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Financial Inclusion in India and Its Challenges

Financial Inclusion in Age of Digitization

22 November 2022 | op-ed snap | Economics
Mains Paper 3: Inclusive Growth & Issues
Context
- The use of technology in financial inclusion stands to be pertinent in today’s context as it paves the way towards inclusive growth through the upliftment of disadvantaged sections of society.
Importance of Financial Inclusion
- Meaning of Financial inclusion: It refers to the availability to both individuals and companies of useful and cost-effective financial goods and services, including payments, transactions, savings, credit, and insurance, that are sustainably and ethically provided.
- Provides social mobility: The importance of financial inclusion lies in the fact that it allows social mobility. These resources help empower individuals and foster communities, which can aid in promoting economic growth.
- More financial services: Moreover, account holders are more likely to utilize additional financial services such as credit and insurance to launch and grow enterprises, make investments in their children’s or own health or education, manage risk, and recover from financial setbacks, all of which can enhance their overall quality of life.
Challenges to the financial inclusion
- Inoperative bank accounts: Nearly 80 percent of the Indian population has a bank account, and nearly 18 percent (81.38 million) of bank accounts are inoperative, having “zero balance”. Moreover, up to 38 percent of accounts are inactive, which means that there have been no deposits or withdrawals in the past year, demonstrating that many Indians are still not fully integrated into the formal banking system.
- Poor telecommunication infrastructure: India still needs a robust telecommunication infrastructure with a stable broadband internet connection. Despite progress in increasing technological features with increasing speeds, the inability of the entire country to adapt to these innovations has widened the gap.
- All citizens are not cell phone users: India additionally faces the hurdle of getting its citizens online, with more than 310 million individuals needing a basic cell phone. This prevents account holders from receiving crucial information, such as details relating to account transactions.
- Increasing dependency on local agents: In addition, financial institutions also need to be more willing to deliver messages for transactions of small quantities. These factors have led to an increasing dependency on local agents.
The correlation between Technology, digital divide and financial inclusion
- Rural- Urban digital Divide: There is an evident divide between the urban-rural regions that dominate India. Only 4.4 rural families have computers, compared to 14.4 percent of urban households and 14.9 percent of rural homes have internet connectivity, compared to 42 percent of families in metropolitan regions. Meanwhile, only 13 percent of adults in rural regions have access to the internet, compared to 37 percent in metropolitan areas.
- High lending rates in rural area: Specifically, such gaps are associated with various factors in finance, starting with small-time lenders charging high-interest rates common in rural regions. Access to credit still needs to be solved. Government programmes are yet to reach more remote areas to improve loan availability efficiently.
- Unawareness about Online loans: Individuals find that online loans need more options from reliable financial institutions or digital lending. Additionally, rural clients need help accessing prospective financial services due to complicated banking procedures such as requiring identity credentials and maintaining a specific balance in an account.
- Limited access to technology: The digital divide is also a result of limited access to computer and communication technologies. In India, fewer people can afford the device needed to access digital information.
- Single nationwide approach is problematic: India additionally faces the burden of providing diversified content across different regions, as individuals across India have different mother tongues. Moreover, the number of individuals who have access to computers or are knowledgeable enough to utilise the internet varies too widely between states. Thus, a blanket approach cannot be implemented nationwide.
- Lack of Financial literacy: Indian citizens lack the potential to maximise technological interventions. About 266 million adults are illiterate. The lack of financial literacy has also greatly impeded the growth of financial inclusion, with many financial cyber-crimes peaking in proportion to the growing distrust among rural residents, leading to lower adoption rates and a 6-percent jump in cybercrimes in the same year.
- Concerns of data privacy: As Personal Identifiable Information (PII) guidelines are not strictly enforced and adhered to, large quantities of data are readily accessible to numerous parties, raising serious concerns about data privacy.
What can be done to bridge digital divide for financial inclusion?
- Digital inclusion strategies: It lies in the hands of the government to implement a financial inclusion policy and look at the reasons behind financial exclusion and effectively address them. Information and Communication Technology policies are primarily top-down and supply-focused. Thus, it is necessary to develop financial goods and services focused on the needs of citizens and the disadvantaged. These policies should focus on digital inclusion strategies to ensure that rural areas can access proper internet connectivity.
- Information in regional language: to ensure digital financial inclusion, the government should encourage the middle-aged bracket to educate themselves in reading and writing to use the various facilities they provide. Government websites have information primarily in Hindi and English, excluding large sections of the population. A systemic strategy focused on digital skills, and financial literacy should be implemented in each region, keeping in mind the language barrier and access to technology.
- Focus on vulnerable sections: To combat financial fraud, implementing a one-to-one Management of Financial Services (MFS) agent mentorship programme that focuses on vulnerable populations and teaches them the fundamentals of mobile and online interaction is possible. Additionally, removing the barriers to financial service access for low-income persons by reducing transaction costs could facilitate increased participation, as observed in Nepal, where free and easily accessible accounts were more prevalent among women
Conclusion
- The digital divide affects every area of life, including literacy, wellness, mobility, security, access to financial services, etc. Therefore, for a fast-growing nation such as India, the focus needs to shift from simple economic growth to equitable and inclusive growth.
Mains Question

Q. What are the challenges to Digital financial inclusion in India? Explain in detail the strategies needed to tackle the financial inclusion?

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Health Sector – UHC, National Health Policy, Family Planning, Health Insurance, etc.

Union Health Ministry rolls out India’s 1st Suicide Prevention Policy

22 November 2022 | | Governance
Mains Paper 2: Health & Education
The Ministry of Health and Family Welfare announced a National Suicide Prevention Strategy, the first of its kind in the country.

What is Suicide?
- Suicide is the act of intentionally causing one’s own death.
- Mental and physical disorders, substance abuse, anxiety and depression are risk factors.
- Some suicides are impulsive acts due to stress (such as from financial or academic difficulties), relationship problems (such as breakups or divorces), or harassment and bullying.
- Despite being entirely preventable, India has been increasingly losing individuals to suicide.
Why need such strategy?

Ans. Suicides in India
- The burden of deaths by suicide has increased in India — by 7.2 per cent from 2020 — with a total of 1,64,033 people dying by suicide in 2021.
- In India, more than one lakh lives are lost every year to suicide, and it is the top killer in the 15-29 years category.
- In the past three years, the suicide rate has increased from 10.2 to 11.3 per 1,00,000 population, the document records.
- The most common reasons for suicide include family problems and illnesses, which account for 34% and 18% of all suicide-related deaths.
- The report follows a 2021 Lancet study that noted “India reports the highest number of suicide deaths in the world”.
About the National Suicide Prevention Strategy

The NSPS puts a time-bound action plan and multi-sectoral collaborations to achieve reduction in suicide mortality by 10% by 2030. The strategy broadly seeks to establish-
1. Effective surveillance mechanisms for suicide within the next three years,
2. Establish psychiatric outpatient departments that will provide suicide prevention services through the District Mental Health Programme in all districts within the next five years, and
3. Integrate a mental well-being curriculum in all educational institutions within the next eight years.
The strategy also envisages:
1. Developing guidelines for responsible media reporting of suicides and
2. Restricting access to means of suicide
Significance of the strategy
- The most important thing is that the government has acknowledged that suicide is a problem.
- We now have a well-conceived plan involving multi-sectoral collaborations, because the only way a strategy would work would be to involve various sectors.
- The strategy should now be passed on to the States for them to develop locally relevant action plans; and then cascade to the district, primary health and community levels.
Why suicide is such a big issue?
- More youth committing: For the youth of the country (15-29 years), among whom 1/3rd of all suicides take place.
- Performance pressure: Data suggests that one student dies by suicide every 55 minutes, and 1,129 suicides among children below 18 years of age in 2020 were due to failure in examinations.
- Farm distress: This is followed by farmer’s suicide and the gendered variance observed these days.
- Gendered variances: More women are committing suicides these days.
Way forward
- Holistic approach: Promoting national and sectoral research into the reasons for suicide mortality and its rise, and making culturally and economically appropriate suggestions to help mitigate the problem is critical.
- Counselling by mass-media: During times of distress, media must promote health-seeking behaviour, correct information and counter the possible myths related to suicide.
- Evidence-based interventions: Keep in mind the needs of the most vulnerable and marginalized populations, like women and young individuals, providing the required support systems can reduce the number of lives lost and build a healthier response system.
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Port Infrastructure and Shipping Industry – Sagarmala Project, SDC, CEZ, etc.

Trans-shipment Terminal at Great Nicobar: strategic imperative and ecological concerns

22 November 2022 | | Economics
Mains Paper 3: Infrastructure: Energy, Ports, Roads, Airports, Railways Etc.
The Ministry of Environment, Forest and Climate Change gave environmental clearance for the ambitious Rs 72,000 crore development project on the strategically important Great Nicobar Island.

About the Great Nicobar Development Project
- A “greenfield city” has been proposed, including an:
1. International Container Transhipment Terminal (ICTT),
2. Greenfield international airport,
3. Power plant, and
4. Township for the personnel who will implement the project
- The project is to be implemented in three phases over the next 30 years.
When was the project incepted?
- The proposal to develop Great Nicobar was first floated in the 1970s, and its importance for national security and consolidation of the Indian Ocean Region has been repeatedly underlined.
Scope of the project
- A total 166.1 sq km along the southeastern and southern coasts of the island have been identified for project along a coastal strip of width between 2 km and 4 km.
- Some 130 sq km of forests have been sanctioned for diversion, and 9.64 lakh trees are likely to be felled.
- Development activities are proposed to commence in the current financial year, and the port is expected to be commissioned by 2027–28.
- More than 1 lakh new direct jobs and 1.5 lakh indirect jobs are likely to be created on the island over the period of development.
Features of the Project
- Transshipment hub of the East: The proposed port will allow Great Nicobar to participate in the regional and global maritime economy by becoming a major player in cargo transshipment.
- Naval control: The port will be controlled by the Indian Navy, while the airport will have dual military-civilian functions and will cater to tourism as well.
- Urban amenities: Roads, public transport, water supply and waste management facilities, and several hotels have been planned to cater to tourists.
Why need such project?
- Geostrategic advantage: The Island has a lot of tourism potential, but the government’s greater goal is to leverage the locational advantage of the island for economic and strategic reasons.
- Critical shipping chokepoint: Great Nicobar is equidistant from Colombo to the southwest and Port Klang and Singapore to the southeast, the region through which a very large part of the world’s shipping trade passes.
- Huge source of revenue: The proposed ICTT can potentially become a hub for cargo ships travelling on this route.
- Countering Chinese presence: Increasing Chinese assertion in the Bay of Bengal and the Indo-Pacific has added great urgency to this imperative in recent years.
Malacca Dilemma

In recent years, China’s efforts to expand its footprint in the Indian Ocean Region to overcome its ‘Malacca Dilemma’ (China’s fear of a maritime blockade at the Straits of Malacca) and fulfil its ‘Maritime Silk Road’ ambitions have fuelled apprehensions about freedom of navigation in these waters.

Issues with the Project
- Ecological damage: The proposed massive infrastructure development in an ecologically important and fragile region, including the felling of almost a million trees, has alarmed many environmentalists.
- Threats to marine ecosystem: The loss of tree cover will not only affect the flora and fauna on the island, it will also lead to increased runoff and sediment deposits in the ocean, impacting the coral reefs in the area.
Damage control measures by the govt
- India has successfully translocated a coral reef from the Gulf of Mannar to the Gulf of Kutch earlier.
- The Zoological Survey of India is currently in the process of assessing how much of the reef will have to be relocated for the project.
- The government has said that a conservation plan for the leatherback turtle is also being put in place.
- The project site already is outside the eco-sensitive zones of Campbell Bay and Galathea National Park.
Conclusion
- Given its physical location, the A&N Islands are the natural platform for collaboration between India and Southeast Asia.
- By most accounts, political will in India and other countries to develop these islands is high.
Back2Basics: Great Nicobar Islands
- Great Nicobar, the southernmost of the Andaman and Nicobar Islands, has an area of 910 sq km.
- It has tropical wet evergreen forests, mountain ranges reaching almost 650 m above sea level, and coastal plains.
- The A&N Islands are a cluster of about 836 islands in the eastern Bay of Bengal, the two groups of which are separated by the 150-km wide Ten Degree Channel.
- The Andaman Islands lie to the north of the channel, and the Nicobar Islands to the south.
- Indira Point on the southern tip of Great Nicobar Island is India’s southernmost point, less than 150 km from the northernmost island of the Indonesian archipelago.
- Great Nicobar is home to two national parks, a biosphere reserve, and the Shompen and Nicobarese tribal peoples, along with ex-servicemen from Punjab, Maharashtra, and Andhra Pradesh who were settled on the island in the 1970s.
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e-Commerce: The New Boom

Centre sets ‘standard’ for product Reviews on E-Commerce Platforms

22 November 2022 | | Economics
Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth
The Centre is bringing out a standard for publishing product reviews for e-commerce platforms this week.

What are the reviews on e-com platforms?
- Reviews are the ratings given by customers who make any purchase on the e-commerce platform.
- This is generally a star-rating system followed by user comments.
- It is particularly a social proof given by people who make judgments and decisions based on the collective actions of others.
Why do e-coms take such reviews?
- Reviews are much more than just comments and can result in relevant content and information, both for you and your customers.
- Since the biggest disadvantage of e-commerce is not offering the possibility for consumers to be face to face with the product, reviews can break this barrier.
- Reviews can help sell more, gain new customers, accompany the consumer’s satisfaction, and target better.
Why reviews matter?
- Ensure a good purchasing experience;
- Create surveys and debates on products and/or services;
- Provide a field for comments and instigate interaction;
- Know how to deal with complaints and try to resolve them.
Why discuss this?
- Consumer grievances ignored: More than one in two (58 per cent) consumers complain that their negative product ratings and reviews are not being published by e-commerce platforms.
- Positive bias: Only 23 per cent consumers said that their negative reviews or ratings on e-commerce sites were published as it is.
- Fake and deceptive reviews: Wasteful products are highly publicised with fake reviews and praises.
What are the standards set out by the govt.?

The framework for the standard was prepared by the Bureau of Indian Standards (BIS). It is titled IS 19000:2022. The outlines are-
- Guiding principle: The guiding principles of the standard are integrity, accuracy, privacy, security, transparency, accessibility and responsiveness.
- Voluntary compliance: To start with voluntary, the standard could become mandatory after observing compliance to the standards by such platforms.
- Grievance redressal: Once made mandatory, a consumer may submit grievances to the National Consumer Helpline, Consumer Commissions, or the CCPA, against misleading reviews.
- Punishment: If made mandatory, the violation of the standard, can invite punishment for unfair trade practice or violation of consumer rights.
- Review authentication: The standard prescribes specific responsibilities for the review author and the review administrator. For the review author, these include confirming acceptance of terms and conditions, providing contact information.
- Consumer data protection: For review administrator, these include safeguarding personal information and training of staff.
- Traceability and genuineness of the review author: The standard also provides for methods for verification of the review author through email address, identification by telephone call or SMS, confirming registration by clicking on a link, using captcha system.
Significance of the standards
- The standard is expected to benefit all stakeholders in the e-commerce ecosystem, that is, consumers, e-commerce platforms, sellers, etc.
- It will help usher in confidence among consumers to purchase goods online and help them take better purchase decisions.
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ISRO Missions and Discoveries

ISRO to attempt 200th consecutively successful launch of RH-200 sounding rocket

22 November 2022 | Prelims Only | Science and Technology
Mains Paper 3: Awareness in various sc and tech fields
The Indian Space Research Organisation (ISRO) has attempted the 200th consecutively successful launch of the Rohini RH-200 sounding rocket from Thumba.

RH-200 (Rohini )
- RH-200 is a two-stage rocket capable of climbing to a height of 70 km bearing scientific payloads.
- The first and second stages of RH-200 are powered by solid motors. The ‘200’ in the name denotes the diameter of the rocket in mm.
- Other operational Rohini variants are RH-300 Mk-II and RH-560 Mk-III.
- For years, the RH-200 rocket had used a polyvinyl chloride (PVC)-based propellant.
- The first RH-200 to use a new propellant based on hydroxyl-terminated Polybutadiene (HTPB) was successfully flown from the TERLS in September 2020.
- The first and second stages of RH200 rocket are powered by solid motors.
- Since inception of RH200 rocket, both solid stages are processed using polyvinyl chloride (PVC) based propellant.
- As compared to PVC based propellants, HTPB based propellant is more energetic, higher mechanical & interface properties and has less defects due to lower processing temperature.
What basically is a Sounding Rocket?
- A sounding rocket is an instrument-carrying rocket designed to take measurements and perform scientific experiments during its sub-orbital flight.
- The rockets are used to launch instruments from 48 to 145 km above the surface of the Earth, the altitude generally between weather balloons and satellites.
- The maximum altitude for balloons is about 40 km and the minimum for satellites is approximately 121 km.
History of sounding rockets in India
- Sounding rockets have an important place in the ISRO story.
- The first sounding rocket to be launched from Thumba was the American Nike-Apache — on November 21, 1963.
- After that, two-stage rockets imported from Russia (M-100) and France (Centaure) were flown. The ISRO launched its own version — Rohini RH-75 — in 1967.
- The ISRO has launched more than 1,600 RH-200 rockets so far.
- Currently, the RH200, RH300 MkII and RH560 Mk-III rockets are operational which were developed during the early phase of our journey in rocketry.
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Capital Markets: Challenges and Developments

CDSL: India’s registered share depository

22 November 2022 | Prelims Only | Economics
Mains Paper 3: Indian Economy
Certain services at CDSL (Central Depositories Services India Ltd) were disrupted due to a suspected cyber-attack over the weekend.

What is CDSL?
- CDSL, or Central Depositories Services India Ltd, is a government-registered share depository, alongside its other state-owned counterpart National Securities Depository Ltd (NSDL).
- It was founded in 1999.
- It is a Market Infrastructure Institution or MII that is deemed as a crucial part of the capital market structure, providing services to all market participants, including exchanges, clearing corporations, depository participants, issuers and investors.
- Share depositories hold shares in an electronic or dematerialised form and are an enabler for securities transactions, playing a somewhat similar role to what banks play in handling cash and fixed deposits.
- While banks help customers keep their cash in electronic form, share depositories help consumers store shares in a dematerialised form.
Functions of CDSL
- CDSL facilitates holding and transacting in securities in the electronic form and facilitates settlement of trades done on stock exchanges.
- These securities include equities, debentures, bonds, Exchange traded Funds (ETFs), units of mutual funds, units of Alternate Investment Funds (AIFs), Certificates of deposit (CDs), commercial papers (CPs), Government Securities (G-Secs), etc.
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Antibiotics Resistance

Limiting the Anti-Biotic Pollution and Anti-microbial resistance (AMR)

21 November 2022 | op-ed snap | Science and Technology
Mains Paper 3: Awareness in various sc and tech fields
Context
- Almost half, or 43 per cent, of the world’s rivers are contaminated with active pharmaceutical ingredients in concentrations that can have disastrous ramifications on health. The industry must prioritize wastewater management and process controls to limit antibiotic pollution and Anti-microbial resistance (AMR). 18-22 November is observed as World Antimicrobial awareness week.
What is Anti-microbial resistance (AMR)?
- Antimicrobial resistance (AMR or AR) is the ability of a microbe to resist the effects of medication that once could successfully treat the microbe
- Antibiotic resistance occurs naturally, but misuse of antibiotics in humans and animals is accelerating the process.
- A growing number of infections – such as pneumonia, tuberculosis, gonorrhoea, and salmonellosis – are becoming harder to treat as the antibiotics used to treat them become less effective.
- It leads to higher medical costs, prolonged hospital stays, and increased mortality.
Importance of Pharma Industry
- Important sector of economy: The recently adopted Glasgow Climate Pact has called upon countries to facilitate the adoption of greener technologies to phase out the use of fossil fuels. The development and deployment of such technologies is also critical for the pharmaceutical sector that has formed the backbone of the growth of many economies including India.
- Improving the health outcomes: The Pharma sector plays a fundamental role in improving health outcomes through the invention of life-saving products.
- 20% of global supply of medication: Pivoting to sustainable waste management and process-control practices assumes acute significance in the Indian context. India already accounts for 20 per cent of the global supply of medication, making it the largest supplier of generic medicines worldwide.
Anti-biotic Pollution and Anti-microbial resistance (AMR)
- Pharmaceutical pollution in the country: Recently, widescale pharmaceutical pollution has been reported across the country, particularly in pharmaceutical hubs like Himachal Pradesh, Andhra Pradesh, and Telangana.
- Untreated waste release into rivers: The release of untreated effluents into the soil and water bodies add to the pollution of the environment during the manufacturing of various pharmaceuticals, including antibiotics. Further, untreated antibiotic residues also accelerate the build-up of antimicrobial resistance (AMR).
- High emission intensity: Pharma sectors emission intensity is 55 per cent more than the automotive sector.
- AMR is public health threat: AMR is often dubbed as one of the top 10 public health threats facing humanity. It occurs when disease-causing pathogens develop a resistance against the pharmaceuticals that could have neutralized them. In 2019, AMR accounted for more than half a million deaths in the European region and about five million globally.
- Accumulation of AMR in ecosystem: The build-up of AMR can happen due to several factors across the human, animal, and environmental ecosystems.
Government policies to prevent Anti-biotic pollution in India
- National Action Plan on AMR (NAP-AMR): India’s production capacity is all set to expand further with the government’s recent impetus on the domestic production of pharmaceuticals. Against this background, the country’s National Action Plan on AMR (NAP-AMR) called for limiting pharmaceutical pollution.
- Surveillance of residues discharged: Strategic Pillars 2 and 3 under the NAP-AMR focused on developing frameworks for the surveillance of residues discharged in the environment and developing a plan to reduce the environmental impact on AMR, respectively. However, this policy impetus is yet to translate into on-ground implementation.
- Benefits to manufacturers with greener practices: The government can take a cue from countries like the United Kingdom, Norway, Sweden and Germany, among others, which have policies in place that provide benefits to manufacturers with greener practices.
How pharmaceutical industry can improve its waste management?
- Use of innovative technologies: Adopting innovative technology and self-regulation can help the industry reduce its carbon footprint and minimize its environmental impact.
- State-of-art API technology: Centrient Pharmaceuticals Netherlands BV’s plant at Toansa, Punjab, where the adoption of state-of-art API technology led to a 60-62 per cent reduction in the plant’s carbon footprint.
- Regulating the discharge: The AMR Industry Alliance (AMRIA) has developed the Predicted No-Effect Concentrations (PNEC) criteria further to facilitate the industry in regulating its discharge of effluents.
- Strict compliance of guidelines: The compliance to PNEC value for Centrist’s oral API product line and supply chain has helped the company reduce the environmental impact of manufacturing.
Conclusion
- The containment of AMR in India is crucial for realizing several policy goals, including the United Nations Sustainable Development Goals. While collective action is needed from various stakeholders, the domestic pharmaceutical industry should also take the lead, especially in limiting antibiotic pollution.
Mains Question

Q. Explain the linkages between Anti-biotic pollution and anti-microbial resistance (AMR). How government and pharma industry join the hands to reduce the anti-biotic pollution?

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Finance Commission – Issues related to devolution of resources

The curious case of Fiscal Federalism in India

21 November 2022 | op-ed snap | Polity
Mains Paper 2: Federalism
Context
- NITI Aayog has not taken any major steps since its constitution to promote cooperative federalism. Contrary to its public statements on promoting cooperative federalism, the Government of India has been accused of doing exactly the opposite. The following instances clearly demonstrate as to how the central government’s policies have undermined the spirit of federalism and eroded the autonomy of the States.
Why the states are angry over hypocrisy of the Centre?
- Centre raises off budget borrowings states are restricted: The borrowings by corporations against State guarantees are mostly used for capital investment. The Centre has also been raising off Budget borrowings but mainly for meeting revenue expenditure.
- CAG report on extra budgetary resources: The Comptroller and Auditor General of India (C&AG) Report on the Compliance of FRBM Act for 2017-18 and 2018-19 pointed out as many as eight instances of meeting revenue expenditure through Extra Budgetary Resources (EBR).
- Unjustified limitations on states: Revenue expenditure met through EBR by the Centre amounted to ₹81,282 crore in 2017-18 and ₹1,58,107 crore in 2018-19. Such borrowings were not reflected in the Budget of the central government. In view of this, treating off Budget borrowings of State corporations as States’ borrowings retrospectively is totally unjustified.
Unhappiness about the grants by the finance commission’s recommendations?
- Special grants are not given to states: The Fifteenth Finance Commission, in its first report, had recommended a special grant to three States amounting to ₹6,764 crore to ensure that the tax devolution in 2020-21 in absolute terms should not be less than the amount of devolution received by these States in 2019-20. This recommendation was not accepted by the Union Government.
- Nutritional grants are accepted: the recommendation relating to grants for nutrition amounting to ₹7,735 crore was not accepted.
- Grants to states are refused by the Centre: A similar approach has been followed by the Union Government with regard to grants to States recommended by the Finance Commission for the period 2021-26.
- Sector and state specific grants: The sector specific grants and State specific grants recommended by the Commission amounting to ₹1,29,987 crore and ₹49,599 crore, respectively, have not been accepted. This clearly demonstrates that the Union Government has undermined the stature of the institution of the Finance Commission and cooperative federalism.
How borrowing of the states is controlled by the Centre?
- Changes in off budget borrowing norms: decision to treat off Budget borrowings from 2021-22 onwards serviced from the State budgets as States’ borrowings and adjusting them against borrowing limits under Fiscal Responsibility and Budget Management (FRBM) in 2022-23 and following years is against all norms.
- No recommendations by finance commission: This is the first time that the Government of India is proposing to treat off Budget borrowings as government borrowings retrospectively from 2021-22. The Government of India has indicated that such a decision is in accordance with the recommendation of the Finance Commission. In fact, there is no recommendation to this effect by the Fifteenth Finance Commission. The Finance Commission recommended that governments at all tiers may observe strict discipline by resisting any further additions to the stock of off Budget transactions.
- No amendment to FRBM act: It observed that in view of the uncertainty that prevails now, the timetable for defining and achieving debt sustainability may be examined by a high-powered intergovernmental group and that the FRBM Act may be amended as per the recommendations of this group to ensure that the legislations of the Union and the States are consistent. No such group has been appointed so far by the Centre.
Cess and Surcharge- A tool to raise revenue for Centre not available to the states
- Rising share of cess and surcharges: The government has been resorting to the levy of cesses and surcharges, as these are not shareable with the States under the Constitution. The share of cesses and surcharges in the gross tax revenue of the Centre increased from 13.5% in 2014-15 to 20% in the Budget estimates for 2022-23.
- States don’t get all share in divisible pool: Though the States’ share in the Central taxes is 41%, as recommended by the Fifteenth Finance Commission, they only get a 29.6% share because of higher cesses and surcharges.
- Undermining the purpose of cess: The C&AG in its Audit Report on Union Government Accounts for 2018-19 observed that of the ₹2,74,592 crore collected from 35 cesses in 2018-19, only ₹1,64,322 crore had been credited to the dedicated funds and the rest was retained in the Consolidated Fund of India. This is another instance of denying States of their due share as per the constitutional provisions.
- Increasing centrally sponsor scheme and burden on state: Committee after committee appointed by the Government of India has emphasised the need to curtail the number of Centrally Sponsored Schemes (CSS) and restrict them to a few areas of national importance. But, what the Government of India has done is to group them under certain broad umbrella heads (currently 28). In addition, in 2015, the Centre increased the States’ share in a number of CSS, thereby burdening States. Most of the CSS are operated in the subjects included in the State list. Thus, States have lost their autonomy.
- NITI Aayoge recommendations are not accepted: The Sub-Committee of Chief Ministers appointed by NITI Aayog has recommended a reduction in the number of schemes and the introduction of optional schemes. These recommendations have not been acted upon.
Conclusion
- Finance commission is balancing wheel of fiscal federalism. Share of states in central taxes may have increased but cess and surcharges have also increased. Off budget borrowing on states can lifted provided should reduce the unnecessary freebies in the state budget.
Mains Question

Q. Fiscal federalism is tilted in favour of Centre. Elaborate. How Cess and surcharges are discriminatory against the state governments?

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Judicial Reforms

Quasi-Judicial Bodies

21 November 2022 | op-ed snap | Governance
Mains Paper 2: Statutory, Regulatory & Various Quasi-Judicial Bodies
Context
- There is a class of quasi-judicial agencies that are not discussed in conversations on the pendency of cases. Their failure to administer speedy justice leads to harassment of citizens, besides abetting criminal activity by unscrupulous elements.
What are the quasi-judicial bodies
- Role of adjudicating the law: A quasi-judicial body is “an organ of Government other than a Court or Legislature, which affects the rights of private parties either through adjudication or rulemaking”.
- Not a court of law: It is not mandatory that a Quasi-Judicial Body has to necessarily be an organization resembling a Court of Law. For example, the Election Commission of India is also a Quasi-Judicial Body but does not have its core functions as a Court of Law.
- Some examples of Quasi-Judicial Bodies: Election Commission of India, National Green Tribunal, Central Information Commission (CIC), Lok Adalat etc.
Functioning of quasi-judicial bodies
- Supervise the administrative disputes: They primarily oversee the administrative zones. The courts have the power to supervise over all types of disputes but the quasi-judicial bodies are the ones with the powers of imposing laws on administrative agencies.
- Lessen the burden on courts: These bodies support to lessen the burden of the courts. Quasi-judicial activity is restricted to the issues that concern the particular administrative agency. Quasi-judicial action may be appealed to a court of law.
- Limited role of adjudication: Their powers are usually limited to a particular area of expertise, such as financial markets, employment laws, public standards, immigration, or regulation.
- Rules of justice are pre-determined: Awards and judgements of quasi-judicial bodies often depend on a pre-determined set of rules or punishment depending on the nature and gravity of the offence committed.
- Its award can be challenged in court: Such punishment may be legally enforceable under the law of a country it can be challenged in a court of law which is the final vital authority.
Problems faced by quasi-judicial authorities
- Understaffing of bodies: The maladies that these agencies suffer from are far graver than judicial set-ups, as they are staffed by revenue authorities who have several other functions. Usually, many of these offices are understaffed.
- More administrative and less judicial work: Their engagement with duties such as law and order, protocol, coordination and other administrative functions leaves them with much less time for court work.
- Limited access to records: Their access to court clerks and record keepers is limited. Computers and video recorders are not available in many of these courts. Only a few states such as Maharashtra, Madhya Pradesh and Rajasthan have electronic platforms for supporting activities such as the filing of cases, publication of cause lists and sending summons.
- Lack of knowledge about procedures: Several of the presiding officers lack proper knowledge of law and procedures which has landed many a civil servant in deep trouble in sensitive matters such as those related to arms licences.
- Data is unavailable: Data on the level of pendency or the speed of disposal is not compiled in many states. This is why there is scarcely any attempt to increase staff strength. There is hardly any public scrutiny say by the press or legislature.
How to improve the functioning of Quasi-judicial bodies?
- Priority of the government: The government should make the efficient functioning of these agencies a priority and clearly articulate its position on the issue.
- Collection of data is must: Detailed data on the functioning of these agencies must be collected and published from time to time at least annually.
- Digitization of judicial data: An electronic platform should be established to handle all ancillary work related to the administration of justice, such as filing of complaints, issue of summons, movement of case records between courts, issuing copies of the judgments and so on.
- Mandatory annual inspection: annual inspections of the subordinate courts should be made mandatory. This should be an important indicator for assessment by the superior authority.
- Study on functioning of this bodies: Interdisciplinary research on the functioning of these courts should be encouraged. This would identify the areas of improvement such as legal reforms or issue of clear guidelines.
- Time to time training of authorities: Regular training and orientation of the adjudicating authorities should be taken up from time to time.
- State performance index should be published: The state index of performance of these quasi-judicial courts be made and published.
- Online publication of awards by authorities: Important decisions, guidelines and directions could be compiled and published on the portal of the apex adjudicating forum such as the Board of Revenue.
- Rigorous induction training: More rigorous induction training of officials handling judicial work would help. The importance of judicial work should be instilled among the trainees and the skill and confidence in handling them should be developed.
- Procedural reforms: Procedural reforms such as minimizing adjournments, mandatory filing of written arguments and other such reforms proposed by bodies like the Law Commission for reform of the Civil Procedure Code should be adopted by these adjudicating bodies.
Conclusion
- Quasi-judicial bodies form the substantial institutions of judicial system. It is regularly side-lined when we talk about the judicial reforms. If we could make our quasi-judicial bodies function properly and efficiently, it will reduce the burden on High courts and Supreme court.
Mains Question

Q. Why the quasi-judicial bodies are underperforming in India? Which steps are needed to improve the functioning of quasi-judicial bodies?

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Banking Sector Reforms

India’s Soft Loans to neighbours up to $15 billion

21 November 2022 | | Economics
Mains Paper 3: Indian Economy
The volume of India’s soft loans to neighboring countries has increased from about $3 billion to almost $15 billion in the last eight years.

What are Soft Loans?
- A soft loan is a loan with no interest or a below-market rate of interest.
- Also known as “soft financing” or “concessional funding,” soft loans have lenient terms such as-
1. Namesake interest rate
2. Extended grace periods in which only interest or service charges are due
3. Interest holidays
4. Long tenure up to 50 years
- Soft loans are often made by multinational development banks such as the Asian Development Fund affiliates of the World Bank etc.
Why are soft loans popular?
- Diplomatic tool: Soft loans are often offered not only as a way to support developing nations but also to form economic and political ties with them.
- Economic benefit: Nations exchange credit in return of some important resources.
- Geopolitics: Soft loans have been an important diplomatic tool to sustain political influence in the neighborhood and beyond as well as counter the growing Chinese presence, especially in Africa.
Pros and cons of Soft Loans
- Pro: Breaks for Business– Soft loans offer favorable business opportunities.
- Con: Shaky Returns– The length of time it may take to repay a soft loan could mean the lender is tied to the borrower for an extended number of years.
Did India take any soft loan?
- For instance, in 2015, Japan offered a soft loan to India to cover 80% of the cost for a $15 billion fund a bullet train project at a less than 1% interest rate.
- This was done with the caveat that India would purchase 30% of the equipment for the project from Japanese companies.
- By the time the countries signed a formal agreement, Japan’s commitment increased to 85% of the cost, in the form of soft loans, for a then-estimated $19 billion project cost.
Using soft loans as a diplomatic tool
- The amount of development assistance India has offered to other nations in 2019-20 was more than twice what it had extended in 2011-12.
- However, such loans have usually gone to countries in Asia, Africa and Latin America that are lower down the economic strength ladder.
- India has extended a total of $27.8 billion in lines of credit since 2002-03.
Conclusion
- Extending development assistance is nothing new for India and about half of the foreign ministry’s budget is made up of grants and loans to foreign governments, especially India’s neighbours.
- For a country that for long had to rely on international loans to meet key development goals, India understands the diplomatic value of providing a helping hand.
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