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Subject: Economics

  • What is Greedflation?

    Why in the News?

    Political campaigns highlight inequality in India. Accusations suggest billionaires amass wealth through monopolistic control, dictating prices and suppressing real wages.

    Monopoly Power and Economic Dynamics

    • Monopoly Influence: Billionaires often amass wealth through monopolistic control, enabling them to dictate prices and suppress real wages.
    • Consumption Conundrum: Higher mark-ups under monopolies lead to reduced real wages and diminished consumption power, hindering economic growth and investment.
    • Greedflation Impact: The phenomenon of “Greedflation,” where companies raise prices to bolster profit margins amidst multiple demand-and-supply shocks, exacerbates inflationary pressures, particularly observed in developed economies.

    So what is Greedflation?

    • Definition: Greedflation, in essence, signifies that corporate greed is driving inflation, rather than the traditional wage-price spiral, leading to a profit-price spiral.
    • Corporate Exploitation: Companies exploit inflation by significantly raising prices, surpassing the need to cover increased costs, thereby maximizing profit margins and perpetuating inflation.
    • Profit-Price Spiral: Unlike the wage-price spiral, it involves companies exploiting inflation by excessively raising prices to maximize profit margins, triggering a cycle of inflation.

    Illustrative Scenario

    • Crisis Dynamics: During crises such as natural disasters or pandemics, businesses often raise prices due to increased input costs.
    • Exploitative Practices: However, some businesses exploit the situation by engaging in excessive profit-making through significantly inflated price mark-ups.

    Impact of Greedflation

    • Disproportionate Impact: Greedflation disproportionately affects low-income and middle-class individuals, diminishing their consumption and lowering living standards.
    • Wealth Disparities: While benefiting the wealthy by inflating asset values, it widens the wealth gap and exacerbates income inequality.
    • Market Instability: Sharp price increases and speculative activities driven by greed can create bubbles and unsustainable market conditions, heightening the risk of financial market crashes and crises.

    Global Implications

    • Divergent Policies: Inflationary pressures from greedflation may lead to divergent policy responses among nations.
    • Trade and Geopolitical Risks: Conflicting strategies to combat inflation can exacerbate global imbalances, trade tensions, and geopolitical conflicts as countries prioritize their interests and competitiveness.

    PYQ:

    [2015] Which reference to inflation in India, which of the following statements is correct?

    (a) Controlling the inflation in India is the responsibility of the Government of India only.

    (b) The Reserve Bank of India has no role in controlling the inflation.

    (c) Decreased money circulation helps in controlling the inflation.

    (d) Increased money circulation helps in controlling the inflation.

  • India’s GDP growth is impressive, but can it be sustained?

    Why in the news?

    The release of India’s GDP data was eagerly anticipated, especially following the recent upgrade in the “sovereign rating outlook” by S&P. It comes just days before the announcement of the union election results.

    Back2Basics: Rating Agency

    • A rating agency is a company that assesses the financial strength of companies and government entities, especially their ability to meet principal and interest payments on their debts.
    • Fitch Ratings, Moody’s Investors Service and Standard & Poor’s (S&P) are the big three international credit rating agencies controlling approximately 95% of the global rating business.
    • In India, six credit rating agencies are registered under the Securities and Exchange Board of India (SEBI): CRISIL, ICRA, CARE, SMERA, Fitch India and Brickwork Ratings.

    What does the data say?

    • India’s GDP growth for 2023-24 is 8.2%, exceeding market expectations and surpassing the previous year’s growth of 7%.
    • Fourth-quarter growth is particularly robust at 7.8%, with upward revisions in previous quarters contributing to overall growth.
    • Notable divergence of 1 percentage point between GDP and GVA growth in 2023-24, mainly due to increased net taxes.
    • Sectoral analysis reveals mixed performance, with manufacturing and construction showing strong growth, while agriculture remains subdued.
    • Expenditure-side breakdown highlights a slower growth rate in private consumption but healthy growth in investment, led mainly by government spending.

    Pillars need to be sustained:

    • Private Consumption: Ensuring sustained consumer spending, particularly by addressing high inflation and low wage growth, to maintain economic momentum.
    • Investment: Continuously stimulating both government and private sector investment to drive economic expansion and foster innovation and productivity.
    • Exports: Maintaining competitiveness in global markets and promoting export-oriented growth to leverage external demand and diversify revenue sources.

    How to ensure the benefits of high growth trickle down to the lower-income categories?

    • Improving Private Consumption: Focus on reviving private consumption, especially among lower-income groups. Address concerns of high inflation and low wage growth affecting consumer confidence.
    • Enhancing Employment Opportunities: Prioritize improving the employment scenario, particularly in sectors generating significant employment like IT and the unorganized sector. Recognize the importance of employment in sustaining consumption growth and overall economic stability.
    • Investment in Rural Development: Ensure spatial and temporal distribution of rainfall for rural demand recovery. Moderating food inflation and improving employment conditions crucial for rural consumption revival.
    • Boosting Private Capex Cycle: Create an environment conducive to private investment, focusing on policy certainty and confidence in economic stability. Encourage private sector investment through favourable policies and supportive regulatory frameworks.
    • Policy Focus on Inclusive Growth: Direct policy attention towards ensuring that the benefits of high growth extend to lower-income categories. Implement targeted social welfare programs and initiatives to support vulnerable groups and reduce income inequality.
    • Monitoring Global Developments: Stay vigilant of global economic trends and developments that could impact the Indian economy, such as geopolitical tensions and supply shocks. Adapt policies accordingly to mitigate risks and capitalize on opportunities for sustained economic growth.

    Conclusion: The Indian government aims to bolster equitable growth through measures such as stimulating private consumption, enhancing employment prospects, and fostering a conducive investment environment, supported by targeted policies and proactive global monitoring.

    Mains PYQ:

    Q Explain the difference between the computing methodology of India’s Gross Domestic Product (GDP) before the year 2015 and after the year 2015. (UPSC IAS/2021)

  • RBI brings back 100 tonnes Gold from UK to its Vaults 

    Why in the News?

    The RBI has repatriated over 100 tonnes of gold from the UK to its domestic vaults, the largest transfer since at least 1991.

    What are Gold Reserves?

      • A gold reserve is the gold held by a country’s central bank, acting as a backup for financial promises and a store of value.
      • India, like other nations, stores some of its gold reserves in foreign vaults to spread out risk and facilitate international trading.
    • India’s Gold Reserves:
      • As of the end of March 2024, the RBI held 822.10 tonnes of gold, with 408.31 tonnes stored domestically.
      • The share of gold in the total forex of India is around 7-8% as of 2023.

    Where does the RBI store its gold?

    • India’s gold reserves are primarily stored in the Bank of England, which is known for its stringent security protocols.
    • The RBI also stores a portion of its gold reserves at the:
    1. Bank for International Settlements (BIS) in Basel, Switzerland, and the
    2. Federal Reserve Bank of New York in the United States.
    • During India’s foreign exchange crisis in 1990-91, the country pledged some of its gold reserves to the Bank of England to secure a $405 million loan, according to reports.
    • Even though the loan was paid back by November 1991, India decided to keep the gold in the UK for convenience.

    Why does the RBI store its gold in foreign banks?

    • Convenience: Storing gold overseas makes it easier for India to trade, engage in swaps and earn returns.
    • Averting Risks: There are risks involved, especially during times of geopolitical tensions and war.
      • The recent freezing of Russian assets by Western nations has raised worries about the safety of assets kept abroad and the RBI decision to shift a portion of the gold reserve to India could be prompted by these concerns.
    • Stable Prices: Unlike fiat currencies, which can be subject to inflation or devaluation due to various economic factors, the value of gold tends to be relatively stable over time, which makes it an attractive asset for central banks to hold as a reserve.

    Benefits Offered by Gold Reserves

    • Control domestic gold prices: With its big stash of gold, the RBI can help control local gold prices by using some of it in India. Last financial year, the RBI added about 27.47 tonnes of gold to the total reserve, bringing it to 794.63 tonnes.
    • Security buffer: The increased gold reserve works as a hedge against any financial crisis and to take measures to control inflation as well as currency devaluation.

    Why is the recent move significant?

    • Efficiency and Confidence: Bringing gold back to India reduces storage fees and signals confidence in the stability of the Indian economy.
    • Logistical Efficiency: Moving gold to India saves on storage fees paid to foreign custodians, such as the Bank of England.
    • Diversified Storage: Repatriation ensures diversified storage, enhancing security and reducing dependency on foreign storage.

    Has the RBI made similar purchases or transfers of gold in the past?

    • RBI started buying gold in 2018 and had previously bought 200 tonnes during the global financial crisis in 2009.
    • In the first quarter of 2024, the RBI bought 19 tonnes of gold, surpassing the 16 tonnes purchased throughout 2023.

    PYQ:

    [2015] The problem of international liquidity is related to the non-availability of:

    (a) Goods and services

    (b) Gold and silver

    (c) Dollars and other hard currencies

    (d) Exportable surplus

  • Can domestic MFs invest in their overseas counterparts?

    Why in the news?

    SEBI issued a consultation paper, proposing a framework to enable domestic Mutual Funds (MFs) to invest in their overseas counterparts or Unit Trusts (UTs) that allocate a portion of their assets to Indian securities.

    About the Framework for Facilitating Investments by Domestic Mutual Funds (MFs)

    • Aim: To clarify the process and regulations surrounding such investments to encourage domestic MFs to diversify globally while maintaining limited exposure to Indian securities.

    About the Proposals:

    • On Investment Cap: SEBI proposes that overseas instruments being considered for investment by domestic MFs must not have more than 20% exposure to Indian securities.
      • This cap is intended to balance facilitating global investments while preventing excessive exposure to Indian markets.
    • On Pooling of Contributions: Indian MFs must ensure that all investors of the overseas MF/UT pool their contributions into a single investment vehicle. This ensures fair distribution of gains among investors, proportional to their contributions, without any preferential treatment.
    • On Autonomous Management: Investments must be made autonomously by the manager of the overseas instrument, without influence from investors or undisclosed parties, to avoid conflicts of interest.
    • About Transparency and Disclosure: SEBI requires periodic public disclosures of the portfolios of such overseas MF/UTs for transparency.
    • No Advisory Agreements: SEBI warns against any advisory agreement between the Indian MF and the overseas MF/UT to prevent conflicts of interest and avoid undue advantage.
    • On Observance Period: If an overseas instrument breaches the 20% limit, the Indian MF scheme will enter a six-month observance period for rebalancing the portfolio.
      • Further investments will only be allowed when the exposure is below the limit. If not rebalanced within six months, the MF must liquidate its investment in the overseas instrument.

    Impacts of the Regulation

    • Diversification of Opportunities: The framework provides a structured path for Indian MFs to invest in overseas instruments, enhancing diversification opportunities for Indian investors.
    • Market Transparency: The requirement for periodic public disclosures of portfolios will increase transparency and investor confidence in overseas investments.
    • Risk Management: The 20% exposure cap and autonomous management of investments help mitigate risks associated with excessive exposure to Indian securities and conflicts of interest.
    • Compliance Burden: The need to adhere to strict regulations and rebalance portfolios within specified periods may increase the compliance burden on domestic MFs.
    • Potential for Growth: By facilitating global investments, the framework can potentially attract more investors to Indian mutual funds, contributing to the growth of the mutual fund industry in India.

    What are the concerns associated with this framework?

    • RBI’s Upper Limit: The Reserve Bank of India’s (RBI) upper limit for overseas investment by mutual funds poses a concern. RBI Governor Shaktikanta Das indicated there are no plans to increase this limit, which means the overall industry limit for overseas investments is already exhausted.
    • Practical Impact: As the industry limit for overseas investments is effectively exhausted, the changes to regulations may not have an immediate practical impact, limiting the diversification opportunities for Indian investors.
    • Implementation and Compliance: Ensuring compliance with the 20% exposure cap and other regulations may pose challenges for domestic MFs, requiring careful monitoring and management of their overseas investments.

    Conclusion: Need to establish collaborations with global investment firms to gain insights and best practices in managing overseas investments. Learning from established global players can help Indian mutual funds navigate the complexities of international markets more effectively.

    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)

  • What Grade of Coal does India Produce?

    Why in the News?

    • A report by the Organized Crime and Corruption Reporting Project suggests Adani Group claimed ‘low grade’ coal imported from Indonesia to be ‘high quality’ coal.
      • They inflated its value and sold it to Tamil Nadu’s power generation company, TANGEDCO (Tamil Nadu Generation and Distribution Company).

    Coal Gradation in India

    • These terms are relative and depend on the coal’s Gross Calorific Value (GCV denoted in kilo-calories per kg), which indicates its energy generation potential. Higher GCV denotes better quality coal.
    1. High-Grade (GCV > 7,000 kcal/kg) to
    2. Low-Grade (GCV 2,200-2,500 kcal/kg).
    • Overall there are 17 grades of coal according to the Coal Ministry‘s classification.

    Characteristics of Indian Coal:

    • Historically, Indian coal is high in ash content and low in calorific value compared to imports.
    • Higher ash content leads to increased emissions of particulate matter and pollutants.

    Clean Coal Technologies:

    • Coal Washing: On-site processes such as coal washing are employed to reduce ash and moisture content, thereby improving energy efficiency and reducing environmental impact.
    • Coal Gasification:
      • Another approach is coal gasification, where coal is converted into syngas through an integrated gasification combined cycle (IGCC).
      • This process enhances efficiency and reduces emissions compared to traditional coal-burning methods.
      • Coal gasification produces a mixture of gases known as syngas, primarily composed of carbon monoxide (CO), hydrogen (H2), and carbon dioxide (CO2).
      • Other gases present in syngas can include methane (CH4) and water vapor (H2O).

    Coal Reserves in India

    • India boasts the fourth-largest coal reserves globally, totaling nearly 319.02 billion tonnes.
    • Geological Distribution: These reserves are primarily located in:
    1. Older Gondwana Formations: in Peninsular India, about 250 million years old.
    2. Younger Tertiary Formations: in the North-Eastern region, 15 to 60 million years old.
    • Gondwana coal constitutes 99% of India’s coal production.
    • The top 5 States in terms of total coal reserves in India are: Jharkhand > Odisha > Chhattisgarh > West Bengal > Madhya Pradesh.
    • Types of Coal found:
      • Anthracite: This highest-grade coal contains 80-95% carbon and is found in smaller quantities in regions of Jammu and Kashmir.
      • Bituminous: A medium-grade coal with 60 to 80% carbon content, it is abundant in Jharkhand, Odisha, West Bengal, Chhattisgarh, and Madhya Pradesh.
      • Lignite: The lowest-grade coal, with 40 to 55% carbon content, is found in regions of Rajasthan, Tamil Nadu, and Jammu & Kashmir.

    Status of Coal in India

    • In the fiscal year 2023-24, India’s coal production peaked at 997 million tonnes, primarily sourced from state-owned Coal India Ltd and its subsidiaries. Coking coal accounted for 58 million tonnes.
    • During the first quarter of 2024, renewable energy constituted 71.5% of India’s unprecedented 13.6 GW power generation capacity addition, signalling a notable departure from reliance on coal.

    Coal Import Trends:

      • Reduction in Share: The share of coal imports in India’s total coal consumption decreased to 21% from April 2023 to January 2024, down from 22.48% in the corresponding period of the previous year.
      • Blending and Power Plant Imports: While there was a significant reduction of 36.69% in coal imports for blending by thermal power plants, imports by coal-based power plants surged by 94.21% during the same period.
    • Reasons for Coal Imports:
      • Quality Constraints: The scarcity of good quality coking coal, essential for steelmaking, necessitates coal imports to meet industrial demands.
      • Rising Energy Demand: Coal remains a vital component of India’s energy mix, prompting the need for imports to fulfil growing energy requirements.
      • Infrastructure Challenges: Challenges such as geological constraints, land acquisition issues, and environmental regulations impede domestic coal production
      • Quality and Cost Considerations: Importing coal can offer cost advantages and access to better-quality coal compared to domestic sources

    PYQ:

    [2020] Consider the following statements:

    1. Coal ash contains arsenic, lead and mercury.
    2. Coal-fired power plants release sulphur dioxide and oxides of nitrogen into the environment
    3. High ash content is observed in Indian coal.

    Which of the statements given above is/ are correct?

    (a) 1 only

    (b) 2 and 3 only

    (c) 3 only

    (d) 1, 2 and 3

  • Surge in Indian Companies’ External Commercial Borrowings (ECBs)

    Why in the News?

    Indian companies “external commercial borrowings” nearly doubled in FY24, reaching $49.2 billion, according to RBI data.

    Key Statistics:

    • Disbursements: ECB disbursements stood at $38.4 billion in FY24, a significant increase from $23.8 billion in FY23, underscoring the growing reliance on overseas markets for funding.
    • Domestic Pressure: High interest rates in the domestic system have led to increased pressure, prompting companies to explore ECBs as a viable funding alternative.

    External Commercial Borrowing (ECBs) in India:

    Details
    Definition Loans provided by non-resident lenders in foreign currency to Indian borrowers.
    Usage Widely used by Indian corporations and PSUs to access foreign funds.
    Instruments Covered Commercial bank loans, buyers’ credit, suppliers’ credit, securitised instruments (floating rate notes, fixed-rate bonds), credit from official export credit agencies, and commercial borrowings from multilateral financial institutions.
    Regulation Monitored and regulated by the Department of Economic Affairs (DEA) under the Ministry of Finance, Government of India, along with the Reserve Bank of India.
    Contribution Contributed between 20 and 35% of total capital flows into India in 2012.
    Recent Changes RBI raised ECB limit for infrastructure finance companies from 50% to 75% of owned funds.
    Guideline Changes RBI allowed all eligible borrowers to raise ECB up to USD 750 million per financial year under the automatic route (2019).
    Utilisation of Funds 25% of ECB can be used to repay rupee debt; 75% should be allocated for new projects.
    Regulatory Framework Governed by the Foreign Exchange Management Act, 1999.
    Routes for Raising ECBs Automatic Route and Approval Route.

    1. Automatic Route: Cases examined by AD (Authorized Dealer) Category-I Banks.
    2. Approval Route: Borrowers submit requests to RBI through their AD banks for examination.
    Maturity Period ECBs can only be raised for a specific period known as the Minimum Average Maturity Period (MAMP).
    Advantages Offered
    • ECBs offer the opportunity to secure substantial funding.
    • These funds typically come with longer-term repayment options.
    • Interest rates on ECBs are generally lower compared to domestic borrowing rates.
    • ECBs are denominated in foreign currencies, providing corporations with access to foreign currency to fulfil import needs such as machinery procurement.

     

    PYQ:

    [2019] Consider the following statements :

    1. Most of India’s external debt is owed by governmental entities.
    2. All of India’s external debt is denominated in US dollars.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

  • What is Golden Rice?

    Why in the News?

    • The Court of Appeals in the Philippines revoked biosafety permits for GM Golden Rice and BT eggplant, citing safety violations and ordering a halt until issues are resolved.

    Golden Rice and Bt Eggplant in the Philippines 

    What is Golden Rice? 

    • Golden Rice is a variety of rice (Oryza sativa) developed through genetic engineering to produce beta-carotene, a precursor of vitamin A, in the edible parts of the rice.
    • This modification aims to address vitamin A deficiency, particularly in areas where it’s prevalent.
    • The Philippines approved its commercial production in 2021.
    • The Philippines became the first country to officially issue a biosafety permit for commercially propagating golden rice in July 2021.

    Bt Eggplant: Developed by the University of the Philippines Los Banos (UPLB), Bt eggplant is engineered to resist pests, aiming to enhance farmer productivity and reduce environmental impact.

     

    Development of Golden Rice:

    • Research for golden rice began as a Rockefeller Foundation initiative in 1982.
    • Peter Bramley discovered in the 1990s that a single phytoene desaturase gene (bacterial CrtI) could be used to produce lycopene from phytoene in genetically modified tomato.
    • Ingo Potrykus of the Swiss Federal Institute of Technology and Peter Beyer of the University of Freiburg published the scientific details of golden rice in 2000 after an eight-year project.

    Genetics:

    • Golden rice incorporates Psy and CrtI genes from daffodils and a soil bacterium into the rice genome to enhance beta-carotene production in the endosperm.

    Field Trials and Approvals:

    • The first field trials of golden rice cultivars were conducted by Louisiana State University Agricultural Center in 2004.
    • Additional trials were conducted in the Philippines, Taiwan, and Bangladesh.
    • In 2018, Canada and the United States approved golden rice as safe for consumption.
    • In 2019, the Philippines approved golden rice for use as human food, animal feed, or for processing.

    In the context of India 

    • Currently, there is no cultivation or commercialization of Golden Rice in India. Growing and selling GM brinjal remains banned in India.
    • Recently, the Supreme Court has also intervened on the issue of stubble burning and paddy cultivation in India esp, Punjab and Haryana states.
      • India has approved commercial cultivation of only one GM crop, Bt cotton. No GM food crop has ever been approved for commercial cultivation in the country.
      • We can have some lessons from the Philippines.

    Controversy over its Use

    • Legal challenges emerged in the Philippines in 2023 and 2024, leading to a halt in commercial propagation.
    • Critics have raised concerns about its safety, environmental impact, and efficacy compared to other interventions like supplements and dietary diversification.
    • Greenpeace opposes the use of genetically modified organisms in agriculture and opposes the cultivation of golden rice.
    • Vandana Shiva, an Indian anti-GMO activist, has argued against golden rice, citing potential issues with loss of biodiversity and availability of diverse and nutritionally adequate food.

    Golden Rice 2:

    • In 2005, researchers at Syngenta developed Golden Rice 2, which contains the phytoene synthase (psy) gene from maise combined with the crtl gene from the original golden rice.
    • Golden Rice 2 produces significantly higher levels of carotenoids, particularly beta-carotene, compared to the original golden rice.

     

    PYQ:

    [2018] With reference to the Genetically Modified mustard (GM mustard) developed in India, consider the following statements:

    1. GM mustard has the genes of a soil bacterium that give the plant the property of pest resistance to a wide variety of pests.
    2. GM mustard has the genes that allow the plant cross-pollination and hybridisation.
    3. GM mustard has been developed jointly by the IARI and Punjab Agricultural University.

    Which of the statements given above is/are correct?

    (a) 1 and 3 only

    (b) 2 only

    (c) 2 and 3 only

    (d) 1, 2 and 3

    [2021] What are the research and developmental achievements in applied biotechnology? How will these achievements help to uplift the poorer sections of the society?

  • RBI launches PRAVAAH, Retail Direct mobile app and FinTech Repository

    Why in the News?

    • The Reserve Bank of India (RBI) recently introduced three significant initiatives: the PRAVAAH portal, the RBI Retail Direct mobile application, and the FinTech Repository.
      • These initiatives aim to streamline regulatory processes, empower retail investors, and provide insights into the fintech sector.

    1. PRAVAAH Portal:

    • The PRAVAAH portal (Platform for Regulatory Application, VAlidation, and AutHorisation) serves as a centralised web-based platform for individuals and entities to seek regulatory approvals from the RBI.
    • Offering features like online application submission and status tracking, the portal covers 60 different application forms across various regulatory departments, ensuring efficiency and transparency in the authorisation process.

    2. RBI Retail Direct Mobile App:

    • The RBI Retail Direct Mobile App provides retail investors with convenient access to government securities (G-Secs) trading directly from their smartphones.
    • Accessible on both Android and iOS platforms, the app simplifies transactions in both primary and secondary markets, empowering retail investors to participate more actively in the securities market.

    3. FinTech Repository:

    The FinTech Repository aims to provide comprehensive data on Indian fintech firms, facilitating better regulatory understanding and policy formulation in the rapidly evolving fintech landscape.

    Other initiatives launched:

    • EmTech Repository: It focuses on RBI-regulated entities’ adoption of emerging technologies like AI, ML, Cloud Computing, and Quantum, providing valuable insights for policymakers and industry stakeholders.
    • Reserve Bank Innovation Hub (RBIH): Both repositories are managed by the RBIH, underscoring the central bank’s commitment to fostering innovation and collaboration in the financial sector.

     

    PYQ:

    [2013] In the context of the Indian economy, ‘Open Market Operations’ refers to:

    (a) borrowing by scheduled banks from the RBI

    (b) lending by commercial banks to industry and trade

    (c) purchase and sale of government securities by the RBI

    (d) None of the above

  • Why dal imports have hit a seven-year high?

    Why in the News?

    Due to food inflation during an El Niño year and an election year, the country has lost the self-sufficiency it had achieved in pulses.

    Pulse Production in India:

    • India is the largest producer (25% of global production), consumer (27% of world consumption), and importer (14%) of pulses in the world.
    • They account for 20% of India’s total area under cultivation and provide 7-10% of the total food grains in the country.
    • India’s production has increased by 50% (from 18 million tonnes to 27 million tonnes) up till 2022. However, it has not increased in step with the population growth, per capita availability of pulses has declined from 22.1 kg per person in 1951 to 16.4 kg per person in 2022.
    • Though there is surplus production of Chana, the imperfect substitution among pulses and limited international availability put pressure on the prices of some pulses.

    Recent Decline in Domestic Production:

    • Total Production: Decreased from 27.30 million tonnes (mt) in 2021-22 to 23.44 mt in 2023-24.
    • Chana (Chickpea): Production fell from 13.54 mt in 2021-22 to an estimated 12.16 mt in 2023-24.
    • Arhar/Tur (Pigeon Pea): Output decreased from 4.22 mt in 2021-22 to an estimated 3.34 mt in 2023-24.

    Significance of Pulse Production:

    • Suitable for Drought Areas: Drought-resistant and deep-rooting species of pulses can supply groundwater to companion crops when planted in the intercropping pattern. Locally adapted pulse varieties can enhance production systems in dry environments.
    • Enhances Fertility of Land: The leguminous plants of pulse also help in nitrogen fixation, thus ensuring higher soil fertility.
    • High Nutritional Value: In a country like India, where many people are poor and vegetarian, pulses are an important and affordable source of protein.
    • Low food wastage footprints: Pulses can be stored longer without losing their nutritional value and minimizing loss.

    Imports have hit a seven-year high

    Cause of the Inflation in Pulses

    • Impact of EL Nino: El Niño-induced patchy monsoon and winter rain led to a decline in domestic pulse production from 27.30 million tonnes (mt) in 2021-22 to 23.44 mt in 2023-24, as per the Agriculture Ministry’s estimates.
    • Sharp Output Falls: Both chana and Arhar/tur, the pulses with the highest inflation experienced sharp output falls. Chana production decreased from 13.54 mt in 2021-22 to 12.16 mt in 2023-24, while Arhar/tur production dropped from 4.22 mt to 3.34 mt over the same period.
    • Impact of Irregular Rainfall: Poor crops in regions like Karnataka, Maharashtra, Andhra Pradesh, and Telangana were attributed to irregular and deficient rainfall, leading to reduced planting area and lower yields.

    Effects of Inflation :

    • Increased Retail Prices: Significant annual retail inflation, particularly for pulses like Arhar/tur and chana.
    • Higher Import Costs: Surge in imports to meet domestic demand, leading to increased expenditure on foreign pulses.
    • Economic Burden: Higher prices in the open market strain household budgets, especially for low-income families who cannot rely on subsidized distribution for pulses.

    Challenges Ahead :

    • Monsoon Uncertainty: Future prices largely depend on the upcoming southwest monsoon; continued irregular weather patterns could sustain high inflation.
    • Import Dependency: Increased reliance on imports due to insufficient domestic production, especially for yellow/white peas and masoor.
    • Supply Position: Precarious domestic supply with minimal government procurement from recent crops, necessitating higher imports.

    Government initiatives as relief measures: The government has removed tariffs and quantitative restrictions by liberalizing imports on most pulses to boost supply and reduce prices like an extension of duty-free imports of Arhar/tur, urad, masoor, and desi chana till March 31, 2025.

    Conclusion: While the government has taken significant steps to mitigate the impact of high dal prices through import liberalization and policy adjustments, the actual relief to consumers will hinge on the performance of the upcoming monsoon and the global pulse market dynamics.

    Mains PYQ: 

    Q Mention the advantages of Cultivation of pulses because of which year 2016 was declared as the International year of Pulses By the United Nations. (UPSC IAS/2017)

     

    Q Food Security Bill is expected to eliminate hunger and malnutrition in India. Critically discuss various apprehensions in its effective implementation along with the concerns it has generated in WTO. (UPSC IAS/2013)

    Prelims PYQs:

    With reference to pulse production in India, consider the following statements:

    1) Black gram can be cultivated as both kharif and rahi crop.

    2) Green gram alone accounts for nearly half of pulse production.

    3) In the last three decades, while the production of Kharif pulses has increased, the production of rabi pulses has decreased.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 and 3 only

    (c) 2 only

    (d) 1, 2 and 3

  • Explained: The challenges in curbing cultivation of a banned rice variety in Punjab

    Why in the News?

    Punjab’s paddy farmers have begun sowing seeds for this year’s kharif season, despite the ban on variety PUSA-44 that was implemented last year.

    About the Cultivation of Paddy Varieties like PUSA-44:

    • Pusa-44 is a long-duration paddy variety bred by the Indian Agricultural Research Institute (IARI) and has been a key contributor to stubble burning.
    • Its growth cycle of 155-160 days, from nursery sowing to harvesting, leads to late October maturity, leaving a short window for field preparation for the next crop.

    The Impact on Groundwater in Punjab as per “CGWA’s Groundwater Estimation Report 2020″

    • Severe over-extraction: 119 out of 138 blocks are over-exploited.Central and southern parts of Punjab (Patiala, Sangrur, Barnala, Mansa, Bathinda, Moga, Ludhiana, and Jalandhar) are most affected.
    • Water Table Depth: The average groundwater depth has crossed 70 meters (200 feet). In some southern areas, groundwater is unavailable even at 150-200 meters (450-600 feet).
    • Groundwater depletion vs. Demand: Punjab over-extracts 14 billion cubic meters (BCM) annually. Annual recharge is 20 BCM, but usage is 34 BCM.
    • Future Projections: Groundwater could drop below 300 meters in 18-20 years, making water highly contaminated and extraction costly. If the trend continues, Punjab may run out of groundwater for irrigation.

    Why are Farmers in several districts unwilling to stop their Cultivation?

    • Higher Income: Farmers receive a higher yield and guaranteed Minimum Support Price (MSP), leading to increased incomes.
    • Seed Availability: Farmers retain seeds from previous seasons, and many stores have already sold seeds to farmers.
    • Resistance to Change: Despite awareness of the adverse effects, many farmers continue to cultivate PUSA-44. Significant cultivation areas in districts like Barnala, Sangrur, and Moga rely heavily on PUSA-44, making immediate change difficult.
    • Time Required for Transition: Changing entrenched agricultural practices and mindsets in heavily reliant districts cannot be achieved quickly.

    Judicial Stand on the Cultivation of Paddy Varieties like PUSA-44:

    • The Supreme Court has emphasized the need to cease stubble burning in states like Punjab, Haryana, Uttar Pradesh, and Rajasthan, the discussion surrounding Pusa-2090 rice variety from its ability to provide an alternative to the problematic long-duration Pusa-44 variety.
      • Pusa-2090 rice matures in a shorter duration of 120-125 days while maintaining comparable yields, addressing the core issue of stubble burning.
    • Happy Seeder (Tractor) is also a solution that offers an eco-friendly alternative to stubble burning.

    Way Forward:

    • Public Awareness and Guidance: Educate farmers on the benefits of short-duration varieties, which are more water-efficient and better for stubble management.
    • Supportive Policies: Government and agricultural experts need to provide support and incentives for transitioning to sustainable paddy varieties.
    • Gradual Implementation: Acknowledge the need for time and a phased approach to change farming practices in heavily reliant districts.

    Mains PYQ:

    Q The ideal solution of depleting groundwater resources in India is a water harvesting system.” How can it be made effective in urban areas? (15) (UPSC IAS/2018)