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Subject: Economics

  • [20th July 2024] The Hindu Op-ed: Living in denial about unemployment

    [20th July 2024] The Hindu Op-ed: Living in denial about unemployment

    PYQ Relevance:

    Q Besides the welfare schemes, India needs deft management of inflation and unemployment to serve the poor and the underprivileged sections of society. Discuss. (UPSC IAS/2022)

    Q “While we flaunt India’s demographic dividend, we ignore the dropping rates of employability.” What are we missing while doing so? Where will the jobs that India desperately needs come from? Explain (UPSC IAS/2014)

    Mentor comment: Conflicting reports on unemployment in India highlight significant issues. While the Reserve Bank of India reported the creation of 8 crore jobs over the past few years, the Centre for Monitoring Indian Economy noted a rise in the unemployment rate to 9.2%. The disparity arises from reliance on outdated data, particularly from the unorganised sector, which employs 94% of the workforce. Additionally, economic shocks like demonetisation and the COVID-19 pandemic have altered employment dynamics, complicating accurate assessments and leading to public confusion over the true state of employment.

    Let’s learn!

    __

    Why in the news? 

    Recently, Prime Minister Modi cited an RBI report claiming 8 crore jobs created in the last 3-4 years, accusing the Opposition of spreading false unemployment narratives.

    Conflicting reports and statements related to employment

    • KLEMS Database
      • According to the RBI, India added 4.7 crore jobs in FY24, raising total employment to 64.33 crore. This represents a 6% growth in employment compared to the previous year, which was significantly higher than the 3.2% growth reported for FY23.
      • The period from 2016 to 2024 was marked by several economic shocks, including demonetization, the introduction of the Goods and Services Tax, the Non-Banking Financial Companies crisis, and the COVID-19 pandemic.  
    • SBI’s Counter Report
      • The State Bank of India (SBI) released a report stating that even when excluding agriculture, 8.9 crore jobs were created in manufacturing and services from FY14 to FY23, and 6.6 crore jobs from FY04 to FY14. 
      • It emphasized that the total labour force in India is approximately 59.7 crore, closely aligning with the 56.8 crore reported in the recent Annual Survey of Unincorporated Sector Enterprises (ASUSE) survey.
    • CMIE’s Unemployment Data
      • The Centre for Monitoring the Indian Economy (CMIE) reported a rise in the unemployment rate to 9.2% in June 2024, marking an increase from 7% the previous month. 
      • This contrasts sharply with the optimistic employment figures presented by the RBI and SBI, suggesting a disconnect between reported job creation and actual employment conditions.
    • Public Sentiment and Ground Reports
      • Ground reports and public sentiment indicate that unemployment remains a significant issue, particularly for educated youth. High competition for limited job openings is evident, as seen in the 47 lakh applicants for 60,000 constable positions in Uttar Pradesh and 1.25 crore aspirants for railway recruitment exams in 2022. Protests related to employment schemes further highlight the frustrations of job seekers

    About KLEMS Database

    • The Reserve Bank of India (RBI) released the India KLEMS Database on July 7, 2024, which outlines methodologies for measuring productivity and employment across 27 industries in the Indian economy.
    • It does not independently estimate employment but relies on official data sources, including the Employment and Unemployment Surveys (EUS) by the NSSO and the Periodic Labour Force Survey (PLFS).
    • The KLEMS data incorporates various economic measures, including Gross Value Added and Labour Quality, covering 27 industries across the Indian economy.

    Challenges in KLEMS Database

    • The Indian labor market is characterized by a significant unorganized sector, which employs approximately 94% of the labor force. This sector is difficult to survey regularly, leading to gaps and outdated data. 
    • The last Census was conducted in 2011, and the Urban Frame Survey (UFS) data is from 2012-2017, resulting in reliance on older data that may not accurately reflect current employment conditions.
    • The conflicting narratives from various sources, including the Prime Minister’s references to KLEMS data, have led to public confusion regarding the true state of employment in India.

    Way forward: 

    • Clear Communication of Data Sources: Government agencies and institutions should clarify how figures from different surveys (e.g., KLEMS, PLFS, ASUSE) relate to one another, and the implications of using outdated data in light of recent economic shocks.
    • Regular and Comprehensive Surveys: The government should prioritize conducting more frequent and comprehensive surveys, particularly focusing on the unorganized sector, which employs a significant portion of the workforce. 

  • The Green Revolution in Maize

    Why in the news? 

    Over the past two decades, India’s maize production has more than tripled, emerging as a private sector-driven green revolution success story. Maize has transitioned from being primarily a feed crop to also serving as a fuel crop.

    What was the Green Revolution?

    • Began in 1968 with the introduction of high-yielding variety (HYV) seeds, especially for wheat and rice, developed by agronomist Norman Borlaug
    • Institutions like CIMMYT (International Maize and Wheat Improvement Center) and IARI (Indian Agricultural Research Institute), led by scientists like Norman Borlaug and M S Swaminathan, played a crucial role.
    • The Green Revolution is credited to M.S. Swaminathan, known as the “Father of the Indian Green Revolution”, who introduced Borlaug’s wheat varieties and other technologies.
    • The initiative focused on increasing agricultural productivity through advanced breeding techniques, fertilizers, and irrigation methods.
    • Wheat production increased from 12 million tons in 1964-65 to 20 million tons in 1970-71.India became self-sufficient in food grain production and a major exporter

    Present India’s Maize Production called as a Green Revolution in Maize

    • Significant Production Increase: Over the last two decades, India’s maize production has surged from 11.5 million tonnes in 1999-2000 to over 35 million tonnes in 2023-24, showcasing a remarkable increase in both yield and output.
    • Private Sector Leadership: This growth has been largely driven by the private sector, with more than 80% of the maize area planted with high-yielding hybrids developed by private seed companies, indicating a successful private sector-led green revolution.
    • Diverse Utilization: Maize in India has evolved from being primarily a feed crop for poultry and livestock to also being a vital industrial crop used for starch and ethanol production, reflecting its expanded role in the economy.

    On Starch and Ethanol Production

    • Maize contains 68-72% starch, with significant industrial applications in textiles, paper, pharmaceuticals, food, and beverages.
    • Maize is emerging as a key feedstock for ethanol production, especially for blending with petrol.
    • IARI has developed a waxy maize hybrid with high amylopectin content, enhancing its suitability for ethanol production.
    • The new Pusa Waxy Maize Hybrid-1 has 71-72% starch with 68-70% recoverable, increasing ethanol yield per tonne.

    Can India adopt new strategies? (Way forward)

    • India can adopt new strategies through innovative breeding techniques like the doubled haploid (DH) technology used by CIMMYT.
    • The DH facility in Karnataka speeds up the development of genetically pure inbred lines, enhancing the efficiency of maize breeding.
    • IARI’s waxy maize hybrid is ready for field trials and commercial release, potentially boosting ethanol production.
    • Collaboration between public sector institutions and private seed companies can drive the adoption of high-yielding, disease-resistant maize varieties.
    • Private sector-bred hybrids account for over 80% of India’s maize area, indicating strong potential for further growth and innovation in maize production.

    Mains PYQ: 

    Q Explain various types of revolutions, that took place in Agriculture after Independence in India. How these revolutions have helped in poverty alleviation and food security in India? (UPSC IAS/2017)

  • Decline in popularity of Equity Linked Savings Schemes (ELSS)

    Why in the News?

    • Equity Linked Savings Schemes (ELSS) are mutual fund schemes that offer tax benefits under Section 80C of the Income Tax Act.
      • Recently, ELSS has seen a decline in popularity, with more money being withdrawn from these schemes than invested.

    What is Section 80C of the Income Tax Act?

    • Section 80C permits certain investments and expenses to be tax-exempted.
    • By well-planning the 80C investments that are spread diversely across various options like National Savings Certificate (NSC), Unit Linked Insurance Plan (ULIP), Public Provident Fund (PPF), etc., an individual can claim deductions up to Rs 1,50,000.
    • By taking tax benefits under 80C, one can avail of a reduction in tax burden.

    About Equity Linked Savings Schemes (ELSS)

    • An ELSS fund or an equity-linked savings scheme is the only kind of mutual funds eligible for tax deductions under the provisions of Section 80C of the Income Tax Act, 1961.
    • Investors can claim a tax rebate of up to Rs 1,50,000 and save up to Rs 46,800 a year in taxes by investing in ELSS mutual funds.
    • ELSS mutual funds’ asset allocation is mostly (65% of the portfolio) made towards equity and equity-linked securities such as listed shares.
    • They may have some exposure to fixed-income securities as well.
    • These funds come with a lock-in period of 3 years only, the shortest among all Section 80C investments.
    • Being market-linked, they are subject to market risk, but may offer potentially higher returns compared to traditional tax-saving instruments like National Savings Certificate (NSC) or Public Provident Fund (PPF).

    Recent Trends in ELSS

    • In the past few months, more money has been taken out of ELSS than put in.
    • For example, last month ₹445 crore was withdrawn, while in April it was ₹144 crore.
    • In the last fiscal year, only ₹1,041 crore was invested in ELSS, compared to ₹7,744 crore the previous year.

    Impact of the New Tax Regime

    • A new tax regime was introduced in 2020-21, which is now the default option.
    • The old tax regime offered various tax exemptions and deductions, helping to reduce income tax.
    • These benefits are not available under the new tax regime, making ELSS less attractive to investors.

    PYQ:

    [2021] Indian Government Bond Yields are influenced by which of the following?

    1. Actions of the United States Federal Reserve
    2. Actions of the Reserve Bank of India
    3. Inflation and short-term interest rates

    Select the correct answer using the code given below.

    (a) 1 and 2 only
    (b) 2 only
    (c) 3 only
    (d) 1, 2 and 3

  • The State of India’s Informal Economy    

    Why in the news? 

    The NSSO’s 2021-22 and 2022-23 survey outcomes reveal effects of significant economic shocks due to demonetisation, GST implementation, and the COVID-19 pandemic on India’s economy.

    About NSSO: 

    • The NSSO is India’s premier agency for conducting large-scale nationwide sample surveys on socio-economic aspects that collects data on employment, consumption, health, education, and other areas to provide essential inputs for policy and planning.
    • The NSSO was merged with the Central Statistical Office in 2019 to form the National Statistical Office.

    Key highlight as per the recent survey by NSSO   

    • Impact of Economic Shocks: The surveys reflect the aftermath of major economic events such as demonetisation (November 2016), the rollout of GST (July 2017), and the COVID-19 pandemic (starting March 2020).
    • Employment Trends: There has been a noticeable decline in employment within the informal sector over the past seven years, with around 16.45 lakh jobs lost.
    • Sectoral Dynamics: The unincorporated manufacturing sector saw a significant contraction, with the number of enterprises declining by 9.3% from 19.7 million in 2015-16 to 17.82 million in 2022-23.

    What are unincorporated enterprises?  

    • Unincorporated enterprises are informal businesses not legally registered as companies.
    • They include MSMEs, household units, own-account enterprises, and partnerships, operating outside formal regulatory frameworks but contributing significantly to employment and economic activity.

    Why are these survey results important and what do they represent?  

    • Timely Insights: These survey results offer current data crucial for understanding the evolving role of the informal sector in job creation, particularly during economic slowdowns when formal sector employment may decline.
    • Impact Assessment: They provide a detailed analysis of how significant economic events like demonetisation, GST implementation, and the COVID-19 lockdowns have affected the informal sector, highlighting vulnerabilities and resilience.
    • Policy Relevance: The findings inform policymaking aimed at supporting and regulating the informal sector, ensuring that measures address its unique challenges and contributions to overall economic stability and inclusivity.

    What has been the pattern of ‘Informal Employment’ across states?

    • The data shows a mixed pattern across states, with 16 out of 34 states/UTs recording a decline in informal sector workers in 2022-23 compared to 2015-16.
    • Around 63 lakh informal enterprises shut down due to GST between 2015-16 and 2022-23, resulting in a loss of about 1.6 crore jobs.
    • The number of informal enterprises plunged from 50.32 lakh with 85.6 lakh workers in April-June 2021 at the peak of the COVID-19 second wave, to 1.91 crore firms with 3.12 crore employees in January-March 2022.

    Way Forward: 

    • The government should provide targeted support and incentives to help informal enterprises adapt to the post-GST and post-pandemic environment.
    • Policymakers should aim to facilitate a gradual transition of informal enterprises to the formal sector.

    Mains PYQ: 

    Q How globalization has led to the reduction of employment in the formal sector of the Indian economy? Is increased informalization detrimental to the development of the country? (UPSC IAS/2016)

  • Choosing the right track to cut post-harvest losses

    Why in the News? 

    India holds the position of the second-largest agricultural producer globally however, it only accounts for 2.4% of global agricultural exports, ranking eighth worldwide due to the post-harvest loss.

    A closer look at India’s post-harvest loss:

    • Economic Impact: India faces annual post-harvest losses amounting to approximately ₹1,52,790 crore, significantly impacting farmer incomes and the agricultural economy.
    • Perishable Commodities: The biggest losses occur in perishable commodities like livestock produce (22%), fruits (19%), and vegetables (18%). Export processes further add to these losses, particularly at the import-country stage.
    • Supply Chain Inefficiencies: There is Inefficiencies in storage, transportation, and marketing, alongside a lack of assured market connectivity, contribute to significant post-harvest losses. Small and marginal farmers, who make up 86% of the farming community, struggle with economies of scale and market access.

    Initiatives taken by the Railways Department:

    • Truck-on-Train Service: Indian Railways introduced the truck-on-train service, allowing loaded trucks to be transported on railway wagons. This service has been expanded following successful trials with commodities like milk and cattle feed.
    • Parcel Special Trains: During the COVID-19 pandemic, the Railways introduced parcel special trains to transport perishables and seeds between producers and markets, ensuring timely delivery and reducing post-harvest losses.
      • The DFI (Doubling farmers’ income) committee recommends streamlining loading and unloading processes to minimize transit times and address staffing shortages through recruitment and training initiatives.
    • Kisan Rail Scheme: It was launched to connect production surplus regions with consumption regions. This scheme facilitates the transportation of perishables (including milk, meat, and fish) more efficiently.
    • Specialized Wagons and Facilities: Investment in specialized wagons for temperature-controlled transport and establishing rail-side facilities for safe cargo handling are essential steps taken by the Railways.

    Way for Untapped Opportunities:

    • Enhanced Environmental Benefits: Rail transport generates up to 80% less carbon dioxide for freight traffic compared to road transport.
    • Public-Private Partnerships: The private sector can play a crucial role in enhancing operational efficiency and strengthening rail infrastructure through public-private partnerships, thereby improving the overall logistics ecosystem for agricultural produce.
    • Budgetary Support and Infrastructure Development: The budgetary allocation for agriculture in 2024 aims to bridge the farm-to-market gap with modern infrastructure and value-addition support.
    • Technology Integration: Incorporating advanced technologies like real-time tracking, temperature monitoring, and automated loading/unloading systems.

    Way forward: 

    • Expand climate-controlled storage facilities and cold storage capacity to accommodate a larger share of agricultural produce.
    • Provide small and marginal farmers access to storage facilities through cooperatives or subsidies.
    • Invest in specialized rail wagons for temperature-controlled transport and establish rail-side cargo handling facilities.

    Mains PYQ: 

    Q How do subsidies affect the cropping pattern, crop diversity and economy of farmers? What is the significance of crop insurance, minimum support price and food processing for small and marginal farmers? (UPSC IAS/2017)

  • Union Govt. eases Procurement Rules for Scientific Research Goods

    Why in the News?

    • The Finance Ministry has announced new rules under the General Finance Rules (GFR) to give scientific Ministries more flexibility in importing and buying research equipment.
      • These changes address scientists’ concerns about strict rules have slowed down research.

    Changes introduced in GFR

    • The limit for buying goods without needing a tender has been raised from ₹25,000 to ₹1,00,000.
    • For goods priced between ₹25,000 and ₹250,000, a committee of three members must check the market for the best value and quality.
    • This limit has been raised from ₹1,00,000 to ₹10,00,000.

    Note: These changes only apply if the goods are NOT available on the Government e-Marketplace (GeM).

    What are General Finance Rules (GFR)?

    • The General Finance Rules (GFR) are a set of rules issued by the Government of India to regulate financial matters in public administration.
    • They provide a framework for financial management, ensuring accountability, transparency, and efficiency in the use of public funds.
    • The GFR were first issued in 1947, post-independence.
    • The rules have been revised multiple times, with significant updates in 1963, 2005, and the latest in 2017.
    • The GFR applies to all central government departments, ministries, and organizations funded by the government.

    Key Provisions:

    • General System of Financial Management: Guidelines on budgeting, accounting, and auditing.
    • Procurement of Goods and Services: Rules for procurement, emphasizing transparency and competition.
    • Contract Management: Procedures for awarding, managing, and terminating contracts.
    • Inventory Management: Guidelines for managing government inventories and assets.
    • Grants-in-Aid: Procedures for providing grants to institutions and individuals.

    Major Highlights:

    • Emphasis on e-procurement to enhance transparency and efficiency.
    • Use of the Government e-Marketplace (GeM) for procurement of common use goods and services.
    • Requirement for performance security in government contracts to ensure compliance and reduce risk.
    • Strengthening of internal controls and audit mechanisms to ensure compliance with rules and regulations.

    Back2Basics: Government e-Marketplace (GeM)  

    • The GeM is a one-stop National Public Procurement Portal to facilitate online procurement of common use Goods & Services required by various Government Departments / Organizations / PSUs.
    • It was launched in 2016 by the Ministry of Commerce and Industry.
    • It was developed by the Directorate General of Supplies and Disposals (under MCI) with technical support from the National E-Governance Division (MEITy).
  • [18th July 2024] The Hindu Op-ed: Intergenerational equity as tax devolution criterion

    [18th July 2024] The Hindu Op-ed: Intergenerational equity as tax devolution criterion

    PYQ Relevance:

    Mains: 
    Q.1) How have the recommendations of the 14th Finance Commission of India enabled the States to improve their fiscal position? (UPSC IAS/2021) 
    Q.2)  How is the Finance Commission of India constituted? What do you know about the terms of reference of the recently constituted Finance Commission? Discuss.  (UPSC IAS/2018) 

    Prelims:
    With reference to the Finance Commission of India, which of the following statements is correct? (UPSC IAS/2011) 
    (a) It encourages the inflow of foreign capital for infrastructure development
    (b) It facilitates the proper distribution of finances among the Public Sector Undertakings
    (c) It ensures transparency in financial administration
    (d) None of the statements (a), (b). and (c). given above is correct in this context.

    Note4Students: 

    Prelims: Powers and Functions of Finance Commission;

    Mains: Challenges to Fiscal Federalism; 

    Mentor comments: Fiscal devolution (Horizontal and Vertical), the transfer of fiscal powers and resources from the central government to state/local governments, is a crucial aspect of fiscal federalism. Fiscal devolution increases the financial resources and decision-making powers of state governments, allowing them to better address local needs and priorities. This strengthens fiscal federalism by empowering states to be more fiscally responsible and accountable to their citizens. It also helps in fostering competition among states to attract investments and provide better public services, driving overall economic development. This eventually contributes to macroeconomic stability. Further, the Fiscal devolution to local bodies (Municipalities and Panchayats) by State FC empowers them to undertake development activities and provide public services more efficiently.  Hence it is a key pillar of cooperative and competitive fiscal federalism, promoting fiscal autonomy, equitable development, and overall macroeconomic stability in a federal polity like India.

    Let’s learn!

    Why in the News? 

    The fiscal devolution between the Union and States, as well as the distribution formula among states, is an ongoing debate with concerns about maintaining the balance of fiscal federalism and equitable development across generations within states.

    The Finance Commission (FC) is responsible for recommending the distribution of net tax proceeds between the Union and the States every five years:
    • The 15th FC recommended a 41% share of central taxes for the states, which is lower than the 42% share recommended by the 14th FC.
    • The actual share of states in central taxes has been lower than the FC recommendations due to the increasing share of cess and surcharges levied by the Union government, which are not part of the divisible pool.
    • The horizontal distribution formula among states prioritizes equity (income gap, population, area, forest cover) over efficiency (demographic performance, tax effort). This has led to concerns about accentuating intergenerational inequity within states.

    Intergenerational fiscal equity

    • It refers to a situation where every generation pays for the public services it receives and does not burden the future generation through borrowings. It is also the principle of providing equal opportunities and outcomes to every generation.
    • There are only two ways for any government to raise its revenue:
      • Tax: If, in a period, the tax revenue equals the current expenditure of the government, then the current taxpayers pay for the public services they receive.
      • Borrowing: If the government finances the current expenditure through borrowing, it means the future generation is going to pay higher taxes to repay this borrowing and interest. In other words, borrowing to meet the current expenditure of the government amounts to intergenerational inequity.
    According to the Ricardian Equivalence Theory, whenever the government depends on borrowing to finance its current expenditure, households react through higher savings and thus enable the future generation to pay higher taxes as well as keep aggregate demand in the economy constant over different periods.
    • Presently, the current generations worldwide pay taxes less than the value of the current public services they receive, and thus it saves too. Whereas in our Indian present federal situation, this is not the case.
      • Condition of Developed States: The households in developed States pay taxes that are not entirely used within the specific States, thus compelling such States to borrow more or curtail current expenditures.
      • Condition of Developing States: The households in developing States pay taxes much less than the value of current expenditure and fill the gap by receiving higher financial transfers from the Union government.

    Issues with Intragenerational Equity:

    • Low-income States (Bihar, Uttar Pradesh, Madhya Pradesh, Rajasthan, Odisha, and Jharkhand) finance a smaller portion of their revenue expenditure with their own tax revenue and also receive larger amounts of Union financial transfers.
      • The own tax revenue (collection from GST, VAT Excise, Stamp Duty, and Motor Vehicle Tax) financed up to 59.3% of revenue expenditure in high-income States, while in low-income States, their own tax revenue was financed only 35.9%.
    • High-income States (Tamil Nadu, Kerala, Karnataka, Maharashtra, Gujarat, Haryana) finance a substantial portion of their revenue expenditure with their own tax revenue but receive too few Union financial transfers.
      • The Revenue Expenditure to GSDP (Gross State Domestic Product) ratio for high-income States was 10.9%, which is lower than the similar ratio of 18.3% for low-income States.
      • Nearly 57.7% of revenue expenditure in low-income States was financed by Union financial transfers, and only 27.6% of revenue expenditure was financed by Union financial transfers in high-income States.
    • Government can also deduce that the high-income States had to incur a deficit of 13.1%, and the low-income States ended up with a deficit of only 6.4% of revenue expenditure.

    Thus, the high-income States raise higher amounts of their tax revenue and curtail their revenue expenditure, yet incur higher deficits because of lower Union financial transfers compared to low-income States.

    Address the Impacts and Conflicting Equities

    • Issue with Indicators Used by FC: The indicators presently used by the FC are per capita income, population, and area to reflect differences in demand for public services and revenue availability among states which carries a larger weight to assure equitable distribution of Union transfers.
      • Efficiency indicators like tax effort and fiscal discipline have smaller weightage to reward the fiscal efficiency of states.
    • Impact of Lower Transfers: States have Fiscal Responsibility Acts restricting deficit and debt but the reduced Union transfers compel some states to breach these legal limits.
      • Larger weight to fiscal indicators and incentivizing tax effort and expenditure efficiency through higher transfers can ensure intergenerational fiscal equity and sustainable debt management by states

    Way Forward:

    • Balancing intragenerational and intergenerational equity is crucial to balancing equity and efficiency in the tax devolution formula.
      • Incentivize tax effort and expenditure efficiency through higher Union transfers
    • The Finance Commission (FC) should assign larger weight to fiscal indicators.

  • India to host 2nd Asia Pacific Ministerial Conference on Civil Aviation

    Why in the News?

    • India will host the second Asia Pacific Ministerial Conference on Civil Aviation on September 11 and 12.
      • The conference will be jointly organised by the Indian government and the International Civil Aviation Organization (ICAO) APAC.

    About the International Civil Aviation Organization (ICAO)

    Details
    Establishment and Background
    • Founded on December 7, 1944, by the Chicago Convention on International Civil Aviation
    • Became a specialized agency of the United Nations in 1947
    • HQ: Montreal, Canada
    Objectives and Mission
    • Develop international standards and regulations for aviation safety, security, efficiency, and environmental protection
    • Promote safe and orderly growth of international air transport
    Structure and Governance
    • Assembly: Meets every three years, includes all member states
    • Council: Governing body with 36 elected member states
    • Secretariat: Led by the Secretary General, manages daily operations
    Membership
    • 193 member states as of 2024
    • Open to all states subscribing to Chicago Convention principles
    • India: Founding member, joined in 1944
    Functions and Responsibilities
    • Establish international standards and recommended practices (SARPs)
    • Conduct audits and monitor SARPs compliance
    • Provide technical assistance and capacity-building
    • Facilitate aviation data and statistics collection
    Key Areas of Focus
    • Safety: Enhance global aviation safety
    • Security: Strengthen aviation security measures
    • Efficiency: Promote efficient air navigation services
    • Environmental Protection: Address aviation’s environmental impact
    Significant Programs and Initiatives
    • Universal Safety Oversight Audit Programme (USOAP): Monitors safety oversight capabilities
    • Universal Security Audit Programme (USAP): Evaluates aviation security measures
    • Next Generation Aviation Professionals (NGAP): Addresses anticipated aviation professionals shortage
    • No Country Left Behind (NCLB): Assists states in implementing ICAO standards and policies
    Publications and Resources
    • Annexes to the Chicago Convention: SARPs across civil aviation domains
    • ICAO Journal: Quarterly publication
    • Global Aviation Safety Plan (GASP) and  Global Air Navigation Plan (GANP): Strategic documents for aviation safety and navigation improvements.
    Regional Offices Seven offices in Bangkok, Cairo, Dakar, Lima, Mexico City, Nairobi, and Paris
    Standards
    • Annex 1: Personnel Licensing
    • Annex 6: Operation of Aircraft
    • Annex 8: Airworthiness of Aircraft
    • Annex 17: Security
    • Annex 19: Safety Management
    Global Impact
    • Harmonizes international aviation policies and procedures
    • Contributes to safe, secure, and sustainable growth of global air transport

    About Asia Pacific Ministerial Conference on Civil Aviation

    • The conference aims to strengthen regional collaboration and develop a future-focused vision for the region, emphasizing innovation and safety.
    • The inaugural conference took place in February 2018 in Beijing.
    • 39 member states of the UN aviation safety body, the International Civil Aviation Organisation (ICAO), from the Asia Pacific region are expected to attend.
    • The conference focuses on making aviation travel sustainable, resilient, and adaptive to the changing needs of a globally interconnected community.
      • This region accounts for 33.41% of global flight departures, the highest of any region worldwide.
      • Passenger numbers are expected to increase from 4.5 billion this year to 11.5 billion by 2050.

    PYQ:

    [2014] International civil aviation laws provide all countries with complete and exclusive sovereignty over the airspace above their territory. What do you understand by ‘airspace’ What are the implications of these laws on the space above this airspace? Discuss the challenges which this poses and suggest ways to contain the threat.

  • Uniform IGST Rate of 5% on Aircraft and Aircraft Engine Parts

    Why in the News?

    The government has implemented a uniform Integrated Goods and Services Tax (IGST) rate of 5% on all aircraft and aircraft engine parts.

    Background: 

    • Prior to the implementation of GST in 2017, the taxation of aircraft and aircraft parts was complex, with different central and state taxes being levied.
    • Under the pre-GST regime, aircraft parts attracted a range of taxes, including excise duty, VAT, and additional customs duties, leading to a cascading effect and higher costs for the aviation industry.

    IGST Harmonization for MRO Boost:

    • This move is aimed at boosting Maintenance, Repair, and Overhaul (MRO) activities in India.
    • Previously, GST rates on aircraft components varied between 5%, 12%, 18%, and 28%, causing several issues.

    MRO Industry in India

    • The Indian MRO industry is projected to become a $4 billion industry by 2030.
    • Currently, India represents only 1% of the global MRO market, which is worth US$45 billion.
    • The industry is divided into airframe maintenance, engine maintenance (50-55% of work value), components maintenance, and line maintenance (weekly checks).
    • Commercial airlines spend 13-15% of their revenues on maintenance, primarily outsourcing heavy maintenance.

    What is Integrated Goods and Services Tax (IGST)?

    • The IGST is a component of the GST system in India.
    • It is levied by the central government on:
    1. Inter-state /UT supply of goods and services;
    2. Imports of goods and services;
    3. Supply of goods and services to/by SEZ units;
    4. Deemed exports (certain transactions where goods supplied do not leave the country but are treated as exports under GST law).
    • IGST is calculated by adding the applicable Central GST (CGST) and State GST (SGST) rates.
    • One thing to remember in IGST is that the importing state gets the accrued benefit of taxes.

    Rationale for the Uniform 5% IGST Rate

    • Simplification of Tax Structure: A uniform 5% IGST rate on aircraft and engine parts simplifies tax compliance and eliminates classification complexities.
    • Cost Efficiency: A lower IGST rate reduces overall tax burden on aviation industry, enhancing affordability of aircraft acquisition and maintenance.
    • Global Alignment: Aligns India’s tax policy with global standards, fostering competitiveness and attractiveness for international aviation investments.
    • Promotion of Aviation Services: Encourages aircraft leasing and MRO activities, supporting India’s aspiration to become a hub for these services.

    PYQ:

    [2017] What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’?

    1.  It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
    2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.
    3. It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future.

    Select the correct answer using the code given below:

    (a) 1 only
    (b) 2 and 3 only
    (c) 1 and 3 only
    (d) 1, 2 and 3

  • RBI Circular on Liberalised Remittance Scheme (LRS)

    Why in the News?

    The Reserve Bank of India (RBI) has broadened the regulations governing remittances to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme (LRS). The RBI’s circular authorizes “authorised persons” to facilitate remittances for all permissible purposes under LRS to IFSCs.

    About Liberalised Remittance Scheme (LRS)

    • LRS is governed by the Foreign Exchange Management Act (FEMA) 1999, regulated by the Reserve Bank of India (RBI).
    • The scheme was introduced by the RBI in 2004 to facilitate outward remittances from India.
    • LRS allows resident individuals, including minors, to remit a specified amount of money abroad each financial year (April – March).
    • Currently, individuals are allowed to remit up to USD 250,000 per financial year under LRS.
    • Funds remitted under LRS can be used for permissible current or capital account transactions, or a combination of both.
    • Permissible Uses:
      • Expenses related to travel (private or for business).
      • Medical treatment abroad.
      • Payment of fees for education abroad.
      • Gifts and donations.
      • Maintenance of close relatives.
      • Investment in shares, debt instruments, and immovable properties overseas.
    • Accounts: Individuals can open and maintain foreign currency accounts with banks outside India for transactions permitted under LRS.
    • Exclusions: LRS is NOT available to corporations, partnership firms, Hindu Undivided Families (HUFs), trusts, etc.

    Prohibited Transactions:

    • Remittances for activities prohibited under Schedule-I of FEMA, such as purchase of lottery tickets, sweepstakes, proscribed magazines, etc.
    • Trading in foreign exchange abroad.
    • Remittances to countries identified as non-cooperative by the FATF.
    • Remittances to individuals/entities identified as posing a terrorism risk by the RBI.

    Significance of the move

    • The RBI’s decision reinforces GIFT IFSC’s position as a prominent international financial services hub.
    • By broadening the scope of LRS, GIFT IFSC aims to attract more diverse investments and transactions, contributing to the growth of India’s financial sector.