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Subject: Economics

  • What is the GST Council, and what does it do?   

    Why in the news?

    The 53rd meeting of the Goods and Services Tax (GST) Council convened in Delhi, chaired by Nirmala Sitharaman, Union Minister for Finance and Corporate Affairs, on Saturday, June 22nd.

    What is the GST Council?

    • The GST Council is a constitutional body established under Article 279A of the amended Constitution of India.
    • It is a joint forum consisting of the Union Finance Minister (as Chairperson), the Union Minister of State for Finance, and representatives from each state and Union Territory (UT) with legislatures.
    • The Council is responsible for making recommendations on issues related to GST, including tax rates, exemptions, and model GST laws.

    Powers and Functions of the GST Council

    • Recommendations on GST Issues: The Council advises the Union and State Governments on matters related to the goods and services tax.
    • Tax Rates: It decides on the rates of GST applicable to goods and services, including any modifications or exemptions.
    • Dispute Resolution: It addresses disputes that may arise between the Union and States or among States regarding GST.
    • Administrative Changes: The Council can recommend administrative changes to improve the efficiency of GST implementation.
    • Review and Revision: Periodically review GST rates and provisions to align with economic realities and policy objectives.

    Evolution of the GST Council since its inception:

    • Formation and Initial Years: Established in 2016 after the passage of the 122nd Constitutional Amendment Act. The Council began functioning in 2017 when GST was implemented nationwide.
    • Operational Efficiency: Over the years, the Council has evolved to streamline decision-making processes, including real-time discussions and consensus-building among members.
    • Expansion of Scope: Initially focusing on setting basic tax rates and exemptions, the Council’s scope expanded to include amendments to GST laws and procedural changes.
    • Judicial Scrutiny: In 2022, the Supreme Court clarified that the Council’s recommendations are not binding but reflect collaborative efforts between the Union and States.
    • Adaptation to Challenges: Adapted to economic fluctuations, pandemic challenges (like the postponement of GST filing deadlines during COVID-19), and evolving sectoral needs.
    • Interstate Dynamics: The voting structure of the Council, with states collectively having a two-thirds voting share, underscores its federal and cooperative nature.

    Conclusion: The GST Council, pivotal since 2017, advises on GST matters, sets tax rates, resolves disputes, and evolves with economic shifts. Its federal structure ensures collaborative decision-making for efficient tax administration in India.

    Mains PYQ:

    Q Enumerate the indirect taxes which have been subsumed in the Goods and Services Tax (GST) in India. Also, comment on the revenue implications of the GST introduced in India since July 2017. (UPSC IAS/2019)

  • [pib] Release of Statistical Report on Value of Output from Agriculture and Allied Sectors, 2024

    Why in the News?

    The National Statistical Office (NSO), under the Ministry of Statistics and Programme Implementation (MoSPI), has released the ‘Statistical Report on Value of Output from Agriculture and Allied Sectors 2024’.

    Data Collection Strategies by NSO:

    • Crops are divided into 12 groups: Cereals, pulses, oilseeds, sugars, fibres, indigo, dyes and tanning material, drugs and narcotics, condiments & spices, fruits & vegetables, other crops, by-products, and kitchen garden.
    • Livestock products are divided into 7 groups: milk, meat, eggs, wool and hair, dung, silk worm cocoons & honey, and increment in livestock.

    About the National Statistical Office (NSO)

      • The NSO was established in 1950 as the Central Statistical Office (CSO) under the Ministry of Planning.
      • It was later renamed the National Sample Survey Office (NSSO) in 1970 and subsequently became the NSO in 2019.
      • Over the years, it has evolved to become the primary statistical agency in India.
    • Organizational Structure:  The NSO consists of several divisions and units responsible for different statistical functions.

    Key organizations under NSO: Central Statistical Office (CSO)

    • The CSO is a part of the NSO and focuses on macroeconomic statistics and national income accounting.
    • It is responsible for producing key economic indicators such as the Gross Domestic Product (GDP), Index of Industrial Production (IIP), Consumer Price Index (CPI), and Wholesale Price Index (WPI).

    Key Reports released by NSO:

    • Household Consumption Expenditure Survey
    • EnviStats India 2024: Environment Statistics
    • Energy Statistics India 2024
    • National Accounts Statistics 2024
    • Quarterly Estimates of GDP

    Sector-wise share of Value of Output

    Salient Features and Summary Results

    • India’s Agricultural Rankings: India ranks second worldwide in arable land, third in cereal production, and is a leading producer of groundnut, fruits, vegetables, sugarcane, tea, and jute. It is also the largest producer of milk, second in egg production, and fifth in meat production.
    • GVA Contribution: The shares of Crop, Livestock, Forestry and Fishing sub-sectors in value of output of Agriculture and allied sector were 54.3%, 30.9%, 7.9% and 6.9% respectively in 2022-23.
    • Crop Sub-sector Trends: The crop sub-sector remains the largest contributor to the Gross Value of Output (GVO) but has seen its share decline from 62.4% in 2011-12 to 54.3% in 2022-23. Fruits and vegetables’ output has significantly increased, highlighting the growing importance of horticulture.
    • Livestock Sub-sector Growth: The livestock sub-sector has seen an increase in the output of milk, meat, and eggs, indicating a steady growth in this area.
    • Forestry and Fishing: The forestry sector has diversified its output sources, and the fishing and aquaculture sector has seen significant growth, especially in Andhra Pradesh.

    State-wise Details from 2011-12 to 2022-23

    State-wise Value of Output of Crop

    • Highest Output: Uttar Pradesh leading in cereals and sugarcane production.
    • Lowest Output: Lakshadweep:

    State-wise Value of Output of Livestock

    • Highest Output:
      • Uttar Pradesh and Rajasthan together accounted for about a quarter of the livestock sub-sector’s output.
    • Lowest Output:
      • Goa: Output remained at ₹0 lakh throughout the period.
    • Key Trends:
      • Madhya Pradesh: Significant increase in livestock output, particularly in milk and meat production.
      • West Bengal: Steady growth in egg production.

    State-wise Value of Output of Forestry and Logging

    Major products: Industrial wood (68%), Fuelwood (20%), and Non-Timber Forest Products (NTFP) (12%) in 2022-23.

    • Top States in 2022-23:Maharashtra: 16.4% share, Rajasthan: 10.6% share,Uttar Pradesh: 8.7% share, Madhya Pradesh: 7.7% share and Odisha: 5.3% share.

    State-wise Value of Output of Fishing and Aquaculture

    • Highest Output: Andhra Pradesh: Share increased from 17.7% in 2011-12 to almost 40.9% in 2022-23, leading in fish and prawn farming.
    • Lowest Output: Arunachal Pradesh: Output increased from ₹0 lakh (2011-12) to ₹3 lakh (2022-23).

    All India Item-wise Value of Output from Agriculture, Livestock, Forestry, and Fishing

    • Cereals: Paddy and wheat are the top contributors to the cereals sub-sector. Paddy output in 2022-23 was ₹220,200 crore, while wheat output was ₹137,300 crore.
    • Pulses: Gram and Arhar together accounted for nearly 59% of the pulses output. Madhya Pradesh led in pulses production with a 22% share in 2022-23.
    • Oilseeds: Groundnut and Rapeseed & Mustard are the highest contributors within the oilseeds group. Gujarat and Rajasthan are the leading states in oilseeds production.
    • Sugar Crops: Uttar Pradesh remains the largest producer of sugarcane, increasing its share from 41% in 2011-12 to 54.5% in 2022-23.
    • Livestock Products: Milk, meat, and eggs are the major contributors within the livestock sub-sector. The share of milk, meat, and eggs in the livestock sub-sector was 66.5%, 23.6%, and 3.7% respectively in 2022-23.
    • Forestry Products: The forestry sector’s output is mainly driven by industrial wood, fuelwood, and NTFP. The share of industrial wood increased to 68% in 2022-23.
    • Fishing and Aquaculture: The fishing and aquaculture sector has seen a significant increase in output, with Andhra Pradesh leading the production. The output of fishing and aquaculture increased from ₹80 thousand crore in 2011-12 to ₹195 thousand crore in 2022-23.

    PYQ:

    [2011] A state in India has the following characteristics:

    1. Its northern part is arid and semiarid.
    2. Its central part produces cotton.
    3. Cultivation of cash crops is predominant over food crops.

    Which one of the following states has all of the above characteristics?

    (a) Andhra Pradesh

    (b) Gujarat

    (c) Karnataka

    (d) Tamil Nadu

  • [pib] Viability Gap Funding (VGF) Scheme for Offshore Wind Energy Projects

     

    Why in the News?

    • The Union Cabinet, chaired by the PM, approved the Viability Gap Funding (VGF) scheme for offshore wind energy projects.

    Note: Offshore wind energy projects refer to developing and operating wind farms located offshore, typically in coastal waters or oceans.

    Back2Basics: Viability Gap Funding (VGF) Scheme

    • The VGF scheme is a financial tool to support infrastructure projects that are economically justified but face financial viability challenges.
    • It was launched in 2004 to address the gap between economically viable infrastructure projects and their financial feasibility under traditional financing models.
      • Administration: Administered by the Ministry of Finance, Government of India, the scheme operates as a Plan Scheme with annual budget allocations.

    Features:

    1. Capital Subsidy: VGF provides a grant (capital subsidy) to infrastructure projects to make them financially attractive for private sector participation. This subsidy helps cover part of the cost that private investors would find economically unviable.
    2. Project Eligibility: Projects eligible for VGF are typically selected through competitive bidding processes. They must demonstrate economic justification but face challenges in attracting private investment solely on commercial terms.
    3. Disbursement Timing: The VGF grant is disbursed during the construction phase of the project. However, disbursement is conditional upon the private sector developer making the required equity contribution to the project.
    4. Budgetary Allocation: Funds for VGF are allocated from the government’s budget. Sometimes, contributions may also come from the statutory authority that owns the project asset.
    5. Limitations: Additional financial assistance beyond the VGF amount is capped at 20% of the total project cost. This additional support can be provided by the sponsoring Ministry, State Government, or the statutory entity involved.

    Benefits:

    • Encouraging Investment: By reducing the financial risks associated with infrastructure projects, VGF encourages private sector participation, leading to faster project implementation and improved service delivery.
    • Infrastructure Development: The scheme supports the development of critical infrastructure such as transportation (roads, railways, airports), energy (power generation, transmission), and public utilities.

    About VGF Scheme for Offshore Wind Energy Projects

      • The VGF scheme aligns with the National Offshore Wind Energy Policy (2015) to harness India’s offshore wind potential.
      • It aims to reduce power costs from offshore wind projects, making them viable for DISCOMs through government support.
      • It seeks installation and commissioning of 1 GW of offshore wind energy projects (500 MW each off the coast of Gujarat and Tamil Nadu).
    • Functionaries: 
      • Private Developers will execute projects via transparent bidding.
      • Power Grid Corporation of India Ltd (PGCIL) will build power evacuation infrastructure.
    • Total outlay: Rs. 7453 crore, including Rs. 6853 crore for installing and commissioning 1 GW of projects in Gujarat and Tamil Nadu.

    Advantages of Offshore Wind Energy:

    • Offshore wind offers higher reliability, lower storage requirements, and greater employment potential than onshore wind and solar.
    • The development will attract investments, build indigenous manufacturing capabilities, and foster technology advancements.

    Environmental and Economic implications:

    • 1 GW projects will generate 3.72 billion units annually, reducing CO2 emissions by 2.98 million tons per year for 25 years.
    • Expected to kickstart India’s offshore wind sector, supporting initial development of 37 GW capacity with an investment of Rs. 4,50,000 crore.
    • Creates an ecosystem for ocean-based economic activities, contributing to India’s energy transition goals.

    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

    [2016] Give an account of the current status and the targets to be achieved pertaining to renewable energy sources in the country. Discuss in brief the importance of National Programme on Light Emitting Diodes (LEDs).

  • Proposed Amendments to Insolvency Resolution Process by IBBI

    1. Why in the News?
    • The Insolvency and Bankruptcy Board of India (IBBI) has proposed amendments to the Insolvency Resolution Process for Corporate Process regulations to enhance efficiency, reduce costs, and increase transparency.
      • This aims to align with the Companies (Registered Valuers and Valuation) Rules and streamline the Corporate Insolvency Resolution Process (CIRP).

    Do You Know?

    Since its enactment, the IBBI has achieved notable successes in resolving insolvency cases and recovering debts:

    • Debt Resolution: The IBC has successfully resolved Rs. 3.16 lakh crore of debt across 808 cases within seven years (as per CRISIL).
    • Higher Recovery Rates: Creditors have realized an average of 32% of admitted claims and 169% of the liquidation value through IBC proceedings, demonstrating higher recovery rates compared to previous mechanisms.
    • Behavioural Change: Companies have been proactively involved in the settlement of debts amounting to over Rs. 9 lakh crore before cases enter formal insolvency processes.

    Proposed amendments by IBBI

    • Simplified Valuation: Instead of separate reports for different types of assets, there will be one comprehensive valuation report covering the entire company. This helps in keeping valuation consistent and clear.
    • Single Valuer for Small Companies: For smaller companies with assets up to ₹1,000 crore and MSMEs, only one valuer will be appointed to determine the company’s value unless there’s a good reason for more than one.
    • Option for Two Valuers: If needed, the creditors’ committee can choose to have two valuers to deal with complex cases, but they have to explain why.
    • Faster Appointment of Representatives: Representatives appointed to represent creditors can start participating in meetings as soon as their application is submitted, to avoid delays.
    • Guarantees in Resolution Plans: If a resolution plan suggests releasing guarantees, it won’t stop creditors from going after guarantors or using the guarantees according to their agreements.

    About Insolvency and Bankruptcy Board of India (IBBI)

    Details
    Establishment Established on 1st October 2016 under the Insolvency and Bankruptcy Code (IBC), 2016.

    • Objective: To promote a creditor-driven insolvency resolution process and enhance India’s credit culture and business environment.
    Responsibility Responsible for implementing and enforcing the IBC,

    IBC consolidated laws related to insolvency resolution for individuals, partnership firms, and corporate entities.
    Functions
    • Regulates insolvency professionals and processes.
    • Oversees insolvency professional agencies, entities, and information utilities.
    • Enforces rules for corporate and individual insolvency resolution, liquidation, and bankruptcy.
    • Sets eligibility criteria and curriculum for insolvency professionals.
    • Collects and maintains records on insolvency cases and disseminates related information.
    Composition Total 10 members

    • Chairperson appointed by the Central Government.
    • Three members from central government officers (Ministries of Finance, Corporate Affairs, Law).
    • One member nominated by RBI (Reserve Bank of India).
    • Five other members nominated by the Central Government, including at least three full-time members.

    The term is 5 years or until age 65, with reappointment possible.

    Adjudicating Authorities under the IBC:

    Under the IBC, two primary adjudicating authorities handle insolvency cases based on the nature of the entity:

    • National Company Law Tribunal (NCLT): NCLT adjudicates insolvency cases involving corporate entities and other limited liability entities.
    • Debt Recovery Tribunal (DRT): DRT has jurisdiction over insolvency cases concerning individuals and partnership firms, excluding Limited Liability Partnerships (LLPs).

    Recent Amendments to the IBC:

    • Approval for segregated sale of assets or resolution plans.
    • Increase in the number of NCLT benches to 16 for faster adjudication.
    • Extension of timelines for filing claims to accommodate procedural complexities.
    • Sector-specific amendments tailored to address unique challenges in various industries.
    • Modifications in procedural forms such as Form G2 to enhance clarity and efficiency in insolvency proceedings.

    PYQ:

    [2017] Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news?

    (a) It is a procedure for considering the ecological costs of developmental schemes formulated by the Government.

    (b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.

    (c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.

    (d) It is an important provision in ‘The Insolvency and Bankruptcy Code’ recently implemented by the Government.

  • The high cost of a Global Economic Decoupling

    Why in the News?

    The announcement by United States President Joe Biden in May to impose a new set of tariffs on various Chinese imports has reignited concerns about a new phase of economic decoupling globally.

    • According to the World Economic Forum, Economic Decoupling is a policy change that raises barriers to trade in goods and services where firms respond to these changes. If policy decoupling occurs despite the efforts of economic agents, the global economy is negatively affected.

    Latest Tariff on Chinese Electric Vehicles (EV) by USA:

    • Reason for Tariff: The U.S. imports few EVs from China, and the decision to impose high tariffs on them reinforces President Biden’s pro-union stance and support for the United Auto Workers (UAW) efforts to increase domestic EV manufacturing.
    • Tariff Increase: The tariffs on Chinese EVs have been quadrupled from 25%.
    • Pre-emptive Measure: This tariff acts as a pre-emptive measure to protect the American auto industry from the fast-growing Chinese car and battery industry. The tariff aims to support traditional domestic automakers and the American auto union against competition from China.

    Significant Observations of these decisions made by the USA on Global Geo-politics:

    • Firstly, the latest tariffs imposed by the USA which include steep increases for several other products, ranging from semiconductors to needles and syringes are the final nail in the coffin of US-China trade cooperation. The US and China are now in a full-blown economic war which will have far-reaching geopolitical consequences.
    • Secondly, the tariffs signal defeat. Biden and his political party feel obliged to join the anti-China, anti-trade fervor that has emerged as one of the very few unifying issues in a polarized country. Moreover, the tariffs, combined with US complaints that China is producing too much and putting pressure on the global economic system, speak to a deep-seated anxiety about America’s international competitiveness.

    Long-term Effects

    • Protectionism: Continued tariffs may lead to a vicious cycle of tit-for-tat measures, exacerbating protectionism worldwide.
    • Global Green Transition: New import restrictions on Chinese clean energy products could delay global green transition targets and the expansion of renewables.
    • Economic Impact on Multinationals: Western multinationals dependent on China’s consumer market may see a dip in earnings due to China’s slowing growth and rising household debts.
    • Impact on Resource-rich Countries: Countries like Australia and Brazil, heavily reliant on exports to China, may face economic challenges due to a slowing Chinese economy and falling commodity prices.
    • Supply Chain Risks: The European Union’s de-risking strategy might lead to China tightening its control over critical raw mineral supply chains, complicating the global value chain of rare earths.
    • Southeast Asia’s Challenges: Despite potential benefits from shifting production and investment from China, Southeast Asia remains highly dependent on Chinese technology and investment.
    • India’s Manufacturing Struggles: India’s prospects of benefiting from decoupling dynamics are uncertain due to competition from neighboring countries and deep economic ties with China.

    Potential Crisis

    • Psychological Impact on Investors: The cycle of escalation in tariffs and decoupling creates significant psychological effects on global investors.
    • Distance from WTO: The U.S. strategy involves deliberate distancing from the World Trade Organization (WTO), evidenced by blocking the appointment of judges to the WTO Appellate Body.
    • Geopolitical Rivalry: The intensifying geopolitical rivalry and fragmentation of the global economy pose a high risk to the liberal international order.
    • Risk to Global Stability: The ongoing decoupling strategy is likely to benefit neither the U.S., China, nor the rest of the world, leading to potential global instability.

    Conclusion: The new tariffs and decoupling strategies, while aiming to protect domestic interests, risk escalating global protectionism and instability, highlighting the need for balanced, multilateral trade policies.

    Mains PYQ:

    Q What are the key areas of reform if the WTO has to survive in the present context of ‘Trade War’, especially keeping in mind the interest of India? (15M) (UPSC IAS/2018)

  • PM-Kisan Samman Nidhi Yojana

    Why in the News?

    The Prime Minister will release the 17th installment of the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), amounting to over ₹20,000 crore, for 92.6 million beneficiary farmers across the country.

    About the PM-KISAN Scheme

    • The PM-KISAN is a Central Sector Scheme with 100% funding from the Government of India.
    • It is being implemented by the Ministry of Agriculture and Farmer’s Welfare.
    • Launched: In February 2019.
    • Aim: To help procure various inputs to ensure proper crop health and appropriate yields, commensurate with the anticipated farm income at the end of each crop cycle.
    • Objective: To provide eligible farmers with an annual financial assistance of ₹6,000.
      • This assistance is distributed in three equal instalments of ₹2,000 each every 4 months, via Direct Benefit Transfer (DBT) into beneficiaries’ bank accounts.
    • Beneficiaries:
      • Farmer families that hold cultivable land can apply for the benefits of this plan.
      • Small and Marginal Farmers (SMFs) (a farmer who owns cultivable land up to 2 hectare as per land records of the concerned State/UT.).
      • The entire responsibility of identification of beneficiary farmer families rests with the State / UT Governments.

    Do you know?

    The PM-KISAN scheme was first conceived and implemented by the government of Telangana as the Rythu Bandhu scheme.

    Rythu Bandhu Scheme

    • It is also known as the Farmer’s Investment Support Scheme (FISS).
    • It is a welfare programme for farmers started in 2018 by the Telangana government.
    • Under the scheme, the state government provided the 58 lakh farmers in Telangana with ₹5,000 per acre of their land as a farm investment for two crops.
    • There is no ceiling on the number of acres held by a farmer.
    • So, a farmer who owns two acres of land would receive Rs 20,000 a year, whereas a farmer who owns 10 acres would receive Rs 1 lakh a year from the government.
    • This investment is made twice a year, once for the kharif harvest and once for the Rabi harvest.
    • It is the country’s first direct farmer investment support scheme where cash is paid directly to the beneficiary.

    Impact of the Scheme

    • Beneficiaries outreach: Over 11 crore farmers (with more than 3 crore women farmers) across the country have availed of the PM-Kisan scheme, indicating its widespread reach and impact.
    • Financial Support: This financial aid helps farmers meet their agricultural expenses, purchase seeds, fertilizers, and other inputs, and support their families’ livelihoods.
    • Improved Agricultural Practices: This contributes to food security and boosts the agricultural sector’s growth.
    • Poverty Alleviation: The scheme plays a crucial role in alleviating poverty among small and marginal farmers by providing them with a steady source of income just like Universal Basic Income (UBI).
    • Enhanced Livelihoods: PM-Kisan supports farmers’ livelihoods, by providing a safety net during times of agricultural distress or economic uncertainties, ensuring a better quality of life for rural communities.

    PYQ:

    [2020] Under the Kisan Credit Card scheme, short-term credit support is given to farmers for which of the following purposes?

    1. Working capital for maintenance of farm assets.
    2. Purchase of combine harvesters, tractors and mini trucks.
    3. Consumption requirements of farm households.
    4. Post-harvest expenses.
    5. Construction of family house and setting up of village cold storage facility.

    Select the correct answer using the code given below:

    (a) 1, 2 and 5 only

    (b) 1, 3 and 4 only

    (c) 2, 3, 4 and 5 only

    (d) 1, 2, 4 and 5
  • [12 June 2024] The Hindu Op-ed: India’s Looming Financial Crisis

    [12 June 2024] The Hindu Op-ed: India’s Looming Financial Crisis

    PYQ Relevance: 

    Q. The product diversification of financial institutions and insurance companies, resulting in overlapping of products and services strengthens the case for the merger of the two regulatory agencies, namely SEBI and IRDA. Justify. (UPSC IAS/2013)

    Q. Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product (GDP) in the post-reform period” Give reasons. How far the recent changes in Industrial Policy are capable of increasing the industrial growth rate? (UPSC IAS/2017)

    Mentors’ comment: Rapid credit growth acts like a siren’s call, tempting economies with the allure of prosperity but ultimately steering them toward crises. Every financial boom is packaged as a tale of innovation and good fortune, yet each new narrative is merely a manufactured frenzy. This phenomenon, described by economist Robert Shiller as “irrational exuberance,” is a recurring theme in financial history. As economists Carmen Reinhart and Kenneth Rogoff detailed in their renowned account of financial folly, governments and market players tend to dismiss the lessons of past crises following credit booms, clinging to the belief that “this time is different.”

    Let’s learn.

    Why in the News?

    Rapid credit growth often promises prosperity but frequently leads to crises.These periods are seen as times of innovation and good fortune but often result in “irrational exuberance,” as economist Robert Shiller describes.

    A Lofty and Dangerous Narrative about the Indian economy 

    • Exaggerated Optimism About India’s Performance: Policymakers are excessively optimistic about India’s digital infrastructure as a catalyst for financial innovation and inclusion, promising growth and equality.
    • Enabling Poor Financial Practices: The narrative has facilitated a poorly regulated financial sector and led consumers to live beyond their means, generating a lending surge. Both international and domestic analysts have praised the surge, citing robust growth in bank lending and low levels of non-performing assets.
    • Misleading Applause: The IMF and National Council of Applied Economic Research have commended the increase in bank lending, particularly personal loans, interpreting it as a sign of bright prospects despite the struggles in industrial lending.
    • Ignored Fundamental Issues: The focus on credit growth detracts from addressing deep-rooted issues like job deficits and human capital deficits. The illusion of financial health is maintained as new loans pay off old ones, but this is unsustainable when lending slows.
    • Household Debt Boom: The rapid expansion of household lending, between 25% and 30% annually, is viewed as easy cash by lower- and middle-income households for various expenses, including lifestyle spending. This type of boom does not enhance productive capacity but increases domestic prices, making the country less competitive.
    • Economic Risks: Economists warn that higher household debt burdens lead to steeper crashes. Alongside the credit boom, factors like an overvalued stock market, weak corporate investment, anaemic consumer spending, an overvalued exchange rate, and dubious data reporting indicate a looming financial crisis.

    Challenges related to the financial sector:

    • Fragmented Financial Sector: The Indian financial services industry is large and chaotic, with about 30 major providers (scheduled commercial banks and major NBFCs) and thousands of smaller, often dubious, players including fly-by-night NBFCs and fintechs.
    • Rogue Behavior and Scams: Major financial institutions have a history of rogue behavior, and the search for easy profits since economic liberalization in 1991 has led to numerous scams. Post-COVID-19, many financial service providers shifted their focus to household lending, often exploiting stagnant incomes.
    • Unsecured Lending: A significant and growing share of household loans (approaching a quarter) is unsecured, meaning they are not backed by collateral. The rapid increase in credit card debt exemplifies this trend, with the number of credit cards soaring from 20 million in 2011 to nearly 100 million by January 2024.
    • High-Risk Borrowers: Aggressive marketing of credit cards and loans to low-creditworthy individuals has built stress within both the borrower base and the financial system. The Reserve Bank of India has noted that the explosive growth of credit cards has attracted riskier, below-prime borrowers.
    • Debt Addiction and Financial Strain: Many households, lured by rewards and “no-interest EMIs,” are falling into debt traps, taking on more debt to repay existing dues, exacerbating their financial strain. The high household debt-service-to-income ratio (12%) is among the highest globally, comparable to pre-2008 crisis levels in the US and Spain.

    Solution (Way Forward)

    • Surgically Downsize the Financial Services Industry: The financial services industry needs to be resized to better align lending capacity with productive borrowing needs. This would involve reducing the number of financial providers and ensuring that loans are directed towards projects that enhance productivity.
    • Weaken the Rupee: A weaker rupee could help expand exports, providing a buffer against the economic downturn. By making Indian goods cheaper abroad, a weaker rupee could stimulate demand for exports.
    • Preventing Rapid Credit Growth: Historical evidence indicates that rapid credit growth combined with an overvalued exchange rate is dangerous. Measures should be taken to moderate credit growth to sustainable levels.
    • Shift in Policy Perspective: There is a need to move away from the current belief that finance alone can spur growth. Instead, policies should focus on sustainable growth supported by finance, aligning with Joan Robinson’s dictum that finance must follow growth.
    • Addressing Overvalued Exchange Rate: Policymakers need to reconsider their commitment to maintaining a strong exchange rate. A more flexible exchange rate policy could better reflect economic fundamentals and support external competitiveness.
    • Focus on Employment and Human Capital: The acute job shortage and regression of the workforce back to agriculture highlight the need for policies that generate employment and improve human capital. Investments in education, skills development, and public goods are essential.

  • PM-KISAN Scheme: Boosting Farmer Welfare

    Why in the News?

    Prime Minister has approved the 17th instalment of the PM Kisan scheme. This move will benefit 9.3 crore farmers, amounting to a distribution of approximately Rs 20,000 crore.

    About the PM-KISAN Scheme

    • The Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) is a Central Sector Scheme with 100% funding from the Government of India.
    • It is being implemented by the Ministry of Agriculture and Farmer’s Welfare.
    • Launched: In February 2019.
    • Aim: To help procure various inputs to ensure proper crop health and appropriate yields, commensurate with the anticipated farm income at the end of each crop cycle.
    • Objective: To provide eligible farmers with an annual financial assistance of ₹6,000.
      • This assistance is distributed in three equal instalments of ₹2,000 each every 4 months, via Direct Benefit Transfer (DBT) into the bank accounts of beneficiaries.
    • Beneficiaries:
      • Farmer families that hold cultivable land can apply for the benefits of this plan.
      • Small and Marginal Farmers (SMFs) (a farmer who owns cultivable land up to 2 hectares as per land records of the concerned State/UT.).
      • The entire responsibility of identification of beneficiary farmer families rests with the State / UT Governments.

    Significance for Farmers

    • Beneficiaries outreach: Over 11 crore farmers (with more than 3 crore women farmers) across the country have availed of the PM-Kisan scheme, indicating its widespread reach and impact.
    • Financial Support: This financial aid helps farmers meet their agricultural expenses, purchase seeds, fertilizers, and other inputs, and support their families’ livelihoods.
    • Improved Agricultural Practices: This contributes to food security and boosts the agricultural sector’s growth.
    • Poverty Alleviation: The scheme plays a crucial role in alleviating poverty among small and marginal farmers by providing them with a steady source of income just like Universal Basic Income (UBI).
    • Enhanced Livelihoods: PM-Kisan supports farmers’ livelihoods, by providing a safety net during times of agricultural distress or economic uncertainties, ensuring a better quality of life for rural communities.

    PYQ:

    [2020] Under the Kisan Credit Card scheme, short-term credit support is given to farmers for which of the following purposes?

    1. Working capital for maintenance of farm assets.
    2. Purchase of combine harvesters, tractors and mini trucks.
    3. Consumption requirements of farm households.
    4. Post-harvest expenses.
    5. Construction of family house and setting up of village cold storage facility.

    Select the correct answer using the code given below:

    (a) 1, 2 and 5 only

    (b) 1, 3 and 4 only

    (c) 2, 3, 4 and 5 only

    (d) 1, 2, 4 and 5

  • [pib] Green Ammonia Production under SIGHT Program

    Why in the News?

    • Solar Energy Corporation of India (SECI) has initiated the bidding process for a total capacity of 5.39 lakh Metric Tonnes (MT) per annum of Green Ammonia production.
      • The initiative falls under Mode 2A of the Strategic Interventions for Green Hydrogen Transition (SIGHT) Programme, part of the National Green Hydrogen Mission led by the Ministry of New & Renewable Energy (MNRE).

    What is Green Ammonia?

    • Green ammonia, also known as renewable ammonia, is a form of ammonia produced using renewable energy sources, which is proposed as a sustainable, emission-free alternative with a multitude of applications in industry and other sectors.
    • It is produced by combining nitrogen with hydrogen, which is generated through water electrolysis using renewable energy, and then reacting the hydrogen and nitrogen at high temperatures and pressures to form ammonia.

    About the National Green Hydrogen Mission

    • The National Green Hydrogen Mission was launched in January 2023.
      • Objective: To make India a ‘global hub’ for using, producing and exporting green hydrogen.
    • Earlier, the National Hydrogen Mission was launched on August 15, 2021, with a view to cutting down carbon emissions and increasing the use of renewable sources of energy.
    • The Ministry of New and Renewable Energy (MNRE) formulates the scheme guidelines for the implementation of these missions.

    Key features of the NGHM

    • Power capacity: The mission seeks to promote the development of a green hydrogen production capacity of at least 5 MMT per annum with an associated renewable energy capacity addition of about 125 GW in the country by 2030.
    • Job creation: It envisages an investment of over ₹8 lakh crore and creation of over 6 lakh jobs by 2030.
    • Reducing energy import bill: It will also result in a cumulative reduction in fossil fuel imports of over ₹1 lakh crore and abatement of nearly 50 MMT of annual greenhouse gas emissions by 2030.
    • Export promotion: The mission will facilitate demand creation, production, utilisation and export of green hydrogen.
    • Incentivization: Under the Strategic Interventions for Green Hydrogen Transition Programme (SIGHT), distinct financial incentive mechanisms are provided.
    • Green Hydrogen Hubs: Regions capable of supporting large-scale production and/or utilisation of hydrogen will be identified and developed as Green Hydrogen Hubs.

    What is the SIGHT Program?

    • In the initial stage, two distinct financial incentive mechanisms proposed with an outlay of ₹ 17,490 crore up to 2029-30:
    1. Incentive for manufacturing of electrolysers
    2. Incentive for production of green hydrogen.
    • Depending upon the markets and technology development, specific incentive schemes and programmes will continue to evolve as the Mission progresses.

    PYQ:

    [2019] Consider the following statements:

    1. Agricultural soils release nitrogen oxides into the environment.
    2. Cattle release ammonia into the environment.
    3. Poultry industry releases reactive nitrogen compounds into environment.

    Which of the statements given above is/are correct?

    (a) 1 and 3 only

    (b) 2 and 3 only

    (c) 2 only

    (d) 1, 2 and 3

  • Why has RBI policy panel kept repo rate unchanged, hiked GDP growth projection?

    Why in the news?

    The RBI’s Monetary Policy Committee kept the repo rate at 6.5% for the eighth consecutive time, due to persistent high retail inflation from sticky food prices.

    Monetary Policy Committee (MPC) 

    • The Monetary Policy Committee (MPC) of India is responsible for setting the benchmark interest rate in the country.
    • The committee consists of six members: the Governor of the Reserve Bank of India (RBI), the Deputy Governor in charge of monetary policy, an Executive Director of the RBI, and three external members nominated by the government.
    • The MPC meets at least four times a year and publishes its decisions after each meeting. The committee’s primary objective is to maintain price stability while considering the goal of economic growth.

    Why did the RBI keep the Rates Unchanged?

    • Inflation Concerns: The Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5% due to persistent high inflation, with April 2024 retail inflation at 4.83%.
    • Caution on Food Inflation: The policy stance remains cautious due to the risk of rising food inflation from heatwave conditions, which may impact the final journey of disinflation.
    • Flexible Inflation Targeting: Under the regime, the RBI aims to keep inflation within the 2-6% range and achieve a 4% target on a durable basis.
    • Supply Side Disruptions: Persistent supply shocks in cereals, pulses, spices, and vegetables contributed to elevated food inflation, impacting overall inflation management.

    What happens to Lending Rates if the Repo Rate is left steady?

    Lending Rate:

    The lending rate, also known as the bank rate, is the rate at which commercial banks borrow money from the central bank without securities. It is typically higher than the repo rate and is used for longer-term lending. The lending rate is used to assess the long-term monetary goals of a bank and is often used to manage liquidity in the system

    Repo Rate 

    The repo rate, on the other hand, is the rate at which the central bank lends money to commercial banks against government securities as collateral. It is used for short-term lending and is typically lower than the lending rate
    • Relief for Borrowers: With the repo rate steady at 6.5%, external benchmark lending rates (EBLR) linked to the repo rate will not increase, keeping equated monthly installments (EMIs) on home and personal loans unchanged.
    • Potential MCLR Increase: Lenders might raise interest rates on loans linked to the marginal cost of fund-based lending rate (MCLR), as the full transmission of the 250 basis points hike in the repo rate from May 2022 to February 2023 has not yet occurred.

    Why Has MPC Hiked GDP Growth?

    • Improving Demand: The MPC raised the GDP growth forecast for FY25 to 7.2% from 7% due to strengthening rural and urban demand conditions buoyed by favourable monsoon forecasts.
    • Robust Economic Activity: Indicators such as healthy growth in the eight core industries, strong Purchasing Managers Index (PMI) in manufacturing and services, and overall resilient domestic economic activity support the upgraded growth projection.
    • Sectoral Strength: The manufacturing and services sectors continued to exhibit robust performance, with the PMI for services standing at 60.2 in May 2024, indicating strong expansion.

    Conclusion: The RBI’s cautious approach to keeping rates steady while boosting GDP growth projections aims to balance economic growth and inflation control, with a focus on addressing persistent food inflation.

    Mains PYQ:

    Q  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)