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Distribution: weekly

  • Progression to electric vehicles: Challenges and opportunities for India

    Article highlight India’s preparedness for the faster adoption of electric vehicles and steps taken by the government in this direction.

    Why electric mobility matters for India

    • It is important for India because such vehicles are sustainable and profitable in the long term.
    • Reducing dependence on crude oil will save the government money, reduce carbon emissions, and build domestic energy independence.
    • India’s transition to electric vehicles will allow us to fine-tune our infrastructure.
    • This will also influence India’s foreign policy as our energy security dependence will shift from West Asia to Latin America.
    • India imported 228.6 MT of crude oil worth $120 billion in 2018–19, which made it the third-largest oil importer in the world in terms of value.

    Government policies

    •  Under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles and its updated (Fame 2) version, the government has allocated $1.3 billion in incentives.
    • A proposal for a $4.6 billion subsidy for battery makers has also been proposed by the NITI Aayog.
    • These policies are embedded with the vision to have 30% electric vehicles plying the roads by 2030.

    Developing domestic  battery manufacturing capacity

    • At present, India’s lithium-ion battery demand is fulfilled by imports from China, Vietnam, and Hong Kong.
    • In the last two years, India’s lithium imports have tripled from $384 mn to $1.2 bn.
    • With its policy intervention to support battery manufacturers by supplying lithium and cobalt, this industry is more likely to grow domestically to support India’s goal to switch to electric mobility.
    • In 2019, NALCO, Hindustan Copper Limited (HCL) and Mineral Exploration Corporation Ltd (MECL) formally signed a joint venture agreement to form Khanij Bidesh India Limited (KABIL) to scout for strategic mineral assets like lithium and cobalt abroad for commercial use and for supplying to meet the domestic requirement for battery manufacturers.
    • Developing domestic battery manufacturing capacity may fundamentally change India’s relationship with resource-rich Latin America as the government plans to buy overseas lithium reserves.
    • In Latin America, most of the production comes from Argentina, Chile, and Bolivia which holds about 80% of the explored lithium of the world.
    • Currently, India’s biggest trading partners in Latin America are Brazil, Mexico, and Venezuela, and majority of trade is concentrated on crude oil which includes 14%-20% of India’s total crude oil imports.
    • This may soon shift to lithium and cobalt.

    Conclusion

    The Indian government’s initiation to take the front seat in electric mobility and preemptive action to send a high-level delegation to have a precise understanding of the availability of lithium and possibilities of joint ventures will supply domestic markets and drive international markets.

  • National Mission on Quantum Technology and Applications (NM-QTA)

    The detailed project report for a National Mission on Quantum Technology and Applications (NM-QTA) has been drawn out and finalised.

    Q.Discuss various applications of quantum technology for strategic and economic development.

    Story so far

    • In last year’s budget session, it was proposed that ₹8,000 crores be set aside to develop quantum science and technology.
    • The detailed project report is now ready and in the next couple of months, this mission might get approval.
    • Recognising the importance of quantum technology, the Department of Science and Technology has also initiated a programme called QuEST to explore the possibilities and engage with the researchers.

    About NM-QTA

    • The mission will function under the Department of Science & Technology (DST).
    • It will be able to address the ever-increasing technological requirements of society and take into account the international technology trends.
    • The mission will help prepare next-generation skilled manpower, boost translational research and also encourage entrepreneurship and start-up ecosystem development.

    Why need such a mission?

    • Quantum technologies are rapidly developing globally with hugely disruptive potential.
    • The range of quantum technologies is expected to be one of the major technology disruptions that will change the entire paradigm of computation, communication and encryption.
    • It is perceived that the countries who achieve an edge in this emerging field will have a greater advantage in garnering multifold economic growth and dominant leadership role.
    • It has become imperative both for government and industries to be prepared to develop these emerging and disruptive changes.
    • It will establish standards to be applied to all research and help stimulate a pipeline to support research and applications well into the future.

    Recent applications

    • Recently, DRDO has successfully demonstrated communication between its two labs using Quantum Key Distribution (QKD) technology.
    • In June 2020, China demonstrated quantum communication technology using the satellite Micius, by conducting a secret conference between two ground stations about 1,120 km apart.
    • They used the satellite not to transmit the entire communication, but to simultaneously send a pair of secret keys to the two ground stations.
    • Other potential applications include secure communication, fast computers that established quantum supremacy, sensors and quantum-inspired devices.

    Back2Basics: Quantum Technology

    • Quantum Technology is based on the principles of quantum theory, which explains the nature of energy and matter on the atomic and subatomic level.
    • It concerns the control and manipulation of quantum systems, with the goal of achieving information processing beyond the limits of the classical world.
    • Its principles will be used for engineering solutions to extremely complex problems in computing, communications, sensing, chemistry, cryptography, imaging and mechanics.
    • This key ability makes quantum computers extremely powerful compared to conventional computers when solving certain kinds of problems like finding prime factors of large numbers and searching for large databases.

    What is Quantum Mechanics?

    • It is a fundamental theory in physics which describes nature at the smallest – including atomic and subatomic – scales.
    • At the scale of atoms and electrons, many of the equations of classical mechanics, which describe how things move at everyday sizes and speeds, cease to be useful.
    • In classical mechanics, objects exist in a specific place at a specific time.
    • However, in quantum mechanics, objects instead exist in a haze of probability; they have a certain chance of being at point A, another chance of being at point B and so on.

  • Payments Infrastructure Development Fund (PIDF) Scheme

    The RBI has announced operational guidelines to create digital payments acceptance infrastructure across Tier III to Tier VI regions in India.

    Possible prelims question:

    Q. Which of the following is the major aim of Payments Infrastructure Development Fund (PIDF) recently created by the Reserve Bank of India (RBI)?

    a) Promotion of UPI payments

    b) Deploying Points of Sale (PoS) infrastructure

    c) Creation of digital wallets

    d) All of the above

    PIDF Scheme

    • The scheme was first announced in June last year to encourage fintech companies and banks to deploy point of sale (PoS) infrastructure across the country to improve the penetration of card-based and other digital payments.
    • The primary beneficiaries will be merchants providing essential services, such as transport and hospitality, government payments, fuel pumps, healthcare facilities, and groceries.
    • Amid the rapid rise in the volume of payments through the UPI network, the RBI is taking steps to further widen the use of digital payments in the country.
    • The fund will be operational for three years from January 1, 2021, and would help subsidise banks and non-banks for the deployment of payments, subject to them achieving specific targets.

    Why need PIDF?

    • Over the years, the payments ecosystem in the country has evolved with a wide range of options such as bank accounts, mobile phones, cards, etc.
    • To provide further fillip to the digitization of payment systems, it is necessary to give impetus to acceptance infrastructure across the country, more so in under-served areas.

  • What is a K-shaped Economic Recovery?

    The prospects of a K-shaped economic recovery from COVID are increasing both in India and across the world.

    What is K-Shaped Recovery?

    • A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes.
    • This is in contrast to an even, uniform recovery across sectors, industries, or groups of people.
    • A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession.
    • This type of recovery is called K-shaped because the path of different parts of the economy when charted together may diverge, resembling the two arms of the Roman letter “K.”

    Try these PYQs:

     

    Q.Economic growth in country X will necessarily have to occur if

    (a) There is technical progress in the world economy

    (b) There is population growth in X

    (c) There is capital formation in X

    (d) The volume of trade grows in the world economy

     

    Q. Economic growth is usually coupled with

    (a) Deflation

    (b) Inflation

    (c) Stagflation

    (d) Hyperinflation

    3 characteristics of India’s economic recovery

    • First, India has broken the link between virus proliferation and mobility earlier and more successfully than many countries.
    • Second, the employment rate gradually improved till September but has weakened since then, even as the economy has progressively opened up.
    • CMIE’s labour market survey still reveals 18 million fewer employed (about 5 per cent of the total employed) compared to pre-pandemic levels.
    • A third phenomenon is large firms have endured the crisis better and are gaining market share at the expense of smaller firms.
    • To the extent there is a migration of activity from the informal/SME firms to larger firms, tax collections and Sensex/Nifty earnings should get a boost, even holding the economic pie constant.
    • Greater scale and formalisation undoubtedly augur well for medium-term productivity but could increase near-term labour market frictions and boost pricing power.

    Increased prospects of K-shaped recovery

    • Above 3 factors increases prospects of a K-shaped recovery from COVID, a phenomenon playing out globally.
    • Households at the top of the pyramid are likely to have seen their incomes largely protected, and savings rates increased.
    • Meanwhile, households at the bottom are likely to have witnessed permanent hits to jobs and incomes.

    3 Implications of K-shaped recovery

    • 1) What we are currently witnessing is pent-up demand from the upper-income households.
    • However, households at the bottom have experienced a permanent loss of income in the forms of jobs and wage cuts, this will be a recurring drag on demand, if the labour market does not heal faster.
    • 2) To the extent that COVID has triggered an effective income transfer from the poor to the rich, this will be demand-impeding in the steady state.
    • This is explained by the fact that marginal propensity to consume at the bottom is higher than that at the top, just as the marginal propensity to import at the top is higher than at the bottom.
    • 3) If COVID-19 reduces competition or increases the inequality of incomes and opportunities, it could impinge on trend growth in developing economies by hurting productivity and tightening political economy constraints.

    Factors that need to be considered to decide the policy response

    • Policy need to look beyond the next few quarters and anticipate the state of the macro economy post this expression of pent-up demand.
    • The key factor is whether private sector starts re-investing and re-hiring.
    • With manufacturing utilisation rates below 70 per cent pre-COVID, an investment revival, in turn, will depend crucially on the demand dynamics
    • Exports should benefit from strengthening global growth as the world gets progressively vaccinated and more US fiscal stimulus.

    Upcoming budget: India’s New Deal moment

    • It’s against this backdrop that the upcoming budget presents India with its New Deal moment.
    • Given the prevailing demand uncertainties, the budget represents an opportune moment for the Centre, in conjunction with the states, to embark on a large physical and social infrastructure push.
    • This will simultaneously boost near-term aggregate demand, crowd in private investment, create jobs to soak up the unemployed, and improve the economy’s external competitiveness.
    • Job creation, health and education, in turn, will be a start to help mitigate COVID-induced inequalities.

    How to finance the investment?

    • Gradual near-term consolidation coupled with a credible medium-term fiscal plan will be key to anchoring the bond market and underscoring an adherence to macro stability.
    • How then can public investment increase meaningfully if the headline deficit (projected above 11 per cent of GDP) must come down?
    • Public investment could be increased only if the public investment push is financed by aggressive asset sales-strategic sales, disinvestment, land and infrastructure monetisation.
    • In this manner, expenditure to GDP can actually rise next year — generating an expansionary fiscal impulse to the economy — while automatic stabilisers are used to reduce the headline fiscal deficit.

    Conclusion

    India’s faster-than-expected rebound is very encouraging. But given labour market pressures and prospects of a K-shaped recovery around the world, the economy will need to be carefully nurtured and stoked. The budget presents a crucial opportunity to make a big down payment towards this end.

     

  • Mukundpura CM2

    An asteroid which made its landfall in Mukundpura village near Jaipur has been named after the same village and is under the study of Geological Survey of India, Kolkata.

    Try this question from CSP 2014:

    Q.What is a coma, in the content of astronomy?

    (a) Bright half of material on the comet

    (b) Long tail of dust

    (c) Two asteroids orbiting each other

    (d) Two planets orbiting each other

    Mukundpura CM2

    • The meteorite named Mukundpura CM2 was classified to be a carbonaceous chondrite.
    • This is a type of stony meteorite, considered the most primitive meteorite and a remnant of the first solid bodies to accrete in the solar system.
    • The composition of carbonaceous chondrites is also similar to the Sun.
    • Chondrites are silicate-droplet-bearing meteorites, and this Mukundpura chondrite is the fifth carbonaceous meteorite known to fall in India.

    Why it is important to study meteorites?

    • Meteorites are representative of asteroids.
    • Asteroids are the remnant debris of the inner solar system formation process and thus offer the formation history or the building blocks of the planets.
    • Therefore, by studying meteorites in the laboratory and asteroids by exploration and sample return mission we try to reconstruct the activity of early solar system events.
    • Also, asteroids are often rich in volatiles and other minerals and can be exploited for future planetary exploration.

    Do you know?

    Meteorites are broadly classified into three groups – stony (silicate-rich), iron (Fe–Ni alloy), and stony-iron (mixed silicate–iron alloy).

    Details of its study

    • The study revealed that Mukundpura CM2 had experienced varying degrees of alteration during the impact.
    • Some minerals like forsterite and FeO olivine, calcium aluminium rich inclusion (CAI) minerals escaped alteration.
    • Few magnetites, sulphides and calcites were also found.
    • Detailed spectroscopic studies revealed that the meteorite had very high (about 90%) phyllosilicate minerals comprising both magnesium and iron.
    • Further X-ray studies showed it also had aluminium complexes.

    Relevance to asteroids

    • The results of the Mukundpura CM2 study are relevant to the surface composition of near-Earth asteroids Ryugu and Bennu.
    • In October 2020, NASA’s OSIRIS-REx mission collected samples from Bennu and is expected to return in September 2023.
    • Last month, Japan’s Hayabusa-2 mission landed on Earth with samples from Ryugu.

    Back2Basics:

  • Improving the diet of low income households to address malnutrition

    The article suggests the ways to deal with the menace of malnutrition in the country.

    Findings of the first phase of NFHS-5

    • Recently, the first phase of the NFHS-5 survey was published.
    • The deteriorating nutrition and anaemia indicators, especially among children is a cause for concern.
    • More deterioration in nutrition indicators following the COVID-19 pandemic is feared in the next phase of NFHS-5.
    • This deterioration would be on account of loss of livelihoods, reduced food consumption among the poor and disruption of government nutrition programmes.

    Challenges

    • Unlike a disease outbreak there may not be any popular demand to address malnutrition — the public, by and large, does not have adequate information about the damage malnutrition causes.
    • Hence, in the Indian context, it becomes the responsibility of the government/civil society to first provide information and awareness to the community about malnutrition.

    Steps to be taken

    • The government should examine the current nutrition-related programmes, and analysing why they are not able to reduce malnutrition faster.
    • Additional interventions could be introduced in pockets, identified as high-burden districts.
    • There should be different norms and more intensive interventions within the ICDS for these chronically malnourished pockets.
    • We need to know if the National Nutrition Policy 1993 is still operational.
    • If not, it seems that we are attempting to address this problem without a policy framework or plan of action.

    Addressing the root cause of malnutrition in India

    The following three deficits are the root cause of malnutrition in India.

    1) Dietary deficit

    • There is a large dietary deficit among at least 40 per cent of our population of all age groups, shown in— the National Nutrition Monitoring Bureau’s Third Repeat Survey (2012), NFHS 4, 2015-16, the NNMB Technical Report Number 27, 2017.
    • Our current interventions are not being able to bridge this protein-calorie-micronutrient deficit.
    • The NHHS-4 and NFHS-5 surveys reveal an acute dietary deficit among infants below two years, and considerable stunting and wasting of infants below six months.
    • Unless this maternal/infant dietary deficit is addressed, we will not see rapid improvement in our nutritional indicators.

    2) Information deficit at household level

    • We do not have a national IEC (information, education and communication) programme that reaches targeted households to bring about the required behavioural change regarding some basic but critical facts.
    • For example, IEC tells about the importance of balanced diets in low-income household budgets, proper maternal, child and adolescent nutrition and healthcare.

    3) Inequitable market conditions

    • The largest deficit, which is a major cause of dietary deficiency and India’s chronic malnutrition, pertains to inequitable market conditions.
    • Such market conditions deny affordable and energy-fortified food to children, adolescents and adults in lower-income families.
    • The market has stacks of expensive fortified energy food and beverages for higher income groups, but nothing affordable for low-income groups.

    Conclusion

    Raising the diet of our people from subsistence level to higher levels of nourishment by overcoming the triple deficit is the only way to improve the nutritional indicators of our population — amongst children, adolescents and adults.

  • Salary to women for domestic work

    Recently, a political party promised salaries to housewives as a part of its electoral campaign in Tamil Nadu. This led to the debate on the issue. The article deals with the issue.

    Salary for housework: Historical background

    • Demand for wages against housework was first raised at the third National Women’s Liberation conference in Manchester, England.
    •  In 2012, the then minister for Women and Child development announced that the government was considering mandating a salary for housework to wives, from husbands.
    •  The purpose, once again, was to empower women financially and help them live with dignity.

    Recognising the value of unpaid domestic work

    • Time-use data from 2019 gathered by the National Sample Survey Organisation revealed that only about a quarter of men and boys above six years engaged in unpaid household chores, compared to over four-fifths of women.
    • Every day, an average Indian male spends 1.5 hours per day in unpaid domestic work, compared to about five hours by a female.
    • Housework demands effort and sacrifice, 365 days a year, 24/7.

    Issues with paying for domestic work

    •  Asking men to pay for wives’ domestic work could further enhance their sense of entitlement.
    • It may also put the additional onus on women to perform.
    • There is a risk of formalising the patriarchal Indian family where the position of men stems from their being “providers” in the relationship.

    Way forward

    • Despite a legal provision, equal inheritance rights continue to be elusive for a majority of women.
    • More than creating a new provision of salary for housework, we need to strengthen awareness, implementation and utilisation of other existing provisions.
    • Starting from the right to reside in the marital home, to streedhan and haq meher, to coparcenary and inheritance rights as daughters and to basic services, free legal aid and maintenance in instances of violence and divorce.
    • Women should be helped to reach their full potential through quality education, access and opportunities of work, gender-sensitive and harassment-free workplaces and attitudinal and behaviour change within families to make household chores more participative.

    Conclusion

    Just like we do not want women to commodify their reproductive services because of their inherently exploitative nature — we have, therefore, banned commercial surrogacy in the country — let us not allow commodification of housework and personal care.

  • First Advance Estimates of GDP for 2021

    The Ministry of Statistics and Programme Implementation released the First Advance Estimates (FAE) for the current financial year.

    What do estimates show?

    • According to MoSPI, India’s gross domestic product (GDP) — the total value of all final goods and services produced within the country in one financial year — will contract by 7.7 per cent in 2020-21.
    • The first advance estimates of GDP, obtained by extrapolation of seven months’ data, are released early to help officers in the Finance Ministry and other departments in framing the broad contours of Union Budget 2021-22.

    What are the First Advance Estimates of GDP?

    • For any financial year, the MoSPI provides regular estimates of GDP. The first such instance is through the FAE.
    • The FAE for any particular financial year is typically presented on January 7th.
    • Their significance lies in the fact that they are the GDP estimates that the Union Finance Ministry uses to decide the next financial year’s budget allocations.
    • The FAE will be quickly updated as more information becomes available.
    • On February 26th, MoSPI will come out with the Second Advance Estimates of GDP for the current year.

    How is the FAE arrived at before the end of the concerned financial year?

    • The FAE are derived by extrapolating the available data. (Hope you remember Newtons’ interpolation and extrapolation from XII std.)
    • According to the MoSPI, the approach for compiling the Advance Estimates is based on Benchmark-Indicator method.
    • The sector-wise estimates are obtained by extrapolating indicators such as-
    1. Index of Industrial Production (IIP) of the first 7 months of the financial year
    2. Financial performance of listed companies in the private corporate sector available up to quarter ending September 2020
    3. The 1st Advance Estimates of crop production,
    4. The accounts of central & state governments,
    5. Information on indicators like deposits & credits, passenger and freight earnings of Railways, passengers and cargo handled by civil aviation, cargo handled at major seaports, sales of commercial vehicles, etc., available for first 8 months of the financial year.

    How is the data extrapolated?

    • In the past, extrapolation for indicators such as the IIP was done by dividing the cumulative value for the first 7 months of the current financial year by average of the ratio of the cumulative value of the first 7 months to the annual value of past years.
    • So if the annual value of a variable was twice that of the value in the first 7 months in the previous years then for the current year as well the annual value is assumed to be double that of the first 7 months.
    • However, this year, because of the pandemic there were wide fluctuations in the monthly data. Moreover, there was a significant drop, especially in the first quarter, on many counts.
    • That is why the usual projection techniques would not have yielded robust results.
    • As such, MoSPI has tweaked the ratios for most variables.

    What are the key takeaways from the First Advance Estimates for 2020-21?

    There are 7 key takeaways.

    #1 GDP Growth Rate:

    • In the context of recent history, the 7.7 per cent contraction in GDP is a sharp one considering that India has registered an average annual GDP growth rate of 6.8 per cent since the start of economic liberalisation in 1992-93.

    #2 Absolute level of real GDP:

    • At Rs 134.4 lakh crore, India’s real GDP — that is, GDP without the influence of inflation — in 2020-21 will be lower than the 2018-19 level.
    • In other words, from the start of the next financial year, India would first have to raise its GDP back to the level it was at in 2019-20 (Rs 143.7 lakh crore).

    #3 Per Capita GDP:

    • While the GDP provides an all-India aggregate, per capita GDP is a better variable if one wants to understand how an average India has been impacted.
    • India’s per capita GDP will fall to Rs 99, 155 in 2020-21.
    • In fact, while the overall real GDP will fall by 7.7 per cent, per capita real GDP will fall by 8.7 per cent.

    #4 Absolute level of real Gross Value Added (or GVA):

    • The GVA provides a picture of the economy from the supply side.
    • It maps the value-added by different sectors of the economy such as agriculture, industry and services. In other words, GVA provides a proxy for the income earned by people involved in the various sectors.
    • This fiscal, at Rs 123.4 lakh crore, India’s real GVA level, too, will fall below the 2018-19 level.

    #5 Absolute level of Private Final Consumption Expenditure (PFCE):

    • India’s overall GDP can be divided into four main sections. The biggest demand for goods and services comes from private individuals trying to satisfy their consumption needs.
    • Typically this would include all the things — be it toothpaste or a car — that you and your family members buy in their private individual capacity.
    • This demand is called PFCE and it constitutes over 56 per cent of the total GDP.

    #6 Per capita PFCE:

    • Just like per capita GDP, the per capita PFCE is also a relevant metric as it shows how much does an average Indian spend in his/her private capacity.
    • Typically, with rising incomes standards, such consumption levels also rise.
    • However, at Rs 55,609, per capita, PFCE will fall below the 2017-18 level.

    #7 Absolute level of Gross Fixed Capital Formation (GFCF):

    • The second biggest component of GDP is called GFCF and it measures all the expenditures on goods and services that businesses and firms make as they invest in their productive capacity.
    • So if a firm buys computers and software to increase the overall productivity then it will be counted under GFCF.
    • This type of demand accounts for close to 28 per cent of India’s GDP. Taken together, private demand and business demand account for almost 85 per cent of all GDP.

  • [pib] New Industrial Development Scheme for Jammu & Kashmir (J&K IDS, 2021)

    The Union Govt. has formulated the New Industrial Development Scheme for Jammu & Kashmir (J&K IDS, 2021).

    Tap to read more about: Reorganization of J&K

    J&K IDS, 2021

    • It is a new Central Sector Scheme for the development of Industries in the UT of Jammu & Kashmir.
    • The main purpose of the scheme is to generate employment which directly leads to the socio-economic development of the area.

    Incentives available

    • Capital Investment Incentive at the rate of 30% in Zone A and 50% in Zone B on the investment made in Plant & Machinery (in manufacturing) or construction of the building is available.
    • Capital Interest subvention: At the annual rate of 6% for a maximum of 7 years on loan amount up to Rs. 500 crore for investment in plant and machinery (in manufacturing) or construction of the building.
    • GST Linked Incentive: 300% of the eligible value of actual investment made in plant and machinery (in manufacturing) or construction in building for 10 years.
    • Working Capital Interest Incentive: All existing units at an annual rate of 5% for a maximum of 5 years. Maximum limit of incentive is Rs 1 crore.

    Key features:

    • The scheme is made attractive for both smaller and larger units.
    • Smaller units with an investment in plant & machinery upto Rs. 50 crore will get a capital incentive upto Rs. 7.5 crore and get capital interest subvention at the rate of  6% for a maximum of 7 years
    • The scheme aims to take industrial development to the block level in UT of J&K, which is the first time in any Industrial Incentive Scheme of the GoI.
    • The scheme has been simplified on the lines of ease of doing business by bringing one major incentive- GST Linked Incentive- that will ensure less compliance burden without compromising on transparency.
    • It is not a reimbursement or refund of GST but gross GST is used to measure eligibility for industrial incentive to offset the disadvantages that the UT of J&K face

    Major Impact and employment generation potential:

    • The scheme is to bring about a radical transformation in the existing industrial ecosystem of J&K with emphasis on job creation, skill development and sustainable development.
    • It is anticipated that the proposed scheme is likely to attract unprecedented investment and give direct and indirect employment to about 4.5 lakh persons.
    • Additionally, because of the working capital interest subvention, the scheme is likely to give indirect support to about 35,000 persons.

  • Payment banks

    The article highlights the important role Payment Banks could play in furthering the financial inclusion in India.

    Financial inclusion and challenges

    • Interventions, especially the JAM trinity—Jan Dhan accounts, Aadhaar and Mobile phones—have accelerated digital and financial inclusion in India.
    • Four of every five Indian adults have a registered bank account.
    • Financial inclusion is not only about opening accounts, it encompasses access to credit, insurance and micro-investment products in a simple and safe way.
    • This remains a challenge for ‘weaker sections and low-income groups’.
    • For instance, only 16% of micro, small and medium enterprises (MSMEs) have access to formal credit amid an estimated debt demand of ₹69.3 trillion.

    High-technology, low-cost banking to accelerate financial inclusion

    • In 2014, Nachiket Mor committee recommended setting up “high technology—low cost” banking models to accelerate financial inclusion to the last mile.
    • Subsequently, the Reserve Bank of India licensed ‘vertically differentiated banking systems’, such as Payments Bank (PBs) and Small Finance Banks (SFBs).
    • SFBs have grown profitably thanks to the yield spread between deposits and lending.
    • Most of them started off as micro finance institutions with a ready asset base, and after converting into SFBs, they have got a better liability franchise but continue to operate in niche geographies.
    • On the other hand, PBs have shown strong growth in revenues, while operating at a larger scale than SFBs.
    • The high-tech PB model has shown more rigour than the cost-heavy branch-based SFB model in terms of its impact on inclusion.

    Need for structural intervention

    • If we intend to make a real move ahead on the inclusion front, PBs will have to play a larger role.
    • However, to realize their full potential, they need certain structural interventions:

    1) Liabilities

    • PBs can take deposits only up to ₹1 lakh, which limits their ability to augment profit that can be further deployed to enhance efficiencies.
    • For a few segments, such as self-help groups and MSMEs, the savings account limit blocks the adoption of highly-accessible bank accounts.
    • Since the model has matured, it would be prudent to enhance the deposit limit to ₹5 lakh and benchmark it to Deposit Insurance and Credit Guarantee Corporation limits.
    • Banking Correspondents (BCs) are a critical link in driving financial inclusion.
    • PBs could offer low-value and simple fixed or recurring deposit products and sell to consumers through their BC distribution network, thus improving their viability.

    2) Assets

    • Currently, there is no national-level lender with the risk appetite for thin-credit consumers.
    • PBs can evolve new micro-lending models through their BC networks and mobile apps and create an alternate credit score for these consumers.
    • Allowing micro-lending by PBs could be a starting point. Thereafter, regulators may consider a transition path for them to become SFBs, or even Universal Banks.

    3) Working together for collective impact

    • PBs have an edge in technology and reach, while traditional players have a trust legacy.
    • For collective impact on inclusion, two options can be evaluated with safeguards in place.
    • One, PBs could co-originate loans with traditional institutions so that capital requirements are shared.
    • Two, they can originate credit and allow it to mature, or securitize and turn it into a market-linked instrument.
    • This could accelerate credit formalization.

    Conclusion

    We must remind ourselves that there is no one-size-fits-all solution to achieve complete financial inclusion for the diversified needs of our people. An enabling framework needs to be in place. Payments Banks, in particular, have the potential to bridge India’s financial inclusion gaps.