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Subject: Economics

  • D’Cunha Committee

    Why in the News?

    The commission, headed by retired High Court judge John Michael D’Cunha, has released a report investigating the irregularities in the procurement and management of COVID-19 resources in Karnataka.

    Key Findings:

    • Among the major concerns are the procurement of ventilators under the PM CARES Fund and the inflated prices of PPE kits.
    • The report has raised alarms over the unnecessary procurement of ventilators and the questionable pricing of PPE kits sourced from Chinese companies.

    What is the D’Cunha Committee?

    • It was formed in August 2023 to investigate the alleged irregularities in COVID-19 procurements and management of medical supplies during the tenure of the erstwhile government in Karnataka.
    • It was headed by retired High Court judge John Michael D’Cunha.
    • It was tasked with examining the procurement processes and the disbursement of funds under various schemes, particularly the PM CARES Fund, and identifying administrative lapses and corruption.

    Recommendations given by the Committee:

    • Investigate Ventilator Procurement: Recommend a probe into the procurement of 130 ventilators on March 22, 2020, under questionable circumstances, despite similar supplies under PM CARES.
    • Review Undelivered Ventilators: Recommended action on payments made for ventilators that were undelivered or partially delivered.
    • Scrutiny of Price Variations: Called for an investigation into the vast price differences for ventilators, ranging from ₹5 lakh to ₹16.25 lakh.
    • Probe PPE Kit Purchases: Suggested further inquiry into inflated prices for PPE kits bought from Chinese firms despite cheaper local alternatives.
    • Formation of SIT: Recommended setting up a Special Investigation Team (SIT) for further probe into the Karnataka Medical Supplies Corporation Ltd. (KSMSCL).
    • Enhance Transparency: Urged improved procedures to ensure accountability in future procurements.

  • Why India’s trade deficit is not necessarily a weakness?

    Why in the News?

    India’s ongoing trade deficit, where imports exceed exports, is often viewed as a sign of weakness in Indian manufacturing.

    What is the nature of India’s trade deficit?

    • Trade Deficit in Goods: As of October 2024, India recorded a merchandise trade deficit of $27.1 billion, which narrowed from $31.5 billion in the same month the previous year.
    • Net Exporter of Services: India has established itself as a significant player in the global services market, with services exports constituting a substantial portion of its overall trade.
      • In FY 2023-24, India’s services exports amounted to approximately $309 billion, contributing significantly to offsetting the goods trade deficit
    • Foreign Capital Inflows: The trade deficit is often viewed positively as it correlates with India’s ability to attract foreign investment.
      • For instance, India’s current account deficit was about 1.1% of GDP in June 2024, indicating that capital inflows are necessary to balance this outflow.
    • Current Account Balance: The current account deficit (CAD) reached approximately $9.7 billion in the April-June 2024 quarter, reflecting the need for capital inflows to support economic growth and stability.
      • India’s current account deficit has been maintained at around 2% of GDP, which is generally considered manageable within the context of its economic growth and investment strategies.

    Why do we hold reserves?

    • Cushion Against Economic Shocks: Reserves are held as a safeguard against potential economic disruptions, such as sudden spikes in oil prices that could worsen the current account deficit.
    • For Cost Management: While holding reserves incurs costs (e.g., lower returns on reserves compared to returns on foreign investments), they are essential for maintaining economic stability and investor confidence.
    • Optimal Level of Reserves: India aims to maintain adequate reserves without excessive accumulation. This involves balancing the need for emergency funds against the costs associated with holding those reserves.

    What are the Steps taken by the Government? 

    • Make in India Initiative: Launched in 2014, this initiative aims to boost domestic manufacturing by encouraging both foreign and domestic companies to manufacture their products in India.
      • It focuses on sectors such as electronics, automobiles, and pharmaceuticals to increase production capabilities, reduce dependency on imports, and enhance export competitiveness.
    • Production-Linked Incentive (PLI) Scheme: Introduced in 2020, the PLI scheme provides financial incentives to manufacturers across various sectors, including electronics, textiles, and pharmaceuticals.
      • This program is designed to attract investments, promote local manufacturing, and increase exports by enhancing the global competitiveness of Indian products.

    What strategies can mitigate the effects of the trade deficit? (Way forward)

    • Boosting Domestic Demand: Encouraging greater domestic consumption can help increase manufacturing output. Rising domestic demand can lead to higher production levels without necessarily increasing imports.
    • Enhancing Export Competitiveness: Focusing on sectors where India has a comparative advantage, such as pharmaceuticals and automobiles, can help increase export volumes and reduce the trade deficit.
    • Diversifying Import Sources: Reducing reliance on specific countries for imports (e.g., crude oil) by diversifying sources can help stabilize import costs and mitigate fluctuations in global prices.
    • Investing in Manufacturing Capabilities: Strengthening domestic manufacturing through policies supporting local industries can reduce import dependency and enhance export capacity.

    Mains PYQ:

    Q Craze for gold in India has led to a surge in the import of gold in recent years and put pressure on the balance of payments and the external value of the rupee. In view of this, examine the merits of the Gold Monetization scheme. (UPSC IAS/2015)

  • Coffee Board devises road map with eye on doubling production, exports

    Why in the News?

    The Coffee Board of India has launched a 10-year roadmap with a goal to double the country’s coffee production and coffee exports by 2034.

    About Coffee Board of India:

    Details
    About • Coffee cultivation in India began with the planting of 7 seeds of coffee during 1600 AD by saint Baba Budan, in the courtyard of his hermitage in Chikmagalur, Karnataka.

    • Until 1995, marketed the pooled supply of coffee.
    • Post-1995, coffee marketing became a private-sector activity due to economic liberalisation.
    Structural Mandate • Managed by the Ministry of Commerce and Industry, established in 1942, headquartered in Bangalore.

    • Comprises 33 members, including a Chairman appointed by the Government of India.
    Functions of Coffee Board • Enhancement of production, productivity & quality.
    • Export promotion for achieving higher value returns for Indian Coffee.
    • Supporting the development of the domestic market.
    Coffee Industry in India – Imports/Exports • Karnataka is the largest producer (70%), followed by Kerala and Tamil Nadu.
    • India exports over 70% of its coffee production.
    • India is the 8th largest coffee exporter (FAO) globally (by volume).
    • Coffee exports peak from March to June.
    Agro-climatic Conditions • It is a tropical plant which is also grown in semi-tropical climate.

    • 16° – 28°C temperature, 150-250cm rainfall and well-drained slopes are essential for its growth.

    • Low temperature, frost, dry weather for a long time and harsh sunshine are harmful for its plant.

    • Coffee plants grow better in the laterite soils of Karnataka in India.

    • Major Varieties Cultivated: Arabica, Robusta and Liberica.

    • Arabica has high market value than Robusta coffee due to its mild aromatic flavor.

     

    PYQ:

    [2010] Though coffee and tea both are cultivated on hill slopes, there is some difference between them regarding their cultivation. In this context, consider the following statements:

    1. Coffee plant requires a hot and humid climate of tropical areas whereas tea can be cultivated in both tropical and subtropical areas.
    2. Coffee is propagated by seeds but tea is propagated by stem cuttings only.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

  • [pib] MJS launches ‘Bhu-Neer’ Portal for Ground Water Withdrawal Permits

    Why in the News?

    The ‘Bhu-Neer’ Portal was digitally launched by Minister of Jal Shakti, during the India Water Week 2024.

    About the ‘Bhu-Neer’ Portal:

    Details
    About • Centralized platform for managing groundwater withdrawal permits.
    • Developed by the Central Ground Water Authority (CGWA) and National Informatics Centre (NIC).
    • Aims to regulate groundwater usage across India efficiently, ensuring transparency and sustainability.
    Features and Provisions • User-friendly interface with PAN-based single ID, NOC with QR code, and streamlined processes.
    • Improved version compared to its predecessor, NOCAP.
    • Ensures groundwater compliance and promotes sustainable practices.
    Implementation • The portal is live and accessible for groundwater queries, tracking, and payments.
    • Open to both project proponents and the general public for groundwater-related services.

     

    Back2Basics: Central Ground Water Authority (CGWA)

    • It has the mandate of regulating groundwater development and management in the country.
    • It is constituted under the Environment (Protection) Act of 1986.
    • CGWA issues advisories, public notices and grant No Objection Certificates (NOC) for groundwater withdrawal.

     

    PYQ:

    [2020] Consider the following statements:

    1. 36% of India’s districts are classified as “overexploited” or “critical” by the Central Ground Water Authority (CGWA).

    2. CGWA was formed under the Environment (Protection) Act.

    3. India has the largest area under groundwater irrigation in the world.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 and 3 only

    (c) 2 only

    (d) 1 and 3 only

  • Telangana’s new EV policy

    Why in the News?

    The Telangana government has decided to completely waive road tax and registration fees for people buying electric vehicles.

    What are the key features of Telangana’s EV policy?

    • 100% Road Tax and Registration Fee Exemption: Electric two-wheelers, four-wheelers, and commercial vehicles (such as taxis, autorickshaws, electric light goods carriers, and buses) will be exempt from road tax and registration fees for the entire lifetime of the vehicle.
    • Exemption for Telangana State Road Transport Corporation (TSRTC): The exemption will apply to electric vehicles operated by TSRTC and buses owned by industries used for employee transport (not commercial purposes).
    • Validity Period: The exemption will be valid for two years, up to December 31, 2026, regardless of the number of vehicles registered.
    • Promotion of EV Awareness: The government is focused on spreading awareness about electric vehicle usage to reduce pollution levels and make Hyderabad pollution-free.
    • Support for Charging Infrastructure: Manufacturers of electric vehicles are encouraged to take the initiative in establishing charging stations to ensure convenience for users.

    How will the government support the EV push?

    • The government will provide exemptions from road taxes and registration fees for various categories of electric vehicles to make them more affordable for consumers.
    • A meeting of the concerned departments (Transport, Home, HMDA, etc.) will be convened to ensure effective coordination and implementation of the EV policy.
    • Government representatives studied the policies of other states to come up with a policy tailored to Telangana’s needs, reflecting the best practices for EV adoption.

    India’s New Electric Vehicle Policy 2024:

    • Duty Reduction: A customs duty of 15% is now applicable on imported EVs priced at $35,000 or above, significantly lower than the previous rates of 70-100%. This reduced rate will last for five years.
    • Import Limits and Investment Requirements: The policy allows for a maximum of 8,000 imported EVs per year, contingent on manufacturers investing at least ₹4,150 crore (approximately $500 million) in local production. There is no upper limit on investment, encouraging substantial financial commitments in the sector.
    • Local Manufacturing Mandate: Companies must establish operational facilities within three years and achieve a minimum domestic value addition (DVA) of 25% by that time, increasing to 50% by the fifth year. This aims to enhance local manufacturing capabilities.
    • Increased Import Allowance for Larger Investments: If a manufacturer invests over $800 million, they can import up to 40,000 EVs, still capped at 8,000 per year, with the option to carry over unused limits.
    • Bank Guarantees: A bank guarantee is required, which will be returned only upon meeting the DVA target and investment criteria.

    Why special EV Policy is needed?

    • Environmental Goals: The EV policy is part of an effort to reduce pollution levels in Telangana, especially in Hyderabad, to prevent the city from facing pollution issues similar to those in New Delhi.
    • Lack of Implementation in the Past: Although the previous government introduced an EV policy for 2020-30, it was not implemented effectively. The new policy addresses this gap and actively promotes EV adoption.
    • Growing Need for Awareness and Infrastructure: The policy also aims to spread awareness about EVs and address infrastructure challenges, such as the availability of charging stations, which are crucial to making electric vehicles a viable alternative.
    • Encouraging Wider Adoption: The policy aims to increase the percentage of electric vehicles in the state (currently 5 out of every 100 vehicles are EVs) by offering financial incentives and creating an ecosystem that supports EV users.

    Conclusion: Expanding and improving the availability of EV charging stations across the state is crucial to ensure the seamless adoption of electric vehicles, especially in urban areas and key highways.

  • CAG flags 42% resource-expenditure gap, 37% staff vacancy

    Why in the News?

    The CAG found that urban local bodies in 18 states, serving 241 million people, face a 42% gap between income and spending, with just 29% used for development work.

    What are the key findings of the report?

    • Resource-Expenditure Gap: Urban local bodies (ULBs) in 18 states face a 42% gap between their income and expenditure, with only 29% of spending directed toward development work.
    • Revenue Dependence: ULBs generate only 32% of their revenue independently, relying heavily on Union and state government funds; they collect just 56% of their property tax demand.
    • Staff Shortages and Limited Recruitment Powers: ULBs operate with an average 37% staff vacancy rate, and 16 states provide them with limited or no recruitment autonomy.
    • Incomplete Implementation of the 74th Amendment: While 17 out of 18 functions have been devolved on average, compliance remains weak. Critical areas like urban planning and fire services are the least devolved.

    What are the implications of the resource-expenditure gap?

    • Reduced Development Expenditure: With only 29% of expenditure directed toward programmatic and development work, the quality and quantity of essential urban services such as sanitation, housing, and infrastructure suffer.
    • Increased Dependence on Grants: Only 32% of urban local bodies’ (ULBs) revenue comes from their own sources, making them overly reliant on state and Union government transfers. This undermines their fiscal autonomy.
    • Poor Service Delivery: Insufficient resources hinder the ability of ULBs to meet growing urban demands, exacerbating issues like inadequate housing, poor waste management, and insufficient public health services.
    • Impact on Urban Planning: The resource crunch constrains investment in urban planning and critical services like fire safety, leading to unplanned growth and vulnerabilities.

    How does the 37% staff vacancy rate impact government operations?

    • Operational Inefficiency: Vacant positions lead to delays in service delivery, poor maintenance of urban infrastructure, and inefficiencies in governance.
    • Overburdened Workforce: Existing staff must take on additional responsibilities, potentially leading to burnout and reduced productivity.
    • Limited Capacity for Resource Mobilization: Staff shortages in tax collection departments result in only 56% of property tax demand being realised, reducing revenue potential.
    • Weak Local Governance: Insufficient personnel to handle devolved functions hampers the implementation of policies and schemes meant for urban development.

    What are the Urban Local bodies?

    • The establishment and functioning of ULBs are governed by the 74th Amendment to the Constitution of India, enacted in 1992. 
    • This amendment provides a constitutional framework for urban self-governance and outlines the powers and responsibilities of ULBs, which include various functions related to public health, sanitation, urban planning, and infrastructure development.
    • ULBs are categorized into three main types: Municipal Corporations (for large cities), Municipalities (for smaller towns), and Nagar Panchayats (for transitional areas).

    What measures can be taken to improve resource mobilisation and management? (Way forward)

    • Enhancing Own Revenue Generation: ULBs should focus on improving their revenue generation capabilities, particularly in property tax collection where they currently realize only 56% of demand.
      • Implementing technology-driven solutions like GIS for property assessments could enhance collection efficiency.
    • Financial Management Training: Providing training for ULB officials on financial management could improve budgeting practices, ensuring that funds are allocated more effectively towards development projects.
    • Strengthening Autonomy: Empowering ULBs with greater autonomy over recruitment and financial decisions would enable them to respond more effectively to local needs and improve service delivery.
    • Public-Private Partnerships (PPPs): Encouraging partnerships with private entities can help leverage additional resources for urban development projects while sharing risks associated with large-scale investments.
    • Community Engagement Initiatives: Involving citizens in budgetary processes can increase transparency and accountability, potentially leading to better resource allocation aligned with community priorities.

    Mains PYQ:

    Q Analyse the role of local bodies in providing good governance at local level and bring out the pros and cons merging the rural local bodies with the urban local bodies.  (UPSC IAS/2024)

  • RBI released list of Domestic Systemically Important Banks (D-SIBs)

    Why in the News?

    The RBI designated SBI, HDFC Bank, and ICICI Bank as Domestic Systemically Important Banks (D-SIBs) for 2024.

    Current D-SIBs in India:

    • As of 2024, the State Bank of India (SBI), HDFC Bank, and ICICI Bank are classified as D-SIBs.
    • SBI was classified as a D-SIB in 2015, ICICI Bank in 2016, and HDFC Bank in 2017.

    What are Domestic Systemically Important Banks (D-SIBs)?

    • D-SIBs are banks that are critical to the stability of a country’s financial system.
    • They are often termed “Too Big To Fail” (TBTF) because their failure could lead to significant disruptions in the economy.
    • The RBI identifies D-SIBs annually.
    • The framework for recognizing these banks was issued in July 2014.
    • The RBI has been publishing an annual list of D-SIBs since 2015.

    D-SIBs are placed in different buckets based on systemic importance scores. Higher bucket rankings require greater capital requirements to absorb losses.

    • SBI is in Bucket 4.
    • HDFC Bank is in Bucket 3.
    • ICICI Bank is in Bucket 1.

    D-SIBs must maintain additional Common Equity Tier 1 (CET1) capital based on their bucket.

    • SBI: 0.80% of Risk Weighted Assets (RWAs).
    • HDFC Bank: 0.40%
    • ICICI Bank: 0.20%

    Global Systemically Important Banks (G-SIBs):

    • On the global stage, G-SIBs are designated by the Financial Stability Board (FSB).
    • G-SIBs include large international banks such as JP Morgan Chase and HSBC.
    • Foreign banks in India that qualify as G-SIBs are required to hold additional CET1 capital in India, proportional to their global risk-weighted assets.

    Benefits of D-SIB Classification

    • It ensures financial stability by requiring additional capital buffers for resilience during economic stress.
    • It increases public confidence through enhanced monitoring and regulation.
    • It receives improved supervisory attention, leading to better governance and controls.
    • It prepares D-SIBs for financial shocks with additional CET1 and stress-testing requirements.
    • It often benefits from higher credit ratings, lowering borrowing costs and improving access to capital.

  • On improving wind energy generation

    Why in the News?

    Tamil Nadu, a leader in wind energy with turbines over 30 years old, introduced a new policy for upgrading old windmills in August 2024. However, wind energy producers opposed it, took the issue to the Madras High Court, and obtained a stay.

    What is Tamil Nadu’s wind power capacity? 

    • Installed Capacity: As of November 2023, Tamil Nadu has an installed wind energy capacity of approximately 10,377.97 MW, making it the second-largest wind energy producer in India after Gujarat. This represents about 23% of India’s total installed wind capacity.
    • Age of Turbines: Many turbines in Tamil Nadu are over 30 years old, which raises concerns about efficiency and technological advancements5.
    • Potential for Repowering: The state has a repowering potential of over 7,387 MW, which could significantly enhance its energy generation capabilities if older turbines are replaced or refurbished.

    What about national wind energy capacity? 

    • Total Potential: The National Institute of Wind Energy (NIWE) estimates that India has a wind power potential of 1,163.86 GW at a height of 150 meters, ranking fourth globally for installed capacity.
    • Current Utilization: At 120 meters (the standard height for modern turbines), India’s potential is around 695.51 GW, with only about 6.5% currently utilized nationally and nearly 15% in Tamil Nadu.
    • Leading States: The states contributing most to India’s wind power include Gujarat, Tamil Nadu, Karnataka, Maharashtra, Rajasthan, and Andhra Pradesh, which collectively account for approximately 93.37% of the country’s installed capacity.

    What does the repowering and refurbishing of wind turbines mean?

    • Repowering involves replacing old turbines with new ones to enhance efficiency and output. Refurbishing includes upgrading components like gearboxes and blades to improve performance without complete replacement.
    • Regulatory Framework: The Tamil Nadu government introduced a new policy aimed at facilitating these processes. However, generators argue that the policy lacks provisions that effectively promote wind energy generation and financial viability.

    Why are wind energy generators opposing the new policy of the TN government?

    • Concerns from Generators: Wind energy generators have opposed the new “Tamil Nadu Repowering, Refurbishment and Life Extension Policy for Wind Power Projects – 2024”, claiming it does not adequately support the promotion of wind energy generation. They have approached the Madras High Court and received a stay on the policy implementation.
    • Financial Viability Issues: The opposition stems from concerns that repowered turbines will be treated as new installations without banking facilities for generated energy, impacting financial returns on investments.
      • Generators emphasize that without a commercially beneficial framework, investments in repowering will decline.

    Way forward: 

    • Revise the Policy to Ensure Financial Viability: The Tamil Nadu government should amend the policy to provide incentives like banking facilities for energy generated from repowered turbines, making the projects financially viable for investors.
    • Promote Technological Advancements and Infrastructure Upgrades: The policy should focus on facilitating the replacement of old turbines with modern, high-capacity ones and improving wind energy transmission infrastructure to harness the full potential of Tamil Nadu’s wind resources.

    Mains PYQ:

    Q Do you think India will meet 50 percent of its energy needs from renewable energy by 2030? Justify your answer. How will the shift of subsidies from fossil fuels to renewables help achieve the above bjective? Explain. (UPSC IAS/2022)

  • [pib] Decline in Out-of-Pocket Expenditure (OOPE) in Health in India

    Why in the News?

    National Health Accounts (NHA) data for 2021-22 shows a decline in Out-of-Pocket Expenditure (OOPE) on healthcare due to increased government health expenditure (GHE) and an enhanced public healthcare framework.

    What are NHA estimates?

    • The NHA estimates are based on the globally accepted framework of ‘A System of Health Accounts (SHA), 2011’ which facilitates inter-country comparisons.
    • This report provides a systematic description of the financial flows in India’s health system by different sources, how the money is spent, how healthcare is provided, and the nature of healthcare services that are used.

    Key Observations from the NHA 2021-22 Data:

    Details
    Decline in Out-of-Pocket Expenditure (OOPE) OOPE has decreased due to increased government investment and improved public healthcare infrastructure, making healthcare more accessible and affordable.
    Rise in Government Health Expenditure (GHE) GHE as a percentage of GDP rose from 1.13% in 2014-15 to 1.84% in 2021-22. GHE’s share of overall government spending increased from 3.94% to 6.12%, reflecting the government’s commitment to public healthcare.
    Increase in Per Capita Health Spending Per capita health spending tripled from ₹1,108 in 2014-15 to ₹3,169 in 2021-22, allowing for more investment in infrastructure, workforce, and services.
    Expansion of Social Security Expenditure (SSE) SSE on healthcare grew from 5.7% to 8.7% of Total Health Expenditure (THE), helping protect individuals from catastrophic health expenses and reducing OOPE.
    Growth of Government-Funded Insurance Schemes Programs like Ayushman Bharat and state-level health insurance schemes increased healthcare access for economically vulnerable populations, reducing reliance on personal funds.
    Foundation for Universal Health Coverage (UHC) The decline in OOPE and increased public health spending are integral to achieving UHC, aiming for equitable healthcare access for all citizens.

     

    PYQ:

    [2021] “Besides being a moral imperative of a Welfare State, primary health structure is a necessary precondition for sustainable development.” Analyse.

    [2019] In India, the term “Public Key Infrastructure” is used in the context of:

    (a) Digital security infrastructure

    (b) Food security infrastructure

    (c) Health care and education infrastructure

    (d) Telecommunication and transportation infrastructure

  • Can India get rich before growing old?

    Why in the News?

    Since liberalization opened up new opportunities, there has been a lot of excitement about India’s demographic dividend, which is the advantage of having a large working-age population but there are major challenges like the middle-income trap.

    Can India leverage its sustained economic growth?

    • Harnessing the Demographic Dividend: With a large working-age population, India has a potential advantage, but it must ensure that this workforce is employed in productive sectors, particularly by shifting labor from low-productivity agriculture to higher-productivity manufacturing and services.
    • Strengthening the Manufacturing Sector: The manufacturing sector, especially labor-intensive industries like textiles, has the potential to create millions of jobs. By addressing barriers such as complex regulations, high tariffs, and infrastructure constraints, India can boost manufacturing growth, empower women, and drive economic mobility.
    • Reforming Infrastructure and Business Environment: Improving ease of doing business, simplifying trade and labor regulations, and increasing investment in infrastructure are critical for unlocking India’s potential for sustained growth. These reforms will enable large-scale job creation and enhance India’s global competitiveness.

    Challenges arising due to the middle-income trap

    • Declining Demographic Dividend: The proportion of working-age individuals in India’s population is set to decline in the coming decade, marking the potential end of the demographic dividend. Fertility rates have dropped across various states, which means India may face an aging population sooner than expected.
    • Stagnation in Key Sectors: India has struggled to reduce its agricultural workforce in the same way China did after liberalisation, making it harder to transition people to higher-productivity industries. Despite some growth in the services sector, manufacturing has stagnated and failed to generate the necessary number of jobs, especially in labor-intensive industries.
    • Limited Economic Mobility: High levels of youth unemployment and the lack of opportunities for individuals to move up the economic ladder have hindered India’s economic progress. The country’s labor force participation rate (LFPR) remains low, particularly among women, and urban job creation has not been sufficient to absorb the growing population.
    • Infrastructure and Regulatory Bottlenecks: The business environment is constrained by complex regulations, high tariffs, cumbersome licensing procedures, and a lack of access to land, all of which prevent the manufacturing sector from thriving. India’s slow regulatory reforms have stifled growth in manufacturing, which is essential for absorbing the workforce.

    How the Manufacturing sector can help India grow?

    • Job Creation: Manufacturing, especially in labour-intensive sectors like textiles and apparel, can create large numbers of jobs. This is vital for absorbing the surplus labour from agriculture and providing employment opportunities for the youth.
      • For example, the textile and apparel industry employs 45 million people compared to just 5.5 million in IT-BPM, highlighting its potential for mass employment.
    • Women’s Empowerment: Manufacturing, particularly industries like textiles, offers significant employment to women (60-70% of factory workers), helping reduce gender disparities in the labour force.
    • Economic Mobility: By creating better job opportunities, manufacturing helps people transition from low-productivity agricultural jobs to higher-wage, more stable positions in the industrial and service sectors. This transition is key to achieving sustained economic growth and avoiding the middle-income trap.
    • Global Competitiveness: Reducing barriers to manufacturing — such as simplifying business licensing, lowering tariffs on inputs, improving access to land, and streamlining trade regulations — can help India increase its competitiveness globally. Expanding market access through free trade agreements and making the business environment more conducive to manufacturing can unlock the potential of this sector.

    Steps taken by the government: 

    • “Make in India” Initiative: Launched in 2014, this initiative aims to transform India into a global manufacturing hub by promoting domestic production, reducing regulatory hurdles, and attracting foreign direct investment (FDI) in key manufacturing sectors such as electronics, textiles, and automobiles.
    • Atmanirbhar Bharat (Self-reliant India): This program focuses on reducing dependence on imports by boosting local manufacturing, especially in strategic sectors like defense, electronics, and pharmaceuticals.
      • It includes initiatives such as the Production-Linked Incentive (PLI) scheme, which offers incentives for manufacturing and exporting specific products like electronics, textiles, and solar panels.

    Way forward: 

    • Enhance Skill Development and Workforce Transition: India must invest in targeted skill development programs to equip its labor force, particularly those transitioning from agriculture, with the necessary skills for higher-productivity manufacturing and services sectors.
    • Accelerate Regulatory and Infrastructure Reforms: To unlock the full potential of the manufacturing sector, India should expedite regulatory reforms, simplify land acquisition processes, and enhance infrastructure.

    Mains PYQ:

    Q Can the strategy of regional-resource-based manufacturing help in promoting employment in India? (UPSC IAS/2019)