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Subject: Economics

  • The PDS impact on household expenditure   

    Why in the news? 

    The Household Consumption Expenditure Survey Data provides an opportunity to analyze the effects of social transfers.

    About Public Distribution System (PDS):

    • The Public Distribution System (PDS) aims to ensure food security by providing subsidized foodgrains to economically vulnerable sections of society. Under the National Food Security Act (NFSA), 2013, up to 75% of the rural population and 50% of the urban population are eligible for subsidized foodgrains.
    • Foodgrains procured by the Food Corporation of India (FCI) are distributed through a network of Fair Price Shops (FPS).

    Its structural mandate: 

    • Procurement and Distribution: The PDS operates through the procurement of foodgrains by the Food Corporation of India (FCI) from farmers at Minimum Support Prices (MSP). These foodgrains are then allocated to states and union territories based on their requirements and distributed to Fair Price Shops (FPS), which deliver subsidized foodgrains to eligible beneficiaries.
    • Identification and Subsidy: Beneficiaries are identified based on the Socio-Economic and Caste Census (SECC) data, classifying households into Priority Households and Antyodaya Anna Yojana (AAY) households. Under the National Food Security Act (NFSA), 2013, eligible households receive rice at ₹3 per kg, wheat at ₹2 per kg, and coarse grains at ₹1 per kg. The system aims to ensure that food security is maintained for the economically vulnerable sections of society.

    Observations made by the HCES:2022-23 report  

    • The Household Consumption Expenditure Survey (HCES) 2022-23 provides insights into the coverage of social welfare programs, including the Public Distribution System (PDS).
    • The survey highlights discrepancies between administrative data and survey estimates due to inclusion and exclusion errors, offering detailed characteristics of households benefiting from these programs.

    Imputation of values for food and non-food items    

    Note: Imputation of values for food and non-food items refers to the process of assigning a monetary value to items received by households for free or at a subsidised rate through social welfare programs like the Public Distribution System (PDS) in India.

    • Purpose: Imputation is done to estimate the total consumption expenditure of households more accurately. It accounts for the fact that households receive goods (such as foodgrains from PDS) without directly paying for them, thus impacting their overall consumption.
    • Methodology: The National Sample Survey Office (NSSO) and other agencies use statistical methods to assign a value to these items. This involves determining the modal (most common) or percentile prices of the items received, which may vary by state and rural/urban classification.
    • Types of Items Imputed: Imputation covers both food and non-food items. In the context of the PDS, it primarily includes foodgrains but can extend to other essential commodities provided through government schemes.
    • Data Sources: Data for imputation can come from surveys like the HCES, where households report receiving these items. NSSO surveys typically provide detailed guidelines on how imputation values are derived and applied in their reports.
    • Impact on Analysis: Imputing values allows analysts to compute metrics like the Monthly Per Capita Consumption Expenditure (MPCE) accurately, reflecting the true economic status and welfare impact of households.

     Implications for Poverty

    • Economic Relief for Poorer Households: By providing foodgrains at highly subsidized rates, the PDS reduces the financial burden on poorer households, allowing them to allocate their limited resources to other essential needs.
    • Enhanced Measurement of Poverty: Imputing the value of free or subsidised items received through programs like the PDS allows for a more comprehensive assessment of household consumption. Including these imputed values in poverty measurements provides a more accurate reflection of the economic well-being of households.
    • Policy Insights and Targeting: Understanding how imputed values impact poverty metrics helps policymakers in targeting social welfare programs more effectively.
    • Diversification of Diet: Access to subsidized foodgrains from the PDS allows households to free up resources, potentially enabling them to purchase a more diverse range of nutrient and protein-rich foods such as vegetables, milk, pulses, eggs, fish, and meat

    Way forward: 

    • Enhancing Efficiency and Targeting: Improve the identification and targeting of beneficiaries through updated and accurate data collection methods. Continuous validation and updating of Socio-Economic and Caste Census (SECC) data can help in reducing inclusion and exclusion errors.
    • Promoting Nutritional Security and Health Outcomes: Expand the scope of subsidized items beyond basic grains to include more nutritious food options like pulses, edible oils, and fruits.

    Mains PYQ: 

    Q What are the major challenges of Public Distribution System (PDS) in India? How can it be made effective and transparent? (2022)

    Q Food Security Bill is expected to eliminate hunger and malnutrition in India. Critically discuss various apprehensions in its effective implementation along with the concerns it has generated in WTO. (2013)

  • [pib] National Gopal Ratna Award, 2024

    Why in the News?

    • The National Gopal Ratna Award (NGRA) 2024 has been awarded by the Department of Animal Husbandry and Dairying.
      • The awards are conferred annually on National Milk Day, which is celebrated on 26th November.

    What is the National Gopal Ratna Award (NGRA)?

    • NGRA is an initiative under the Rashtriya Gokul Mission, launched by the Department of Animal Husbandry and Dairying.
    • Objective: The award aims to promote the conservation and development of indigenous bovine breeds, which are crucial for the sustainability of the dairy sector in India.
    • Categories: NGRA is awarded in several categories:
      • Best Dairy farmer rearing indigenous cattle/buffalo breeds.
      • Best Dairy Cooperative Society (DCS)/ Milk Producer Company (MPC)/ Dairy Farmer Producer Organization (FPO).
      • Best Artificial Insemination Technician (AIT).

    Other aspects of the Award

      • Special Recognition: In recent years, a special award category has been included for the North Eastern Region (NER) states to encourage dairy development activities in these regions.
    • Nomination and Recognition: Nominations for the NGRA are submitted online through the National Award portal.
    • Award Details:
    • NGRA 2024 will confer awards in 1st, 2nd, and 3rd ranks, and one Special Award for the NER States in each category.
    • Cash prizes for Best Dairy Farmer and Best DCS/FPO/MPC categories:
      • Rs. 5,00,000/- (1st rank)
      • Rs. 3,00,000/- (2nd rank)
      • Rs. 2,00,000/- (3rd rank)
      • Rs. 2,00,000/- (Special Award for NER).
    • Best AIT category: Certificate of merit and a memento, without any cash prize.

    Back2Basics: Rashtriya Gokul Mission

    Details
    About
    • Implemented for development and conservation of indigenous bovine breeds since December 2014.
    • Continued under the umbrella scheme Rashtriya Pashudhan Vikas Yojana from 2021 to 2026 with a budget of Rs.2400 crore.
    Nodal Ministry Ministry of Fisheries, Animal Husbandry and Dairying
    Objectives
    • Enhance productivity of bovines and increase milk production sustainably using advanced technologies.
    • Propagate the use of high genetic merit bulls for breeding purposes.
    • Enhance artificial insemination coverage by strengthening the breeding network and providing services at farmers’ doorsteps.
    • Promote indigenous cattle & buffalo rearing and conservation in a scientific and holistic manner.

     

    PYQ:

    [2015] Livestock rearing has a big potential for providing non-farm employment and income in rural areas. Discuss suggesting suitable measures to promote this sector in India.

  • Impose ‘Robot Tax’ for AI-induced Job Loss: RSS

    Why in the News?

    The Swadeshi Jagran Manch (SJM), affiliated with the Rashtriya Swayamsevak Sangh (RSS), wants a ‘robot tax’ to help employees who lose their jobs because companies are using Artificial Intelligence (AI).

    SJM’s Proposals and Suggestions

    • Robot Tax Proposal: SJM proposes a ‘robot tax’ to create a fund supporting workers displaced by AI adoption to upskill and adapt to new technologies.
    • Tax Incentives for Job Creation: Suggestions include tax incentives for industries based on their employment-output ratio to encourage job creation.
    • Fund for Worker Upskilling: Emphasizes the need for economic measures to cope with the human cost of AI. SJM suggests using a ‘robot tax’ to fund worker upskilling programs.

    Additional Budgetary Recommendations

    • Incentivise job creation: SJM suggests tax incentives for industries generating more employment, based on an employment-output ratio.
    • Subsidies for Small Farmers: SJM proposes subsidies for micro irrigation projects to boost productivity among small farmers.
      • SJM recommends that micro-irrigation projects be made eligible for funding via CSR by adding them to Schedule VII of the Companies Act, 2013.
    • Wealth tax on Vacant Lands: SJM suggests a wealth tax on “vacant land” to discourage unnecessary landholding for future requirements.

    What is a Robot Tax?

    • A robot tax is a proposed tax on companies that use automation and artificial intelligence (AI) technologies to replace human workers.
    • The idea behind this tax is to generate revenue that can be used to support workers who lose their jobs due to automation.
      • This can include retraining programs, unemployment benefits, and other forms of social support.

    Need for a Robot Tax

    • Job Displacement:
      • Automation Impact: AI and automation can lead to significant job losses in various industries as machines and software perform tasks previously done by humans.
      • Worker Support: A robot tax can provide financial resources to support displaced workers, helping them transition to new roles or acquire new skills.
    • Economic Inequality:
      • Wealth Distribution: Automation tends to concentrate wealth among those who own the technology, leading to increased economic inequality.
      • Redistribution: Taxing companies that benefit from automation can help redistribute wealth more fairly across society.
    • Funding for Public Programs:
      • Social Safety Nets: Revenue from a robot tax can fund social safety nets such as unemployment benefits, retraining programs, and other social services.
      • Infrastructure: It can also support public infrastructure projects and other initiatives that benefit society as a whole.
    • Incentivising Human Employment:
      • Employment Decisions: By imposing a tax on automation, companies might be more inclined to consider human workers over robots for certain tasks.
      • Balanced Approach: This can help maintain a balance between technological advancement and human employment.

    Examples and Proposals

    • Bill Gates’ Proposal: Bill Gates in 2022 advocated for a robot tax, suggesting that the revenue could fund job retraining and other social benefits.
    • European Parliament: In 2017, the European Parliament considered a robot tax as part of broader regulations on AI and robotics, though it was ultimately not implemented.

    Criticisms and Challenges

    • Implementation: Determining how to effectively implement and enforce a robot tax can be challenging.
    • Innovation Stifling: Critics argue that a robot tax could hinder innovation and technological progress.
    • Global Competition: There are concerns that companies might relocate to countries without such a tax, affecting global competitiveness.

    Conclusion

    • A robot tax is a controversial yet potentially beneficial approach to addressing the economic and social impacts of AI and automation.
    • It aims to provide support for displaced workers, reduce economic inequality, and ensure that the benefits of technological advancements are shared more broadly across society.

    PYQ:

    [2013] Disguised unemployment generally means:

    (a) large number of people remain unemployed

    (b) alternative employment is not available

    (c) marginal productivity of labour is zero

    (d) productivity of workers is low

  • Future investments in India’s EV space  

    Why in the news? 

    The government plans to expand its EV policy to include retrospective benefits, incentivizing entities that have already invested, with a formal announcement expected in August.

    Why is the government considering extending the EV policy?

    • Retrospective Effect: To include a retrospective effect, extending benefits to entities that have already made investments, aiming to reward and encourage early movers in the EV sector.
    • Encouraging Global Players: The policy seeks to prompt global players to localize production and invest in the domestic ecosystem.
    • Inclusive Incentives: Earlier, entities were eligible for incentives only if they set up local facilities within three years of receiving approval. The extension aims to make these incentives more inclusive.

    EV Policy of India: 

    • FAME Scheme: The Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) scheme is India’s flagship program to incentivize EV adoption. FAME-II, the current phase, provides incentives of:
      • ₹15,000 per kWh for 2-wheelers, up to 40% of the vehicle cost
      • ₹10,000 per kWh for 3-wheelers and 4-wheelers
      • ₹20,000 per kWh for electric buses
    • Phased Manufacturing Program (PMP): To boost local manufacturing, the government has implemented a Phased Manufacturing Program that gradually increases import duties on EV components over time, incentivizing domestic production.

    About the New EV Policy 2024:

    The key highlights of the new EV policy announced in 2024 include:

    • Reduced customs duty of 15% on imported EVs with a minimum CIF value of $35,000
    • A cap of 8,000 imported EVs per year
    • Requirement for manufacturers to invest at least ₹4,150 crore (~$500 million) and achieve 25% domestic value addition within 3 years, escalating to 50% in 5 years
    • Duty waiver capped at the investment made or ₹6,484 crore (equal to the PLI scheme incentive), whichever is lower.

    How does the revised policy align with India’s goals of enhancing local manufacturing and technology adoption in the EV industry?

    • Domestic Value Addition: The policy mandates that half of the value addition in manufacturing be done domestically within five years, boosting local manufacturing.
    • Import Duty Reduction: Reducing import duty on EVs with a minimum CIF value of $35,000 from 70%-100% to 15% to make the transition commercially viable.
    • Strengthening EV Ecosystem: By encouraging local production and investment, the policy aims to strengthen the entire EV ecosystem in India.
    • Global Leadership: Positioning India as a leader in the global transition from internal combustion engines to electric vehicles by fostering a sustainable and technologically advanced manufacturing environment.

    In what ways can the policy’s focus on localization and production volume increase competition and lower costs?

    • Economies of Scale: Higher volumes of production can lead to economies of scale, reducing the per-unit cost of EVs.
    • Healthy Competition: Encouraging competition among EV players to innovate and improve efficiency, thereby lowering production costs and prices for consumers.
    • Cost Reduction: Achieving higher production volumes and localized manufacturing will contribute to a significant decline in production costs, making EVs more affordable for Indian consumers.
    • Comprehensive Ecosystem: The focus on localization ensures the development of a robust supply chain and after-sales service network, further enhancing the viability and attractiveness of EVs in India.

    Way forward: 

    • Support Local Manufacturers: Provide incentives and support for domestic manufacturers to produce critical EV components such as batteries, motors, and controllers. This will reduce dependency on imports and enhance self-reliance.
    • R&D Investment: Increase investment in research and development to drive innovation in EV technology, ensuring that India remains at the forefront of advancements in the industry.

    Mains PYQ: 

    Q ‘Clean energy is the order of the day.’ Describe briefly India’s changing policy towards climate change in various international fora in the context of geopolitics. (UPSC IAS/2022)

  • MSMEs need funds for tech upgrades, green transition

    Why in the news? 

    Union Minister for MSMEs Jitan Ram Manjhi outlined six strategic pillars identified to foster the growth of the MSME sector.

    What are the 6 pillars for the growth of the MSME Sector   

    • Formalisation and Access to Credit: Promoting formalization of MSMEs to enhance their credibility and access to formal financial institutions.Improving access to credit through schemes like Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
    • Increased Access to Market and E-commerce Adoption: Facilitating MSMEs’ access to domestic and international markets through initiatives like market linkages and export promotion schemes.
    • Higher Productivity Through Modern Technology: Encouraging MSMEs to adopt modern technologies and digital tools to improve productivity and efficiency.
    • Enhanced Skill Levels and Digitalisation in the Service Sector: Focusing on skill development and training programs to enhance the capabilities of the MSME workforce.
    • Support to Khadi, Village, and Coir Industry for Globalisation: Promoting traditional industries like Khadi and Coir by providing marketing support and international exposure.
    • Empowerment of Women and Artisans Through Enterprise Creation: Encouraging entrepreneurship among women and artisans through skill development and financial support.

    How can Employment be raised?   

    • Promoting MSME Growth: Support MSMEs with policies for credit access, market expansion, tech modernization, and encourage startups for job creation.
    • Skill Development and Training: Invest in industry-aligned skill development, collaborating with educational institutions and industry partners for vocational training.
    • Infrastructure Development: Invest in infrastructure projects for job creation; develop industrial clusters and economic zones for manufacturing jobs.
    • Supporting Employment-intensive Sectors: Promote high-employment sectors like tourism, agriculture, healthcare, renewable energy; prioritize job creation in rural areas.

    Indian Government steps taken for MSME 

    • Prime Minister Employment Generation Programme (PMEGP): It aims to create employment opportunities through the setting up of new micro-enterprises.
    • Credit Guarantee Scheme for Micro & Small Enterprises (CGTMSE): Provides collateral-free loans of up to ₹1 crore to individual Micro and Small Enterprises (MSEs).
    • Financial Support to MSMEs in ZED Certification Scheme: Provides up to 80% subsidy to MSMEs to inculcate Zero Defect and Zero Effect (ZED) practices in manufacturing.
    • A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE): Facilitates innovative business solutions, promotes entrepreneurship, and creates new jobs at the grassroots level.

    Way to Green Transition and R&D (Way forward)

    • Financial Incentives and Soft Funds: Offer MSMEs financial incentives, subsidies, and soft loans for green tech and support R&D with grants and tax incentives.
    • Policy Support and Regulatory Framework: Develop supportive policies and regulatory frameworks that encourage MSMEs to integrate environmental sustainability into their operations.
    • Capacity Building and Technical Assistance: Offer capacity-building programs and technical assistance to MSMEs to enhance their knowledge and capabilities in green technologies.
    • Promotion of Green Products and Market Access:Promote green products via marketing campaigns, certification programs, and platforms for showcasing and selling.

    Mains PYQ: 

    Q Economic growth in the recent past has been led by an increase in labour productivity.” Explain this statement. Suggest the growth pattern that will lead to the creation of more jobs without compromising labour productivity. (UPSC IAS/2022)

  • The shape of the Manufacturing Base in India

    Why in the News? 

    Prime Minister Narendra Modi has formed the government again, now leading a coalition in his third term. The new administration must intensify its focus on economic reforms, especially those related to manufacturing.

    Significance of Manufacturing Base

    • Economic Growth: Enhancing the manufacturing sector is vital for India’s economic growth. Increasing manufacturing output can significantly boost GDP, as evidenced by the government’s initial target to raise manufacturing from 15% to 25% of GDP by 2025.
    • Employment Creation: A robust manufacturing sector can generate substantial low-skilled employment, which is crucial for absorbing the large workforce transitioning from agriculture. This can help mitigate stress on urban governance structures caused by rapid urbanization.
    • Trade Balance: Strengthening manufacturing can help reduce India’s goods trade deficit, particularly by decreasing reliance on imports of manufactured goods such as electronics, which currently contribute to a significant trade imbalance.
    • National Security: A strong manufacturing base can provide the resources needed for national security. By enhancing industrial capacity, India can better support its defense needs and contribute to regional security, aligning with American interests.
    • Supply Chain Resilience: Developing manufacturing capabilities in India can improve the viability of U.S. supply chains by having production bases in friendly countries. This is particularly important in the face of China’s rising economic and geopolitical influence.

    Issues with the “Business Reforms Action Plan (BRAP)” and the States

    • Outdated Rankings: The BRAP rankings, designed to foster competition among states, have not been updated since the COVID-19 pandemic. This has diminished their effectiveness in motivating states to improve their business environments.
    • Self-Reporting Issues: The BRAP rankings rely heavily on states’ self-reporting of their local business practices, which often does not align with actual investor experiences. This discrepancy undermines the credibility of the rankings.
    • Model Industry Laws: The central government’s initiative to create model industry laws for states has been underwhelming. There is a lack of robust and effective frameworks to guide states in implementing these laws.
    • State-Level Control: Many critical factors of production, such as power, water, sanitation, labor regulations, land acquisition rules, and environmental regulations, are controlled by state governments. This decentralization complicates the implementation of cohesive national policies.
    • Need for Transparent Policies: Encouraging states to adopt thoughtful and transparent industrial policies is challenging. The current toolkit of incentives and penalties needs enhancement to motivate states effectively.

    Role of the US in Improving the Business Attractiveness of Indian States

    • Guidance on Economic Governance: The U.S. can expand engagement with Indian states by providing direct guidance on effective economic governance. This can help states create more investor-friendly environments.
    • Investment Pathways: Improving pathways for potential investors to engage with state governments is crucial. The U.S. can facilitate connections between American investors and Indian states, helping to streamline investment processes.
    • Senior Officials’ Engagement: U.S. officials visiting India should go beyond the major economic hubs of Delhi, Mumbai, and Bengaluru. Engaging with a wider set of large states can highlight the importance and opportunities arising from global supply chain shifts.
    • Policy Redirection: The recent national election provides an opportunity for policy assessment and redirection. The U.S. can support India in aligning its policies with the core needs of the manufacturing push — jobs, trade, and security.
    • Encouraging Job-Creating Sectors: The U.S. can emphasize the importance of job-creating manufacturing sectors such as textiles, paper mills, and furniture, rather than focusing solely on capital-intensive sectors like semiconductors and robotics. This approach can help create more employment opportunities in India.

    Way forward: 

    • Establishment of State-level Economic Advisory Councils: Create advisory councils comprising experts from academia, industry, and government to advise state governments on economic policies, including manufacturing incentives and regulatory frameworks.
    • Review and Update of BRAP Rankings: Overhaul the Business Reforms Action Plan (BRAP) to include independent evaluations and audits alongside self-reporting. Ensure transparency and accuracy in ranking states’ business environments to provide credible guidance for investors.

    Mains PYQ: 

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

  • Integrated Tribal Development Programme by NABARD

    Why in the News?

    National Bank for Agriculture and Rural Development (NABARD) is set to launch an integrated tribal development programme in Kulathupuzha grama panchayat, Kollam.

    About Integrated Tribal Development Programme

    • Thanal, an environment organisation, will be the implementing agency of the project that aims to transform livelihoods of tribal families over the next five years.
    • The five-year initiative targets the sustainable livelihood and agricultural enhancement of 413 families residing in eight hamlets.
    • The programme focuses on promoting diverse agricultural crops such as pepper, arecanut, coconut, ginger, Thai ginger, turmeric, and plantain.
    • It encompasses initiatives in goat rearing, poultry, beekeeping, fish farming, and fodder production.
    • The establishment of a Tribal Farmer Producer Company (FPO) is also planned to further economically empower the community.

    Components of the Programme

    • Water Resource Development: Initiatives aimed at enhancing water resources for agricultural purposes.
    • Leadership Training: Training sessions to empower local leaders within the tribal communities.
    • Awareness Creation: Campaigns to raise awareness about sustainable practices and community development.
    • Sanitation and Hygiene Initiatives: Efforts to improve sanitation and hygiene standards among the tribal families.
    • Marketing and Branding Training: Training programmes to enhance marketing skills and brand awareness among participants.
    • Skill Development Workshops: Workshops focused on enhancing both agricultural and non-agricultural skills among the tribal community.

    About NABARD:

    • It was established on July 12, 1982, based on the recommendation of the Sivaraman Committee to promote sustainable rural development and agricultural growth in India.
    • Aim:  To facilitate credit flow for the promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts, and other rural crafts.
    • It operates as a statutory body under the Reserve Bank of India (RBI) Act, 1934, with its headquarters located in Mumbai.
    • It is governed by a Board of Directors appointed by the GoI:
      • Representatives from the RBI;
      • Central and state governments;
      • Experts from various fields related to Rural Development and Finance.

     Functions of NABARD:

    • Refinance Support: NABARD provides refinance facilities to banks and financial institutions for agricultural and rural development activities, including crop loans and rural infrastructure projects.
    • Financial Inclusion: It promotes financial inclusion by expanding banking services in rural areas, supporting SHGs, FPOs, and MFIs, and facilitating access to credit for rural communities.
    • Priority Sector Lending: NABARD plays a crucial role in channelling credit to priority sectors such as agriculture, small-scale industries, and rural infrastructure, in alignment with the Reserve Bank of India’s priority sector lending guidelines.
    • Direct Lending: It extends direct loans to institutions for specific rural development projects, such as agricultural production, rural infrastructure development, and agri-processing units.
    • Scheme Implementation: The organization administers government schemes and funds like Rural Infrastructure Development Fund (RIDF), Watershed Development Fund (WDF) to finance rural infrastructure projects and watershed development activities.
    • Credit Planning: NABARD collaborates with central and state governments, RBI, and other stakeholders to formulate credit policies and plans for agriculture and rural sectors.
    • Research and Training: NABARD promotes research and development in agriculture, supports capacity building and training programs for rural stakeholders, and facilitates technology transfer initiatives.

     

    PYQ:

    [2013] Which of the following grants/grants direct credit assistance to rural households?

    1. Regional Rural Banks
    2. National Bank for Agriculture and Rural Development
    3. Land Development Banks

    Select the correct answer using the codes given below:

    (a) 1 and 2 only

    (b) 2 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

  • [pib] XVI Finance Commission constitutes Advisory Council

    Why in the News?

    The Sixteenth Finance Commission (chaired by Arvind Panagariya, the former Vice-Chairman of NITI Aayog) has constituted an Advisory Council of five members.

    Role and Functions of the Advisory Council

    • To advise the Commission on any of the Terms of Reference (ToR) or related subjects that may be of relevance.
    • To assist in the preparation of papers or research studies and to monitor or assess studies commissioned by the Finance Commission, thereby enhancing the Commission’s understanding of the issues in its ToR.
    • To help broaden the Commission’s ambit and understanding by seeking the best national and international practices on matters pertaining to fiscal devolution and improving the quality, reach, and enforcement of its recommendations.

    About Finance Commission

    • The Finance Commission is a Constitutional body created every five years to transfer financial resources from the centre to states.
    • It is a quasi-judicial body.
    • The origin of the Finance Commission lies in Article 280 of the Constitution.
    • The President of India shall constitute a Finance Commission every five years to give recommendations about the transfer of central revenues (tax) to the states and its allocation among them (states).
    • The recommendations of the Fifteenth Finance Commission are valid up to the financial year 2025-26.

    Composition of the FC:

    • The Finance Commission consists of a chairman and four other members appointed by the President.
    • They hold office for such a period as specified by the president in his order and are eligible for reappointment.

    Qualifications:

    • Parliament determines the qualifications of members of the commission and the manner in which they should be selected.
      • Chairman should be a person having experience in public affairs, and
      • Four other members should be selected from amongst individuals with specialized knowledge of finance, accounts, economics, or administration.

    Terms of Reference for 16th Finance Commission

    • Division of Tax Proceeds, principles for Grants-in-Aid, enhancing State Funds for Local Bodies and evaluation of Disaster Management Financing

    PYQ:

    [2023] Consider the following:

    1. Demographic performance
    2. Forest and ecology
    3. Governance reforms
    4. Stable government
    5. Tax and fiscal efforts

    For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance?

    (a) Only two
    (b) Only three
    (c) Only four
    (d) All five

  • How to read India’s Balance of Payments?  

     Why in the news? 

    India’s current account showed a surplus in Q4 of 2023-24. However, current account surpluses are not always beneficial, and deficits are not inherently detrimental.

    Latest Data from the Reserve Bank of India (RBI)

    • Current Account Surplus: India registered a current account surplus during the fourth quarter (Jan-Mar) of the 2023-24 financial year, marking the first surplus in 11 quarters.
    • Quarterly vs. Annual Data: Despite the Q4 surplus, the current account balance for the entire FY2023-24 remained in deficit, indicating underlying economic trends and demands.

    What is Balance of Payments (BoP)?

    • The BoP is a ledger of a country’s transactions with the rest of the world, recording all monetary transactions between residents of a country and the rest of the world.
    • It shows the amount of money flowing into and out of the country, indicating the relative demand for the rupee compared to foreign currencies (usually in dollar terms).

    Constituents of the BoP

    The BoP has two main accounts: the Current Account and the Capital Account.

    • Current Account: It covers the trade in goods (exports and imports), trade in services (transportation, tourism, licensing, etc.), Income (wages, interest, dividends, etc.), and current transfers (remittances, foreign aid, etc.).
      • Trade of Goods (Merchandise Account): Records export and import of physical goods. A trade deficit occurs when imports exceed exports.
      • Invisibles of Trade: Includes services (banking, insurance, IT, tourism), transfers (remittances), and income (earnings from investments). These are transactions not visible like physical goods.
      • Net Balance: The sum of the merchandise trade and invisible trade determines the current account balance. Q4 showed a surplus in the current account due to a surplus in invisible despite a trade deficit.
    • Capital Account: It covers debt forgiveness, migrants’ transfers of financial assets, taxes on gifts and inheritances, and ownership transfers of fixed assets.
      • Investments: Captures transactions related to investments such as Foreign Direct Investment (FDI) and Foreign Institutional Investments (FII).
      • Net Balance: Q4 showed a net surplus of $25 billion in the capital account.

    Impact on the Indian Economy: 

    • Exchange Rate Stability: The current account surplus in Q4 helped stabilize the exchange rate of the rupee. By absorbing excess dollars, the Reserve Bank of India (RBI) prevented excessive appreciation of the rupee, which helps maintain the competitiveness of Indian exports.
    • Improved Sovereign Ratings: A current account surplus can positively impact India’s sovereign credit ratings, as it indicates stronger external financial health and reduces reliance on foreign borrowing.
    • Foreign Exchange Reserves: The surplus contributed to an increase in India’s foreign exchange reserves, enhancing the country’s ability to manage external shocks and providing a buffer against global economic uncertainties.
    • Investment Climate: A surplus in the capital account, driven by Foreign Direct Investment (FDI) and Foreign Institutional Investments (FII), indicates investor confidence in the Indian economy, potentially leading to more robust economic growth and development.
    • Economic Health Indicators: Despite the Q4 surplus, the annual current account deficit suggests robust domestic demand and investment needs. This aligns with a growing economy that requires imports of capital goods to enhance production capacity and future export potential.

    Way forward: 

    • Enhance Export Competitiveness: India should focus on boosting its export sector by diversifying export products and markets, improving product quality, and providing incentives for export-oriented industries.
    • Promote Sustainable Foreign Investment: Encouraging sustainable and long-term foreign investments, particularly in sectors like manufacturing, technology, and renewable energy, can strengthen the capital account. 

    Mains PYQ: 

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

  • The ANRF plan has got off on the wrong foot  

    Why in the News? 

    In 2023, the Anusandhan National Research Foundation (ANRF) Bill was passed by both Houses of Parliament, heralding a significant new initiative aimed at promoting and advancing research in India, particularly within the country’s universities and colleges.

    About 2019 National Research Foundation (NRF) Project Report

    • Objective: The 2019 NRF project report emphasized the goal of seeding, growing, and facilitating research in India, particularly within universities and colleges.
    • Aim: The project aimed to create an environment where research could thrive free from bureaucratic constraints, providing a funding boost and fostering collaboration with industry partners.
    • Scope and Structure: NRF will have five major divisions: Sciences, Technology, Social Sciences, Humanities, and Arts
    • Priority: A top priority mentioned in the report was “growing outstanding research cells already existing at State Universities.”

     

    Lack of Industry Representation in India:

    • Governing Bodies Composition: The ANRF Governing Board and Executive Council lack representation from key organizations, such as Central and State universities or colleges.
    • Current Members: Members primarily include Secretaries from various government science departments, directors of top research institutions, and international figures, but not from Indian industry or local academia.
    • Industry and Academia Input: There is a critical need for representatives who understand the practical challenges and bottlenecks of the current university system and have ground-level experience.
    • Diversity Issues: There is minimal representation from the industry and a lack of diversity, with the sole industry representative being an Indian-American based in Silicon Valley and the only woman representative being the Secretary of the DSIR.

    R&D underfunding:

    • Current Funding Levels: India significantly underfunds research and development, allocating less than 1% of GDP to R&D. There is a pressing need to increase this to at least 4% to make Indian innovation globally competitive.
    • Systemic Overhaul: The current funding system requires a significant overhaul to boost research. This includes implementing a robust grant management system, ensuring timely disbursal of funds, and minimizing bureaucratic hurdles at both the funding body and grantee institutions.
    • Grant and Fellowship Disbursal: Timely disbursal of research grants and student fellowships is crucial. The aim should be a quick turnaround time of less than six months between application and fund disbursal to maintain the momentum of research activities.
    • Flexibility in Spending: Researchers need flexibility in spending research funds. The current system’s stringent general financial rules (GFR) and the requirement to use the Government e-marketplace (GeM) portal can hinder efficient resource utilization.
    • Diverse and Competent Leadership: The ANRF should be staffed with diverse representatives from practising natural and social scientists, young entrepreneurs, and women.

    Other steps taken by the Government: 

    • Atal Innovation Mission (AIM): It is a flagship initiative to promote innovation and entrepreneurship in the country. It aims to create an ecosystem for innovation and provide support to startups through incubators, accelerators, and mentorship programs.
    • Impacting Research Innovation and Technology (IMPRINT) Program: IMPRINT is a joint initiative of the Ministry of Education and the Ministry of Science and Technology to promote translational research.
    • Uchhatar Avishkar Yojana (UAY): UAY is a scheme to promote industry-specific need-based research in premier institutions.

     

    Conclusion: The ANRF should actively involve representatives from both Indian industry and academia in its Governing Board and Executive Council. This inclusion will ensure that decision-making processes are informed by practical insights and ground-level experiences.

    Mains PYQ: 

    Q  Scientific research in Indian universities is declining, because a career in science is not as attractive as are business professions, engineering or administration, and the universities are becoming consumer-oriented. Critically comment. (UPSC IAS/2014)