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  • Ken-Betwa Link Project (KBLP)

    In the presence of PM and Jal Shakti Minister, the CMs of Madhya Pradesh and Uttar Pradesh have signed an agreement to implement the Ken Betwa Link Project (KBLP).

    Must read:

    Interlinking of rivers: Significance & Challenges

    What is the Ken Betwa Link Project?

    • The Ken-Betwa Link Project is the first project under the National Perspective Plan for the interlinking of rivers.
    • Under this project, water from the Ken River will be transferred to the Betwa river. Both these rivers are tributaries of the river Yamuna.
    • The project is expected to provide annual irrigation of 10.62 lakh hectares, drinking water supply to about 62 lakh people and also generate 103 MW of hydropower.

    The Project has two phases:

    • Under Phase-I, one of the components — Daudhan dam complex and its appurtenances like Low Level Tunnel, High Level Tunnel, Ken-Betwa link canal and Power houses — will be completed.
    • While in the Phase-II, three components — Lower Orr dam, Bina complex project and Kotha barrage — will be constructed.

    Regions benefitting from KBLP

    • The project lies in Bundelkhand, a drought-prone region, which spreads across 13 districts of Uttar Pradesh and Madhya Pradesh.
    • It will be of immense benefit to the water-starved region of Bundelkhand, especially in the districts of Panna, Tikamgarh, Chhatarpur, Sagar, Damoh, Datia, Vidisha, Shivpuri and Raisen of Madhya Pradesh and Banda, Mahoba, Jhansi and Lalitpur of Uttar Pradesh.
    • It will pave the way for more interlinking of river projects to ensure that scarcity of water does not become an inhibitor to development in the country.

    What about the Panna tiger reserve?

    • Out of the 6,017 ha of forest area coming under submergence of Daudhan dam of Ken Betwa Link Project, 4,206 ha of the area lies within the core tiger habitat of Panna Tiger Reserve.

    Previous examples of river-linking

    • In the past, several river linking projects have been taken up. For instance, under the Periyar Project, the transfer of water from the Periyar basin to the Vaigai basin was envisaged.
    • It was commissioned in 1895.
    • Similarly, other projects such as Parambikulam Aliyar, Kurnool Cudappah Canal, Telugu Ganga Project, and Ravi-Beas-Sutlej were undertaken.

    Recent developments on the interlinking of rivers in India

    • In the 1970s, the idea of transferring surplus water from a river to a water-deficit area was mooted by the then Union Irrigation Minister Dr K L Rao.
    • Rao, who himself was an engineer, suggested the construction of a National Water Grid for transferring water from water-rich areas to water-deficit areas.
    • Similarly, Captain Dinshaw J Dastur proposed the Garland Canal to redistribute water from one area to another.
    • However, the government did not pursue these two ideas further.

    The National Perspective Plan

    • It was in August, 1980 that the Ministry of Irrigation prepared a National Perspective Plan (NNP) for water resources development envisaging inter-basin water transfer in the country.
    • The NPP comprised two components: (i) Himalayan Rivers Development; and (ii) Peninsular Rivers Development.
    • Based on the NPP, the National Water Development Agency (NWDA) identified 30 river links—16 under the Peninsular component and 14 under the Himalayan Component.
    • Later, the river linking idea was revived under the then Vajpayee Government.

    Ken Betwa Link Project is one of the 16 river linking projects under the Peninsular component.

    Clearances required for a river-linking project

    • Generally, 4-5 types of clearances are required for the interlinking of river projects.
    • These are Techno-economic (given by the Central Water Commission); Forest Clearance and Environmental clearance (Ministry of Environment & Forests); Resettlement and Rehabilitation (R&R) Plan of Tribal Population (Ministry of Tribal Affairs) and Wildlife clearance (Central Empowered Committee).

  • Remission of Duties and Taxes on Export Products (RODTEP) Scheme

    The notification of benefit rates payable to exporters under the Remission of Duties and Taxes on Export Products (RODTEP) scheme is expected to take more time as it is facing ‘teething issues’.

    Try this PYQ:

    Q.Among the following, which one is the largest exporter of rice in the world in the last five years? (CSP 2019)

    (a) China

    (b) India

    (c) Myanmar

    (d) Vietnam

    RODTEP Scheme

    • RoDTEP is a scheme for Exporters to make Indian products cost-competitive and create a level playing field for them in the Global Market.
    • It has replaced the current Merchandise Exports from India Scheme, which is not in compliance with WTO norms and rules.
    • The new RoDTEP Scheme is a fully WTO compliant scheme.
    • It will reimburse all the taxes/duties/levies being charged at the Central/State/Local level which are not currently refunded under any of the existing schemes but are incurred at the manufacturing and distribution process.

    Why need such a scheme?

    • The scheme was announced last year as a replacement for the Merchandise Export from India Scheme (MEIS), which was not found not to be compliant with the rules of the World Trade Organisation.
    • Following a complaint by the US, a dispute settlement panel had ruled against India’s use of MEIS as it had found the duty credit scrips awarded under the scheme to be inconsistent with WTO norms.

    Back2Basics: Merchandise Exports from India Scheme (MEIS)

    • MEIS was launched with an objective to enhance the export of notified goods manufactured in a country.
    • This scheme came into effect on 1 April 2015 through the Foreign Trade Policy and will be in existence till 2020.
    • MEIS intended to incentivize exports of goods manufactured in India or produced in India.
    • The incentives were for goods widely exported from India, industries producing or manufacturing such goods with a view to making Indian exports competitive.
    • The MEIS covered almost 5000 goods notified for the purpose of the scheme.

  • PM-Kisan: Income support to farmers needs to be more inclusive

    The article highlights the challenge of exclusion error in the PM-KISAN and suggests measures to deal with the issue by drawing on the success of KALIA and Rythu Bandhu.

    Exclusion in PM-KISAN

    • Budget FY22 announced an allocation of Rs 65,000 crore to the PM-Kisan scheme.
    • Since 2019, the PM-Kisan has been the largest component of the agriculture budget each year.
    • The scheme is targeted at farmers who own cultivable land as per land records of the state.
    • Unfortunately, this leaves out vulnerable sections such as tenant farmers, women farmers, tribal families and landless labourers.
    • The exclusion is the result of the challenge of first identifying these people, since our existing systems do not formally recognise them as farmers.

    The need to identify farmers

    • Despite 73.2% of rural women engaging in agriculture, only 12.8% are reported to own land.
    •  Among tribal communities, of the 20 million tribal families, less than 2 million have received individual forest rights pattas; the rest are ‘invisible’ and left out of government safety nets.
    • Landless agricultural labourers and tenant farmers account for close to 150 million people in rural India, and they too are not part of state land records.
    • Although there are multiple welfare schemes for farmers, there is no standard government definition of a farmer.
    • The 2007 MS Swaminathan Committee called out that the term ‘farmer’ would include any person actively engaged in growing crops and other agricultural commodities, and would include not only landholders, but also cultivators, labourers, sharecroppers, tenants and tribal families, amongst others.

    Learning from KALIA and Rythu Bandhu

    • Odisha has been a frontrunner in implementing an inclusive farmer welfare scheme, the KALIA.
    • The KALIA provides an unconditional income support of Rs 12,500 to landless agricultural households and an annual Rs 10,000 to small and marginal land-owning farmers as well as tenant farmers.
    • Odisha leveraged existing databases such as the Paddy Procurement Automation System, the Pradhan Mantri Fasal Bima Yojana and the National Food Security Act, and deployed close to 50,000 government staff at state, district and block levels to conduct extensive on-ground verification to identify eligible beneficiaries.
    • Telangana took a different approach prior to rolling out the Rythu Bandhu Scheme, a direct benefit transfer scheme for land-owning farmers.
    • The Rythu Bandhu Scheme targeted only land-owning farmers.
    • But the state took on the onus of updating land records before implementing the scheme.
    • The revenue and agriculture departments partnered to undertake a state-wide Land Records Updation Programme (LRUP).
    • This shows that updating and digitising land records databasse is possible with focused efforts.

    Way forward

    • Instead of every scheme having its own farmer beneficiary database, the ideal solution would be to leverage the existing land records databases in every state.
    • The design should ensure women’s names are not excluded.
    • Implementation of the Forest Rights Act 2006 needs to be accelerated so that tribal families receive forest rights pattas and become part of the land records database.
    • The next challenge is to build in incentives in the process to encourage the maintenance of the land record database, such that all future transactions such as sale, gift etc. are regularly updated to increase the reliability of the records.

    Consider the question “How lack of definition of farmer leads to inclusion and exclusion errors in the schemes for farmers. Suggest the measures to deal with the issue.”

    Conclusion

    The pandemic, more so than anything else, has highlighted the need for the government to have robust social security mechanisms to reach the most vulnerable sections of the population, and making PM-Kisan more inclusive is an important step in that direction.

    Source:

    https://www.financialexpress.com/opinion/pm-kisan-income-support-to-farmers-needs-to-be-more-inclusive/2217436/

  • Factors driving FDI in India

    The article explains the four factors that explain the FDI inflows in India.

    India’s economic decade

    • Almost every major global company is either contemplating or operating on the assumption that India is a key part of their growth story.
    • Google, Facebook, Walmart, Samsung, Foxconn, and Silver Lake have been just a handful of the firms that made huge investments in Inda.
    • As a result, India saw the fastest growth in Foreign Direct Investment (FDI) inflows among all the major economies last year.
    • Meanwhile, India’s latest FDI totals still lags behind the highest tallies in other markets such as China and Brazil.

    Issues faced by investors and factors driving investment

    • Frequent shifts in the policy landscape and persistent market access barriers are standard complaints levied against India by the business community.
    • The government’s push to build a “self-reliant” India has also rattled skittish investors and smaller companies that lack the resources to navigate on-the-ground hurdles.
    • Still, investors recognise that doing business in India — or any emerging market  — comes with inherent risks but that adaptation in approach is critical to success.
    • Four core dynamics drive this calculus and explain why multinational companies are making India an essential part of their growth story.

    4 Factors driving FDI in India

    1) India’s population

    • What India offers through its nearly 1.4 billion people and their growing purchasing power is uniquely valuable for multinationals with global ambitions.
    • No other country outside of China has a market that houses nearly one in six people on the planet and a rising middle class of 600 million.

    2) Shifting geopolitics

    •  Rising U.S.-China competition is forcing multinationals to rethink their footprints and production hubs.
    • Savvy countries such as Vietnam have capitalised on this opportunity to great effect, but India is finally getting serious about attracting large-scale production and exports.

    3) Digital connectivity

    • Cheap mobile data have powered a revolution across India’s digital economy and connected an estimated 700 million Indians to the Internet.
    • More than 500 million Indians still remain offline, this is a key reason why leading global tech companies are investing in India and weathering acute policy pressure.
    • Domestic Indian companies have also demonstrated their ability to innovate and deliver high quality services at scale.
    • The partnerships and FDI flows linking multinationals and Indian tech firms will continue to unlock shared market opportunities for years to come.

    4) National resilience

    • Despite facing the scourge of the novel coronavirus head on, India has managed the pandemic better than many of its western peers and restored economic activity even before implementing a mass vaccination programme.
    • These are remarkable developments, and yet they speak to India’s underlying resilience even in the face of historic challenges.

    Shared value creation

    • Unlocking opportunities in the Indian market cannot take the form of a one-way wealth transfer.
    • Companies need to demonstrate their commitment to India.
    • Successful companies do this by placing shared value creation at the heart of their business strategy.
    • They tie corporate success to India’s growth and development.
    • They forge enduring partnerships and lasting relationships, elevate and invest in Indian talent, align products with Indian tastes, and ultimately tackle the hardest problems facing India today.

    Consider the question “Despite the issues faced by the investors, India witnessed the fastest growth in the FDI inflows among all the major economies amid pandemic. In light of this, examine the factors driving the FDI in India.”

    Conclusion

    For leading companies with global ambitions and a willingness to make big bets, the rewards of investing in the Indian market are substantial and well worth pursuing.

  • Emerging crisis of obtaining Helium in India

    India imports helium for its needs and with the U.S. appearing set to cut off exports of helium since 2021, the Indian industry stands to lose out heavily.

    Helium is not just for balloons but it is the key ingredient for India’s high technology and the most sophisticated medical diagnosis.

    Helium on Earth

    • Helium is a chemical element with the symbol He and atomic number 2.
    • It is a colourless, odourless, tasteless, non-toxic, inert, monatomic gas, the first in the noble gas group in the periodic table. Its boiling point is the lowest among all the elements.

    Its discovery

    • In 1906 a young Englishman by the name of Moris Travers arrived in Bangalore, to take up the position of the Director of Indian Institute of Science.
    • Travers extracted helium in small quantity by heating up monazite sand abundantly available in Kerala beach, in a pioneering effort.
    • Dutch physicist Kamerlingh Onnes liquefied Helium by cooling the gas to -270 degrees Celsius.
    • It is known that Onnes collected helium gas from the springs of Bath in Baden Baden, Germany for his liquefaction experiment.

    Helium in India

    • India’s Rajmahal volcanic basin is the storehouse of helium trapped for billions of years, since the very birth of our Earth from the Sun.
    • At present, researchers are mapping the Rajmahal basin extensively for future exploration and harnessing of helium.

    Why India needs Helium?

    • Every year, India imports helium worth Rs 55,000 crores from the U.S. to meet its needs.
    • Helium is used in medicine, scientific research, for blimp inflation, party balloons as well as having welding applications.
    • It finds many applications, mainly in magnetic resonance imaging (MRI) scans, in rockets and in nuclear reactors.

    US monopoly in Helium

    • The U.S. became the most important exporter of helium across the world.
    • It was soon realized that the U.S. was also the biggest storehouse of helium.
    • The US is now planning to switch off the export of helium from 2021.
    • Qatar is a possible exporter but acute political and diplomatic wrangles have made Qatar unreliable.

  • Vehicle scrapping policy will help Indian steel reduce GHG emissions

    The article explains the advantages of the vehicle scrapping policy announced in the Budget FY22.

    Greenhouse gas contribution  steel industry

    • Steel industry uses carbon as the main reducing agent as also as a fuel for steel production.
    • GHG emissions of the Indian steel industry is 2.0-2.8 tonnes of CO2 per tonne of crude steel, against global average of 1.8 tonne of CO2.

    Scrapping policy

    • Two seminal announcements have been made in Budget FY22, viz. introduction of vehicle scrapping policy and doubling ship-breaking capacity to 9 million tonnes per year.
    • This will minimise dependence on import of scrap and cause a reduction of the GHG footprint of iron & steel.

    Producing steel using scrap

    • Most steel-producing countries are trying to bring down emissions by shifting from iron-ore-based production to scrap-based production.
    • This route can bring CO2 emissions down to below 0.5 tonne of CO2 per tonne of steel.
    • Although most steel-producing countries are using Electric Arc Furnaces (EAF) for scrap-based production, in India, both EAF and Induction Furnaces (IF) are used.
    • The main CO2 load in EAF-based steel production doesn’t come from the off-gas but from producing the electricity used in melting of the scrap.
    • Thus, this can be further reduced if renewable power is used as a source of electricity.

    Saving in forex spending

    • Availability of ferrous scrap in India is very limited—around 25 million tonnes annually from domestic sources.
    • In 2018-19 and 2019-20, the country imported nearly 6.5 million tonnes of scrap each year and thus large forex spending was incurrred.
    • With the announcement of vehicle scrapping policy, steel industry can expect enhanced indigenous availability of ferrous scrap.

    Strengthening the resource efficiency and circular economy

    • The quality of the steel produced is dependent upon the quality of input material and hence any improvement made in ensuring quality of scrap will have marked influence on the steel produced.
    • This shall strengthen the process of resource efficiency & circular economy as considerable natural resources shall be conserved with significant reduction in emission and it will help in moving towards a sustainable steel industry.

    Consider the question “Discuss the advantages of vehicle scrapping policy announced by the government in Budget FY 22.”

    Conclusion

    The announcement of the vehicle scrapping policy couldn’t have come at a better time for steel industry in India, as well since the country lacks desired quality of coking coal and natural gas is also imported.

  • How did inflation targeting really impact India?

    The article analyses the success of the inflation targeting mechanism in India and its impact on the growth of the economy.

    Background of the inflation targeting policy in India

    • It has been three decades since inflation targeting was first adopted in New Zealand and subsequently by 33 other countries.
    • India adopted it in 2016.
    • The primary goal of inflation targeting was to contain inflation at around 4 per cent, within the allowable range of 2 to 6 per cent.
    • The RBI has announced a formal review of the policy instrument now.
    • At the first meeting of the RBI Monetary Policy Committee in October 2016, it was also formally announced that the MPC considered a real repo rate of 1.25 per cent as the neutral real policy rate for the Indian economy.
    • By a neutral real policy rate, the RBI meant a policy rate consistent with growth at potential (i.e. growth at full employment).

    Has inflation targeting worked in India

    • The evaluation of IT must provide answers to the following two questions:
    • Did inflation decline post the adoption of inflation targeting and what was the role of IT in the decline in inflation?
    • Was the adoption of inflation targeting associated with the policy of the highest real repo rates in India — ever — for almost three years 2017-2019?
    • The answer is yes to the latter, but it also needs to be acknowledged that high real repo rates were the primary cause of the GDP growth decline in India from 8 per cent to 5 per cent.

    Need to take into account the global context of inflation

    • An interesting feature of the Indian defence of inflation targeting is that very few take into account the global context of inflation in which the decline in inflation has occurred in India.
    • A research paper by Balasubramanian, Bhalla, Bhasin and Loungani at ORF evaluates inflation targeting in a global context and separately for Advanced Economies (AEs) and Emerging Economies (EES).
    • Some facts from the paper are the following.
    • First, the annual median inflation in AEs has been consistently low, so low that many central banks have official campaigns to raise the inflation rate.
    • One conclusion might be that IT succeeded beyond anyone’s dreams in these economies.
    • But attributing this decline in inflation to IT would be erroneous.
    • Inflation is global and price-taking by millions of producers in the world means that no one producer or one country can influence the price of any item.
    • Oil has ceased to be a factor in global inflation, at least post the mid-1980s.
    • The lowest inflation in Indian history occurred during 1999-2005, averaged only 3.9 per cent.
    • The average median rate among EM targetters during 2000-04 was 4 per cent, and among the non-targeting countries was 3.8 per cent.

    Did fiscal deficit play role in inflation targeting

    • In 2003, India passed the FRBM act to control fiscal deficits and inflation.
    • There is precious little evidence, either domestically or internationally, about fiscal deficits affecting inflation.
    • For three consecutive years preceding the FRBM announcement, the consolidated Centre plus state deficits registered 10.9 per cent(in 2001), 10.4 and 10.9 per cent.
    • For the seven-year 1999-2005 period, consolidated fiscal deficits averaged 9.4 per cent of GDP.
    • Yet, that these years represented the golden period of Indian inflation — without FRBM and without IT.

    Cost of inflation targeting in India

    • There are also costs to inflation targeting in India.
    • It led to higher real policy rates, in the mistaken belief that high policy rates affect the price of food, oil, or anything else.
    • But high real rates affect economic growth, by affecting the cost of domestic capital in this ultra-competitive world.
    • It is very likely not a coincidence that potential GDP growth, as acknowledged by RBI, was reached just before the MPC took over decision making in September 2016. 
    •  Since then there was a steady increase in real policy rates, and a steady decline in GDP growth.

    Consider the question “How far has the inflation targeting mechanism been successful in India? Give reasons in support of your argument.” 

    Conclusion

    So, in the inflation targeting mechanism has not been successful in containing the inflation though there had a cost associated with it which we paid in the form of growth.

  • What are the Diatoms?

    The Maharashtra Anti-Terrorism Squad has relied on a forensic test known as diatom tests for leads in an alleged murder case of a person inviting high stage political drama.

    What are Diatoms?

    • Diatoms are photosynthesizing algae that are found in almost every aquatic environment including fresh and marine waters, soils, in fact, almost anywhere moist.
    • Diatoms have cell walls made of silica, each species has a distinct pattern of tiny holes in the cell wall (frustule) through which they absorb nutrients and get rid of waste.
    • A diatom is a photosynthetic, single-celled organism which means they manufacture their own food in the same way plants do.

    Diatoms are important as they:

    • provide the basis of the food chain for both marine and freshwater micro-organisms and animal larvae
    • are a major source of atmospheric oxygen responsible for 20-30% of all carbon fixation on the planet
    • can act as environmental indicators of climate change
    • form the basis of some household goods such as pest/mite prevention and mild abrasive

    Never underestimate UPSC. Try this PYQ before you reach any conclusion.

    Q.Which one of the following is the correct sequence of a food chain?

    (a) Diatoms-Crustaceans-Herrings

    (b) Crustaceans-Diatoms-Herrings

    (c) Diatoms-Herrings-Crustaceans

    (d) Crustaceans-Herrings-Diatoms

    What is a diatom test?

    • Diagnosis of death by drowning is deemed as a difficult task in forensic pathology.
    • A number of tests have been developed to confirm the cause of such deaths with the diatom test emerging as one of the most important tests.
    • The test entails findings if there are diatoms in the body being tested.

    The science behind

    • A body recovered from a water body does not necessarily imply that the death was due to drowning.
    • If the person is alive when he enters the water, the diatoms will enter the lungs when the person inhales water while drowning.
    • These diatoms then get carried to various parts of the body, including the brain, kidneys, lungs and bone marrow by blood circulation.
    • If a person is dead when is thrown in the water, then there is no circulation and there is no transport of diatom cells to various organs.

  • An effective plan to monetise government assets

    The article discusses the government’s proposal to monetise assets and proposes the idea of an independent commission to carry out the task of monetisation.

    Roadmap for monetisation of asset: National Monetisation Pipeline

    • Finance Minister had introduced a roadmap for monetisation of asset in the Union Budget.
    • In the budget, the government proposed to launch a ‘National Monetisation Pipeline’ to assess the potential value of underutilised and unused government assets.
    • A number of countries including the United States, Australia, Canada, France and China have effectively utilised this policy.
    • In India too, the concept was suggested by a committee led by Vijay Kelkar on the roadmap for fiscal consolidation in 2012.
    •  The committee had suggested that the government start monetisation as a key instrument to raise resources for development.
    •  It asked the government to use these resources for financing infrastructure needs.

    Why monetisation

    • The global pandemic forced the government to increase spending.
    • Thus, total expenditure of the government has jumped to ₹34.50 trillion against the target of ₹30.42 trillion.
    • On the flip side, revenue of the government is shrinking.
    • As a result, total borrowing has increased by 2.3 times, from ₹7.96 trillion to ₹18.49 trillion.
    • An increase in borrowing also increases interest cost.
    • The ratio of interest payment to revenue receipts was 36.3% in 2019-20.
    • As per revised data, it has increased to 44.5% in the current fiscal year and is projected at an all-time high of 45.3% in 2021-22.
    • Almost half of the revenue is going towards servicing old debts. To revive the economy, capital expenditure is indispensable.

    National Infrastructure Pipeline

    • In this backdrop, the government has already launched the National Infrastructure Pipeline (NIP), with 6,835 projects in December 2019.
    • The project pipeline has been increased to 7,400.
    • The NIP has its own specific target and the government is committed to achieve it in the coming years.
    • It called for a major increase in funding.
    • For 2021-22, the government has proposed to spend ₹5.54 trillion, which is 34.5% higher than the budgeted amount of 2020-21.
    • Now, the government found that monetisation of government- and public sector-owned assets would be an important financing option for new infrastructure construction.

    Model for monetisation of asset: REITs

    • The government is looking at the Real Estate Investment Trusts (REITs) model for monetisation of assets.
    • Under REITs, the land assets are transferred to a trust providing investment opportunity for institutional investors.
    • The government has another option to lease or rent out the assets instead of going for monetisation.
    • The government expects monetisation will generate ₹2.5 trillion in non-debt capital revenue.
    • The objective of asset monetisation is to raise resources for future investment into the sector.
    • A pipeline monetisation plan for Indian Oil, GAIL, and Hindustan Petroleum has been drawn up by the government.
    • It is expected that the government will raise ₹0.17 trillion by selling stakes in these three companies.

    Consider the question “What is asset monetisation? What strategy should be followed by the government in the monetisation of assets?

    Conclusion

    To handle effectively the task of monetisation of assets, the government should constitute an independent commission clothed with requisite powers and staffed by professionals and researchers to formulate and implement its monetisation initiative.

  • Digital lending

    Digital lending has been on the rise in India. However, there are several concerns about the model. The article discusses these concerns and suggests the policy approach.

    3 digital lending models

    • Presently, there are three digital-lending models, seen through the regulatory-approach lens:
    • 1) Bank/NBFC-owned digital platforms operating under the direct regulatory purview of RBI.
    • 2) Fintech companies’ proprietary digital platforms, working in partnership with banks/NBFCs.
    • Being mere intermediaries, these platforms are not required to seek any registration with RBI, and are only indirectly regulated through RBI’s outsourcing guidelines applicable to Banks/NBFCs.
    • 3) Peer-to-peer (P2P) lending platforms, which usually involve the otherwise unregulated retail lenders.
    • RBI has mandated such platforms to seek registration as NBFC-P2P; thus, they are directly regulated by RBI.

    Issues with digital lending

    • The specific issues are unauthorised lenders, exorbitant rates of interest, use of coercive repayment methods, and non-consensual collection or use of user data.
    • These issues entail serious adverse implications for borrowers and have systemic implications, hampering the rise of legitimate fintech players.

    Steps taken

    • With a view to curb such practices, RBI, in 2020, issued a notification to Banks/NBFCs mandating additional disclosures/compliances, and an advisory to borrowers warning them against such platforms.
    • Following the notification, Google removed several such loan apps from its PlayStore.
    • The Digital Lenders’ Association of India (DLAI) also issued guidelines to help borrowers identify such unscrupulous platforms.
    • In the regulatory pipeline on this front is the report of the working group on digital lending, constituted by RBI in January 2021.

    Framing effective policy solutions

    • Given the significant contribution of legitimate fintech players, it is important to ensure that any policy solutions to address such issues do not impede the growth of such players.
    • The key to this lies in adoption of light-touch regulation, along with the effective implementation of the already proposed regulatory initiatives.
    • For instance, the primary cause of the rising supply of unauthorised lending platforms is the existing credit information asymmetry that genuine lenders face in respect of small borrowers.
    • Here, operationalising and on-scale implementation of RBI’s proposed ‘Public Credit Registry’ and the ‘Open Credit Enablement Network’ (an infrastructure protocol enabling digital low cost lending to small borrowers through access of consented data) would lead to increased participation of legitimate players and curb proliferation of unauthorised lenders.
    • Another foundation for framing effective policy solutions lies in leveraging the interdependence and impact of each individual constituent of the digital lending ecosystem, on other constituents.
    • Apart from lenders/platforms/borrowers, these constituents also include the digital lending industry associations, consent managers and technology developers.
    • Regulators and industry associations working together can provide the necessary foundations for addressing these issues.
    • Other solutions spear-headed by industry associations could be to establish ‘certification system’ based maintenance of a repository of lending platforms for easy identification of genuine players.
    • Similarly, on the data protection aspect, a structural solution through coordinated efforts of various digital lending constituents is required.

    Consider the question “Examine the factors aiding the growth of digital lending in India. What are the challenges the sector face? Suggest the measures to deal with these challenges.”

    Conclusion

    For the continued development of the Indian digital lending economy, it is important to implement policy solutions that adequately protect the borrowers from malpractices, while, at the same time, do not dampen innovation in this fast-evolving sector.

    Source:-

    https://www.financialexpress.com/opinion/soft-touch-regulation-for-digital-lending/2215702/