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

  • T + 0 Settlement System kick starts today

    Why in the news?

    India’s stock market will begin the with a ‘beta version’ of T+0 settlement system (same day settlement) from today. This is the world’s fastest stock settlement system.

    About T+0 Settlement Cycle

    • SEBI has planned to introduce the shorter cycle in two phases:
    1. T+0 Settlement Details: In Phase 1, trades executed until 1:30 PM will be settled by 4:30 PM on the same day.
    2. Instant Settlement Mechanics: Phase 2 envisages immediate trade-by-trade settlement, with trading continuing until 3:30 PM.

    Features of the T+0 Settlement Mechanism

    • Early Pay-In Trend: A large percentage of retail investors already make early pay-ins of funds and securities, indicating readiness for instant settlement.
    • Instant Receipt Benefits: The mechanism enables instant receipt of funds and securities, reducing settlement shortages and enhancing investor control.
    • Investor Protection: Direct crediting of funds and securities into investors’ accounts, especially for UPI clients, strengthens investor protection.

    Settlement Cycle: A Quick History  

     

    • SEBI shortened the settlement cycle from T+5 to T+3 in 2002, and then to T+2 in 2003.
    • The T+1 cycle was introduced in 2021 and fully implemented by January 2023.
    • In T+1, the settlement of funds and securities occurs on the next day after the trade.

    Scope and Implementation of T+0

    • Initially, the T+0 settlement will be available for the top 500 listed equity shares based on market capitalization, implemented in three tranches.
    • The same surveillance measures applicable in the T+1 cycle will apply to the T+0 cycle.
    • Trade-for-trade settlement securities will NOT be eligible for T+0.

    Rationale behind T+O Cycle

    • Market Growth and Efficiency: With the significant growth in market volumes and participants, SEBI aims to enhance market efficiency and safety, especially for retail investors.
    • Technological Advancements: The evolution of payment systems like UPI and the sophistication of market infrastructure support the feasibility of shorter settlement cycles.
    • Investor Attraction: Faster transactions, reliability, and low costs are key factors that attract investors, making Indian securities a more appealing asset class.

    Benefits of the New Mechanism

    • Flexibility for Clients: The new mechanism offers faster payouts of funds to sellers and securities to buyers, providing greater flexibility and control.
    • Market Ecosystem Advantages: The faster settlement cycle is expected to enhance the operational efficiency of the securities market, benefiting the entire ecosystem.

     

    PYQ:

    2017: The term ‘Digital Single Market Strategy’ seen in the news refers to

    a)    ASEAN

    b)    BRICS

    c)    EU

    d)    G20

     

    Practice MCQ:

    With reference to the T+0 Settlement Cycle, consider the following statements:

    1.    Trades executed until 1:30 PM will be settled by 4:30 PM on the same day.

    2.    Trade-for-trade settlement securities will also be eligible for T+0.

    Which of the given statements is/are correct?

    a)    Only 1

    b)    Only 2

    c)    Both 1 and 2

    d)    Neither 1 nor 2

  • SEBI’s directive on Overseas ETF Investments

    What is the news?

    SEBI has instructed mutual fund houses to halt new inflows into schemes investing in overseas exchange-traded funds (ETFs) from April 1, 2024.

    What are Exchange Traded Funds (ETFs)?

    • ETFs are marketable securities that track various assets, including indices, commodities, or bonds, and trade on stock exchanges like regular stocks.
    • ETFs were started in 2001 in India.
    • Types of ETFs: Equity ETFs, bonds ETFs, commodity ETFs, international ETFs, and sectoral/thematic ETFs cater to diverse investment preferences.

    Market dynamics of ETFs

    • ETFs can be purchased or sold on a stock exchange in the same way that regular stocks can, unlike the mutual funds.
    • The traded price of an ETF changes throughout the day like any other stock, as it is bought and sold on the stock exchange.
    • The trading value of an ETF is based on the net asset value of the underlying stocks that it represents.
    • These funds offer higher liquidity, lower fees, and tax efficiency compared to traditional mutual funds, appealing to individual investors.

    Reasons behind SEBI’s Directive

    • Cap Proximity: The mutual fund industry has nearly reached 95% of the $1 billion investment limit in overseas ETFs, prompting SEBI’s intervention.
    • Temporary Measure: SEBI’s directive aims to temporarily curb inflows into these schemes until the investment limit is revised or additional measures are implemented.
    • Existing Caps: Currently, mutual funds are subject to an overall cap of $7 billion for investments in overseas stocks or mutual funds, with a specific limit of $1 billion for ETFs.

    PYQ:

    2013: The product diversification of financial institutions and insurance companies, resulting in overlapping of products and services strengthens the case for the merger of the two regulatory agencies, namely SEBI and IRDA. Justify.

    2020: With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?

    1. It is the investment through capital instruments essentially in a listed company.
    2. It is a largely non-debt creating capital flow.
    3. It is the investment which involves debt-servicing.
    4. It is the investment made by foreign institutional investors in the Government securities.

     

    Practice MCQ:

    With reference to the Exchange Traded Funds (ETFs), consider the following statements:

    1. ETFs are marketable securities that track various assets, including indices, commodities, or bonds, and trade on stock exchanges like regular stocks.
    2. ETFs were started in 2021 in India.
    3. ETFs can be purchased like the mutual funds.

    How many of the given statements is/are correct?

    1. One
    2. Two
    3. Three
    4. None

  • Startups ‘reverse flip’: Pine Labs, Zepto, Meesho in queue for India return

    Why in the news?

    • Pine Labs and Zepto are the latest new-age companies looking to move headquarters to India.

    Context-

    There is a significant surge in reverse flipping within India’s startup scene, characterized by a growing trend of startups choosing to relocate their headquarters or establish a presence in the country.

    What is Reverse Flipping ? 

    • Reverse flipping is the process of shifting the domicile of an Indian company back to India after it had moved its headquarters overseas.
    • Indian startups are increasingly choosing to reverse flip back into India, drawn by the country’s favorable economic policies, expanding domestic market, and increasing investor confidence in its startup ecosystem.

    Recent Examples of Reverse-Flipping of Unicorns-

    Several high-profile startups are opting for reverse flipping to India, indicating a trend of relocating their headquarters or establishing a base in the country.

    • Walmart-owned PhonePe: PhonePe, a subsidiary of Walmart, relocated its domicile from Singapore to India. This move was likely motivated by the significant user base and potential for digital payments in the Indian market.
    • Pine Labs, Meesho, and Zepto: These are identified as the latest new-age companies intending to move their headquarters to India. Their decisions suggest confidence in the opportunities and advantages offered by the Indian startup ecosystem.
    • It Solidifies India’s Position as a Startup Hub: The successful execution of reverse flipping by these high-profile startups contributes to solidifying India’s position as a prominent startup hub globally.

    How Reverse-Flipping is done? 

    • Strategic Assessment: The company conducts a strategic assessment of potential target countries, considering factors such as market size, regulatory environment, access to talent, infrastructure, tax policies, and overall business climate.
    • Legal and Regulatory Considerations: The company evaluates the legal and regulatory requirements for establishing a presence in the target country. This may involve understanding company registration procedures, compliance with corporate laws, tax regulations, employment laws, and any other relevant regulations.
    • Corporate Structure: The company determines the appropriate corporate structure for its operations in the target country. This may involve setting up a subsidiary, branch office, or joint venture, depending on the specific needs and objectives of the company.
    • Transfer of Assets and Operations: The company transfers its assets, operations, and intellectual property rights to the new entity in the target country. This may include physical assets such as equipment and inventory, as well as intangible assets such as trademarks, patents, and proprietary technology.
    • Share Swaps or Mergers: In some cases, the company may use share swaps or mergers as a method for executing the reverse flip. This involves exchanging shares with shareholders of a company in the target country or merging with an existing company to establish a presence in that jurisdiction.
    • Compliance and Approval: The company ensures compliance with all legal and regulatory requirements in both the home country and the target country. This may involve obtaining approval from regulatory authorities, such as the National Company Law Tribunal (NCLT) or other relevant government agencies.
    • Operational Transition: Once the reverse flip is completed, the company focuses on transitioning its operations to the new location. This may involve hiring local talent, establishing partnerships with suppliers and vendors, and adapting its business strategy to the local market dynamics

    Startups are opting to reverse flip for several compelling reasons:

    • Access to a Growing Economy: India is currently the world’s fifth-largest economy by GDP and is projected to become the third-largest by 2030. This growth trajectory presents significant opportunities for startups to tap into a dynamic market with increasing urbanization, disposable income, and consumption.
    • Large and Educated Youth Population: India boasts the world’s largest youth population, with approximately 66% of its citizens under the age of 35. This demographic advantage provides a vast pool of skilled and educated talent, making it attractive for startups seeking a workforce with diverse skills and capabilities.
    • Access to Capital Markets: The Indian capital market offers overseas startups access to a large pool of capital. The listing process on Indian stock exchanges is relatively cost-effective compared to many Western exchanges, making it an appealing option for startups with limited resources.
    • Opportunity to Tap into the Consumer Market: With its rapidly growing middle class and increasing disposable income, India presents a lucrative consumer market for startups offering products and services across various sectors.
    • Synergies with Indian Companies: Reverse flipping allows overseas startups to explore synergies with Indian companies, leading to partnerships, joint ventures, and acquisitions. These collaborations help startups expand their reach and operations in India while leveraging the local expertise and market knowledge of Indian companies.

    Potential tax implications in this scenario:

    • Corporate Tax: The company may be subject to corporate tax in the jurisdiction where it is based and operates. If the company chooses to establish its headquarters or base in India through reverse flipping, it would be subject to Indian corporate tax laws.
    • Capital Gains Tax: Any gains realized from the transaction, such as the separation of PhonePe and the return of the holding company to India, could be subject to capital gains tax in the relevant jurisdictions. The quantum of this tax would depend on factors such as the valuation of the company and the applicable tax rates.
    • Transfer Pricing Rules: Transfer pricing rules may apply if there are transactions between related parties as part of the reverse flip process. These rules are designed to ensure that transactions between related entities are conducted at arm’s length, and appropriate taxes are paid on profits generated from such transactions.
    • Indirect Taxes: Depending on the nature of the company’s business and the jurisdictions involved, other indirect taxes such as goods and services tax (GST) may also apply.

    Conclusion-

    Reverse flipping, relocating headquarters to India, gains traction. Driven by favourable market dynamics, talent pool, capital access, and synergies. Potential tax implications include corporate tax, capital gains, transfer pricing, and indirect taxes.

  • [pib] GRID-INDIA is now a Miniratna Company

    What is the news-

    • Grid Controller of India Limited (GRID-INDIA) reached a significant milestone as it was honored with the prestigious status of Miniratna Category-I Central Public Sector Enterprise (CPSE) by the Ministry of Power.

    About Grid Controller of India Limited (GRID-INDIA)

    • Founding: Established in 2009, GRID-INDIA plays a vital role in ensuring the smooth operation of the Indian Power System.
    • Mandate: GRID-INDIA is tasked with overseeing the seamless transfer of electric power within and across regions, facilitating transnational power exchanges, and ensuring reliability, economy, and sustainability in the power sector.
    • Regional Load Despatch Centres (RLDCs) and NLDC: GRID-INDIA comprises five RLDCs and the National Load Despatch Centre (NLDC), collectively managing the All India synchronous grid.
    • Functions: Managing one of the world’s largest and most intricate power systems, GRID-INDIA handles diverse challenges arising from the integration of power systems, rising energy demands, and the proliferation of Renewable Energy (RE) sources.

    What are Central Public Sector Enterprises (CPSEs)?

    • CPSEs are companies in which the central government holds a majority stake (usually more than 51%).
    • These enterprises operate across various sectors, including manufacturing, infrastructure, energy, telecommunications, and financial services.
    • CPSEs are governed by the Department of Public Enterprises (DPE) under the Ministry of Heavy Industries and Public Enterprises.

    Within the CPSEs, there are further classifications based on their financial performance, operational autonomy, and strategic importance:

    Maharatna Companies Navratna Companies Miniratna Companies
    Categories Single category Single category Two categories (Category-I and Category-II) based on the Autonomy
    Eligibility Criteria Annual turnover of ₹25,000 crore, net worth of ₹15,000 crore, and net profit of ₹5,000 crore over the last three years A composite score of at least 60% based on various parameters such as net profit, net worth, total manpower cost, cost of production, PBDIT (Profit Before Depreciation, Interest, and Taxes) to turnover ratio, and other operational and financial parameters. Satisfactory operational and financial performance, as per government guidelines
    Operational Autonomy High degree of operational autonomy and financial powers Moderate degree of operational autonomy and financial powers Limited operational autonomy and financial powers
    Investment Authority Authority to make strategic investments, undertake mergers and acquisitions, and form joint ventures or collaborations without seeking government approval Authority to undertake investment decisions, execute projects, and form joint ventures or subsidiaries within prescribed limits without seeking government approval Authority to make certain investment decisions, incur capital expenditure and undertake expansion projects within prescribed limits without seeking government approval
    Number of Companies Limited number of companies (currently 10 Maharatna companies) Limited number of companies (currently 14 Navratna companies) Larger number of companies (over 70 Miniratna companies)
    Examples Oil and Natural Gas Corporation (ONGC), Indian Oil Corporation (IOC), NTPC Limited Bharat Electronics Limited (BEL), Hindustan Aeronautics Limited (HAL), Bharat Petroleum Corporation Limited (BPCL) Container Corporation of India (CONCOR), National Aluminium Company Limited (NALCO), Power Grid Corporation of India Limited (POWERGRID)

     

    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?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2

  • Free trade has two faces and the one offering harmony must prevail

    Why in the News?

    • Recently, the discussion acknowledged free trade’s nuanced and multifaceted nature, highlighting its potential benefits for peace and economic development while recognizing historical and contemporary challenges in promoting equitable outcomes.

    Evolution of Free Trade ideology:

    • 19th Century Political Reformers and Free Trade:  Free trade was the rallying cry of 19th-century political reformers (Particularly Adam Smith who was inspired by Thomas Hobbes), who saw it as a vehicle for defeating despotism, ending wars, and reducing crushing inequalities in wealth.
    • The era’s economic cosmopolitanism encapsulated progressive causes such as anti-militarism, anti-slavery, and anti-imperialism.
    • US Populists and Opposition to Tariffs: US populists in the late 19th century staunchly opposed the gold standard but were also against import tariffs, which they thought benefited big business and harmed ordinary people.
    • They pushed to replace tariffs with a more equitable progressive income tax.
    • Socialists’ View on Free Trade in the Early 20th Century: Then, during the early part of the 20th century, many socialists viewed free trade, supported by supranational regulation, as the antidote to militarism, wealth gaps and monopolies.
    • Liberal Reformers’ Perspective on Protectionism: The 19th-century liberals and reformers were free traders because they thought protectionism served retrograde interests, including landed aristocrats, business monopolies and warmongers.
    • They believed economic nationalism went hand in hand with imperialism and aggression.
    • Historian Marc-William Palen cites a 1919 essay by the economist Joseph Schumpeter, who depicted imperialism as a “monopolistic symptom of atavistic militarism and protectionism—an ailment that only democratic free-trade forces could cure.”

    Perception and misconceptions of Free trade:

    • Controversial Term-Free trade has been controversial in economics, with many people arguing that it contributes to rising inequality.
    • However, there is a grain of truth in the anti-trade stance, as growing trade did contribute to rising inequality and the erosion of the middle class in the US and other advanced economies in recent decades.
    • Blind Spot of Globalization – If free trade got a bad name,  globalisation’s boosters ignored its downsides or acted as if nothing could be done about them.
    • This blind spot empowered political leaders like Donald Trump to weaponize trade and demonize racial and ethnic minorities, immigrants, and economic rivals.
    • Diverse Opposition: Antipathy to trade is not limited to right-wing populists but also includes radical leftists, climate activists, food safety advocates, human-rights campaigners, labor unions, consumer advocates, and anti-corporate groups.
    • US President Joe Biden has distanced himself from free trade, believing that building a secure, green, equitable, and resilient US economy must take precedence over hyper-globalization.
    • Obstacle to Social Justice:  All progressives believe that free trade stands in the way of social justice.

    Instrumentalisation of Trade:

    1) Instrumentalized for Authoritarian end:

    • Under American Revolution: A particularly egregious example is Antebellum America, where free trade entrenched slavery.
    • During the drafting of the US Constitution in 1787, America’s slave-owning southerners ensured that the text would prohibit the taxation of exports. They understood that free trade would ensure that plantation agriculture remained profitable and safeguard the slavery system on which it was based.
    • When the North defeated the South in the US Civil War, slavery was abolished, and free trade was replaced with protectionism, which suited Northern business interests better.
    • Under British imperialism: After the repeal of the Corn Laws in 1846, the British government nominally abandoned protectionism and led Europe to sign free-trade agreements.

    2) Instrumentalized for militaristic ends:

    • In Africa, the Middle East, and Asia, free trade was imposed through the barrel of a gun whenever the British encountered weak potentates ruling over valuable commodities and markets.
    • The British fought the infamous Opium Wars of the mid-19th century to force Chinese rulers to open their markets to British and other Western goods so that Western countries, in turn, could buy China’s tea, silk, and porcelain without draining their gold.
    • The opium was grown in India; a British monopoly forced farmers to work under horrendous conditions that left long-term scars.
    • Free trade served repression and war, and vice versa.

    Post-World War II trade regime:

    • The American architects of the International Trade Organization followed in the footsteps of Cordell Hull—President Franklin D. Roosevelt’s secretary of state—believing they were pursuing world peace through free trade.
    • Hull was an economic cosmopolitan and a supporter of the 19th-century radical free-trade advocate Richard Cobden.
    • The post-war order was meant to be a system of global rules that eliminated bilateralism and imperial privileges.
    • While the US Congress ultimately failed to ratify the ITO, some of its key principles—including multilateralism and non-discrimination—survived in the General Agreement on Tariffs and Trade (GATT), the precursor to the World Trade Organization (WTO) of today.
    • Under GATT, commercial diplomacy replaced wars, and many non-Western countries—like Japan, South Korea, Taiwan and China—expanded their economies rapidly by leveraging global markets.

    What are the present challenges to the Trade regime?

    • Rise of Corporate Influence: Big corporations and multinational companies gained substantial power during this period, influencing trade negotiations to serve their interests.
    • Neglect of Important Issues: Environmental concerns, public health, human rights, economic security, and domestic equity were overlooked as trade negotiations prioritized corporate interests.
    • Departure from Original Vision: Trade deviated from the original vision of figures like Cobden and Hull, who likely envisioned it as a force for peace and prosperity, instead becoming a source of conflict.
    • Shift in Trade Dynamics: The dominance of corporate influence shifted the focus of international trade away from broader societal welfare towards maximizing profits and corporate interests

    Conclusion:

    The lesson of history is that turning trade into a positive force requires democratizing it. This means that trade should work for the benefit of the broader public interest, not just for a select few. This is an important lesson to remember as the reconstruction of the world trade regime would occur in the years ahead.

     

    Mains PYQ:

    Q. What are the key areas of reform if the WTO has to survive in the present context of the ‘Trade War’, especially keeping in mind the interest of India? (UPSC 2018)

  • India-EFTA Trade Pact: A Game-Changer in Economic Cooperation

    In the news

    • India has inked a momentous Free Trade Agreement (FTA) with the European Free Trade Association (EFTA), comprising Iceland, Liechtenstein, Norway, and Switzerland.
    • The accord, aimed at attracting a staggering $100 billion in investment over 15 years, signifies a significant leap towards diversifying imports and forging robust economic ties with key European nations.

    About the European Free Trade Association (EFTA) Bloc

    Description
    Member Iceland, Liechtenstein, Norway, Switzerland
    Formation Established in 1960 by seven European countries as an alternative trade bloc to the EU
    Trade Relations Free trade agreements among themselves and with other regions
    Activities Participate in European Single Market through the EEA Agreement
    Institutions EFTA Court, EFTA Surveillance Authority, EFTA Secretariat
    Relationship with EU Not part of the EU,

    But have close economic ties and trade agreements with EU countries

     Why was this FTA revived?

    • Resurgence of Talks: The trade deal comes to fruition after a hiatus of 16 years, during which discussions were stalled due to differences between the parties.
    • Strategic Realignment: Evolving geopolitical dynamics and mutual interests in reducing dependence on China played a pivotal role in reigniting negotiations and reaching a consensus.

    Key Decisions

    • Investment Commitments: EFTA countries pledge to invest $100 billion in India, aiming to generate 1 million jobs within 15 years, demonstrating a shared commitment to mutual prosperity and development.
    • Market Access: The agreement ensures enhanced market access for both goods and services, with provisions for tariff concessions and non-discriminatory treatment of service providers.
    • Sectoral Focus: Priority sectors such as pharma, chemicals, minerals, and services receive particular attention, reflecting the potential for growth and collaboration in these areas.

    Key Highlights of the Trade Pact

    • Scope of Agreement: The agreement covers tariff concessions for pharma, chemical products, minerals, and other key sectors, facilitating enhanced bilateral trade relations.
    • Binding Commitments: The pact includes a binding commitment to increase FDI from EFTA states into India by $50 billion within the first ten years and an additional $50 billion in the subsequent five years.
    • Mechanisms for Investment Facilitation: The agreement outlines mechanisms to facilitate investment flows from the private sector in EFTA countries, ensuring transparency and accountability.
    • Rebalancing Concessions: Provisions are in place to withdraw tariff concessions if the expected investment commitments are not met, ensuring accountability and adherence to agreed-upon terms.
    • Market Access Commitments: The agreement opens avenues for Indian service providers, particularly in audio-visual services, with commitments from EFTA nations to ensure non-discrimination and market access.
    • Visa Facilitation: EFTA countries have provided visa categories for intra-corporate transferees and independent professionals, enhancing opportunities for Indian service providers.
    • Tariff Reduction: The agreement entails the elimination of tariffs on industrial goods exported to India by EFTA companies, including pharmaceuticals, machinery, watches, and chemicals.
    • Agricultural Products Exemption: While agricultural items are largely excluded, meaningful tariff concessions have been granted for both basic and processed agricultural products.

    Significance of the FTA’s Timing

    • Election Concerns: With numerous countries, including India, embarking on electoral processes, the window for negotiating free trade agreements (FTAs) may narrow significantly. Seizing the moment is imperative amid a global shift in supply chains away from China.
    • Geopolitical Opportunity: As global investors eye alternative destinations, delays in fostering investment flows and global integration could result in missed geopolitical advantages for India.
    • Addressing Trade Deficit: India seeks to mitigate trade deficits prevalent with many trading partners, including ASEAN nations. While previous FTAs provided access to intermediate goods, India’s relatively high average tariffs disadvantaged its position, granting preferential market access to FTA partners.

    Challenges in India-EFTA Trade Agreement

    • Limited Tariff Benefits: Existing zero or low tariffs in EFTA countries limit the potential gains for Indian goods exports, particularly in industrial and agricultural sectors.
    • Trade Deficit Concerns: India’s significant trade deficit with EFTA, especially driven by imports of gold and precious metals, raises concerns about the imbalance in trade relations.
    • Market Access Limitations: The scope for increasing market access for Indian goods in EFTA remains low, posing challenges for trade expansion efforts.
    • Competition from Other Countries: EFTA investment commitments may face competition from other countries like Vietnam and Mexico, potentially impacting India’s ability to attract investment.
    • Political Uncertainty: The timing of signing the agreement is crucial due to upcoming elections in many countries, which could delay future trade agreements and geopolitical opportunities.

    Opportunities in India-EFTA Trade Agreement

    • Investment Inflow: Commitments for $100 billion in investment over 15 years offer significant economic opportunities, including job creation and sectoral growth.
    • Services Sector Development: The agreement could bolster India’s services sector, enhancing its competitiveness and contributing to economic growth.
    • Sectoral Benefits: Key sectors like pharma, chemicals, food processing, and engineering stand to benefit from investment inflow, potentially reducing dependency on imports from China.
    • Joint Ventures: Collaboration in identified sectors through joint ventures could facilitate technology transfer, skill development, and product diversification.
    • Wider Economic Impact: Investment from EFTA countries, including Norway’s substantial sovereign wealth fund, could stimulate economic activity and fuel India’s growth trajectory.

    Conclusion

    • The forthcoming trade agreement with EFTA signals a paradigm shift in India’s trade dynamics, emphasizing economic diversification and bolstering strategic sectors.
    • As India navigates evolving global trade landscapes, leveraging investments from EFTA nations presents an opportunity to stimulate growth, foster innovation, and reduce dependency on a single market.

  • Gig Workers suffer from Lack of Social Security, Regulation: Study

    gig worker

    In the news

    • A recent study conducted by the People’s Association in Grassroots Action and Movements highlights the working conditions and challenges encountered by app-based cab and delivery drivers/persons in India.
    • The findings underscore the critical need for enhanced social security measures and regulatory oversight to safeguard the welfare of gig workers in the country.

    Key Findings on Gig Workers

    • Extended Working Hours: Approximately a third of app-based cab drivers work for over 14 hours daily, with over 83% working more than 10 hours and 60% exceeding 12 hours, reflecting the demanding nature of their work.
    • Caste-wise Impact: The study reveals a disproportionate impact on drivers from Scheduled Castes and Tribes, with over 60% working beyond 14 hours compared to only 16% from the unreserved category.
    • Financial Strain: More than 43% of participants earn less than ₹500 per day or ₹15,000 monthly after expenses, highlighting the precarious financial situation faced by many workers.
    • Financial Hardship: A significant majority (76%) of delivery persons struggle to meet their financial needs, indicative of the economic challenges inherent in the gig economy.
    • Other Challenges: Issues such as ID deactivation and customer misbehaviour further compound the difficulties faced by workers in the app-based transport and delivery sector.

    Implications of the Report

    • Social Disparities: Income disparities exacerbate existing social inequalities, particularly among workers from different caste backgrounds, perpetuating cycles of poverty and distress within these communities.
    • Health and Safety Risks: Prolonged working hours contribute to physical exhaustion and increased risk of road traffic accidents, compounded by pressure from e-commerce platforms to achieve rapid delivery times. Lack of social and job security adds to stress levels and poses potential health risks for workers.

    Understanding the Gig Economy

    • In a gig economy, temporary, flexible jobs are prevalent, with companies often hiring independent contractors and freelancers instead of full-time employees.
    • Tech-enabled platforms connect consumers with gig workers for short-term services across various sectors.
    • Sectors such as media, real estate, legal, hospitality, and technology are already operating within the gig economy framework, offering opportunities for self-employed individuals, freelancers, and part-time workers.

    Key Drivers for Gig Economy Growth

    • Changing Work Preferences: Millennials prefer flexible work arrangements over traditional full-time employment, driven by hectic lifestyles and a desire for autonomy.
    • Startup Culture: Startups hire contractual freelancers to reduce fixed costs associated with full-time employees, fostering the growth of the gig economy.
    • Freelancing Platforms: The proliferation of freelancing platforms facilitates connections between gig workers and businesses, enabling seamless transactions.
    • Post-Pandemic Transition: The pandemic has prompted laid-off employees to explore freelance opportunities, contributing to the expansion of the gig economy.

    Advantages and Challenges

    [A] Advantages for Workers

    • Profit through Diversification: Gig workers can supplement their income by engaging in multiple gigs simultaneously.
    • Empowerment and Flexibility: Women and retired individuals benefit from the flexibility offered by gig work, empowering them to balance work and personal responsibilities.
    • Cost Savings and Convenience: Work-from-home arrangements reduce travel costs and offer convenience to workers, enhancing their overall quality of life.

    [B] Advantages for Employers

    • Efficiency and Productivity: Gig workers often exhibit higher efficiency and productivity compared to traditional employees, driving business growth.
    • Cost Savings: Employers save on benefits, office space, and training costs associated with full-time employment, optimizing resource allocation.

    Challenges in the Gig Economy

    • Lack of Employment Perks: Gig workers miss out on traditional employee benefits such as pension and gratuity, leading to financial insecurity.
    • Job Insecurity: Unfair termination and inadequate wages pose significant challenges for gig workers, contributing to job insecurity.
    • Legal Protections: Gig workers lack bargaining power and legal protections, making it difficult to negotiate fair terms with employers.
    • Access and Connectivity: The gig economy remains inaccessible to rural populations with limited internet connectivity and infrastructure.

    Way Forward

    • Policy Reforms: The government must fine-tune existing social security policies to address the unique needs of gig workers, ensuring comprehensive protection and support.
    • New Legislation: The centre must thrive in from the Platform-Based Gig Workers (Registration and Welfare) Bill, 2023 recently introduced in Rajasthan Assembly.
    • Collaborative Efforts: Stakeholders across sectors should collaborate to establish industry-wide standards and best practices for gig work, promoting fair treatment and equitable opportunities.
    • Technology Integration: Leveraging technology can enhance access to gig opportunities and streamline processes for both workers and employers, fostering a more inclusive and efficient gig economy ecosystem.

    Conclusion

    • The gig economy presents both opportunities and challenges for workers and businesses alike.
    • By addressing key issues and fostering a conducive regulatory environment, India can harness the full potential of the gig economy while ensuring the well-being and rights of all stakeholders involved.

  • EoUs, SEZs to get RoDTEP sops

    In the news

    • In a significant move aimed at bolstering India’s export sector, the Centre recently announced the extension of tax refunds under the Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme to outbound shipments from Special Economic Zones (SEZs) and Export Oriented Units (EOUs).

    About RoDTEP Scheme

    • Introduced by the Government as a duty remission scheme on exports, implemented from 1st January 2021.
    • Aimed at repealing and reducing taxes for exported products to boost exports in the country.
    • Administered by the Department of Revenue, Ministry of Finance.
    • Provides reimbursement of taxes, duties, and levies not refunded under any other mechanism, incurred by export entities in the manufacturing and distribution of exported products.
    • Includes direct costs incurred by exporters and prior stage cumulative indirect taxes on goods.

    Compliance with the WTO

    • Follows the global principle that taxes/duties should not be exported.
    • Replaced the Merchandise Export Incentive Schemes (MEIS) after a WTO dispute ruling against India.

    Eligibility Criteria

    • Applicable to all export sectors regardless of turnover, with the country of manufacturing of exported goods in India.
    • Applies to merchant or manufacturer exporters directly exporting goods.
    • Goods exported through e-commerce platforms are eligible.

    Refund process

    • Rebate provided to eligible exporters as a percentage of the Freight on Board (FOB) value of exports.
    • Remission issued as transferrable e-scrips maintained in an electronic credit ledger by CBIC.
    • E-scrips can be used for paying basic customs duty on imports or transferred electronically to another party.

    Back2Basics:

    (1) Export Oriented Units (EOUs)

    Details
    Establishment EOUs are established under the provisions of the Foreign Trade (Development and Regulation) Act, 1992, and the Export Import Policy.
    Regulation Regulated by the Directorate General of Foreign Trade (DGFT)
    Benefits
    • Duty-free procurement of raw materials.
    • Reimbursement of GST and duty on fuels.
    • Fast track clearance facilities.
    • Exemption from industrial licensing for certain sectors.
    Qualification Project must have a minimum investment of Rs. 1 crore in plant and machinery, except for specific sectors like software technology parts and biotechnology parks.
    Geographical Scope EOUs can be set up anywhere in India based on scheme criteria.
    Comparison with SEZs
    • SEZs are demarcated enclaves outside Customs jurisdiction.
    • SEZs enjoy tax exemptions, while EOUs pay taxes that can be claimed as refunds later.

     

    (2) Special Economic Zones (SEZs)

    Details
    Inception Date SEZ policy in India was first implemented on April 1, 2000.
    Objective
    • Enhance foreign investment and provide an internationally competitive and hassle-free environment for exports.
    • Promote exports and ensure a level playing field for domestic enterprises.
    SEZ Act 2005 Enacted to provide the legal framework covering all important aspects of SEZ development and operations.
    Setting up SEZs
    • Any private/public/joint sector, state government, or its agencies can establish an SEZ.
    • Foreign agencies can also set up SEZs in India.
    Role of State Governments
    • State government representatives are consulted during the proposal consideration phase.
    • States must ensure the availability of basic infrastructure like water and electricity before recommending proposals.
    Government Control
    • Statutory functions are controlled by the government in all SEZs.
    • The central government controls operation and maintenance in central government-controlled SEZs; the rest are privatized.
    Exemption from Labor Laws
    • SEZs are subject to normal labor laws enforced by state governments.
    • A single-window clearance mechanism and simplified procedures/returns have been requested from state governments.
    Monitoring Units in SEZs Annually by a unit approval committee consisting of a development commissioner, customs, and state government representatives.
    Special Features for Business Units
    • Business units in SEZs are entitled to incentives and a simplified operating environment.
    • No license is required for imports, including second-hand machinery.

     

    Try this PYQ from CSE Prelims 2016:

    Recently, India’s first ‘National Investment and Manufacturing Zone’ was proposed to be set up in

    (a) Andhra Pradesh

    (b) Gujarat

    (c) Maharashtra

    (d) Uttar Pradesh

  • EU’s Digital Markets Act (DMA): Lessons for India

    In the news

    • The Digital Markets Act (DMA) marks a significant milestone for the European Union (EU) as it reinforces its role as a global trendsetter in regulating the tech industry.
    • With its implementation, six tech giants designated as “gatekeepers” – Amazon, Apple, Google parent Alphabet, Meta, Microsoft, and TikTok owner ByteDance – are required to adhere to new regulations.

    EU’s Leadership in Tech Regulation

    • Pioneering Regulations: The EU has a history of imposing significant fines on tech giants, enforcing strict antitrust rules, and pioneering norms to regulate social media and artificial intelligence.
    • Global Impact: The DMA sets a precedent for tech regulation worldwide, with countries like Japan, Britain, Mexico, South Korea, Australia, Brazil, and India drafting similar rules to prevent tech dominance in digital markets.

    Key Provisions of the DMA

    • Regulated Services: The DMA targets 22 services, including operating systems, messenger apps, social media platforms, and search engines, offered by the designated tech gatekeepers.
    • Penalties for Non-Compliance: Tech companies face hefty fines of up to 20% of their annual global revenue for repeated violations or potential breakup for systematic infringements.

    Implications for Tech Giants

    • Shift in Business Practices: Tech giants are compelled to adapt their business models to comply with the DMA, such as Apple’s decision to allow iPhone users to download apps from sources outside its App Store.
    • Reduced Monopolistic Practices: The DMA aims to curtail monopolistic practices by providing users with choices for default browsers, search engines, and app sources.

    Challenges and Criticisms

    • Security Risks: While Apple’s decision to allow app downloads outside its App Store offers more freedom to users, it also raises concerns about potential security risks associated with third-party sources.
    • Market Fragmentation: Critics argue that additional fees imposed by tech giants for alternative app sources may deter developers, leading to market fragmentation and hindering competition.
    • Consumer Awareness: Despite offering choice screens for default services, smaller players like Ecosia raise concerns that users may stick with familiar options due to lack of awareness about alternatives.

    EU’s Vigilance and Future Outlook

    • Regulatory Oversight: EU competition Chief Margrethe Vestager emphasizes close scrutiny to ensure tech firms comply with DMA regulations and prevent circumvention of rules.
    • Consumer Choice: The DMA prioritizes consumer choice by allowing users to select default services and promoting competition among tech companies.
    • Continuous Evaluation: The effectiveness of DMA regulations will be continuously evaluated to address emerging challenges and ensure a fair and competitive digital ecosystem.

    Application in India: Unique Considerations

    • Market Dynamics: India’s digital market differs significantly from the EU, with distinct internet penetration levels, consumer preferences, and regulatory challenges.
    • Debate on Ex-Ante Regulation: The EU’s adoption of ex-ante regulations raises questions about its applicability in India and the need for tailored approaches to address local market dynamics.
    • Ground Realities: Legal experts emphasize the importance of aligning regulatory frameworks with ground realities and testing laws in local contexts to ensure effective implementation.

    Way Forward: Tailored Solutions for India

    • Customized Regulation: India’s DMA should be crafted in consultation with businesses and consumers to address the country’s unique market dynamics and regulatory challenges.
    • Pragmatic Approach: Regulatory frameworks must be flexible and responsive to ground realities, ensuring that laws effectively address local needs and promote competition and innovation.

    Conclusion

    • The DMA represents a significant step towards promoting fair competition and consumer empowerment in the digital landscape.
    • As the EU leads the way in tech regulation, the DMA’s implementation will have far-reaching implications globally, shaping the behavior of tech giants and safeguarding consumer interests in an increasingly digitized world.

  • ADITI Scheme to Fund India’s Defence Start-ups

    In the news

    • The recently launched ADITI scheme by the Union Minister of Defence marks a new era in promoting innovations in critical and strategic defence technologies.

    About ADITI Scheme

    • Scheme Objective: Acing Development of Innovative Technologies with iDEX (ADITI) is aimed at fostering innovations in critical and strategic defence technologies.
    • Development Goals: The scheme targets the development of approximately 30 deep-tech critical and strategic technologies within the proposed timeframe.
    • Eligibility Criteria: Start-ups can avail grant-in-aid of up to Rs 25 crore for their research, development, and innovation efforts in defence technology.
    • Budget Allocation: ADITI is backed by a budget of Rs 750 crore spanning from 2023-24 to 2025-26.
    • Framework: It operates within the iDEX (Innovations for Defence Excellence) framework under the Department of Defence Production, Ministry of Defence.

    Features of the Scheme

    • Bridge-building Initiative: ADITI aims to establish a ‘Technology Watch Tool’ to bridge the gap between the modern Armed Forces’ expectations and requirements and the capabilities of the defence innovation ecosystem.
    • Incentives for Innovators: iDEX has been expanded to iDEX Prime, offering increased assistance from Rs 1.5 crore to Rs 10 crore, motivating young innovators to participate.
    • National Transformation: Initiatives like ADITI, iDEX, and iDEX Prime are instrumental in propelling India towards becoming a knowledge society.
    • Youth Empowerment: The scheme aims to nurture youth innovation, propelling the country forward in the realm of technology.