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Subject: Economics

  • India’s illegal coal mining problem      

    Why in the News?

    On July 13, three workers died of asphyxiation inside an illegal coal mine in Gujarat’s Surendranagar district.

    How Prevalent is Illegal Coal Mining in India?

    • Illegal coal mining has led to multiple fatalities, including recent incidents in Gujarat, Jharkhand, and West Bengal, highlighting its prevalence and dangers.
    • There are 10 workers who have died in illegal mining incidents in Gujarat alone this year, showcasing the ongoing risks associated with this activity.
    • Illegal mining is often conducted in abandoned mines or shallow coal seams, particularly in remote areas, where monitoring and enforcement of regulations are weak.

    What are the Legal Frameworks Governing Coal Mining in India?

    • Coal Mines (Nationalisation) Act, 1973: This act nationalized coal mining in India, regulating who can mine coal and under what conditions.
    • Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act): This central legislation governs the mining sector, detailing processes for acquiring mining licenses and regulating mining activities. It empowers state governments to frame rules to prevent illegal mining.
      • While the MMDR Act provides a framework, the enforcement and regulation of illegal mining fall under state jurisdiction.

    Why is the Responsibility for Addressing Illegal Mining Placed on State Governments?

    • Law and Order Issue: Illegal mining is categorized as a law and order problem, which is a subject under the State List of the Constitution, making it the responsibility of state governments to address.
    • Limited Central Authority: The Union government often shifts the responsibility to state authorities, citing the decentralized nature of governance in matters of local enforcement and regulation.

    What Factors Contribute to the Persistence of Illegal Coal Mining?

    • High Demand for Coal: With coal accounting for 55% of India’s energy needs, the high demand often exceeds legal supply leading to illegal mining activities.
    • Poverty and Unemployment: Many coal-rich areas are home to impoverished populations who resort to illegal mining as a source of livelihood due to limited job opportunities.
    • Weak Regulatory Enforcement: Inadequate monitoring and enforcement of mining regulations in remote areas allow illegal mining operations to flourish.
    • Political Patronage: Allegations of political leaders’ involvement in illegal mining operations complicate efforts to curb these activities, as seen in various states.

    What Safety Risks Do Workers Face?

    • Lack of Safety Equipment: Workers often operate without helmets, masks, or other protective gear, significantly increasing their risk of injury or death.
    • Hazardous Working Conditions: Illegal mines are typically unregulated, lacking proper structural support, making them vulnerable to cave-ins, landslides, and explosions.
    • Toxic Gas Exposure: Miners are at risk of asphyxiation from inhaling toxic gases like carbon monoxide, as evidenced by recent fatalities in Gujarat.
      • Continuous exposure to coal dust and hazardous substances can lead to respiratory issues and chronic health conditions, further endangering workers’ health.

    Conclusion: Need to implement advanced surveillance technologies, such as drones and satellite imaging, to monitor and detect illegal mining activities in real-time. This can improve the efficiency of enforcement agencies in identifying and responding to illegal operations swiftly.

  • A big step towards the transformation of various sectors  

    Why in the news?

    The 2024-25 Budget is a progressive proposal featuring several commendable initiatives aimed at boosting India’s economic growth and advancing social progress.

    Prioritized areas in the recent Budget 2024-25

    • Job Creation and Skilling: The budget allocates ₹1.48 lakh crore towards job creation, employment, and skilling, emphasizing the importance of developing a skilled workforce to support India’s service sector. This shift from a focus on manufacturing to skilling reflects a strategic move towards building a service-oriented economy.
    • Energy Transformation: There is significant investments are directed towards energy transformation initiatives, including solar panel manufacturing and nuclear energy development. The budget allocates ₹89,287 crore to crucial sectors, indicating a commitment to sustainable energy solutions.
    • Healthcare Initiatives: The budget includes measures to enhance healthcare access, such as customs duty exemptions on life-saving cancer medications and components for advanced medical equipment.
    • Technology and Innovation: A framework with nine priorities is introduced to leverage advanced technology and foster collaboration between the government and private sector, promoting growth and innovation across various sectors.
      • For example: The budget allocates ₹1 lakh crore specifically for research and innovation, accompanied by a 50-year interest-free loan.

    What does the budget say on Accessibility and Affordability?    

    • Customs Duty Exemptions on drugs: The budget exempts customs duties on three essential cancer medications, making them more affordable and accessible to patients. This move addresses the high costs associated with cancer treatments, which often pose significant barriers to access.
    • Support for Medical Equipment: Customs duties are also waived for components of X-ray tubes and digital detectors, which are crucial for advanced medical technologies.
    • Alignment with Domestic Capacity: The budget emphasizes aligning customs duties with domestic capacity under the phased manufacturing program, fostering a conducive environment for startups and encouraging local manufacturing.

    On Prioritizing Inclusivity and Fiscal Prudence

    • Women’s Workforce Participation: The budget focuses on boosting women’s participation in the economy through targeted initiatives such as hostels, creches, and skilling programs.
      • According to a report by McKinsey, India can increase its 2025 GDP, estimated at $4.83 trillion, by 16%-60% simply by enabling women to participate in the economy on par with men
    • Research and Development: With India spending only 0.7% of its GDP on research, the budget encourages private sector collaboration with the government to increase investments in R&D. This collaboration is vital for fostering innovation and ensuring sustainable economic growth.
    • Public-Private Partnerships: The budget promotes public-private partnerships to enhance healthcare delivery and infrastructure, reflecting a commitment to inclusivity and collaboration in achieving economic and social goals.

    Conclusion: The government should expand the scope of skilling programs to cover a wider range of sectors and skill levels while ensuring the workforce is equipped to meet the evolving demands of the service-oriented economy.

  • Key takeaways from the 2023-24 Economic Survey   

    Why in the News?

    The 2023-24 Economic Survey highlights realistic challenges for India’s growth, projecting GDP growth at 6.5%-7% for FY 2024-25 despite 8% growth in FY 2023-24.

    What are the major five issues with the Indian Economy?  

    • Weak Demand: In India, an unfavourable environment for FDI growth is due to high interest rates in developed countries, which increases the cost and opportunity cost of investment in India.
    • Dependence on China: Due to over-reliance on China for imports, particularly in key sectors like renewable energy, limits India’s manufacturing capabilities and increases vulnerability to geopolitical tensions.
    • Tepid Private Investment: Despite tax cuts aimed at stimulating capital formation, the corporate sector has not significantly increased investment, leading to a lack of job creation and economic dynamism.
    • Employment Challenges: The need to generate approximately 78.5 lakh jobs annually in the non-farm sector until 2030 to accommodate the growing workforce, coupled with insufficient data on job creation, complicates labour market analysis.
    • Infrastructure Deficiencies: Inadequate infrastructure, such as roads, railways, and sanitation, continues to hinder economic development and efficiency, requiring substantial investment and reform to improve productivity.

    What are the suggestions given in the Economic Survey? 

    • Private Sector’s Role in Job Creation: The corporate sector should take responsibility for creating jobs, as it is in their enlightened self-interest.
    • Embracing Healthy Lifestyle: Indian businesses should learn from India’s traditional lifestyle, food, and recipes to live healthily and in harmony with nature.
    • Focusing on Agriculture: The farm sector can generate higher value addition, boost farmers’ income, create opportunities for food processing and exports, and make the sector attractive to urban youth.
    • Removing Regulatory Bottlenecks: Licensing, inspection, and compliance requirements imposed by various levels of government are an onerous burden on businesses, especially MSMEs.
    • Improving Data Quality: The lack of availability of timely data on the absolute number of jobs created in various sectors precludes an objective analysis of the labour market situation.

    Way forward: 

    • Enhance Infrastructure Development: Need to prioritize investments in essential infrastructure such as roads, railways, and sanitation to boost economic efficiency and productivity.
    • Strengthen Data Collection and Analysis: The government should develop robust mechanisms for timely and accurate data collection on employment and other key economic indicators.

    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. (2019)

  • What is Angel Tax that was scrapped in Budget 2024?

    Why in the News?

    Finance Minister announced the abolition of the angel tax, aiming to strengthen the startup ecosystem and support innovation in India.

    What is Angel Investment?

    • An angel investor is an individual who provides financial backing to early-stage startups or entrepreneurs, typically in exchange for equity in the company.
    • Angel investors are typically high-net-worth individuals who invest their own personal funds, rather than investing on behalf of a firm or institution.
    • Features of Angel Investing: Early-stage funding, equity investment, high-risk, high-reward, active involvement,personal investment,f lexible terms and shorter investment horizon.

    What is Angel Tax? 

    • Referred to as Angel Tax, this rule is described in Section 56(2)(vii)(b) of the Income Tax Act, 1961.
    • Essentially it’s a tax on capital receipts, unique to India in the global context.
    • This clause was inserted by the Finance Act in 2012 to prevent laundering of black money, round-tripping via investments with a large premium into unlisted companies.
    • The tax covers investment in any private business entity, but only in 2016 was it applied to startups.

    Why was angel tax introduced?

    • The complicated nature of VC fundraising with offshore entities, multiple limited partners and blind pools is contentious.
    • There has been some element of money laundering or round-tripping under guise.

    Details of its levy

    • The Angel Tax is being levied on startups at 9% on net investments in excess of the fair market value.
    • For angel investors, the amount of investment that exceeds the fair market value can be claimed for a 100% tax exemption.
    • However, the investor must have a net worth of ₹2 crores or an income of more than ₹25 Lakh in the past 3 fiscal years.

    Key Issues with Angel Tax

    • Share Valuation: The tax impacted the valuation of shares, causing complications for startups in raising funds.
    • Discounted Cash Flow (DCF) Method: Issues arose with the treatment of estimated figures in the DCF method, leading to disputes.
    • Scrutiny of Funding Sources: The scrutiny of funding sources and investor credibility added another layer of complexity for startups.
    • Retrospective Application: The retrospective application of the tax and its effect on the conversion of convertible instruments into equity were also significant points of dispute.

    Significance for the Startup Community

    • Startups has long advocated for a more supportive and less restrictive environment for fundraising.
    • With this change, the government aims to create a more favourable atmosphere for innovation and investment in India.
    PYQ:

    [2014] What does venture capital mean?

    (a) A short-term capital provided to industries.

    (b) A long-term start-up capital provided to new entrepreneurs.

    (c) Funds provided to industries at times of incurring losses.

    (d) Funds provided for replacement and renovation of industries.

  • India’s economy projected to grow at 6.5% to 7% in FY ending March 2025.

    Why in the News?

    • India’s economy is projected to grow at 6.5% to 7% in the fiscal year ending March 2025.
      • The Economic Survey for 2023-24 highlights the need to address inequality and unemployment as policy priorities.

    Policy Recommendations by Chief Economic Adviser (CEA)

    • Regulatory Burdens: CEA V. Anantha Nageswaran advocates for Central and State governments to reduce regulatory burdens on businesses.
    • Corporate Responsibility: He urges the corporate sector to create productive jobs, emphasizing their responsibility in generating employment.

    Various Challenges discussed

    (1) Challenges in the IT Sector:

    • Slowdown in Hiring: The CEA notes a significant slowdown in IT sector hiring over the last two years.
    • AI and Labor: He encourages the industry to use AI to augment labor rather than replace workers.

    (2) Skilling Initiatives

    • Addressing Inequality: The Economic Survey suggests steps to tackle inequality, improve health, and bridge the education-employment gap.
    • Skilling Reboot: A reboot of India’s skilling initiatives is proposed to provide the industry with people having the right attitude and skills.

    (3) Corporate Sector and Economic Growth

    • Demand and Employment: The Survey emphasizes the benefits for corporates from higher demand generated by employment and income growth.
    • Warning against Short-Termism: It warns against “short-termism” which can weaken economic linkages.

    (4) State Capacity and Consensus Building:

    • Enhancing State Capacity: Enhancing state capacity is critical for the strategy to work.
    • Need for Consensus: The CEA stresses the need for consensus between governments, businesses, and the social sectors for effective transformation.

    (5) Land Acquisition and Investment Concerns:

    • Land Use Norms: While the Survey does not mention land acquisition reform, it highlights the need to deregulate land use norms and consolidate farmland holdings.
    • Investment Cautions: The Survey cautions about private capital formation being cautious due to fears of cheaper imports, indirectly referencing China.

    (6) Foreign Direct Investment (FDI) Challenges:

    • Attracting FDI: Attracting FDI will be challenging due to higher interest rates and developed countries encouraging domestic investments through subsidies.
    • Addressing Uncertainties: Despite progress, uncertainties related to transfer pricing, taxes, and import duties need to be addressed.

    Structural Reforms

    • Existing Reforms: Structural reforms such as GST and the Insolvency and Bankruptcy Code are delivering expected results.
    • Next-Gen Reforms: The Survey calls for “next-gen reforms” that are bottom-up in nature to achieve sustainable, balanced, and inclusive growth.

    Strategic Directions for Growth

    • Six-Pronged Strategy: The Survey outlines a six-pronged strategy for growth, emphasizing private sector investments and a fair share of income for workers.
    • Focus Areas: Other focus areas include financing the green transition, removing barriers for MSMEs, and implementing intelligent farmer-friendly policies.

    Conclusion

    • Sustained Growth Potential: The economy can grow at over 7% on a sustained basis in the medium term by building on past reforms.
    • Tripartite Compact: Achieving this growth requires a tripartite compact between the Centre, States, and the private sector.

    PYQ:

    [2013] Economic growth in country X will necessarily have to occur if:

    (a) There is technical progress in the world economy.

    (b) There is population growth in X.

    (c) There is capital formation in X.

    (d) The volume of trade grows in the world economy.

  • New Asset Class proposed by SEBI

    Why in the News?

    • The markets regulator, SEBI, has proposed a new asset class designed to offer investment products positioned between mutual funds (MFs) and portfolio management services (PMS).
      • This new category aims to fill an opportunity gap for investors and offer greater flexibility in portfolio construction.

    Note:

    • PMS provides customized investment solutions to high net-worth individuals (HNIs) with a minimum investment limit of Rs 50 lakh.
    • MFs, on the other hand, have a much lower minimum investment limit of just Rs 100, managed by a professional fund manager.

    About the New Asset Class

    • The new asset class aims to provide an intermediate option with more flexibility in portfolio construction, helping investors avoid unregistered and unauthorized schemes.
    • It will have a risk-return profile between MFs and PMS, targeting investors with higher risk tolerance and larger investment amounts than those typical of MFs but lower than PMS.
    • The current range of investment products includes:
    1. MF schemes: Focused on retail investors,
    2. PMS: For HNIs, and
    3. Alternative investment funds (AIF): For sophisticated investors.

    How will investments in the new asset class work?

    • The new asset class will be introduced under the MF structure with necessary relaxations in prudential norms.
    • The minimum investment amount is proposed to be Rs 10 lakh per investor within the asset management company (AMC)/MF.
    • This high threshold is intended to deter retail investors while attracting those with investible funds between Rs 10 lakh and Rs 50 lakh.

    Significance of the New Asset Class:

    • SEBI noted that the gap between investment opportunities in MFs and PMS has led some investors towards unauthorized investment avenues.
    • The new asset class will help curb the proliferation of unregistered investment products and provide a structured and regulated option for investors.
    • SEBI emphasized that the new asset class would offer a regulated and structured investment suited to investors looking for opportunities between MFs and PMS.

    Investment Strategies:

    • Like MF schemes, the new asset class will provide options for Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP), and Systematic Transfer Plan (STP).
    • AMCs can offer ‘investment strategies’ under a pooled fund structure with tailored redemption frequencies (daily, weekly, monthly, etc.).

    PYQ:

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

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

    Select the correct answer using the code given below.

    (a) 1 and 2 only
    (b) 2 only
    (c) 3 only
    (d) 1, 2 and 3
  • [20th July 2024] The Hindu Op-ed: Living in denial about unemployment

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

    PYQ Relevance:

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

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

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

    Let’s learn!

    __

    Why in the news? 

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

    Conflicting reports and statements related to employment

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

    About KLEMS Database

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

    Challenges in KLEMS Database

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

    Way forward: 

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

  • The Green Revolution in Maize

    Why in the news? 

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

    What was the Green Revolution?

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

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

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

    On Starch and Ethanol Production

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

    Can India adopt new strategies? (Way forward)

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

    Mains PYQ: 

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

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

    Why in the News?

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

    What is Section 80C of the Income Tax Act?

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

    About Equity Linked Savings Schemes (ELSS)

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

    Recent Trends in ELSS

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

    Impact of the New Tax Regime

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

    PYQ:

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

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

    Select the correct answer using the code given below.

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

  • The State of India’s Informal Economy    

    Why in the news? 

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

    About NSSO: 

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

    Key highlight as per the recent survey by NSSO   

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

    What are unincorporated enterprises?  

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

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

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

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

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

    Way Forward: 

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

    Mains PYQ: 

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