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Subject: Economics

  • Unemployment Vs Wages

    Why in the news?

    Recently, there have been contentious talks regarding Pakistan’s unemployment being lower than India’s.

    According to Keynes, lower wage rate will lead to lower income of workers and thus to lower demand of goods. Lower demand will lower output that in turn will lower employment.

    Issues related to Unemployment vs Wages

    • Questioning on Data Accuracy and Interpretation: There is skepticism about the accuracy of unemployment data, particularly regarding the CMIE Consumer Pyramids Household survey. This raises questions about the basis of claims regarding unemployment rates and the subsequent policy responses.
    • Labor Force Participation: Concerns are raised about the significant withdrawal of individuals from India’s labor force, indicating potential issues with labor force participation rather than solely unemployment rates.
    • Youth Unemployment: The high youth unemployment rate of 45% is highlighted as a significant concern, suggesting challenges in integrating young people into the workforce and addressing their employment needs.
    • Informal Employment: The prevalence of informal employment, such as subsistence agriculture and informal wage employment, is noted as a structural issue in the labor market, potentially impacting wages and job quality.
    • Wage Levels: Despite low reported unemployment rates, there are concerns about the adequacy of wages, particularly for the poor. This raises questions about the quality of employment and the extent of underemployment or disguised unemployment.
    • Policy misalignment: Certain policy proposals, such as increasing public sector employment or implementing fiscal job guarantees, are critiqued for potentially misdiagnosing the problem and offering unsustainable solutions that may not address underlying wage issues.

    Steps taken by the Government: 

    • Pradhan Mantri Rojgar Protsahan Yojana (PMRPY): This scheme incentivizes employers to generate employment by having the government pay the entire 12% employer’s contribution to the Employees’ Provident Fund and Employees’ Pension Scheme for new employees for the first three years of their employment
    • Pradhan Mantri Mudra Yojana (PMMY): This scheme provides collateral-free loans up to ₹10 lakh to micro and small businesses and individuals to help them set up or expand their enterprises, thereby promoting self-employment.
    • Aatmanirbhar Bharat Package: This economic stimulus package, announced in response to the COVID-19 pandemic, includes various long-term schemes and policies aimed at making India self-reliant and creating employment opportunities.
    • Garib Kalyan Rojgar Abhiyaan: This 125-day campaign was launched to boost employment and livelihood opportunities for migrant workers and others affected in 116 districts across 6 states.
    • PM GatiShakti: This is a multi-modal connectivity plan that aims to create infrastructure and generate employment opportunities in sectors like roads, railways, airports, ports, and logistics.

    Way forward: 

    • Addressing Labor Force Participation: Implement policies aimed at increasing labor force participation, particularly among youth and marginalized groups, by creating more formal employment opportunities.
    • Improving Informal Employment Conditions: Develop strategies to formalize the informal sector by providing incentives for informal employers to register their businesses, improve working conditions, and ensure compliance with labor laws.
    • Enhancing Wage Levels: Take steps to improve wage levels, particularly for low-skilled workers engaged in subsistence agriculture, marginal self-employment, and informal wage employment.

    Mains PYQ:

    Q Besides the welfare schemes, India needs deft management of inflation and unemployment to serve the poor and the underprivileged sections of the society. Discuss.

  • An Inheritance Tax will help reduce Inequality

    Why in the news? 

    A remark by Chairman of Indian Overseas Congress Sam Pitroda on implementing an inheritance tax as a tool of wealth redistribution has sparked massive debates.

    The Negative Impact of Inequality:

    • Growth affected: Inequality harms growth in the medium-to-long run by reducing firm productivity, lowering labor income, and diverting resources away from essential rights like education.
    • Inequal Opportunity: In unequal countries like India, where one is born greatly influences lifetime outcomes, with almost a third of consumption variation being explained by the place of residence (state, city, or village).
    • Concentration of Wealth: The richest 1% holding 40% of India’s wealth underscores the vast wealth disparities that exacerbate inequality.
    • Skewed Distribution of Gains: Research indicates that the gains from India’s growth over the last two decades have disproportionately benefited high-income urban residents, further exacerbating inequality.

    What is Inheritance Tax? 

    • An inheritance tax is a tax levied on the assets or wealth passed down from one generation to another upon the death of the owner.
    • Unlike a wealth tax, which is recurring and applied to all physical and financial assets an individual owns, an inheritance tax is a one-time tax specifically targeting intergenerational transfers of wealth.

     

    How an Inheritance Tax could help reduce Inequality?

    The Constitution mandates equality of status and opportunity, obliging the government to take steps to reduce disparities arising from accidents of birth.

    • Reduction of Wealth Concentration: By taxing large inheritances, an inheritance tax helps to redistribute wealth from the wealthiest individuals and families to the broader society.
    • Encouragement of Productive Investments: Inheritance taxes can encourage wealthy individuals to invest their wealth in productive activities rather than simply passing it down to heirs.
    • Incentive for Innovation: Critics may argue that inheritance taxes disincentivize innovation by reducing the incentive to accumulate wealth to pass on to future generations.
    • Funding for Public Expenditure: Revenue generated from inheritance taxes can be used to fund essential public services and social programs, such as education, healthcare, infrastructure, and poverty alleviation initiatives.
    • Historical Effectiveness: Historical examples, such as the estate duty in India between 1953 and 1985. It reduced the top 1% personal wealth share from 16% to 6% between 1966 and 1985.
    Another approach is the Land Value Tax (LVT): The Land Value Tax (LVT) is a tax system that levies charges on the unimproved value of land. Unlike traditional property taxes, which take into account both the value of the land and the value of any buildings or improvements on the land, the LVT focuses solely on the value of the land itself.

     

    Conclusion: Tackling wealth inequality requires a multifaceted approach that includes measures such as inheritance taxation, wealth taxation, and the Land Value Tax (LVT). These measures not only help to redistribute wealth and promote economic fairness but also contribute to fostering a more inclusive and prosperous society where opportunities are more evenly distributed.

    Mains PYQ:

    Q Comment on the important changes introduced in respect of the Long term Capital Gains Tax (LCGT) and Dividend Distribution Tax (DDT) in the Union Budget for 2018-2019.

  • CBDC pilot programmes for CPs, CDs likely: RBI

    Why in the news?

    RBI Governor Shaktikanta Das unveiled plans for a pilot program targeting the wholesale segment of Central Bank Digital Currency (CBDC) focusing on commercial papers (CPs) and certificates of deposits (CDs).

    What is Central Bank Digital Currency (CBDC)?

    • CBDC is a legal tender to be issued by the central bank in digital form; like rupee notes or coins, which are in physical form.
    • It was announced in the Union Budget 2022-23.
    • Subsequently, the Government amended Section 22 of the RBI Act, 1934 through the Finance Bill 2022. [Ref].
    • Working of CBDC:
      • Like fiat currency, it can also be exchanged between people. Simply, put it’s just like rupee (₹) notes but in digital form (e₹). 
      • However, unlike fiat currency that’s usually stored in banks and hence their liability, CBDC is a liability on the RBI’s balance sheet.
      • That’s why one does not necessarily need to have a bank account to own a digital rupee.

     

    About Commercial Papers (CPs) and Certificates of Deposits (CDs)

    Commercial Papers Certificates of Deposits
    Type of Instrument Unsecured promissory note Fixed-income financial instrument
    Issuer Large corporations, primary dealers, financial institutions Scheduled Commercial Banks, All-India Financial Institutions
    Maturity Period 1 to 364 days 3 months to 1 year (for SCBs), 1 to 3 years (for financial institutions)
    Minimum Investment Rs. 5 lakh or multiples thereof Rs. 1 lakh or multiples thereof
    Credit Rating Requirement Minimum credit rating required (e.g., A-2) from recognized rating agencies Typically issued by highly rated banks and financial institutions
    Collateral Unsecured Not applicable
    Purpose Short-term funding for corporations Short to mid-term investment for individuals and institutions
    Interest Rate Typically higher than bonds, fluctuates with market conditions Typically fixed, higher than savings accounts, fluctuates with market conditions
    Investment Eligibility Individuals, banking companies, corporate bodies (registered or incorporated in India), NRIs, FIIs, etc. Individuals, banking companies, other corporate bodies, NRIs, FIIs, etc.
    Issuing and Paying Agent (IPA) Only scheduled banks act as Issuing and Paying Agent Not applicable
    Trading Actively traded in Over-the-Counter (OTC) market, reported on Fixed Income Money Market and Derivatives Association of India (FIMMDA) reporting platform Not publicly traded
    Dematerialized Holding Can be held in dematerialized form through Securities and Exchange Board of India (SEBI)-approved depositories Can be issued in dematerialized form through SEBI-approved depositories

     

    With inputs from: https://www.indiainfoline.com

    PYQ:

    [2020] With reference to the Indian economy, consider the following statements:

    1. ‘Commercial Paper’ is a short-term unsecured promissory note.
    2. ‘Certificate of Deposit’ is a long-term instrument issued by the Reserve Bank of India to a corporation.
    3. ‘Call Money’ is a short-term finance used for interbank transaction.
    4. ‘Zero-Coupon Bonds’ are the interest-bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.

    Which of the pairs above is/are correctly matched?

    (a) 1 and 2 only

    (b) 4 only

    (c) 1 and 3 only

    (d) 2, 3 and 4 only

  • The Clean Energy Transition has become messy

    Why in the news? 

    The war in the Middle East, Russia, and Ukraine, and sanctions by the US have eventually resulted into a fragmented market in the petroleum industry.

    Causes of Fragmentation in the Petroleum Industry:

    • Impact of Sanctions: The sanctions imposed by the US on countries like Venezuela, Iran, and Russia have led to a fragmentation of the petroleum market, with trading relations becoming more regional than global. This fragmentation has reshaped the dynamics of oil supply and demand, with different regions relying on specific suppliers based on geopolitical circumstances and sanctions
    • Regional Trading Patterns: Trading relations in the petroleum industry have shifted regionally, with the US emerging as a major supplier of LNG and products in Europe, Russia becoming the largest supplier of crude to India, and Iran focusing on exports to China despite Western sanctions. This regionalization of trade has altered traditional market dynamics and diversified supply chains.
    • Challenges Faced by Oil Companies: International petroleum majors are experiencing solid profits due to higher production and prices of oil and gas. However, they are confronted with the need to reconcile their investment strategies with net zero carbon emission targets. This balancing act poses a significant challenge for oil companies as they navigate between profitability and sustainability goals
    • Geopolitical Uncertainties: The ongoing conflicts in the Middle East, particularly between Israel and Iran, have added to the complexities of the petroleum market. The region, which holds a significant portion of the world’s petroleum reserves, is facing a mix of warfare, racism, and radicalism, contributing to heightened tensions and uncertainties in the oil industry
    • AI Industry’s Energy Demand: Increasing energy demand from the artificial intelligence (AI) industry for data centers, cloud storage facilities, and crypto mining. This growing demand for electricity poses a challenge as renewables may not be able to meet the requirements, leading to a dilemma for industry leaders committed to achieving net zero carbon emissions.

    What needs to be done?

    • Diversification of Energy Sources: To mitigate the impact of geopolitical uncertainties and sanctions-induced market fragmentation, there is a need for countries to diversify their energy sources.
    • Strengthening Regional Cooperation: Regional cooperation agreements and partnerships can help stabilize petroleum markets and ensure energy security.
    • Promotion of Energy Efficiency: Improving energy efficiency across various sectors, including transportation, manufacturing, and residential buildings, can reduce overall energy consumption and lessen dependence on petroleum products.

    Mains PYQ: 

    Q Discuss the multi-dimensional implications of uneven distribution of mineral oil in the world. (UPSC IAS/2021)

  • This is the year to get the Sustainable Development Goals back on track

    Why in the News? 

    2024 is an election year across the world and newly elected governments need to focus on the all-important sustainability issue. Year 2024 is an election year across the world.

    • At least 64 countries, both developed and developing, accounting for 49% of the world population, will go to the polls.

    Causes of Global Slow Progress: 

    • Impact of Global Crises: The outbreak of the COVID-19 pandemic and other global crises virtually halted progress towards the SDGs. These crises have diverted attention and resources away from sustainable development efforts.
    • Neglect of Environmental Goals: There has been little to no attention towards goals related to the environment and biodiversity, including responsible consumption and production, climate action, life below water, and life on land.
    • Defiance of Integrated Nature of SDGs: The current practice of pursuing SDGs is criticized for defying the integrated and indivisible nature of the goals. This lack of integration hampers efforts to achieve sustainable development outcomes comprehensively.
    • Risk of Environmental Degradation: The slow progress and neglect of environmental goals pose a significant risk of accelerated environmental degradation. This threatens the overarching target of balancing human well-being and a healthy environment.

    Why the world is not on track to achieve most SDGs by 2030?

    • Insufficient Progress: Despite reaffirmations of commitment by world leaders, progress towards achieving the SDGs remains slow. The world is only on track to meet 15% of the 169 targets that comprise the 17 goals.
    • Investment Gap: There is a significant gap in investment for SDGs, particularly in developing countries. The estimated investment gap exceeds $4 trillion, with nearly $2 trillion needed for the energy transition alone.
    • Lack of Synergistic Action: There is a lack of synergistic action in addressing SDGs, despite the integrated nature of the goals. Few studies and empirical evidence exist on the synergies and trade-offs among SDGs, hindering progress.
    • Barriers to Synergies: Various barriers, including knowledge gaps, political and institutional barriers, and economic issues, impede synergistic action.Inadequate data collection, and an inability to attribute co-benefits to specific actions hinder progress.
    • Misaligned Policies: Policies may be misaligned, leading to barriers for meeting greater targets. For example, ambitious renewable energy targets may not align with smaller-scale of steps taken to achieve SDG goal.
    • Limited Understanding of Cost Estimation: Exploiting resources without considering climate change impacts and synergistic opportunities can be detrimental to national and global efforts.

    Way forward:

    • Call for Action: There is a call for action to strengthen the environment for synergistic action, transparently identify opportunities and limits to synergies, and develop reporting frameworks to assess the value created from specific SDG interventions.
    • Urgent Action Areas Identified: The UN SDG Report, 2023 identified five key areas for urgent action, including commitments of governments, concrete policies to eradicate poverty and reduce inequality, strengthening of national and subnational capacity, recommitment of the international community, and strengthening of the UN development system.
    • Global Reaffirmation and Commitment: World leaders acknowledged the situation and reaffirmed their commitments to delivering the SDGs by 2030. However, the effectiveness of these global pronouncements at the ground level remains uncertain.

    Mains PYQ 

    Q National Education Policy 2020 isin conformity with the Sustainable Development Goal-4 (2030). It intends to restructure and reorient education system in India. Critically examine the statement. (2020)

  • National Council for Agriculture and Rural Transformation (NCART): A New Vision for Agriculture Sector

    Why in the news?

    The Centre is contemplating the establishment of the National Council for Agriculture and Rural Transformation (NCART), envisioned as a federal body to formulate policies and programs for the agricultural sector.

    What is NCART?

    • The NCART is a proposed federal body aimed at coordinating and driving actions in the agriculture sector in India.
    • It would have representation of both the Centre and States.
    • The idea for NCART has been proposed by the Ministry of Agriculture and Farmers’ Welfare as part of its 100-day action plan for the new government.
    • It draws inspiration from the Goods and Services Tax (GST) Council.

    Terms of Reference of NCART:

    • Policy Formulation: NCART is envisioned as an overarching federal body responsible for devising policies and programs to promote agricultural and rural development.
    • Coordination: One of the key objectives of NCART is to ensure coordinated actions across various stakeholders involved in the agriculture sector, including the central government, state governments, and other relevant entities.
    • Consultative Body: NCART is expected to include representation from both the central and state governments, similar to the Goods and Services Tax (GST) Council, to ensure a consultative approach in decision-making.
    • Legal Status: While the GST Council is a constitutional body, the exact status of NCART is yet to be finalized.

    India’s Agriculture Expenses:

    • Despite agriculture being a state subject, the Centre has significantly increased budgetary allocations for the Agriculture Ministry.
    • Budgetary allocation for the Ministry of Agriculture and Farmers’ Welfare surged from Rs. 27,662.67 crore in 2013-14 to Rs. 1,25,035.79 crore in 2023-24 BE.

  • [PREMIUM] Views on inflation: A matter of interest

    Why in the News? 

    AAZData released showed that Retail Inflation had edged marginally upward last month.

    What is Inflation?

    • Inflation, as per the definition provided by the International Monetary Fund, represents the pace at which prices rise within a specified timeframe, covering a comprehensive assessment of general price escalations or those about particular goods and services. To measure the inflation there are different types of inflation index.
    • An Inflation Index is a statistical measure used to track changes in the overall price level of goods and services in an economy over a specific period. It quantifies the rate of inflation by comparing the current prices of a selected basket of goods and services to their prices in a base period.

    In India, there are primarily two types of inflation indices used to measure price changes:

    • Consumer Price Index (CPI): The CPI measures changes in the prices paid by urban and rural consumers for a basket of goods and services. It provides insights into inflation experienced by households and is divided into various sub-indices based on categories such as food, fuel, clothing, housing, transportation, medical care, recreation, and education. The Government of India releases multiple CPI indices, including:
    1. CPI for Industrial Workers (CPI-IW)
    2. CPI for Agricultural Labourers (CPI-AL)
    3. CPI for Rural Labourers (CPI-RL)
    4. CPI for Urban Non-Manual Employees (CPI-UNME)
    5. CPI for Rural (CPI-R)
    6. CPI for Urban (CPI-U)
    • Wholesale Price Index (WPI): The WPI tracks changes in the prices of goods at the wholesale level. It includes the prices of commodities traded in bulk such as agricultural products, minerals, crude oil, manufactured products, and electricity. The Office of the Economic Adviser, under the Department for Promotion of Industry and Internal Trade (DPIIT), releases the WPI every month.

    What is Retail Inflation? 

    • Retail inflation, also known as Consumer Price Index (CPI) inflation, tracks the change in retail prices of goods and services that households purchase for their daily consumption. CPI is calculated for a fixed basket of goods and services that may or may not be altered by the government from time to time.
    • How it is Calculated?
      • A representative basket of goods and services is selected to represent the typical consumption patterns of households
      • The cost of the basket of goods and services is calculated for a base period.
      • The CPI is calculated by dividing the cost of the basket in the current period by the cost of the basket in the base period and multiplying by 100.
      • The inflation rate is calculated by comparing the CPI of the current period with the CPI of the base period.

    Key points as per AAZData released by the National Statistical Office:

    • Retail Inflation Data: The National Statistical Office reported that retail inflation in India increased marginally, rising to 5.69% in December from 5.55% in November, primarily driven by higher food inflation
    • Cause of inflation: RBI Governor Shaktikanta Das had anticipated the rise in inflation due to risks in food prices, cautioning about potential second-round effects
    • Food Inflation: The Consumer Food Price Index surged to 9.53% in December, up from 8.7% in November, with notable inflation in cereals, vegetables, pulses, sugar, and spices
    • Industrial Production: The index of industrial production slowed to 2.4% in November, partly due to the base effect, with a 6.4% increase in industrial output for the first eight months of the year (April-November)
    • Monetary Policy Committee (MPC) Actions: The MPC maintained the status quo on rates and stance in the last meeting, focusing on withdrawing accommodation to align inflation with the target of 4%
    • Future Monetary Policy: There are discussions within the MPC about the necessity of an interest rate cut to prevent excessive real interest rates, especially as inflation is projected to moderate in the coming quarters

    Way Forward

    • Monetary Policy Adjustment: The Reserve Bank of India (RBI) could consider implementing a cautious monetary policy stance, possibly by tightening monetary policy through measures such as raising the repo rate. This would help curb inflationary pressures by reducing liquidity in the economy and making borrowing more expensive.
    • Supply-Side Interventions: The government could focus on addressing supply-side constraints in the agricultural sector to mitigate food price inflation. This might involve measures such as improving infrastructure, increasing agricultural productivity, reducing post-harvest losses, and enhancing market efficiency through better distribution networks.
    • Fiscal Policy Support: The government could also provide fiscal support to sectors facing supply-side disruptions or demand constraints, which could help stabilize prices and support economic growth. Targeted fiscal measures, such as subsidies for essential commodities or infrastructure investments, could be considered to address specific challenges contributing to inflation.

    Mains PYQ 

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

    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)

    Prelims PYQ 

    Consider the following statements:(UPSC IAS/2020)

    1) The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).

    2) The WPI does not capture changes in the prices of services, which CPI does.

    3) Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.

    Which of the statements give above is/are correct?

    a) 1 and 2 only

    b) 2 only

    c) 3 only

    d) 1, 2 and 3

  • SEBI board approves amendment to Mutual Funds rules

    Why in the news?

    • The Securities & Exchange Board of India (SEBI) has recently approved amendments to SEBI (Mutual Funds) Regulations, 1996, aimed at enhancing the regulatory framework for Asset Management Companies (AMCs).
      • These amendments mandate AMCs to establish institutional mechanisms to deter potential market abuse, including front-running, following recent instances observed by the market regulator.

    What are Mutual Funds?

    • A mutual fund is a pool of money managed by a professional Fund Manager.
    • It is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities.
    • And the income / gains generated from this collective investment is distributed proportionately amongst the investors after deducting applicable expenses and levies, by calculating a scheme’s “Net Asset Value” or NAV.
    • SEBI regulates mutual funds through the SEBI (Mutual Funds) Regulations, 1996.

    Categories of Mutual Funds:

    1. An actively managed fund is a mutual fund scheme in which the fund manager “actively” manages the portfolio and continuously monitors the fund’s portfolio, deciding on which stocks to buy/sell/hold and when, using his/her professional judgement, backed by analytical research.
    2. A passively managed fund, by contrast, simply follows a market index, i.e., in a passive fund , the fund manager remains inactive or passive inasmuch as, he/she does not use his/her judgement or discretion to decide as to which stocks to buy/sell/hold , but simply replicates / tracks the scheme’s benchmark index in exactly the same proportion.

    Fund Structure

    • Mutual funds in India operate under a three-tier structure, comprising the
    1. Asset Management Company (AMC),
    2. Trustees, and
    3. Custodians.
    • The AMC manages the fund’s investments, the Trustees oversee the operations, and the Custodians safeguard the fund’s assets.

    Key highlights of the recent update:

    • Institutional Mechanism: AMCs are required to implement enhanced surveillance systems, internal controls, and escalation processes to identify and address specific types of misconduct, such as front-running, insider trading, and misuse of sensitive information.
    • Whistleblower Mechanism: To foster transparency, AMCs are mandated to have a whistleblower mechanism.
    • Recording of Communication: SEBI has exempted face-to-face interactions during market hours from the requirement of recording all communication by dealers and fund managers. This exemption will be effective upon the implementation of the institutional mechanism by AMCs.
    • Prudential Norms for Passive Schemes: SEBI has streamlined prudential norms for passive schemes, allowing equity passive schemes to invest up to the weightage of constituents in the underlying index, subject to a 35% cap on investment in sponsor group companies.

    PYQ:

    [2014] What does venture capital mean?

    (a) A short-term capital provided to industries

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

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

    (d) Funds provided for replacement and renovation of industries

  • The poultry industry needs urgent reforms

    Why in the news?

    The current outbreak of H5N1 was a disaster waiting to happen, as experts have been sounding alarm bells on the unsafe conditions at industrial livestock production for more than 10 years now.

    Scale of spreading H5N1 virus:

    • Global Spread of H5N1 in humans: The H5N1 virus has spread globally, affecting various species including humans, polar bears in the Arctic, and seals and seagulls in Antarctica.
    • In India Spread of H5N1 in humans:  The first H5N1 patient was reported in Maharashtra in 2006. An outbreak in December 2020 and early 2021 spread across 15 States
    • Human Fatality Rate: As per WHO, the fatality rate for H5N1 among humans is estimated at 52%, with 463 deaths recorded since 2003 out of 888 diagnosed cases.
    • Transmission from Birds and Contaminated Environments: Almost all human infections with H5N1 are linked to close contact with infected birds or contaminated environments, emphasizing the importance of biosecurity measures.
    • Spread in other species: This pathogen has crossed many species barriers, causing mortality among the polar bears in the Arctic and seals and seagulls in Antarctica.

    Causes for the spread of H5N1 (avian influenza or bird flu) infection:

    • Contact with infected birds: Humans can contract H5N1 if they come into direct contact with the body fluids, such as saliva, respiratory droplets, or feces, of infected birds.
    • Poultry Trade and Movement: The transportation and trade of infected poultry, poultry products, and crowded live poultry markets provide an environment for the virus to spread between birds and potentially to humans.
    • Antibiotic Resistance: The 269th Law Commission of India Report in 2017 highlighted evidence from the Tata Memorial Centre regarding the use of non-therapeutic antibiotics in poultry farming, leading to antibiotic resistance due to unhygienic living conditions.
    • Environmental Factors: Factors like proximity to bodies of water, reduced rainfall, and presence near major highways have been associated with increased risk of H5N1 outbreaks. These environmental conditions may facilitate the spread of the virus.

    Regulation: The Central Pollution Control Board (CPCB) has classified poultry units with more than 5,000 birds as a polluting industry that requires compliance and regulatory consent to establish and operate.

    Way Forward:

    • Draft Rules for Welfare: The Law Commission 269th recommended a set of draft rules for the welfare of chickens in the meat and egg industries, aligning with existing laws and international best practices for animal care, waste management, and antibiotic use.
    • Weaknesses in Draft Rules: The Draft Rules for the egg industry released by the Ministry of Agriculture and Farmers’ Welfare in 2019 were criticized for being weak and tokenistic, failing to meet the recommendations of the Law Commission.
    • Need for Oversight and Enforcement: Given the reclassification of the poultry industry as a highly polluting ‘orange category’ industry by the Central Pollution Control Board (CPCB), strict oversight for compliance and enforcement of environmental regulations is essential.

    Mains PYQ:

    Q What is the basic principle behind vaccine development? How do vaccines work? What approaches were adopted by the Indian vaccine manufacturers to produce COVID-19 vaccines? (UPSC IAS/2022)

  • The rising share of Personal Income Tax and Indirect Tax is a concern

    Why in the news?

    Recent data show that Personal Income Tax Collections have increased, while collections from Corporate Taxes have reduced.

    The present context of the rising share of Personal Income Tax and Indirect Tax:

    • Shift in Tax Composition: The data illustrates a significant shift in the composition of tax revenue, with personal income tax forming a larger share compared to corporate tax. This trend is accentuated by the sharp decline in corporate tax following the 2019 tax cuts.
    • Progressive vs. Regressive Taxation: Direct taxes, such as personal income tax, are considered progressive as they are based on income levels, whereas indirect taxes, like GST, are regressive, impacting all consumers uniformly regardless of their income.
      • The increasing share of indirect taxes implies a heavier burden on lower-income individuals.
    • Trend in Tax Composition: Chart 2 demonstrates a historical trend where indirect taxes had been decreasing since the 1980s, whereas direct taxes were on the rise. However, recent years have witnessed a reversal of this trend, with indirect taxes increasing and direct taxes declining.
    • International Comparison: Comparisons with BRICS economies indicate that India’s effective personal income tax rate is among the highest. This implies that Indian taxpayers may face relatively higher tax rates compared to individuals in other emerging economies.

    Concerns due to rising share of Personal Income Tax and Indirect Tax:

    • Impact on Middle and Lower Income Groups: The rising share of personal income tax and indirect taxes places a greater burden on poorer citizens and the middle class. This is particularly concerning as the majority of personal income tax filers fall within the ₹1 lakh-₹5 lakh annual income bracket, indicating that middle-income earners are disproportionately affected.
    • Comparison with BRICS Economies: Data comparisons with BRICS economies reveal that India’s effective personal income tax rate is among the highest. This suggests that individuals in India may be facing relatively higher tax rates compared to their counterparts in other emerging economies.
    • Concern for Equity and Economic Stability: The data underscores a growing concern regarding the equitable distribution of the tax burden. The heavier reliance on personal income tax and indirect taxes may exacerbate income inequality and strain the finances of middle and lower-income households.

    Way Forward:

    • Progressive Tax Reforms: Implementing progressive tax reforms can help alleviate the burden on middle and lower-income groups. This could involve revising tax brackets and rates to ensure that higher-income individuals contribute proportionally more to tax revenue.
    • Enhanced Direct Tax Compliance: Improving direct tax compliance measures, such as increasing tax enforcement efforts and reducing tax evasion loopholes, can help enhance revenue collection from high-income individuals and corporations.

    Mains PYQ 

    Q What is the meaning of the term ‘tax expenditure’? Taking housing sector as an example, discuss how it influences the budgetary policies of the government. (UPSC IAS/2013)