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

  • PM inaugurates ‘One Nation, One Fertilizer’ Scheme

    Prime Minister has inaugurated 600 Kisan Samridhi Kendras and ‘One Nation, One Fertilizer’ scheme and said that these steps were being taken to modernise agriculture.

    One Nation One Fertilizer (ONOF)

    • The single brand name for UREA, DAP, MOP and NPK etc. would be BHARAT UREA, BHARAT DAP, BHARAT MOP and BHARAT NPK etc. respectively for all Fertilizer Companies, State Trading Entities (STEs) and Fertilizer Marketing Entities (FMEs).
    • Also a logo indicating Fertilizer subsidy scheme namely Pradhanmantri Bhartiya Janurvarak Pariyojna will be used on said Fertilizer bags.
    • Under the scheme, companies are allowed to display their name, brand, logo and other relevant product information only on one-third space of their bags.
    • On the remaining two-thirds space, the “Bharat” brand and Pradhanmantri Bharatiya Jan Urvarak Pariyojana logo will have to be shown.

    What is the government’s argument for introducing this scheme?

    The government’s logic for introducing a single ‘Bharat’ brand for all subsidised Fertilizers being marketed by companies is as follows:

    (1) Subsidies normalization

    • The maximum retail price of urea is currently fixed by the government, which compensates companies for the higher cost of manufacturing or imports incurred by them.
    • The MRPs of non-urea Fertilizers are, on paper, decontrolled.
    • But companies cannot avail of subsidy if they sell at MRPs higher than that informally indicated by the government.
    • Simply put, there are some 26 Fertilizers (inclusive of urea), on which government bears subsidy and also effectively decides the MRPs;

    (2) Harmonizing markets

    • Apart from subsidising and deciding at what price companies can sell, the government also decides where they can sell.
    • This is done through the Fertilizer (Movement) Control Order, 1973.
    • Under this, the department of Fertilizers draws an agreed monthly supply plan on all subsidised Fertilizers in consultation with manufacturers and importers.
    • This supply plan is issued before the 25th of each month for the following month, with the department also regularly monitoring movement to ensure Fertilizer availability as per requirement, including remote areas.

    (3) Farmers welfare

    • The government is spending vast sums of money on Fertilizer subsidy (the bill is likely to cross Rs 200,000 crore in 2022-23).
    • By deciding where and at what price companies can sell, it would obviously want to take credit and send that message to farmers.

    What can be the drawbacks of the scheme?

    • It may disincentivize Fertilizer companies from undertaking marketing and brand promotion activities.
    • They will now be reduced to contract manufacturers and importers for the government. Any company’s strength ultimately is its brands and farmer trust built over decades.
    • Currently, in case of any bag or batch of Fertilizers not meeting the required standards, the blame is put on the company. But now, that may be passed on fully to the government.
    • Politically, the scheme might well boomerang rather than benefit the ruling party.

    Challenges in the fertilizer sector

    • Distortion in use due to price difference: In 2019-20, fertilizer use per hectare of cultivated area varied from 70 kg of NPK in Rajasthan to 250 kg in Telangana
    • Shift in the composition of fertilizer used:The high price differences among fertilizers (Nitrogen is much cheaper than Potassium and Phosphorus) have disturbed the relative prices of various fertilizers and resulted in a big shift in the composition of fertilizers used in the country in favor of urea and thus Nitrogen.
    • Increasing fertilizer subsidy: Fertilizer subsidy has doubled in a short period of three years. For 2021-22, the Union Budget has estimated fertilizer subsidy at â‚č79,530 crores (from â‚č66,468 crores in 2017-18).
    • Burden on exchequer: Taxpayers bear 78% of the cost of urea and farmers pay only 22%. This is expected to increase and is not sustainable.
    • Sensitive to Global impacts: The subsidy is likely to reach a much higher level due to the recent upsurge in the prices of energy,the international prices of urea and other fertilizers, and India’s dependence on imports.
    • Import dependence: The total demand for urea in the country is about 34-35 million tonnes whereas the domestic production is about 25 million tonnes.

    Other issues

    • Lesser expansion of Irrigation facilities and consequent low fertilizer consumption leads to low demand and therefore, restricts the growth of the industry.
    • Use of Obsolete Technology: Most of the fertilizer industry operates under PSUs that are using decade-old technology and thus making huge losses and also the competitive edge.

    Way forward

    • India should pay attention to improving fertilizer efficiency through need-based use rather than broadcasting fertilizer in the field.
    • The use of bio-fertilizers is necessary to maintain soil health as more and more use of chemical fertilizers kills all the microorganisms available in the soil, which are so essential for maintaining soil health.

     

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  • What are Digital Banking Units (DBUs)?

    dbu

    PM has dedicated 75 digital banking units to the nation, taking forward an announcement that was made in the 2022-23 Union Budget.

    What are DBUs?

    • A digital banking unit is a specialized fixed point business unit or hub, housing a certain minimum digital infrastructure for delivering digital banking products and services.
    • It aims at servicing existing financial products and services digitally in self-service mode at any time.
    • The RBI has announced the guidelines for DBUs, following the report of a working group of the Indian Banks Association (IBA).

    Who can set up these DBUs?

    • Commercial banks (other than regional rural banks, payment banks and local area banks) with past digital banking experience are permitted to open DBUs in tier 1 to tier 6 centres.
    • They are permitted, unless otherwise specifically restricted, without having the need to take permission from the RBI in each case.

    What services will be provided by these units?

    • As per the RBI, each DBU must offer certain minimum digital banking products and services.
    • Such products should be on both liabilities and assets side of the balance sheet of the digital banking segment.
    • Digitally value-added services to conventional products would also qualify as such.
    • The services include saving bank accounts under various schemes, current accounts, fixed deposit and recurring deposit accounts, digital kits for customers, mobile banking etc.
    • It also includes- Internet banking, debit cards, credit cards, and mass transit system cards, digital kits for merchants, UPI QR codes, BHIM Aadhaar and point of sale (PoS).

    What about lending services?

    • Other services include making applications for and onboarding customers for identified retail, MSME or schematic loans.
    • This may also include end-to-end digital processing of such loans, starting from online application to disbursal and identified government-sponsored schemes that are covered under the national portal.

    How will these DBUs compete with fintechs?

    • Currently, fintechs operating as neobanks offer digital banking services but they do so in partnership with non-banking financial companies (NBFCs).
    • Some of the neobanks offering services in India are Jupiter, Fi Money, Niyo, Razorpay X.
    • Compared to conventional banks with online and mobile banking facilities, neobanks or digital banks excel at product innovation and offer far better digital solutions.
    • However, given the arrangement they, some in the industry have pegged these digital banks as “glorified digital distribution companies”.

     

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  • Boosting India’s Cotton Production

    IndiaContext

    • Cotton, one of the most important crops, has a strategic role in India’s international agriculture play. India is the world’s third-largest exporter of cotton and the second-largest exporter of textiles, therefore, also contributing significantly to the country’s economy.

    All you need to know about the Cotton crop

    • Rainfall and Temperature: Sensitive to timing of rainfall and rainfall during harvest might lead to crop failure. Temperature required is around 20-30 degree c., while rainfall is about 75-100cm.
    • Soil: Black soil ideally suited for cotton cultivation as it is rich in lime.cotton is vulnerable to pest attack.
    • Humidity: Cotton cultivation requires more than 200 frost free days. Humidity during harvest is harmful.
    • Oilcake: The cotton seeds are crushed for oil and the oilcake is an important animal fodder and also used as farm manure.

    India

    What is the Present status of cotton in India?

    • India holds a 4% share of the U.S.$840 billion global textile and apparel market
    • India has been successful in developing backward links, with the aid of the Technical Upgradation Fund Scheme (TUFS), in the cotton and technical textiles industry.
    • However, India is yet to move into man-made fibres as factories still operate in a seasonal fashion.
    • Areas of cotton cultivation are Gujrat, Maharashtra, Telangana, Punjab, etc.

    Do you know?

    The latest archaeological discovery in Mehrgarh puts the dating of early cotton cultivation and the use of cotton to 5000 BCE. The Indus Valley civilization started cultivating cotton by 3000 BCE. Cotton was mentioned in Hindu hymns in 1500 BCE.

    IndiaWhat are the voluntary sustainable standards (VSS) in cotton?

    • Voluntary Sustainability Standards (VSS):  Voluntary Sustainability Standards (VSS), which encapsulate certification schemes, labelling programmes, and private standards. The major VSS that are dominant in the sustainable cotton value chain today include Better Cotton Initiative (BCI), Organic Cotton, Fair trade Cotton, and Cotton Made in Africa.
    • To achieve sustainable Goal: The global textile supply chain is undergoing a paradigm shift; it is pursuing environmental and social upgradation to meet the sustainability requirements imposed by global textile and home furnishing retailers, so as to mitigate the adverse impacts of climate change on cotton farmers and cotton cultivation.

    What are the benefits of VSS for India?

    • Enhance position in global cotton supply: Adapting to VSS is clearly beneficial for India. On the one hand, it will help it remain globally competitive in the cotton supply chain and strengthen its position in the export market, while on the other, it will help meet India’s SDG commitments.
    • Takes India a step closer towards sustainable farming: India has made considerable progress in its transition towards a more sustainable cotton farming ecosystem. The total cotton area under VSS has reached 1.5 million hectares, contributing to 24 percent of the global VSS cotton area.
    • Increases organic production of cotton: With approximately 0.2 million hectares of area for production, it is the largest producer of organic cotton, accounting for 50 percent of global organic cotton production, and the second-largest producer of ‘Better Cotton’, accounting for 16.5 percent of total Better Cotton production covering an area of 1.5 million hectares.
    • Higher yeild: According to the BCI’s 2020 Impact Report for India, Better Cotton farmers have 9 percent higher yields and 18 percent higher profit than conventional farmers.
    • Eco friendly production:The Thinkstep report 2018 on the Life Cycle Assessment of VSS Cotton conducted in Madhya Pradesh revealed a reduction of 50 percent in climate change impact, 59 percent in blue water consumption, 84 percent in ecotoxicity, and 100 percent eutrophication in organic over conventional cotton.
    • To achieve SDG Targets: The VSS cotton growth story in India has already demonstrated its contribution towards the achievement of SDG targets for Zero Hunger (Goal 2), Clean Water and Sanitation (Goal 6), Responsible Consumption and Production (Goal 12), Life on Land (Goal 15), and Climate Action (Goal 16).
    • NITI Aayog’s Assessment: VSS cotton delivers real, measurable outcomes according to priority indicators as outlined by NITI Aayog which maps India’s SDG goals. These indicators include changes in the extent of water bodies, improving groundwater withdrawal against availability, and rationalising nitrogen fertiliser.

    IndiaConclusion

    • India must scale up the VSS while aligning it with its SDG commitments since VSS in cotton ensures a better production system, sourcing methods, and consumption patterns while also influencing the lives of hundreds of millions.

    Mains Question

    Q. What are the Voluntary Sustainable Standards (VSS)? Cotton production can be boosted in India using VSS method. Elaborate.

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  • Analysing Insolvency and bankruptcy Code

    InsolvencyContext

    • Speaking at the Sixth anniversary of the insolvency and bankruptcy Board of India (IBBI) on October 1, Union Finance Minister Nirmala Sitharaman said that the country could not afford to lose the “sheen” of its insolvency law, the Insolvency and Bankruptcy code(IBC)

    What is Insolvency?

    • Simply speaking, insolvency is a financial state of being one that is reached when you are unable to pay off your debts on time.
    • Insolvency is essentially the state of being that prompts one to file for bankruptcy. An entity a person, family, or company becomes insolvent when it cannot pay its lenders back on time.
    • Typically, those who become insolvent will take certain steps toward a resolution. One of the most common solutions for insolvency is bankruptcy.

    What is Bankruptcy?

    • Bankruptcy, on the other hand, is a legal process that serves the purpose of resolving the issue of insolvency.
    • Bankruptcy is a legal declaration of one’s inability to pay off debts. When one files for bankruptcy, one obliges to pay off what is owed with help from the government.

    InsolvencyWhat is Insolvency and Bankruptcy Code (IBC)?

    • In a growing economy, a healthy credit flow and generation of new capital are essential.
    • When a company or business turns insolvent or “sick”, it begins to default on its loans.
    • In order for credit to not get stuck in the system or turn into bad loans, it is important that banks or creditors are able to recover as much as possible from the defaulter, as quickly as they can.

    Why the IBC introduced?

    • Increasing Non ­Performing Assets: In 2016, at a time when India’s Non Performing Assets and debt defaults were piling up, and older loan recovery mechanisms were performing badly, the IBC was introduced to overhaul the corporate distress resolution regime in India.
    • Time bound mechanism: To consolidate previously available laws to create a time bound mechanism with a creditor­ in­ control model as opposed to the debtor ­in ­possession system.
    • Two positive outcomes: When insolvency is triggered under the IBC, there can be just two outcomes: resolution or liquidation. liquidation means the process of winding up a corporation or incorporated entity

    InsolvencyImportance of the Insolvency and bankruptcy code

    • Resolution: First objective is finding a way to save a business through restructuring, change in ownership, mergers etc.
    • Maximising the value: The second objective is to maximise the value of assets of the corporate debtor  maximise the value .
    • Credit facility: To promote entrepreneurship, availability of credit, and balancing the interests of all stakeholders.
    • Easy exit: The Insolvency and Bankruptcy Code would provide such an environment to ensure easy exit for sick companies and help the country to improve its position in ease of doing business.
    • Speedy winding up: The bankruptcy code will make it easier for companies to wind up failed businesses and bring India on a par with developed nations in terms of resolving bankruptcy issues.
    • Time bound disposal: Timeliness is key here so that the viability of the business or the value of its assets does not deteriorate further. It minimizes the problem of delay as there are strict timelines within which the case has to be disposed off. Quick disposal of cases will maximize the recovery amount.
    • Information database: It prepares a database to provide information on the insolvency status of individuals. In addition to this, specialized insolvency professionals helps in guiding through the process.
    • Easy process of claim: Easy process of claim by the creditors also encourages financial institutions to extend credit facilities thus strengthening the financial markets with increased availability of credit for business.

    What are the challenges before IBC?

    • Weak Resolution: IBBI data for the 3,400 cases admitted under the IBC in the last six years, more than 50% of the cases ended in liquidation, and only 14% could find a proper resolution.
    • Increasing deadlines: The IBC was thus initially given a 180 day deadline to complete the resolution process, with a permitted 90 day extension. It was later amended to make the total timeline for completion 330 days is almost a year.
    • In FY22, it took 772 days to resolve cases involving companies that owed more than 1,000 crore. The average number of days it took to resolve such cases increased rapidly over the past five years.
    • On Haircuts (Debts that banks forgo):The Parliamentary Standing Committee on Finance pointed out in 2021 that in the five years of the IBC, creditors on an average had to bear an 80% haircut in more than 70% of the cases.
    • As per The Hindu Data Team, in close to 33 of 85 companies so far that owed more than 1,000 crore, lenders had to take above 90% haircuts. In case of the resolution of the Videocon Group for instance, creditors bore a haircut of 95.3%.

    InsolvencyWhat  are experts saying?

    • Addressing the delays: In order to address the delays, the Parliamentary Standing Committee suggested that the time taken to admit the insolvency application and transfer control of the company to a resolution process, should not be more than 30 days after filing the case.
    • New mechanism: The IBBI has also called for a new yardstick to measure haircuts. It suggested that haircuts not be looked at as the difference between the creditor’s claims and the actual amount realized but as the difference between what the company brings along when it enters IBC and the value realized.

    Conclusion

    • Insolvency and Bankruptcy Code is a comprehensive and systemic process, which gives a quantum leap to the functioning of the credit market. However, it is the need of the hour to find new and innovative alternatives to make this system comprehensible and address the challenge of delay and resolution.

    Mains Question

    Q. Insolvency and Bankruptcy Code (IBC) is a comprehensive and systemic process, which gives a quantum leap to the functioning of the credit market. Discuss the challenges and way ahead in the resolution mechanism of IBC.

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  • What is Purchasing Managers Index (PMI)?

    India’s manufacturing sector experienced its slowest expansion in September since June, the S&P Global India Manufacturing Purchasing Managers’ Index (PMI) indicated, with the index easing to 55.1 from August’s 56.2.

    PMI improves

    • A PMI reading above 50 indicates an increase in firms’ activity levels, and September marked the 15th straight month of growth in manufacturing activity.

    Purchasing Managers’ Index (PMI)

    • PMI is an indicator of business activity — both in the manufacturing and services sectors.
    • It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
    • It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
    • The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

    How is the PMI derived?

    • The PMI is derived from a series of qualitative questions.
    • Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.

    How does one read the PMI?

    • A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
    • Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
    • If the figure is higher than the previous month’s then the economy is expanding at a faster rate.
    • If it is lower than the previous month then it is growing at a lower rate.

    What are its implications for the economy?

    • The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available.
    • It is, therefore, considered a good leading indicator of economic activity.
    • Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later.
    • Central banks of many countries also use the index to help make decisions on interest rates.

     

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  • Government approves 50% incentive of project cost for setting up Semiconductor Units

    The Union Cabinet has approved a uniform incentive of 50% of the project cost for setting up semiconductor, display and compound semiconductor fabrication units.

    Why in news?

    incentive

    • Maharashtra is witnessing a political firestorm.
    • The Vedanta Limited shifted its decision to set up a $20 billion Vedanta-Foxconn semiconductor manufacturing facility in neighbouring Gujarat, despite finalising its location near Pune (Mh).
    • Foxconn is a major chip supplier to Apple. It has suspended its operations in the Chinese tech hub of Shenzhen and is now shifting to India.
    • Bigger companies, such as Intel, TSMC, Samsung, etc., have announced such plans.

    Spats between states over the location of critical industries display the grim picture of competitive bidding in India. This portrays India’s negative image as against ease of doing business.

    About the Incentive Scheme

    • The scheme has been named the “Programme for Development of Semiconductors and Display Manufacturing Ecosystem.”
    • Previously, the three schemes had an incentive range of 30-50%.
    • While incentives for setting up semiconductor fabrication were based on the size of the chip, for display fabrication and compound semiconductor fabs, the incentives were largely 30% of the total cost of the project.
    • This scheme aims to project India’s position as global hub for electronics manufacturing with semiconductors as the foundational building block.

    Why need such an incentive?

    • Huge Investments involved: Semiconductor Fabrication facility requires many expensive devices to function. Complex tools and equipment are required to test quality and move silicon from location to location within the ultra-clean confines of the plant.
    • Economy of scale:   In semiconductor fabrication, a high volume production is required to be maintain so as to meet the increasing demand of the marketplace, at the same time, a strong financial backing as Indian market is very much uncertain about financial fluctuations.
    • Requirement highly skilled labour:   Semiconductor fabrication is a multiple-step sequence of photolithographic and chemical processing steps during which electronic circuits are gradually created on a wafer made of pure semiconducting material. This actually requires high skills.
    • Scarcity of raw materials: From a value-chain perspective, it needs silicon, Germanium & Gallium arsenide and Silicon carbide which are not available in India and needs to be imported.
    • Uncertain Indian market: A semiconductor fabrication facility in India cannot independently rely on Indian customers for their entire sales structure. They have to maintain overseas customer base to balance inflections from Indian market due to market trends, government policies etc.
    • Disposal of hazardous waste: Many toxic materials are used in the fabrication process such as arsenic, antimony, and phosphorus. Hazardous impact on the environment by the industry may act as an impediment to India’s commitment to mitigate climate change.

    Other supportive initiatives in India

    • India Semiconductor Mission (ISM): It was announced with the aim to attract large-scale investments for manufacturing facilities in the midst of a global chip crisis.
    • Make in India: This aims to transform India into a global hub for Electronic System Design and Manufacturing (ESDM).
    • PLI scheme: In December 2021 the Centre sanctioned â‚č76,000 crore under the production-linked incentive (PLI) scheme to encourage the manufacturing of various semiconductor goods within India.
    • DLI scheme: It offers financial incentives, design infrastructure support across various stages of development and deployment of semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design.
    • Digital RISC-V (DIR-V) program: It intends to enable the production of microprocessors in India in the upcoming days achieving industry-grade silicon and design wins by December 2023.
    • India Semiconductor Mission (ISM): The vision is to build a vibrant semiconductor and display design and innovation ecosystem to enable India’s emergence as a global hub for electronics manufacturing and design

    Way forward

    • Policy framework: As foundry setup is highly Capital intensive, it must be supported with a solid long term plan and financial backing. This backing is required from the entrepreneur & the government both.
    • Fiscal sustenance: In text of Indian Government as tax holiday, subsidy, zero duty, financial investment etc. will play an important role in promoting the Fab along with the semiconductor industry in India; this will put further pressure on already large Fiscal Deficit.
    • Support Infrastructure: World class, sustainable infrastructure, as required by a modern Fab be provided, with swift transportation, large quantity of pure water, uninterrupted electricity, communication, pollutant free environment etc.

     

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  • Why Should India choose manufacturing over services?

    ManufacturingContext

    • Manufacturing can create higher productivity jobs.

    What is service sector?

    • The service sector, also known as the tertiary sector, is the third tier in the three-sector economy. Instead of product production, this sector produces services maintenance and repairs, training, or consulting. Examples of service sector jobs include housekeeping, tours, nursing, and teaching.

    What is called manufacturing sector?

    • Manufacturing is the making of goods by hand or by machine that upon completion the business sells to a customer. Items used in manufacture may be raw materials or component parts of a larger product. The manufacturing usually happens on a large-scale production line of machinery and skilled labor.

    ManufacturingShould India focus on manufacturing over services?

    • Services sector failed to create more jobs: So far, in services, we have certainly developed some advantage and we are doing rather well. Services’ share of the economy has gone up to over 50% of the GDP. However, this sector has not been able to create enough jobs in a commensurate manner. The result is that agriculture still continues to sustain nearly half of India’s workforce, which means that 15% of GDP is supporting some 45% of the workforce.
    • Manufacturing can provide productive jobs: We need more productive job opportunities for the workforce to shift away from agriculture. We need to focus attention on the manufacturing sector because of the direct and indirect jobs that it can create.
    • Empirical fact: It is an empirical fact that manufacturing of all productive sectors has the highest backward and forward linkages.
    • Significant potential: So, all together, there is significant potential for the manufacturing sector to create higher productivity jobs for people stuck in agricultural activities. That is the future for India.

    ManufacturingWhat is PLI Scheme?

    • As the name suggests, the scheme provides incentives to companies for enhancing their domestic manufacturing apart from focusing on reducing import bills and improving the cost competitiveness of local goods.
    • PLI scheme offers incentives on incremental sales for products manufactured in India.
    • The scheme for respective sectors has to be implemented by the concerned ministries and departments.

    Criteria laid for the scheme

    • Eligibility criteria for businesses under the PLI scheme vary based on the sector approved under the scheme.
    • For instance, the eligibility for telecom units is subject to the achievement of a minimum threshold of cumulative incremental investment and incremental sales of manufactured goods.
    • The minimum investment threshold for MSME is Rs 10 crore and Rs 100 crores for others.
    • Under food processing, SMEs and others must hold over 50 per cent of the stock of their subsidiaries, if any.
    • On the other hand, for businesses under pharmaceuticals, the project has to be a green-field project while the net worth of the company should not be less than 30 per cent of the total committed investment.

    What are the incentives offered?

    • An incentive of 4-6 per cent was offered last year on mobile and electronic components manufacturers such as resistors, transistors, diodes, etc.
    • Similarly, 10 percent incentives were offered for six years (FY22-27) of the scheme for the food processing industry.
    • For white goods too, the incentive of 4-6 per cent on incremental sales of goods manufactured in India for a period of five years was offered to companies engaged in the manufacturing of air conditioners and LED lights.

    Benefits of PLI

    • The scheme has a direct employment generation potential of over 2,00,000 jobs over 5 years.
    • It would lead to large scale electronics manufacturing in the country and open tremendous employment opportunities. Indirect employment will be about 3 times of direct employment as per industry estimates.
    • Thus, the total employment potential of the scheme is approximately 8,00,000.

    Conclusion

    • In order to integrate India as a pivotal part of this modern economy, there is a strong need to step up our manufacturing capabilities.

    Mains question

    Q.Should India focus on manufacturing over services for job creation? Discuss the role Production Linked Incentive Scheme could play in boosting manufacturing in India.

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  • IIP gives us true health of our economy

    IIPContext

    • India’s statistics ministry generates only one high-frequency gauge of economic activity. And that lone barometer, the index of industrial production (IIP), is completely broken.

    What is IIP?

    • The Index of Industrial Production (IIP) is an index that indicates the performance of various industrial sectors of the Indian economy. It is a composite indicator of the general level of industrial activity in the economy.

    IIPHow is IIP calculated?

    • IIP is calculated as the weighted average of production relatives of all the industrial activities. In the mathematical calculation Laspeyre’s fixed base formula is used.

    What are the Core Industries in India?

    • The main or the key industries constitute the core sectors of an economy.
    • In India, there are eight sectors that are considered the core sectors.
    • They are electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilizers.

    Which has highest weightage in IIP?

    • The eight core sector industries in decreasing order of their weightage: Refinery Products> Electricity> Steel> Coal> Crude Oil> Natural Gas> Cement> Fertilizers.

    IIPWhy is IIP important?

    • IIP is the only measure on the physical volume of production. It is used by government agencies including the Ministry of Finance, the Reserve Bank of India, etc. for policy-making purposes. IIP remains extremely relevant for the calculation of the quarterly and advance GDP estimates.

    Who releases IIP data?

    How useful are monthly IIP figures to draw a conclusion about India’s growth?

    • IIP figures are monthly data and as such it keeps going up and down.
    • In fact, the release calls them “quick estimates” because they tend to get revised after a month or two.

    IIP Index Components

    • Mining, manufacturing, and electricity are the three broad sectors in which IIP constituents fall.
    • The relative weights of these three sectors are 77.6% (manufacturing), 14.4% (mining) and 8% (electricity).
    • Electricity, crude oil, coal, cement, steel, refinery products, natural gas, and fertilizers are the eight core industries that comprise about 40 per cent of the weight of items included in the IIP.

    Basket of products

    • Primary Goods (consisting of mining, electricity, fuels and fertilisers)
    • Capital Goods (e.g. machinery items)
    • Intermediate Goods (e.g. yarns, chemicals, semi-finished steel items, etc)
    • Infrastructure Goods (e.g. paints, cement, cables, bricks and tiles, rail materials, etc)
    • Consumer Durables (e.g. garments, telephones, passenger vehicles, etc)
    • Consumer Non-durables (e.g. food items, medicines, toiletries, etc)

    IIP base year change

    • The base year was changed to 2011-12 from 2004-05 in the year 2017.

    Way ahead

    • IIP remains extremely relevant for the calculation of the quarterly and advance GDP (Gross Domestic Product) estimates.

    Mains question

    Q. What do you understand by IIP? How it helps us to understand economic health?

     

     

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  • Contract Enforcement in India

    Ease of doing business in India remains low, dragged down by the way contracts are enforced in the country. Recent reforms have improved the business climate somewhat, but there is a long way to go.

    What is the Ease of Doing Business index?

    • It is an index designed by the World Bank to rank 190 economies.
    • A higher rank (closer to 1) means the country’s regulatory environment is favourable to business operations.
    • India was ranked 63rd in the overall index in 2020.
    • World Bank has now discontinued the Doing Business index.

    Indicators used

    The ranking is calculated on the basis of indicators such as:

    1. Starting a Business
    2. Dealing with Construction Permits
    3. Getting Electricity
    4. Registering Property
    5. Getting Credit
    6. Protecting Minority Investors, Paying Taxes
    7. Trading across Borders
    8. Enforcing Contracts and
    9. Resolving Insolvency

    How is ‘Enforcing Contracts’ measured?

    • In 2020, in the parameter of ‘Enforcing Contracts’, India was ranked 163rd, against 186th in 2015. The parameter considers time, cost and quality of the judicial process.
    1. Time considers the number of days to resolve a commercial dispute in courts;
    2. Cost measures the expenses of attorney, courts and enforcement as a percentage of claim value; and
    3. Quality considers the use of best practices which can promote efficiency and quality i.e., court proceedings, case management, alternative dispute resolution and court automation.
    • Each of the three indicators have a 33.3% weightage.

    How is India doing on this parameter now?

    • At 163rd position in 2020, the country continues to struggle, with the time taken to resolve a commercial dispute being approximately 1,445 days in the Doing Business Report 2020.
    • However, as of August 2022, law ministry data shows a marked improvement of close to 50% in days taken to resolve a dispute to 744 days in New Delhi and 626 days in Mumbai.

    What are some of the reforms undertaken?

    • The Department of Justice, the nodal point for ‘Enforcing Contracts’ indicator along with the eCommittee of the Supreme Court, has undertaken a series of reforms.
    • Some of the steps include the establishment of dedicated commercial courts with monetary jurisdiction up to â‚č3 lakh.
    • There also exists online case filing, e-payment of court fees, electronic case management, special courts for infrastructure project contracts, as well as automatic and random allocation of commercial cases thereby eliminating human intervention.

    What further steps are required?

    • An efficient judiciary instils confidence in investors and signals the commercial viability of transactions.
    • The number of court hearings should be minimized too; often, lawyers have an incentive to stretch out the process.
    • The judicial system should encourage out-of-court settlements through the respective lawyers as practised in advanced countries.
    • It is equally important that the judiciary leaves matters relating to economic governance to governments.

     

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  • One Nation One Fertiliser (ONOF) Scheme

    The Ministry of Chemicals and Fertilisers will implement One Nation One Fertiliser (ONOF) by introducing a Single Brand for Fertilisers and Logo under the fertiliser subsidy scheme named “Pradhanmantri Bhartiya Janurvarak Pariyojna” (PMBJP).

    One Nation One Fertiliser (ONOF)

    • The single brand name for UREA, DAP, MOP and NPK etc. would be BHARAT UREA, BHARAT DAP, BHARAT MOP and BHARAT NPK etc. respectively for all Fertiliser Companies, State Trading Entities (STEs) and Fertiliser Marketing Entities (FMEs).
    • Also a logo indicating Fertiliser subsidy scheme namely Pradhanmantri Bhartiya Janurvarak Pariyojna will be used on said fertiliser bags.
    • Under the scheme, companies are allowed to display their name, brand, logo and other relevant product information only on one-third space of their bags.
    • On the remaining two-thirds space, the “Bharat” brand and Pradhanmantri Bharatiya Jan Urvarak Pariyojana logo will have to be shown.

    What is the government’s argument for introducing this scheme?

    The government’s logic for introducing a single ‘Bharat’ brand for all subsidised fertilisers being marketed by companies is as follows:

    (1) Subsidies normalization

    • The maximum retail price of urea is currently fixed by the government, which compensates companies for the higher cost of manufacturing or imports incurred by them.
    • The MRPs of non-urea fertilisers are, on paper, decontrolled.
    • But companies cannot avail of subsidy if they sell at MRPs higher than that informally indicated by the government.
    • Simply put, there are some 26 fertilisers (inclusive of urea), on which government bears subsidy and also effectively decides the MRPs;

    (2) Harmonizing markets

    • Apart from subsidising and deciding at what price companies can sell, the government also decides where they can sell.
    • This is done through the Fertiliser (Movement) Control Order, 1973.
    • Under this, the department of fertilisers draws an agreed monthly supply plan on all subsidised fertilisers in consultation with manufacturers and importers.
    • This supply plan is issued before the 25th of each month for the following month, with the department also regularly monitoring movement to ensure fertiliser availability as per requirement, including remote areas.

    (3) Farmers welfare

    • The government is spending vast sums of money on fertiliser subsidy (the bill is likely to cross Rs 200,000 crore in 2022-23).
    • By deciding where and at what price companies can sell, it would obviously want to take credit and send that message to farmers.

    What can be the drawbacks of the scheme?

    • It may disincentivise fertiliser companies from undertaking marketing and brand promotion activities.
    • They will now be reduced to contract manufacturers and importers for the government. Any company’s strength ultimately is its brands and farmer trust built over decades.
    • Currently, in case of any bag or batch of fertilisers not meeting the required standards, the blame is put on the company. But now, that may be passed on fully to the government.
    • Politically, the scheme might well boomerang rather than benefit the ruling party.

     

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