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GS Paper: GS3

  • India, while moving to renewable energy needs to focus on sustainable well-being

    Context

    With current per capita emissions that are less than half the global average, India’s pledge to reach ‘net zero’ emissions by 2070 has cemented India’s credentials as a global leader.

    Implication of net-zero by 2070

    • The political implication of the date 2070 is that the world should get to ‘net-zero’ by 2050.
    • For that, the rich countries will need to do more and step up closer to their share of the carbon budget.
    • India’s stand also signals that it will not act under external pressure, as requiring equal treatment is the hallmark of a global power, and will have an impact on other issues.

    How focus on coal harms developing countries

    • The subject of oil was not touched at COP26, even as automobile emissions are the fastest growing emissions, because it is a defining feature of western civilisation.
    • Most abundant source of energy: Coal is the most abundant energy source, essential for base load in electrification, and the production of steel and cement.
    • Its use declines after the saturation level of infrastructure is reached.
    • Declining role of G-7 in rule setting: That India and China working together forced the G7 to make a retraction has signalled the coming of a world order in which the G7 no longer sets the rules.
    • Specific language on finance and adaptation: After 40 years there is more specific language on both finance and adaptation finally recognising that costs and near-term effects of climate change will hit the poorest countries hardest.

    Feasibility of the goal of ‘net-zero’ by 2070

    • Seeing the challenge in terms of the scale and the speed of the transformation of the energy system assumes that India will follow the pathway of western civilisation.
    • Transition to electrification: India is urbanising as it is industrialising, moving directly to electrification, renewable energy and electric vehicles, and a digital economy instead of a focus on the internal combustion engine.
    • Most of the infrastructure required has still to be built and automobiles are yet to be bought.
    • Investment vs. incurring cost: India will not be replacing current systems and will be making investments, not incurring costs.

    Challenge for the West

    • The consumption of affluent households both determines and accelerates an increase of emissions of carbon dioxide.
    • This is followed by socio-economic factors such as mobility and dwelling size.
    • In the West, these drivers have overridden the beneficial effects of changes in technology reflected in the material footprint and related greenhouse-gas emissions.
    • The West has yet to come out with a clear strategy of how it will remain within the broad contours of its carbon budget.
    • And increasing inequality and a rise of protectionism and trade barriers imposing new standards need to be anticipated.
    • This knowledge is essential for national policy as well as the next round of climate negotiations.

    Way forward for India

    • Climate change has to be addressed by the West by reducing consumption, not just greening it.
    • Shifting the consumption pattern: Consumption patterns need to be ‘shifted away from resource and carbon-intensive goods and services, e.g. mobility from cars and aircraft to buses and trains.
    • Reducing the carbon intensity: Along with’ reducing demand, resource and carbon intensity of consumption has to decrease, e.g. expanding renewable energy, electrifying cars and public transport and increasing energy and material efficiency’.
    • Equal distribution of wealth and affordable energy use: Equally important, will be achieving a’ more equal distribution of wealth with a minimum level of prosperity and affordable energy use for all’, e.g., housing and doing away with biomass for cooking.
    • Focused research group: The Government now needs to set up focused research groups for the conceptual frame of sustainable well-being.
    • It should analyse the drivers of affluent overconsumption and circulate synthesis of the literature identifying reforms of the economic systems as well as studies that show how much energy we really need for a decent level of well-being.

    Role for legislature

    • Fundamental duty: After the Stockholm Declaration on the Global Environment, the Constitution was amended in 1976 to include Protection and Improvement of Environment as a fundamental duty.
    • Use of provision under Article 253: Parliament used Article 253 to enact the Environment Protection Act to implement the decisions reached at the Stockholm Conference.
    • Enabling new set of legislation: The decisions at COP26 enable a new set of legislation around ecological limits, energy and land use, including the efficient distribution and use of electricity, urban design and a statistical system providing inputs for sustainable well-being.

    Consider the question “Examine the feasibility of India’s ‘net-zero’ target by 2070, also suggest the way forward for India to achieve the target by focusing on sustainable well being”

    Conclusion

    For India, in parallel with the infrastructure and clean technology thrust, the focus on a decent living standard leads to behavioural change in the end-use service, such as mobility, shelter and nutrition — for change modifying wasteful trends.

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  • Finance Ministry backs three-rate GST structure

    The Government can rationalize the GST rate structure without losing revenues by rejigging the four major rates of 5%, 12%, 18% and 28% with a three-rate framework of 8%, 15% and 30%, as per a National Institute of Public Finance and Policy (NIPFP) study.

    GST Slabs

    • In India, almost 500+ services and over 1300 products fall under the 4 major GST slabs.
    • These comprise rates of 5%, 12%, 18%, and 28%. The GST Council periodically revises the items under each slab rate to adjust them according to industry demands and market trends.
    • The updated structure ensures that the essential items fall under lower tax brackets, while luxury products and services entail higher GST rates.
    • The 28% rate is levied on demerit goods such as tobacco products, automobiles, and aerated drinks, along with an additional GST compensation cess.

    Why harmonize GST slabs?

    • Multiple rate changes since the introduction of the GST regime in July 2017 have brought the effective GST rate to 11.6% from the original revenue-neutral rate of 15.5%.
    • Merging the 12% and 18% GST rates into any tax rate lower than 18% may result in revenue loss.
    • The nature of rate changes has also meant that over 40% of taxable turnover value now falls in the 18% tax slab, thus any move to dovetail that slab with a lower rate will trigger losses.

    What next?

    • Restructuring GST rates is a timely idea to improve revenues.
    • It is important to sequence the transition to the new rate structure so as to minimize the costs associated with tax compliance, administration, and economic distortions.

     

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  • Cryptocurrencies regulation across the World

    The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 was listed for introduction in Parliament’s Winter Session.

    About the Bill

    • The bill aims to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India”.
    • It seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.

    How are cryptocurrencies regulated in countries around the world?

    The stance of countries and regulators has ranged from:

    1. A total ban on these financial assets Ex. China
    2. Allowing them to operate with some regulations
    3. Allowing virtual currency trading in the absence of any guidelines Ex. El Salvador
    • Governments and regulators remain divided on how to categorize it as a currency or asset — and how to control it from an operational point of view.
    • The evolution of the policy and regulatory response has been uncharacteristically discordant, with no apparent coordination in the responses of countries.

    Among the countries that haven’t issued detailed regulations, there are those that have recognized and defined these currencies.

    [A] CANADA

    • It defines virtual currency  under its Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, as:

    (a) a digital representation of value that can be used for payment or investment purposes that is not a fiat currency and that can be readily exchanged for funds or for another virtual currency that can be readily exchanged for funds; or

    (b) a private key of a cryptographic system that enables a person or entity to have access to a digital representation of value referred to in paragraph (a).

    • The Canada Revenue Authority (CRA) generally treats cryptocurrency as a commodity for purposes of the country’s Income Tax Act.

    [B] ISRAEL

    • Israel in its Supervision of Financial Services Law includes virtual currencies in the definition of financial assets.
    • The Israeli securities regulator has ruled that cryptocurrency is a security subject, while the Israel Tax Authority defines cryptocurrency as an asset and demands 25% on capital gains.

    [C] GERMANY

    • In Germany, the Financial Supervisory Authority qualifies virtual currencies as “units of account” and therefore, “financial instruments”.
    • It considers Bitcoin to be a crypto token given that it does not fulfill typical functions of a currency.
    • However, citizens and legal entities can buy or trade crypto assets as long as they do it through exchanges and custodians licensed with the German Federal Financial Supervisory Authority.

    [D] UNITED KINGDOM

    • In the UK, Her Majesty’s Revenue & Customs, do not consider crypto assets to be currency or money.
    • It further notes that cryptocurrencies have a unique identity and cannot, therefore, be directly compared to any other form of investment activity or payment mechanism.

    [E] UNITED STATES

    • In US different states have different definitions and regulations for cryptocurrencies.
    • While the federal government does not recognize cryptocurrencies as legal tender, definitions issued by the states recognize the decentralized nature of virtual currencies.

    [F] THAILAND

    • In Thailand, digital asset businesses are required to apply for a license, monitor for unfair trading practices, and are considered “financial institutions” for anti-money laundering purposes.

    Conclusion

    • While most of these countries do not recognize cryptocurrencies as legal tender, they do recognize the value these digital units represent.
    • Almost all countries consider their functions as either a medium of exchange, unit of account, or a store of value (any asset that would normally retain purchasing power into the future).
    • Like India, several other countries have moved to launch a digital currency backed by their central bank.

     

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  • Trilateral Exercise ‘Dosti’

    The 15th edition of the biennial trilateral coast guard exercise ‘Dosti’ involving India, the Maldives and Sri Lanka is underway in the Maldives.

    Exercise Dosti

    • The aim of this exercise is to further fortify the friendship, enhance mutual operational capability, and exercise interoperability and to build cooperation.
    • Both the Maldives and Sri Lanka are of strategic importance to New Delhi and to its maritime security interests.
    • 2021 marks 30 years since these exercises were first launched.

    Significance of the exercise

    • These exercises help during joint operations and missions undertaken by countries and also help enhance interoperability.
    • Although piracy is not a major issue in this part of the Indian ocean, these kinds of exercises also help coast guards with training for possibilities.
    • These exercises help develop a better understanding of the other nation’s coast guard operations and how to enhance coordination during different kinds of missions.

    What it involves

    • The scope of these exercises are wide-ranging.
    • India, Sri Lanka and the Maldives have agreed to work on what they called the “four pillars” of security cooperation.
    • These involved the areas of marine security, human trafficking, counter-terrorism and cyber security.

     

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  • The growth and inclusion potential of India’s telecom sector

    Context

    Shortly after the Cabinet announced nine structural and procedural reforms in September to address the deep financial woes of telcos, Vodafone Idea and Bharti Airtel hiked their tariff.

    About the package for telecom sector

    • The telecom relief package announced by the government in September supports proposals that have been repeatedly presented to the government by the regulator, industry associations and think tanks.
    • Risk of duopoly: With the risk of a duopoly looming large, the government was pushed to take up these long-pending decisions that included nine key changes.
    • Provisions in the package: Besides providing immediate relief on payment of licence fee and penalties due to the government, the package increased FDI limits, extended licence tenure to 30 years from 20, removed charges on spectrum-sharing and proposed timelines for spectrum auctions.
    • The package will undoubtedly have a positive short-term impact and perhaps safeguard competition in the future.

    Reforms and  challenge of addressing the inequality

    • From socialist to market-oriented economy: In July this year, we celebrated three decades of India’s 1991 reforms, one that catapulted India from being a socialist economy with a heart but no trickle-down, to a market-oriented economy with a mind but also very little trickle-down.
    • Inequality has been a feature of both models.
    • The 2018 Oxfam report showed that 10 per cent of the richest Indians took home 77.4 per cent of wealth (compared to 73 per cent the year before).
    • Moreover, 58 per cent of India’s wealth was in the hands of 1 per cent of the country’s population.
    • Changes in the modes of distribution: In the pre-1991 period, the principal modes of redistribution were taxation and public sector operations.
    • In the post-1991 period, it has been a combination of taxation, technology, smartphones and the associated direct benefit transfers.

    Role of telecom sector in addressing the challenge of achieving growth and inclusion

    • High growth dividend of telecom sector: Every 10 per cent increase in investment in telecom, for example, leads to a 3.2 per cent increase in GDP growth for India.
    • Not only is the growth dividend positive, it is large.
    • Mobile as a mean of financial integration: At the same time, the mobile phone has become a means for sophisticated financial integration, as shown by the expanding usage of pre-paid payment instruments and mobile banking.
    • The Jan-Dhan Yojana (JDY) attempts to include the marginalised and unbanked through technology.
    • As of October 2021, a total of 440 million bank accounts have been opened and more than 310 million RuPay cards have been issued under the latter, indicating the large unmet demand for banking services.
    • Making transfers predictable and targeted: The Jan-Dhan-Aadhaar-Mobile (JAM) trinity ties the Aadhaar number to an active bank account, making income transfers predictable and targeted.
    • There is already evidence that payments through Aadhaar-linked bank accounts have increased efficiency and reduced leakages.

    Way forward

    • Predictable and less erratic telecom policy: The benefits of digitalisation could have been much larger and more widespread had telecom policy been more predictable and less erratic.
    • That Indian reforms more often than not happen on the back of a crisis is true for the telecom sector.
    • The principal motive of the New Telecom Policy of 1999 was to rescue the deeply indebted sector of its own reckless bidding by replacing the fixed licence fee system with a revenue-sharing regime.
    • In hindsight, it was the right thing to do since it threatened business continuity.
    • The move to auction spectrum “for all times to come” in 2008 was necessitated by the administrative bungling in spectrum assignment.
    • Quick adaptation: A question we pose is why did it take a crisis — a grave one at that — to push the needle on policy change?
    • It is a a reasonable expectation of policy to adapt quickly and not wait for a crisis to emerge.

    Consider the question “Telecom sector could play an important role in achieving the growth with inclusion. In context of this, examine the challenges facing the sector and suggest the measures to deal with these challenges.”

    Conclusion

    The seemingly naïve question about the adaptation in policies may not be as credulous for the intensely dynamic digital markets. For there is no point shutting the stable door after the horse has bolted.

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  • Risks involved in over-valued unicorns

    Context

    The biggest-ever initial public offering (IPO) in India fell flat on its face on the first day of its listing in the stock exchange, with shares being traded at prices less than 27% of the IPO price.

    Rise of unicorns in India and factors driving it

    • Unicorns in diverse sectors: There has been a unicorn gale in India in recent years, covering diverse sectors from fintech to cloud kitchen.
    • Growth in digital payment is reflected in the fintech sector that has contributed the most to the unicorn list.
    • Factors driving growth: An ecosystem which combines thriving digital payments, a growing smartphone user base and digital-first business models adopted by many start-ups has driven expectations of investors, resulting in large-scale fund flows into new business ventures.
    • Growing smartphone user: Expectations are high as the country has around 640 million Internet users, of which 550 million are smartphone users.
    • Growing digital payments: Digital payment has seen a growth of 30.19% as of March 31, 2021 and by the end of September 30, the unified payments interface (UPI) registered 3.5 billion transactions amounting to ₹6.54 trillion.

    FinTech and EdTech leading unicorns

    • American investment firms Tiger Global and Sequoia Capital have been the major investors, providing very quick follow-up rounds of funds across all stages and sectors.
    • Fundamental financial performance of the business is not factored in these decisions which could lead to biased valuations.
    • Idea of disruptive technologies: The idea of disruptive technologies has become a buzzword for characterising start-ups.
    • The idea was that start-ups with limited resources can aim at technology disruption by inventing an entirely new way of getting something done.
    • The story is similar in educational technologies (EdTech) as well.
    • The novel coronavirus pandemic has been a blessing in disguise for EdTech firms, as it is this external environment that is pushing the industry, giving it an acceleration by four to five years.
    • Too many acquisitions with big ambitions to grow inorganically puts pressure on the balance sheet in the years to come as some of the new acquisitions are likely to fail.
    • Even, EdTech firms with reasonably good business models are highly overvalued due to abundant liquidity.
    • Cost of achieving behaviour change: Almost every second advertisement on primetime television is either of a digital payment firm or EdTech platform.
    • New firms in services will have to indulge in this process for a longer period than firms in other industries such as transportation as these firms have to bring about a particular kind of change that customers are significantly comfortable using the service.
    • Firms burn cash to give massive discounts to customers in the hope that people will get so habituated to these platforms that they will remain active even when the prices are hiked.
    • To some extent this worked in the context of mobile telephone services as Indians have got hooked to mobile phones and reoriented spending to buy more sophisticated smartphones and data.
    • But in other services this does not seem to work so easily.
    • The projection flaw: Data by the Centre for Monitoring Indian Economy (CMIE) points to this flaw of over-optimistic demand projections as there are just about 23 million households which earn more than ₹5 lakh per year i.e., less than ₹42,000 a month, which is about 7% of all Indian families.
    • It is only this class which can be coaxed to behavioural changes — i.e. people who can afford various kinds of goods and services.
    • If firms want to go beyond this 7% of households they have to offer bigger discounts, burning more cash, with the possibility that once the discounts are reduced, customers drop off.

    Consider the question “India is witnessing the unicorn boom in the starts-ups. However, valuation of these unicorns has raised concerns. In light of this, examine the factors driving the rise of unicorns in India and why their valuation raises concerns?”

    Conclusion

    We are witnessing new unicorns emerging every month, which are products of inflated valuations to tap more funds to burn more cash. These valuations are solely on the basis of future earnings, with virtually no profits to show in the present.

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  • Bharat Gaurav Scheme to promote Tourism

    To tap the huge potential of tourism, the Railways has announced the ‘Bharat Gaurav’ Scheme.

    Bharat Gaurav Scheme

    • Under this Scheme, theme-based tourist circuit trains, on the lines of the Ramayana Express, can be run either by private or State-owned operators.
    • Till now, the Railways had passenger segments and goods segments.
    • Now, it will have a third segment for tourism under the Bharat Gaurav.
    • The scheme has been developed after extensive stakeholder discussions and a lot of State Governments, including Odisha, Rajasthan, Karnataka and Tamil Nadu, have shown interest.

    Key features

    • Service providers, who can be an individual, company, society, trust, joint venture or consortium will be free to decide themes/circuits.
    • They will offer an all-inclusive package to tourists including rail travel, hotel accommodation and sightseeing arrangement, visit to historical/heritage sites, tour guides etc.
    • They have full flexibility to decide the package cost.
    • The service providers will also be able to design/furnish the interior of the coaches based on the theme and put branding or advertising inside and outside of the train.

     

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  • Facial Recognition Technology

    Context

    According to police officials, more than six lakh CCTV cameras have already been deployed in the city, with the very real possibility that this number will continue to increase. These all-pervasive cameras will soon be connected in a real-time network managed by Hyderabad’s Command and Control Centre.

    Facial Recognition

    It is a biometric technology that uses distinctive features of the face to identify and distinguish an individual. Over a period of almost 6 decades, it has evolved in many ways- from looking at 3D contours of a face to recognizing skin patterns.

    How does it work?

    • The facial recognition system works primarily by capturing the face & its features through the camera and then using various kinds of software to reconstruct those features.
    • The captured face along with its features is stored into a database, which can be integrated with any kind of software that may be used for security purposes, banking services, etc.
    • In the Automated Facial Recognition System (AFRS), the large database (containing photos and videos of peoples’ faces) is used to match and identify the person. The image of an unidentified person, taken from CCTV footage, is compared to the existing database using Artificial Intelligence technology, for pattern-finding and matching.

    What are the uses?

    • Authentication: It is used for identification and authentication purposes with a success rate of almost 75%.
      • For instance, the NCRB’s Crime and Criminal Tracking Network & Systems (CCTNS) managing crime data for police, use automated facial recognition to identify criminals, missing people, and unidentified dead bodies, as well as for “crime prevention”.
      • The project is aimed at being compatible with other biometrics such as iris and fingerprints.
      • The integration of fingerprint databases, face recognition software and iris scans will massively boost the police department’s crime investigation capabilities.
    • Force Multiplier: In India, where there are just 144 constables per 1 lakh citizens, this can act as a force multiplier. It neither requires too much manpower nor regular up-gradation. Hence, this technology coupled with the present manpower in place can act as a game-changer.
    • Varied applications: It is increasingly being used for everything from unlocking mobile phones to validating the identity, from auto-tagging of digital photos to finding missing persons, and from targeted advertising to law enforcement.

    Opposition to facial recognition technologies

    • How it works: Facial recognition technology identifies the distinctive features of a person’s face to create a biometric map, which an algorithm then matches to possible individuals.
    • The system searches across databases of millions of images scraped without knowledge or consent and often fails.
    • Severe scrutiny: The use of facial recognition technology is already under severe scrutiny around the world, with some jurisdictions, including Belgium and Luxembourg, have already banned its use.
    • Ban by EU: The European Union is in the process of finalizing and passing one of the most comprehensive bans on facial recognition technology yet, while in the United States, multiple cities- and state-level bans and moratoria have been imposed.
    • More than 200 organizations have called for a global ban on the use of biometric surveillance technologies that enable mass and discriminatory surveillance, while even Facebook announced that it would be shutting down its facial recognition program.

    Issues with the use of facial recognition technologies in India

    • Violation of the right to privacy: The right to privacy was recognized as a fundamental right, included under the right to life and liberty by the Supreme Court of India in 2017.
    • Absence of legal framework: Without a law in place to regulate data collection and to act as an oversight mechanism, valid concerns about privacy and other rights violations continue to arise.
    • High Infrastructural Costs: Technologies like Artificial Intelligence and Big Data are costly to implement. The size of stored information is extremely large and requires huge network & data storage facilities, which are currently not available in India.
    • Image Collection: The sources from which images will be collected to create a repository/database need to be known.
    • The concern of Data Leakage: In today’s world of cybercrime, it is important to put appropriate safeguards in place in order to ensure the integrity of the repository/database, so that it doesn’t leak out the information and is not privatized or monetized.
    • Required Expertise: Experts are needed to verify and authenticate data collected before storing them who should be provided proper training to protect & avoid abuse and misuse of the collected data & database.
    • Reliability & Authenticity: As the data collected may be used in the court of law during the course of a criminal trial, the reliability and the admissibility of the data along with standards and procedures followed would be taken into consideration. Hence, the authenticity of the data is crucial.
    • Huge amounts of public money are being spent on these technologies with no evidence of their effectiveness, further squandering precious public funds.

    The National Automated Facial Recognition System

    • To empower the Indian police with information technology, India approved the implementation of the National Automated Facial Recognition System (NAFRS).
    • On its implementation, it will function as a national-level search platform that will use facial recognition technology.
    • It will help to facilitate investigation of crime or for identifying a person of interest regardless of face mask, makeup, plastic surgery, beard, or hair extension.

    Way Forward

    • Save the time of police: This is a compare and contrast tool meant for identification based on existing information. The process of identification can be accelerated by its use.
    • Proper Legal safeguards are a must: With proper safeguards, this technology is much needed for India. Having the biggest IT workforce in the world, state-of-the-art technology can act as a game-changer for India.
    • Need to learn from Global examples: Police departments in London are under pressure to put a complete end to the use of facial recognition systems following evidence of discrimination and inefficiency.
      • Hence, it is necessary to make use of such technology, but it cannot act as the silver bullet for all the police reforms that we need.

    Conclusion

    Government programs such as Safe City, Smart City, and the Nirbhaya Fund have been utilized to bankroll these projects — yet the human rights violations that occur as a result of their use far outweigh any purported benefit that these technologies claim to provide.

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  • Reforming the fertilizer sector

    Context

    Since 1991, when economic reforms began in India, several attempts have been made to reform the fertilizer sector to keep a check on the rising fertilizer subsidy bill, promote the efficient use of fertilizers, achieve balanced use of N, P, and K (nitrogen, phosphorus, and potassium), and reduce water and air pollution caused by fertilizers like urea.

    Several attempts have been made to reform the fertilizer sector to keep a check on the rising fertilizer subsidy bill.

    Background

    • After years of unchanged prices, the budget of 1991 raised the issue prices of fertilizers by 40% on average. This rise was rolled down to 30% in a few months, with exemption to small and marginal farmers from the price increase.
    • Due to opposition, the increase in Urea price was further rolled back to 17% over the pre-reform price.
    • It resulted in a big shift in the composition of fertilizers used in the country in favor of urea and thus Nitrogen (N).
    • The government started Nutrient Based Subsidy in 2010 to address the growing imbalance in fertilizer use, which was skewed towards urea (N).
    • However, only non-nitrogenous fertilizers P and K (phosphorus and potassium) were included in NBS; urea was left out.

    Need for reforms on three fronts

    Reforms are needed to promote in three key areas:

    1) The efficient use of fertilizers.

    2) To achieve balanced use of N, P, and K (nitrogen, phosphorus, and potassium).

    3) To reduce water and air pollution caused by fertilizers like urea.

    Challenges in the fertilizer sector

    A] Distortion in use due to price difference

    • The Union Budget of July 1991 raised the issue prices of fertilizers by 40% on average.
    • Due to opposition to increasing fertilizer prices, the increase in the price of urea was rolled back to 17% a year later over the pre-reform price.
    • The shift in the composition of fertilizer used: This change disturbed the relative prices of various fertilizers and resulted in a big shift in the composition of fertilizers used in the country in favor of urea and thus N.
    • Farmers tended to move towards balanced use, but policy and price changes reversed the favorable trend a couple of times in the last three decades.
    • In 2019-20, fertilizer use per hectare of cultivated area varied from 70 kg of NPK in Rajasthan to 250 kg in Telangana
    • Further, the composition of total plant nutrients in terms of the N, P, K ratio deviated considerably from the recommended or optimal NPK mix.
    • It was 33.7:8.0:1 in Punjab and 1.3:0.7:1 in Kerala.

    2] Increasing fertilizer subsidy

    • Fertilizer subsidy has doubled in a short period of three years. For 2021-22, the Union Budget has estimated fertilizer subsidy at ₹79,530 crores (from ₹66,468 crores in 2017-18).
    • The subsidy is likely to reach a much higher level due to the recent upsurge in the prices of energy, the international prices of urea and other fertilizers, and India’s dependence on imports.
    • In order to minimize the impact of rising in prices on farmers, the bulk of the price rise is absorbed by the government through enhanced fertilizer subsidy.
    • This is likely to create serious fiscal challenges.
    • At current prices, farmers pay about ₹268 per bag of urea and the Government of India pays an average subsidy of about ₹930 per bag.
    • Thus, taxpayers bear 78% of the cost of urea and farmers pay only 22%. This is expected to increase and is not sustainable.

    3] Import dependence

    • Total demand for urea: The total demand for urea in the country is about 34-35 million tonnes (mln t) whereas the domestic production is about 25 mln t.
    • The requirement of Diammonium Phosphate (DAP) is about 12 mln t and domestic production is just 5 mln t.
    • This leaves the gap of nearly 9-10 mln t for urea and 7 mln t for DAP, which is met through imports.
    • The use of Muriate of Potash is about 3 mln t.
    • This is entirely imported.
    • The international prices of fertilizers are volatile and almost directly proportional to energy prices.

    Need to shift our focus to Bio-fertilizers

    • Bio-fertilizers are cheap, renewable, and eco-friendly, with great potential to supplement plant nutrients if applied properly. However, they are not a substitute for chemical fertilizers.
    • They improve the health of the soil. Since it provides nutrients to the soil in a small and steady manner, its immediate effects are not very visible.
    • Sales of biofertilizers in the country have not picked up because of a lack of knowledge and its slow impact on the productivity of the soil.
    • The use of biofertilizers is necessary to maintain soil health as more and more use of chemical fertilizers kills all the microorganisms available in the soil, which are so essential for maintaining soil health.
    • Supplementary use of biofertilizers with chemical fertilizers can help maintain soil fertility over a long period.
    • The overall strategy for increasing crop yields and sustaining them at a high level must include an integrated approach to the management of soil nutrients, along with other complementary measures.

    Way forward

    • Self-reliance: we need to be self-reliant and not depend on the import of fertilizers.
    • In this way, we can escape the vagaries of high volatility in international prices.
    • In this direction, five urea plants at Gorakhpur, Sindri, Barauni, Talcher, and Ramagundam are being revived in the public sector.
    • Extend NBS model to urea: The government introduced the Nutrient Based Subsidy (NBS) in 2010 to address the growing imbalance in fertilizer use.
    • However, only non-nitrogenous fertilizers (P and K) moved to NBS; urea was left out.
    • We need to extend the NBS model to urea and allow for price rationalization of urea compared to non-nitrogenous fertilizers and prices of crops.
    • Develop alternative sources of nutrition for plants: Discussions with farmers and consumers reveal a strong desire to shift towards the use of non-chemical fertilizers as well as a demand for bringing parity in prices and subsidy given to chemical fertilizers with organic and biofertilizers.
    • This also provides the scope to use large biomass of crop that goes waste and enhance the value of livestock by-products.
    • We need to scale up and improve innovations to develop alternative fertilizers.
    • Improve fertilizer efficiency:  India should pay attention to improving fertilizer efficiency through need-based use rather than broadcasting fertilizer in the field.
    • The recently developed Nano urea by IFFCO shows promising results in reducing the usage of urea.

    Consider the question “What are the challenges facing the fertiliser sector in India? How subsidies lead to distortion in the use of various types of fertilisers.”

    Conclusion

    These changes will go a long way in enhancing the productivity of agriculture, mitigating climate change, providing an alternative to chemical fertilizers and balancing the fiscal impact of fertilizer subsidy on the Union Budgets in the years to come.

    Back2Basics: Nutrient Based Subsidy

    • Under the NBS regime – fertilizers are provided to the farmers at subsidized rates based on the nutrients (N, P, K & S) contained in these fertilizers.
    • Also, the fertilizers which are fortified with secondary and micronutrients such as molybdenum (Mo) and zinc are given additional subsidy.
    • The subsidy on Phosphatic and Potassic (P&K) fertilizers is announced by the Government on an annual basis for each nutrient on a per kg basis – which are determined taking into account the international and domestic prices of P&K fertilizers, exchange rate, inventory level in the country etc.
    • NBS policy intends to increase the consumption of P&K fertilizers so that optimum balance (N:P:K= 4:2:1) of NPK fertilization is achieved.

    [pib] Nutrient Based Subsidy (NBS) for Phosphatic & Potassic (P&K) Fertilizers

  • Co-op Societies are not banks, RBI cautions

    The Reserve Bank of India (RBI) has cautioned members of the public not to deal with cooperative societies undertaking banking business by adding ‘bank’ to their names.

    What is the news?

    • It has also come to the notice of RBI that some co-operative societies are accepting deposits from non-members/nominal members/ associate members.
    • This is tantamount to conducting banking business in violation of the provisions.

    Who can use ‘Bank’ title?

    • The Banking Regulation Act, 1949 was amended by the Banking Regulation (Amendment) Act, 2020, which came into force on September 29, 2020.
    • Accordingly, co-operative societies cannot use the words “bank”, “banker” or “banking” as part of their names, except as permitted under the provisions of BR Act, 1949 or by the RBI.

    What is Cooperative Banking?

    • Cooperatives are people-centred enterprises owned, controlled and run by and for their members to realise their common economic, social, and cultural needs and aspirations.
    • Cooperative bank is an institution established on the cooperative basis and dealing in ordinary banking business.
    • Like other banks, the cooperative banks are founded by collecting funds through shares, accept deposits and grant loans.
    • They are regulated by the Reserve Bank of India (RBI) and governed by the
    1. Banking Regulations Act 1949
    2. Banking Laws (Co-operative Societies) Act, 1955

    Features of Cooperative Banks

    • Cooperative banks are generally concerned with the rural credit and provide financial assistance for agricultural and rural activities.
    • Such banking in India is federal in structure. Primary credit societies are at the lowest rung.
    • Then, there are central cooperative banks at the district level and state cooperative banks at the state level.
    • Cooperative credit societies are mostly located in villages spread over the entire country.

    History of Cooperative Banking in India:

    • The cooperative movement in India was started primarily for dealing with the problem of rural credit.
    • The history of Indian cooperative banking started with the passing of Cooperative Societies Act in 1904.
    • The objective of this Act was to establish cooperative credit societies “to encourage thrift, self-help and cooperation among agriculturists, artisans and persons of limited means.”
    • Many cooperative credit societies were set up under this Act.
    • The Cooperative Societies Act, 1912 recognised the need for establishing new organisations for supervision, auditing and supply of cooperative credit.

    Structure of Cooperative Banking

    • The whole structure of cooperative credit institutions is shown in the chart given.
    • There are different types of cooperative credit institutions working in India.
    • These institutions can be classified into two broad categories- agricultural and non-agricultural.
    • Agricultural credit institutions dominate the entire cooperative credit structure.

    Various facets of cooperatives in India

    • Cooperatives in India have grown exponentially.
    • In the banking sector, according to the RBI, their contribution to rural credit increased from 3.1 percent in 1951 to an impressive 27.3 percent in 2002.

    Importance of Cooperative Banks:

    • The cooperative banking system has to play a critical role in promoting rural finance and is especially suited to Indian conditions.
    • Various advantages of cooperative credit institutions are given below:

    (1) Alternative Credit Source:  The main objective of the cooperative credit movement is to provide an effective alternative to the traditional defective credit system of the village moneylender.

    (2) Cheap Rural Credit: Cooperative credit system has cheapened the rural credit by charging comparatively low-interest rates, and has broken the money lender’s monopoly.

    (3) Productive Borrowing:  The cultivators used to borrow for consumption and other unproductive purposes. But, now, they mostly borrow for productive purposes.

    (4) Encouragement to Saving and Investment: Instead of hoarding money the rural people tend to deposit their savings in cooperative or other banking institutions.

    (5) Improvement in Farming Methods: Cooperative credit is available for purchasing improved seeds, chemical fertilizers, modern implements, etc.

    (6) Financial Inclusion: They have played a significant role in the financial inclusion of unbanked rural masses. They provide cheap credit to the masses in rural areas.

     

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