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Subject: Economics

  • Why RBI has been wary of declaring an early victory over inflation?

    Why in the news? 

    Recently, the Monetary Policy Committee (MPC), which met here from April 3 to 5, decided to keep the repo rate unchanged at 6.5% and maintain the policy stance of ‘withdrawal of accommodation’ in the monetary policy.

    • Withdrawal of accommodation means reducing the money supply in the system which will rein in inflation further. (Temporary Provision)

    Why the RBI has been wary of declaring an early victory over inflation?

    • Persistent Food Inflation: Despite expectations of moderation in inflation, food inflation has remained a concern, especially due to the high prices of food grains and vegetables. In February, food inflation was at 8.7%, with foodgrain inflation still high at 9.8%.
    • Inflation Gap between Bottom and Top of Urban Population: Food inflation disproportionately affects lower-income deciles more than higher ones. In February, the bottom 20% of the urban population faced 5.5% inflation compared to 4.7% for the top 20%. This pattern is similar in rural areas as well.
    • Management Issues: The RBI faces challenges in managing inflation while maintaining growth, especially when inflation persists due to Geopolitical conditions. While central bank policy moves cannot directly bring down supply shock-driven inflation, they can prevent high prices from spilling over.

     Why RBI has kept policy rates unchanged?

    • High Economic Growth: The RBI is focused on maintaining price and financial stability to sustain high growth. The central bank expects the Indian economy to grow at 7% in fiscal year 2024-25
    • Benign Core Inflation: Benign core inflation, which has declined steadily over the past months, indicates that strong growth has not been inflationary. The RBI finds comfort in the declining core inflation levels
    • Monetary Policy Stance associated with food inflation: The RBI is likely to maintain policy rates until October 2024 to assess evolving risks associated with food inflation. The central bank is cautious and prefers to adopt a risk-minimization mode to align inflation towards the target while supporting growth
    • Global Economic Conditions: The RBI is monitoring global economic trends and external factors that could impact domestic inflation and growth. The central bank is aware of the risks posed by geopolitical tensions, volatility in international financial markets, and geo-economic fragmentation

     

    BACK2BASICS

    The Monetary Policy Committee (MPC)

    • It is a key body responsible for formulating the country’s monetary policy. It  is a statutory body constituted as per Section 45ZB under the RBI Act of 1934 by the Central Government
    •  It is a six-member committee established under the amended Reserve Bank of India Act, of 1934. The MPC’s primary objective is to determine the policy rate required to achieve the inflation target set by the government. The committee consists of the following members:
      • RBI Governor (ex officio chairperson)
      • Deputy Governor in charge of monetary policy
      • An officer of the Bank nominated by the Central Board
      • Three members appointed by the central government
    • The MPC meets at least four times a year, and decisions taken by the committee are binding on the Reserve Bank of India.
    • The committee’s composition ensures a mix of expertise in economics, banking, finance, and monetary policy to effectively manage the country’s Monetary Policy Framework.

     

    Conclusion: The RBI has been cautious due to persistent food inflation impacting lower income groups, challenges in managing it, and the need to assess evolving risks. MPC’s unchanged policy rates reflect this caution amidst high growth and benign core 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)

    Source https://indianexpress.com/article/opinion/columns/why-rbi-wary-of-declaring-early-victory-over-inflation-9253330/

  • Next government must urgently fix ‘unnecessarily complex’, counter-productive GST: 13th Finance Commission chair

    Why in the news? 

    Recently Vijay Kelkar (chaired 13th Finance Commission) attributes frauds in Indirect Tax regimes to high GST rates; Moots switched to a single 12% rate like most other countries.

    Reason behind the need for a Single GST rate:

    • Simplification of the structure: A single GST rate would simplify the structure, making it easier for businesses to comply with the tax system and reducing the complexity of classification issues
    • Promotion of manufacturing and exports: A single GST rate could help promote manufacturing and exports by reducing the burden of multiple rates and making the tax system more predictable
    • Single GST rate in many countries: In many developed and emerging market economies, a single GST or VAT rate has been successful in optimizing tax revenue and minimizing tax disputes for example Singapore, New Zealand, the United Arab Emirates, and Japan, have opted for a single GST or VAT rate
    • Addressing GST frauds: High GST rates can make it lucrative for fraudsters to evade taxes. A single, lower GST rate could potentially reduce the incentive for tax evasion and make the system more transparent
    • Reducing litigation: A single GST rate could help reduce litigation related to classification issues and subjective interpretation of tax rates

    How does the Indian GST model compare with GST in other countries?

    Particulars India  Canada UK Singapore
    Name of GST in the Country Goods and Service tax Federal Goods and Service Tax & Harmonized Sales Tax Value Added Tax Goods and Service Tax
    Standard Rate 0% (for food staples), 5%, 12%, 18% and 28% (+cess on luxury items) GST 5% and HST varies from 0% to 15% 20 %Reduced rates- 5 %, exempt, zero rated 7% Reduced rates- Zero rated, exempt
    Threeshold Exemption Limit Rs.40 lakh or Rs.20 lakh, depending on the state and supply Canadian $ 30,000 £ 85,000 Singapore $ 1 million
    Liability arises on Accrual basis: Issue of invoice ORReceipt of payment-earlier Accrual basis: The date of issue of invoice OR the date of receiptof payment- earlier. Accrual Basis: Invoice OR PaymentOR Supply-earliestCash basis (T/O up to 1.35mn): Payment Accrual Basis: Issue of invoice OR Receipt of payment OR Supply – earliestCash basis: (T/O up to SGD$1mn): Payment
    Reverse Charge Mechanism Applies on goods as well as services Reverse charge applies to the importation of services andintangible properties Applicable Reverse charge applies to the supply of services
    Exempt Supplies Sale of land and completed buildings, certain healthcare and educational services, essential food items, etc. Real estate, financial services, rent (Residence), charities, health, education Medical, education, finance, insurance, postal services Real estate, Financial services, Residential rental

    Significance of sharing GST with local bodies:

    • Promoting Co-operative Fiscal-federalism: Sharing GST revenues with local bodies could promote fiscal federalism by ensuring a fair distribution of tax revenues among all tiers of government.
    • Strengthening of their Fiscal base: Equitable sharing of GST with the third tier of government, i.e., local bodies, would strengthen their fiscal base and enable them to undertake investments for vital infrastructure and high-quality public goods
    • Building Fairness and appropriateness: GST is a consumption tax, and taxpayers should see direct benefits accruing from their payment of taxes. An arrangement for sharing GST revenues with local bodies would be fair and appropriate
    • Improves Local governance: Sharing GST revenues with local bodies would bolster the quality of governance provided by local governments, as citizens’ demand for quality public goods will grow louder.

    BACK2BASICS:

    About Goods and Services Tax:

    • GST was introduced through the 101st Constitution Amendment Act, 2016. It is one of the biggest indirect tax reforms in the country.
    • It was introduced with the slogan of ‘One Nation One Tax’.The GST has subsumed indirect taxes like excise duty, Value Added Tax (VAT), service tax, luxury tax etc.
    • It is essentially a consumption tax and is levied at the final consumption point.
    • Tax Structure:
    • Central GST to cover Excise duty, Service tax etc, State GST to cover VAT, luxury tax etc. and Integrated GST (IGST) to cover inter-state trade.
    • IGST per se is not a tax but a system to coordinate state and union taxes.
    • It has a 4-tier tax structure for all goods and services under the slabs- 5%, 12%, 18% and 28%.

    Conclusion: Implementing a single GST rate streamlines compliance, promotes economic growth, and curbs fraud. Sharing GST revenue with local bodies strengthens fiscal bases, fosters fairness, enhances governance, and supports fiscal federalism for equitable distribution.

  • Why green hydrogen presents both major opportunities, significant challenges

    why in the news? 

    Recently, the Ministry of New and Renewable Energy (MNRE) has announced a Rs-496-crore (until 2025-26) scheme to support pilot projects that either test the viability of green hydrogen as a vehicle fuel or develop secure supporting infrastructure such as refuelling stations.

    Objecive of MNRE scheme 

    (i) validation of technical feasibility and performance of green hydrogen as a transportation fuel

    (ii) evaluation of the economic viability of green hydrogen-powered vehicles

    (iii) demonstration of safe operation of hydrogen-powered vehicles and refuelling stations.

    About Green , Blue and grey hydrogen

    The significance of hydrogen fuel vehicles, particularly hydrogen internal combustion engine (ICE) vehicles and hydrogen fuel cell electric vehicles (FCEVs)

    • Zero Carbon Emissions: Both hydrogen ICE vehicles and FCEVs produce zero carbon emissions during operation.
    • Energy Efficiency: While research suggests that burning hydrogen in an ICE vehicle may be less energy-efficient than using it in a fuel cell, FCEVs still offer high energy efficiency compared to traditional internal combustion engine vehicles, particularly those powered by fossil fuels like diesel and petrol.
    • Clean Energy Production: Hydrogen can be produced through various renewable energy sources, such as wind, solar, and hydroelectric power.
    • Lightweight and Increased Payload Capacity: Hydrogen FCEVs typically weigh less than battery electric vehicles (BEVs) due to the lighter weight of hydrogen and the fuel cell stack compared to EV batteries.
    • Long-haul Freight Applications: Research indicates that long-haul FCEVs can carry freight amounts similar to diesel trucks, while BEVs may suffer from a weight penalty due to heavier batteries.  .
    • Diversification of Energy Sources: Hydrogen fuel vehicles offer a viable alternative to battery electric vehicles, providing diversification in energy sources for transportation.

     Challenges 

    • Storage and Transportation Challenges: Developing specialized cylinders capable of safely storing high-pressure green hydrogen is essential. Existing cylinders designed for compressed natural gas (CNG) are not suitable for hydrogen storage
    • Fuel Costs and Infrastructure: Green hydrogen-powered vehicles face challenges in competing with battery electric vehicles (BEVs) due to higher fuel costs and the need for infrastructure development, including hydrogen refueling stations. The cost of establishing and maintaining hydrogen refueling infrastructure is significant, hindering the widespread adoption of hydrogen FCEVs.
    • Safety Concerns: Hydrogen is highly flammable, necessitating robust safety standards and protocols for handling and storing the fuel at refueling stations.

    Conclusion 

    Green hydrogen offers zero emissions, energy efficiency, and diversification in energy sources for transportation. However, challenges like storage, infrastructure costs, and safety concerns hinder widespread adoption, despite MNRE’s support scheme.

    Mains PYQ

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

    Q Discuss in detail the photochemical smog emphasizing its formation, effects and mitigation. Explain the 1999 Gothenburg protocol.(UPSC IAS/2022)

  • RBI to launch Mobile App for Retail Direct scheme

    Why in the news?

    The RBI has decided to introduce a Mobile App of its RBI Retail Direct scheme aimed at facilitating seamless investment in government securities by retail investors.

    What is Retail Direct Scheme?

    • Retail Direct Scheme was rolled out in November 2021, giving access to individual investors to maintain gilt accounts with RBI and invest in government securities.
    • Using this app, investors can buy central and state government bonds as well as Treasury bills.
    • It enables investors to buy securities in primary auctions as well as buy/sell securities through the Negotiated Dealing System-Order Matching system (NDS-OM) platform.
    • A Gilt Account can be compared with a bank account, except that the account is debited or credited with treasury bills or government securities instead of money.

    Treasury Bills:

    • They are promissory notes issued by the RBI on behalf of the government as a short term liability and sold to banks and to the public.
    • The maturity period ranges from 14 to 364 days.
    • They are the negotiable instruments, i.e. they are freely transferable.
    • No interest is paid on such bills but they are issued at a discount on their face value.

     How does it work?

    • Under the scheme, small investors can buy or sell government securities (G-Secs), or bonds, directly without an intermediary like a mutual fund.
    • However, the same tax rules apply to income from G-Secs.
    • The minimum amount for a bid is ₹10,000 and in multiples of ₹10,000 thereafter.
    • Payments may be made through Net banking or the UPI

    Benefits of RDS

    • With the government being the borrower, there is a sovereign guarantee for the funds and hence zero risk of default.
    • Also, government securities may offer better interest rates than bank fixed deposits, depending on prevailing interest rate trends.

    How can individuals access G-Sec offerings?

    • Investors wishing to open a Retail Direct Gilt account directly with the RBI can do so through an online portal set up for the purpose of the scheme.
    • Once the account is activated with the aid of a password sent to the user’s mobile phone, investors will be permitted to buy securities either in the primary market or in the secondary market.

    PYQ:

    [2018] Consider the following statements:

    1. The Reserve Bank of India manages and services Government of India Securities but not any State Government Securities.

    2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.

    3. Treasury bills offer are issued at a discount from the par value.

    Which of the statements given above is/are correct?

    (a) 1 and 2 only

    (b) 3 only

    (c) 2 and 3 only

    (d) 1, 2 and 3

  • [pib] 15th CIDC Vishwakarma Awards 2024

    Why in the news?

    SJVN Limited has won two prestigious awards at the 15th Construction Industry Development Council (CIDC) Vishwakarma Awards 2024, for their Corporate Social Responsibility (CSR) initiatives.

    About CIDC Vishwakarma Awards

    • The CIDC Vishwakarma Awards is one of the most esteemed recognitions within the construction sector.
    • It was launched in the year 2005.
    • The awards are named after Vishwakarma, the divine architect and engineer in Hindu mythology, symbolizing craftsmanship, creativity, and skill in construction.

    Key details about the Award

    • Organizer: The awards are organized by the Construction Industry Development Council (CIDC), which is a body established by the GoI to promote the construction industry’s development and growth.
    • Categories: The awards cover a wide spectrum of categories, including:
      1. Construction Projects: Recognizing outstanding projects across different sectors such as residential, commercial, infrastructure, and industrial construction.
      2. Construction Technologies: Honoring innovative technologies and techniques that enhance construction processes, efficiency, and sustainability.
      3. Construction Equipment: Acknowledging advancements in construction machinery, tools, and equipment.
      4. Health, Safety, and Environment: Recognizing initiatives and practices that prioritize worker safety, environmental protection, and sustainability in construction.
      5. Individual Achievements: Celebrating the contributions of professionals and leaders who have made significant impacts in the construction industry.
      6. Others: Additional categories may include awards for sustainability, CSR initiatives, and emerging trends in construction.

    PYQ:

    [2020] In rural road construction the use of which of the following is preferred for ensuring environmental sustainability or to reduce carbon footprint?

    1.    Copper slag

    2.    Cold mix asphalt technology

    3.    Geotextiles

    4.    Hot mix asphalt technology

    5.    Portland cement

    Select the correct answer using the code given below:

    (a) 1, 2 and 3 only

    (b) 2, 3 and 4 only

    (c) 4 and 5 only

    (d) 1 and 5 only

    Back2Basics: Corporate Social Responsibility (CSR)

    Description
    What is it? Self-regulating business model for social and environmental impact.
    Regulation in India Mandated under Companies Act, 2013 (amendment in 2014).
    Investment Areas Promote rural development, healthcare, education, environment, etc.
    CSR Committee Mandatory for companies meeting Rs 500 Cr net worth or Rs 1000 Cr turnover criteria.
    Spending Requirement At least 2% of average net profits of the last three financial years.
    Applicability Criteria Net worth >= Rs 500 Cr, Turnover >= Rs 1000 Cr, or Net profit >= Rs 5 Cr.
    Adjustment for New Cos. Use average net profits of preceding years to calculate spending.
    Applicability Period Applies before the completion of three financial years for companies.

  • What is Basel III Endgame?

    Why in the news?

    The US Federal Reserve recently announced stricter bank capital requirements known as the “Basel III endgame” proposal.

    What is Bank Capital?

    • Bank capital is a measure of bank shareholders’ investment in the business.
    • In contrast to deposits or money a bank has borrowed, capital does not have to be paid back.
    • In other words, it is a cushion or buffer that protects a bank from insolvency—and, thus, reduces the risk that a bank failure triggers system-wide financial instability.
    • A bank that has sufficient capital can cover customers’ deposits even if the loans it has made aren’t repaid or if its investments drop in value.

    What are Basel Norms?

    • Basel, Switzerland, hosts the Bureau of International Settlement (BIS), fostering collaboration among central banks to establish global banking standards.
    • The Basel Committee on Banking Supervision (BCBS), established in 1974 formulates broad supervisory guidelines known as the Basel framework.
    • Its purpose is to ensure banks maintain adequate capital to meet obligations and absorb losses.
    • India has adopted Basel standards to align its banking practices with global norms.
    Description
    Basel I
    • Introduced in 1988.
    • Known as the Basel Capital Accord.
    • Focused on credit risk.
    • Set a minimum capital requirement of 8% of risk-weighted assets (RWA).
    • Assets were assigned risk weights based on their risk profile.
    • Adopted by India in 1999.
    Basel II
    • Published in June 2004.
    • Aimed to refine and reform Basel I.
    • Introduced three pillars:
    1. Capital Adequacy Requirements
    2. Supervisory Review
    3. Market Discipline
    • Increased focus on risk management and disclosure.
    • Yet to be fully implemented in India and abroad.
    Basel III
    • Released in 2010 after the 2008 financial crisis.
    • Aimed to strengthen the banking system.
    • Made banking activities more capital-intensive.
    • Focus on four key parameters:
    1. Capital
    2. Leverage
    3. Funding
    4. Liquidity
    • Designed to promote a more resilient banking system.
    *Basel IV

     
    • In 2017, the Basel Committee agreed on changes to the global capital requirements as part of finalising Basel III.
    • The changes are so comprehensive that they are increasingly seen as an entirely new framework, commonly referred to as “Basel IV”.
    • Set to take effect under transition rules from 2025.*

     

    Proposed Changes under Basel III Endgame

    • Expansion of Scope: The proposal aims to extend the strictest risk-based capital approach to more banks, lowering the asset threshold from $700 billion to $100 billion. This would encompass around 37 large banks in the U.S.
    • Standardized Measure for Capital Requirements: Regulators propose curtailing banks’ use of internal models to calculate capital requirements for loans, advocating for a standardized measure for all banks to ensure uniform risk assessment.
    • Increased Capital for Trading and Operational Risks: The proposal mandates higher capital reserves for risks linked to trading activities and operational challenges, requiring banks to utilize standard models for risk assessment instead of internal ones.
    • Changes to Capital Calculations for Portfolios: Banks with assets exceeding $100 billion must reflect gains and losses in portfolios categorized as “available for sale” in their capital calculations, aiming for a more precise depiction of a bank’s risk exposure.

    Challenges created by the new Norms

    • Operational Risks: A substantial portion of the proposed capital increment targets banks’ operational risks, encompassing potential losses arising from internal processes, people, systems, or external events.
    • Non-Traditional Banking Activities: Entities engaged in trading, market-making, wealth management, and investment banking, will face more pronounced capital requirements due to altered risk assessment and operational risk calculations.
    • Industry-specific Concerns: Additionally, specific industries, like renewable energy, anticipate repercussions, fearing that increased capital requirements could undermine the effectiveness of tax incentives for projects targeting climate change.

    Arguments in Favor of Increasing Capital

    • Financial Stability: Proponents argue that heightened capital requirements are imperative for safeguarding financial stability, averting bank failures, and minimizing the need for government bailouts.
    • Prudent Banking Practices: They contend that current standards inadequately address bank risks and that increased capital incentivizes prudent banking practices.
    • Resilient Banking System: Economists suggests that the social costs of higher capital requirements are minimal compared to the benefits of a more resilient financial system.

    PYQ:

    2015:

    ‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to:

    (a) Develop national strategies for the conservation and sustainable use of biological diversity

    (b) Improve banking sector’s ability to deal with financial and economic stress and improve risk management

    (c) Reduce the greenhouse gas emissions but places a heavier burden on developed countries

    (d) Transfer technology from developed countries to poor countries to enable them to replace the use of chlorofluorocarbons in refrigeration with harmless chemicals

     

    Practice MCQ:

    What is the primary objective of “Basel III Endgame” in the banking sector?

    (a) To encourage speculative investments by banks to boost short-term profits.

    (b) To ensure the stability of the global financial system by strengthening the regulation, supervision, and risk management practices of banks.

    (c) To encourage banks to invest more in less-risky assets to stimulate economic growth.

    (d) To limit the role of central banks in regulating commercial banks and promote market-driven banking practices.
  • [4 April 2024] The Hindu Op-ed: Turning the spotlight on the urban poor

    [4 April 2024] The Hindu Op-ed: Turning the spotlight on the urban poor

    PYQ Relevance:

    Mains: 
    Q. Most of the unemployment in India is structural in nature. Examine the methodology adopted to compute unemployment in the country and suggest improvements. (UPSC CSE 2023)

    Prelims:

    Q. Disguised unemployment generally means (UPSC CSE 2013)

    (a) large number of people remain unemployed
    (b) alternative employment is not available
    (c) marginal productivity of labour is zero
    (d) productivity of workers is low

    Note4Students: 

    Mains: Social Issues; Population; Unemployment;

    Mentor comments: Unemployment/Underemployment is the most contentious issue that continues to be a challenge for the Socioeconomic landscape of India. As one of the world’s most populous nations with a diverse workforce, fluctuations in the unemployment rate have far-reaching implications for the country’s growth and development. So, we need to analyze the current status of India’s Dynamic Population. The recently published, India Employment Report 2024 is the third in a series of regular publications by the ILO on labor and employment issues. This report on Youth Employment, Education, and Skills examines the challenge of youth employment in the context of the emerging economic, labor market, educational, and skills scenario in India and changes over the past two decades.

    Let’s learn. 

    —

    Why in the News?

    The recent India Employment Report (IER) 2024 Report by the Institute for Human Development and International Labour Organization (ILO) poses questions on the trickle-down effect of employment.

    Key highlights of the IER 2024 Report:

    • Poor Employment Conditions:
      • The overall labor force participation and employment rates are reflecting issues such as stagnant or declining wages, increased self-employment among women, and a higher proportion of unpaid family work among youth.
      • The share of the young population with secondary or higher education in the total unemployed has almost doubled from 35.2% in 2000 to 65.7% in 2022.
    • Youth Employment Challenges:
      • Youth employment and underemployment surged between 2000 and 2019, with educated youths experiencing significantly higher levels of joblessness.
      • The Labour Force Participation Rate (LFPR), Worker Population Ratio (WPR), and the Unemployment Rate (UR) showed a long-term deterioration between 2000 and 2018 but witnessed an improvement after 2019.
    • Widening Regional Gaps: Significant states consistently rank lower in employment indicators. For example, states like Bihar, Uttar Pradesh, Odisha, Madhya Pradesh, Jharkhand, and Chhattisgarh have struggled with poor employment outcomes over the years, reflecting the influence of regional policies.
    Case Study from Kolkata:

    A study conducted in 37 slums across Kolkata in 2012 and revisited in 2022-23 found that the major occupations in slums have remained the same over the decade, with a significant proportion of the working population engaged in unskilled labor. The share of employment in skilled and semi-skilled labor and private organizations decreased between 2012-19, while employment in petty businesses or small shops increased by 9%. The study also found that employment in truck driving and cleaning, and construction and related work gained momentum in the last 10 years.
    • Widening Gender Gaps:
      • India is facing low rates of female labor force participation.
      • Although educational attainment has improved across all groups, social inequalities persist despite affirmative action and targeted policies, with Scheduled Castes and Scheduled Tribes facing barriers to accessing better job opportunities.
    • Informal Employment challenges: Although non-farm employment growing faster than farm employment before 2018, it has not grown sufficiently to absorb workers from agriculture. Around 90% are engaged in informal work, especially after 2018 it is increased.
    • Lack of necessary skills: 75% of workers are unable to send emails with attachments, 60% are unable to copy and paste files, and 90% are unable to perform basic spreadsheet tasks like putting a mathematical formula.
    • Declining Wages of Casual Workers:
      • While wages of skilled laborers maintained a modest upward trend during 2012–22, wages have remained low for unskilled workers. 
      • As much as 62% of the unskilled casual agricultural workers and 70% of such workers in the construction sector at the all-India level did not receive the prescribed daily minimum wages in 2022.
    • No Security to Industrial Workers: Recently, online platforms and gig workers have been expanding, but it is, to a large extent, the extension of informal work, with hardly any social security provisions.
    • Trends in Regional Migration:
      • India is expected to have a migration rate of around 40% in 2030 and will have an urban population of around 607 million.
      • The present pattern of migration also shows regional imbalance in the labor markets.
      • Usually, migration in India is seen from the eastern, north-eastern, and central regions to southern, western, and northern regions.

    What are the suggestive measures given by ILO?

    • To address labour market disparities:
      • Enhance women’s participation.
      • Integrate high-quality skills training to uplift economically disadvantaged groups.
      • Promote a fair labour market.
    • To enhance our focus on enhancing Employment:
      • Working on macroeconomic policies especially manufacturing sector.
      • Supporting MSMEs through a decentralized approach.
      • Increase agricultural productivity.
      • Building a sustainable economy.
    • To enhance job quality and build strategies:
      • Building robust labor Policy.
      • Promote Digital economy.
      • Focusing on sustained urban culture and migration policy.

    https://www.thehindu.com/opinion/lead/turning-the-spotlight-on-the-urban-poor/article68025389.ece

    https://www.ilo.org/wcmsp5/groups/public/—asia/—ro-bangkok/—sro-new_delhi/documents/publication/wcms_921154.pdf

  • Should State Governments borrow more? | Explained

    Why in the News? 

    Recently, the SC rejected Kerala’s plea for immediate relief in its case urging the Union government to ease borrowing constraints, allowing the state to secure extra funds in the ongoing fiscal year.

    State governments receive funds from three sources:

    • Own revenues (tax and non-tax)
    • Transfers from the Union government as shares of taxes and as grants 
    • Market borrowings

    Fiscal Demands for Extra Funds: 

    • Increased Expenditure: In 2020-21, the Kerala government sharply increased its spending to 18% of its GSDP, to provide economic relief in the wake of the COVID-19 pandemic, aided by the relaxation in borrowing norms then
    • Central Gov transfers to Kerala declined: As ratios of GSDP, the Union government’s transfers to Kerala declined to 2.8% in 2023-24, significantly lower than previous years, even as the State’s revenues remained at around 8.0%. 
    • This meant that, in 2023-24, the State government could meet its modest budget expenditure, equivalent to 14.2% of GSDP, only by raising the borrowing to 3.4% of the GSDP

    Socio-Economic for Extra Funds: 

    • Aging Population: Kerala, like many other states, faces the challenge of an aging population, which puts pressure on pension funds and healthcare systems, necessitating long-term financial planning and investment.
    • Pension Liabilities: The substantial outgo for pensions poses a financial burden on the state’s budget, requiring strategies for sustainable pension management to ensure fiscal stability.
    • Youth Outmigration: Kerala experiences significant outmigration of its youth, leading to a loss of productive workforce and potential tax revenues, highlighting the need for policies to retain skilled workers and stimulate economic growth

    About Net Borrowing Ceiling (NBC):

    • The net borrowing ceiling for states in India denotes the maximum threshold set on the funds that state governments can borrow within a fiscal year.
    • Significance: Ensuring fiscal discipline and preventing states from accumulating excessive debt, the net borrowing ceiling plays a pivotal role. 
    • Factors: The criteria for setting these limits are shaped by various factors such as inputs from the Finance Commission, the Fiscal Responsibility and Budget Management (FRBM) Act, and specific directives from the central government, notably the Ministry of Finance.

     

    Basis of the Net Borrowing Ceiling:

    • Fiscal Responsibility Legislation: Both the central and state governments in India adhere to the FRBM Act, which establishes fiscal deficit goals to uphold fiscal discipline. Under the FRBM, states are required to maintain a fiscal deficit limit of 3% of the Gross State Domestic Product (GSDP).
    • Central Government Guidelines: The central government, through the Department of Expenditure in the Ministry of Finance, sets the annual borrowing limits for each state based on a formula that considers the state’s GSDP, existing debt levels, fiscal discipline, and other relevant factors. These limits can be revised in response to special circumstances, such as natural disasters or significant economic downturns.
    • Finance Commission Recommendations: The Finance Commission, which is constituted every five years, recommends how the central taxes are to be divided between the centre and the states and suggests measures to maintain fiscal stability. It also provides recommendations regarding the borrowing limits of states.

    Conclusion: States need to put in place an effective forecasting and monitoring mechanism for cash inflows and outflows so that a need-based approach is followed for market borrowings and the interest cost of cash surpluses is minimized.

     

    Mains PYQ

    Q What were the reasons for the introduction of Fiscal Responsibility and Budget Management (FRBM) Act, 2013? Discuss critically its salient features and their effectiveness. (UPSC IAS/2013)

  • Nuclear power is key to development, says study

    Why in the news? 

    A recent report published by  IIM-A suggested that India must prioritize investment in Nuclear energy sector and expand related infrastructure.

    Why India must prioritize investment in the Nuclear energy sector?

    India aims to be a developed country by 2047 and is on track to achieve net zero — or effectively zero-carbon dioxide emissions by 2070. 

    Key findings of the Report: 

    • Current Energy Mix: Solar energy constitutes 16% of India’s installed generation capacity, while coal comprises 49%. Nuclear energy currently comprises only 1.6% of India’s energy mix
    • Significant increase in nuclear power: The best-case scenario shows emissions falling to 0.55 billion tonnes of carbon dioxide by 2070, achieving ‘net zero’. This scenario entails a significant increase in nuclear power capacity, reaching 30 GW by 2030 and 265 GW by 2050.
    • Investment Requirements for Nuclear Energy: Achieving the proposed figures for nuclear energy would necessitate a doubling of investments. India would require an estimated ₹150-200 lakh crore between 2020-2070 to finance the necessary transitions in the energy sector
    • Need technology-based solution: The authors emphasize that achieving net zero emissions requires a combination of technologies rather than a single solution.
    • Transitioning away from coal: Coal is expected to remain a significant component of India’s energy system, serving as the “backbone”. However, transitioning away from coal would require substantial investment  

    What are the Challenges for India’s Goal of Net-Zero Emissions?

    • Uranium Factor: Data by the Central Electricity Authority say solar energy accounts for 16% of India’s installed generation capacity. To achieve these idealistic figures for nuclear energy would require a doubling of investments as well as the assumption that uranium, a critical fuel but restricted by international embargo, is available in necessary quantities.
    • Coal Factor: Coal accounts for 49% of India’s capacity. Coal would likely be the “backbone” of the Indian energy system and if the country has to phase down coal in the next three decades, it would need to build adequate infrastructure for alternative sources such as nuclear power, in addition to flexible grid infrastructure and storage to support the integration of renewable energy.

    Suggested measures by the Report are:

    • Research and Development: Invest in research and development to improve efficiency and reduce costs of renewable energy technologies, as well as advancements in nuclear energy technology.
    • Policy Support: Implement supportive policies and regulations to encourage private sector investment in the energy sector, including streamlined approval processes, tax incentives, and renewable energy mandates.
    • International Cooperation: Engage in diplomatic efforts to secure access to nuclear fuel and address international embargoes, while also collaborating with other countries on research and development in the energy sector.

    Conclusion: India’s path to development by 2047 hinges on prioritizing energy sector investment, as per an IIM-A report. Achieving net zero emissions by 2070, India would need close to ₹150-200 lakh crore between 2020-2070 to finance these transitions.

    Mains PYQ

    Q With growing energy needs should India keep on expanding its nuclear energy programme? Discuss the facts and fears associated with nuclear energy. (UPSC IAS/2018)

     

     

  • Digital India Trust Agency (DIGITA) to check Illegal Lending Apps

    Why in the news?

    To address the rising threat of cyber fraud, the Reserve Bank of India (RBI) is planning to establish a Digital India Trust Agency (DIGITA).

    About Digital India Trust Agency (DIGITA)

    DIGITA aims to tackle the proliferation of illegal lending apps by verifying and maintaining a register of authenticated digital lending platforms.

    Role of DIGITA:

    1. Public Register: It will maintain a public register of verified apps, providing transparency and aiding law enforcement agencies in identifying unauthorised platforms.
    2. Verification Hub: It will serve as a central agency for vetting digital lending apps, ensuring their authenticity and compliance with regulations.

    Regulatory Implications

    • Apps lacking the ‘verified’ signature from DIGITA will be deemed unauthorized, enhancing law enforcement efforts against financial crimes in the digital domain.
    • Verification processes will promote transparency and accountability within the digital lending sector, curbing fraudulent activities.

    Progress made so far

    • The RBI has shared a list of 442 digital lending apps with the IT Ministry for whitelisting with Google.
    • Google has removed over 2,200 digital lending apps from its PlayStore, aligning with RBI and DFS directives to only allow apps from regulated entities or their partners.

    PYQ:

    2016:

    Regarding ‘DigiLocker’, sometimes seen in the news, which of the following statements is/are correct?

    1. It is a digital locker system offered by the Government under Digital India Programme.

    2. It allows you to access your e-documents irrespective of your physical location.

    Select the correct answer using the code given below.

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

     

    Practice MCQ:

    Consider the following statements about RBI led Digital India Trust Agency (DIGITA):

    1.    It aims to tackle the proliferation of illegal lending apps.

    2.    Apps lacking the ‘verified’ signature from DIGITA will be deemed unauthorized.

    Which of the given statements is/are correct?

    (a) Only 1

    (b) Only 2

    (c) Both 1 and 2

    (d) Neither 1 nor 2