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Subject: Economics

  • [pib]  Role of the Coal Controller’s Organisation (CCO)

    Why in the news?

    The Coal Controller’s Organisation (CCO) recently held inspections of Coal Mines to ensure the accuracy of Coal class and grade declarations.

    Coal Sector in Indian Economy:

    • The Indian coal sector is one of the 8 core sectors contributing heavily to the economic development of India.
    • In India, there are 4 grades of coal available: Lignite, Bituminous, Sub-Bituminous, and Anthracite, and out of which Anthracite is the highest grade of coal.
    • More than 70% of Coal reserves in India are mainly found in the South-Central region i.e. in Orissa, Chhattisgarh, and Jharkhand.
    • India is the second-largest producer of Anthracite globally after China.
    • The mining sector accounts for more than 2% contribution to the total GDP of India.
    • India, had a global share of Coal production nearly 9%.
    • India’s share of coal in major imports in FY 2023 was estimated at 8%.
    • India exports coking coal to neighboring countries, including Nepal, Bangladesh, and Bhutan.

    About Coal Controller’s Organisation (CCO)

    • The CCO was established in 1975 under the Coal Mines (Conservation and Development) Act, 1974.
    • It operates under the Ministry of Coal.
    • It is headquartered in Kolkata and field offices at Dhanbad, Ranchi, Bilaspur, Nagpur, Sambalpur, Kothagudem, and Asansol.

    Functions of CCO

    • Regulatory Oversight: Regulates coal industry activities, ensuring compliance with laws and policies.
    • Inspections: It conducts inspections of collieries to ensure the accuracy of coal class and grade declarations under the Colliery Control Rules, 2004 (Amended in 2021).
    • Quality Control: Establishes and enforces standards for coal quality through testing and inspection.
    • Grading and Classification: Categorizes coal into grades based on quality and intended use.
    • Licensing and Permissions: Issues licenses and permits to coal producers, traders, and consumers.
    • Data Collection and Analysis: Collects and analyzes data on coal production, consumption, and market trends.
    • Research and Development: Conducts or sponsors R&D to improve mining techniques and coal quality.
    • Conservation and Sustainability: Formulates policies for coal resource conservation and sustainable development.
    • Enforcement and Compliance: Ensures compliance with coal-related regulations through inspections and enforcement actions.

    Grades of Coal in India

    The gradation of coal is based on-

    1. Non-Coking Coal: Based on Gross Calorific Value (GCV).
    2. Coking Coal: Ash Content
    3. Semi Coking /Weakly Coking Coal: Ash plus Moisture Content

    What is Coke?

    • Coke is a solid carbonaceous material derived from heating coal in the absence of air.
    • It is a porous, hard, black substance with a high carbon content and few impurities.
    • Coke is primarily used as a fuel and as a reducing agent in the process of smelting iron ore to produce steel in a blast furnace.

    Types of Coal based on Coking ability

    1. Non-Coking Coal: Non-coking coal, also known as thermal coal, is coal that does not have the ability to undergo conversion into coke when heated in the absence of air. It is primarily used for power generation in thermal power plants, as well as for other industrial applications such as cement production and heating.
    2. Coking Coal: Coking coal, also known as metallurgical coal, is a type of coal that possesses the necessary properties to undergo conversion into coke when heated in the absence of air. Coking coal is characterized by its high carbon content, low ash content, and ability to form a strong, porous coke when heated.
    3. Semi Coking / Weakly Coking Coal: Semi-coking or weakly coking coal is a coal type that falls between non-coking coal and coking coal in terms of its properties. While it does not fully qualify as coking coal due to certain limitations in its coking properties, it exhibits some degree of coking ability when heated.

     

    PYQ:

    [2022] In India, what is the role of the Coal Controller’s Organization (CCO)?

    1. CCO is the major source of Coal Statistics in Government of India.
    2. It monitors progress of development of Captive Coal/Lignite blocks.
    3. It hears any objection to the Government’s notification relating to acquisition of coal-bearing areas.
    4. It ensures that coal mining companies deliver the coal to end users in the prescribed time.

    Select the correct answer using the code given below:

    (a) 1, 2 and 3

    (b) 3 and 4 only

    (c) 1 and 2 only

    (d) 1, 2 and 4

  • PREMIUM – Subsidies – Good or Bad for India?

    Why in the News? 

    Issues have been raised by the World Trade Organization (WTO) concerning Agricultural Subsidies in India. Major subsidies in India are on fertilizer, power, credit, output, seed, and export products.

    What is Subsidy?

    • The term subsidy refers to financial assistance in the form of discounts or monetary grants by the Central government to public entities or private institutions. 
    • The objective is to make the products offered by these institutions affordable for public consumption. 
    • The subsidized products are necessary for the larger public good and are a means of supporting the community’s welfare.

     

    Historical Background

    • Post-Independence Era (1947 onwards): The government introduced various subsidies to promote industrialization, agriculture, and social welfare, aiming to reduce poverty and achieve self-sufficiency in key sectors.
    • Green Revolution (1960s): During the 1960s and 1970s, Subsidies on fertilizers, seeds, and credit were provided to farmers to encourage the adoption of new agricultural technologies and boost food production.
    • Liberalization Reforms (1991):  While liberalization led to a reduction in some subsidies and a shift towards market-oriented policies, the government continued to provide support to sectors deemed crucial for social welfare and economic development.

    Types of Subsidies:

    • Food subsidy: The food subsidy’s main objective is to provide essential eatables to a large section of the population living below the poverty line in India. 
      • The major food items supplied to the BPL families (by PDS system) vary as per the region, it includes – Wheat, Rice, Sugar, Milk, Cooking oil, and more.
    • Education subsidy: The Central government extends the education subsidy to eligible students to pursue higher technical and professional education.
    • Export subsidy: To make exports attractive and lend support to the companies, the government offers export subsidies. 
    • Fertilizer subsidy: The fertilizer is provided at a fixed MRP that is below the actual price; the government pays the difference between the actual coat and the MRP.

    (Note: There are various types of subsidies but UPSC usually asks for Agriculture subsidies) 

    Subsidies in Agriculture:

    Direct Subsidies: 

    • Credit Subsidies: Subsidized credit programs offer farmers loans at lower interest rates or with relaxed repayment terms to finance agricultural activities, such as purchasing inputs, machinery, or land.
      • Ex-The Government of India provides interest subvention of 2% and Prompt Repayment Incentive of 3% to the farmers, thus making the credit available at a very subsidized rate of 4% per annum as per Kisan Credit Card.
    • Direct Income Transfers: Governments provide direct cash transfers or income support schemes to farmers to supplement their incomes, improve their financial stability, and alleviate rural poverty. Ex-PM Kisan Samman Nidhi Scheme under which support of Rs.6000/- per year 

    Indirect Subsidies 

    • Fertilizer Subsidies: Governments often provide subsidies on fertilizers to reduce the cost burden on farmers and promote fertilizer use, which enhances crop productivity. Ex- the Union Budget for the fiscal year 2024-25 (FY25) allocated ₹1.64 trillion for fertilizer subsidy.
    • Seed Subsidies: Subsidies on quality seeds help farmers access improved varieties that are disease-resistant, drought-tolerant or have higher yields. Ex- the government provides a subsidy of Rs. 1000/- per quintal or 50% of the cost.
    • Water Subsidies: Subsidized irrigation infrastructure and water supply schemes aim to improve water availability for agricultural purposes, especially in regions facing water scarcity. Ex- Pradhan Mantri Krishi Sinchai Yojana.
    • Minimum Support Prices (MSP): Governments guarantee a minimum price for certain crops to protect farmers from market price fluctuations and ensure stable income. Procurement agencies purchase crops from farmers at MSP, often for staples like wheat, rice, and pulses. Ex- the government of India sets the MSP twice a year for 24 commodities (23 crops + 1 sugarcane).
    • Crop Insurance Subsidies: Subsidies are offered on crop insurance premiums to encourage farmers to enroll in crop insurance schemes, which protect them against yield or revenue losses due to adverse weather, pests, or other risks. Ex- Pradhan Mantri Fasal Bima Yojana (PMFBY)
    • Subsidized Agricultural Machinery: Governments may subsidize the purchase of farm machinery, equipment, and tools to mechanize agricultural operations, increase efficiency, and reduce labor costs. Ex- Sub-mission On Agriculture Mechanization (SMAM scheme)

    Present issues raised by the WTO:

    • Market Distortion: The WTO contends that agricultural subsidies have the potential to disrupt global markets. For instance, subsidies like India’s Minimum Support Price (MSP) may result in the undervaluation of Indian agricultural goods on the international stage. 
    • Trade Barriers: Subsidies can create challenges for foreign producers without subsidies to compete effectively in markets where subsidized goods are sold.
    • Overproduction of certain crops: Subsidies can lead to overproduction of certain crops, which can further distort the market and lead to wastage.
    • Negative Environmental Impact: Overuse of fertilizers and water for irrigation, encouraged by subsidies, can lead to environmental degradation.
    • Inequity: The benefits of subsidies often go to larger farmers rather than small-scale farmers who need them the most.

    Limitations Faced by Indian Agriculture:

    • Subsidies on few crops: Subsidies like MSP, which are applicable for only a few crops, have led to cereal-centric agriculture with distorted cropping patterns, as farmers tend to grow only those crops for which they are given subsidies.
    • Benefiting only wealthy Farmers: As per the Economic Survey 2018, wealthy farmers benefited over small farmers from the farm subsidies. Thus the objective of giving subsidies is not fulfilled. This is the case frequently witnessed in Punjab and Haryana, where affluent farmers enjoy taxpayer money.
    • Fiscal deficit: Also, the subsidies lead to a substantial financial deficit and burden on the financial exchequer.
    • Cause of pollution: Subsidies for agriculture can foster the overloading of croplands, which leads to erosion and compaction of topsoil, pollution from synthetic fertilizers and pesticides, and release of greenhouse gases, among other adverse effects.

    Way Forward:

    • Diversification of Subsidies: Expand subsidy programs to cover a wider range of crops, including fruits, vegetables, pulses, and other diversified agricultural products, to promote crop diversification and mitigate the cereal-centric focus.
    • Targeted Subsidy Programs: Implement targeted subsidy schemes that prioritize support for small and marginalized farmers, ensuring that subsidies reach those who need them most and reducing the disproportionate benefit to wealthy farmers.
    • Price Stabilization Mechanisms: Develop price stabilization mechanisms beyond MSP, such as futures markets, crop insurance, and warehouse receipt systems, to mitigate price volatility and provide income security to farmers without distorting cropping patterns.

    Prelims PYQ

    In India, markets in agricultural products are regulated under the (UPSC IAS/2015)

    a) Essential Commodities Act, 1955

    b) Agricultural Produce Market Committee Act enacted by States

    c) Agricultural Produce (Grading and Marking) Act, 1937

    d) Food Products Order, 1956 and Meat and Food Products Order, 1973

    Mains PYQ 

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

    Q What are the different types of agriculture subsidies given to farmers at the national and at state levels? Critically analyse the agricultural subsidy regime with reference to the distortions created by it (UPSC IAS/2013)

  • How is India planning to boost EV production?

    Why in the News? 

    The Union government approved a policy to promote India as a manufacturing hub for Electric Vehicles (EVs).

    Features of the Electric Vehicles policy:

    • Reduction of Import Duty: Import duty on electric vehicles (EVs) imported as Completely Built Units (CBUs) with a minimum CIF value of $35,000 is reduced from 70%-100% to 15% for five years.  
    • Waiver of Duty: A maximum of 40,000 EV imports in five years, with a duty waiver of ₹6,484 crore or proportional to investment (whichever is lower), requires a minimum $800 million investment.
    • Localization Targets: Manufacturers are required to set up manufacturing facilities in India within three years. They must achieve 25% localization by the third year and 50% localization by the fifth year of incentivized operation.
    • Incentives for Setting Up Manufacturing Facilities: The policy incentivizes manufacturers to establish manufacturing facilities in India by offering reduced import duties and waivers, provided they meet certain investment and localization targets.
    • Encouragement of Global EV Makers: The policy aims to encourage global EV makers like Tesla and Chinese EV maker BYD to enter the Indian market by providing favorable conditions for setting up manufacturing facilities and importing EVs.

    Present concerns raised by Private Players in the Market:

    • Impact on Domestic Industry: Tata Motors opposed the reduction of import duties, fearing it would negatively affect the domestic industry. They argued that lowering duties could harm the investment climate.
    • Competitive Disadvantage: Domestic players are concerned that the policy benefits mainly higher-end Original Equipment Manufacturers (OEMs), potentially placing them at a competitive disadvantage in segments below ₹29 lakh.
    • Favoring Global Players: The policy appears to favor global EV players and Indian joint ventures with such players, potentially making it more challenging for purely domestic players to compete effectively.

    Conclusion: The government should engage in dialogue with stakeholders, including domestic players like Tata Motors, to address their concerns and seek their input in shaping the policy framework. Need to implement measures to support domestic players, including providing incentives and support for technology development, innovation, and capacity building.

    Mains question for practice 

    Q Indian Government has recently approved a policy aimed at promoting the country as a manufacturing hub for Electric Vehicles (EVs). Discuss the key features of this policy. Highlight the concerns raised by private players.

    Mains PYQ 

    Q How is efficient and affordable urban mass transport key to the rapid economic development in India? (UPSC IAS/2019)

  • NABARD Unveils Climate Strategy 2030 for Green Financing

    Why in the news?

    The National Bank for Agriculture and Rural Development (NABARD) revealed its ‘Climate Strategy 2030’ document, aiming to address India’s need for enhanced green financing.

    Key Pillars of Climate Strategy 2030:

    • The strategy focuses on four key pillars: 
      1. Accelerating green lending across sectors, 
      2. Playing a broader market-making role, 
      3. Internal green transformation, and 
      4. Strategic resource mobilization.
    Green Financing Scenario in India

    • Despite India’s requirement of $170 billion annually for achieving sustainable development goals by 2030, the current green finance inflows remain critically insufficient.
    • As of 2019-20, India secured only about $49 billion in green financing, with a significant portion allocated to mitigation efforts, leaving minimal funds for adaptation and resilience.

     

    About NABARD:

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

     Functions of NABARD:

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

     

    PYQ:

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

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

    Select the correct answer using the codes given below:

    (a) 1 and 2 only 

    (b) 2 only 

    (c) 1 and 3 only

    (d) 1, 2 and 3

  • What is the outlook on the global economy? | Explained

    Why in the news? 

    The International Monetary Fund (IMF) released its latest Global Financial Stability Report warning about the risks to the Global Financial System.

    What is the IMF’s worry about Inflation?

    • Premature Investor Enthusiasm: The IMF believes that investors may be overly optimistic about the end of high inflation and the subsequent lowering of interest rates by central banks. This enthusiasm could be premature.
    • Stalled Inflation: The IMF highlights that inflation may have stalled in some major advanced and emerging economies. Core inflation in the most recent three months has been higher than in the previous three months, indicating a potential slowdown in the decline of inflation.
    • Geopolitical Risks: The IMF warns that geopolitical risks, such as ongoing conflicts in West Asia and Ukraine, could disrupt aggregate supply and lead to higher prices. This could counteract efforts to lower inflation and deter central banks from lowering interest rates.
    • Potential Impact on Central Bank Action: The IMF suggests that if these risks persist, central banks may delay or refrain from lowering interest rates as expected by investors, which could have consequences for asset prices and investor losses.

    How it will impact the Indian Market?

    • Strong Fund Flows: Emerging markets like India have experienced strong inflows of foreign capital, driven by optimism surrounding potential interest rate cuts by central banks.
    • Vulnerability: If central banks in Western countries signal a prolonged period of high interest rates, investors may withdraw funds from emerging markets like India, putting pressure on their currencies.
    • Depreciation of the Indian Rupee: The Indian rupee has already been depreciating, reaching a new low against the U.S. dollar. This trend could continue if capital outflows accelerate.
      • In response to currency depreciation and capital outflows, the RBI may intervene by curbing liquidity and raising interest rates. However, this could slow down the economy.
    • Potential Effects on Financial System: A severe outflow of capital could have implications for India’s financial system, potentially exacerbating the depreciation of the rupee and causing instability.

    Private Credit Market Scenario:

    • The private credit market globally grew to $2.1 trillion last year, indicating its significant size and importance in the financial landscape.
    • The IMF is concerned about the unregulated private credit market, where non-bank financial institutions lend to corporate borrowers. Troubles in this market could potentially affect the broader financial system.
    • India has also witnessed the growth of a small private credit market, particularly with the rise of Alternative Investment Funds (AIFs).

    Conclusion: The IMF’s concerns over premature investor optimism on inflation and risks from geopolitical tensions highlight potential challenges for India’s financial stability. Vigilance over capital flows and regulation of the private credit market are essential safeguards.

    Mains PYQ:

    Q The World Bank and the IMF, collectively known as the Bretton Woods Institutions, are the two inter-governmental pillars supporting the structure of the world’s economic and financial order. Superficially, the World Bank and the IMF exhibit many common characteristics, yet their role, functions and mandate are distinctly different. Elucidate.

  • What are the new Green Credit Programme rules? | Explained

    Why in the news? 

    On April 12, the Environment Ministry issued further guidelines on its Green Credit Programme (GCP)

    What is the Green Credit Programme?

    • The Green Credit Programme is a new market-based instrument in India designed to incentivize individuals, industries, and local bodies for their voluntary environmental actions across different sectors.
    • It is included under the government’s ‘Lifestyle for Environment’ or ‘LiFE’ movement and is a domestic voluntary market mechanism where green credit serves as a singular unit of credit provided for each specified activity.

    Features of the Green Credit Programme:

    • Open-Platform: Participants, including individuals, organizations, and both public and private companies, can invest in these environmental initiatives and receive ‘green credits’ in return. These credits are earned based on the environmental impact of the invested activities.
      • Public sector companies such as Indian Oil, Power Grid Corporation of India, National Thermal Power Corporation, Oil India, Coal India, and National Hydropower Corporation have reportedly registered to invest in the GCP.
    • Set with Priority: The Ministry has prescribed rules for the first initiative under the GCP, focusing on afforestation. Participants can pay for afforestation projects in degraded forest and wasteland areas, with tree planting conducted by State forest departments.
      • The Indian Council of Forestry Research and Education (ICFRE), an autonomous body of the Environment Ministry, is responsible for administering the GCP. They define methodologies to calculate green credits and manage a trading platform for credit exchange.
    • Regional Participation: Thirteen state forest departments have offered 387 land parcels totaling nearly 10,983 hectares of degraded forest land for afforestation projects under the GCP.
    • Enhanced Decision-Making: Successful participants will receive estimates of the costs involved in their chosen afforestation projects, facilitating informed decision-making and planning.

    Why has the GCP stoked controversy?

    • Commodification of Environmental Conservation: Critics argue that the GCP turns environmental conservation into a commodity, potentially undermining the spirit of India’s forest conservation laws.
    • Forest Diversion Concerns: The GCP’s provision for companies to “exchange” green credits for complying with compensatory afforestation requirements raises concerns that it could be exploited by industries seeking to ease forest diversion requirements, particularly in sectors like mining and infrastructure.
    • Ecological Impact: Planting trees as a part of afforestation efforts does not guarantee ecosystem improvement. India’s diverse forest types require specific approaches, and planting the wrong types of trees could lead to the proliferation of invasive species or disrupt sustainable ecosystems.
    • Monoculture Threat: There’s a risk that the GCP may promote the replacement of natural forests with invasive monocultures, potentially harming biodiversity and ecological balance.
    • Carbon Trading Controversy: The GCP allows green credits resulting from carbon storage (e.g., tree planting) to be used for carbon trading. However, the methodology for equating these activities is unclear, raising doubts about the effectiveness and legitimacy of such carbon trading schemes.

    Conclusion: The Green Credit Programme in India, faces criticism for potentially commodifying conservation, raising forest diversion concerns, posing ecological risks like monoculture, and lacking clarity in carbon trading methodologies. So there is a need for rigorous oversight and adaptation.

    Mains PYQ 

    Q Explain the purpose of the Green Grid Initiative launched at World Leaders Summit of the COP26 UN Climate Change Conference in Glasgow in November, 2021. When was this idea first floated in the International Solar Alliance (ISA)?

  • On the fall in Household Savings

    Why in the news? 

    The sharp reduction in Household Net Financial Savings and the rise in Household Debt burden are a cause for concern for growth and economic stability.

    BACK2BASICS:

    What are household financial savings?

    • Household financial savings refer to currency, bank deposits, debt securities, mutual funds, pension funds, insurance, and investments in small savings schemes. The total of these savings is referred to as gross household financial savings.

    What is Household Debt?

    • Household debt is all household liabilities (including non-profit institutions serving households) that require payments of interest or principal by households to creditors at a fixed date in the future.
    • Debt is calculated as the sum of the following liability categories: loans (primarily mortgage loans and consumer credit) and other accounts payable.

     

    What are the present reasons behind the Lower Financial savings?

    • Increased borrowing or reduced gross financial savings are the primary drivers of lower net financial savings.
    • Lower net financial savings due to increased borrowing for consumption or investment can stimulate aggregate demand and output.
    • Higher interest rates can lead to increased interest payments by households, reducing their net financial savings.

    Implication of Higher Debt Burden on the Indian Market: The rise in household debt burden has two concerns for the macroeconomy. 

    • Debt Repayment and Financial Fragility: Household debt sustainability depends on the gap between the interest rate and income growth rate. 
      • Suppose households fail to meet their debt repayment commitments. In that case, it reduces the income of the financial sector and deteriorates their balance sheets, which in turn can have a cascading effect on the macroeconomy.
    • Scheduled Commercial Banks Lending vs. Growth Rate of GNS: The weighted average lending rate registered a sharp rise in the last two years, particularly due to the tight monetary policy stance of the RBI and the sharp rise in the call money rate during this period.
    • Impact on Consumption Demand: Reducing household wealth can lead to lower consumption expenditure as households may attempt to preserve their wealth by increasing their savings.

    • Reduced Higher household debt: Higher household debt can also reduce consumption expenditure in at least two ways.
      • If higher household leverage is perceived as an indicator of higher default risk, then it may induce banks to indulge in credit rationing and reduce credit disbursement. The consequent reduction in credit disbursement can adversely affect consumption.
      • Higher debt can reduce consumption expenditure by increasing the interest burden, not to mention the effect of higher interest rates on consumption expenditure.
    • Low household Financial wealth: Recent trends in the Indian economy indicate a decline in household financial wealth relative to GDP, alongside an increase in household leverage (debt to net worth ratio). 
      • The financial wealth/net worth of the household is the difference between the stock of financial assets and liabilities.

    Macroeconomic Implication:

    • Implications of the Procyclical Leverage: Given that both the flow indicator of liabilities to disposable income and the debt to net worth show an increasing trend, where households are vulnerable.
    • Fall in the Household Savings: The policy mantra of higher interest rates to counter inflation by reducing macroeconomic output and employment can leave households with an increasing level of debt in their balance sheets and potentially push the households into a debt trap.
      • The implications of high-interest rates on debt burden can hurt the consumption of the households and consequently aggregate demand.

    Suggestive measures:

    • Promote sustainable borrowing: Policymakers need to address the growing vulnerabilities of households by implementing measures to promote sustainable borrowing practices and reduce reliance on debt.
    • Prioritizes production and employment: Additionally, the policies aimed at fostering a more balanced economy that prioritizes production and employment alongside financial activities may be necessary to ensure long-term economic stability and growth.

    Conclusion: The change in the composition of the asset side of the household balance sheet towards financial assets indicates some degree of financialization of the economy which moves from a production-based economy to a monetary or financial exchange-based economy making the 5 trillion dollar economy both jobless and fragile. 

    Mains PYQ:

    Q The public expenditure management is a challenge to the Government of India in the context of budgetmaking during the post-liberalization period. Clarify it.(UPSC IAS/2019)

  • [pib] Net Direct Tax collections exceed 2023-24 target

    Why in the news?

    • India’s net direct tax collections witnessed a remarkable growth of 17.7% in the fiscal year 2023-24, reaching ₹19.58 lakh crore.
      • This performance indicates a strong revenue stream for the government.

    Direct Tax Collections Trends in this Fiscal

    • Notably, Personal Income Taxes (PIT) played a pivotal role in driving the surge, accounting for 53.3% of the total tax kitty, up from 50.06% in the previous year.
    • Conversely, the contribution of corporate taxes dipped to 46.5% from 49.6% in the preceding fiscal.
    • While gross corporate tax collections increased, net tax receipts from Corporates, adjusted for refunds, experienced a slight decline.

    What Is Net of Tax?

    The term net of tax refers to the amount left after adjusting for the effects of taxes. Net of tax can be a consideration in any situation where taxation is involved. In the financial industry, ‘gross’ and ‘net’ are two key terms that refer to before and after paying certain expenses.

    It’s Significance:

    • Individuals and businesses often analyze before and after-tax values to make investment and purchasing decisions.
    • Net tax is also an important part of expense analysis when reviewing annual tax filings and the net income of businesses.

    Types of Direct Taxes:

    • Income Tax: Depending on an individual’s age and earnings, income tax must be paid. Various tax slabs are determined by the Government of India which determines the amount of Income Tax that must be paid.
      • The taxpayer must file Income Tax Returns (ITR) on a yearly basis. Individuals may receive a refund or might have to pay a tax depending on their ITR. Huge penalties are levied in case individuals do not file ITR.
    • Wealth Tax: The tax must be paid on a yearly basis and depends on the ownership of properties and the market value of the property. In case an individual owns a property, wealth tax must be paid and does not depend on whether the property generates an income or not.
      • Corporate taxpayers, Hindu Undivided Families (HUFs), and individuals must pay wealth tax depending on their residential status.
      • Payment of wealth tax is exempt for assets like gold deposit bonds, stock holdings, house property, commercial property that have been rented for more than 300 days, and if the house property is owned for business and professional use.
    • Estate Tax: It is also called an Inheritance Tax and is paid based on the value of the estate or the money that an individual has left after his/her death.
    • Corporate Tax: Domestic companies, apart from shareholders, will have to pay corporate tax. Foreign corporations who make an income in India will also have to pay corporate tax. Income earned via selling assets, technical service fees, dividends, royalties, or interest that is based in India are taxable. The below-mentioned taxes are also included under Corporate Tax:
      • Securities Transaction Tax (STT): The tax must be paid for any income that is earned via taxable security transactions.
      • Dividend Distribution Tax (DDT): In case any domestic companies declare, distribute, or are paid any amounts as dividends by shareholders, DDT is levied on them. However, DDT is not levied on foreign companies.
      • Fringe Benefits Tax: Companies that provide fringe benefits for maids, drivers, etc., Fringe Benefits Tax is levied on them.
      • Minimum Alternate Tax (MAT): For zero-tax companies that have accounts prepared according to the Companies Act, MAT is levied on them.
    • Capital Gains Tax: It is a form of direct tax that is paid due to the income that is earned from the sale of assets or investments. Investments in farms, bonds, shares, businesses, art, and home come under capital assets.
      • Based on its holding period, tax can be classified into long-term and short-term. Any assets, apart from securities, that are sold within 36 months from the time they were acquired come under short-term gains.
      • Long-term assets are levied if any income is generated from the sale of properties that have been held for a duration of more than 36 months.

    PYQ:

    [2014] The sales tax you pay while purchasing a toothpaste is a

    (a) Tax imposed by the Central Government

    (b) Tax imposed by the Central Government but collected by the State Government

    (c) Tax imposed by the State Government but collected by the Central Government

    (d) Tax imposed and collected by the State Government

  • Bengaluru Airport bags 2024 Skytrax World Airport Awards

    Why in the news?

    • The Kempegowda International Airport (KIA) in Bengaluru has been honored as the Best Regional Airport in India and South Asia at the esteemed 2024 Skytrax World Airport Awards.
    • Since its inauguration in 2023, KIA Terminal-2 has garnered multiple accolades, including the UNESCO Prix Versailles World’s Most Beautiful Airport

    About Skytrax World Airport Awards

    • The Skytrax World Airport Awards are annual awards, established in 1999 presented by Skytrax, a UK-based consultancy specializing in airline and airport research.
    • Since then, it has become a globally recognized authority in airline and airport research, known for its comprehensive passenger surveys and prestigious awards.
    • These awards are considered one of the most prestigious recognitions in the aviation industry and are often referred to as the “Oscars of the aviation industry.”
      • Various categories of Award: Best Airport, Best Regional Airport, Best Airport Terminal, and Best Airport Staff, among others.

    Evaluation Criteria:

    • Rigorous evaluations of various aspects, including check-in procedures, arrivals, transfers, shopping facilities, security, immigration processes, and departures.
    • Feedback from airport customers of over 100 nationalities across 550 airports worldwide during a seven-month survey period contributed to the assessment.

    Winners of the 2024 Awards

    • Doha’s Hamad International Airport clinched the top spot, dethroning Singapore Changi Airport, which had held the title for 12 consecutive years.
    • Hamad International Airport is praised for its architectural significance and luxurious amenities, covering an area equivalent to 75 football fields.
    • Seoul Incheon Airport secured third place overall and was recognized as the most family-friendly airport.

    Performance of key Indian Airports:

    • Delhi Airport retained its position at 36th place in the overall rankings.
    • Mumbai Airport saw a slight decline, dropping to 95th place from its previous rank of 84.
    • Bengaluru Airport experienced a notable improvement, climbing 10 ranks to 59th place compared to last year’s 69th position.
    • Hyderabad Airport also showed improvement, rising to 61st place from its previous rank of 65th.
    • Goa’s Manohar International Airport secured the 92nd spot in the overall rankings.

  • Why have private investments dropped? | Explained

    Why in the news? 

    The failure of private investment, as measured by private Gross Fixed Capital Formation (GFCF) as a percentage of gross domestic product (GDP) at current prices, to pick up pace has been one of the major issues plaguing the Indian economy.

    What is GFCF?

    • GFCF refers to the growth in the size of fixed capital in an economy.
    • Fixed capital refers to things such as buildings and machinery, for instance, which require investment to be created.
    • So private GFCF can serve as a rough indicator of how much the private sector in an economy is willing to invest.
    • Overall GFCF also includes capital formation as a result of investment by the government.

    Why does it matter?

    • GFCF matters because fixed capital, by helping workers produce a greater amount of goods and services each year, helps to boost economic growth and improve living standards.
    • In other words, fixed capital is what largely determines the overall output of an economy.

    What is the trend seen in private investment in India?

    • Pre-liberalization (1950s to early 1990s): Private investment remained relatively stable, hovering around or slightly above 10% of GDP. Public investment, however, steadily increased during this period.
    • Liberalization (early 1990s onwards): Economic reforms in the early 1990s improved private sector confidence, leading to a significant uptick in private investment. Public investment, although still significant, began to decline relative to private investment.
    • Post-global financial crisis (late 2000s to present): Private investment continued to grow until the global financial crisis of 2007-08, reaching around 27% of GDP. However, from around 2011-12 onwards, private investment began to decline, hitting a low of 19.6% of GDP in 2020-21.

    Why has private investment fallen?

    • Low private consumption expenditure: Some economists attribute the decline in private investment to low private consumption expenditure. They argue that businesses need confidence in future demand to invest in fixed capital, and boosting consumption expenditure can help stimulate private investment.
    • Structural problems and policy uncertainty: Other economists argue that structural issues and policy uncertainty are core reasons behind the fall in private investment. They point to unfavourable government policies and policy uncertainty as major factors affecting private investment.

    Conclusion: To address the decline in private investment, India needs policies promoting consumer confidence and stable, conducive business environments. Balancing pro-growth fiscal measures with structural reforms can stimulate investment, fostering economic growth and prosperity.

    Mains PYQ 

    Q Explain the meaning of investment in an economy in terms of capital formation. Discuss the factors to be considered while designing a concession agreement between a public entity and private entity.(UPSC IAS/2020)