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  • Healthy tax collection and the challenge of effective utilization

    collection

    Context

    • Notwithstanding the likely slowdown in economic momentum in the second half of the year, the Union government’s tax collections are on track to surpass its budgeted target by a significant amount this year.

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    collection

    The current status Union government’s tax collection

    • Gross tax collections have already touched the target: Data released by the Controller General of Accounts last week shows that gross tax collections have already touched 58 per cent of the full year’s target, growing by 18 per cent in the first seven months (April-October) of the current financial year.
    • Healthy growth in corporate tax collection: Under the broad rubric of taxes, direct tax collections have grown by a robust 26 per cent in the first seven months of the financial year, with healthy growth being seen across both corporate and income tax collections.
    • Higher than the nominal GDP growth: While the pace of direct collections has eased during July-October when compared to the first quarter, it continues to be higher than nominal GDP growth in the second quarter.
    • Healthy indirect tax collection: On the indirect tax side, GST collections continued to witness healthy growth, recording an increase of 11 per cent in November.

    collection

    Memory shot in short: Types of Direct Taxes

    • Income Tax: Depending on an individual’s age and earnings, income tax must be paid. Various tax slabs are determined by the Government of India which determines the amount of Income Tax that must be paid. The taxpayer must file Income Tax Returns (ITR) on a yearly basis. Individuals may receive a refund or might have to pay a tax depending on their ITR. Penalties are levied in case individuals do not file ITR.
    • Wealth Tax: The tax must be paid on a yearly basis and depends on the ownership of properties and the market value of the property.
    • Estate Tax: It is also called Inheritance Tax and is paid based on the value of the estate or the money that an individual has left after his/her death.
    • Corporate Tax: Domestic companies, apart from shareholders, will have to pay corporate tax. Foreign corporations who make an income in India will also have to pay corporate tax.
    • Capital Gains Tax: It is a form of direct tax that is paid due to the income that is earned from the sale of assets or investments

    What the Healthy tax collection imply?

    • Higher devolution to states: Higher tax collections at the level of the central government imply that devolution to states will be higher than the budgeted amount of Rs 8.16 lakh crore. The months of August and November have in fact witnessed double instalments as the Centre has stepped up devolution.
    • States can increase fiscal expenditure: Along with the interest free loan scheme extended by the Centre, higher devolution implies that states have considerable fiscal room to increase capital expenditure. However, this has not been the case so far. Capex by states has been rather muted.
    • Provides comfort to governments fiscal arithmetic: As per recent statements by revenue secretary Tarun Bajaj, the government is now hopeful of exceeding the budgeted target by nearly Rs 4 lakh crore. With its spending also likely to surpass earlier expectations by a considerable margin, higher tax collections will provide some comfort to the government’s fiscal arithmetic.

    collection

    Challenges on the expenditure side

    • Increased subsidy bills: On the expenditure side, the Union government is facing a massive increase in its subsidy bill.
    • Spending is more than actual budget: Actual spending on the food and fertilizer subsidy and also on LPG will be significantly higher than what has been budgeted for. This is likely to make the fiscal situation challenging.
    • Effective utilization is necessary: Considering that the central government has maintained the momentum on its capital spending, growing by around 60 per cent in the first seven months of the year, the overall general government fiscal impulse will depend on how effectively states are able to utilise the extra space available to them.

    Conclusion

    • Calls for increasing spending to support the economy during this uncertain period will only gain traction as the budget approaches. The government must however resist the temptation. It should stick to the glide path of fiscal consolidation.

    Mains Question

    Q. In a time of possible economic slowdown, India’s tax collection is on a healthy path. Discuss what good tax collection means for economy?

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  • Criminalization of Politics

    Politics

    Context

    • The increasing trend of criminalization of politics is dangerous and has steadily been eating into the vitals of our democratic polity along with growing corruption of a humongous nature.

    What is criminalization of politics?

    • Criminals becomes legislators: The criminals entering the politics and contesting elections and even getting elected to the Parliament and state legislature. Criminalization of politics is the focus of public debate when discussion on electoral reforms takes place.
    • Criminal nexus: It is result of nexus between politicians and criminals.

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    What are the reasons for criminalization of politics

    • Political control of state machinery: Increasing trend of criminalization of politics is linked to political control of state machinery, corruption, vote-bank politics and above all, loopholes in the legal system.
    • Inaction from bureaucrats: We cannot expect probity and integrity from the bureaucracy if it is controlled in large measure, by criminals. Good governance gets seriously undermined when, for instance, criminals, gangsters or mafia dons, become the political bosses of bureaucrats and subvert the system to serve their interests.
    • Embracing the corruption: In such a scenario, the bureaucratic system ceases to resist corruption and often embraces it to carry out the diktats of criminal political bosses and also to suit its own ends.

    Politics

    What are the effects of criminalization of politics?

    • Hampering free and fair election: limited choice of voters to elect a candidate to parliament or state. It is against the spirit of free and fair election which is the bedrock of a democracy.
    • Unhealthy democratic practice: The major problem is that the law-breakers become law-makers, this affects the efficacy of the democratic process in delivering good governance. These unhealthy tendencies in the democratic system reflect a poor image of the nature of India’s state institutions and the quality of its elected representatives.
    • Circulation of black money: It also leads to increased circulation of black money during and after elections, which in turn increases corruption in society and affects the working of public servants.
    • Culture of violence: It introduces a culture of violence in society and sets a bad precedent for the youth to follow and reduces people’s faith in democracy as a system of governance.
    • Weakening the institutions: This is a pervasive malaise in our body politic, which is assuming cancerous proportions. As a result, the three main pillars of our democracy, namely, Parliament, judiciary and executive, get progressively weakened, and the fundamental concept of a democratic system gets subverted.

    What should be done?

    • Fast judicial process: Fast-tracking the judicial process will weed out the corrupt as well as criminal elements in the political system.
    • Political consensus is necessary: It is high time all political parties came together and developed a consensus on keeping criminals some of them with serious charges including kidnapping, rape, murder, grave corruption and crimes against women out of the system.
    • Warning by Vohra committee: The Vohra Committee set up by the Centre in 1993 sounded a note of warning saying that “some political leaders become the leaders of these gangs/armed senas and, over the years, get themselves elected to local bodies, state assemblies and the national Parliament.” This was nearly three decades ago.

    Politics

    Efforts by Supreme court and Executive

    • Disclosure of criminal records: In 2002, the Court ruled that every candidate contesting election has to declare his criminal and financial records along with educational qualifications. It must be said that mandatory declaration of assets and existing criminal charges in self-sworn affidavits to the EC, prior to elections, has brought in some degree of transparency.
    • Formation of special courts: As a follow-up to these directives, in 2017, the Union government started a scheme to establish 12 special courts for a year to fast track the trial of criminal cases against MPs and MLAs. The apex court has since then issued many directions, including asking the Centre to set up a monitoring committee to examine reasons for delay of investigation in these cases.
    • Tackling the pendency of cases: The number of pending cases continues to be a matter of grave concern, so much so that the Supreme Court had been informed, as per media reports of February 2022, that the number of pending criminal cases against sitting and former MLAs and MPs had risen to close to 5,000 towards the end of December 2021.

    Conclusion

    • There cannot be any leniency to criminals and the corrupt in public life, especially when it comes to a range of crimes which are serious and heinous in nature. Fast tracking trials and expediting the judicial process through a time-bound justice delivery system alone can cleanse our public life and rid it of this widespread disease.

    Mains Question

    Q. What is the criminalization of Politics? Enlist the reasons for criminalization of politics and solution to tackle the same.

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  • India’s Soil conservation strategy

    conservation

    Context

    • As soil is the basis of food systems, it is no surprise that soil health is critical for healthy food production. World Soil Day (WSD) 2022, annually observed on December 5, aligns with this.

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    conservation

    Theme of the World soil day

    • WSD 2022, with its guiding theme, ‘Soils: Where food begins’, is a means to raise awareness on the importance of maintaining healthy soils, ecosystems and human well-being by addressing the growing challenges in soil management, encouraging societies to improve soil health, and advocating the sustainable management of soil.

    What is soil?

    • Soil is the loose material of the earth’s surface in which the terrestrial plants grow. It is usually formed from weathered rock or regolith changed by chemical, physical and biological process.

    Back to basics: Composition of soils

    • Mineral matter: It includes all minerals inherited from the parent material as well as those formed by recombination from substances in the soil solution.
    • Organic matter: It is derived mostly from decaying plant material broken down and decomposed by the actions of animals and microorganisms living in the soil. It is this organic portion that differentiates soil from geological material occurring below the earth’s surface which otherwise may have many of the properties of a soil. (Note: The end product of breakdown of dead organic material is called humus.)
    • Air and water: Normally, both air and water fill the voids in soil. Air and water in the soil have a reciprocal relationship since both compete for the same pore spaces. For example, after a rain or if the soil is poorly drained, the pores are filled with water and air is excluded. Conversely, as water moves out of a moist soil, the pore space is filled with air. Thus the relationship between air and water in soils is continually changing.

    conservation

    Why is soil so important?

    • Healthy soils are essential for our survival: They support healthy plant growth, habitat for many insects and other organisms, It enhance both our nutrition and water percolation to maintain groundwater levels, act as a filtration system for surface water.
    • Second largest carbon sink after ocean: Soils help to regulate the planet’s climate by storing carbon and are the second largest carbon sink after the oceans. They help maintain a landscape that is more resilient to the impacts of droughts and floods.
    • Contribute to the economies: They also support buildings and highways and contribute to the economies of our cities. For instance, the rich, deep fertile soils of the Ganga plain especially its delta and the coastal plains of Kerala support a high density of population through agricultural prosperity.

    Soil degradation and its consequences

    • Main drivers of soil degradation: The main drivers contributing to soil degradation are industrial activities, mining, waste treatment, agriculture, fossil fuel extraction and processing and transport emissions. Further, excessive use of fertilizers and pesticides, and irrigation with contaminated wastewater are also polluting soils.
    • Reasons behind the nutrient loss: The reasons behind soil nutrient loss range from soil erosion, runoff, leaching and the burning of crop residues.
    • Increasing soil pollution undermines food security: Today, nutrient loss and pollution significantly threaten soils, and thereby undermine nutrition and food security globally.
    • Soil degradation affects around 29% of India’s total land area: Soil degradation in some form or another affects around 29% of India’s total land area. This in turn threatens agricultural productivity, in-situ biodiversity conservation, water quality and the socio-economic well-being of land dependent communities. Nearly 3.7 million hectares suffer from nutrient loss in soil (depletion of soil organic matter, or SOM).
    • Irreparable consequences: Impacts of soil degradation are far reaching and can have irreparable consequences on human and ecosystem health.

    Conservation

    India’s Soil conservation strategy

    • Five- pronged strategy: The Government of India is implementing a five-pronged strategy for soil conservation. This includes making soil chemical-free, saving soil biodiversity, enhancing SOM, maintaining soil moisture, mitigating soil degradation and preventing soil erosion.
    • Soil Health Card (SHC) scheme: Earlier, farmers lacked information relating to soil type, soil deficiency and soil moisture content. To address these issues, the Government of India launched the Soil Health Card (SHC) scheme in 2015. The SHC is used to assess the current status of soil health, and when used over time, to determine changes in soil health. The SHC displays soil health indicators and associated descriptive terms, which guide farmers to make necessary soil amendments.
    • Pradhan Mantri Krishi Sinchayee Yojana: Other pertinent initiatives include the Pradhan Mantri Krishi Sinchayee Yojana, to prevent soil erosion, regeneration of natural vegetation, rainwater harvesting and recharging of the groundwater table.
    • Promoting organic farming practices under National Mission for Sustainable Agriculture (NMSA): In addition, NMSA has schemes promoting traditional indigenous practices such as organic farming and natural farming, thereby reducing dependency on chemicals and other agri-inputs, and decreasing the monetary burden on smallholder farmers.
    • FAO’s various initiatives to support government efforts in soil conservation: The Food and Agriculture Organization of the United Nations (FAO) undertakes multiple activities to support the Government of India’s efforts in soil conservation towards fostering sustainable agrifood systems.
    • FAO’s collaboration on developing data analytics and forecasting tools: The FAO is collaborating with the National Rainfed Area Authority and the Ministry of Agriculture and Farmers’ Welfare (MoA&FW) to develop forecasting tools using data analytics that will aid vulnerable farmers in making informed decisions on crop choices, particularly in rainfed areas.

    FAO working with target States

    • To increase capacities of farmers to farm livelihood: The FAO, in association with the Ministry of Rural Development, supports the Deen Dayal Antyodaya Yojana-National Rural Livelihoods Mission’s (DAY-NRLM) Community Resource Persons to increase their capacities towards supporting on-farm livelihoods for the adoption of sustainable and resilient practices, organic certification and agri-nutri-gardens.
    • Target states: The FAO works in eight target States, namely, Madhya Pradesh, Mizoram, Odisha, Rajasthan, Uttarakhand, Chhattisgarh, Haryana and Punjab, for boosting crop diversification and landscape-level planning. In Andhra Pradesh, the FAO is partnering with the State government and the Indian Council of Agricultural Research (ICAR) to support farmers in sustainable transitions to agro-ecological approaches and organic farming.

    conservation

    Way ahead

    • There is a need to strengthen communication channels between academia, policymakers and society for the identification, management and restoration of degraded soils, as well as in the adoption of anticipatory measures.
    • These will facilitate the dissemination of timely and evidence-based information to all relevant stakeholders.
    • Greater cooperation and partnerships are central to ensure the availability of knowledge, sharing of successful practices, and universal access to clean and sustainable technologies, leaving no one behind.

    Conclusion

    • A key component of sustainable food production is healthy soil as nearly 95 percent of global food production depends on soil. The current state of soil health is alarming and unprecedented soil degradation is a major challenge for sustainable food production. India is on track to restore 26 million hectares of degraded land by 2030.

    Mains Question

    Q. Soil is the basis of the food system, its degradation and nutrient depletion in recent years is alarming. Discuss the soil conservation strategy of India.

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  • India tops index on Social Hostilities Index (SHI)

    shi

    In 2020, India has been ranked first in the Social Hostilities Index (SHI) released by US think-tank Pew Research Center.

    What is Social Hostilities Index (SHI)?

    • SHI measures acts of religious hostility by private individuals, organisations or groups in society.
    • The SHI measures acts of religious hostility by private individuals, organizations or groups.
    • The index comprises 13 metrics, including religion-related armed conflict or terrorism and mob or sectarian violence.
    • Questions used to compute the SHI included whether the country saw violence motivated by religious hatred or bias, whether individuals faced harassment or intimidation motivated by religious hatred or bias and whether there was mob violence against those of particular religious groups.

    How bad has India fared?

    • At 9.4 out of a maximum possible score of 10, India’s SHI in 2020 was worse than neighbouring Pakistan and Afghanistan, and a further increase in its own index value for 2019, the Pew data showed.
    • India has faced severe backlash due to its crackdown on a ‘religious’ congregation held in New Delhi defying the COVID pandemic.

    Other components: Government Restrictions Index (GRI)

    • India much better on a second index: the Government Restrictions Index (GRI).
    • This index looks at laws, policies and state actions restricting religious beliefs and practices.
    • China ranked the worst, with a score of 9.3.
    • India’s 34th rank was enough to categorize it among countries with “high” levels of such government restrictions.
    • The GRI comprises 20 measures, including efforts by governments to ban particular faiths, prohibit conversion, limit preaching or give preferential treatment to one or more religious groups

    Official data for substantiation

    • By India’s own official crime statistics, the picture is more mixed.
    • According to police data, religious riots for which cases were filed rose substantially in 2020, and declined again in 2021.
    • But there have been significant variations over time, and the numbers are too low as a share of overall rioting incidents to indicate a definitive trend.
    • Moreover, the home ministry no longer provides data on “communal incidents”, and the National Crime Records Bureau (NCRB) now only publishes data on religious “riots”.

     

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  • North East as Gateway to Indo-Pacific Strategy

    Indo-Pacific

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    Context

    • India’s ‘Look East’ and ‘Act East’ policies have moved into the phase of Indo-Pacific policy and strategy. But what we in the national capital interpret as the ‘Indo-Pacific’ is different from the perceptions of this policy in North-eastern and eastern India.

    What is Indo-pacific?

    • The Indo-Pacific is geographic region interpreted differently by different countries.
    • For India, the geography of the Indo-Pacific stretches from the eastern coast of Africa to Oceania whereas, for US, it extends up to the west coast of India which is also the geographic boundary of the US Indo-Pacific command.

    Indo-Pacific

    Importance of North-East

    • Security of India: The Northeast which comprises seven ‘sisters’ or States and one ‘brother’, Sikkim, has been witnessing transformation as it heads towards better security conditions and development
    • Geography and Biodiversity: North-eastern Indian States are blessed with a wide range of physiographic and ecoclimatic conditions and the geographical ‘gateway’ for much of India’s endemic flora and fauna.
    • Siliguri corridor only connecting link: North-East is home to 3.8% of the national population and occupies about 8% of India’s total geographical area. Siliguri corridor, a narrow strip of land in West Bengal, popularly known as “chicken’s neck” connects this region to the rest of mainland India.

    Present condition of north east

    • Improved security: Security conditions have improved significantly since 2017. However, the core issues behind the insurgency have remained unresolved.
    • Serious non-traditional threats: A notable contrast in security assessments of the authorities and others came to the fore. The official perspective was that the pernicious phenomena of smuggling, drug trafficking, transnational border crime, insurgent activity, and the influx of refugees (from Myanmar) represented serious non-traditional threats.
    • Chinese hand in nefarious activities: China was viewed as a ‘constant player’ behind these nefarious activities. This has necessitated vigilance and strict action by the Assam Rifles and other security agencies.
    • Sensitive border management: The insensitive handling of those engaged in lawful exchanges with the neighbouring countries. A balanced view indicates that considerable scope exists for more effective and people-sensitive border management in the future.

    Development as priority in North East

    • Rising road infrastructure: The Northeast is on the right path to concentrate on economic development. More is awaited through improvement in roads linking north-eastern towns and job creation for thousands of graduates produced by local universities.
    • Hub of medical tourism: Manipur needs to be promoted as the hub of medical tourism for other Indian States and neighbours such as Myanmar.
    • Investment needs to increase: The State’s research and development facilities to leverage the region’s biodiversity should be expanded. Accelerated development requires increased investment by Indian corporates and foreign investors as well as better management.
    • Blueprint for economic development: Strategic and business community to contribute to crafting a concrete blueprint for leveraging opportunities relating to commerce, connectivity, and human capital development.

    Cultural diplomacy from North east

    • Showcasing the culture of north east: An ambitious endeavour by 75 artists from nine countries highlighted the region’s ‘unity in diversity’ through music, dance, drama, and cuisine.
    • Education, tourism and trade: Clearly, expanding the reach of cultural diplomacy and people-to-people cooperation through greater educational exchanges, tourism, and trade is desirable.
    • Regional cooperation through cultural exchange: Harsh Vardhan Shringla, former Foreign Secretary, aptly stressed that the “shared culture, history and mutual social threads that tie the region with India also an important component towards fostering regional cooperation”.

    Indo-Pacific

    Cultural dimension to Indo-Pacific

    • Geo-cultural dimension: At Kolkata, intellectuals and performers in the cultural domain from India, the U.S., Japan, Thailand, Sri Lanka, and Bangladesh reflected on the Indo-Pacific construct’s cultural dimensions. Moving beyond geopolitics and geo-economics, neighbors should focus on “the geo-cultural dimension” of the Indo-Pacific.
    • Expanding people to people cooperation: Diplomats from the region agree on the importance of expanded people-related cooperation which would lead to wider acceptance of the Indo-Pacific and consolidation of the Quad.

    Conclusion

    • While implementing India’s Indo-Pacific strategy, voices from Northeast and eastern India must be heard. Thus, beyond ‘Look East’ and ‘Act East’ lies ‘Think and Relate East’, especially within our own country.

  • India’s Central bank digital currency (CBDC) in detail

    digital

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    Context

    • The Reserve Bank of India (RBI) has launched the first pilot of the retail digital rupee, also known as e₹-R, on December 1, 2022. The digital token that represents legal tender will be issued in the same denominations as paper currency and coins. The RBI’s pilot on the digital rupee will test the robustness of the new system. Let’s understand it in detail.

    digital

    The first pilot project of retail digital rupee

    • Allowed banks: Initially, only four banks- State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank in four cities have been allowed to offer e₹-R. The scope of the pilot will be increased gradually to include more banks, users and locations.
    • Transaction: People will get e₹-R from banks and will be able to make transactions via their digital wallets. The digital rupee can be stored on mobile phones or devices.

    What is a Central bank digital currency (CBDC)?

    • Like fiat currency in digital form: CBDC is a legal tender issued by the central bank in digital form. Like rupee notes or coins, which are in physical form. Like fiat currency, it can also be exchanged between people. Simply, put it’s just like rupee (₹) notes but in digital form (e₹). You can also exchange e₹ for physical currency notes.
    • Unlike fiat currency no need to have account: However, unlike fiat currency that’s usually stored in banks and hence their liability, CBDC is a liability on the RBI’s balance sheet. That’s why you don’t necessarily need to have a bank account to own a digital rupee.

    Why do we need CBDC?

    • Cost efficient management: CBDC will cut the cost related to physical cash management. India spent ₹4,984.80 crore on printing money in FY22 and ₹4,012.10 crore a year before that. These expenses are borne by people, businesses, banks and the RBI. e₹ cuts all kinds of printing, storage, transportation and replacement and settlement costs. Though the RBI will invest a significant amount in building CBDC infrastructure, subsequent marginal operating costs will be very low.
    • Boost to digital economy and financial inclusion: It’ll fulfil the higher cash requirement of the country. The government will be able to make money available in areas where it’s a challenge to provide physical cash. Also, it’ll boost India’s digital economy, enhance financial inclusion, and make the financial system efficient.
    • People will have money in uncertain times: Since e₹ is the central bank money, in any uncertain situation like COVID-19, it’ll save people’s savings. Banks only insure deposits up to Rs 5 lakh. In case of defaults, people could lose their savings.
    • Multiple saving and transaction options: e₹ will provide you with other options like e-wallets, mobile banking, and UPI to make payments.
    • Much safer payment option: e₹ is a safe central bank instrument, with direct access to the RBI money for payment and settlement. It is an electronic version of cash, whose main use case is retail

    digital

    Will CBDC replace UPI?

    • Not expected to substitute but supplement payment option: The CBDC-based payment system is not expected to substitute other modes of existing payment options. It will supplement by providing another payment avenue to people.
    • India already has a sound payment system: UPI uses your money deposited with banks but with CBDC, the money becomes the liability of RBI India already has a sound payment system, with payment products like RTGS, NEFT and UPI, etc., coupled with an exponential increase in digital transactions.

    No interest on e₹? but why?

    • No interest on digital money: According to the RBI, if it starts paying interest on digital money, it could lead to a massive disintermediation in the financial system, in which banks will lose deposits, and thus hurt their credit creation capacity in the economy.
    • Rationale behind No interest on digital rupee: Banks may be compelled to increase deposit rates, which will increase their costs of funding and decrease net interest income. Ultimately, the cost will be passed on to borrowers.
    • CBDC will be attractive payment option without interest: If there is no interest, CBDC can still be attractive as a medium of payment, even while its attractiveness as a savings instrument diminishes. Also, banks would restrain themselves from distributing CBDCs if they find it as a threat to bank deposits, which can hamper credit flows and the adoption of CBDCs.

    digital

    How will CBDC be different from crypto?

    • CBDC is Algorithm based unlike crypto mining: The central bank will be issuing CBDCs based on algorithm-driven processes, rather than mining through competitive reward methods. These algorithms will have energy efficiency and environmental friendliness as their core principles, unlike private crypto mining.
    • Less energy consumption unlike crypto: Therefore, issuance and management of CBDCs are expected to have much lesser energy consumption vis-à-vis more energy-intensive processes normally associated with the mining and distribution of private cryptocurrencies.
    • Legal consumer protection: Unlike private cryptos wherein any individual can compete to mine and create the cryptocurrency, only the central bank can issue the CBDC and can simply opt for conversion of the bank’s existing balances to CBDC balances. So, CBDCs will provide the public with the benefits of virtual currencies, while ensuring consumer protection by avoiding the damaging social and economic consequences of private virtual currencies.

    Why India needs a digital rupee?

    • Online transactions: India is a leader in digital payments, but cash remains dominant for small-value transactions.
    • High currency in circulation: India has a fairly high currency-to-GDP ratio.
    • Cost of currency management: An official digital currency would reduce the cost of currency management while enabling real-time payments without any inter-bank settlement.

    Conclusion

    • e₹-R is a digital token that has real value like rupee notes or coins. CBDC will make transactions and currency exchange smoother, and it’ll boost financial inclusion. The RBI’s pilot on the digital rupee will test the robustness of the new system.

    Mains question

    Q. What is central bank digital currency? Why do we need CBDC? It is said that digital rupee is different from crypto currency. Discuss.

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  • Remittances to India set to cross record $100-billion mark in 2022

    India is expected to receive a record $100 billion in remittance in 2022, the top recipient this year, the World Bank has said.

    What are Remittances?

    • A remittance is a non-commercial transfer of money by a foreign worker, a member of a diaspora community, or a citizen with familial ties abroad, for household income in their home country or homeland.
    • The World Bank defines it as “the sum of worker’s remittances, compensation of employees, and migrants’ transfers as recorded in the IMF Balance of Payments.
    • Workers remittances are current transfers by migrant who are considered residents in the source.
    • Remittances are a vital source of household income for low- and middle-income countries.

    India’s total remittances to grow

    • Remittances to India are money transfers from non-resident Indians (NRIs) employed outside the country to family, friends or relatives residing in India.
    • In its Migration and Development Brief, the World Bank has said India’s remittance will grow 12 per cent from 7.5 per cent last year, resulting in $100 billion flow as compared to $89.4 billion in 2021.
    • It attributed the feat to the large share of Indian migrants earning relatively high salaries in the US, UK and East Asia.

    Key points from the report by World Bank

    • Highly-skilled Indian migrants living in wealthy nations such as the US, UK, and Singapore were sending more money home.
    • Remittances to low and middle-income countries have grown by 5% in 2022 to around $626 billion – around half the rate of growth seen in 2021.
    • The amount of money sent back home by migrants around the world has grown by 5% in 2022.
    • Other top recipient countries for remittances include Mexico, China, Egypt and the Philippines.
    • Domestic and International shocks have affected countries like Pakistan, Bangladesh, and Sri Lanka for whom remittances earned by migrants are expected to drop this year
    • Barring India and Nepal, other south Asian countries saw a decline of more than 10% in their remittances from 2021, due to the end of government incentives introduced during the pandemic

    Why is remittance to India so high this year?

    • Upskilling: There has been a gradual shift in destinations for Indian migrants aided by a structural shift in qualifications.
    • Work from home: Indian migrants in high-income countries benefited from work-from-home and large fiscal stimulus packages.
    • Easing of pandemic: As the pandemic eased, the wage hikes and “record-high employment conditions” helped migrants send money home despite high global inflation.
    • Inflation control in India: The price support policies kept inflation at bay in India.
    • Crude oil dynamics: Demand for labour increased with higher oil prices, which in turn increased remittances for Indian labourers.

    Significance of remittances

    • Stable source of funds: Remittance flows tend to remain relatively stable through the business cycle, thereby having the potential to support households in the face of economic adversity.
    • Economic lifeline: In countries affected by political conflict, they are often an economic lifeline to the poor.
    • Labour contribution: While migrant remittances contribute to the development of their home country, and also to the host country by filling the gap between labour demand and supply and making a positive net fiscal contribution.
    • Globalization: In this way, remittances represent globalization with a human face, contributing to the spread of global interdependence at all levels – social, economic and political.

    Issues with Remittances

    • Fear of currency depreciation: It causes the rupee to weaken against the dollar, which in return impacts the businesses exposed to foreign exchange, and the economy overall.
    • Accuracy of data: A key challenge for policymakers, researchers and investors interested in remittance flows concerns the accuracy and consistency of available data.
    • Accounting inconsistencies: The varied nature of remittance transactions makes the compilation process complex, resulting in a systemic problem of under-reporting of flows and data asymmetries between host and recipient countries.
    • No formal registration in India: The main source of data on remittances is the World Bank, which combines national balance of payments data compiled by the IMF with country information.
    • Ignoring informal flows: A large share of remittances is believed to flow through informal channels, which are often more convenient and cheaper than formal ones.
    • Hawala transactions: In addition, Hawala (an international network of money brokers) and Hundi (a form of credit instrument) systems operate in parallel to formal remittance channels.

    Way forward

    • Promoting labour mobility: India should aim to increase remittances to say 10% of GDP. The Philippines’ model of promoting labour mobility should be replicated in India.
    • Reducing the costs involved: Both the cost of recruitment of such workers and the cost of sending remittances back to India should come down.

     

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  • ‘French Baguette’ gets UNESCO heritage status

    Baguette

    Baguette the staple French bread has been inscribed into the UN’s list of intangible cultural heritage (ICH).

    What is a Baguette?

    • The baguette is a long and thin loaf made of flour, water, salt and yeast, and is consumed as a staple in France.
    • Some believe that it was invented by August Zang, a baker and an entrepreneur from Vienna in 1839, who introduced the world to the taste of crusty bread with softer insides, using a steam oven.
    • It gained its official name in 1920.
    • The history of the bread is uncertain, some also believe that Napoleon Bonaparte ordered thin sticks of bread for consumption by his soldiers as they could be carried from one place to another more conveniently.

    Why did France nominate it for the UN list?

    • About 10 billion baguettes are consumed every year in France by a population of 67 million.
    • It drew attention to the steady decline in the number of bakeries in the country as around 20,000 of them have closed down since 1970.
    • In March 2021, France nominated the baguette as its candidate for consideration within the UNESCO ICH list.
    • In 1970, there were 55,000 artisanal bakeries (one for every 790 residents) compared with 35,000 today (one for every 2,000), often in favour of baguettes produced industrially.

    Back2Basics: UNESCO Intangible Cultural Heritage (ICH)

    • ICH means the practices, representations, expressions, knowledge, skills – as well as the instruments, objects, artefacts and cultural spaces associated with them that communities, groups and, in some cases, individuals recognize as a part of their cultural heritage.
    • Furthermore, its importance is not in the cultural manifestation itself, but in the wealth of knowledge, know-how and skills that are transmitted from one generation to the next.
    • The adoption of the Convention for the Safeguarding of the ICH by the General Conference of UNESCO in 2003 was a crucial step towards preserving intangible heritage.
    • UNESCO’s list of Intangible Cultural Heritage of Humanity was established in the year 2008.

    Criteria for the selection

    • There are three criteria for an intangible cultural heritage to be inscribed in the United Nations list.
    • The entity must-
    1. be recognized by communities, groups and, in some cases, individuals as part of their cultural heritage,
    2. be transmitted from generation to generation and be constantly recreated by communities and groups in response to their environment, their interaction with nature and their history and
    3. provide them with a sense of identity and continuity, thus promoting respect for cultural diversity and human creativity

    India’s ICH on the UNESCO list

    • Sangeet Natak Akademi is the nodal organisation which looks after this function, and files nominations of intangible cultural entities from India, for evaluation by the international body.
    • ICG from India include Kolkata’s Durga Puja (2021), Kumbh Mela (2017), Navroz (2016), Yoga (2016), traditional brass and copper craft of utensil-making among coppersmiths of Punjab (2014), Sankirtana, a ritual musical performance of Manipur (2013), and the Buddhist chanting of Ladakh (2012).
    • Before 2011, the list included Chhau dance, Kalbelia folk songs and dance of Rajasthan, and Mudiyettu, a dance drama from Kerala (2010), Ramman, a religious festival and theatre performance of Garhwal in the Himalayas (2009), and Kutiyattam or Sanskrit theatre, and Vedic chanting (2008).
    • Ramlila, a traditional performance of Ramayana, was also included in 2008.
    • This year, India nominated Garba, a traditional dance form that originated in the state of Gujarat, for inscription on UNESCO’s ICH list.

     

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  • DigiYatra Initiative for facial recognition technology at Airports

    digiyatra

    The centre has introduced paperless entry at select airports to make air travel hassle-free under the DigiYatra initiative.

    What is DigiYatra?

    • DigiYatra envisages that travellers pass through various checkpoints at the airport through paperless and contactless processing.
    • This means, passengers won’t need to carry their ID card and boarding pass.
    • This would rather use facial features to establish their identity, which would be linked to the boarding pass.
    • With this technology, the entry of passengers would be automatically processed based on the facial recognition system at all checkpoints – including entry into the airport, security check areas, aircraft boarding, etc.

    Implementation strategy

    • In the first phase, the initiative will be launched at seven airports, starting with three — Delhi, Bengaluru, and Varanasi.
    • It will then be followed by four airports namely Hyderabad, Kolkata, Pune, and Vijayawada by March 2023.
    • Subsequently, the technology will be implemented across the country.

    How is it being implemented?

    • The project is being implemented by the DigiYatra Foundation — a joint-venture company whose shareholders are the Airports Authority of India (26% stake) and Bengaluru Airport, Delhi Airport, Hyderabad Airport, Mumbai Airport and Cochin International Airport.
    • These five shareholders equally hold the remaining 74% of the shares.

    How can people avail the DigiYatra facility?

    • For availing the service, a passenger has to register their details on the DigiYatra app using Aadhaar-based validation and a self-image capture.
    • In the next step, the boarding pass has to be scanned, and the credentials are shared with airport authorities.
    • At the airport e-gate, the passenger has to first scan the bar coded boarding pass and the facial recognition system installed at the e-gate will validate the passenger’s identity and travel document.
    • Once this process is done, the passenger can enter the airport through the e-gate.
    • The passenger will have to follow the normal procedure to clear security and board the aircraft.

     

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  • Current status of India’s economic growth

    growth

    Context

    • India’s economic growth slowed to 6.5 percent during the July-September quarter because of a fading low-base effect. For the full year, the economy is expected to grow at 7 percent, with risks tilted to the downside. This implies that the second half of the year (October–March) will see growth slow down to 4.6 percent, again largely due to the base effect and slowing global growth.

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    Background: The COVID Pandemic, geopolitical tensions and the Prospects

    • This was the second consecutive quarter with no functional disruption of economic activity caused by the COVID-19 pandemic.
    • Since October, Google, too, has stopped reporting mobility indicators, which had become one of the most tracked data points for analysts and policymakers since the pandemic struck.
    • This suggests that COVID-19 is unlikely to come in the way of growth for most parts of the world, with China, which is following a zero-COVID policy, being the key exception.

    Performance of Indian economy amidst the current global slowdown

    • Spill over effect in India: In an interconnected world, Geopolitical tensions, high and broad-based inflation in many parts of the world and sharp increases in policy rates in developed countries amid a looming recession will continue to confront the global economy. These effects will spill over to India as well, despite its structural strengths.
    • Slow growth of contact- intensive service sector: Growing at 14.7 per cent, contact-intensive services such as trade, hotels and transport continued to be key drivers of the growth momentum in the second quarter. This segment had borne the brunt of the pandemic because of recurrent lockdowns, and is showing a strong rebound because of pent-up demand, a trend that is likely to continue this year.
    • Strong private consumption: Private consumption was quite strong in the second quarter, growing by 9.7 per cent, and now 11.2 per cent above the pre-pandemic level.
    • Rising domestic demand, good for the economy: The resilience of domestic demand will shape the contours of GDP growth in coming quarters as the global growth momentum is anticipated to lose steam. Advanced economies, whose growth is expected to slow sharply next year, account for almost 45 per cent of India’s merchandise exports.
    • Strong and firm Agriculture sector: Despite climate-related disturbances, agriculture surprisingly held its ground in the second quarter.
    • Healthy tax revenue: So far, healthy tax revenue collections have allowed the government to finance its bloated subsidy bill and investments without much pressure on the fiscal deficit. Led by government capex, investments grew 10.4 per cent in the second quarter.
    • Good corporate balance sheets: strong corporate balance sheets not only cushion them against global headwinds but also provide an opportunity to kick-start the investment cycle once uncertainty subsides.

    growth

    The current status of India’s manufacturing growth

    • Slowed growth: Manufacturing GDP growth slowed rather sharply due to the base effect and margin pressure on manufacturing companies. This is somewhat contradictory to the relatively strong signals from the Purchasing Managers’ Index (PMI) which, at 55.9, was in the expansion zone during the July-September quarter, while also being slower than the IIP growth of 1.4 per cent in the same quarter.
    • Support from the government: Currently, manufacturing is finding some support from government spending on infrastructure, particularly in sectors such as steel and cement. The production-linked incentive scheme has incentivised private investment and fast-forwarded manufacturing investments in electronics and pharmaceuticals.
    • Overall demand is low except few high value segments: The festive season-related production and the continued strong demand in the automobile sector (especially in high-value segments), was not enough to prevent an overall slide in manufacturing.

    The current status of Agriculture sector

    • Strong and firm Agriculture sector: Despite climate-related disturbances, agriculture surprisingly held its ground in the second quarter. Although rains were 6 per cent above normal this year, they were quite lopsided and led to a drop in rice acreage in some of the rice-growing regions on account of rainfall deficiency and some damage to crops from excess unseasonal rains in October.
    • Inconsistency in rainfall may affect kharif: In fact, October rains were 47 per cent above the long-period average. Rain shortfall in some regions, excess in others, and unseasonal excess rains point towards some hit to kharif production.
    • Rabi crops look in good swing: That said, the prospects for the winter crop (rabi crop), which is largely irrigated, look good owing to favourable soil moisture conditions and healthy reservoir levels. While rabi sowing was initially delayed on account of unseasonal October rains, it is now progressing well, with sown area until November 18 about 7 per cent higher than during the same period last year.
    • Overall agriculture growth prospects: This trend, if sustained, should offset the hit to kharif production to some extent. Overall, we expect agriculture to grow at 3 per cent this year, lower than the decadal average of 3.8 per cent.
    • Food inflation: Abnormal weather has also triggered food inflation, particularly in cereals, which will cool off only when the prospects for rabi crop become clear. While fall in inflation in October was largely due to a high base effect, core inflation continues to be sticky and food inflation risks persists.

    growth

    Conclusion

    • India’s growth cycle has become well-synchronized with those of advanced economies. So, a sharp slowdown in these countries will spill over to India and the maximum impact of domestic interest rate hikes on growth will play out next fiscal given that monetary policy impacts growth with a lag. The key policy challenge for India will be to manage a soft landing amid the possibility of a hard landing in advanced countries.

    Mains question

    Q. COVID pandemic disrupted the global economy, moreover the geopolitical tensions are adding to the existing slow growth. In this context, discuss the current status of Indian economy.

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