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GS Paper: GS3

  • Next government must urgently fix ‘unnecessarily complex’, counter-productive GST: 13th Finance Commission chair

    Why in the news? 

    Recently Vijay Kelkar (chaired 13th Finance Commission) attributes frauds in Indirect Tax regimes to high GST rates; Moots switched to a single 12% rate like most other countries.

    Reason behind the need for a Single GST rate:

    • Simplification of the structure: A single GST rate would simplify the structure, making it easier for businesses to comply with the tax system and reducing the complexity of classification issues
    • Promotion of manufacturing and exports: A single GST rate could help promote manufacturing and exports by reducing the burden of multiple rates and making the tax system more predictable
    • Single GST rate in many countries: In many developed and emerging market economies, a single GST or VAT rate has been successful in optimizing tax revenue and minimizing tax disputes for example Singapore, New Zealand, the United Arab Emirates, and Japan, have opted for a single GST or VAT rate
    • Addressing GST frauds: High GST rates can make it lucrative for fraudsters to evade taxes. A single, lower GST rate could potentially reduce the incentive for tax evasion and make the system more transparent
    • Reducing litigation: A single GST rate could help reduce litigation related to classification issues and subjective interpretation of tax rates

    How does the Indian GST model compare with GST in other countries?

    Particulars India  Canada UK Singapore
    Name of GST in the Country Goods and Service tax Federal Goods and Service Tax & Harmonized Sales Tax Value Added Tax Goods and Service Tax
    Standard Rate 0% (for food staples), 5%, 12%, 18% and 28% (+cess on luxury items) GST 5% and HST varies from 0% to 15% 20 %Reduced rates- 5 %, exempt, zero rated 7% Reduced rates- Zero rated, exempt
    Threeshold Exemption Limit Rs.40 lakh or Rs.20 lakh, depending on the state and supply Canadian $ 30,000 £ 85,000 Singapore $ 1 million
    Liability arises on Accrual basis: Issue of invoice ORReceipt of payment-earlier Accrual basis: The date of issue of invoice OR the date of receiptof payment- earlier. Accrual Basis: Invoice OR PaymentOR Supply-earliestCash basis (T/O up to 1.35mn): Payment Accrual Basis: Issue of invoice OR Receipt of payment OR Supply – earliestCash basis: (T/O up to SGD$1mn): Payment
    Reverse Charge Mechanism Applies on goods as well as services Reverse charge applies to the importation of services andintangible properties Applicable Reverse charge applies to the supply of services
    Exempt Supplies Sale of land and completed buildings, certain healthcare and educational services, essential food items, etc. Real estate, financial services, rent (Residence), charities, health, education Medical, education, finance, insurance, postal services Real estate, Financial services, Residential rental

    Significance of sharing GST with local bodies:

    • Promoting Co-operative Fiscal-federalism: Sharing GST revenues with local bodies could promote fiscal federalism by ensuring a fair distribution of tax revenues among all tiers of government.
    • Strengthening of their Fiscal base: Equitable sharing of GST with the third tier of government, i.e., local bodies, would strengthen their fiscal base and enable them to undertake investments for vital infrastructure and high-quality public goods
    • Building Fairness and appropriateness: GST is a consumption tax, and taxpayers should see direct benefits accruing from their payment of taxes. An arrangement for sharing GST revenues with local bodies would be fair and appropriate
    • Improves Local governance: Sharing GST revenues with local bodies would bolster the quality of governance provided by local governments, as citizens’ demand for quality public goods will grow louder.

    BACK2BASICS:

    About Goods and Services Tax:

    • GST was introduced through the 101st Constitution Amendment Act, 2016. It is one of the biggest indirect tax reforms in the country.
    • It was introduced with the slogan of ‘One Nation One Tax’.The GST has subsumed indirect taxes like excise duty, Value Added Tax (VAT), service tax, luxury tax etc.
    • It is essentially a consumption tax and is levied at the final consumption point.
    • Tax Structure:
    • Central GST to cover Excise duty, Service tax etc, State GST to cover VAT, luxury tax etc. and Integrated GST (IGST) to cover inter-state trade.
    • IGST per se is not a tax but a system to coordinate state and union taxes.
    • It has a 4-tier tax structure for all goods and services under the slabs- 5%, 12%, 18% and 28%.

    Conclusion: Implementing a single GST rate streamlines compliance, promotes economic growth, and curbs fraud. Sharing GST revenue with local bodies strengthens fiscal bases, fosters fairness, enhances governance, and supports fiscal federalism for equitable distribution.

  • AgniKul ‘Agnibaan SOrTeD’ Mission

    Why in the news?

    • For the second time, the launch of AgniKul ‘Agnibaan SOrTeD’ has been postponed.
    • The IIT Madras-based Agnikul Cosmos was to test-fire an Agnibaan rocket with 3D-printed engine, aiming for suborbital flight trajectory control.

    What is Agnibaan SOrTeD (Suborbital Tech Demonstrator)?

    • Agnibaan SOrTeD is a single-stage launch vehicle powered by Agnikul’s patented Agnilet semi-cryogenic engine.
    • In contrast to traditional sounding rockets, Agnibaan SOrTeD’s vertical take-off and precise trajectory enable orchestrated maneuvers during flight.

    Distinct Features of Agnibaan:

    • Customizability: The rocket offers custom launch configurations, either single or two-stage launches.
    • Dimensions: Standing at 18 meters and weighing 14,000 kg, Agnibaan SOrTeD is a powerful presence.
    • Payload Capacity: With a capacity for payloads of up to 100 kg, it can reach altitudes of 700 km in five different Lower Earth Orbits (LEOs).
    • Engine Configuration: The first stage can house up to seven Agnilet engines, powered by Liquid Oxygen and Kerosene, dependent on the mission’s requirements.
    • Launch Pedestal ‘Dhanush’: AgniKul’s built ‘Dhanush’ supports the rocket’s mobility across configurations, ensuring compatibility with multiple launch ports.
    • Agnilet Engine: Agnilet engine, a 3D-printed, single-piece, 6 kN semi-cryogenic marvel, drives Agnibaan’s propulsion. The engine employs a novel blend of liquid kerosene and supercold liquid oxygen as propellants.

    PYQ:

    [2011] Satellites used for telecommunication relay are kept in a geostationary orbit. A satellite is said to be in such an orbit when:

    1.    The orbit is geosynchronous.

    2.    The orbit is circular.

    3.    The orbit lies in the plane of the Earth’s equator.

    4.    The orbit is at an altitude of 22,236 km

    Select the correct answer using the codes given below:

    (a) 1, 2 and 3 only

    (b) 1, 3 and 4 only

    (c) 2 and 4 Only

    (d) 1, 2, 3 and 4

  • What is Project Akashteer?

    Why in the news?

    • The Indian Army’s Corps of Army Air Defense has initiated the induction of control and reporting systems under ‘Project Akashteer’ to bolster its air defense capabilities.

    About Project Akashteer

    • The Akashteer Project is an initiative designed to automate air defence control and reporting processes by digitising the entire process.
    • It is developed by Bharat Electronics Limited (BEL) as part of the ‘Atmanirbhar Bharat’ initiative.
    • It seeks to induct Akashteer Command and Control Systems
    • By integrating radar and communication systems at all levels into a unified network, ‘Akashteer’ aims to deliver an unprecedented level of situational awareness and control.
    • This will enable swift engagement of hostile targets, significantly reduce the risk of fratricide, and ensure the safety of friendly aircraft in contested airspace.

    How it will help India’s air defence system?

    The ‘Akashteer Command and Control Systems’ will significantly enhance India’s air defense capabilities in several ways:

    1. Efficiency and Integration: Digitizing Air Defence Control and Reporting processes with ‘Akashteer’ will improve efficiency and integration. This enables the Indian Army to respond swiftly to hostile threats while reducing the risk of friendly fire incidents.
    2. Situational Awareness: ‘Akashteer’ integrates radar and communication systems into a unified network, providing the Indian Army with better situational awareness. This enables them to detect and engage hostile targets more effectively, ensuring the safety of friendly aircraft in contested airspace.
    3. Mobility and Resilience: The system’s vehicle-based and mobile Control Centers are designed for operational capabilities even in challenging communication environments. This ensures that the Indian Army can operate effectively in diverse terrain and adverse conditions.
    4. Automation: Deployment of ‘Akashteer’ represents a move towards complete automation of air defense operations. This enhances the Indian Army’s ability to defend its airspace, ensuring a safer and more secure future for the country.

    PYQ:

    [2018] What is “Terminal High Altitude Area Defense (THAAD)”, sometimes seen in the news?

    (a) An Israeli radar system

    (b) India’s indigenous anti-missile programme

    (c) An American anti-missile system

    (d) A defence collaboration between Japan and South Korea

  • Fighting forest fires with a plan and community cooperation

    Why in the news? 

    The forest staff across the Kerala State are on alert with the onslaught of summer, with temperatures reaching as high as 40-41 degrees Centigrade, unusual for this time.

    Forest Fires in Kerala 

    • Kerala records relatively fewer forest fires compared to several other states in India, including Chhattisgarh, Odisha, Madhya Pradesh, Assam, and Maharashtra.
    • Kerala’s forest cover, occupying 29.65% of the land, is dominated by deciduous and semi-deciduous woods that are drying up, especially on the forest periphery because of it Forest staff in Kerala are on alert
    •  Kerala reported 163 wildfire incidents since January, resulting in the burning of 230 hectares of forest, which is less compared to previous years.
    • Global Forest Watch data indicates 97 VIIRS(Visible Infrared Imaging Radiometer Suit) fire alerts in Kerala between March 15 and 22, with only 5.2% of them classified as high-confidence alerts.Fires were responsible for 0.33% forest cover loss in Kerala between 2001 and 2022 according to Global Forest Watch.

    What is the frequency of forest fires in India?

    •  Escalation Of forest Fire : Forest fire season in India typically spans from November to June, during which hundreds of thousands of small and large fires occur annually. The frequency of fires tends to escalate from February onwards as summer approaches.
    • forest Fires as per (ISFR) : In its 2021 report, the biennial India State of Forest Report (ISFR) released by the Forest Survey of India (FSI) indicates that 35.47% of the forest cover is classified as fire-prone areas.

    Region more prone to forest Fire

    • Fires of severe magnitude occur frequently in dry deciduous forests, whereas evergreen, semi-evergreen, and montane temperate forests are relatively less susceptible to fires.
    • During the November to June period, the forests in Northeast India, Odisha, Maharashtra, Jharkhand, Chhattisgarh, and Uttarakhand face the highest risk of fires.For example in 2021, a string of forest fires occurred in Uttarakhand, Himachal Pradesh, the Nagaland-Manipur border, Odisha, Madhya Pradesh, and Gujarat, including within wildlife sanctuaries.
    • In 2024 forest Fires: According to data from the Forest Survey of India (FSI), Mizoram reported the highest number of forest fires (3,738), followed by Manipur (1,702), Assam (1,652), Meghalaya (1,252), and Maharashtra (1,215).

    Reason behind the forest fires in India 

    The majority of forest fires in India are ignited by human activities, including:

    • Agricultural Burning: Farmers often use fire to clear land for cultivation or to manage crop residues, leading to accidental fires spreading into nearby forests.For example Jhum (slash and burn cultivation)
    • Intentional Arson: Deliberate setting of fires for various reasons, such as land grabbing, hunting, or retaliatory actions.
    • Carelessness: Unattended campfires, discarded cigarettes, or burning of waste materials can spark fires.
    • Climate Conditions: Dry and hot weather conditions during the summer months create favorable conditions for the rapid spread of fires. .For example forest fires has worsen due to climate change as per UNEP

    Plan for Fighting forest Fires 

    • Early Detection: Implement systems for early detection of forest fires, such as fire watchtowers, aerial surveillance, and remote sensing technologies like drones and satellites.
    • Rapid Response: Develop well-trained and equipped firefighting teams capable of swift response to contain fires in their early stages before they escalate.
    • Controlled Burns: Conduct controlled burns during cooler and wetter months to remove excess vegetation and reduce the risk of large-scale wildfires during dry seasons.
    • Firebreaks: Create and maintain firebreaks by clearing vegetation along strategic points to halt the spread of fires.
    • Community Involvement: Educate local communities about fire prevention and train them in firefighting techniques. Encourage community participation in fire management efforts.
    • Equipment and Infrastructure: Ensure availability and proper maintenance of firefighting equipment such as hoses, pumps, bulldozers, and firefighting aircraft.

    Conclusion 

    Forest fires in India, exacerbated by climate conditions, pose significant threats. Kerala’s proactive measures and community involvement highlight effective strategies for prevention and control, crucial in mitigating the increasing frequency of fires nationwide.

     

     https://www.downtoearth.org.in/news/natural-disasters/wildfires-will-be-more-frequent-larger-and-intense-due-to-climate-change-unep-81615

  • Why green hydrogen presents both major opportunities, significant challenges

    why in the news? 

    Recently, the Ministry of New and Renewable Energy (MNRE) has announced a Rs-496-crore (until 2025-26) scheme to support pilot projects that either test the viability of green hydrogen as a vehicle fuel or develop secure supporting infrastructure such as refuelling stations.

    Objecive of MNRE scheme 

    (i) validation of technical feasibility and performance of green hydrogen as a transportation fuel

    (ii) evaluation of the economic viability of green hydrogen-powered vehicles

    (iii) demonstration of safe operation of hydrogen-powered vehicles and refuelling stations.

    About Green , Blue and grey hydrogen

    The significance of hydrogen fuel vehicles, particularly hydrogen internal combustion engine (ICE) vehicles and hydrogen fuel cell electric vehicles (FCEVs)

    • Zero Carbon Emissions: Both hydrogen ICE vehicles and FCEVs produce zero carbon emissions during operation.
    • Energy Efficiency: While research suggests that burning hydrogen in an ICE vehicle may be less energy-efficient than using it in a fuel cell, FCEVs still offer high energy efficiency compared to traditional internal combustion engine vehicles, particularly those powered by fossil fuels like diesel and petrol.
    • Clean Energy Production: Hydrogen can be produced through various renewable energy sources, such as wind, solar, and hydroelectric power.
    • Lightweight and Increased Payload Capacity: Hydrogen FCEVs typically weigh less than battery electric vehicles (BEVs) due to the lighter weight of hydrogen and the fuel cell stack compared to EV batteries.
    • Long-haul Freight Applications: Research indicates that long-haul FCEVs can carry freight amounts similar to diesel trucks, while BEVs may suffer from a weight penalty due to heavier batteries.  .
    • Diversification of Energy Sources: Hydrogen fuel vehicles offer a viable alternative to battery electric vehicles, providing diversification in energy sources for transportation.

     Challenges 

    • Storage and Transportation Challenges: Developing specialized cylinders capable of safely storing high-pressure green hydrogen is essential. Existing cylinders designed for compressed natural gas (CNG) are not suitable for hydrogen storage
    • Fuel Costs and Infrastructure: Green hydrogen-powered vehicles face challenges in competing with battery electric vehicles (BEVs) due to higher fuel costs and the need for infrastructure development, including hydrogen refueling stations. The cost of establishing and maintaining hydrogen refueling infrastructure is significant, hindering the widespread adoption of hydrogen FCEVs.
    • Safety Concerns: Hydrogen is highly flammable, necessitating robust safety standards and protocols for handling and storing the fuel at refueling stations.

    Conclusion 

    Green hydrogen offers zero emissions, energy efficiency, and diversification in energy sources for transportation. However, challenges like storage, infrastructure costs, and safety concerns hinder widespread adoption, despite MNRE’s support scheme.

    Mains PYQ

    Q How is efficient and affordable urban mass transport key to the rapid economic development in India? (UPSC IAS/2019)

    Q Discuss in detail the photochemical smog emphasizing its formation, effects and mitigation. Explain the 1999 Gothenburg protocol.(UPSC IAS/2022)

  • RBI to launch Mobile App for Retail Direct scheme

    Why in the news?

    The RBI has decided to introduce a Mobile App of its RBI Retail Direct scheme aimed at facilitating seamless investment in government securities by retail investors.

    What is Retail Direct Scheme?

    • Retail Direct Scheme was rolled out in November 2021, giving access to individual investors to maintain gilt accounts with RBI and invest in government securities.
    • Using this app, investors can buy central and state government bonds as well as Treasury bills.
    • It enables investors to buy securities in primary auctions as well as buy/sell securities through the Negotiated Dealing System-Order Matching system (NDS-OM) platform.
    • A Gilt Account can be compared with a bank account, except that the account is debited or credited with treasury bills or government securities instead of money.

    Treasury Bills:

    • They are promissory notes issued by the RBI on behalf of the government as a short term liability and sold to banks and to the public.
    • The maturity period ranges from 14 to 364 days.
    • They are the negotiable instruments, i.e. they are freely transferable.
    • No interest is paid on such bills but they are issued at a discount on their face value.

     How does it work?

    • Under the scheme, small investors can buy or sell government securities (G-Secs), or bonds, directly without an intermediary like a mutual fund.
    • However, the same tax rules apply to income from G-Secs.
    • The minimum amount for a bid is ₹10,000 and in multiples of ₹10,000 thereafter.
    • Payments may be made through Net banking or the UPI

    Benefits of RDS

    • With the government being the borrower, there is a sovereign guarantee for the funds and hence zero risk of default.
    • Also, government securities may offer better interest rates than bank fixed deposits, depending on prevailing interest rate trends.

    How can individuals access G-Sec offerings?

    • Investors wishing to open a Retail Direct Gilt account directly with the RBI can do so through an online portal set up for the purpose of the scheme.
    • Once the account is activated with the aid of a password sent to the user’s mobile phone, investors will be permitted to buy securities either in the primary market or in the secondary market.

    PYQ:

    [2018] Consider the following statements:

    1. The Reserve Bank of India manages and services Government of India Securities but not any State Government Securities.

    2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.

    3. Treasury bills offer are issued at a discount from the par value.

    Which of the statements given above is/are correct?

    (a) 1 and 2 only

    (b) 3 only

    (c) 2 and 3 only

    (d) 1, 2 and 3

  • [pib] 15th CIDC Vishwakarma Awards 2024

    Why in the news?

    SJVN Limited has won two prestigious awards at the 15th Construction Industry Development Council (CIDC) Vishwakarma Awards 2024, for their Corporate Social Responsibility (CSR) initiatives.

    About CIDC Vishwakarma Awards

    • The CIDC Vishwakarma Awards is one of the most esteemed recognitions within the construction sector.
    • It was launched in the year 2005.
    • The awards are named after Vishwakarma, the divine architect and engineer in Hindu mythology, symbolizing craftsmanship, creativity, and skill in construction.

    Key details about the Award

    • Organizer: The awards are organized by the Construction Industry Development Council (CIDC), which is a body established by the GoI to promote the construction industry’s development and growth.
    • Categories: The awards cover a wide spectrum of categories, including:
      1. Construction Projects: Recognizing outstanding projects across different sectors such as residential, commercial, infrastructure, and industrial construction.
      2. Construction Technologies: Honoring innovative technologies and techniques that enhance construction processes, efficiency, and sustainability.
      3. Construction Equipment: Acknowledging advancements in construction machinery, tools, and equipment.
      4. Health, Safety, and Environment: Recognizing initiatives and practices that prioritize worker safety, environmental protection, and sustainability in construction.
      5. Individual Achievements: Celebrating the contributions of professionals and leaders who have made significant impacts in the construction industry.
      6. Others: Additional categories may include awards for sustainability, CSR initiatives, and emerging trends in construction.

    PYQ:

    [2020] In rural road construction the use of which of the following is preferred for ensuring environmental sustainability or to reduce carbon footprint?

    1.    Copper slag

    2.    Cold mix asphalt technology

    3.    Geotextiles

    4.    Hot mix asphalt technology

    5.    Portland cement

    Select the correct answer using the code given below:

    (a) 1, 2 and 3 only

    (b) 2, 3 and 4 only

    (c) 4 and 5 only

    (d) 1 and 5 only

    Back2Basics: Corporate Social Responsibility (CSR)

    Description
    What is it? Self-regulating business model for social and environmental impact.
    Regulation in India Mandated under Companies Act, 2013 (amendment in 2014).
    Investment Areas Promote rural development, healthcare, education, environment, etc.
    CSR Committee Mandatory for companies meeting Rs 500 Cr net worth or Rs 1000 Cr turnover criteria.
    Spending Requirement At least 2% of average net profits of the last three financial years.
    Applicability Criteria Net worth >= Rs 500 Cr, Turnover >= Rs 1000 Cr, or Net profit >= Rs 5 Cr.
    Adjustment for New Cos. Use average net profits of preceding years to calculate spending.
    Applicability Period Applies before the completion of three financial years for companies.

  • Why Uttarakhand govt wants to evaluate the risk of Glacial Lake Outburst Floods

    Why in the news? 

    Recently, the Uttarakhand government has constituted two teams of experts to evaluate the risk posed by five potentially hazardous glacial lakes in the region.

    Context:

    • The Hazardous Glacial Lakes are prone to Glacial Lake Outburst Floods (GLOFs), the kind of events that have resulted in several disasters in the Himalayan states in recent years.
    • The National Disaster Management Authority (NDMA), which operates under the Union Ministry of Home Affairs, has identified 188 glacial lakes in the Himalayan states that can potentially be breached because of heavy rainfall. Thirteen of them are in Uttarakhand.

    About Glacial Lake Outburst Floods (GLOFs):

    GLOFs are disaster events caused by the abrupt discharge of water from glacial lakes  large bodies of water that sit in front of, on top of, or beneath a melting glacier. As a glacier withdraws, it leaves behind a depression that gets filled with meltwater, thereby forming a lake. Example: 4 october 2023 GLOFs in Sikkim.

    Factors behind the GLOFs:

    • Avalanches or Landslides: Incidents such as avalanches or landslides can also impact the stability of the boundary around a glacial lake, leading to its failure, and the rapid discharge of water.
    • Due to climate change: Rising surface temperatures across the globe, including India, have increased the risk of GLOFs. Studies have shown that around 15 million people face the risk of sudden and deadly flooding from glacial lakes, which are expanding and rising in numbers due to global warming.
    • Rapid infrastructure development in vulnerable areas has also contributed to the spike in such incidents.
    • Sizable ice chunks in the lake: GLOFs can be triggered by various reasons, including glacial calving, where sizable ice chunks detach from the glacier into the lake, inducing sudden water displacement.

    Why are GLOFs under the spotlight?

    • Increased Frequency of GLOFs: Since 1980, GLOFs have become more frequent in the Himalayan region, particularly in southeastern Tibet and the China-Nepal border area. This indicates a concerning trend of glacial melting and lake formation as per Institute of Tibetan Plateau Research in China
    • Extent of Potential Risk: The analysis by  Institute of Tibetan Plateau Research in China suggests that approximately 6,353 sq km of land could be at risk from potential GLOFs.
    • Regional Impacts: Another analysis conducted by Caroline Taylor, Rachel Carr, Stuart Dunning (Newcastle University, UK), Tom Robinson (University of Canterbury, New Zealand), and Matthew Westoby (Northumbria University, UK) indicates that GLOFs are not just a localized issue but have broader regional impacts.
      • Around 3 million people in India and 2 million in Pakistan are identified as facing the risk of GLOFs, highlighting the potential humanitarian consequences of these events.

    What is the situation in Uttarakhand?

    • Past GLOF events: Uttarakhand has experienced two major GLOF events in recent years. The first occurred in June 2013, affecting large parts of the state, particularly the Kedarnath valley, resulting in significant loss of life.
      • The second event happened in February 2021 in Chamoli district, leading to flash floods due to the bursting of a glacier lake.
    • Categorization of Glacial Lakes: Uttarakhand has 13 glacial lakes categorized into three risk levels: ‘A’, ‘B’, and ‘C’.
      • Five highly sensitive lakes fall into the ‘A’ category, including Vasudhara Tal in the Dhauliganga basin (Chamoli district), Maban Lake, Pyungru Lake, and two unclassified lakes in Pithoragarh district.
    • Size and Elevation of High-Risk Lakes: The lakes in the ‘A’ category have areas ranging from 0.02 to 0.50 sq km and are situated at elevations between 4,351 to 4,868 meters above sea level. These characteristics make them particularly vulnerable to glacial lake outburst events.
    • Impact of Rising Temperatures: A 2021 study by the Potsdam Institute for Climate Research (PIK) and The Energy and Resources Institute (TERI) suggests that rising surface temperatures could worsen the situation in Uttarakhand.
      • The state’s annual average maximum temperature may increase by 1.6-1.9 degrees Celsius between 2021-2050, potentially exacerbating the risk of GLOFs.

    Conclusion: Uttarakhand government forms expert teams to assess risk from 5 hazardous glacial lakes prone to GLOFs. With rising temperatures and past disasters, urgent action is needed to mitigate potential catastrophic flooding.

  • Govt. body hikes prices of essential medicines again, says ‘it’s minuscule’

    Why in the News? 

    Recently, the National Pharmaceutical Pricing Authority (NPPA) implemented a 0.00551% increase in the Maximum Retail Price (MRP) for scheduled formulations of drugs starting from the commencement of the fiscal year 2024–25.

    Context:

    • The Department of Pharmaceuticals has released its yearly update of revised ceiling prices for 923 scheduled drug formulations and adjusted retail prices for 65 formulations.
    • These revised ceiling rates took effect on April 1. The Central Government attributes the price adjustments to fluctuations in the Wholesale Price Index (WPI).

    What is the National List of Essential Medicines? 

    • As per the World Health Organisation (WHO), Essential Medicines are those that satisfy the priority healthcare needs of the population.
    • Ministry of Health and Family Welfare hence prepared and released the first National List of Essential Medicines of India in 1996 consisting of 279 medicines.
      • Currently, India has approximately 400 molecules and 960 formulations covered under the National List of Essential Medicines.
    • The prices of non-essential drugs are also monitored by the government to ensure that the manufacturers of these drugs don’t increase MRP by more than 10% annually.

    The issue of the present Current Price Increase:

    • Manufacturers are allowed to increase the Maximum Retail Price (MRP) of scheduled formulations based on the Wholesale Price Index (WPI) without prior government approval.
    • Pharmaceutical companies argue that a rational increase in the cost of drugs is necessary for quality control.
    • Government’s Stance on Current Hike: Despite the recent increase, the government suggests that it will only marginally impact the cost of essential drugs such as antibiotics and painkillers.
      • The National Pharmaceutical Pricing Authority (NPPA) follows the Drug Price Control Order (DPCO) of 2013, allowing price hikes in line with changes in the WPI index.
      • Medicine prices were raised by 12% last year and 10% in 2022.

    BACK2BASICS:

    1. National Pharmaceutical Pricing Authority (NPPA):

    The National Pharmaceutical Pricing Authority was set up as an attached office of the Department of Chemicals and Petrochemicals (now Department of Pharmaceuticals since July 2008) on 29th August 1997. It has been entrusted inter-alia, with the following functions

    • Enforce the provision: To implement and enforce the provisions of the Drugs Price Control Order (DPCO), 1995/2013 under the powers delegated to it and to undertake and/or sponsor relevant studies concerning the pricing of drugs/formulations.
    • Monitor Demand and supply: To monitor the availability of drugs, identify shortages, if any, and take remedial steps. To collect/maintain data on production, exports and imports, market share of individual companies, profitability of companies, etc. for bulk drugs and formulations.
    • Manage legal matters: To deal with all legal matters arising out of the decisions of the Authority. To render advice to the Central Government on changes/revisions in the drug policy.
    • Assist Government: To help the Central Government in the parliamentary matters relating to drug pricing.
    1. Drugs (Prices Control) Order (DPCO):
    • The Drugs Prices Control Order, issued by the Government of India under Section 3 of the Essential Commodities Act, 1955, aims to govern and regulate drug prices.
    • Provides the list of price-controlled drugs: The Order interalia provides the list of price-controlled drugs, procedures for fixation of prices of drugs, method of implementation of prices fixed by Govt., penalties for contravention of provisions, etc.
    • Regulate only listed drugs: According to the regulations outlined in DPCO 2013, the National Pharmaceutical Pricing Authority oversees and regulates only the prices of drugs listed in the National List of Essential Medicines (NLEM).

     

    Achievements of India’s Pharmaceutical Industry:

    • Advanced Industries: India boasts one of the most advanced pharmaceutical industries among developing nations, ranking third globally in terms of volume and 13th in terms of value.
    • Export Destinations: The United States serves as the largest export destination for bulk drugs from India. This is noteworthy considering the stringent regulatory standards in the US.
      • Other significant export destinations include Brazil, Bangladesh, Turkey, China, the Netherlands, Nigeria, Vietnam, and Egypt.
    • India’s Role as a Supplier for Global South (developing countries): India ranks among the top five suppliers of bulk drugs to several developing countries, including Bangladesh, Nigeria, Vietnam, Egypt, Iran, and Pakistan.
      • Despite China’s dominance as a larger supplier, India remains a substantial exporter in this regard.

    The challenge is Dependency on China: Despite India’s robust pharmaceutical sector, it heavily relies on China for the supply of bulk drugs and drug intermediates. Approximately two-thirds of India’s total imports in this category originate from China.

    Conclusion: The recent price increase by the NPPA aligns with fluctuations in the Wholesale Price Index, aiming to regulate drug costs. India’s pharmaceutical industry faces challenges of import dependency on China, despite its global presence.

    Mains PYQ

    Q What do you understand by Fixed Dose Drug Combinations (FDCs)? Discuss their merits and demerits. (UPSC IAS/2013)

  • What is Basel III Endgame?

    Why in the news?

    The US Federal Reserve recently announced stricter bank capital requirements known as the “Basel III endgame” proposal.

    What is Bank Capital?

    • Bank capital is a measure of bank shareholders’ investment in the business.
    • In contrast to deposits or money a bank has borrowed, capital does not have to be paid back.
    • In other words, it is a cushion or buffer that protects a bank from insolvency—and, thus, reduces the risk that a bank failure triggers system-wide financial instability.
    • A bank that has sufficient capital can cover customers’ deposits even if the loans it has made aren’t repaid or if its investments drop in value.

    What are Basel Norms?

    • Basel, Switzerland, hosts the Bureau of International Settlement (BIS), fostering collaboration among central banks to establish global banking standards.
    • The Basel Committee on Banking Supervision (BCBS), established in 1974 formulates broad supervisory guidelines known as the Basel framework.
    • Its purpose is to ensure banks maintain adequate capital to meet obligations and absorb losses.
    • India has adopted Basel standards to align its banking practices with global norms.
    Description
    Basel I
    • Introduced in 1988.
    • Known as the Basel Capital Accord.
    • Focused on credit risk.
    • Set a minimum capital requirement of 8% of risk-weighted assets (RWA).
    • Assets were assigned risk weights based on their risk profile.
    • Adopted by India in 1999.
    Basel II
    • Published in June 2004.
    • Aimed to refine and reform Basel I.
    • Introduced three pillars:
    1. Capital Adequacy Requirements
    2. Supervisory Review
    3. Market Discipline
    • Increased focus on risk management and disclosure.
    • Yet to be fully implemented in India and abroad.
    Basel III
    • Released in 2010 after the 2008 financial crisis.
    • Aimed to strengthen the banking system.
    • Made banking activities more capital-intensive.
    • Focus on four key parameters:
    1. Capital
    2. Leverage
    3. Funding
    4. Liquidity
    • Designed to promote a more resilient banking system.
    *Basel IV

     
    • In 2017, the Basel Committee agreed on changes to the global capital requirements as part of finalising Basel III.
    • The changes are so comprehensive that they are increasingly seen as an entirely new framework, commonly referred to as “Basel IV”.
    • Set to take effect under transition rules from 2025.*

     

    Proposed Changes under Basel III Endgame

    • Expansion of Scope: The proposal aims to extend the strictest risk-based capital approach to more banks, lowering the asset threshold from $700 billion to $100 billion. This would encompass around 37 large banks in the U.S.
    • Standardized Measure for Capital Requirements: Regulators propose curtailing banks’ use of internal models to calculate capital requirements for loans, advocating for a standardized measure for all banks to ensure uniform risk assessment.
    • Increased Capital for Trading and Operational Risks: The proposal mandates higher capital reserves for risks linked to trading activities and operational challenges, requiring banks to utilize standard models for risk assessment instead of internal ones.
    • Changes to Capital Calculations for Portfolios: Banks with assets exceeding $100 billion must reflect gains and losses in portfolios categorized as “available for sale” in their capital calculations, aiming for a more precise depiction of a bank’s risk exposure.

    Challenges created by the new Norms

    • Operational Risks: A substantial portion of the proposed capital increment targets banks’ operational risks, encompassing potential losses arising from internal processes, people, systems, or external events.
    • Non-Traditional Banking Activities: Entities engaged in trading, market-making, wealth management, and investment banking, will face more pronounced capital requirements due to altered risk assessment and operational risk calculations.
    • Industry-specific Concerns: Additionally, specific industries, like renewable energy, anticipate repercussions, fearing that increased capital requirements could undermine the effectiveness of tax incentives for projects targeting climate change.

    Arguments in Favor of Increasing Capital

    • Financial Stability: Proponents argue that heightened capital requirements are imperative for safeguarding financial stability, averting bank failures, and minimizing the need for government bailouts.
    • Prudent Banking Practices: They contend that current standards inadequately address bank risks and that increased capital incentivizes prudent banking practices.
    • Resilient Banking System: Economists suggests that the social costs of higher capital requirements are minimal compared to the benefits of a more resilient financial system.

    PYQ:

    2015:

    ‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to:

    (a) Develop national strategies for the conservation and sustainable use of biological diversity

    (b) Improve banking sector’s ability to deal with financial and economic stress and improve risk management

    (c) Reduce the greenhouse gas emissions but places a heavier burden on developed countries

    (d) Transfer technology from developed countries to poor countries to enable them to replace the use of chlorofluorocarbons in refrigeration with harmless chemicals

     

    Practice MCQ:

    What is the primary objective of “Basel III Endgame” in the banking sector?

    (a) To encourage speculative investments by banks to boost short-term profits.

    (b) To ensure the stability of the global financial system by strengthening the regulation, supervision, and risk management practices of banks.

    (c) To encourage banks to invest more in less-risky assets to stimulate economic growth.

    (d) To limit the role of central banks in regulating commercial banks and promote market-driven banking practices.