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GS Paper: GS3

  • Downturn in tech startup ecosystem

    Context

    The startup ecosystem which has been in overdrive for the past few years — propelled by a combination of factors, but largely, by the era of cheap money — is now showing signs of weakness.

    Factors that helped fuel the tech startups

    • With the combination of accelerated financial inclusion (bank accounts), ease of identification (Aadhaar) and connectivity (mobile phones) it was said that it is ultimately a bet on the Indian consumer, and the economy, not on government regulations/policies.
    • Low-interest rates: In the era of cheap money and negative real interest rates, uncomfortable questions over the true market size and profitability were swept under the rug.
    • Growth fuelled by cash burn: High cash burn rates were the norm as both startups and investors sought growth by subsidising the customer.

    What is going wrong?

    • Lack of profitability: Among the startups that have gone public in recent times, Paytm’s losses stood at Rs 2,396 crore in 2021-22, while for Zomato and PB Fintech (PolicyBazaar) losses were Rs 1,222 crore and Rs 832 crore respectively.
    • Drying-up of investment: Sure, investors will continue to pour money.
    • Some early age start-ups will continue to be funded, as will some of the more mature ones.
    • But investors are likely to be more circumspect in their dealings.
    • Impact on valuation: There are also reports of startups in diverse markets, ranging from Ola to OYO, planning to raise funds at lower valuations.
    • Among those who have gone public in recent times, most are trading much below their listing price.
    • Tighter financial conditions, a re-rating of the market, will impact both fundraising efforts and valuations.

    Lack of discretionary spending capacity

    • Many numbers were given as indicators of the size of the market or TAM (the total addressable market).
    • Smartphone users: One such number thrown around is the smartphone users in the country — some have pegged this at 500 million.
    • UPI transactions: The transactions routed through the UPI platform — in May there were almost six billion transactions worth Rs 10 trillion.
    • Bank account holders: We have the near universality of bank accounts.
    • But in reality, for most of these startups, the market or even the potential market is just a fraction of this.
    • There aren’t that many consumers with significant discretionary spending capacity, and those with the capacity aren’t increasing their spending as these companies would hope.
    • No increase in spending: What is equally worrying is the complete absence of any increase in spending by even these consumers who would have the capacity to spend more.
    • While more consumers are on-board digital payment platforms — Paytm has about 70 million monthly transacting users — these numbers suggest that when it comes to consumers with considerable discretionary spending, the size of the market shrivels considerably.

    Conclusion

    Tech startups are about to witness a tough time ahead. Some startups will survive this period. Many may not. And changes in the dynamics of private markets will also have a bearing on public markets.

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  • online marketplace

    Context

    The proliferation of a wide range of e-commerce platforms has created convenience and increased consumer choice. However, these platforms also have given rise to several concerns as well.

    What is e-commerce ?

    • Electronic commerce or e-commerce is a business model that lets firms and individuals buy and sell things over the Internet.
    • Propelled by rising smartphone penetration, the launch of 4G networks and increasing consumer wealth, the Indian e-commerce market is expected to grow to US$ 200 billion by 2026 from US$ 38.5 billion in 2017.
    • India’s e-commerce revenue is expected to jump from US$ 39 billion in 2017 to US$ 120 billion in 2020, growing at an annual rate of 51%, the highest in the world.
    • The Indian e-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second-largest e-commerce market in the world by 2034.

    Advantages of e-Commerce

    • The process of e-commerce enables sellers to come closer to customers that lead to increased productivity and perfect competition. The customer can also choose between different sellers and buy the most relevant products as per requirements, preferences, and budget. Moreover, customers now have access to virtual stores 24/7.
    • e-Commerce also leads to significant transaction cost reduction for consumers.
    • e-commerce has emerged as one of the fast-growing trade channels available for the cross-border trade of goods and services.
    • It provides a wider reach and reception across the global market,with minimum investments. It enables sellers to sell to a global audience and also customers to make a global choice. Geographical boundaries and challenges are eradicated/drastically reduced.
    • Through direct interaction with final customers, this e-commerce process cuts the product distribution chain to a significant extent. A direct and transparent channel between the producer or service provider and the final customer is made. This way products and services that are created to cater to the individual preferences of the target audience.
    • Customers can easily locate products since e-commerce can be one store set up for all the customers’ business needs
    • Ease of doing business: It makes starting, managing business easy and simple.
    • The growth in the e-commerce sector can boost employment, increase revenues from export, increase tax collection by ex-chequers, and provide better products and services to customers in the long-term.

    Issues created by the e-commerce sites

    • Predatory pricing: These companies resort to predatory pricing to acquire customers even as they suffer persistent financial losses.
    • SEBI is rightly revisiting the valuation norms of such companies looking to list on the stock exchange.
    • Exclusionary practice: They take away choice from suppliers and consumers.
    • This, in the long run, can be viewed as an exclusionary practice that eliminates other players from the market. 
    • Lack of level playing field: While neutrality is the fundamental basis of a marketplace and a level playing field is in the fitness of things, claims of outfits such as Flipkart or Amazon to be a marketplace for a wide variety of sellers can be questioned.
    • A few select sellers, who are generally affiliated with the platform, reap the benefits of greater visibility and better terms of trade — reduced commissions and platform-funded discounts.
    • Undue advantage to associated companies: The associate companies are prominent sellers on their platform.
    • It is alleged that undue advantage is given while recommending or listing these products.
    • Cartelisation: Online travel aggregators are often accused of cartelisation.
    • Information asymmetry: The aggregators gather shopping habits, consumer preferences, and other personal data.
    • The platforms are accused of using this data to create and improve their own products and services, taking away business from other sellers on their platform.
    • They capitalise on this data and information about other brands to launch competing products on their marketplace.
    • This information asymmetry is exploited by the aggregators to devour organisations they promise to support.
    • Problems in dispute resolution mechanism: Another issue often noticed is the lack of a fair and transparent dispute resolution mechanism for sellers on these platforms.
    • Delayed payments, unreasonable charges, and hidden fees are common occurrences.
    • Unreasonable and one-sided contracts allow travel aggregators to have a disparity clause (in the rates) which allows them to offer rooms at a much cheaper rate but bars the hotels from doing so.

    Impact of the e-commerce

    • The online aggregator platforms have also damaged large segments of small and medium businesses through their dominant position and the malpractices this position allows them to indulge in.
    • The ultimate loss bearer is the consumer who will have a reduced bargaining position.

    Way forward

    • Comprehensive rules: It is time that a set of comprehensive rules and regulations is put together.
    • These regulations need to be inclusive, should eliminate the conflicts of interest inherent in current market practices, and prevent any anti-competitive practices.
    • Model agreement: A model agreement that is fair and allows a level playing field between the aggregators and their business partners should be implemented.
    • Learning from EU act: There is a lot to learn from the Digital Markets Act of the EU that seeks to address unfair practices by these gatekeepers.
    • Need for dispute resolution mechanism: Strong and quick grievance redressal and dispute resolution mechanisms should be established.
    • Punitive penalties: The rules should allow for punitive penalties for unfair practices.
    • Fair competition rules: Market dominance and subsequent invoking of fair competition rules should be triggered at the level of micro-markets and for product segments.

    Conclusion

    The nature of our success in dealing with this change will lie in the ways in which we deal with the concerns of all players.

     

  • India’s gig workforce to reach 2.35 Cr by 2030: NITI Aayog

    A NITI Aayog report has identified that is expected to grow to 2.35 crore by 2029-30.

    Do you know?

    According to a study released by NITI Aayog, the number of gig workers in India is estimated to be 77 lakh in 2020-21. Isn’t it too low to imagine? Seems like there is huge under-reporting.

    What is the Gig Economy?

    • In a gig economy, temporary, flexible jobs are commonplace and companies tend toward hiring independent contractors and freelancers instead of full-time employees.
    • A gig economy undermines the traditional economy of full-time workers who rarely change positions and instead focus on a lifetime career. e.g Employee models of Uber, Ola, Swiggy etc
    • In this economy, tech-enabled platforms connect the consumer to the gig worker to hire services on a short-term basis.
    • Gig workers include self-employed, freelancers, independent contributors and part-time workers.

    Where does gig culture exist in Indian Economy?

    • Sectors such as media, real estate, legal, hospitality, technology-help, management, medicine, allied and education are already operating in gig culture.
    • The gig economy can benefit workers, businesses, and consumers by making work more adaptable to the needs of the moment and demand for flexible lifestyles.

    Key Drivers for Gig Economy

    • Unconventional work approach by millennials: Hectic lifestyles of employees in private sectors have created a negative perception of full-time employment among millennials.
    • Emergence of a start-up culture: The start-up ecosystem in India has been developing rapidly. For start-ups, hiring full-time employees leads to high fixed costs and therefore, contractual freelancers are hired for non-core activities.
    • MNCs are hiring contractual employees: MNCs are adopting flexi-hiring options, especially for niche projects, to reduce operational expenses after the pandemic.
    • Rise in freelancing platforms: Rise in freelancing platforms has also aided in the development of the gig economy.
    • Business Models: Gig employees work on various compensation models such as fixed-fee (decided during contract initiation), time & effort, actual unit of work delivered and quality of outcome.
    • Impact of Covid-19: Many laid-off employees are focusing on developing skills to avail freelance job opportunities and become a part of this burgeoning economy.

    Why is Gig Economy preferred by workers?

    • Profit through multiple work: One can work on freelancing as well as work full-time somewhere else.
    • Women empowerment: It is very beneficial for womenwho work on this concept when they cannot continue their work or take a break from career due to marriage or child birth.
    • Leisure and dependency: Retired peoplecan stay active after retirement as this will keep them engaged away from loneliness and depression and can earn as well on their own.
    • Flexibility and diversity to the workers: It offers flexibility when workers can work according to their convenience and schedule rather than routine like in full-time jobs.
    • Work from home: The travel costs and energy to travel to the workplace is reduced.

    Why is Gig Economy preferred by Employers?

    • Efficiency, efficacy and productivity of workers in the gig economy are much more than that of a stable full-time job.
    • More rconomical for employers-when employment givers can’t afford to hire full-time workers, they hire people for specific projects and pay them.
    • Start-up companies and entrepreneurs – who do not have big financial space – can grow only if they can leverage the services of contract employees or freelancers.
    • In a gig economy, businesses save resources in terms of benefits, office space and training.
    • Competition and efficiency among workers is improved.

    Challenges faced in Gig economy

    • No perks and benefits: There are no labour welfare emoluments like pension, gratuity, etc. for the workers.
    • Job insecurity: Gig workers may face unfair termination. They may also attain minimum wages and less paid leave.
    • No legal protection: Workers do not have the bargaining power to negotiate a fair deal with their employers.
    • Unionization of workers will be difficult.
    • Confidentiality of documents etc. of the workplace is not guaranteed
    • Urban nature: The gig economy is not accessible for people in many rural areas where internet connectivity and electricity is unavailable.

    New classification by NITI Aayog: Platform vs. Non-platform Workers

    • The NITI Aayog report broadly classifies gig workers into platform and non-platform-based workers.
    • The consequent platformisation of work has given rise to a new classification of labour — platform labour — falling outside of the purview of the traditional dichotomy of formal and informal labour.
    • While platform workers are those whose work is based on online software applications or digital platforms.
    • Non-platform gig workers are generally casual wage workers and own-account workers in the conventional sectors, working part-time or full time.

    Recommendations made by NITI Aayog

    • The NITI Aayog has recommended steps to provide social security, including paid leave, occupational disease and accident insurance, support during irregularity of work and pension plans for the country’s gig workforce.
    • It has also recommended introducing a ‘Platform India initiative’ on the lines of the ‘Startup India initiative’.

     

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  • Fertlizer subsidy issue

    Context

    The global prices of urea, DAP, MOP, phosphoric acid, ammonia and LNG have soared by two to two-and-a-half times in the last year

    Resource richness of Indian agriculture

    • No country has as much area under farming as India.
    • Land under cultivation: At 169.3 million hectares (mh) in 2019, its land used for crop cultivation was higher than that of the US (160.4 mh), China (135.7 mh), Russia (123.4 mh) or Brazil (63.5 mh).
    • Ample water: With its perennial Himalayan rivers and average annual rainfall of nearly 1,200 mm – against Russia’s 475 mm, China’s 650 mm and the US’s 750 mm – India has no dearth of land, water and sunshine to sustain vibrant agriculture.
    • But there’s one resource in which the country is short and heavily import-dependent — mineral fertilisers.

    India’s important dependence

    • In 2021-22, India imported 10.16 million tonnes (mt) of urea, 5.86 mt of di-ammonium phosphate (DAP) and 2.91 mt of muriate of potash (MOP).
    • Import value: In value terms, imports of all fertilisers touched an all-time high of $12.77 billion last fiscal.
    • In 2021-22, India also produced 25.07 mt of urea, 4.22 mt of DAP, 8.33 mt of complex fertilisers (containing nitrogen-N, phosphorus-P, potassium-K and sulphur-S in different ratios) and 5.33 mt of single super phosphate (SSP).
    • Import of raw material: The intermediates or raw materials for the manufacture of these fertilisers were substantially imported.
    • Total value of fertiliser imports: The total value of fertiliser imports by India, inclusive of inputs used in domestic production, was a whopping $24.3 billion in 2021-22.

    Two costs involved in import

    • 1] Foreign exchange outgo for import: The first is foreign exchange outgo:
    • Imports are mostly from the following countries:
    • Urea: Imported from China, Oman, UAE and Egypt
    • DAP: Imported from China, Saudi Arabia and Morocco.
    • MOP: Imported from Belarus, Canada, Russia, Israel and Jordan.
    • LNG: Imported from Qatar, US, UAE and Nigeria.
    • Ammonia: Morocco, Jordan, Senegal and Tunisia (phosphoric acid); Saudi Arabia and Qatar.
    • Rock phosphate: Jordan, Morocco, Egypt and Togo.
    • 2] Fiscal cost: The second cost is fiscal.
    • Fertilisers are not only imported but also sold at subsidised prices.
    • The difference is paid as a subsidy by the government.
    • That bill was Rs 1,53,658.11 crore or $20.6 billion in 2021-22 and projected at Rs 2,50,000 crore ($32 billion) this fiscal.
    • Unsustainably high costs: Both costs are unsustainably high to bear for a mineral resource-poor country.

    Suggestions

    1] Reduce consumption of high-analysis fertilisers

    • There is a need to cap or even reduce consumption of high-analysis fertilisers – particularly urea (46 per cent N content), DAP (18 per cent N and 46 per cent P) and MOP (60 per cent).
    • Incorporate urease and inhibition compounds in urea: This can be done by incorporating urease and nitrification inhibition compounds in urea.
    • These are basically chemicals that slow down the rate at which urea is hydrolysed and nitrified (which increases leaching).
    •  By reducing ammonia volatilisation and nitrate leaching, more nitrogen is made available to the crop, enabling farmers to harvest the same yields with a lesser number of urea bags.
    • Liquid nano-urea: Together with products such as liquid “nano urea” –it is possible to achieve a 20 per cent or more drop in urea consumption from the present 34-35 mt levels.
    • Liquid nano-urea with their ultra-small particle size is conducive to easier absorption by the plants than with bulk fertilisers, translating into higher nitrogen use efficiency.

    2] Promote the sale of SSP and complex fertilisers

    • A second route is by promoting sales of SSP (containing 16 per cent P and 11 per cent S) and complex fertilisers such as “20:20:0:13” and “10:26:26”.
    • Restrict DAP use: DAP use should be restricted mainly to paddy and wheat; other crops don’t require fertilisers with 46 per cent P content. 
    • India can also import more rock phosphate to make SSP directly or it can be converted into “weak” phosphoric acid
    • The latter, having only about 29 per cent P (compared to 52-54 per cent in normal “strong” merchant-grade phosphoric acid), is good enough for manufacturing “20:20:0:13”, “10:26:26” and other low-analysis complex fertilisers.

    3] Incorporate MOP into complexes

    • As regards MOP, roughly three-fourths of the imported material is now applied directly and only the balance is sold after incorporating into complexes.
    • It should be the other way around.
    • India, to re-emphasise, needs to wean its farmers away from all high-analysis fertilisers. 

    4] Use of NPKS complexes and indigenous sources

    • The moment to use more NPKS complexes and SSP, is already happening.
    • It requires a concerted push, alongside popularising high nutrient use-efficient water-soluble fertilisers (potassium nitrate, potassium sulphate, calcium nitrate, etc).
    • Exploiting alternative indigenous sources needs to be considered (for example, potash derived from molasses-based distillery spent-wash and from seaweed extract).

    5] Revise nutrient application recommendations

    • Farmers need to know what is a suitable substitute for DAP and which NPK complex or organic manure can bring down their urea application from 2.5 to 1.5 bags per acre.
    • It calls for agriculture departments and universities not just to revisit their existing crop-wise nutrient application recommendations, but disseminating this information to farmers on a campaign mode.

    Conclusion

    The costs associated with the use of fertilisers are unsustainably high to bear for a mineral resource-poor country such as India. We need to act on the measures to reduce our import dependence.

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    Back2Basics: High-analysis fertilisers

    • Fertilizers that have more than 30% total available nutrients are called high analysis fertilizers, whereas those with less than 30% total available nutrients are called low analysis fertilizers.
    • A 15-15-15 is a high analysis fertilizer; a 5-10-10 is a low analysis fertilizer, and a 10-10-10 is right on the borderline.

  • What is Small Savings Scheme?

    Economists expect the Centre to raise the interest rates paid on small savings schemes for the July to September 2022 quarter.

    Small Savings Scheme

    • Small Savings Schemes are a set of savings instruments managed by the central government with an aim to encourage citizens to save regularly irrespective of their age.
    • They are popular as they provide returns higher than bank fixed deposits, sovereign guarantee and tax benefits.

    How is it managed?

    • Since 2016, the Finance Ministry has been reviewing the interest rates on small savings schemes on a quarterly basis.
    • All deposits received under various schemes are pooled in the National Small Savings Fund.
    • The money in the fund is used by the Centre to finance its fiscal deficit.

    What are the different saving schemes?

    The schemes can be grouped under three heads –

    1. Post office deposits
    2. Savings certificates and
    3. Social security schemes

    (1) Post Office Deposits

    • Under this we have the savings deposit, recurring deposit and time deposits with 1, 2, 3 and 5 year maturities and the monthly income account.
    • The savings account currently pays an interest of 4% per annum and can be opened individually or jointly with an initial investment of Rs 500.
    • The recurring deposit that pays 5.8% a year compounded quarterly matures after 60 months from the date of opening.
    • It allows investors to save on a monthly basis with a minimum deposit of Rs 100 per month.
    • Investments under the 5-year time deposit up to Rs 1.5 lakh further qualifies for benefit under section 80C of Income Tax Act.

    (2) Savings Certificates

    • Under this, we have the National Savings Certificate and the Kisan Vikas Patra.
    • The National Savings Certificate pays interest at a rate of 6.8% per annum upon maturity after 5 years. The interest that is earned is reinvested into the scheme every year automatically.
    • The NSC also qualifies for tax saving under Section 80C of the income tax act.
    • The Kisan Vikas Patra, which is open to everyone, doubles your one-time investment at the end of 124 months signifying a return of 6.9% compounded annually.
    • The minimum investment amount is Rs 1000 while there is no upper limit.

    (3) Social security schemes

    • In the third head of social security schemes, there is Public Provident Fund, Sukanya Samriddhi Account and Senior Citizens Savings Scheme.

    a. Public Provident Fund

    • The Public Provident Fund is a popular saving option for long term goals like retirement.
    • It pays 7.1% a year and qualifies for tax benefit under Section 80C of the Income Tax Act.
    • Upon maturity of the account after 15 years, it can be extended indefinitely in blocks of 5 years.
    • The accumulated amount and interest earned are exempt from tax at the time of withdrawal.

    b. Sukanya Samriddhi Account

    • The Sukanya Samriddhi Account was launched in 2015 under the Beti Bachao Beti Padhao campaign exclusively for a girl child.
    • The account can be opened in the name of a girl child below the age of 10 years.
    • The scheme guarantees a return of 7.6% per annum and is eligible for tax benefit under Section 80C of the Income Tax Act.
    • The tenure of the deposit is 21 years from the date of opening of the account and a maximum of Rs 1.5 lakh can be invested in a year.

    c. Senior Citizen Savings Account

    • And finally, the 5-year ​​Senior Citizen Savings Account can be opened by anyone who is over 60 years to age.
    • It carries an interest of 7.4% per annum payable quarterly and qualifies for Section 80C tax benefit.
    • These time-tested and safe modes of investments don’t offer quick returns, but are safer when compared to market-linked schemes.

     

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  • What does our Current Account Deficit (CAD) show?

    The data for the country’s current account balance for the fourth quarter of FY 2021-22 shows a decrease in the deficit to 1.5% of gross domestic product (GDP) from 2.6% of GDP in Q3 FY 2021-22.

    What is Current Account Deficit (CAD)?

    • A current account is a key component of balance of payments, which is the account of transactions or exchanges made between entities in a country and the rest of the world.
    • This includes a nation’s net trade in products and services, its net earnings on cross border investments including interest and dividends, and its net transfer payments such as remittances and foreign aid.
    • A CAD arises when the value of goods and services imported exceeds the value of exports, while the trade balance refers to the net balance of export and import of goods or merchandise trade.

    Components of Current Account

    Current Account Deficit (CAD) =

    Trade Deficit + Net Income + Net Transfers

    (1) Trade Deficit

    • Trade Deficit = Imports – Exports
    • A Country is said to have a trade deficit when it imports more goods and services than it exports.
    • Trade deficit is an economic measure of a negative balance of trade in which a country’s imports exceeds its exports.
    • A trade deficit represents an outflow of domestic currency to foreign markets.

    (2) Net Income

    • Net Income = Income Earned by MNCs from their investments in India.
    • When foreign investment income exceeds the savings of the country’s residents, then the country has net income deficit.
    • This foreign investment can help a country’s economy grow. But if foreign investors worry they won’t get a return in a reasonable amount of time, they will cut off funding.
    • Net income is measured by the following things:
    1. Payments made to foreigners in the form of dividends of domestic stocks.
    2. Interest payments on bonds.
    3. Wages paid to foreigners working in the country.

    (3) Net Transfers

    • In Net Transfers, foreign residents send back money to their home countries. It also includes government grants to foreigners.
    • It Includes Remittances, Gifts, Donation etc

    How does Current Account Transaction takes place?

    • While understanding the Current Account Deficit in detail, it is important to understand what the current account transactions are.
    • Current account transactions are transactions that require foreign currency.
    • Following transactions with from which component these transactions belong to :
    1. Component 1 : Payments connection with Foreign trade – Import & Export
    2. Component 2 : Interest on loans to other countries and Net income from investments in other countries
    3. Component 3 : Remittances for living expenses of parents, spouse and children residing abroad, and Expenses in connection with Foreign travel, Education and Medical care of parents, spouse and children

    What has been the recent trend?

    • In Q4 FY 2021-22, CAD improved to 1.5% of GDP or $13.4 billion from 2.6% of GDP in Q3 FY 2021-22 ($22.2 billion).
    • The difference between the value of goods imported and exported fell to $54.48 million in Q4FY 2021-22 from $59.75 million in Q3 FY2021-22.
    • However, based on robust performance by computer and business services, net service receipts rose both sequentially and on a year-on-year basis.
    • Remittances by Indians abroad also rose.

    What are the reasons for the current account deficit?

    • Intensifying geopolitical tensions and supply chain disruptions leading to crude oil and commodity prices soaring globally have been exerting upward pressure on the import bill.
    • A rise in prices of coal, natural gas, fertilizers, and edible oils have added to the pressure on trade deficit.
    • However, with global demand picking up, merchandise exports have also been rising.

    How will a large CAD affect the economy?

    • A large CAD will result in demand for foreign currency rising, thus leading to depreciation of the home currency.
    • Nations balance CAD by attracting capital inflows and running a surplus in capital accounts through increased foreign direct investments (FDI).
    • However, worsening CAD will put pressure on inflow under the capital account.
    • Nevertheless, if an increase in the import bill is because of imports for technological upgradation it would help in long-term development.

    Should a widening CAD worry policymakers?

    • Data shows the trade deficit widened to $24.29 billion in May 2022 from $6.53 billion a year ago.
    • Merchandise exports in May 2022 rose by 20.55% over May 2021, while merchandise imports rose by 62.83%.
    • However, if increasing imports is accompanied by an expansion in industrial production, it is a sign of economic development.
    • Immediately after the covid-19 lockdown, after a long time, the country experienced a current account surplus.

     

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  • India’s new VPN Rules

    On April 28, Computer Emergency Response Team (CERT-In) passed a rule mandating VPN (virtual private network) providers to record and keep their customers’ logs for 180 days.

    What is VPN?

    • VPN describes the opportunity to establish a protected network connection when using public networks.
    • It encrypts internet traffic and disguise a user’s online identity.
    • This makes it more difficult for third parties to track your activities online and steal data.
    • The encryption takes place in real time.

    How does a VPN work?

    • A VPN hides your IP address by letting the network redirect it through a specially configured remote server run by a VPN host.
    • This means that if you surf online with a VPN, the VPN server becomes the source of your data.
    • This means your Internet Service Provider (ISP) and other third parties cannot see which websites you visit or what data you send and receive online.
    • A VPN works like a filter that turns all your data into “gibberish”. Even if someone were to get their hands on your data, it would be useless.

    Why do people use VPN?

    • Secure encryption: A VPN connection disguises your data traffic online and protects it from external access. Unencrypted data can be viewed by anyone who has network access and wants to see it. With a VPN, hackers and cyber criminals can’t decipher this data.
    • Disguising whereabouts: VPN servers essentially act as your proxies on the internet. Because the demographic location data comes from a server in another country, your actual location cannot be determined.
    • Data privacy is held: Most VPN services do not store logs of your activities. Some providers, on the other hand, record your behaviour, but do not pass this information on to third parties. This means that any potential record of your user behaviour remains permanently hidden.
    • Access to regional content: Regional web content is not always accessible from everywhere. Services and websites often contain content that can only be accessed from certain parts of the world.
    • Secure data transfer: If you work remotely, you may need to access important files on your company’s network. For security reasons, this kind of information requires a secure connection. To gain access to the network, a VPN connection is often required.

    What does the new CERT-IN directive say?

    • VPN providers will need to store validated customer names, their physical addresses, email ids, phone numbers, and the reason they are using the service, along with the dates they use it and their “ownership pattern”.
    • In addition, Cert is also asking VPN providers to keep a record of the IP and email addresses that the customer uses to register the service, along with the timestamp of registration.
    • Most importantly, however, VPN providers will have to store all IP addresses issued to a customer and a list of IP addresses that its customers generally use.

    What does this mean for VPN providers?

    • VPN services are in violation of Cert’s rules by simply operating in India.
    • That said, it is worth noting that ‘no logs’ does not mean zero logs.
    • VPN services still need to maintain some logs to run their service efficiently.

    Does this mean VPNs will become useless?

    • The Indian government has not banned VPNs yet, so they can still be used to access content that is blocked in an area, which is the most common usage of these services.
    • However, journalists, activists, and others who use such services to hide their internet footprint will have to think twice about them.

    Why such move?

    • Crime control: For law enforcement agencies, a move like this will make it easier to track criminals who use VPNs to hide their internet footprint.
    • Curbing dark-net activities: Users these days are shifting towards the dark and deep web, which are much tougher to police than VPN services.

    Back2Basics: Indian Computer Emergency Response Team (CERT-IN)

    • CERT-IN is an office within the Ministry of Electronics and Information Technology.
    • It is the nodal agency to deal with cyber security threats like hacking and phishing. It strengthens the security-related defense of the Indian Internet domain.
    • It was formed in 2004 by the Government of India under the Information Technology Act, 2000 Section (70B) under the Ministry of Communications and Information Technology.

     

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  • What is GST Compensation Cess?

    The Centre has extended the time for levy of GST compensation cess by almost four years till March 31, 2026.

    What is the news?

    • The Goods and Services Tax (Period of Levy and Collection of Cess) Rules were notified in 2022 by the Finance Ministry.
    • The levy of cess was to end on June 30 but the GST Council, chaired by Union Finance Minister decided to extend it till 2026.

    What is GST?

    • GST, being a consumption-based tax, would result in loss of revenue for manufacturing-heavy states.
    • GST launched in India on 1 July 2017 is a comprehensive indirect tax for the entire country.
    • It is charged at the time of supply and depends on the destination of consumption.
    • For instance, if a good is manufactured in state A but consumed in state B, then the revenue generated through GST collection is credited to the state of consumption (state B) and not to the state of production (state A).

    Compensation Cess under GST regime

    • Due to the consumption-based nature of GST, manufacturing states like Gujarat, Haryana, Karnataka, Maharashtra and Tamil Nadu feared a revenue loss.
    • Thus, GST Compensation Cess or GST Cess was introduced by the government to compensate for the possible revenue losses suffered by such manufacturing states.
    • However, under existing rules, this compensation cess will be levied only for the first 5 years of the GST regime – from July 1st, 2017 to July 1st, 2022.
    • Compensation cess is levied on five products considered to be ‘sin’ or luxury as mentioned in the GST (Compensation to States) Act, 2017 and includes items such as- Pan Masala, Tobacco, and Automobiles etc.

    Alternatives to prevent losses

    • The input tax credit can help a producer by partially reducing GST liability by only paying the difference between the tax already paid on the raw materials of a particular good and that on the final product.
    • In other words, the taxes paid on purchase (input tax) can be subtracted from the taxes paid on the final product (output tax) to reduce the final GST liability.

    Distributing GST compensation

    • The compensation cess payable to states is calculated based on the methodology specified in the GST (Compensation to States) Act, 2017.
    • The compensation fund so collected is released to the states every 2 months.
    • Any unused money from the compensation fund at the end of the transition period shall be distributed between the states and the centre as per any applicable formula.

    Significance of GST compensation

    • States no longer possess taxation rights after most taxes, barring those on petroleum, alcohol, and stamp duty were subsumed under GST.
    • GST accounts for almost 42% of states’ own tax revenues, and tax revenues account for around 60% of states’ total revenues.
    • Finances of over a dozen states are under severe strain, resulting in delays in salary payments and sharp cuts in capital expenditure outlay amid the pandemic-induced lockdowns and the need to spend on healthcare.

     

    Try this question from CSP 2018:

    Q.Consider the following items:

    1. Cereal grains hulled
    2. Chicken eggs cooked
    3. Fish processed and canned
    4. Newspapers containing advertising material

    Which of the above items is/are exempt under GST (Goods and Services Tax)?

    (a) 1 only

    (b) 2 and 3 only

    (c) 1, 2 and 4 only

    (d) 1, 2, 3 and 4

     

    [wpdiscuz-feedback id=”0fc3cnkef0″ question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

     

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  • Typhi: A more drug-resistant Typhoid

    The bacteria causing typhoid fever is becoming increasingly resistant to some of the most important antibiotics for human health.

    What is the news?

    • The largest genome analysis of Salmonella Typhi (S. Typhi) also shows that resistant strains — almost all originating in South Asia — have spread to other countries nearly 200 times since 1990.
    • The researchers noted that typhoid fever is a global public health concern, causing 11 million infections and more than 1,00,000 deaths per year.
    • Antibiotics can be used to successfully treat typhoid fever infections, but their effectiveness is threatened by the emergence of resistant S. Typhi strains.

    What is Salmonella Typhi?

    • Salmonella Typhi (S. Typhi) are bacteria that infect the intestinal tract and the blood.
    • It is usually spread through contaminated food or water.
    • Once S. Typhi bacteria are eaten or drunk, they multiply and spread into the bloodstream.
    • The disease is referred to as typhoid fever. S. Paratyphi bacteria cause a similar, but milder illness, which comes under the same title.
    • Paratyphoid has a shorter duration, generally, than typhoid.
    • Typhi and S. Paratyphi are common in many developing countries where sewage and water treatment systems are poor.

    How does it spread?

    • Salmonella Typhi lives only in humans.
    • Persons with typhoid fever carry the bacteria in their bloodstream and intestinal tract.
    • Symptoms include prolonged high fever, fatigue, headache, nausea, abdominal pain, and constipation or diarrhoea.
    • Some patients may have a rash. Severe cases may lead to serious complications or even death.
    • Typhoid fever can be confirmed through blood testing.

     

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  • Four new corals recorded from Indian waters

    Scientists have recorded four species of corals for the first time from Indian waters. These new species of azooxanthellate corals were found from the waters off the Andaman and Nicobar Islands.

    What are Azooxanthellate Corals?

    • The azooxanthellate corals are a group of corals that do not contain zooxanthellae and derive nourishment not from the sun but from capturing different forms of planktons.
    • They are deep-sea representatives with the majority of species being reported from depths between 200 metres and 1,000 metres.
    • They are also reported from shallow waters unlike zooxanthellate corals that are restricted to shallow waters.

    Which are the news species found?

    • Truncatoflabellum crassum, T. incrustatum, T. aculeatum, and T. irregulare under the family Flabellidae were previously found in Japan, the Philippines and Australian waters.
    • Only T. crassum was reported with the range of Indo-West Pacific distribution.

    Significance of the discovery

    • Most studies of hard corals in India have been concentrated on reef-building corals while much is not known about non-reef-building corals.
    • These new species enhance our knowledge about non-reef-building solitary corals.

    Back2Basics: Coral Reefs

    • Corals are marine invertebrates or animals not possessing a spine.
    • Each coral is called a polyp and thousands of such polyps live together to form a colony, which grows when polyps multiply to make copies of themselves.
    • Australia’s Great Barrier Reef is the world’s largest reef system stretching across 2,300 km.
    • It hosts 400 different types of coral, gives shelter to 1,500 species of fish and 4,000 types of mollusc.
    • Corals are of two types — hard coral and soft coral:
    1. Hard corals, also called hermatypic or ‘reef building’ corals extract calcium carbonate (also found in limestone) from the seawater to build hard, white coral exoskeletons.
    2. Soft coral polyps, however, borrow their appearance from plants, attach themselves to such skeletons and older skeletons built by their ancestors. Soft corals also add their own skeletons to the hard structure over the years and these growing multiplying structures gradually form coral reefs. They are the largest living structures on the planet.

    How do they feed themselves?

    • Corals share a symbiotic relationship with single-celled algae called zooxanthellae.
    • The algae provides the coral with food and nutrients, which they make through photosynthesis, using the sun’s light.
    • In turn, the corals give the algae a home and key nutrients.
    • The zooxanthellae also give corals their bright colour.

     

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