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Subject: Economics

  • The path to Viksit Bharat runs through fields  

    Why in the News?

    India’s 78th Independence Day is a time to reflect on our significant successes and setbacks. We should learn from both to make quicker progress towards the Prime Minister’s vision of a Viksit Bharat@2047 by 2047.

    Key Aspects of Viksit Bharat@2047

    • Economic Growth: The vision aims to elevate India to the status of the world’s third-largest economy and strive for a $30 trillion economy by 2047.
    • Environmental Sustainability: Viksit Bharat aims to preserve biodiversity and mitigate climate change impacts through restoration and conservation efforts.
    • Social Progress: The initiative seeks to build an inclusive society that respects cultural diversity and ensures the dignity and well-being of all citizens.
    • Good Governance: Effective governance is a cornerstone of the Viksit Bharat vision, focusing on accountability, transparency, and sound policies that are responsive to the needs of the people.
    • Youth Engagement: Recognizing the potential of India’s youth, the government has launched initiatives like the “Voice of Youth” portal to encourage young people to contribute ideas for achieving the goals of Viksit Bharat.

    Economic Challenges

    • Weak Domestic Demand: Stagnant or declining demand for goods and services due to low-income growth, high inflation, unemployment, and the impact of the Covid-19 pandemic.
    • High Unemployment: Despite rapid growth, unemployment remains a serious issue, worsened by the pandemic. The unemployment rate in India rose to 8.1 per cent in April 2024 from 7.4 per cent in March 2024, according to CMIE’s Consumer Pyramids Household Survey. 
    • Poor Infrastructure: India lacks adequate infrastructure like roads, railways, ports, power, water and sanitation, hampering economic development. The infrastructure gap is estimated at around $1.5 trillion.
    • Balance of Payments Deterioration: India runs a persistent current account deficit, with imports exceeding exports. Exports and imports decreased by 6.59% and 3.63% respectively in 2022.
    • High Private Debt Levels: India has witnessed a significant rise in debt levels in recent years.
      • According to the Reserve Bank of India (RBI), the total non-financial sector debt reached 167% of GDP in March 2020, up from 151% in March 2016. 
      • Household debt in India rose to 40.10% of GDP in the fourth quarter of 2023, up from 39% in the previous quarter. 

    Military Challenges

    • Securing Borders: Despite conflicts with Pakistan and China, India has reasonably managed border security. However, the rapid rise of China poses economic and military challenges.
    • China’s Growing Influence: Almost all of India’s neighbours are moving closer to China, necessitating better policy and diplomacy to secure India’s interests and ensure regional stability.
    • Military Modernization and Resource Allocation: India’s dependence on foreign arms imports, despite efforts to promote self-reliance through initiatives like “Make in India,” highlights the need for a robust domestic defense industry.
      • The country has been the largest arms importer from 2018 to 2022, indicating ongoing challenges in achieving military self-sufficiency

    Suggestive measures: (Way forward)

    • Agricultural Reforms: Investment in agricultural research and development, irrigation, and land-lease markets is vital. Building value chains for perishables can enhance food security and adapt to climate challenges.
    • Nutritional Security: Transitioning from mere food security to nutritional security is crucial, addressing issues like child malnutrition, which affects 35% of children under five.
    • Support for Farmers: Implementing subsidies for pulses and other sustainable crops can encourage healthier diets and environmental benefits. The government should provide financial incentives to farmers to shift from water-intensive crops to pulses.
    • Infrastructure Development: Continued investment in infrastructure, including transportation and digital connectivity, is essential for economic growth and improving citizens’ quality of life.
    • Education and Skill Development: Reforms in education to prioritize skill development and innovation are necessary to prepare the workforce for emerging industries and ensure inclusive growth.
    • Healthcare Initiatives: Expanding access to affordable healthcare services nationwide is critical for enhancing public health and productivity.

    Mains PYQ:

    Q Foreign Direct Investment (FDI) in the defence sector is now set to be liberalized: What influence this is expected to have on Indian defence and economy in the short and long run? (UPSC IAS/2016)

  • [17th August 2024] The Hindu Op-ed: The essence of India’s inflation problem

    PYQ Relevance:

    Q.1) Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments. (UPSC IAS/2019)

    Q.2) 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)

    Mentor comment: Food inflation in India significantly impacts the economy, particularly affecting low-income households that spend over 50% of their income on food. High food prices can lead to increased overall inflation, influencing wage demands and inflation expectations. This creates second-round effects, where rising food costs contribute to broader inflationary pressures. The persistence of food inflation complicates monetary policy, as the Reserve Bank of India struggles to control inflation without directly addressing food prices, which are influenced by supply-side factors beyond its control. Thus, food inflation remains a critical challenge for economic stability.

    Let’s learn!

    __

    Why in the news? 

    The Economic Survey suggests removing food prices from the RBI’s inflation target, shifting focus from headline to core inflation, and impacting inflation control strategies.

    Challenges related to Food Inflation: 

    1. Persistent High Food Inflation: Food price inflation in India has been elevated since 2019, with a year-on-year increase of close to 10% reported in June 2024. This trend indicates that high food inflation is not solely a consequence of external factors like the COVID-19 pandemic or the Ukraine war, but also reflects underlying domestic issues.
    2. Impact on Overall Inflation: Food prices constitute a significant portion of the consumer price index (CPI), accounting for nearly 50% of household expenditure in India. This high share means that fluctuations in food prices directly influence overall inflation rates, which have been higher than usual due to persistent food price increases.
    3. Food Prices as a Determinant of Core Inflation: Research indicates that food price inflation significantly affects core inflation in India. Rising food costs can lead to increased wages, which are a major component of production costs for firms. Thus, ignoring food prices in inflation targeting undermines the effectiveness of monetary policy.
    4. Long-Term Food Inflation Issues: Food price inflation has not been negative in any of the past 13 years, highlighting a persistent issue in the Indian economy. food inflation is a structural problem that needs to be addressed through comprehensive economic policies.

    The reason behind removing food prices from the RBI’s inflation target:

    1. High Sensitivity of Food Prices: Food prices in India are highly susceptible to supply shocks, such as erratic monsoon rains and agricultural disruptions. This volatility can lead to significant fluctuations in headline inflation, making it difficult for the RBI to maintain a stable inflation target when food prices are included in the calculation.
    2. Overshadow the impact of Monetary policy: Food constitutes about 46% of the Consumer Price Index (CPI) basket in India. This high weight can dilute the effectiveness of monetary policy aimed at controlling inflation, as changes in food prices can overshadow the impact of policy rate adjustments on core inflation measures.
    3. Core Inflation as a More Stable Measure: By focusing on core inflation, which excludes food and energy prices, the RBI could potentially achieve a more stable and manageable inflation target. This shift is based on the premise that core inflation is less influenced by volatile food prices and can provide a clearer picture of underlying inflation trends

    Way forward: 

    • Strengthening Agricultural Infrastructure and Supply Chain Management: To tackle the persistent issue of high food inflation, it is crucial to invest in and strengthen agricultural infrastructure, including irrigation systems, storage facilities, and transportation networks.  
    • Integrated Monetary and Fiscal Policy Approach: A more holistic approach is needed, where monetary policy is complemented by targeted fiscal interventions to manage food inflation.
      • The RBI should coordinate with the government to develop policies that address food price volatility, such as creating strategic food reserves, implementing effective buffer stock management, and providing targeted subsidies to protect vulnerable populations.  

  • [pib] Amendments to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 

    Why in the News?

    The Finance Ministry has issued a notification amending the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, to simplify Foreign Direct Investment (FDI) rules.

    Key amendments made by the Finance Ministry:

    Details
    Cross-Border Share Swaps Simplifies the process for Indian companies to engage in cross-border share swaps with foreign companies.
    Clarity on Downstream Investments Provides clearer guidelines on the treatment of downstream investments by OCI-owned entities on a non-repatriation basis, aligning them with NRI-owned entities.
    FDI in White Label ATMs (WLAs) Allows FDI in White Label ATMs to increase the geographical spread of ATMs, particularly in semi-urban and rural areas.
    Standardization of ‘Control’ Definition Standardizes the definition of ‘control’ to ensure consistency with other Acts and laws.
    Harmonization of ‘Startup Company’ Definition Aligns the definition of ‘startup company’ with the Government of India’s notification G.S.R. 127 (E) dated February 19, 2019.

    About The Foreign Exchange Management (Non-debt Instruments) Rules, 2019 

    • These rules govern foreign investment in India in non-debt instruments like equity shares, mutual funds, and real estate (excluding agricultural land).
    • These rules, effective from October 17, 2019, were issued under FEMA, 1999 (Foreign Exchange Management Act).

    It covers the following key aspects:

    • FDI Regulation: Specifies guidelines for foreign direct investment (FDI) in various sectors, including sectoral caps and conditions.
    • Investment Vehicles: Allows investment through entities like Alternative Investment Funds (AIFs), Real Estate Investment Trusts (REITs), and mutual funds.
    • Repatriation: Provides a framework for repatriation of profits, dividends, and capital by foreign investors.
    • Reporting: Mandates detailed reporting for companies receiving foreign investments.
    • Sectoral Caps and Conditions: Sets sectoral limits and approval requirements for foreign investment, with some sectors requiring government approval.
    • Prohibited Sectors: Prohibits foreign investment in sectors like lottery, gambling, chit funds, and agricultural land.
    • Transfer of Shares: Outlines guidelines for share transfer between residents and non-residents, ensuring compliance with regulatory conditions.

    PYQ:

    [2020] With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?

    (a) It is the investment through capital instruments essentially in a listed company.

    (b) It is a largely non-debt creating capital flow.

    (c) It is the investment which involves debt-servicing.

    (d) It is the investment made by foreign institutional investors in the Government securities.

  • [pib] Oeko-Tex Certification for Eri Silk

    Why in the News?

    The North Eastern Handicrafts and Handlooms Development Corporation (NEHHDC), under the Ministry of Development of North Eastern Region (DoNER), has achieved the prestigious Oeko-Tex certification for its Eri Silk.  

    What is Oeko-Tex Certification?

     Details
    EstablishmentFounded in 1992 by the Oeko-Tex Association.

    Comprises 18 independent textile research and testing institutes.

    Certification SystemIndependent testing and certification for textile safety and environmental standards.
    Key Standards– STANDARD 100: Tests textiles for harmful substances.
    – MADE IN GREEN: Ensures environmentally friendly and socially responsible production.
    – LEATHER STANDARD: For leather products, free from harmful chemicals.
    – STeP: Certification for sustainable textile production facilities.
    – ECO PASSPORT: Certifies safe chemicals used in textiles.
    – DETOX TO ZERO: Supports elimination of hazardous chemicals in production.
    Testing ProcessProducts tested for harmful substances like heavy metals, formaldehyde, azo dyes, etc.
    Global RecognitionTrusted worldwide for ensuring product safety, environmental friendliness, and social responsibility.
    Benefits– Consumers: Assurance of safe, chemical-free products.
    – Manufacturers: Access to global markets, improved brand reputation.
    – Environment: Promotes sustainable and eco-friendly production.
    UsageFound on clothing, home textiles, bedding, footwear, and more.

    About Eri Silk 

    • Eri Silk is the world’s only vegan silk, where the moth naturally exits the cocoon, making it cruelty-free.
      • Unlike conventional silk production, where cocoons are boiled to extract the silk filament.
    • It is also known as Ahimsa Silk.
    • It is primarily produced in the North-Eastern states of India, especially Assam; also found in Meghalaya, Nagaland, Manipur, and other states.
    • Its production is deeply rooted in the traditions of tribal communities in Assam and adjacent hill areas.

    Significant Features of Eri Silk:

    • Production Process: Known as Ericulture; involves rearing silkworms on castor plants; the silk is spun rather than reeled due to the naturally pierced cocoons.
    • Eco-Friendly: Requires minimal chemicals and water; only 20 litters of water needed to convert 1 kg of raw Eri fiber into yarn.
    • Unique Properties: Isothermal (temperature-regulating), anti-fungal, washable, durable, and less shiny than other silks.

    PYQ:

    [2013] What is an FRP composite material? How are they manufactured? Discuss their application in aviation and automobile industries. (100 words)

  • National Pest Surveillance System (NPSS)

    Why in the News?

    The Centre has launched the AI-based National Pest Surveillance System (NPSS) to help farmers connect with agriculture scientists and experts for pests’ control.

    What is the National Pest Surveillance System (NPSS)?

    • The NPSS is an AI-based platform launched by the government on August 15, 2024.
    • It is designed to help farmers connect with agricultural scientists and experts for effective pest control using their phones.
    • It aims to reduce farmers’ dependence on pesticide retailers.
    • It provides data for selected crops i.e. Rice, Cotton, Maize, Mango and Chilies.

    How will farmers use it?

    • Farmers can take photos of infested crops or pests using the NPSS platform, which are then analyzed by scientists and experts.
    • Then they will suggest the correct quantity of the pesticide at the right time, reducing excessive pesticide use.
    • Target Groups: Approximately 14 crore farmers across India.

    Significance

    • It will reduce crop damage, improve pest management practices, and reduce the risk of soil damage by minimizing excessive pesticide use.

    PYQ:

    [2014] With reference to Neem tree, consider the following statements:

    1. Neem oil can be used as a pesticide to control the proliferation of some species of insects and mites.

    2. Neem seeds are used in the manufacture of biofuels and hospital detergents.

    3. Neem oil has applications in pharmaceutical industry.

    Which of the statements given above is/are correct?

    (a) 1 and 2 only

    (b) 3 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

  • [pib] Operational Guidelines for Implementation of ‘Model Solar Village’

    Why in the news?

    • The Ministry of New and Renewable Energy has issued operational guidelines for the Implementation of ‘Model Solar Village’ under PM-Surya Ghar Muft Bijli Yojana.
      • The centre recently allocated ₹800 crore for the same.

    About PM Surya Ghar Muft Bijli Yojana

    Description
    Purpose To provide 300 units of free electricity per month to beneficiaries through an investment of ₹75,000 crores.
    Deadline Extended the deadline from 2022 to 2026.
    Announcement Initially announced in an Interim Budget 2024-25 speech by the Finance Minister.
    Target Aimed to light up 1 crore households.
    Implementation Urban Local Bodies and Panchayats are incentivised to promote rooftop solar systems.
    Financial Support
    Average Monthly Electricity Consumption (units) Suitable Rooftop Solar Plant Capacity Subsidy Support
    0-150 1-2 kW ₹ 30,000  to ₹ 60,000
    150-300 2-3 kW ₹ 60,000  to ₹ 78,000
    > 300 Above 3 kW ₹ 78,000

     

    Features of the ‘Model Solar Village’ Initiative:

    Details
    Comprehensive Solarization
    • Solarize all households and public areas with home lighting, water systems, pumps, and streetlights.
    • Seeks to create one Model Solar Village per district.
    Implementing Agency State Renewable Energy Development Agency (SREDA) or another entity nominated by the State/UT Government will implement the scheme.
    24×7 Solar-Powered Village Develop villages powered entirely by solar energy, promoting self-reliance in meeting energy needs.
    Central Financial Assistance (CFA)
    • ₹1 crore grant per village based on a Detailed Project Report (DPR) by the Implementing Agency.
    • The total financial allocation for this initiative is ₹800 crore.
    Eligibility Criteria
    • Revenue village with a population over 5,000 (or 2,000 in special category states).
    • Based on installed renewable energy capacity, overseen by the District Level Committee (DLC) 6 months after the declaration.
    Fund Disbursement 40% on the award of works, 40% after completion, 20% after 6 months of operation.

     

    PYQ:

    [2018] With reference to solar power production in India, consider the following statements:

    1. India is the third largest in the world in the manufacture of silicon wafers used in photovoltaic units.

    2. The solar power tariffs are determined by the Solar Energy Corporation of India.

    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

  • What is the Google ‘monopoly’ antitrust case and how does it affect consumers?     

    Why in the news?

    US Federal court ruled Google’s $26 billion payments to default on smartphone browsers violated US antitrust law, blocking competitors and benefiting the Justice Department.

    About Google’s Antitrust Case

    • The U.S. Department of Justice (DOJ) brought an antitrust case against Google, accusing it of maintaining a monopoly in the online search and advertising sectors.
    • The DOJ argued that Google’s dominance was achieved through exclusive distribution agreements, which prevented competitors from succeeding in the market.

    What Did the Ruling State?

    • Google Monopolistic Practices: Google broke antitrust laws to keep its monopoly on “general search services” and “general search text ads.”
    • Note: The Sherman Antitrust Act is a landmark U.S. federal law enacted in 1890 to promote competition and prevent monopolistic practices.
    • Advantageous position due to the “default” search engine: The Google company has an unseen advantage over its competitors where it’s search engine processes an estimated 8.5 billion queries per day worldwide.
      • The present judgment by US District of Colombia limits itself to the relevant geographic market of the US.
    • Paying billions to smartphone makers: Google was accused of paying billions to smartphone makers like Apple and Samsung to ensure Google was the default search engine on their devices and browsers.

    How Do Monopolistic Practices Harm Consumer Experience?

    • Impact on Competition: Monopolistic practices, like those exhibited by Google, stifle competition by preventing rivals from entering the market and can lead to higher prices and reduced innovation.
    • Unfair Platform for Start-ups: The new start-ups would have to surmount the entry barriers to create a GSE of comparable quality to Google. These barriers would cost high capital, access to distribution channels, and brand recognition.
    • Quality Degradation: A monopolist may lose the incentive to improve the quality of its products, as there is little risk of losing customers to competitors.
      • The ruling highlighted that Google conducted a study in 2020 that showed it would not lose search revenue even if it significantly reduced the quality of its search product.
    • Limites the choices of consumer: When a company holds a monopoly, consumers are often left with few alternatives, allowing the monopolist to exploit its position.

    Government Initiatives taken in India for similar line:

    The Draft Competition Bill 2024: The Ministry of Corporate Affairs’ Bill prevents giant tech companies/ Systemically Significant Digital Enterprises (SSDEs) from participating in anti-competitive practices.

    • The Bill imposes restrictions on SSDEs, barring them from favouring their own products and services, and from using or sharing users’ personal data without their consent.
    • Big tech companies have objected to the Bill because the compliance burdens would shift focus from innovation and research.

    Way forward: 

    • Encouraging Innovation: Governments and regulatory bodies should support the development of alternative search engines and platforms through incentives, grants, and support for startups.
    • Banning Exclusive Agreements: Prohibit exclusive distribution agreements that make one product or service the default, ensuring that consumers have a choice and that competitors can fairly compete.

    Mains question for practice: 

    Q Discuss the significance of India’s Competition Act, 2002 in regulating anti-competitive practices and promoting a fair market environment. 10M

  • Diamond Imprest Licence

    Why in the News?

    • Union Minister for Commerce and Industry has introduced Diamond Imprest Licence at the 40th edition of the India International Jewellery Show (IIJS) 2024.
      • The event was organized by the Gem & Jewellery Export Promotion Council (GJEPC).

    What is the Diamond Imprest Licence?

    • The Diamond Imprest Licence is a regulatory framework introduced by the Indian government to facilitate the import of diamonds for exporters, particularly benefiting Micro, Small, and Medium Enterprises (MSMEs) in the diamond industry.
    • It will allow Indian diamond exporters who meet a certain export turnover threshold to import up to 5% of their average export turnover over the preceding three years.
    • This policy aims to create a level-playing field for MSME diamond exporters, enabling them to compete more effectively with larger industry peers.

    About the Gem & Jewellery Export Promotion Council (GJEPC )

    Details
    Establishment
    • Established in 1966 by the Ministry of Commerce and Industry, Government of India.
    • Granted an autonomous status in 1998.
    Headquarters
    • Mumbai, India
    • Regional offices in New Delhi, Kolkata, Chennai, Surat, Jaipur
    Membership Represents almost 7,000 exporters from across India.
    Role and Functions
    • Promotes exports of gems and jewellery
    • Presents industry issues to the government and recommends policy interventions.
    Common Facility Centers (CFCs) Established in Amreli, Visnagar, Palanpur, and Junagadh in Gujarat.
    Services include planning, laser sawing, and cutting facilities to process diamonds.
    Awards Organizes premier jewellery design competitions and awards, celebrating creativity and innovation in jewellery design.
    Key Events Hosts the Design Inspirations seminar annually in Mumbai, educating jewellers, designers, and students about upcoming trends in India, Europe, and the US.
    Educational Institutes Operates 7 educational institutes across five cities, including the Indian Institute of Gems & Jewellery (IIGJ) in Mumbai, Jaipur, Delhi, Varanasi, and Udupi.
    Gemmological Laboratories
    • Gemmological Institute of India (GII), Mumbai: Established in 1971, focusing on gemological training, research, and certification.
    • Gem Testing Laboratory, Jaipur: Specializes in grading and certifying colored gemstones.
    • Indian Gemological Institute, New Delhi: Provides gem testing and certification services, particularly for the North Indian market.

     

    PYQ:

    [2018] Which one of the following foreign travelers elaborately discussed about diamonds and diamond mines of India?

    (a) Francois Bernier

    (b) Jean-Baptiste Tavernier

    (c) Jean de Thevenot

    (d) Abbe Barthelemy Carre

  • What is the Yen Carry Trade? Why is it unwinding right now?

    Why in the news?

    The global stock and bond markets, especially Japan’s, are experiencing turmoil due to the unwinding of the immensely popular yen carry trade.

    What is Yen carry trade?

    • The yen carry trade is a popular currency trading strategy that involves borrowing Japanese yen at low interest rates and using the funds to invest in higher-yielding assets denominated in other currencies, with the goal of profiting from the interest rate differential.

    Why is it unwinding right now?

    • Strengthening Yen: The Japanese yen has appreciated significantly, rising over 3% against the dollar after the Bank of Japan (BoJ) raised interest rates to 0.25% and announced a reduction in bond purchases. This strengthening of the yen diminishes the profitability of the carry trade, which relies on a weaker yen to remain viable.
    • Interest Rate Changes: Expectations of imminent interest rate cuts by the U.S. Federal Reserve have contributed to the dollar’s weakness, further impacting the carry trade. As the interest rate differential narrows, the incentive to maintain yen carry positions decreases.

    How does it work?

    • Mechanism: The yen carry trade involves borrowing yen at low interest rates and converting it into higher-yielding currencies. Investors use the borrowed yen to purchase assets in currencies that offer better returns, such as U.S. dollars or Australian dollars.
    • Investors typically aim for annualized returns of around 5% to 6% on dollar-yen carry trades, which is the difference between U.S. and Japanese interest rates. The strategy can be lucrative as long as the yen does not appreciate significantly against the currencies in which the investments are made.

    How did it begin?

    • The yen carry trade can be traced back to 1999 when Japan lowered its policy rates to zero following an asset price bubble burst. This led Japanese investors to seek better returns in international markets, effectively turning Japan into the world’s largest creditor nation.
    • The contemporary form of the carry trade gained prominence in 2013 under Prime Minister Shinzo Abe’s quantitative easing policies, coinciding with rising U.S. rates and a depreciating yen. This trend intensified in 2022 and 2023 as the Federal Reserve raised rates rapidly while the Bank of Japan maintained negative short-term rates.

    How large Is It?

    • The estimated size is about $350 billion in short-term external loans by Japanese banks attributed to yen-funded carry trades. However, this figure may not fully capture the extent of the trades, as it could include commercial transactions or loans to foreign businesses.
    • The actual size of yen carry trades could be larger due to the leverage used by hedge funds and computer-driven funds.

    Is it coming to an end?

    • The Bank of Japan has recently started raising rates, which has led to a stronger yen. As a result, the yield gap between Japanese and other currencies has narrowed, diminishing the profitability of carry trades.
    • The appreciation of the yen (by about 13% in a month) has prompted leveraged investors to unwind their positions, leading to a sell-off in global stock and bond markets. This unwinding is driven by the need to repay yen loans as the currency strengthens, causing further declines in asset prices internationally.

    Conclusion: The yen carry trade is unwinding due to the strengthening yen and narrowing interest rate differentials. As the yen appreciates, profitability decreases, prompting investors to exit positions, leading to global market sell-offs. This trend signifies a shift in monetary policies and changing economic conditions affecting currency trading strategies.

  • [pib] New Schemes for Co-operatives

    Why in the News?

    The Ministry of Cooperation, since its inception on 6th July 2021, has taken many initiatives to strengthen and deepen the cooperative movement at the grassroots level.

    What is a Co-operative?

    • A cooperative is “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned enterprise”.
    • Cooperatives are democratically owned by their members, with each member having one vote in electing the board of directors.

    Evolution of Cooperatives in India:

    Pre-Independence Era:

    • First Cooperative Act (1904): Enacted after the Indian Famine Commission (1901) suggested cooperative credit societies to tackle rural debt.
    • Cooperative Societies Act (1912): Amended the 1904 Act to include non-credit societies and support the cooperative movement.
    • Maclagan Committee (1915): Evaluated the cooperative movement’s economic and financial stability.
    • Montague-Chelmsford Reforms (1919): Made cooperation a provincial subject, boosting regional cooperative initiatives.
    • Post Economic Depression (1929): Various committees in regions like Madras, Bombay, Travancore, Mysore, Gwalior, and Punjab restructured cooperatives.
    • Gandhian Influence: Gandhi promoted cooperatives for a socialistic society and decentralization. Established the Phoenix Settlement and Tolstoy Farm as cooperative settlements in South Africa.

    Post-Independence Era:

    • First Five-Year Plan (1951-56): Emphasized cooperatives for comprehensive community development.
    • Multi-State Co-operative Societies Act (2002): Regulated the formation and functioning of multi-state cooperatives.
      • Amendment (2022): Introduced the Co-operative Election Authority to oversee board elections in multi-state cooperatives.
    • 97th Constitutional Amendment (2011): Made the right to form cooperatives a fundamental right under Article 19.
      • Added Part IX-B to the Constitution, establishing “The Co-operative Societies” (Articles 243-ZH to 243-ZT).
      • Empowered Parliament to legislate for multi-state cooperative societies and state legislatures for other cooperatives.
    • Union Ministry of Cooperation (2021): Created to oversee cooperative affairs, previously under the Ministry of Agriculture.

    Initiatives Making Primary Cooperatives Economically Vibrant and Transparent

    Details
    Model Bye-Laws for Primary Agricultural Credit Societies (PACS)
    • Prepared and circulated to all States/UTs.
    • Enables PACS to undertake over 25 business activities.
    • Adopted by 32 States/UTs.
    Establishing New Multipurpose PACS/Dairy/Fishery Cooperatives
    • Plan to cover all Panchayats/villages in 5 years.
    • 6,844 new PACS, Dairy, and Fishery cooperative societies registered.
    World’s Largest Decentralized Grain Storage Plan
    • Create warehouses and agri-infrastructure at PACS level.
    • Pilot project extended to 500 additional PACS.
    Formation of New Farmer Producer Organizations (FPOs) by PACS
    • 1,100 additional FPOs to be formed by PACS.
    • 992 FPOs formed by NCDC.
    PACS Given Priority for Retail Petrol/Diesel Outlets
    • Included in Combined Category 2 (CC2) for allotment.
    • 270 PACS from 25 States/UTs applied online.
    PACS Eligible for LPG Distributorship
    • Allowed to apply for LPG distributorships.
    • 31 PACS from four States/UTs submitted applications.
    PACS as Pradhan Mantri Bharatiya Jan Aushadhi Kendra
    • Promote PACS to operate Janaushadhi Kendras.
    • 2,594 PACS given initial approval, 674 received drug licenses.
    PACS as Pradhan Mantri Kisan Samriddhi Kendras (PMKSK)
    • Ensure easy accessibility of fertilizer and related services.
    • 38,141 PACS functioning as PMKSK.
    Convergence of PM-KUSUM at PACS Level
    • Farmers can adopt solar agricultural water pumps and install photovoltaic modules.
    Micro-ATMs to Bank Mitra Cooperative Societies
    • Provide doorstep financial services.
    • 2,700 micro-ATMs distributed in Gujarat.
    Rupay Kisan Credit Card to Members of Milk Cooperatives
    • Provide credit at lower interest rates.
    • 48,000 Rupay KCC distributed in Gujarat.
    Formation of Fish Farmer Producer Organization (FFPO)
    • 69 FFPOs registered by NCDC.
    • Department of Fisheries allocated work to convert 1000 fisheries cooperative societies into FFPOs.

     

    Initiatives Strengthening Urban and Rural Cooperative Banks

    Details
    Urban Cooperative Banks (UCBs) Allowed to Open New Branches
    • Open up to 10% (max 5 branches) without prior RBI approval.
    Doorstep Services by UCBs
    • Provide banking facilities at home.
    Extended Time Limit for Priority Sector Lending (PSL) Targets
    • Timeline extended to March 31, 2026.
    Nodal Officer in RBI for UCBs
    • Designated for regular interaction.
    Increased Housing Loan Limit by RBI
    • Doubled for UCBs to Rs. 60 lakhs.
    • Increased to Rs. 75 lakhs for Rural Cooperative Banks.
    Rural Cooperative Banks Lending to Real Estate/Residential Housing
    • Diversify business to benefit Housing cooperative societies.
    Non-scheduled UCBs, StCBs, and DCCBs Notified as MLIs in CGTMSE Scheme Risk coverage up to 85% on loans.
    Doubled Monetary Ceiling for Gold Loan by RBI Increased from Rs. 2 lakhs to Rs. 4 lakh.
    Umbrella Organization for UCBs Approval given to NAFCUB for formation, providing IT infrastructure and operational support.

     

    PYQ:

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

    (a) Commercial Banks

    (b) Cooperative Banks

    (c) Regional Rural Banks

    (d) Microfinance Institutions