Union Minister of Commerce & Industry has announced an ambitious target to achieve 10,000 Geographical Indication (GI) tags by 2030.
About Geographical Indications (GI) Tags
A GI is a sign identifying a product as originating from a specific geographical location, possessing qualities, reputation, or characteristics inherently linked to that origin.
It is governed by the Geographical Indications of Goods (Registration and Protection) Act, 1999, effective from September 2003.
It is defined under Article 22(1) of the WTO’s TRIPS Agreement.
It is managed by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry.
GI tags are valid for 10 years and can be renewed upon expiry.
Darjeeling Tea was the first product to receive a GI tag in 2004–05.
Purpose and Benefits:
Protects the identity of unique products linked to specific regions.
Promotes economic development, cultural preservation, and export potential.
Procedural Implementation and Recognition of GI’s:
Authority for GI Tags:
The Controller-General of Patents, Designs and Trade Marks, under the Trade Marks Act, 1999, serves as the Registrar of Geographical Indications.
The register for GIs is divided into:
Part A: Registration of GIs.
Part B: Registration of authorized users.
Application Process:
Applications can be made by individuals, associations of persons, producers, or authorized organizations representing the producers’ interests.
Applications must include details about the product’s quality, nature, reputation, geographical environment, manufacturing process, natural and human factors, and a map of the production territory.
Scrutiny and Decision:
The Registrar conducts a preliminary review for deficiencies, with applicants given one month to address any issues.
Accepted applications are advertised in the GI Journal, inviting objections.
If unopposed, a certificate of registration is granted.
Timeframe:
Registration must be completed within 12 months; otherwise, the Registrar may abandon the application after notifying the applicant.
PYQ:
[2015] Which of the following has/have been accorded ‘Geographical Indication’ status?
1. Banaras Brocades and Sarees
2. Rajasthani Daal-Bati-Churma
3. Tirupathi Laddu
Select the correct answer using the codes given below:
Q) Discuss the multi-dimensional implications of uneven distribution of mineral oil in the world. (UPSC CSE 2021)
Mentor’s Comment: UPSC mains have always focused on Chinese dominance in Geopolitics (2024) and Mines and Minerals in Indian Economy (2021 & 2022).
Despite having the fifth-largest reserves of rare earths globally, India currently lags in all stages of rare earth development. India heavily relies on China for critical minerals, with significant import percentages for essential resources such as lithium (82%), bismuth (85.6%), and silicon (76%). This dependency poses risks to India’s economic security. The International Energy Agency predicts that demand could double by 2030 and quadruple by 2040.
Today’s editorial emphasizes the challenges posed by the Critical Mineral industry at national and Global level. This content can be used for presenting the challenges in the Indian Economy with respect to Critical Mines and Minerals and Trade issues.
_
Let’s learn!
Why in the News?
China’s recent actions (expanded its export control list by including 28 entities), including potential export restrictions, have heightened fears about India’s reliance on Chinese supplies of critical minerals like lithium, cobalt, and rare earth elements.
China controls a substantial portion of the global supply of critical minerals, producing about 60% of rare earth elements, 50% of lithium, and 70% of cobalt.
This dominance extends to processing, where China handles approximately 80% of the world’s critical mineral processing, allowing it to influence global prices and availability significantly.
What are the implications of China’s dominance in the critical minerals supply chain for India’s Economic Security?
Supply Chain Vulnerability: India’s heavy reliance on Chinese imports for critical minerals like lithium and cobalt creates significant risks, as China’s control over a large share of global production and processing capacity could lead to supply disruptions or price increases.
Geopolitical Leverage: China’s ability to restrict access to critical minerals during geopolitical tensions poses a direct threat to India’s energy transition and economic stability, potentially hindering its renewable energy goals.
Need for Strategic Diversification: In response to these challenges, India must pursue strategic partnerships with resource-rich countries and invest in domestic mineral exploration and processing capabilities to reduce dependence on China.
Global Competition and Sustainability: As global competition for critical minerals intensifies, India must balance its pursuit of resource independence with sustainable mining practices, ensuring long-term availability while addressing environmental concerns.
What are the key challenges in developing India’s domestic critical mineral production?
Limited Exploration and Development: Complex geology, lack of advanced exploration technologies, and regulatory hurdles slow down the discovery and commercial extraction of resources like lithium and cobalt.
Processing Capacity Gaps: India lacks sufficient domestic processing and refining facilities for critical minerals. This gap forces the country to depend on foreign processing.
Regulatory and Policy Constraints: Existing regulations reserve certain critical minerals for public sector undertakings, limiting private sector participation in exploration and mining.
Additionally, the need for an updated list of critical minerals in the Mines and Minerals (Development and Regulation) Act hampers timely exploration efforts.
Establishing new exploration and processing activities involves long gestation periods, which can delay India’s efforts to become self-reliant in critical minerals.
Skilled Workforce Shortage: There is a shortage of skilled manpower in the materials, minerals, and metals sectors due to gaps in specialized training and advanced skills development.
Environmental Concerns: Mining activities can lead to significant environmental degradation, including biodiversity loss, water depletion, and pollution. Addressing these concerns while developing mineral resources poses a challenge for sustainable practices.
How can India effectively reduce its dependency on Chinese imports for critical minerals?
Domestic Exploration and Production: India is focusing on enhancing its domestic mining capabilities by identifying and exploring critical mineral reserves within its territory.
For Example, the recent discoveries of lithium deposits in states like Jammu and Kashmir, Rajasthan, and Karnataka highlight the potential for self-reliance in critical minerals essential for renewable energy technologies.
Critical Minerals Mission: Government has launched a Critical Mineral Mission aimed at securing domestic production, recycling, and overseas acquisition of critical minerals.
This mission includes incentives for private companies to establish processing facilities and aims to reduce import duties on key minerals, thereby promoting local processing and refining.
International Partnerships: India is actively seeking to forge strategic partnerships with resource-rich countries, particularly in Africa and Latin America, to secure mineral blocks through government-to-government agreements.
This includes investments in countries like Australia, Chile, Ghana, and South Africa to diversify supply sources and mitigate risks associated with over-reliance on China.
Regulatory Reforms and Investment: The Indian government is implementing regulatory reforms to attract private investment in the critical minerals sector.
This includes auctioning critical mineral blocks to both state-owned and private companies, establishing entities like Khanij Bidesh India Ltd. (KABIL) for overseas acquisitions, and enhancing the National Mineral Exploration Trust (NMET) to support exploration efforts.
Key Significant Features of the Mines and Minerals (Development and Regulation) Amendment Act, 2023
Private Sector Involvement: The amendment allows the private sector to explore and mine six critical minerals previously restricted to state agencies, including lithium, beryllium, niobium, titanium, tantalum, and zirconium. This shift encourages private investment and expertise in the mining sector.
Exploration Licenses (EL): The introduction of Exploration Licenses enables private companies to conduct reconnaissance and prospecting for critical minerals. This is expected to attract foreign direct investment (FDI) and engage junior mining companies, thereby boosting exploration efforts for deep-seated minerals.
Exclusive Auctions for Critical Minerals: The central government is empowered to auction mineral concessions for critical minerals such as rare earth elements, cobalt, and nickel. This streamlined auction process is designed to accelerate production and generate revenue for state governments.
Revenue-Sharing Mechanism: If resources are proven after exploration, the state government must conduct an auction for mining leases within six months. The exploration licensee will receive a share in the auction value of the subsequent mining lease, incentivizing exploration activities.
What role do global market dynamics play in shaping India’s critical mineral policies?
Geopolitical Influences: The competitive landscape of critical minerals is heavily influenced by geopolitical tensions, particularly with China, which dominates the supply chain.
India’s policies need to be increasingly designed to mitigate reliance on Chinese imports by fostering partnerships with countries like the U.S., Australia, and members of the Quad, aiming for a more diversified and secure supply chain.
Investment in Domestic Capabilities: To counteract dependency on imports, India should implement regulatory reforms to attract private investment in the mining sector.
This includes auctioning mineral blocks and promoting initiatives like the National Critical Minerals Mission, which aims to strengthen the entire value chain from exploration to processing.
Need for Strategic Sourcing: Global market fluctuations can lead to price volatility for critical minerals, prompting India to develop a carefully crafted import strategy.
This strategy focuses on establishing stable relationships with resource-rich nations and diversifying sourcing options to mitigate risks associated with supply disruptions.
Fiscal Incentives: A possible remedy is to offer larger upfront fiscal incentives during the exploration phase. In other words, pledging direct capital support early in the construction phase might be to approach critical minerals extraction as a semiconductor fabrication project.
The U.S. Bureau of Industry and Security (BIS) created a system with different levels to control the sale and export of AI chips and technology more effectively.
What is the main objective behind one of the last orders of the Biden administration?
National Security and Foreign Policy: The primary goal of the BIS regulations is to enhance control over the circulation of advanced AI technology and chips to align with U.S. national security and foreign policy interests.
The regulations aim to prevent sensitive technologies from reaching adversarial nations, thereby mitigating risks associated with military advancements and cyber operations.
Secure Technology Ecosystem: The regulations are designed to cultivate a secure and trusted technology ecosystem that promotes the responsible use and diffusion of AI technologies, ensuring that advanced AI capabilities do not fall into the hands of U.S. adversaries.
How will the tiered framework for licensing and exporting Artificial Intelligence chips work?
Three-Tier System: The new regulations categorize countries into three tiers based on their relationship with the U.S.:
Tier 1: No restrictions for exports to 18 U.S. allies, including Australia, Canada, and Japan.
Tier 2: Countries like China and India face caps on volumes and require Validated End User (VEU) authorization for transactions contributing to advanced AI development.
Tier 3: Arms-embargoed countries such as North Korea and Iran have no access to advanced AI technology.
How has the tech industry responded to the move?
Concerns Over Competitiveness: Major tech companies, including NVIDIA and Oracle, have expressed apprehension that these regulations could undermine U.S. competitiveness in the global tech landscape.
They argue that restricting access to widely available technologies may not enhance security but instead hinder innovation.
Call for Revisions: Industry leaders hope that the incoming administration will reconsider or withdraw these regulations, citing potential disruptions to business operations and global supply chains.
Will it affect the Indian Economy?
Impact on AI Growth: As India invests heavily in its National AI Mission, which aims to develop infrastructure with over 10,000 GPUs through a ₹10,000 crore investment, the restrictions could pose substantial challenges in scaling up AI capabilities post-2027.
The limits on GPU imports may deter innovation and slow down the growth of India’s tech sector.
Potential Delays in Infrastructure Development: Major data center providers in India, such as Tata Communications and CtrlS, may face delays or downsizing of their plans due to restricted access to GPUs. This could place Indian companies at a competitive disadvantage compared to their U.S. counterparts.
India’s Exclusion from Trusted Allies: India is not included in the list of trusted U.S. allies due to concerns over the leakage of chips to countries like Russia.
Way forward:
Strengthen Domestic AI Capabilities: India should accelerate the development of indigenous AI technologies and chips to reduce reliance on foreign imports, invest in local R&D and foster partnerships with global tech firms for technology transfer.
Diversify Global Alliances: India could strengthen its technological partnerships with countries outside the U.S. and explore alternative markets to source AI chips, ensuring the diversification of its supply chains to mitigate the impact of export restrictions.
Mains PYQ:
Q “The emergence of the Fourth Industrial Revolution (Digital Revolution) has initiated e-Governance as an integral part of government”. Discuss. (UPSC IAS/2020)
The Department of Commerce under the Ministry of Commerce and Industry has launched the Diamond Imprest Authorization (DIA) Scheme to bolster the global competitiveness of India’s diamond sector.
About the Diamond Imprest Authorization (DIA) Scheme
The DIA Scheme permits duty-free import of natural cut and polished diamonds for export purposes.
It mandates an export obligation with a value addition of 10%.
Objective: To retain India’s leadership in the global diamond industry value chain by facilitating ease of doing business.
It will be implemented starting April 1, 2025.
Features of the Scheme:
Duty-Free Import: Allows duty-free import of natural cut and polished diamonds of less than ¼ Carat (25 Cents).
Export Obligation: Requires a minimum 10% value addition to ensure beneficiation.
Eligibility: Open to Two Star Export Houses and above; Exporters with annual exports of at least USD 15 million are eligible.
Support for MSMEs: Provides a level playing field for smaller exporters, enabling them to compete with larger players.
Global Beneficiation Practices: Inspired by beneficiation policies in diamond-mining countries like Botswana, Namibia, and Angola, where manufacturers must establish cutting and polishing facilities.
India’s Diamond Industry: Current Status
India processes over 90% of the world’s diamonds and provides jobs to approximately 5 million people.
India contributes 19% of total global diamond exports.
Challenges:
Exports Decline:
2022: Exports valued at $23 billion.
2023: Declined to $16 billion, with further declines anticipated.
Rough Diamond Imports: Fell by 24.5%, from $18.5 billion (FY 2021-22) to $14 billion (FY 2023-24).
Exports of Cut and Polished Diamonds: Dropped by 34.6%, from $24.4 billion (FY 2022) to $13.1 billion (FY 2024).
Inventory Challenges: The gap between net imports of rough diamonds and net exports of cut and polished diamonds widened from $1.6 billion (FY 2022) to $4.4 billion (FY 2024).
Returns of Unsold Diamonds: The percentage of unsold diamonds returned to India rose from 35% to 45.6% between FY 2022 and FY 2024.
PYQ:
[2018] Which one of the following foreign travellers elaborately discussed about diamonds and diamond mines of India?
The Jawaharlal Nehru Port Authority (JNPA) in Mumbai is on track to become India’s first port to join the ranks of top global ports by handling 10 million TEUs (twenty-foot equivalent units) annually by 2027.
About the Jawaharlal Nehru Port
JNP is situated in Navi Mumbai, Maharashtra, covering an area of 200 square kilometers. Its strategic location enables vital trade links with international shipping routes.
Key Features:
India’s first 100% Landlord Major Port.
Operates five container terminals, including BMCT, NSICT, and GTIPL.
Customs facilities: 30 container freight stations and connectivity to 52 inland depots.
Handles vessels with 9,000 TEUs capacity, soon upgrading to 12,200 TEUs.
Processes 200 international ships monthly.
Future Developments:
Fourth Container Terminal operational by April 2025, adding 4.8 million TEUs capacity.
Developing a satellite port at Vadhvan and dry ports at Jalna and Wardha.
Key Highlights of JNPA’s Expansion
In 2024, JNPA handled its highest-ever container volume of 7.05 million TEUs, operating at more than 90% capacity.
The port recorded an 11% year-on-year growth compared to the previous year.
The second phase of Bharat Mumbai Container Terminal will add 2.4 million TEUs to JNPA’s total capacity.
The upgradation of Nhava Sheva Freeport Terminal in 2025 will further enhance the port’s capabilities.
The total container handling capacity is projected to increase from 7.6 million TEUs to 10.4 million TEUs by 2027.
PYQ:
[2016] Recently, which of the following States has explored the possibility of constructing an artificial inland port to be connected to sea by a long navigational channel?
The Union Minister of Commerce & Industry inaugurated the National Turmeric Board in New Delhi, with Palle Ganga Reddy appointed as its first Chairperson.
About the National Turmeric Board
Details
Operates under the Ministry of Commerce & Industry.
Headquarters: Nizamabad, Telangana.
Aim: To enhance turmeric production, support farmers, and boost global exports.
Structural Mandate
Chaired by a Central Government appointee.
Includes representatives from the Ministry of AYUSH, Department of Pharmaceuticals, Department of Agriculture & Farmers Welfare, and Department of Commerce.
Rotating senior representatives from three states are also part of the Board.
Powers and Functions
Promotes awareness of turmeric’s medicinal and essential properties.
Supports farmers across 20 states, including Maharashtra and Tamil Nadu.
Facilitates research, value addition, and development of new products for domestic and global markets.
Enhances logistics, supply chains, and trade opportunities.
Turmeric (Curcuma longa) Production in India
Turmeric is also known as ‘Golden Spice’.
It thrives in temperatures ranging between 20°C and 30°C with high annual rainfall.
India is the largest producer, consumer, and exporter of turmeric globally.
The recent Supreme Court judgment in the Jet Airways case has highlighted several major problems in India’s insolvency system.
What is the Insolvency and Bankruptcy Code (IBC)?
The Insolvency and Bankruptcy Code (IBC), enacted in 2016, is a comprehensive legal framework in India aimed at consolidating the existing laws governing insolvency and bankruptcy.
It establishes a structured process for resolving insolvency for corporate entities, individuals, and partnership firms, promoting timely resolution and maximizing asset value.
What are the structural inefficiencies in the current Insolvency and Bankruptcy Code (IBC)?
Overburdened Tribunals: The National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) are tasked with handling both corporate insolvencies under the IBC and cases under the Companies Act. This dual burden leads to inefficiencies and delays in resolving insolvency cases.
Inadequate Institutional Capacity: The NCLT’s structure, established in 1999, is outdated and does not align with contemporary economic demands. With only 63 sanctioned members, many of whom split their time across multiple benches, the tribunal struggles to manage its caseload effectively, resulting in significant backlogs.
Lack of Domain Expertise: Members of the NCLT often lack the necessary domain knowledge to handle complex insolvency cases effectively. This deficiency hampers their ability to make informed decisions, as highlighted by the Supreme Court in the Jet Airways case.
Procedural Delays: The requirement for mandatory hearings for all applications contributes to lengthy delays. The average time for insolvency resolutions has increased, indicating that procedural inefficiencies are exacerbating the situation.
Ineffective Urgent Listings: There is no robust system for urgent listings before the NCLTs, leading to further delays in critical cases. The discretion given to registry staff regarding case listings can lead to inconsistencies and unpredictability in case management.
Judicial Discretion Issues: There is a growing tendency among NCLT and NCLAT members to ignore Supreme Court orders, undermining judicial authority and eroding trust in the system.
How can procedural innovations enhance the effectiveness of insolvency resolution?
Specialized Benches: Establishing specialized benches for different categories of insolvency cases could improve efficiency and ensure that cases are handled by members with relevant expertise.
Mandatory Mediation: Introducing mandatory mediation before filing insolvency applications could reduce the number of cases entering the formal insolvency process, alleviating pressure on tribunals.
Streamlined Hearing Processes: Revising the requirement for mandatory hearings on all applications could expedite processes, allowing for more efficient case management and resolution.
Improved Infrastructure: Investing in adequate courtrooms and permanent support staff is essential to enhance operational capacity and ensure that tribunals can function effectively within the broader economic framework.
What reforms are necessary to transform the IBC into a proactive economic tool?
Reassessment of Tribunal Structure: A comprehensive review of the NCLT and NCLAT structures is needed to align them with current economic realities and demands, potentially increasing their sanctioned strength and operational hours.
Focus on Domain Expertise in Appointments: Reforming the appointment process for tribunal members to prioritise candidates with relevant experience in insolvency matters will enhance decision-making quality.
Encouraging Alternative Dispute Resolution (ADR): Promoting alternative dispute resolution methods within the insolvency framework can help manage caseloads more effectively while providing quicker resolutions for stakeholders.
Legislative Amendments: Continuous legislative amendments should be made based on empirical data and stakeholder feedback to address emerging challenges within the IBC framework.
Cultural Shift Towards Credit Discipline: Encouraging a cultural shift that emphasizes credit discipline among borrowers will support a healthier economic environment conducive to investment and growth.
Way forward:
Strengthen Institutional Capacity and Expertise: Enhance the operational capacity of NCLT and NCLAT by increasing strength by appointing members with domain expertise, and providing adequate infrastructure and support staff to streamline case management and reduce delays.
Promote Alternative Dispute Resolution (ADR): Integrate mandatory mediation and other ADR mechanisms within the IBC framework to alleviate tribunal workload, ensure quicker resolutions, and foster a collaborative insolvency ecosystem.
The Telecom Regulatory Authority of India (TRAI) plans to use blockchain technology (DLT) to track and manage customer preferences for blocking spam, according to its chairman, Anil Kumar Lahoti.
What is the Telecom Regulatory Authority of India (TRAI)?
The Telecom Regulatory Authority of India (TRAI) plays a crucial role in regulating Unsolicited Commercial Communications (UCC), commonly referred to as spam. Established under the Telecom Regulatory Authority of India Act, 1997.
What is TRAI’s role in fighting spam?
Do-Not-Disturb (DND) Registry: Launched in 2007, the DND registry allows customers to opt out of receiving commercial calls and messages. Users who register are not supposed to receive any spam communications.
Telecom Commercial Communication Customer Preference Regulation (TCCCPR): Enacted in 2018, this regulation penalizes telemarketers who violate DND preferences. It includes warnings for offenders and potential blacklisting from sending messages if they accumulate enough violations.
DND App Development: TRAI collaborated with external agencies to create a DND application that enables users to register their preferences and report complaints. By 2024, it became mandatory for telecom providers to include DND reporting features in their apps.
What role does blockchain play?
TRAI has mandated the use of Distributed Ledger Technology (DLT) to enhance its spam control measures:
Immutable Record Keeping: Blockchain technology allows for a constantly updated and tamper-proof list of approved SMS senders and message formats. This ensures that only legitimate messages are sent, as each entry is unalterable by any party involved.
Message Traceability: Regulations require that messages be sent using sender IDs instead of phone numbers, enhancing traceability. This measure helps prevent unauthorized entities from sending spam by ensuring that all message origins are recorded.
Enhanced Regulations: In 2024, TRAI tightened regulations to ensure complete traceability of messages, addressing previous loopholes that allowed fraudulent registrations on blockchain systems
What are the other steps taken by the government to end spam?
Sanchar Saathi Portal: This portal includes a reporting platform called Chakshu for complaints about fraudulent calls and messages. It collaborates with law enforcement and banks to identify and cancel numbers associated with unauthorised telemarketers.
Real-Time Monitoring: The establishment of the Telecom Security Operation Centre enables real-time monitoring of suspicious internet traffic, enhancing the government’s ability to respond promptly to spam-related threats.
AI-Based Detection: Telecom companies like Airtel have begun using Artificial Intelligence to label suspicious calls as “Suspected Spam,” a practice that is being adopted by other providers as well.
Way forward:
Strengthen International Collaboration: Partner with global VoIP providers and international regulators to curb spam and fraudulent calls originating from abroad, ensuring seamless enforcement across borders.
Promote AI and ML Integration: Expand the use of AI/ML technologies for proactive detection and blocking of spam calls and messages, while continuously improving user-friendly reporting mechanisms.
Mains PYQ:
Q For achieving the desired objectives,it is necessary to ensure that the regulatory institutions remain independent and autonomous. Discuss in the light of experiences in recent past. (UPSC IAS/2015)
Q) Explain the difference between computing methodology of India’s Gross Domestic Product (GDP) before the year 2015 and after the year 2015. (UPSC CSE 2021)
Mentor’s Comment: UPSC mains have always focused on major issues like the methodology of India’s Gross Domestic Product (GDP) (2021) and steady GDP growth and low inflation (2019).
The real GDP growth of 6.4% in 2024-25, while slightly below the Reserve Bank of India’s forecast of 6.6% which should not be seen as disappointing. The growth rate is expected to improve in the second half, with manufacturing showing a significant slowdown, contributing to a decline from 8.2% growth in the previous year.
Today’s editorial highlights the growth rates of India in Nominal and real terms and what are the factors behind the low growth rate of India. This content can be used in mains answer GS paper 3 related to GDP of India.
_
Let’s learn!
Why in the News?
The First Advance Estimates (FAE) of National Accounts for 2024-25 indicate a real GDP growth of 6.4% and a nominal GDP growth of 9.7%.
Note: The National Statistical Office (NSO) of the Ministry of Statistics and Programme Implementation (MOSPI) releases the FAE.
What is the difference between Real and Nominal GDP growth rates?
• Real GDP growth rate is the rate of change in the volume of goods and services produced, while nominal GDP growth rate is the rate of change in the total value of goods and services produced. • The nominal GDP growth rate includes the effects of inflation, while the real GDP growth rate does not.
What factors are contributing to the slowdown in India’s GDP growth?
• Decline in Government Investment: The Government of India’s capital expenditure growth has been negative at (-)12.3%, which has significantly impacted overall GDP growth. Limited capital expenditure, reaching only 46.2% of the budget target after eight months, is a primary reason for the slowdown. • Weak Manufacturing Sector Performance: The manufacturing sector has experienced a sharp decline in growth from 9.9% in 2023-24 to 5.3% in 2024-25, contributing to lower Gross Value Added (GVA) figures. • Global Economic Uncertainty: Anticipated uncertainties stemming from global economic conditions, including changes in leadership in major economies like the United States, may hinder India’s export performance and overall economic stability. • Lower Private Consumption Growth: Although Private Final Consumption Expenditure (PFCE) is projected to grow by 7.3%, this is still a potential concern if consumer confidence does not recover adequately. • Previous High Base Effect: The high GDP growth of 8.2% in 2023-24 creates a challenging comparison, leading to perceptions of slowdown even when current growth rates may be consistent with long-term potential.
How will different sectors of the economy perform in the upcoming fiscal year?
Agriculture and Allied Sectors: Growth in agriculture is expected to improve significantly, with estimates suggesting a rise to 3.8% compared to 1.4% in the previous year.
Manufacturing Sector Recovery: There is an expectation for recovery in manufacturing, although it remains uncertain given past performance trends.
Construction and Services Sectors: The construction sector is projected to grow at around 8.6%, while financial services are expected to see growth of approximately 7.3%, indicating resilience and potential for expansion.
Private Consumption: Continued growth in private consumption is anticipated which is driven by rural demand and government spending initiatives.
What are the implications of these growth forecasts for policy and investment?
Need for Sustained Government Capital Expenditure: The government must prioritize capital expenditure to stimulate economic growth and encourage private investment, targeting at least a 20% increase based on revised estimates.
Focus on Structural Reforms: Policymakers should consider structural reforms that enhance productivity across sectors, particularly in manufacturing and agriculture, to support sustainable growth.
Investment in Infrastructure: Increased investment in infrastructure projects can provide a multiplier effect on the economy, fostering job creation and boosting demand.
Monitoring Global Economic Trends: Given the potential impact of global economic conditions on domestic growth, India should remain vigilant and adaptable to external shocks while focusing on strengthening domestic demand.
Long-Term Growth Strategies: With a potential long-term real GDP growth rate of around 6.5%, strategies should be developed to ensure that this target is met consistently over the next five years through innovation and investment in human capital.
Way forward:
Accelerate Infrastructure Investment: The government should prioritize and fast-track capital expenditure, especially in infrastructure, to stimulate economic activity, enhance private sector participation, and create jobs, aiming for at least 20% growth in capital investment for the upcoming fiscal year.
Enhance Sectoral Productivity through Reforms: Implement structural reforms in key sectors like manufacturing, agriculture, and services to boost productivity, reduce bottlenecks, and ensure sustainable long-term growth, focusing on innovation and skill development.
The Reserve Bank of India (RBI), along with the Central government, has reviewed the rules under the Foreign Exchange Management Act 1999 (FEMA) to make it easier to carry out cross-border transactions in Indian rupees (INR) according to a statement by the RBI.
What are the recent changes made in FEMA regulations by RBI?
Opening Rupee Accounts for Non-Residents: Overseas branches of authorized dealer (AD) banks can now open rupee accounts for non-residents, enabling them to conduct current and capital account transactions with Indian residents.
Settlement of Transactions: Non-residents can use their balances in repatriable rupee accounts, including Special Non-Resident Rupee Accounts (SNRAs) and Special Rupee Vostro Accounts (SRVAs), to settle transactions with other non-residents abroad.
Investment Opportunities: Balances in these accounts can be utilized for foreign investments, including Foreign Direct Investment (FDI) in non-debt instruments, thereby promoting rupee-based investments.
Flexibility for Exporters: Indian exporters are now permitted to open foreign currency accounts overseas to receive export proceeds and use these funds for import payments, enhancing operational flexibility.
Support for Local Currency Transactions: The new guidelines support cross-border transactions in local currencies, reducing reliance on dominant foreign currencies like the US Dollar
What is Internationalisation of Rupee?
The internationalization of the rupee refers to the process of increasing the use and acceptance of the Indian rupee (INR) in global trade, investment, and cross-border transactions. This initiative aims to promote the rupee as a viable alternative to dominant currencies like the US dollar in international markets.
What are the key features of the Internationalisation of Rupee?
Cross-Border Transactions: The primary goal is to facilitate more cross-border transactions in rupees, allowing businesses and individuals to conduct trade and investments without relying on foreign currencies.
Current and Capital Account Transactions: Initially focused on promoting the rupee for import and export trade, the process will extend to other current account transactions and eventually capital account transactions, enabling investments in rupee-denominated assets.
Full Convertibility: Achieving full capital account convertibility is essential for internationalization, meaning there would be no restrictions on converting rupees into foreign currency or vice versa for investments and loans.
Strengthening Economic Sovereignty: Reducing reliance on foreign currencies enhances India’s economic sovereignty and minimizes exposure to currency fluctuations, thereby stabilizing trade relations.
Enhancing Global Trade: By allowing direct transactions in rupees, internationalization can simplify cross-border trade processes, eliminate currency conversion needs, and reduce transaction costs.
What are the significance of Internationalisation of Rupee?
Reducing Exchange Rate Risks: By promoting INR usage in international trade, India can mitigate exchange rate risks associated with reliance on major currencies like the USD.
Enhancing Trade Competitiveness: Facilitating rupee transactions can improve India’s trade competitiveness by lowering transaction costs and simplifying payment processes for exporters and importers.
Strengthening Economic Sovereignty: Greater acceptance of the INR in global markets can enhance India’s economic sovereignty and reduce vulnerability to external economic shocks and geopolitical tensions.
Encouraging Foreign Investment: The ability to conduct transactions in INR may attract more foreign investors looking for stable investment opportunities in India
Way forward:
Strengthen Global Agreements: Expand bilateral and multilateral trade agreements to encourage invoicing and settlement in rupees, promoting its global acceptability.
Enhance Domestic Financial Infrastructure: Improve financial systems to support seamless cross-border rupee transactions, including achieving full capital account convertibility and increasing trust in the INR.
Mains PYQ:
Q How would the recent phenomena of protectionism and currency manipulations in world trade affect macroeconomic stability of India? (UPSC IAS/2018)
