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Subject: Economics

  • [pib] National Cooperative Policy

    Why in the News?

    • The Union Minister of Cooperation has provided crucial information regarding India’s National Cooperative Policy to the Lok Sabha.
      • The new National Cooperative Policy is almost ready and will be announced in 2-3 months.

    Update regarding the New National Cooperative Policy:

    Details
    National Level Committee Formation • A 48-member National Level Committee was formed under the chairmanship of Shri Suresh Prabhakar Prabhu.
    • The committee includes experts from the cooperative sector, representatives from National, State, District, and Primary level cooperative societies, and officers from Central Ministries/Departments.
    • The task of the committee was to formulate the New National Cooperation Policy for the development of the cooperative sector in India.
    • 17 meetings and 4 regional workshops were conducted across the country to finalize the draft report of the policy.
    Aims and Objectives • Revitalize the cooperative sector and enhance its efficiency at national, state, district, and primary levels.
    • Strengthen the cooperative movement in India by creating a structured policy that fosters growth and sustainability.
    • Establish financial viability and governance mechanisms for cooperatives.
    • Ensure cooperative federalism by allowing state cooperatives to function autonomously, avoiding undue centralization.
    Features of the Policy • The policy adopts an inclusive approach, including all levels of cooperatives from district to primary.
    • Close collaboration with State Governments to promote the cooperative sector and implement cooperative federalism.
    • The draft policy was developed after extensive consultations, ensuring broad public and expert participation.
    Provisions under the Policy • Strengthening Cooperative Structure: Set up District Central Cooperative Banks (DCCBs) and district milk producers’ unions in all uncovered districts. NABARD will prepare an action plan for this.
    • Expansion of Multipurpose PACS: New multipurpose PACS, primary dairy/fishery cooperative societies will be established in uncovered Panchayats/villages across India within the next five years.

     

    PYQ:

    [2011] In India, which of the following have the highest share in the disbursement of credit to agriculture and allied activities?

    (a) Commercial Banks

    (b) Cooperative Banks

    (c) Regional Rural Banks

    (d) Microfinance Institutions

  • What is Cash Reserve Ratio (CRR)?

    Why in the News?

    • The Reserve Bank of India (RBI) began its three-day monetary policy review.
      • There is increasing speculation that the RBI may announce a cut in the Cash Reserve Ratio (CRR) to ease liquidity pressures.

    What is Cash Reserve Ratio (CRR)?

    • CRR is the percentage of a bank’s total deposits that it must maintain as liquid cash with the Reserve Bank of India (RBI) as a reserve.
    • It is a tool used by the RBI to manage inflation and check excessive lending by banks.
      • It serves as a safety net during times of banking stress, ensuring banks have enough liquidity for day-to-day operations.
    • As of now, the CRR is set at 4.5% of a bank’s Net Demand and Time Liabilities (NDTL).
    • Banks do not earn interest on the amount they maintain as CRR with the RBI.
    • CRR Requirements for Different Types of Banks:
      • Scheduled Commercial Banks (SCBs): Includes Public Sector Banks (PSBs), Private Sector Banks (PVBs), Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Payments Banks, Primary (Urban) Co-operative Banks (UCBs), State Co-operative Banks (StCBs), and District Central Co-operative Banks (DCCBs).
      • Non-Scheduled Co-operative Banks & Local Area Banks: They must maintain CRR with themselves or with the RBI.
    • Restrictions on CRR Funds
      • Banks cannot lend the funds held as CRR to corporates or individual borrowers.
      • The money held under CRR cannot be used for investment purposes by the bank.
      • No Interest is earned on the funds maintained as CRR by banks with the RBI.

    What is Incremental CRR (I-CRR)?

    • Introduced temporarily on August 10, 2023, to absorb surplus liquidity in the banking system.
    • Banks were required to maintain 10% I-CRR on the increase in their NDTL between May 19, 2023, and July 28, 2023.
    • The I-CRR was implemented from August 12, 2023, and applied during periods of excess liquidity in the financial system.

    Impacts of Declining CRR on the Economy

    • Positive Impacts: 
      • Increased Bank Liquidity: A reduction in CRR frees up more funds for banks, improving credit availability and promoting investment and consumption.
      • Stimulus for Economic Growth: With more funds to lend, businesses can secure loans more easily, boosting economic activity and encouraging growth across sectors.
      • Lower Interest Rates: As banks have more liquidity, they may lower interest rates on loans, making credit cheaper and encouraging investment and consumer spending.
    • Negative Impacts: 
      • Potential Inflationary Risks: Increased lending and spending can raise demand, which, if not matched by supply, can lead to inflationary pressures in the economy.
      • Asset Bubbles: Excess liquidity may result in overvalued assets like stocks or real estate, creating the risk of unsustainable price increases and potential market instability.

    PYQ:

    [2010] When the Reserve Bank of India announces an increase of the Cash Reserve Ratio, what does it mean?

    (a) The commercial banks will have less money to lend

    (b) The Reserve Bank of India will have less money to lend

    (c) The Union Government will have less money to lend

    (d) The commercial banks will have more money to lend

  • Bank Bill passes LS, allows one account, 4 nominees

    Why in the News?

    The Lok Sabha passed the Banking Laws (Amendment) Bill, 2024, marking the first piece of legislation to be approved during the Winter Session after the resolution of a week-long impasse.

    What are the key features of the Banking Laws (Amendment) Bill, 2024?

    • Nomination Provisions: The Bill allows bank account holders to nominate up to four individuals for their accounts, with options for either successive or simultaneous nominations. However, locker holders will only have the option for successive nominations.
    • Redefinition of “Substantial Interest”: The threshold for defining “substantial interest” for directorships is proposed to increase from ₹5 lakh to ₹2 crore, reflecting current economic conditions.
    • Tenure of Directors: The tenure of directors (excluding chairpersons and whole-time directors) in cooperative banks will be extended from eight years to ten years, aligning with provisions in the Constitution (Ninety-Seventh Amendment) Act, 2011.
    • Common Directorships: The Bill permits directors of Central Cooperative Banks to serve on the boards of State Cooperative Banks under certain conditions.
    • Auditor Remuneration: It grants banks greater flexibility in determining the remuneration for statutory auditors, which was previously regulated by the Reserve Bank of India (RBI) and the central government.
    • Reporting Dates: The reporting dates for regulatory compliance will shift from the second and fourth Fridays to the 15th and last day of every month, streamlining oversight processes.

    What are the reasons for this amendment?

    • Enhancing Governance: The amendments aim to strengthen governance standards within banks, ensuring better protection for depositors and investors while improving audit quality in public sector banks.
    • Customer Convenience: By allowing multiple nominations, the Bill intends to simplify inheritance processes related to bank deposits and reduce instances of unclaimed deposits after an account holder’s demise.
    • Alignment with Constitutional Provisions: Increasing director tenures in cooperative banks aligns banking regulations with constitutional amendments that govern cooperative societies.

    What would be the significant impact of this amendment?

    • Improved Customer Experience: The ability to nominate multiple individuals enhances customer convenience and ensures smoother transitions in account management after an account holder’s death.
    • Strengthened Governance Framework: By redefining substantial interest and increasing director tenures, the Bill aims to foster a more robust governance framework within cooperative banks, potentially leading to better decision-making and accountability.
    • Regulatory Compliance Efficiency: Changing reporting dates is expected to improve compliance efficiency, allowing banks to better align their reporting practices with regulatory requirements.

    What is the criticism faced by the Banking Laws (Amendment) Bill, 2024?

    • Concerns Over Financial Practices: Opposition leaders raised concerns regarding rising imports from China amid strained relations and questioned broader financial practices like demonetization and electoral bonds.
    • Banking Fees and Cybersecurity Risks: Critics highlighted issues related to fees for basic banking services such as ATM withdrawals and SMS alerts, particularly emphasizing vulnerabilities faced by senior citizens concerning cyber fraud.
    • Economic Context: Some opposition members criticized the timing of the Bill against a backdrop of economic challenges such as inflation exceeding growth rates, potentially leading to stagflation. They expressed skepticism about whether these amendments would effectively address underlying economic issues.

    Way forward: 

    • Addressing Broader Economic Concerns: The government should focus on macroeconomic reforms to manage inflation and foster sustainable growth. The Banking Laws Amendment should be complemented by policies that address the root causes of economic challenges, ensuring the banking sector thrives amidst broader financial stability.
    • Strengthening Cybersecurity and Customer Protection: Banks should enhance security measures, especially for senior citizens, to safeguard against rising cyber fraud.

  • Windfall Gains Tax on Oil Production, Diesel-Petrol Export Removed

    Why in the News?

    With global oil prices stabilizing and domestic fuel supply improving, the government has decided to scrap the windfall gains tax, ensuring more predictable taxation for the oil industry.

    What is Windfall Tax?

    • A windfall tax is a levy imposed on companies experiencing unexpected profits due to external factors like market shifts or crises.
    • In India, it was introduced on July 1, 2022, targeting domestic crude oil production and exports of diesel, petrol, and ATF.
      • The tax aimed to capture windfall profits and ensure adequate domestic fuel supply amid rising global prices after Russia’s invasion of Ukraine.
    • The tax was imposed as Special Additional Excise Duty (SAED) on crude oil, and Additional Excise Duty (AED) or Road and Infrastructure Cess (RIC) on fuel exports.
    • Initially, the tax was Rs 23,250 per tonne on crude oil, Rs 13 per litre on diesel exports, and Rs 6 per litre on petrol and ATF exports.
    • The tax was regularly reviewed based on global oil price fluctuations.

    Impact of Removing Windfall Tax

    • Stable Tax Environment: Boosts predictability, encouraging long-term investments in oil production.
    • Revenue Decline: The tax was generating less revenue, falling from Rs 25,000 crore in FY 2022-23 to Rs 6,000 crore in FY 2024-25.
    • Oil Companies’ Profitability: Increased profits for producers like ONGC and Reliance Industries as they no longer pay the levy.
    • Encourages Domestic Production: Promotes higher domestic oil production and exploration.
    • Policy Confidence: Signals that India is confident in stable global oil prices and future supply.

    PYQ:

    [2020] The term ‘West Texas Intermediate’, sometimes found in news, refers to a grade of:

    (a) Crude oil

    (b) Bullion

    (c) Rare earth elements

    (d) Uranium

  • GDP was lower than expected. Here’s how to move ahead

    Why in the News?

    India has been growing well even with global challenges. After growing by 8.2% in 2023-24 and 6.7% in the first quarter of 2024-25, growth slowed down to 5.4% in the second quarter.

    Is the Slowdown in GDP Growth a Temporary Setback or a Sign of a Longer-Term Trend?

    • Current Growth Trends: India’s GDP growth decelerated to 5.4% in the second quarter of FY 2024-25, down from 6.7% in the previous quarter and 8.1% in the same quarter last year. This sharp decline has raised concerns about the sustainability of growth, particularly given that industrial performance has been poor, especially in the mining, manufacturing, and electricity sectors.
    • Sectoral Performance: The industrial sector’s growth slowed to 3.6% from 8.3%, indicating significant challenges in manufacturing and mining.
      • While agriculture has shown recovery due to good Kharif harvests, and the services sector remains robust, the overall industrial slowdown suggests vulnerabilities that could impact future growth.
    • Expectations for Recovery: Despite the current slowdown, there are expectations for GDP growth to rebound in the latter half of the fiscal year due to improved government expenditure and rural consumption. However, this recovery is contingent upon various factors, including global economic conditions and domestic consumption patterns.
    • Long-Term Concerns: Analysts caution that while some recovery is anticipated, the overall GDP growth for FY 2024-25 is projected to be lower at around 6.5%, which is a decrease from the 7-8% range seen in previous years.

    Measures to Stimulate Consumer Sentiment and Boost Household Spending

    • Tax Benefits for Households: The government could consider implementing tax incentives aimed at increasing disposable income for households, thereby encouraging spending. This could involve direct tax cuts or enhanced deductions for certain expenditures.
    • Job Creation Initiatives: A strong focus on job creation, especially in sectors vulnerable to automation, could bolster household incomes and consumer confidence. Initiatives could include skill development programs and incentives for businesses that hire more workers.
    • Support for Agriculture: Given the positive impact of agricultural performance on rural consumption, enhancing support for farmers through subsidies or better access to markets could further stimulate spending in rural areas.
    • Addressing Inflation Concerns: Moderating food inflation through effective supply chain management and price controls could help ease consumer spending pressures. Ensuring stable prices for essential commodities would improve overall consumer sentiment.
    • Incentives for Private Investment: Encouraging private sector investment through favorable policies and easing regulatory burdens can lead to increased economic activity and job creation.

    How Should Policymakers Respond to Current Economic Challenges? (Way forward)

    • Enhance Public Investment: Policymakers should prioritize increasing government capital expenditure (capex), which has been weak due to election-related restrictions. A robust public investment strategy can stimulate economic activity and create jobs.
    • Focus on Deregulation: Continued efforts to deregulate sectors can improve business confidence and attract private investments, fostering a more conducive environment for growth.
    • Monitor Global Developments: Policymakers need to remain vigilant regarding global economic trends that could impact India’s economy, including potential trade wars or geopolitical tensions. Preparing contingency plans will be crucial in mitigating risks associated with global volatility.
    • Strengthen Domestic Demand: Given the uncertain global environment, strengthening domestic demand through targeted fiscal policies will be essential for sustainable growth. This includes measures that directly enhance consumer spending power.
    • Long-Term Growth Strategy: A comprehensive strategy focusing on enhancing productivity across sectors, investing in infrastructure, and fostering innovation will be critical for raising India’s potential GDP growth over the long term.

    Mains PYQ:

    Q Despite India being one of the countries of Gondwanaland, its mining industry contributes much less to its Gross Domestic Product (GDP) in percentage. Discuss. (UPSC IAS/2021)

  • [pib] SHAKTI Yojana

    Why in the News?

    The SHAKTI Yojana plays a crucial role in enhancing the reliability of coal supply for India’s power sector.

    About SHAKTI Yojana:

    Details • SHAKTI stands for Scheme for Harnessing and Allocating Koyala Transparently in India.
    • Introduced by: Ministry of Coal, Government of India.
    • Launched in 2018, with amendments in March 2019 and November 2023.
    • Purpose: Ensure transparent coal allocation to the power sector, especially stressed power units facing coal shortages.
    Objective Allocate coal supplies to power plants that are unable to secure adequate fuel, ensuring consistent and transparent coal supply to power plants.

    Features:

    Fuel Supply Agreement (FSA): Coal supplied through FSA with Letter of Assurance (LoA) holders, ensuring continuation of supply at 75% of the Annual Contracted Quantity (ACQ).

    Coal Linkages: Linkages granted to State/Central Generating Companies and Independent Power Producers (IPPs) with Long-Term PPAs.
    Significance • Ensures coal supply to stressed units, supporting new power plants and promoting transparency in coal allocation.
    • Supports uninterrupted power generation by ensuring consistent fuel supply.

     

    About India’s Coal Gasification Vision:

    To achieve 100 MT of coal gasification by FY 2030, with a focus on sustainable practices and reducing carbon emissions.

    • Incentive: Reimburse GST compensation cess on coal used for gasification projects for 10 years, contingent on cess extension beyond FY27.
    • Target: Attract both Government PSUs and the Private Sector to drive innovation and investment in coal gasification.
    • Process: Entities selected through a transparent bidding process; government support for eligible PSUs and private firms to implement projects.

     

    PYQ:

    [2019] Consider the following statements:

    1. Coal sector was nationalized by the Government of India under Indira Gandhi.

    2. Now, coal blocks are allocated on lottery basis.

    3. Till recently, India imported coal to meet the shortages of domestic supply, but now India is self-sufficient in coal production.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 and 3 only

    (c) 3 only

    (d) 1, 2 and 3

  • Prospects and Concerns for the Rabi Crop

    Why in the News?

    Due to high October temperatures and shortages of di-ammonium phosphate (DAP) fertiliser, the planting of key Rabi (winter-spring) crops such as wheat, mustard, and chana (chickpea) has been slower than usual.

    Low Rabi Sowing this Year

    • The Rabi (winter-spring) season is key for crops like wheat, mustard, and chana.
    • Sowing began in October and continues through November-December.
    • As of November 8, 2024, sowing progress includes:
      • Wheat: 41.30 lakh hectares (down from 48.87 lakh hectares last year)
      • Mustard: 49.90 lakh hectares (down from 50.73 lakh hectares last year)
      • Chana: 24.57 lakh hectares (down from 27.42 lakh hectares last year)
    • Reasons Behind:
      • High October Temperatures: 0.68°C above normal temperatures delayed sowing and caused poor germination, especially in jeera and other spices.
      • Fertiliser Shortage: A shortage of DAP fertiliser hindered the timely planting of crops.
      • Delayed Start of Sowing: Farmers, particularly in Uttar Pradesh, began sowing later than usual (from October 20-22 instead of mid-October).

    About Rabi Cropping Season in India:

    • Rabi crops are generally sown in mid-November, once the monsoon rains have receded.
    • These crops grow using the rainwater that has percolated into the soil or with the help of irrigation systems.
    • The harvesting of Rabi crops generally occurs from April to May.
    • Major Rabi Crops:
      • Wheat: The largest and most important Rabi crop in India.
      • Barley: Grown mainly in North and Central India.
      • Mustard: An essential oilseed crop grown across various regions.
      • Sesame: Grown in many states but harvested early.
      • Peas: Harvested early, with a market peak from January to March (especially in February).
    • Agronomic Features:
      • Rabi crops rely heavily on irrigation and residual moisture from the previous monsoon season.
      • Excessive winter rainfall can harm Rabi crops but benefits the kharif crops grown later.
    rabi crop
    PC: Wikipedia

    PYQ:

    [2013] Consider the following crops:

    1. Cotton
    2. Groundnut
    3. Rice
    4. Wheat

    Which of these are Kharif crops?

    (a) 1 and 4

    (b) 2 and 3 only

    (c) 1, 2 and 3

    (d) 2, 3 and 4

  • North Eastern Tea Association (NETA)

    Why in the News?

    • The North Eastern Tea Association (NETA) has appealed to Ministry of Commerce and Industry seeking permission for tea producers to sell their products through both private sales and public auction systems.
      • A gazette notification issued on February 26, 2024 has mandated that 100% of dust teas must be sold through public auctions.

    About North Eastern Tea Association (NETA)

    Details • NETA is an association of tea producers headquartered in Golaghat, Upper Assam.
    • Established in 1981.
    • A key constituent of the Joint Forum and the Consultative Committee of Plantation Associations (CCPA), Assam Valley branch.
    • Focuses on promoting the interests of its members and enhancing the tea industry in Assam.
    Structural Mandate • Presence: Strong presence in Golaghat, Assam.
    • Role: Represents tea producers and plays a pivotal role in the development of Assam’s tea industry.
    • Mandate: Advocates for improvements in the tea industry, assists with policy suggestions, and provides guidance on the development of the tea sector.
    Powers and Functions • Advisory Role: Provides expert opinions and advice to the government of Assam and its members on issues related to the tea industry.
    • Policy Advocacy: Urges for changes in government policies to improve the tea industry, e.g., suggesting the relocation of the Tea Board of India’s headquarters to Guwahati.
    • Industry Growth: Encourages high-quality tea production and advises growers to enhance the quality of tea to attract international buyers.
    • Small Tea Grower Representation: Advocates for amendments to the definition of Small Tea Growers, proposing that those holding up to 50.6 hectares of land be recognized as small growers.
    • Government Relations: Provides suggestions to the government for improving and scaling up the tea industry in Assam.

     

    PYQ:

    [2022] Consider the following States:

    1. Andhra Pradesh
    2. Kerala
    3. Himachal Pradesh
    4. Tripura

    How many of the above are generally known as tea-producing States?

    (a) Only one State

    (b) Only two States

    (c) Only three States

    (d) All four States

  • [pib] Nutrient Based Subsidy (NBS) scheme

    Why in the News?

    • The government has a Nutrient Based Subsidy (NBS) scheme to regulate the subsidy rates for Phosphatic and Potassic (P&K) fertilizers, based on international prices of raw materials and fluctuations in the global market.
    Note:  Unlike P&K fertilizers, urea is provided to farmers at a statutorily notified Maximum Retail Price (MRP), irrespective of its cost of production.

    About the Nutrient Based Subsidy (NBS) Scheme:

    Details
    About • Introduced to provide subsidies on Phosphatic (P) and Potassic (K) fertilizers, based on nutrient content, excluding Urea.
    • Aims to promote balanced fertilization by encouraging use of multiple fertilizers for optimal plant nutrition.
    Structure and Functioning • Launched: 2010, under the Ministry of Chemicals and Fertilizers.
    • Implemented by the Department of Fertilizers, Ministry of Chemicals and Fertilizers.
    • Scope: Applies to Phosphatic and Potassic fertilizers (excluding Urea).
    • Governance: Subsidy rates are decided annually or bi-annually, based on market prices of fertilizers and raw materials.
    Aims and Objectives • Promote Balanced Fertilization: Encourages the use of Phosphorus and Potassium to complement Nitrogen and improve soil health.
    • Enhance Nutrient Efficiency: Aims to reduce over-reliance on Urea and improve use of other essential nutrients.
    • Support Farmers’ Affordability: Makes P&K fertilizers more affordable and accessible to farmers.

     

    About New Investment Policy (NIP) on Urea 

    • The NIP for Urea was announced by the Government of India in 2012 to increase domestic urea production capacity and reduce dependence on urea imports.
    • The policy aims to revive old urea plants and promote investment in new plants to meet the growing demand for urea.
    • The NIP focuses on improving fertilizer availability, and ensuring self-sufficiency in urea production.

    Urea Pricing after NIP

    • The pricing of urea is controlled by the government, and the subsidy mechanism ensures affordable pricing for farmers.
    • The government provides subsidies to urea manufacturers to bridge the gap between the cost of production and the retail price, which is kept constant at ₹5,360 per ton (as of 2023) for farmers.

     

    PYQ:

    [2020] With reference to chemical fertilizers in India, consider the following statements:

    1. At present, the retail price of chemical fertilizers is market-driven and not administered by the Government.

    2. Ammonia, which is an input of urea, is produced from natural gas.

    3. Sulphur, which is a raw material for phosphoric acid fertilizer, is a by-product of oil refineries.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 and 3 only

    (c) 2 only

    (d) 1, 2 and 3

  • [pib] India and ADB sign $98 million loan to promote Plants Health management

    Why in the News?

    • The Government of India and the Asian Development Bank (ADB) have signed a $98 million loan to support the Building India’s Clean Plant Programme.

    Aims and Objectives

    • The $98 million loan focuses on improving horticulture crop farmers’ access to certified disease-free planting materials.
    • The primary aim is to boost the yield, quality, and resilience of crops, particularly in response to the impacts of climate change.

    About the Atmanirbhar Clean Plant Programme (CPP):

    Details • Announced in Union Budget 2023-24 to enhance plant health management in India.
    • Aimed at providing farmers access to clean, disease-free planting materials.
    • Anchored by the National Horticulture Board (NHB), which will set up Clean Plant Centers across the country.
    • Ensures global competitiveness of the Indian horticulture sector.
    • Key Objectives:
    – Strengthen the regulatory framework for plant health management.
    – Establish Clean Plant Centres for disease-free horticultural crops.
    – Collaborate with private nurseries, researchers, state governments, and growers’ associations for success.
    • Funding: ADB loan to establish advanced laboratories and diagnostic testing facilities at Clean Plant Centres.
    • Will include a certification scheme for private nurseries to produce disease-free planting materials.
    Where does India stand in its Horticulture Sector? • In 2022-23, India’s horticulture production reached 351.92 million tonnes, surpassing foodgrain production.
    • Second largest producer of fruits and vegetables in the world; Contributes about 33% to the agriculture Gross Value Added (GVA).
    • Ranks first in the production of crops like Bananas, Lime, Papaya, and Okra.
    • Steady increase in horticulture production driven by proactive government policies.

     

    PYQ:

    [2021] What are the present challenges before crop diversification? How do emerging technologies provide an opportunity for crop diversification?

    [2018] Assess the role of National Horticulture Mission (NHM) in boosting the production, productivity and income of horticulture farms. How far has it succeeded in increasing the income of farmers?