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GS Paper: GS3-12.Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

  • [pib] Pradhan Mantri Mudra Yojana (PMMY)

    mudra

    Why in the News?

    • The Centre has doubled the limit of Mudra loan amount under the PMMY to Rs 20 lakh from Rs 10 lakh under a new ‘Tarun Plus’ category to promote entrepreneurship in the country.
      • This higher loan limit is available to entrepreneurs who have previously taken and successfully repaid loans under the existing ‘Tarun’ category.

    About Pradhan Mantri Mudra Yojana (PMMY):

    Details
    Launch  Launched on April 8, 2015, by Prime Minister.
    Objective
    • To provide financial assistance and support to non-corporate, non-farm small and micro-entrepreneurs through collateral-free loans.
    • Non-corporate, non-farm small and micro-entrepreneurs are individuals or entities that operate small-scale businesses outside the corporate and agricultural sectors. 
    • These include self-employed workers, small retail shops, artisans, repair services, and other informal sector businesses, often with limited capital and workforce.
    Recent Update Loan limit increased from Rs 10 lakh to Rs 20 lakh under the new Tarun Plus category, announced in July 2024.
    Loan Categories • Shishu: Loans up to Rs 50,000
    • Kishore: Loans between Rs 50,000 and Rs 5 lakh
    • Tarun: Loans between Rs 5 lakh and Rs 10 lakh
    • Tarun Plus: Loans between Rs 10 lakh and Rs 20 lakh
    Loan Performance (2023-24) • 66.8 million Loans sanctioned totaling Rs 5.4 trillion.
    • Over 487.8 million loans worth Rs 29.79 trillion sanctioned since launch.
    NPA Statistics • NPA of public sector banks under Mudra loans decreased to 3.4% in FY24, down from 4.77% in 2020-21.
    • Gross NPA for scheduled commercial banks at 2.8% as of March 2024.
    Target Beneficiaries Aims to empower women, minorities, and marginalized communities by facilitating easy access to credit.
    Technological Intervention
    • MUDRA Card: An innovative credit product that offers an overdraft facility and can be used like a debit card for transactions.
    • MUDRA MITRA App: A mobile application providing information about MUDRA and its schemes, guiding loan seekers to approach banks for availing loans.

     

    PYQ:

    [2016] Pradhan Mantri MUDRA Yojana is aimed at:

    (a) Bringing the small entrepreneurs into formal financial system.

    (b) Providing loans to poor farmers for cultivating particular crops.

    (c) Providing pension to old and destitute persons.

    (d) Funding the voluntary organizations involved in the promotion of skill development and employment generation.

  • Sustainability science for FMCGs

    Why in the News?

    India’s Anusandhan National Research Foundation and the BioE3 policy promote academia-industry collaboration, driving the bioeconomy for economic growth, sustainability, and climate action commitment.

    What is BioE3 policy? 

    The BioE3 policy aims to transform chemical industries into sustainable bio-based models, promoting biotechnology to drive economic growth, protect the environment, and create jobs, supporting India’s sustainable development and climate goals.

    Primary Environmental impacts associated with FMCG production and consumption:

    • Resource Depletion: The production of FMCGs often requires significant natural resources, such as water, energy, and raw materials. For example, palm oil, widely used in food and personal care products, leads to deforestation when forests are cleared for plantations.
    • Greenhouse Gas Emissions: The manufacturing and distribution of FMCGs contribute to greenhouse gas emissions at multiple stages, from sourcing raw materials to production processes and transportation.
    • Waste Generation: FMCGs, especially those with single-use packaging (e.g., plastics), generate a considerable amount of waste, which ends up in landfills or the ocean, causing environmental pollution.
    • Water Pollution: The production and use of FMCGs, such as soaps, detergents, and other chemicals, can lead to water pollution through the discharge of untreated wastewater containing harmful substances.
    • Loss of Biodiversity: The agricultural practices used to source raw materials like palm oil can lead to habitat destruction, thereby threatening biodiversity. Monoculture farming and deforestation disrupt ecosystems and endanger wildlife.

    How can FMCG companies implement sustainable practices across their supply chains?

    • Companies should adopt responsible sourcing policies, such as using certified sustainable palm oil and other raw materials that adhere to ‘No Deforestation, No Peat’ policies.
    • Implementing energy-efficient processes, switching to renewable energy sources, and optimizing logistics to reduce emissions can minimize the carbon footprint across the supply chain.
    • Emphasizing recycling, reusing materials, and developing biodegradable or compostable packaging can help reduce waste and resource depletion.
    • The integration of bio-based or synthetic alternatives to traditional materials can also be beneficial.
    • Companies should implement measures to reduce water usage in manufacturing and treat wastewater to prevent water pollution.
    • Working with smallholder farmers to implement regenerative agricultural practices can help restore soil health, improve biodiversity, and support sustainable livelihoods.

    What metrics should be used to measure the effectiveness of sustainability initiatives in FMCGs?

    • Carbon Footprint Reduction: Tracking greenhouse gas emissions across the supply chain and setting targets for reducing Scope 1, 2, and 3 emissions.
    • Sustainable Sourcing Percentage: Measuring the proportion of raw materials sourced sustainably, such as certified palm oil or recycled materials.
    • Waste Reduction and Recycling Rates: Monitoring the volume of waste generated, the amount sent to landfills, and the recycling rate of packaging materials.
    • Water Usage and Pollution Levels: Tracking water consumption in production and measuring the quality of wastewater discharged to ensure compliance with environmental standards.
    • Biodiversity Impact: Assessing the effect of sourcing practices on ecosystems and tracking initiatives to protect or restore biodiversity.
    • Product Sustainability Index: Developing a sustainability index for products that takes into account their entire life cycle, from raw material extraction to end-of-life disposal.

    Way forward: 

    • Strengthen Collaboration and Innovation: Foster partnerships between academia, industry, and government to drive research and development of sustainable alternatives to traditional materials, such as palm oil, and implement innovative practices throughout the FMCG supply chain.
    • Implement Comprehensive Sustainability Frameworks: Establish regulatory frameworks that incentivize sustainable practices, including mandatory reporting on sustainability metrics, eco-labelling for products, and support for circular economy initiatives to minimize waste and resource depletion.

  • Fair Trade 

    Why in the News?

    In preparation for the 29th edition of the COP in Baku, Azerbaijan, next month, there is renewed momentum within government circles to expedite the transition of Indian industry to carbon markets.

    What is meant by the Carbon Trade Policy?

    • It is a market-based approach to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants.
    • It sets a quantitative limit on emissions, by allowing member countries with lower emissions to sell rights to emit carbon to higher-emitting entities, promoting cost-effective carbon reduction.

    Why India must develop a transparent Carbon Trade Policy?

    • A clear and transparent policy will boost investor confidence, attracting both domestic and foreign investments in green technologies and carbon-reduction projects.
    • Establishing robust verification and reporting mechanisms will enhance the integrity of carbon credits, preventing issues like double counting and greenwashing, and fostering trust among stakeholders.
    • A transparent policy will help align India’s efforts with global climate commitments, enabling effective tracking of emissions reductions and promoting sustainable economic growth.

    How effective is ‘Fair Trade’ in achieving its Goals?

    • Promotion of Sustainable Practices: Just as Fair Trade supports environmentally sustainable agriculture practices, carbon markets incentivize companies to adopt greener technologies and reduce emissions. Both aim to create a more sustainable future.
    • Empowerment of Stakeholders: Fair Trade empowers marginalized producers by providing fair prices and market access, similar to how carbon markets can benefit developing countries like India by enabling them to sell carbon credits generated from emissions reductions.
    • Economic Benefits: Fair Trade aims to create economic stability for producers, while carbon markets can generate revenue for countries that invest in carbon-reduction projects, creating a financial incentive for participating in emissions trading.
    • Global Impact Awareness: Both Fair Trade and carbon markets raise awareness about global issues—Fair Trade regarding trade equity and carbon markets regarding climate change, fostering a sense of responsibility among consumers and companies.

    What are the limitations and challenges facing Fair Trade certification?

    • Certification Costs: The financial burden of obtaining Fair Trade certification can be a significant barrier for small producers. Similarly, transitioning to carbon markets may involve high initial costs for companies to implement the necessary technologies and processes.
    • Market Accessibility: Fair Trade products may not have guaranteed market access, mirroring potential challenges in carbon markets where the demand for carbon credits may fluctuate based on regulations and market conditions.
    • Complex Standards: Just as Fair Trade certification has varying standards, the guidelines under Article 6 of the Paris Agreement can also lead to confusion about which carbon-reduction activities are eligible for trading.

    How can consumers effectively support Fair Trade initiatives?

    • Support Certified Products: Consumers can choose Fair Trade products, which, like carbon credits, require a conscious decision to support ethical and sustainable practices.
    • Educate and Advocate: Just as consumers can promote Fair Trade awareness, they can also advocate for transparent carbon markets and support policies that foster sustainable practices.
    • Engagement with Companies: Consumers can encourage businesses to participate in Fair Trade and carbon markets by demanding accountability and sustainability in their supply chains.
    • Community Participation: Involvement in local Fair Trade events can parallel participation in climate action initiatives, such as local carbon offset programs or sustainability projects, thereby supporting both movements.
    • Utilizing Social Media: Consumers can leverage social media to share information about Fair Trade and carbon markets, helping to amplify their importance and drive consumer engagement.

    Way forward: 

    • Strengthen Certification Accessibility: Lower the cost and simplify the certification process to make Fair Trade more accessible for small-scale producers, boosting their participation and benefits.
    • Enhance Consumer Education: Increase awareness campaigns about the impact of Fair Trade, encouraging more people to support certified products and promoting ethical consumption habits.

  • Spotlighting the work of the Economics Nobel winners

    Why in the News?

    • This year’s Nobel Prize in Economics, officially known as the Sveriges Riksbank Prize in Economic Sciences, was awarded to Daron Acemoglu, Simon Johnson, and James Robinson (AJR).  
    • AJR have highlighted the importance of institutions in development, but critics argue that this approach tends to favour Western liberal models over other institutional frameworks.

    Why Do Some Nations Succeed While Others Fail?

    • Role of Institutions: The economic success or failure of nations can often be traced back to the nature of their institutions. 
      • Inclusive institutions encourage economic activity by providing secure property rights, legal frameworks, and political systems that incentivize growth. 
      • In contrast, extractive institutions concentrate wealth and power in the hands of a few, leading to economic stagnation and social inequality.
    • Historical Path Dependence: Countries that experienced inclusive economic institutions early in their development tend to be more prosperous, while those with a history of extractive institutions face significant barriers to growth. Historical events shape the trajectory of institutional development and influence current outcomes.

    What Is the Impact of Historical Institutions on Current Economic Outcomes?

    • Colonial Legacy: Institutions established during colonialism, especially extractive ones, have long-lasting impacts. Areas with landlord-based land tenure systems or direct colonial rule have struggled with lower agricultural productivity, fewer social services, and weaker infrastructure.
    • Natural Experiment Evidence: AJR’s research used historical data, such as differences in settler mortality, to show that regions colonized by Europeans with high mortality rates ended up with extractive institutions that still negatively affect growth today.
    • Long-Term Development Patterns: The effects of historical institutions persist, shaping economic development, social structures, and governance even after countries gain independence or transition to new political systems.

    Why do critics argue that this approach tends to favour Western liberal models over other institutional frameworks?

    • Historical Bias: Critics argue that AJR’s approach overlooks the diverse paths of development, favoring Western institutions while underestimating non-Western experiences and historical complexities.
    • Western Norms as Universal: The framework tends to present Western liberal institutions as ideal models, disregarding how other systems might effectively function in different cultural and socio-political contexts.

    Why Are Inclusive Institutions Not More Widely Adopted?

    • Conflict of Interests: Powerful groups with control over resources have incentives to maintain extractive institutions to protect their wealth and power, resisting changes that would lead to a fairer distribution of economic benefits.
    • Collective Action Challenges: Reforming extractive institutions requires solving collective action problems where diverse groups must agree on new rules that may threaten the established elite’s interests.
    • Path Dependency: Historical conditions can create institutional inertia, making it challenging to shift from extractive to inclusive frameworks due to deep-rooted social, political, and economic norms.

    Way forward: 

    • Strengthen Inclusive Institutions: Focus on legal and policy reforms that secure property rights, ensure fair governance, and promote transparent decision-making, encouraging broad-based economic participation and growth.
    • Empower Marginalized Groups: Implement policies that reduce power concentration by supporting grassroots movements, enhancing education access, and providing economic opportunities to disadvantaged communities to overcome historical inequalities.

  • HAL becomes 14th Maharatna Company in India

    Why in the News?

    The Centre has upgraded the status of PSU Hindustan Aeronautics Ltd (HAL) as Maharatna Company (from earlier Navratna Status).

    About Hindustan Aeronautics Limited (HAL): Key Facts

    • HAL was founded in 1940 in Bangalore as Hindustan Aircraft Limited, merging with Aeronautics India Limited in 1964 to become HAL.
    • It is a state-owned company under the Ministry of Defence.
    • Headquarters are in Bengaluru, Karnataka.
    • Operates 20 production and R&D centers across India, including Bangalore, Nashik, Koraput, and Lucknow.
    • Focuses on design, development, manufacture, and maintenance of aircraft, helicopters, engines, avionics, and aerospace equipment.
    • Produces fighter aircraft like Tejas LCA, Sukhoi Su-30MKI, Jaguar, and Hawk.
      • Manufactures helicopters including Dhruv ALH, Rudra, Cheetah, Chetak, and LCH.
    • Collaborates with Boeing, Airbus, Rosoboronexport, and Safran on aircraft production and tech transfer.
    • Listed on BSE and NSE in 2018, allowing public investment.
    • Expanded exports, supplying aircraft and helicopter parts to countries like Vietnam, Mauritius, and Ecuador.
      • Recent projects include AMCA, IMRH, and Tejas Mk2, boosting India’s indigenous defense capabilities.

    About Maharatna Companies 

    Details
    What is it? • Recognition granted to select Public Sector Undertakings (PSUs) in India.
    • Provides greater financial and operational autonomy compared to Navratna and Miniratna PSUs.
    Eligibility • Annual Turnover: Over ₹25,000 crore in the last three years.
    • Net Worth: More than ₹15,000 crore over the last three years.
    • Net Profit: Minimum of ₹5,000 crore for three consecutive years.
    • Must have significant global operations or international presence.
    Autonomy • Can invest up to ₹5,000 crore or 15% of their net worth in a single project without government approval.
    • Authorized to make equity investments for strategic resources or collaborations in India and abroad.
    Purpose • Aims to foster more flexibility in operations and encourage expansion, especially in international markets.
    • Helps companies to become global players.
    Examples • Indian Oil Corporation (IOC)
    • Bharat Petroleum Corporation Limited (BPCL)
    • Steel Authority of India Limited (SAIL)
    • Oil and Natural Gas Corporation (ONGC)
    Significance • Enhances the ability of PSUs to compete globally.
    • Allows quicker decision-making and reduces bureaucratic hurdles.
    • Promotes growth and competitiveness in the international arena.

    Benefits of Maharatna Status for HAL

    • HAL can now invest up to ₹5,000 crore (from earlier ₹1000 cr) or 15% of its net worth (whichever is applicable) in a single project without needing government approval.
    • As a Maharatna company, HAL has the freedom to engage in mergers, acquisitions, and strategic investments, both domestically and internationally.

    PYQ:

    [2011] Why is the Government of India disinvesting its equity in the Central Public Sector Enterprises (CPSEs)?

    1. The Government intends to use the revenue earned from the disinvestment mainly to pay back the external debt.

    2. The Government no longer intends to retain the management control of the CPSEs.

    Which of the statements given above is/ are correct?

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

  • What is the Samsung worker’s strike in Chennai about?

    Why in the News?

    Approximately two-thirds of workers at Samsung’s flagship factory in Chennai have been on strike for a month, demanding higher wages, an eight-hour workday, improved conditions, and union recognition.

    What are the main demands of the striking workers?

    • Higher Wages: Workers are demanding increased salaries to improve their financial conditions.
    • Eight-Hour Work Day: The employees seek the implementation of an eight-hour workday to ensure better work-life balance.
    • Better Working Conditions: Strikers are advocating for improved health and safety standards in the workplace.
    • Recognition of Labour Union: The workers want formal acknowledgment of their recently formed union, the Samsung India Workers Union (SIWU).

    What is Samsung’s union policy?

    • Historically, Samsung has maintained a strict no-union policy for over 80 years, resisting any collective bargaining efforts by employees.
    • In July 2021, the company began to recognize unions after successful negotiations at Samsung Display and Samsung Electronics, allowing for some degree of collective bargaining.
    • Samsung now has various unions representing its workforce globally, with significant representation in South Korea.

    Why was SIWU unrecognised? 

    • Registration Challenges: SIWU’s registration has been opposed by Samsung management, citing trademark violations due to the use of the name “Samsung” in the union’s title.
    • Legal Precedents: SIWU argues that trademark issues should not apply, as their activities do not involve commercial undertakings that could infringe on the trademark.
    • Pending Legal Review: The case regarding SIWU’s registration is pending further court hearings, with the government examining objections raised by the management.

    What has been the govt.’s response?

    • Indifferent Stance: SIWU and the Centre of Indian Trade Unions (CITU) have accused the Tamil Nadu government of being indifferent and supportive of Samsung management, which the government denies.
    • Support for Workers’ Rights: The government claims it considers the registration application in light of Samsung’s objections and aims to ensure fair treatment of both workers and management.
    • CITU’s Position: Union leaders assert that government intervention in favor of management undermines the rights of workers and can deter unionization efforts, despite evidence showing that unions can benefit both employees and companies.

    Present Legislation in India:

    • Notice Period and Conditions for Strikes: Under the Industrial Relations Code, 2020, workers must provide a 14-day notice before striking, which cannot exceed a maximum of 60 days.
    • Strike definition: The definition of a strike now includes “mass casual leave,” where over 50% of employees taking leave can be classified as a strike.
    • Increased Flexibility for Employers: The code has increased the threshold for layoffs from 100 to 300 workers, allowing companies to lay off employees without government approval.
    • This change aims to give employers greater flexibility in managing their workforce, which has raised concerns among labor unions about job security and workers’ rights.

    Way forward: 

    • Facilitate Dialogue and Mediation: Establish a formal dialogue between the workers, Samsung management, and government representatives to address grievances, negotiate demands, and work towards a mutually beneficial agreement.
    • Strengthen Legal Framework for Union Recognition: Amend or clarify existing labor laws to ensure timely and transparent registration processes for unions, protecting their rights and enabling effective collective bargaining.

  • Fairwork India report highlights the absence of local living wage for gig workers, aggregators turning their back to collectivization

    Why in the News?

    The ‘Fairwork India Ratings 2024’ highlights that platform aggregators in India fail to ensure local living wages and resist recognizing the collective rights of workers.

    Who are the Gig Workers?

    • Gig workers are individuals who take up short-term, flexible work assignments, typically managed via digital platforms. In the Indian context, gig workers operate in various sectors such as food delivery, ride-hailing, logistics, and personal/domestic care services. 
    • These workers are not considered employees in the traditional sense and often lack the benefits associated with full-time employment, such as job security, healthcare, and social protection.
    • Examples of platforms using gig workers include Swiggy, Zomato (food delivery) Uber, Ola (transportation), etc.

    Key highlights as per the report: 

    • No Platform Scored Perfectly: No digital labor platform scored more than 6 out of 10 points, and none met all criteria across the five principles — Fair Pay, Fair Conditions, Fair Contracts, Fair Management, and Fair Representation.
    • Fair Pay: Only BigBasket and Urban Company ensured a minimum wage, but no platform met the criteria for guaranteeing a living wage after work-related costs.
    • Fair Conditions: Several platforms (e.g., Amazon Flex, Swiggy, Zepto) provided safety equipment and training, but only a few offered comprehensive accident insurance and income loss compensation.
    • Fair Contracts: BigBasket, Swiggy, and others made contracts accessible and comprehensible, and provided data protection for workers.
    • Fair Management: Platforms like BluSmart and Zomato implemented processes for addressing grievances and preventing discrimination.

    Present Status of Gig Economy  in India:

    • Growth of the Gig Economy: India is witnessing rapid growth in the gig economy, with millions of workers depending on digital platforms for their livelihoods.
      • The rise of app-based platforms such as Uber, Zomato, and Urban Company has driven the expansion of gig work across urban areas.
    • Government Focus: Recent years have seen increasing political and legislative attention to gig worker welfare. Karnataka and Jharkhand are examples of states that have proposed new legislation to regulate platform work and protect gig workers’ rights.
    • Worker Conditions: Despite the expansion of gig work, platforms in India still lag in ensuring fair pay, safety, and management of gig workers.
      • The Fairwork India Ratings 2024 reveal that no platform scored above 6 out of 10, signaling considerable gaps in adhering to key labor standards.

    Challenges faced by the Gig Economy

    • Low Wages and Unstable Earnings: Many platforms fail to ensure a local living wage for workers after accounting for work-related costs. Only a few platforms like Bigbasket and Urban Company guarantee the local minimum wage, but none meet the standard of ensuring a living wage.
    • Lack of Social Security and Benefits: Most gig workers lack access to benefits such as healthcare, insurance, and paid leave. While a few platforms provide accident insurance, broader social security protections remain elusive.
    • Poor Working Conditions: Platforms often do not ensure adequate safety training or measures. While some like Swiggy, Zomato, and Zepto offer basic safety equipment and training, broader protections, especially in terms of income loss and sick leave, are limited.
    • Inflexible Contracts: Contracts on platforms are frequently unclear, lengthy, and not always comprehensible for workers, making it difficult for them to fully understand their rights and obligations.
    • Management Issues and Bias: Workers face arbitrary decisions and discipline without proper recourse. Though some platforms have mechanisms for workers to appeal decisions, few have adopted policies to ensure fairness in work allocation.
    • Collectivization Challenges: Platforms resist recognizing gig workers’ right to form unions or collective bodies. Despite the growing movement for gig worker collectivization, no platform showed evidence of supporting or acknowledging these efforts.

    Way forward: 

    • Strengthen Legal Protections and Social Security: Introduce comprehensive legislation ensuring gig workers receive fair wages, social security benefits like healthcare and insurance, and clear, comprehensible contracts.
    • Promote Worker Representation and Fair Management: Encourage platforms to recognize collective bodies of gig workers, ensuring their right to unionize. Implement transparent and bias-free management practices, along with grievance redressal mechanisms, to improve working conditions and fairness.

  • Why is the textile industry struggling to perform better?

    Why in the News?

    Union Minister announced the Indian textile sector’s $350 billion business target by 2030, aiming to generate 3.5 crore jobs, despite recent challenges affecting the projected 10% CAGR.

    Present Status:

    • The Indian textile and apparel industry is currently valued at $153 billion (2021), contributing significantly to India’s GDP (2.3%) and manufacturing GVA (10.6%).
    • The industry employs around 105 million people and is highly dependent on global markets, with 80% of its capacity in MSMEs.
    • India was the third largest textile exporter in FY22, but faced a slowdown in FY23 and FY24, with significant drops in exports and domestic demand.

    What caused the slump in the Indian textile sector in the last two financial years?

    • Geopolitical Tensions: Global geopolitical issues reduced demand in key export markets.
    • High Raw Material Prices: Cotton and Man-Made Fibre (MMF) prices surged, hurting competitiveness.
    • Import Duties: A 10% import duty on cotton made Indian cotton more expensive than global prices.
    • Supply Chain Disruptions: Quality control measures affected the availability and price stability of MMF, further straining production.

    What are the other challenges?

    • Evolving Business Models: The rise of e-commerce and direct-to-consumer retailing is reshaping traditional business systems in the textile industry.
    • Sustainability Standards: Global brands are increasingly focusing on ESG (Environmental, Social, and Governance) criteria, forcing Indian manufacturers to adopt sustainable practices.
    • Changing Consumer Preferences: Growing demand for comfort wear, athleisure, and multi-brand outlets is shifting consumer behavior, impacting smaller or less-known brands.
    • Labour Costs and Productivity: Labour constitutes 10% of production costs, and the industry faces pressure to improve productivity through technology adoption and workforce skilling.

    Way forward: 

    • Enhance Global Competitiveness: The government should consider reducing import duties on key raw materials like cotton and stabilize supply chains by aligning domestic prices with international markets, ensuring competitiveness in global exports.
    • Invest in Technology and Sustainability: The industry should focus on adopting advanced technologies to improve productivity and meet global ESG sustainability standards, while simultaneously upskilling the workforce to handle these technological advancements effectively.

  • F&O: How will Sebi’s new rules affect traders and brokers?

    Why in the News?

    SEBI has introduced a six-step framework to protect investors and curb speculative trading, specifically targeting futures and options (F&O) trading by reducing volumes on expiry days and limiting retail participation.

    What are the Future and Options (F&O)?

    • Futures are contracts to buy or sell an asset (like stocks, indexes, or commodities) at a predetermined price on a future date.
    • Options give the right, but not the obligation, to buy or sell an asset at a set price before a certain date.

    SEBI’s Six-Step F&O Framework (Effective November 2024 – April 2025):

    In response to concerns about rising speculative trading, SEBI has outlined six key measures aimed at reducing retail interest in F&O trading:

    1. Upfront collection of options premiums
    2. Intraday monitoring of position limits
    3. Removing calendar spread benefits on expiry day
    4. Increasing the contract size for index derivatives
    5. Rationalizing weekly index derivatives to one benchmark per exchange
    6. Enhancing margin requirements on options expiry days

    Key Changes for Retail Investors:

    • Upfront Collection of Options Premiums: Retail investors must now pay the full premium upfront, limiting their ability to use high leverage in options trading.
    • Increased Contract Size: The minimum contract size for index derivatives is raised to ₹15 lakhs, reducing speculative retail participation by making it costlier to enter.
    • Rationalization of Weekly Expiries: Only one benchmark index per exchange can have weekly expiries, lowering speculative trading opportunities and intraday volatility.
    • Removal of Calendar Spread Benefits: Calendar spreads are no longer allowed on expiry days, discouraging aggressive trading strategies.

    Impact on Brokers and Revenue:

    • Decline in Trading Volumes: Brokers reliant on F&O trading will see reduced volumes due to fewer retail participants and higher barriers to entry.
    • Revenue Drop in Options Trading: Firms like Zerodha may face a 30-50% revenue drop as retail participation in options decreases.
    • Shift to Equity Trading: Retail investors may move towards equity trading, causing brokers to adapt their offerings.
    • Adaptation for Brokers: Brokers with a balanced mix of cash and derivatives will be less impacted, while those focused on F&O need to shift strategies.

    PYQ:

    [2021] With reference to India, consider the following statements:​

    1. Retail investors through demat account can invest in ‘Treasury Bills’ and ‘Government of India Debt Bonds’ in primary market.​

    2. The ‘Negotiated Dealing System-Order Matching’ is a government securities trading platform of the Reserve Bank of India. ​

    3. The ‘Central Depository Services Ltd.’ Is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange. ​

    Which of the statements given above is/are correct?​

    (a) 1 only ​

    (b) 1 and 2 only ​

    (c) 3 only ​

    (d) 2 and 3 only ​

  • Surat’s diamond industry struggles to sparkle amid geopolitical tensions

    Why in the News?

    Over the past 8-9 months, more than 50,000 workers in Surat have lost their jobs, and over 70 people have tragically taken their own lives in the past year, unable to bear the strain of unemployment and family responsibilities.

    Economic Impact of Geopolitical Tensions

    • Global Supply Chain Disruptions: The Russia-Ukraine war and Israel-Gaza conflict have disrupted the supply chain of raw diamonds. Russia, a major supplier of rough diamonds to Surat, faces Western sanctions, which have restricted the flow of diamonds into India.
    • Sanctions on Russian Diamonds: U.S. and European Union sanctions on Russian-origin diamonds, including polished diamonds processed in India, have significantly affected exports, particularly to Western markets like the U.S., EU, and Hong Kong.
    • Falling Demand: Global demand for polished diamonds has decreased in key markets such as the U.S., China, and Europe. This reduction in demand has led to a sharp decline in India’s diamond exports, plummeting from $23 billion in 2022 to a projected $12 billion by the end of 2024.
    • Price Drops: Polished diamond prices have fallen by 5-27% due to oversupply and lower demand, further worsening the industry’s financial outlook.

    Employment Challenges

    • Job Losses: Over 50,000 diamond workers have lost their jobs in Surat over the past eight to nine months due to factory closures and layoffs.
    • Wage Reduction: Workers who remain employed have experienced significant wage cuts. For instance, wages have dropped from ₹45,000-₹55,000 per month in 2021 to ₹25,000-₹30,000 now.
    • Suicides and Financial Distress: Financial strain has led to over 70 suicides among diamond workers in Surat, as they struggle with job losses, school fees, rent, and medical expenses for their families.
    • Lack of Government Support: Despite repeated appeals, there has been little substantial government assistance for unemployed diamond workers, leaving them with minimal social security or institutional support.

    Future Prospects and Support Measures

    • Shift to Alternative Employment: Many workers have shifted to other forms of employment, such as driving cabs, street vending, or returning to agriculture in their native regions, to make ends meet.
    • Welfare Demands: The Diamond Workers’ Union (DWU) has called for a special welfare package for workers, including financial support for their children’s education and healthcare expenses.
    • Appeals for Government Intervention: The industry, represented by groups like the DWU, is urging both the state and central governments to intervene. However, so far, industry associations have not formally sought government intervention for relief measures.

    Way forward: 

    • Government Support Package: The state and central governments should introduce targeted financial relief measures for affected diamond workers, including unemployment benefits, healthcare assistance, and educational support for children.
    • Diversification and Skill Development: Encourage skill development programs to help workers transition to alternative employment sectors, such as textiles, agriculture, or services, ensuring long-term economic resilience and reduced dependency on the diamond industry.