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GS Paper: GS3-14.Investment models

  • FDI approval threshold for CCEA clearance to rise sharply

    Why in the News

    The government plans to raise the FDI threshold requiring CCEA approval from ₹5,000 crore to ₹15,000 crore, reducing political-level scrutiny for large investments.

    What is the FDI Approval System?

    1. Automatic route: No prior government approval is required.
    2. Government route: Requires approval from the concerned ministry/department.
    3. CCEA layer: Very large proposals above the prescribed threshold require Cabinet Committee on Economic Affairs (CCEA) approval.

    What is the impact of Raising the Threshold?

    1. Fewer escalations: Investments between ₹5,000 crore and ₹15,000 crore can avoid CCEA clearance.
    2. Faster approvals: Reduces procedural delays and improves the ease of doing business.
    3. Greater investment autonomy: Gives ministries greater authority to clear large investments.
    4. Liberalisation: Continues India’s shift towards a simpler, faster FDI regime, following the abolition of FIPB in 2017.

    Back2Basics

    1. FDI: Investment by a foreign entity in an Indian enterprise with a lasting interest.
    2. FIPB: Abolished in 2017; its role was transferred mainly to the concerned ministries/departments.
    3. Key balance: Faster approvals must be accompanied by national security, competition and strategic-sector safeguards.

    PYQ Relevance

    [UPSC 2016] Justify the need for FDI for the development of the Indian economy. Why is there a gap between MoUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India.

    Linkage: The PYQ examines FDI as a driver of investment, growth and ease of doing business. Raising the approval threshold can reduce delays and help convert investment proposals into actual FDI inflows.

  • PM SVANidhi Street Food Hub Initiative

    Why in News?

    Lakhanpur (Kathua, Jammu & Kashmir) has been selected among the first towns approved under the PM SVANidhi Street Food Hub Initiative.

    Key Highlights

    • Lakhanpur, the gateway to Jammu & Kashmir, will develop a Street Food Hub across two clusters covering 1,754.25 sq. m.
    • Will promote Dogra cuisine and improve facilities for pilgrims, tourists, and local vendors.
    • The project aims to transform Lakhanpur into a culinary tourism destination.

    About the Initiative

    • Implemented by the Ministry of Housing & Urban Affairs (MoHUA) under PM SVANidhi.
    • Plans to establish up to 50 Street Food Hubs across India.
    • Focuses on organized, hygienic food streets, tourism promotion, and sustainable livelihoods.
    • Preference to towns with:
      • Tourism and heritage significance.
      • Unique local cuisine.
      • Convergence with Swadesh Darshan, PRASHAD, UNESCO World Heritage Sites, and UNESCO Creative Cities.

    Financial Support

    • ₹4 crore per project: 30% first instalment, 50% second instalment, and 20% after completion
    • Additional ₹25 lakh incentive for cities with a notified Street Vending Plan.

    PM SVANidhi

    • Launched: 2020, Ministry: MoHUA
    • Objective: Provide collateral-free working capital loans to street vendors and promote financial inclusion through interest subsidy and digital payments.

    Significance

    • Enhances livelihoods of street vendors.
    • Promotes local cuisine and tourism.
    • Improves food hygiene and visitor experience.

    [2015] Pradhan Mantri Jan Dhan Yojana has been launched for

    [A] providing housing loan to poor people at cheaper interest rates

    [B] Promoting women’s Self-Help Groups in backward areas

    [C] promoting financial inclusion in the country

    [D] providing financial help to marginalised communities

  • Though India allowed Foreign Direct Investment (FDI) in what is called multi-brand retail through the joint venture route in September 2012, the FDI, even after a year, has not picked up. Discuss the reasons.

  • Discuss the impact of FDI entry into multi-trade retail sector on supply chain management in commodity trade pattern of the economy.

  • Foreign Direct Investment (FDI) in the defence sector is now set to be liberalized: What in fluence this is expected to have on Indian defence and economy in the short and long run?

  • Justify the need for FDI for the developments of the Indian economy. Why there is gap between MOUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India.

  • Explain the meaning of investment in an economy in terms of capital formation. Discuss the factors to be considered while designing a concession agreement between a public entity and a private entity.

    Investment refers to the creation or addition of capital assets in an economy that enhance its productive capacity. It involves machinery, infrastructure, technology, and human skills.

    Meaning of Investment in Terms of Capital Formation

    Addition to Capital Stock- Eg- Samruddhi Expressway, Foxconn Plant in Chennai.

    Gross Capital Formation (GCF)- additions to fixed assets, inventories, valuables. Eg- Solar Plant in Rajasthan.

    Enhances Productive Capacity- Eg- Dedicated Freight Corridors boosting logistics efficiency.

    Savings and Investment Link- Higher savings enable greater capital formation. Eg- Sovereign Green Bonds funding renewable energy assets.

    Includes Physical, Human and Social Capital- Eg- Skill India Mission, Metro rail projects.

    Creates jobs, improves productivity, accelerates growth. Eg- Sagarmala driving port-led industrialisation.

    Factors to Consider While Designing a Concession Agreement (Public-Private)

    Political / Policy

    Clear Scope Definition- project components, performance standards, service quality benchmarks, and asset ownership.

    Model of partnership – Eg- Hybrid annuity model or BOT Model

    Concession Period based on asset life, investment size, and recovery period. Eg- 20-30 years for highways.

    Economic

    Risk Allocation between government and private entity

    Revenue Model- Eg- tariffs, user charges, annuity payments, or viability gap funding.

    Financial Structure- Terms on capital investment, debt-equity ratio, refinancing rules.

    Social

    Environmental & Social Safeguards- Compliance with EIA and land acquisition laws.

    Transparency and Accountability- Public disclosures, third-party audits, and periodic review.

    Technological

    Performance Metrics- KPIs, service standards, monitoring, penalties, incentives.

    Legal

    Dispute Resolution- arbitration method.

    Renegotiation Rules- framework for handling unforeseen demand or cost shocks.

    Termination Clauses- rules for default, compensation, and asset handback.

    Kelkar Committee recommendations

    Prioritizing service delivery over fiscal benefits in contracts

    Establishing independent sector regulators

    Better risk allocation between stakeholders

    Utilizing advanced risk management techniques

    A well-designed concession agreement ensures efficient public-private collaboration, ultimately leading to sustainable high-quality infrastructure delivery and realisation of a $40 Trillion economy by 2047.

  • Fully Accessible Route (FAR) of Investment

    Why in the News?

    In 2025, foreign investors have invested only about ₹69,000 crore ($7.8 billion) nearly half than expected, into Indian government bonds, even though the rules were made simpler and more flexible under the Fully Accessible Route (FAR) to attract more investment.

    What is Fully Accessible Route (FAR)?

    • Overview: A special investment framework launched by the Reserve Bank of India (RBI) in March 2020 to attract foreign investment in Indian government securities (G-secs).
    • Purpose: Aims to liberalise India’s debt market, enhance foreign participation, and integrate it with global financial systems.
    • Eligible Investors: Open to Foreign Portfolio Investors (FPIs), Non-Resident Indians (NRIs), and Overseas Citizens of India (OCIs) without investment caps.
    • Key Feature: Permits unlimited foreign investment in designated government bonds with free buy–sell access and no quantitative ceiling.
    • Liquidity & Integration: Designed to improve bond market depth, diversify funding sources, and boost India’s visibility in global debt indices.
    • Repatriation Freedom: Allows investors to repatriate capital and profits freely to their home countries.
    • Global Milestone: In June 2024, JP Morgan included 29 Indian G-secs under FAR in its Emerging Market Bond Index (EMBI), marking India’s debut in major global bond benchmarks.

    Comparison with Other Routes:

    1. Medium Term Framework (MTF): Allows foreign investment in G-secs but with limits and conditions on exposure and tenure.
    2. Voluntary Retention Route (VRR): Permits FPIs to invest in G-secs provided they retain investments for a minimum period, ensuring stable long-term inflows.

    Complementary Function: FAR, MTF, and VRR operate together, providing flexibility in investment terms and balancing market stability with foreign access.

    Why were higher inflows expected?

    • Projected Inflows: Index inclusion in 2024–25 was expected to attract $20–25 billion from global institutional and index-tracking investors.
    • Attractiveness Factors: India’s 7% stable yields, macroeconomic strength, and favourable risk–return ratio made it a promising destination for long-term capital.
    • Actual Outcome: Only $10.7 billion flowed in during 2024-25: well below expectations.
    • Key Reasons:
      • Global monetary uncertainty: investors awaited clarity on the US Federal Reserve’s rate policy.
      • Domestic caution: RBI removed 14- and 30-year bonds from FAR in 2024 to reduce volatility.
      • Geopolitical tensions and FPI withdrawals from equities reduced investor appetite.
    • Significance: Despite lower inflows, FAR remains a structural reform strengthening India’s position as a globally accessible and competitive bond market.
    [UPSC 2024] Consider the following statements:

    1. In India, Non-Banking Financial Companies can access the Liquidity Adjustment Facility window of the Reserve Bank of India.

    2. In India, Foreign Institutional Investors can hold the Government Securities (G-Secs).

    3. In India, Stock Exchanges can offer separate trading platforms for debts.

    Which of the statements given above is/are correct?

    Options: (a) 1 and 2 only (b) 3 only (c) 1, 2 and 3 (d) 2 and 3 only*

     

  • [2nd September 2025] The Hindu Op-ed: The rise and risks of health insurance in India

    PYQ Relevance

    [UPSC 2023] Examine the pattern and trend of public expenditure on social services in the post-reforms period in India. To what extent this has been in consonance with achieving the objective of inclusive growth?

    Linkage: The expansion of Pradhan Mantri Jan Arogya Yojana (PM-JAY) and State Health Insurance Programmes (SHIPs) shows rising public expenditure on health but largely towards insurance reimbursements rather than strengthening primary health infrastructure. This trend benefits private hospitals and tertiary care but fails to reduce out-of-pocket costs or enhance inclusivity, as utilisation remains low. Thus, the expenditure pattern reflects growth without true inclusiveness, misaligned with the objectives of inclusive growth.

    Mentor’s Comment

    The debate on health insurance in India has intensified in recent years, especially with the expansion of State-sponsored schemes like Pradhan Mantri Jan Arogya Yojana (PM-JAY). While these initiatives provide some relief, the core question remains: can insurance-driven models substitute for robust public health infrastructure? This article unpacks the illusion of universal health coverage (UHC) through insurance, its systemic risks, and the urgent need for course correction.

    Introduction

    The Bhore Committee Report (1946) defined UHC as guaranteed access to quality health care for every citizen irrespective of their ability to pay. Eight decades later, India still falls far short of this goal. Instead of strengthening public health infrastructure, India has leaned heavily on health insurance schemes like the PMJAY and State Health Insurance Programmes (SHIPs). Though they provide relief to some, these schemes have created new distortions, risks, and inequities in the health system.

    The Surge of Health Insurance Schemes

    1. PMJAY Launch (2018): Landmark scheme under Ayushman Bharat with ₹5 lakh annual cover per household for in-patient care.
    2. Massive Coverage: In 2023–24, PMJAY covered 58.8 crore individuals with an annual budget of ₹12,000 crore.
    3. Parallel SHIPs: State-level schemes cover a similar number with a budget of at least ₹16,000 crore.
    4. Rising Budgets: SHIP allocations grew at 8–25% annually (2018–19 to 2023–24) in States like Gujarat, Kerala, Maharashtra.

    Commercialisation of Healthcare under Insurance

    1. Two-thirds of the PMJAY budget flows to private hospitals, often profit-oriented.
    2. Study findings: Minimal change in hospitalisation rates, but rise in private hospital use.
    3. Weak regulation: India’s poorly regulated profit-seeking providers dominate the system.

    Hospitalisation Bias in Insurance Models

    1. Bias towards hospitalisation: Insurance covers only in-patient care, neglecting primary and outpatient care.
    2. Ageing challenge: Expanding coverage to elderly (70+) risks disproportionate spending on tertiary care.

    Challenges in Effective Utilisation of Coverage

    1. High theoretical coverage: 80% of the population enrolled under PMJAY + SHIPs.
    2. Low effective use: Only 35% of insured patients could utilise benefits (2022–23 HCES).
    3. Barriers: Lack of awareness, procedural hurdles, and discrimination by providers.

    Discrimination in Healthcare Delivery

    1. Private hospitals: Prefer uninsured patients for higher commercial charges.
    2. Public hospitals: Prefer insured patients for reimbursement incentives.
    3. Result: Discriminatory treatment and pressure on patients to enrol immediately.

    Financial Strains Leading to Hospital Withdrawals

    1. Pending dues: PMJAY arrears reached ₹12,161 crore, more than its annual budget.
    2. Provider dissatisfaction: Low reimbursement, long delays.
    3. Hospital exits: 609 hospitals opted out of PMJAY since inception.

    Corruption and Irregularities in PMJAY and SHIPs

    1. Fraudulent practices: NHA flagged 3,200 hospitals for irregularities.
    2. Common issues: Overcharging, denial of treatment, unnecessary procedures.
    3. Weak safeguards: No evidence of effective audits or transparency in scheme portals.

    The Systemic Risk of Insurance-Led Health Care

    1. Profit over patients: Insurance reinforces commercial medicine rather than correcting it.
    2. Underfunded public health: India spends only 1.3% of GDP on health (World Bank, 2022), vs world average of 6.1%.
    3. Comparative failure: Unlike Canada and Thailand, India’s schemes lack universal coverage and non-profit focus.
    4. Result: Insurance becomes a “painkiller”, not a cure for India’s broken public health system.

    Conclusion

    Health insurance in India has expanded rapidly, but it remains a fragile foundation for UHC. It fosters profit-driven medicine, neglects primary care, suffers from poor utilisation, and is riddled with corruption. Without massive investment in public health infrastructure, primary care, and regulation, India cannot hope to achieve universal health coverage. Insurance schemes, at best, provide temporary relief, not sustainable health security.

    Value Addition
    1. National Health Policy, 2017: Targets increasing government health expenditure to 2.5% of GDP by 2025, but current levels remain at ~1.3%.
    2. High Out-of-Pocket Expenditure (OOPE): As per NSSO 2017–18, OOPE in India still accounts for over 50% of total health expenditure, one of the highest in the world.
    3. Lancet Commission on Global Surgery (2015): Highlighted that nearly 5 billion people worldwide lack access to safe, affordable surgery, underscoring the gaps in India’s insurance-driven, hospitalisation-focused approach.
    4. WHO Recommendation: For effective Universal Health Coverage (UHC), countries need to strengthen primary health systems — India still lags here, with sub-centres and PHCs facing severe staff shortages.
    5. National Health Accounts (NHAI) 2019–20: Show that private sector spending dominates health financing in India, with households bearing the brunt, unlike in OECD nations where governments fund the majority.
    6. Insurance Penetration vs. Health Security: India’s insurance penetration (life + non-life) is about 4.2% of GDP, but penetration does not automatically translate to healthcare access or financial protection.
    7. Ayushman Bharat Health and Wellness Centres (AB-HWCs): Intended to provide comprehensive primary healthcare (preventive + promotive), yet remain underfunded compared to PMJAY, skewing priorities.
    8. Equity Gap – Rural vs. Urban: Rural populations face doctor-population ratio deficits, with most PMJAY empanelled hospitals concentrated in urban centres, worsening regional disparities.
    9. Digital Health Mission (NDHM 2020): Aims to create digital health IDs and improve transparency, but challenges include digital divide and privacy concerns.
    10. Economic Survey 2020–21: Stressed that public health investment has high multiplier effects on productivity and human capital formation — much higher than insurance subsidies.

  • What are Passively Managed Funds?

    Why in the News?

    Passively Managed Funds—those that track a market index without active stock selection—have become increasingly popular among investors seeking low-cost, predictable returns.

    About Passively Managed Funds:

    • Passively managed funds, commonly known as passive funds, are investment vehicles designed to replicate the performance of a specific market index, such as the Nifty Fifty or the Sensex.
    • Unlike actively managed funds, the fund manager in a passive fund does not select stocks or make frequent buy-and-sell decisions.
    • Instead, the fund holds the same stocks in the same proportion as the underlying index.
    • How Passive Funds Work?
      • These funds track a benchmark index by investing in all or a representative sample of the securities in that index.
      • The objective is to mirror the index’s returns, not to outperform it.
      • As a result, they incur lower management costs and have minimal portfolio turnover.

    Types of Passive Funds:

    1. Index Funds:
      • These are mutual funds that can be purchased or redeemed directly from the fund house.
      • Transactions are processed only once a day, based on the day’s closing Net Asset Value.
      • They offer ease of use and are suitable for systematic investment plans and long-term investors.
    1. Exchange Traded Funds:
      • These are funds listed on stock exchanges, like the National Stock Exchange or the Bombay Stock Exchange.
      • Investors buy or sell units during trading hours through brokers, just like stocks.
      • They require a dematerialised account and are suitable for investors seeking intraday trading flexibility.

    Advantages of Passive Funds:

    • Low Expense Ratios: Because no active research or trading is involved.
    • Transparency: Holdings closely follow a well-known index.
    • Diversification: Spreads investment risk across multiple securities.
    • No Human Bias: Avoids mistakes due to the fund manager’s poor decisions.

    Limitations:

    • No Outperformance: Returns will always be close to the index and cannot exceed it.
    • Tracking Error: Slight variation between the fund’s performance and the index due to operational reasons.
    • Limited Flexibility: Cannot adapt to sudden market downturns.
    [UPSC 2025] Consider the following statements:

    Statement I: As regards returns from an investment in a company, generally, bondholders are considered to be relatively at lower risk than stockholders.

    Statement II: Bondholders are lenders to a company, whereas stockholders are its owners.

    Statement III: For repayment purposes, bondholders are prioritised over stockholders by a company.

    Which one of the following is correct in respect of the above statements?

    (a) Both Statement II and Statement III are correct, and both of them explain Statement I *

    (b) Both Statement I and Statement II are correct, and Statement I explains Statement II

    (c) Only one of the Statements II and III is correct and that explains Statement I

    (d) Neither Statement II nor Statement III is correct