruitment in the formal sector, where much emphasis is
placed on the value of human resources and larger firms have a greater capacity to pay more.
Way Forward:
❖ Enforcing Fair Living Wage Regulations: In introducing a mandatory fair living wage, strict enforcement
of wage regulations is crucial. Of India’s estimated 550-million-strong working population, only about a
fifth are formally employed, with the rest being self-employed and casual labourers.
❖ Government Support Measures for Compliance: Ensuring compliance across employee status, gender
and skill level would pose a challenge.
➢ Government support, such as tax waivers, could ease the economic strain on smaller businesses during
the initial phase of strict enforcement.
❖ Ensuring Social Security Benefits: Additionally, enhanced minimum wages should not be accompanied by
increased salary deductions for social-security benefits assured under provident fund and Employees’ State
Insurance Corporation (ESIC) arrangements.
❖ Utilizing ESIC Surplus: Rather, the government must abolish ESIC contributions by employees and
reduce the employer’s ESIC contribution from 3.2% to 1.5%, which could be done easily because the ESIC
has a ₹65,000 crore surplus (which has been going up by ₹8,000-9,000 crore annually)
❖ Revision of Employees' Provident Fund Contributions: For the Employees’ Provident Fund Organization,
the employee’s contribution should be reduced from 12% to 8% for monthly wages under ₹15,000,while
retaining 12% for those earning more, given that Indian workers display a preference for higher take-home
pay over social-security deductions.
Conclusion:
Once established scientifically, the country’s minimum or living wage should be adjusted to inflation every
two years. Strict implementation could help more individuals make the transition to formal employment, while
raising living standards overall and supporting economic growth.

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3.8 Catapulting India’s Biopharma Industry
Context: Amid the COVID-19 pandemic turmoil
❖ Relevance For Mains: Biopharma Industry in
from 2019 to 2021, the biopharmaceutical industry
India, Ucchatar Avishkar Yojana
became a global focal point.
Biopharmaceuticals and Status Biopharmaceutical Industry:
❖ About: Biopharmaceuticals are drugs and therapies synthesized from living organisms, which includes
vaccines, biologics, biosimilars and evolving therapies like cell and gene therapies.
❖ Growth of Global Biopharmaceutical Industry: The global biopharmaceutical industry has grown
significantly since 1982. Estimated at $528 billion, it is expected to grow at a compounded annual growth
rate in double-digits for years.
❖ India's Biotechnology Growth: India has replicated this growth, ranking among the top 12 biotechnology
destinations globally.
➢ In 2023, the Indian biopharma industry surpassed $92 billion, reflecting 15% growth from the
previous year.
❖ Drivers of Biopharma Industry Growth: This growth is driven by a rise in chronic diseases, higher
income levels, demand for better treatments and the advantages of biopharma over traditional medicine
(such as fewer side effects and greater effectiveness in treating chronic illnesses).
Need for collaborative efforts between the industry and academia:
❖ Extensive Research: The development and commercialization of bio-therapeutic products not only require
extensive research, but also clinical and non-clinical trials that adhere to regulatory norms, necessitating
academia and industry collaboration.
❖ Roles of Academia and Industry in Biopharma: While academia possesses skills in the research domain,
industry must play its expected role in the commercialization of research: i.e., manufacturing, testing,
approval and marketing.
❖ Academia's Drug Discoveries: Academia has also made significant contributions, laying foundations for
the development of several drugs.
➢ Drugs such as Paclitaxel, Vorinostat, Prezista, Viread and Dexrazoxane have their discovery origins
in academia.
Benefits of Collaborations between industry and academia:
❖ Collaborative Responses: The covid pandemic demonstrated the success of such collaborations in swiftly
developing life-saving vaccines and therapies.
➢ India’s first home-grown gene therapy for cancer, developed by IIT Bombay, Tata Memorial Centre,
and ImmunoACT, is another example.
➢ Programmes like the Pfizer-IIT Delhi Innovation and IP Programme and INDovation are good examples
of the larger pharmaceutical industry’s efforts to boost the domestic innovation ecosystem.
❖ Fostering Innovation through Collaborations: These collaborations foster innovation, as shown by the
incubation of 34 healthcare innovators and 19 intellectual property filings in diagnostics, drug delivery,
medical devices, and healthcare training.
❖ Building Talent for the Biopharma Sector: Additionally, industry-academia linkages also enable setting up
a framework for nurturing talent with the skill-sets needed to meet the current demands of industry and
prepare them for the biopharma sector’s innovation-driven future.

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❖ Establishing Global Pharma Centers: Several pharma and biopharma companies have established global
capability centers in India, employing around half a million professionals.
➢ These centers engage talent across various functions including research and development (R&D), drug
commercialization, manufacturing, supply chain management, physician and patient engagement,
business strategy, and digital operations.
Way Forward:
❖ Strengthening Industry-Academia Partnerships: Recognizing the advantages of robust collaborations
between industry and academia, it's crucial to emphasize the establishment of the Biotechnology Industry
Research Assistance Council (BIRAC) and the National Biopharma Mission (NBM).
➢ These initiatives bolster India's biopharmaceutical capabilities, striving for global competitiveness and
elevated healthcare standards through innovative product development.
❖ Promoting Continued Research: As we acknowledge our nation's strides in biotechnology, such as the
inception of a biotechnology department in 1986 and emerging as the third-largest biotech hub in the Asia
Pacific
➢ It's imperative to promote continued research, innovation, and accelerated drug development in the
biopharma domain.
❖ Enhancing Academic Technology Transfer: Empowering academic institutions, especially through
technology transfer offices (TTOs), can boost their technology transfer capabilities, facilitating the
translation of research into practical solutions and speeding up the transformation of scientific discoveries
into societal benefits.
❖ Boosting Innovation Funding in India: Funding for schemes like India’s Ucchatar Avishkar Yojana
should be increased to foster innovation among students and faculty in premier technological institutes.
❖ Recruitment Program for Overseas Indian Talent: To address the shortage of qualified faculty and
researchers, a programme similar to China’s Thousand Talent Programme could be used to recruit overseas
Indians from top global institutes with attractive incentives.
❖ Specialized Training in Biotech Regulations: Additionally, universities should implement specialized
training on legal and regulatory frameworks for new biotech interventions.
❖ Curriculum Integration: Integrating these into the curriculum will better prepare students for the
complexities of the biotech landscape and help nurture a skilled workforce to drive innovation and
research.
Conclusion:
Furthermore, increasing innovation funding, recruiting overseas Indian talent, and providing specialized
training in biotech regulations are essential steps to address challenges and nurture a skilled workforce.

3.9 Globalisation Under Threat: US Import Tariffs Have Dealth Free Trade A Heavy
Blow
Context: Recently, US President Joe Biden directed the
office of the US Trade Representative (USTR) to increase ❖ Relevance For Prelims: World Trade
tariffs on $18 billion worth of Chinese imports. Organization, Anti Dumping Duty
Undermining of Free Trade Principles: ❖ Relevance For Mains: Cold War 2.0, Trade
war
❖ Impact of Protectionism: The former US president
initiated a trade war with China in 2018 by imposing

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 tariffs to protect American jobs. This move benefited US metal manufacturers but negatively impacted
consumers.
❖ Punitive Duties against Chinese goods: The current US president has intensified trade barriers, increasing
import tariffs on Chinese electric vehicles from 27.5% to 102.5%, while also imposing punitive duties on
lithium batteries, computer chips, critical minerals, solar cells, and other goods.
❖ Global Implications of Protectionist Policies: What exacerbates the situation is not just its populism, fueled
by the prevalent rhetoric in US politics about jobs lost to authoritarian China, or the inevitable distortion it
will cause in user markets. It's the message it sends globally.
❖ Abandonment of Free Trade Leadership: With bipartisan support for this age-old policy tool, America
unmistakably relinquishes its position as the leading advocate of free trade.
❖ Justification of National Security: Though justified under the guise of "national security" – a common
loophole sought from WTO regulations – and in response to Beijing's "unfair" subsidies for clean-tech,
which ostensibly benefit the planet despite undercutting US businesses, the move signifies a significant shift
in global trade dynamics
Threat to Free Trade:
❖ Using Trade as a Weapon: America's expressed intent to boost imports from other nations, potentially
benefiting India, doesn't mitigate the impact of its anti-China stance, which not only embraces protectionism,
leading to increased costs, but also escalates trade as a weapon.
❖ Historical Lessons: This contradicts the principles advocated by economics, climate advocates, and
proponents of geopolitical pacifism.
➢ History reminds us that severing trade connections has precipitated conflicts, as witnessed a century
ago
❖ Political Motives in Trade Policies:There's a looming risk of history repeating itself, with the US dealing
another blow to free trade, motivated more by political objectives than economic rationale.
❖ Resilience of Free Trade Rationale:Despite the setback, free trade is underpinned by a rationale resilient
enough to withstand challenging geopolitical circumstances.
❖ Key to Economic Efficiency:Analogous to Adam Smith's pin factory illustration, wherein specialization
enhances productivity with fewer resources, an economy characterized by healthy competition and
specialization fosters efficiency and prosperity.
❖ Efficiency in Unrestricted Global Markets:Similarly, in an unrestricted global market, the dynamics of
supply and demand would drive efficiency on a global level, with competition driving costs down and
value creation up.
❖ Relative Advantage in Trade: Theoretically, producers need only a relative advantage to specialize
profitably, making trade advantageous for all participants, even if some lag behind others in certain areas.
❖ Challenges to Barrier-Free Trade: However, the reality falls far short of this ideal of barrier-free trade.
➢ In the United States, concerns about job outsourcing to low-cost factories elsewhere, coupled with
anxieties surrounding a new Cold War, have led to a narrow focus in policymaking, resulting in
dimmer prospects for all.
Navigating Dumping and Geopolitics in Trade:
❖ US Barriers Prompting Chinese Dumping: Steep US barriers may tempt China’s state-subsidized
manufacturers to dump stuff in India, perhaps partly for re-export to America.

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❖ Challenges of Detecting Dumping: Products sold below their cost of production are deemed to have been
dumped, and given Chinese opacity, this violation of trade rules isn’t easy to catch. Still, faced with cheap
shipments, we must not let geopolitics trump economics.
Recommendations For India:
❖ Balancing Economic Considerations: While New Delhi may also be considering measures to reduce
Chinese imports and capitalize on export opportunities, it's essential not to disregard economic rationale.
❖ Benefits of Affordable Chinese Clean-Tech: Affordable Chinese goods, particularly in clean-tech sectors,
have the potential to bolster not only the growth of our economy but also our environmental objectives.
Conclusion:
Ultimately, fostering an environment conducive to open and fair trade is essential for promoting economic
growth and prosperity for all nations involved. It requires a concerted effort to uphold the principles of free
trade while addressing legitimate concerns and challenges in the global economic landscape.

3.10 Biased Ratings of Credit Agencies

Context: The prejudice and bias by the credit rating agencies (CRA) is affecting India's credit rating, calling
for a reassessment by credit rating agencies.
Enron Scandal: ❖ Relevance For Prelims: Credit Rating
Agencies (CRA)
❖ Background: In 2001, Enron Corporation, a US
❖ Relevance For Mains: Role played and
company, filed for bankruptcy. This sent shockwaves
Challenges faced by India due to CRA
through America as it exposed widespread accounting
and auditing fraud by companies.
➢ The Enron scandal is considered the biggest corporate fraud in US history, leading to numerous
accounting and auditing reforms.
❖ Role of Credit Rating Agencies:
➢ Dubious Work: The dubious work of CRA allowed the Enron fraud to remain hidden.
➢ Promoting Investment: These agencies kept promoting investment in Enron while the company
engaged in massive accounting fraud.
➢ Hindering Development: The same CRAs are now hindering India's development.
What are Credit Rating Agencies?
❖ Assessing Financial Health: They assess the financial health of companies and countries.
➢ They assign ratings like AAA, AA, A, BBB, etc. based on factors such as profits, loans, and future
projections.
❖ Rating Implications: Higher ratings indicate stronger financial stability and a lower risk of default. These
ratings influence investors' decisions to buy bonds or lend money.
Factors Considered by Credit Rating Agencies Agencies for Countries:
❖ Per Capita Income
❖ GDP Growth
❖ Rate of Inflation
❖ External Debt

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Significance of Credit Ratings - Country Examples
❖ Somalia: It has a very low credit rating due to civil war, unstable government, and poor economic
conditions. Lenders are hesitant to give loans to Somalia, and if they do, the interest rates are very high.
❖ USA: The USA has a AAA credit rating due to its strong economy, stable government, and robust
financial system. Lenders are eager to lend to the USA at very low interest rates.
India's Challenges with Credit Rating Agencies:
❖ Hindering Development: For the past 20 years, credit rating agencies have been causing harm to India and
damaging its reputation.
❖ Stuck in BBB: India has been stuck in the BBB rating category for many years.
❖ Lower Ratings: Countries with weaker economies than India have been given better ratings than India. Ex-
Peru, Kazakhstan
How India is Being Harmed?
❖ Need for Loans: As a developing country, India needs loans for infrastructure development.
❖ Domestic Capital Raised: The Indian government has already raised capital from domestic sources, so it
needs debt from foreign institutions.
❖ Higher Interest Rates: With India's BBB rating, it can get investment but at higher interest rates.
The Risk of Rating Downgrades:
❖ Rise in Bond Yield: If India issues a bond and an institute buys it, but India's rating is downgraded, the
bond yield will increase.
❖ Future Bond Issues: In the future, if India needs to issue any bonds, it will have to raise capital at higher
bond yields.
❖ Economic Impact: This extra burden will directly impact the Indian economy.
India's External Debt and Private Companies:
❖ India's external debt to GDP ratio is approximately 18%: Indicating that Indian private companies are
mostly using external debt
❖ Higher Interest Loans to Companies: Many Indian companies, such as TCS, have an A rating.
➢ These companies could easily get loans at lower interest rates but they have to pay more because a
company's loan is based on the country's rating.
➢ This is one reason for low capital expenditure in India.
India's Finance Ministry Report and Economic Indicators:
❖ Ministry Report: In December 2023, India's Finance Ministry released a report questioning the biased
rankings of world rating agencies towards India.
❖ Deserve A rating: Considering all indicators of the Indian economy, it stated that India should have been in
the A rating category long ago.
❖ Strong Indicators: India is the 5th largest economy in the world, has never defaulted, has one of the fastest
growth rates, and inflation is in the range 4-5%.
Impact on Developing and African Countries
❖ Developing Countries: Many developing countries are also victims of biased credit rating agencies.
➢ A UN report confirms that these countries cannot raise capital for economic development due to low
ratings.

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❖ African Countries: African and poor countries are particularly affected by the biased ratings. Without
investment, the socio-economic development of these countries remains very backward.
Market Capture and Monopoly of Rating Agencies:
❖ Market Share: According to the UN report, Fitch, Moody's, and S&P have captured 92% of the global
market, which does not allow fair competition.
❖ US-Based Agencies: This monopoly allows them to provide ratings that benefit Western nations.
❖ Low Ratings: Developing countries ratings are kept in the low category
Criticism of Rating Methodology:
❖ Quantitative Parameters: Out of Moody's 18 parameters, only 5 are quantitative (based on factual
numbers).
❖ Qualitative Parameters: The remaining 13 parameters are qualitative, based on the subjective opinions
of experts who are mostly from Western countries. There are no objective criteria for selecting these experts.
Rating Shopping and Conflict of Interest:
❖ Rating Shopping: Studies have proven the existence of rating shopping, where false ratings are obtained
by paying money.
❖ Fines Imposed: Heavy fines have been imposed on agencies for this practice.
❖ Conflict of Interest: There is a conflict of interest because the clients of these agencies are mostly the
companies they rate.
Failure to Anticipate Crises:
❖ Purpose: CRAs were created to maintain financial stability in the world.
❖ Exposure: However, whenever major crises have occurred, these agencies have been exposed.
❖ Failure to Predict: They failed to anticipate crises and, on the contrary, gave good ratings to financially
unviable companies.
➢ Lehman Brothers Crisis in 2008, triggered the worst financial crisis.
India's Way Forward:
❖ Global Consensus: India should build consensus with the Global South for a transparent and independent
credit rating platform.
❖ Reform Existing Agencies: Pressure should be created to reform the methodology and governance of
existing credit rating agencies.
❖ Fair Chance: Only then will developing countries get a fair chance in the world economy.

3.11 Branding can Sweeten Indian Honey’s Prospects

Context:
❖ Relevance For Prelims: United Nations
❖ World Bee Day is celebrated every year on May
Environment Programme, National Bee Board,
20 to mark the birth anniversary of Anton Jansa,
World Bee Day
who has mastered the skill of beekeeping.
❖ Relevance For Mains: Farmers Producer
Status of Honey Production:
Organization, Challenges associated with Honey
❖ Role of Honey Bees in Global Food Production: production and exports, Steps taken by the
The honey bee is one of the most important species Government to enhance Honey Production

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 and is responsible for the production of about 70 percent of global food through pollination (UN
Environment Programme).
❖ Projected Growth of the Global Honey Market: The global market for honey is expected to grow at a
CAGR of 5.2 per cent, from $9 billion in 2023 to $13 billion in 2031.
❖ India's Honey Exports: India, being the seventh largest honey producer, exports around 75,000 million
tonnes of natural honey to major destinations including the US and the UAE.
❖ Decline of Honey Consumption in India: Despite its health benefits, per capita annual consumption of honey
in India has significantly declined after the pandemic and remains at 10 gm compared to developed
nations’ 3-4 kg.
❖ Registered Beekepers: About 14,000 beekeepers are registered on the Madhukranti portal of the National
Bee Board, with more than 200 registered societies.
Challenges Associated With Honey Production and Marketing:
❖ Marketing Challenges: From the growers’ perspective, low consumption and sluggish market growth are
discouraging and pose significant marketing challenges.
❖ Export Price Regulations for Indian Honey: The government recently imposed a minimum export price of
$2 per kg, while according to recent USDA data, US imports Indian natural honey at around $1.1 per pound
(same as MEP), which is comparatively lower than other international players.
❖ Local Market Challenges: Due to limited industry collaboration, beekeepers are often forced to sell in local
markets at a price range of ₹100-110 per kg, depending on the season. Such prices are not encouraging.
❖ Limited Players: The long-term revival of the honey industry requires a multifaceted marketing strategy. The
organized Indian honey market has limited players, and there is significant potential for more players,
especially start-ups and FPOs.
❖ Lack of NMR Testing:India lacks adequate infrastructure to meet NMR testing requirements.
Way Forward:
❖ Refining of Branding Strategies: While some FPOs have Nuclear Magnetic Resonance (NMR)
started developing a honey value chain, they still need to Testing:
refine their branding strategies. NMR testing is a method that analyzes the
❖ Organizing National Level Honey Fair: Similar to the composition of a product on a molecular
SARAS fair, the government should organise annual scale. It serves as an analytical chemistry
national-level flagship fair devoted to honey and associated technique employed in both quality control
products, bringing together buyers and sellers. and research to assess the content, purity,
➢ This year, Maharashtra initiated a State-level honey and molecular structure of a sample.
fair, but there is a need for collaboration across States.
❖ Promoting Collaboration: Furthermore, FPOs and start-ups should be encouraged to collaborate with
industries such as pharmaceuticals, cosmetics, wine, etc., to provide consistent price support for growers.
❖ Ensuring Fair Prices for Growers: It is important to ensure a guaranteed price for growers at a minimum 40
per cent margin above the production cost.
❖ Incentivizing Grower Innovation: Providing adequate compensation to growers would motivate them to
diversify into innovative honey products and improve their livelihoods.
❖ Enhancing Testing for International Honey Branding: To promote honey branding in international
markets, efforts should be made to improve NMR testing, a prerequisite for exports.

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❖ Empowering Indigenous Honey Producers: India must protect indigenous communities engaged in honey
production, highlighting the local stories of honey growers and their unique products through product
labeling.
❖ Enhancing Market Value: To protect the product’s origin and ensure its authenticity, three honey
products have been registered under the Geographical Indication tag, but more efforts are needed to
enhance their market value.
Conclusion:
The honey value chain should incorporate blockchain applications to connect beekeepers, buyers, quality
testing labs, and aggregators, thereby creating a sustainable digital honey marketplace.

3.12 Make Pilgrimages Blessed Experiences

Context:
❖ More than 29,000 pilgrims visited Kedarnath, ❖ Relevance For Prelims: Char Dham Map
part of the Chota Char Dham Yatra circuit, ❖ Relevance For Mains: Tourism Sector, Religious
clogging the mountain roads for hours. tourism, Char Dham Yatra
Char Dham Yatra:
❖ About: The Char Dham Yatra consists of pilgrimage sites in Puri, Rameswaram, Dwarka, and Badrinath.
❖ Chotha Chardham Yatra: Chardham pilgrimage centers (Badrinath, Kedarnath, Gangotri, Yamunotri)
in the Himalayas.
Solutions for Regulating the Char Dham Yatra:
❖ Proposed Dharmik Yatra Authority: Many pilgrims were forced to turn back even before starting their
journey. In response to the frustrated crowds, the Uttarakhand government announced it is seeking
solutions and plans to establish a Dharmik Yatra Authority to regulate the pilgrimage.
❖ Reversal of Pilgrim Limit Decision: In 2023, under pressure from priests and tour operators, CM Pushkar
Singh Dhami reversed his decision to impose a daily limit on the number of pilgrims just a day before it
was to be implemented.
❖ Assessment of Town Capacity: The state formed a committee last year to assess the carrying capacity of
tourist towns, excluding Kedarnath. This study must be conducted promptly.
❖ Enhancing Uttarakhand's Tourism Strategy: Uttarakhand, akin to numerous other states, relies on
tourism, offering activities from trekking to religious visits.
➢ To effectively utilize its natural resources, it should engage in comprehensive, long-term planning.
This includes constructing climate-resilient infrastructure
➢ Managing tourism while considering the state's delicate ecology and employment requirements, and
catering to the needs of high-net-worth individuals.
Conclusion:
States such as Kerala and Rajasthan have cracked the code somewhat by focusing on quality rather than
quantity. Uttarakhand and others must follow suit. States will benefit from this pivot, as will India.

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3.13 Unlocking India’s Manufacturing Ambitions
Context:
❖ India aims to grow its economy to $10 trillion ❖ Relevance For Prelims: Production Linked
by 2035, with manufacturing's share expected to Incentive Scheme, Make in India scheme
increase from 15% to 25% of GDP. ❖ Relevance For Mains: Issues with Manufacturing
Government Initiatives: in India, Challenges associated with Workers
❖ Production Linked Incentives (PLIs): The
government has launched Production Linked Incentive schemes to boost domestic manufacturing in key
sectors.
❖ Make in India: The Make in India program aims to facilitate investment,foster innovation, enhance skill
development, and build best-in-class manufacturing infrastructure.
❖ Industry Hubs: States are engaging in creating industry-specific hubs to attract investment and promote
manufacturing clusters.
Overlooked Narrative:
❖ Worker Empowerment: Amidst debates over fiscal incentives and land policies, worker empowerment is
often neglected as a key factor in unlocking India's manufacturing prowess.
❖ Safe Accommodation: Safe, on-premises or factory-adjacent workers' accommodation is crucial for
addressing issues related to skilling, productivity, and attrition.
Benefits of Workers' Accommodation:
❖ Reduced Costs: Reduces transportation costs and improves worker productivity by eliminating long
commutes.
❖ Workforce Empowerment: Enables the creation of women-only or women-majority factories, promoting
worker and women's empowerment.
❖ Skill Development: Addresses issues related to skilling, productivity, and attrition by providing a stable
living environment.
Historical Examples in India:
❖ Public Sector: Public sector undertakings like Bhilai and private sector companies like Tata Steel
Jamshedpur prioritized housing and housing and community.
❖ Changing Times: While circumstances have changed, the central idea of addressing workers'
accommodation remains crucial.
Policy Implications:
❖ Land Allocation: Land allotment must extend beyond factory construction to include workers'
accommodation.
❖ Flexible Arrangements: Flexibility in operating arrangements for enabling infrastructure.
❖ Financial Incentives: Union government's role in offering tax incentives and priority sector sector tagging
for construction finance.
Triangular Leadership:
❖ Centre/State, Private Sector: Collaboration between the Centre, state, and private sector firms is essential
to unlock India's manufacturing ambitions.

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❖ Workers' Accommodation: Workers' accommodation should be a part of the 100 day plan for the new
government, as it could be the "chhoti chabi" that opens the "bada tala" of India’s manufacturing
prowess.
Conclusion:
❖ Even after these steps are taken, it will require leadership from private sector entities to establish top-notch
workers’ accommodation. Reduced transportation expenses, heightened productivity, enhanced training
capabilities, mitigation in workforce attrition, and lower carbon footprint.

3.14 Limits of the Global Gold Rush

Context: Driven by increased demand, international gold prices are at record highs, surging over 30 per cent
in the past two years.
Limits of the Global Gold Rush: ❖ Relevance For Prelims: Gold as a part
of bank reserves, Import and Export fo
❖ Price increases have been much sharper in Indian markets.
Gold.
❖ The recent price movement contradicts an important
❖ Relevance For Mains: Major Reasons
theoretical characteristic associated with gold.
and Impacts of Surging Gold Prices.
❖ Since gold does not generate any cash flow, the opportunity
cost of holding it is low when interest rates are low.
❖ However, gold prices have increased significantly even as global interest rates are at a multi- decade high.
❖ Officials at the US Federal Reserve are signalling that interest rates may remain higher for longer.
❖ Prices have also risen despite a relatively strong US dollar.
❖ Since gold is a dollar-denominated commodity, prices tend to increase when the dollar weakens.
❖ One of the main reasons for increasing gold prices is sustained buying by central banks. Even as exchange-
traded funds saw an outflow in the first quarter of 2024, for instance, central banks continued accumulating
gold.
❖ According to the World Gold Council (WGC), central banks accrued 290 tonnes of gold during January-
March 2024, a record for the first quarter.
❖ Among the leading buyers were the central banks of China, India and Turkey. Central bank demand is
projected to remain robust in 2024.
But Why are Central Banks Buying So Much Gold?
❖ Gold has traditionally been an important part of central bank reserves.
❖ According to estimates, central banks hold about one-fifth of gold ever mined.
❖ While several countries were on gold standard in the past, central banks now generally buy gold for
diversification.
❖ Historical data shows gold has a low correlation with traditional assets such as bonds and stocks.
❖ It is being argued that some central banks are accumulating gold to reduce their dependence on US
treasuries for several reasons.
❖ One is the heightened level of geopolitical tension and fragmentation.
❖ The seizure of Russia's foreign exchange reserves by the US and its allies after the Ukraine invasion has
raised the fear factor.

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 ➢ About $300 billion worth of Russia's reserves were frozen by Western countries. A country not on the
US side in the geopolitical equation can face similar consequences. Holding gold has no such risks,
assuming it's stored within the country.
❖ Physical gold has zero default risk.
However, it is worth debating whether gold can emerge as the primary or dominant instrument serving as a
store of value for central banks even amidst escalating geopolitical fragmentation and tension.
Can Gold Emerge as the Dominant Instrument for Central Banks?
❖ It may be possible for small countries to shift large parts of their reserves to gold, but not for large central
banks with significant foreign exchange exposure.
❖ Even after buying large quantities and being one of the largest holders of gold in the world, it constitutes
only 4.64 per cent of China's total foreign currency reserves.
❖ For the Reserve Bank of India (RBI), which has the ninth largest holding of gold stock among central
banks, it constitutes under 10 per cent of the total foreign exchange reserves.
❖ For Russia, gold is now worth 28 per cent of total reserves.
❖ There are strong reasons why gold will not replace financial assets in central bank balance sheets in a big
way.
❖ It is worth noting that one of the most "valuable" features of gold is its limited supply. Therefore, a
substantial increase in its position in large central bank reserves can significantly push prices and potentially
increase investment risk.
➢ For instance, if China doubled its gold reserves, it would need all the gold mined for about three
quarters.
❖ Further, central banks like the RBI maintain large foreign exchange reserves to smooth the impact of capital
flows on currency.
Conclusion:
Thus, despite increased central bank gold buying due to geopolitical tensions, gold is unlikely to replace
financial assets significantly due to its limited supply and investment risks.

3.15 Sources and Uses of RBI Surplus

Context: Recently, the Reserve Bank of India (RBI) ❖ Relevance For Prelims: Income and
announced a record dividend of Rs 2.11 lakh crore for the Expenditure of Central Bank.
financial year 2023- 24. This surpasses the previous record of ❖ Relevance For Mains: Sources and Uses
Rs 1.76 lakh crore set in 2018-19, marking a significant of RBI Surplus, Significance of RBI’s
development in India's economic landscape. Surplus Transfer.
More on News:
❖ The higher-than-expected dividend to be given by the Reserve Bank of India (RBI) to the government did
shake the market positively as could be seen in the softening of bond yields.
❖ The finer details of the emergence of this dividend will be available once the accounts are worked out and
the central bank brings out the annual report.
❖ Till then, there will be considerable speculation on the components that have contributed to the sum of Rs
2.1 trillion.

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Understanding Dividends:
❖ Definition: A dividend is a share of profits given by a business to its owner.
❖ Example: If a shop makes a profit of Rs 1 lakh and the owner keeps Rs 30,000, that's the dividend.
RBI and the Government
❖ RBI: The Reserve Bank of India is the central bank of India.
❖ Government: The government of India is the owner of the RBI.
❖ Dividend Decision: Every year, the RBI and the government decide how much of RBI's earnings will be kept
by RBI and how much will be given to the government as a dividend.
How RBI Earns Money:
❖ Foreign Currency Investments: RBI invests India's forex reserves in dollars, euros, pounds, etc. It earns
interest on these investments.
❖ Currency Trading: RBI buys and sells dollars to keep the value of the rupee stable. The profit from these
transactions is RBI's income.
❖ Interest on Domestic Assets: RBI holds government bonds and lends to banks at the repo rate. It earns
interest from these activities. In 2023- 24, the repo rate was mostly at 6.5%, so earnings were good.
Why RBI Gives Surplus to Government:
❖ RBI's Focus: RBI's job is not to make profits but to focus on:
➢ Keeping the rupee's value stable.
➢ Controlling inflation.
➢ Maintaining economic stability and growth.
❖ RBI Act: According to the RBI Act, RBI must give its surplus to the government every year.
❖ Reserves: But first, RBI keeps money for its expenses and emergency funds.
Positive Aspects
❖ Fiscal Space: RBI's money will increase the government's income by 0.3% of GDP. This gives the
government more financial resources to spend on crucial sectors like health, education, and infrastructure.
❖ Cheaper Loans: If the government sticks to its fiscal deficit target, its gross borrowing could decrease by
over Rs 1 lakh crore. This will lead to lower interest rates in the market. Banks will have more money to
lend to private companies.
❖ Positive Sentiment: RBI giving such a large sum boosts confidence among people and investors. It's a sign
of India's strong economy. When this news came out, the stock market saw record gains.
Negative Aspects
❖ RBI's Independence: Some economists fear that pressure to give more money every year could gradually
reduce RBI's independence. RBI might hesitate to make decisions that reduce its earnings.
❖ Inflation Risk: RBI's money injects extra cash into the market. If used for populist schemes or freebies, it
could increase inflation. This risk is higher when inflation is already above RBI's target.
❖ Impact on Financial Stability: During economic crises, RBI needs reserves to help banks. This was evident
during the COVID period. RBI's money came from 2023-24 profits, not old reserves, but it could still reduce
RBI's ability to help.
Jalan Committee and ECF:
❖ Dispute: In 2018, there was a dispute between RBI and the government over sharing RBI's reserves.
❖ Jalan Committee: The Bimal Jalan Committee was formed and suggested a new Economic Capital
Framework (ECF) in 2019

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❖ ECF: ECF determined how much reserve RBI should keep and how much it can give to the government.
❖ RBI's Total Reserve: According to ECF, RBI's total reserve should be 20-24.5% of its balance sheet.
❖ Components: This includes the Revaluation Reserve and Contingent Risk Buffer (CRB).
❖ Surplus Distribution: If RBI's earnings increase significantly in a year, it can give more money to the
government without touching its core reserve.
Way Forward:
❖ RBI's Record Dividend: RBI's record dividend is a big gift for the government.
❖ Caution: But care must be taken that this doesn't become a habit. The government cannot depend on RBI's
money every year.
❖ Maintain RBI's Autonomy: RBI's independence is fundamental for correct monetary policy. A reduction
in this can have a long-lasting impact. The government should not pressure RBI to give an equal or higher
dividend than this year.
❖ Use Wisely: Think long-term; this is not everyday money. The government should use it to strengthen the
economy, not for populist programs. Options include:
➢ Increasing infra spending to support long-term growth.
➢ Spending on increasing employment.
➢ Improving health and education.
➢ Moving quickly towards clean energy.
➢ Cleaning up fiscal math by reducing off-balance sheet borrowing.
❖ Don't Be Complacent: RBI's fantastic earnings in 2023-24 happened due to several reasons:
➢ The country's growth remained strong.
➢ Global interest rates increased.
➢ The rupee was more stable compared to 2022-23.
➢ But this situation can change. The global economy is slowing down, and interest rates may soon peak.
The government should not assume that RBI will always give so much money.
Conclusion:
RBI's record dividend to the government boosts fiscal space, but caution is needed to maintain RBI's autonomy
and wisely utilize funds for long-term economic stability.

3.16 Role of Taxes in Making India Viksit Bharat in 2047

Context: Taxes simply do not provide resources for ❖ Relevance For Prelims: Tax to GDP ratio
development and for expanding social agenda of the of India, OECD, UN and G-20, Central
government but play a crucial role in stimulating savings, Board of Direct Taxes, Central Board of
making investments and activities that promote Indirect Taxes and Customs
development.
❖ Relevance For Mains: Digitalization of
Role of Taxes: Tax process, Tax Evasion and Tax
❖ Economic Objective of India: For a developing country planning, Economic Growth and Economic
like India, economic growth and development remains a Development
major macroeconomic objective.

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❖ Responsibility of the Government: Governments are saddled with the responsibility of providing public
goods like, Health, education, transport, and social welfare along with basic infrastructure for the citizens
to improve their quality of life.
❖ Role of Taxation: The ability of the government to live up to these responsibilities largely depends on the
amount of resources generated by it through taxation.
❖ Role of Tax Incentives and Holidays: Tax incentives and tax holidays among others can attract foreign
investors to a country.
❖ Responsibility of citizens: Taxes legitimately belong to the citizen of a country and if somebody is not
paying his due share, he is letting down the people as well as the country and is not fulfilling the legal and
moral duty cast upon him.
❖ Automation in Taxation Process: The tax departments (CBDT & CBIC) are fully automated, with all tax
processes being digitalized, completely removing the human interface.
❖ Benefits of Automation in Taxation:
➢ This has also reduced the cost of compliance at the end of a taxpayer, thus creating efficiency,
transparency, and accountability.
➢ This promotes ease of doing business to improve overall economic progress, development and well-being.
➢ It helps in removing poverty, raising living standards, and increasing per capita incomes and overall GDP,
❖ Collection of Taxes: CBDT, collected Rs 19.58 lakh crore in taxes in 2023-24, showing a growth of over
18 per cent, even surpassing the revised tax collection target of Rs 19.45 lakh crores, in a fair and transparent
manner.
➢ The CBIC, has also shown good progress and mobilised increased taxes from GST, including highest
ever mobilization of Rs 2,10,000 crores in April 2024.
➢ It is expected that as the economy becomes more formalised and broad-based, more taxes will come
through income taxes.
❖ Tax to GDP ratio of India: Another important dimension is the tax GDP ratio of India, which is presently
at about 18.5 per cent (including the state taxes) is slightly lower as compared to similarly placed
economies.
❖ Suggestions to Improve Tax to GDP ratio: Noted economist, Govind Rao (2017) states that this should
have been at a level of about 20 per cent by now, the major thrust for which has to come from direct taxes,
ratio of which is presently at 6.6 per cent.
❖ Future Projections: It is expected that in a couple of years, the direct taxes ratio would increase to 7 per
cent and gradually to 8 per cent, with indirect taxes chipping in at about 6% and state taxes ratio at about
6.5 per cent of GDP.
❖ Measures to Increase Taxation: The use of technology; digitalization, computerization and automation,
in capturing economic transactions from different sources, 360-degree profiling of taxpayers
➢ The use of technology AI-ML in the identification of non-filers and tax evaders is going to play a
prominent role in this.
❖ Shifting of MNC to Low Tax jurisdiction: In the last few decades, it was seen that some of the
multinationals were not paying their fair share of taxes by resorting to shifting their profits to low-tax
jurisdictions.
❖ Challenge of Digitalization: The digitalization of economies further compounded the efforts of countries
to raise fair taxes as a company can do business, without being present in a country.

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❖ Digital Tax by India: India brought on statute provisions of equalisation levy in the year 2016 initially to
tax digital advertisements, which was later extended to sales-purchase of commodities or provision of services
in the year 2020, popularly called as digital tax.
❖ Addressing the Shifting of Profit challenge: In the meanwhile discussions were taking place in OECD, UN
and G-20 to address this situation, wherein India contributed significantly
❖ Robust GDP Growth: In the year 2023-24, the growth of GDP has been robust and is estimated to be about
7.8 per cent, that too against tough economic conditions worldwide, because of disruptions in supply chains
on account of the Russia-Ukraine conflict on one hand and Israel-Hamas war on another.
❖ Expected GDP Growth: With macroeconomic fundamentals strong, it is expected that in 2024-25, Indian
GDP may grow at the rate of 6.8 per cent to 7 per cent.
❖ Reforms after Elections: The prime minister has already hinted about the big-ticket reforms expected to be
undertaken immediately after elections, so as to build the country for the next 1,000 years.
Conclusion:
The vision for next 25 years has been prepared by the NITI Ayog, the policy think tank of the country and all
ministries have prepared a 100 days programmes, as also next five years project schedule, to make India Viksit
Bharat by 2047.

3.17 The Skilling Potential of Tourism

Context: Since 2006, the Ministry of Tourism is ❖ Relevance For Prelims: Hunar se Rozgar
implementing a relatively less-known scheme called 'Hunar Scheme,
se Rozgar' meaning skill to employment, primarily aimed at
catching the school dropouts and training them for ❖ Relevance For Mains: Significance of
employment or self-employment. Hunar se Rozgar Scheme in tapping India’s
Hunar se Rozgar Scheme: tourism potential.
❖ Budget: The scheme runs on a small budget of around
₹30 crore.
❖ Training Program: It was conceived as a six to eight week free training programme for those in the 18-28
years age bracket, with expert institutes picked in this regard.
❖ Training by: Star hotels are expected to train a minimum number of persons.
❖ Objective: While every effort is being made to bring the unorganised sector into mainstream employment
by giving necessary skilling, a large gap exists in employment of the youth.
➢ The scheme currently attracts people mainly in the northern States.
SWOT Analysis of the Scheme:
❖ Strengths:
➢ The strength of the scheme is its fancy nomenclature and the very essence and principle of this scheme.
➢ This name evinces lot of interest.
❖ Weakness:
➢ The scheme suffers bureaucratic delays and procrastination tactics adopted by both the government
as well as private institutions.
➢ This may need to be looked into by the stakeholders and to ensure that the processes are streamlined
through an online portal.
➢ Further, information, education and communication (IEC) activities in the form of due publicity and
awareness programmes need to be scaled up.

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 ➢ Indian language media needs to be used widely to boost the IEC mechanism.
➢ Given the various check points, many institutions do not show interest, as the guidelines are made in such
a way that the scheme's implementation is possible only in government institutions such as Tourist
Management Institutions, Hotel Management Institutions and other similar institutions.
➢ Moreover, recently the scheme guidelines have been revised to allow payment only after
implementation of training.
➢ Further, the payment mechanism is in two stages i.e. 80 per cent upon completion of the training and
distribution of completion certifications and the balance 20 per cent is being paid upon provision of
employment/self- employment to the youth who have undergone capacity building training.
➢ This was not the case earlier where the payment mode was 40:40:20.
❖ Opportunities:
➢ Hunar se Rozgar is a pathbreaking scheme.
➢ It enables the less educated youth to go for formal employment after a brief training.
➢ Given the utmost importance of tourism in the economy and forex reserves, apart from the opportunity
to promote the cultural heritage and Glory of Bharat, this sector is fertile for such schemes.
➢ This may also help the government raise higher tax revenue.
➢ A mechanism should also be drawn up to motivate the stakeholders to make contributions to boost
tourism.
➢ Bids by India for Olympics 2036 and Youth Olympics 2029 may help us make necessary scale-up
processes timely.
❖ Threats:
➢ Tourism as a sector is prone to external shocks, there has been a dip in tourism during the pandemic.
➢ Similarly, Ukraine-Russia War and Israel- Palestine war have impacted the tourism sector in these
areas.
➢ Moreover, safety and security of the tourist destinations enhances the tourism activities.
➢ Holistic development of tourist destinations is required.
➢ The capital spends on transport connectivity are usually good in these destinations, subject to non-
occurrence of natural calamities like floods, Tsunami etc.
➢ Absence of better living standards in the tourist destinations might distract people who may wish to
move away from the hectic urban life to such destinations to have a better work-life balance.
Way forward:
❖ Awareness Generation: The government needs to take more measures to popularise the scheme so that
more agencies come up to assist in implementing it in a holistic manner.
❖ Increase Expenditure: The overall expenditure on this scheme should increase.
❖ Infrastructure Development: Tourism ecosystem must be improved with the help of State governments
and other public/private institutions including enhanced infrastructure connectivity through Gati Shakti and
introduction of Bullet trains and increased air connectivity.
Conclusion:
India has great potential to become a top tourist destination in the world by 2047, given its rich history, culture,
natural beauty, and diverse attractions. There should be a vision to make India as a top tourist destination in the
world by 2047.

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