💥Join UPSC 2027,2028 Mentorship (August Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

Subject: Economics

  • 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)

  • Regulator SEBI expands promoter definition for IPO-bound companies    

    Why in the news?

    • SEBI expands promoter definition for IPO-bound companies, including founders holding 10% or more, and their immediate relatives.
      • According to current SEBI regulations, a promoter is someone who controls the affairs of the company or can appoint the majority of directors or is named as such in an offer document.

    What is an IPO?

    • An IPO is an initial public offering, in which shares of a private company are made available to the public for the first time.
    • An IPO allows a company to raise equity capital from public investors.
    • The Dutch are credited with conducting the first modern IPO by offering shares of the Dutch East India Company to the general public.

    What Norms Say

    • Expanded Definition of Promoter: The definition of a promoter has been expanded for companies preparing for an IPO. A promoter is someone who controls the company’s affairs, can appoint the majority of directors, or is named as such in an offer document.
    • Previous Criteria: Founders holding 25% were previously deemed promoters due to their negative control and power to block special resolutions.
    • New Criteria: Founders holding 10% or more must classify themselves as promoters if they are key managerial personnel (KMP) or directors in the company. Immediate relatives on the company board or KMP will also be classified as promoters, even if they hold just 1%.

    About Declassification and 31A of LODR (Listing Obligations and Disclosure Requirements) Regulations

    • Declassification Difficulty: The current regulations do not provide an easy path for declassifying a promoter as a public shareholder.
    • Rule 31A of LODR Regulations: To be declassified, a person must not hold more than 10% in the listed company along with their relatives.
    • Restrictive Nature: This restrictive rule makes declassification almost impossible for immediate relatives who are classified as promoters by virtue of their relationship, especially problematic for married daughters with no active role in the company.

    Issue Over Subjective Definition

    • Subjective Nature of Promoter Definition: The definition of a promoter has been historically subjective, leading to varying interpretations and legal disputes.
    • Court Rulings: There have been several court rulings addressing the subjective nature of who qualifies as a promoter, highlighting inconsistencies and complexities.
    • Complex Criteria: Accounting standards and regulatory criteria for determining control and influence in a company are often complicated and can be interpreted in multiple ways.
    • Need for Objectivity: Experts argue for a more objective test to ascertain control and promoter status, which would provide clearer guidelines and reduce disputes.
    • Example: Vinod Kothari, Director at Vinod Kothari Consultants, points out that moving towards an objective test is a positive step, given the current complexities in determining control.

    Way forward: 

    • Standardised Guidelines: Develop clear and standardised guidelines for identifying promoters, reducing subjectivity and ensuring consistency.
    • Detailed Disclosures: Mandate detailed disclosures from companies about their promoters, including shareholding patterns, roles, and influence in decision-making.

    Mains PYQ:

    Q In the light of Satyam Scandal (2009), discuss the changes brought in corporate governance to ensure transparency and accountability. (UPSC IAS/2015)

  • SEBI forms panel for reviewing economic structure of clearing corporations  

    Why in the news?

    SEBI forms a committee to review clearing corporations’ ownership and economic structure, aiming to enhance resilience, independence, and neutrality as risk managers.

    About the Securities and Exchange Board of India (SEBI):

    • SEBI is the capital markets regulator in India responsible for regulating the securities market and protecting the interests of investors.
    • It was established in 1988 and given statutory powers in 1992 under the SEBI Act.
    • SEBI’s functions include regulating stock exchanges, registering and regulating brokers and other intermediaries, and promoting fair and transparent securities markets.

    What is a Clearing Corporation? 

    • A clearing corporation is a central counterparty (CCP) that provides clearing and settlement services for trades executed on various exchanges.
    • It acts as an intermediary between buyers and sellers, guaranteeing the completion of transactions and managing counterparty risk.
    • Clearing corporations ensure the smooth functioning of financial markets by facilitating the timely settlement of trades and reducing systemic risk.

    About Usha Thorat Committee on Reviewing the Ownership and Economic Structure of Clearing Corporations:

    • SEBI has formed a committee chaired by Usha Thorat, former Deputy Governor of the Reserve Bank of India (RBI), to review the ownership and economic structure of clearing corporations.
    • The committee’s mandate includes examining the ownership structure and finances of clearing corporations to ensure their resilience, independence, and neutrality as risk managers.
    • It will assess the feasibility of broadening the list of eligible investors allowed to hold stakes in clearing corporations and suggest categories of investors who can acquire such stakes.
    • The committee will also explore alternative ownership structures and shareholding patterns suited to an interoperable environment, where clearing corporations provide services across multiple exchanges.
    • It aims to propose alternatives that address the periodic capital needs of clearing corporations and ensure sufficient capital and liquidity during market-wide systemic stress.
    • The current ownership structure of clearing corporations is dominated by the parent exchange, which exposes them to the expectations of shareholders of the parent exchange.

    Conclusion: The Usha Thorat Committee aims to enhance the resilience and independence of clearing corporations by exploring alternative ownership structures and suggesting measures to ensure adequate capital and liquidity.

    Mains PYQ: 

    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)

  • Netherlands becomes India’s 3rd Largest Export Destination in 2023-24

    PC: LiveMinit

    Why in the News?

    During fiscal year 2023-24, the Netherlands emerged as India’s third-largest export market, with a trade surplus expanding to $17.4 billion.

    India’s Trade with the Netherlands

    • Key Export Commodities: Notable export items to the Netherlands include petroleum products ($14.29 billion), electrical goods, chemicals, and pharmaceuticals, showcasing robust growth in these sectors.
    • Continual Expansion: India’s exports to the Netherlands have steadily risen by approximately 3.5% to reach $22.36 billion in 2023-24, illustrating sustained growth momentum.
    • Mutual Investment: The Netherlands is a significant investor in India, with foreign direct investment (FDI) amounting to about $5 billion during the last fiscal.
    • Corporate Presence: Over 200 Dutch companies, including industry giants like Philips, Akzo Nobel, and KLM, operate in India, while Indian firms like TCS, HCL, and Sun Pharmaceuticals have a substantial presence in the Netherlands.

    Shift in Trade Dynamics

    • Outpacing Major Destinations: The Netherlands has surpassed traditional trade partners such as the U.K., Hong Kong, Bangladesh, and Germany in terms of India’s export focus.
    • Long-term Growth: Export figures have shown consistent growth since 2000-01 when India’s exports to the Netherlands were a mere $880 million.

    Significance: Gateway to Europe

    • Strategic Positioning: The Netherlands’ efficient ports and extensive connectivity with the EU via roads, railways, and waterways have positioned it as a vital gateway to the European market.
    • Strong Ties: Diplomatic relations between India and the Netherlands, established in 1947, have evolved into robust political, economic, and commercial partnerships.

    India’s Trade Dynamics

    Export Figures:

    • Forecasted to reach approximately US$776.68 billion in FY 2023–24.
    • Slightly surpassed the US$776.40 billion recorded in the previous fiscal year.
    • Concluded with the highest monthly merchandise exports of US$41.68 billion in March 2024.

    Import Figures:

    • Total goods imports decreased by 5.66 percent to US$675.44 billion.

    Global Merchandise Export Ranking:

    • India advanced from 19th to 17th place.
    • Marginal increase in share from 1.70 percent in 2014 to 1.82 percent in 2023.
    • Exported to 115 countries out of a total of 238 destinations during FY 2023-24.

    Key Export Markets:

    • Include the US, UAE, Netherlands, China, UK, Saudi Arabia, Singapore, Bangladesh, Germany, and Italy.
    • Represent 46.5 percent of India’s export portfolio.

    Diversification Strategy:

    • Focus on expanding beyond traditional sectors like iron ore and agricultural commodities.
    • Target sectors include electronics, pharmaceuticals, engineering products, and food items.
    • Plan to introduce goods such as alcoholic beverages, prepared meals, confectioneries, jackfruit, and bananas.
    • Emphasis on market research and analysis for product customization.

    Trade Partners:

    • China emerged as India’s largest trading partner, surpassing the US.
    • Bilateral trade with China totalled US$118.4 billion in FY 2023-24.
    • Bilateral trade with the US amounted to US$118.3 billion in the same period.
    • India’s exports to China increased by 8.7 percent in FY24, driven by various sectors.
    • Imports from China rose moderately, totalling US$101.7 billion.

    (Source of Data: Ministry of Commerce and Industry, Department of Commerce)

    PYQ:

    [2013] The balance of payments of a country is a systematic record of:

    (a) All import and export transactions of a country during a given period of time, normally a year.

    (b) Goods exported from a country during a year.

    (c) Economic transaction between the governments of one country to another.

    (d) Capital movements from one country to another.

     

  • [pib] FSSAI Directive on Fruit Juices

    Why in the News?

    • FSSAI has mandated the immediate removal of any claims stating ‘100% fruit juices’ from labels and advertisements of reconstituted fruit juices by all Food Business Operators (FBOs).
      • FBOs must utilize existing pre-printed packaging materials before September 1, 2024, to comply with the directive.

    Compliance Guidelines on Fruit Juices

    • Products falling under this standard must be labelled as per the Food Safety and Standards (Labelling and Display) Regulations, 2020.
    • The term “reconstituted” must be specified in the ingredient list for juices reconstituted from concentrate.
    • Additionally, if the product contains added nutritive sweeteners exceeding 15 gm/kg, it must be labelled as ‘Sweetened juice’.

    Issues with such ‘Sweetened juice’

    • Misleading Marketing Practices: FSSAI has observed numerous FBOs inaccurately labelling various types of reconstituted fruit juices as 100% fruit juices.
    • Regulatory Assessment: Upon evaluation, FSSAI determined that such claims are misleading, especially when the major ingredient is water, and the primary ingredient is present in limited concentrations or when the juice is reconstituted using water and fruit concentrates or pulp.

    About Food Safety and Standards Authority of India (FSSAI)

    • The FSSAI is an autonomous body established under the Ministry of Health & Family Welfare, Government of India.
    • It was established under the Food Safety and Standards Act, of 2006, which consolidates various acts and orders that have hitherto handled food-related issues in various ministries and departments.
    • FSSAI is responsible for protecting and promoting public health through the regulation and supervision of food safety.

    Functions of FSSAI include:

    • Setting Standards: FSSAI sets standards for food products and regulates their manufacture, storage, distribution, sale, and import, to ensure that food items are safe for consumption.
    • Licensing and Registration: FSSAI grants licenses and registrations to food businesses based on their compliance with food safety standards and regulations.
    • Inspections and Monitoring: FSSAI conducts inspections, surveillance, and monitoring of food products and food businesses to ensure compliance with food safety standards.
    • Awareness and Education: FSSAI works towards creating awareness about food safety and hygiene among food businesses and consumers. It provides information and education programs to promote safe food handling practices.
    • Research and Development: FSSAI undertakes research and development activities related to food safety and standards.

    Health Awareness Initiatives by FSSAI

    • “Heart Attack Rewind”: This is FSSAI’s inaugural mass media campaign, designed to support its goal of eliminating trans-fat from India by 2022.
    • FSSAI-CHIFSS Collaboration: FSSAI has partnered with the CII-HUL Initiative on Food Safety Sciences to foster collaborations between industry, the scientific community, and academia to enhance food safety.
    • State Food Safety Index (SFSI): Developed by FSSAI, the SFSI evaluates states’ performance on five key parameters of food safety: Human Resources and Institutional Data, Compliance, Food Testing Infrastructure and Surveillance, Training & Capacity Building, and Consumer Empowerment.
    • Eat Right India Movement: This is a joint initiative by the Government of India and FSSAI aimed at revolutionizing the country’s food system to ensure safe, healthy, and sustainable food for all citizens.
    • Eat Right Station Certification: FSSAI awards this certification to railway stations that meet the benchmarks outlined in the Food Safety and Standards Act, 2006, ensuring the provision of safe and wholesome food to passengers.

    PYQ:

    [2018] Consider the following statements:

    1. The Food Safety and Standards Act, 2006 replaced the Prevention of Food Adulteration Act, 1954.
    2. The Food Safety and Standards Authority of India (FSSAI) is under the charge of Director General of Health Services in the Union Ministry of Health and Family Welfare.

    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